Thursday, 

August 12, 2010 

Part II 

Department of 

Health and Human 

Services 

Centers for Medicare & Medicaid Services 

42 CFR Parts 410, 413 and 414 

Medicare Program; End-Stage Renal 

Disease Prospective Payment System; 

Final Rule and Proposed Rule 


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49030 Federal Register / Vol. 75, No. 155 / Thursday, August 12, 2010 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 410, 413 and 414 

[CMS–1418–F] 

RIN 0938–AP57 

Medicare Program; End-Stage Renal 

Disease Prospective Payment System 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule implements a 

case-mix adjusted bundled prospective 

payment system (PPS) for Medicare 

outpatient end-stage renal disease 

(ESRD) dialysis facilities beginning 

January 1, 2011 (ESRD PPS), in 

compliance with the statutory 

requirement of the Medicare 

Improvements for Patients and 

Providers Act (MIPPA), enacted July 15, 

2008. This ESRD PPS also replaces the 

current basic case-mix adjusted 

composite payment system and the 

methodologies for the reimbursement of 

separately billable outpatient ESRD 

services. 

DATES: Effective Date: These regulations 

are effective on January 1, 2011, except 

for § 413.174(f)(6), which will be 

effective on January 1, 2014 and 

§ 413.232(f) and § 413.239(b), which 

will be effective November 1, 2010. 

FOR FURTHER INFORMATION CONTACT: 

William Cymer, (410) 786–4533. Lynn 

Riley, (410) 786–1286, (ESRD Quality 

Incentive Program). 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Overview of the Proposed ESRD PPS 

B. Legislative History and Statutory 

Authority for the ESRD Prospective 

Payment System 

C. Existing Basic Case-Mix Adjustments 

II. Summary of the Proposed Provisions and 

Responses to Comments on the Proposed 

Rule 

A. The Proposed ESRD PPS Bundle 

1. Composite Rate Services 

2. ESAs and Their Oral Forms 

3. Other Drugs and Biologicals and Their 

Oral Forms 

a. Oral-Only ESRD–Related Drugs 

b. Other Drugs and Biologicals 

4. Diagnostic Laboratory Tests and Other 

Items and Services 

5. Physicians’ Services 

6. Other Services 

7. Home Dialysis Patients (Method I and II) 

and Self 

Dialysis Training 

a. Payment for Home Dialysis (Method I 

and Method II) 

i. Method I—The Composite Rate 

ii. Method II—Dealing Directly with 

Suppliers 

b. Self-Dialysis Training 

B. Unit of Payment 

C. Data Sources 

1. Patient Claims Data 

2. Medicare Cost Reports 

3. Patient Claim and Cost Report Summary 

Data 2006–2008 

4. Data for the Case-Mix Analyses, 2006– 

2008 

5. Prescription Drug Event Data, CY 2007, 

CY 2008, Jan-Sept 2009 

D. Analytical Approach 

E. Development of ESRD PPS Base Rate 

1. Calculation of the CY 2007 Unadjusted 

Rate per Treatment 

a. Composite Rate Services 

b. Part B Drugs and Biologicals 

c. Laboratory Tests 

d. Durable Medical Equipment (DME) and 

Supplies 

e. Dialysis Support Services 

f. Supplies and Other Services Billed by 

Dialysis Facilities 

g. Former Part D Drugs 

h. Total Medicare Hemodialysis (HD)- 

Equivalent Sessions 

i. Average MAP per Treatment 

2. Determining the Update Factors for the 

Budget-Neutrality Calculation 

a. Composite Rate Services 

b. Self-Dialysis Support Services for 

Method II Patients 

c. Part B Drugs And Biologicals 

d. Laboratory Tests 

e. DME Supplies and Equipment 

f. Supplies and Other Services 

g. Former Part D Drugs 

3. Standardization Adjustment 

4. Calculation of the Budget-Neutrality 

Adjustments 

a. Outlier Adjustment 

b. 98 Percent Budget-Neutrality 

Adjustment 

5. Calculation of the Transition BudgetNeutrality Adjustment 

F. Regression Model Used To Develop 

Final Payment Adjustment Factors 

1. Regression Analysis 

a. Dependent Variables 

i. Average Cost per Treatment for 

Composite Rate Services 

ii. Average Medicare Allowable Payment 

(MAP) for Separately Billable Services 

b. Independent Variables 

i. Control Variables 

ii. Case-Mix Adjustment Variables 

2. Choosing Between a Separately Billable 

Model Based on Patient-Year or PatientMonth Data 

3. Patient-Level Adjustments 

a. Patient Age 

b. Patient Sex 

c. Body Surface Area and Body Mass Index 

d. Onset of Dialysis (New Patient 

Adjustment) 

e. Co-Morbidities 

f. ICD–9–CM Coding 

g. Race/Ethnicity 

h. Modality 

4. Proposed Facility-Level Adjustments 

a. Wage Index 

b. Low-Volume Adjustment 

i. Defining a Low-Volume facility 

ii. Defining the Percent of Increase 

c. Alaska/Hawaii Facilities 

d. Rural 

e. Site Neutral ESRD PPS Rate 

5. Determination of ESRD PPS Payment 

Adjusters 

G. Pediatric Patients 

1. The Revised Payment Methodology for 

the Pediatric Payment Adjustments 

2. Composite Rate Payments for Pediatric 

Patients 

3. Separately Billable Services 

4. No Caps Applied to the Separately 

Billable MAP per Treatment 

5. A Combined Composite Rate and 

Separately Billable Payment Model for 

Pediatric Patients 

6. Adult Payment Adjustments That Do 

Not Apply to Pediatric Patients 

H. Outlier Policy 

1. Eligibility for Outlier Payment 

a. ESRD Outlier Services 

b. Predicted ESRD Outlier Services MAP 

Amounts 

c. Estimating the Imputed ESRD Outlier 

Services MAP Amounts 

i. Data Used To Estimate Imputed ESRD 

Outlier Services MAP Amounts 

ii. Determining Imputed Per Treatment 

ESRD Outlier Services MAP Amount 

d. Outlier Percentage and Fixed Dollar Loss 

Amounts 

2. Outlier Payments 

3. Hypothetical Outlier Payment Examples 

4. Application of Outlier Policy During the 

Transition and in Relation to the ESA 

Monitoring Policy, Other Claims 

Processing Tools, and Other CMS 

Policies 

I. Comprehensive Payment Model 

Examples 

J. ESRD Bundled Market Basket 

K. Implementation 

1. Transition Period 

a. New ESRD Facilities 

b. Limitation on Beneficiary Charges Under 

the ESRD PPS and Beneficiary 

Deductible and Co-Insurance Obligations 

2. Claims Processing 

a. Consolidated Billing Rules and Edits 

i. Laboratory Tests 

ii. Drugs and Biologicals 

iii. Home Dialysis 

b. Expansion of the Data Elements 

Reported on Claims 

3. Miscellaneous Comments 

4. Comments Regarding Monitoring 

5. Comments Beyond the Scope of This 

Final Rule 

L. Evaluation of Existing ESRD Policies 

and Other Issues 

1. Exceptions Under the Case-Mix 

Adjusted Composite Payment System 

2. Erythropoiesis Stimulating Agent (ESA) 

Claims Monitoring Policy 

3. ESRD Facility Network Deduction 

4. Bad Debt 

5. Limitation on Review 

6. 50 Percent Rule Utilized in Laboratory 

Payments 

7. Medicare as a Secondary Payer 

8. Conforming Regulation Changes 

M. Anemia Management and Dialysis 

Adequacy Measures 

1. Anemia Management Measures: 

Hemoglobin Less Than 10 g/dL and 

Hemoglobin Greater Than 12 g/dL 


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2. Hemodialysis Adequacy Measure: Urea 

Reduction Ratio (URR) 

3. Additional Comments 

III. Collection of Information Requirements 

A. ICRs Regarding a Low-Volume 

Adjustment (§ 413.232(f)) 

B. ICRs Regarding Transition Period 

(§ 413.239) 

IV. Regulatory Impact Analysis 

A. Overall Impact 

B. Anticipated Effects 

1. Effects on ESRD Facilities 

2. Effects on Other Providers 

3. Effects on the Medicare and Medicaid 

Programs 

4. Effects on Medicare Beneficiaries 

C. Alternatives Considered 

D. Accounting Statement and Table 

E. Conclusion 

Regulations Text 

Appendix 

Acronym List 

Because of the many terms to which 

we refer by acronym in this proposed 

rule, we are listing the acronyms used 

and their corresponding meanings in 

alphabetical order below: 

Act The Social Security Act 

ASC Ambulatory surgical center 

AV Arteriovenous 

BIPA Medicare, Medicaid, and SCHIP (State 

Children’s Health Insurance Program) 

Benefits Improvement and Protection Act 

of 2000 (Pub. L. 106–554) 

BMI Body mass index 

BSA Body surface area 

BLS Bureau of Labor Statistics 

CAH Critical assess hospitals 

CAPD Continuous ambulatory peritoneal 

dialysis 

CBC Complete blood count 

CBSA Core-Based Statistical Area 

CCPD Continuous cycling peritoneal 

dialysis 

CDC Centers for Disease Control and 

Prevention 

CFC Conditions for Coverage 

CFR Code of Federal Regulations 

CKD Chronic kidney disease 

CMS Centers for Medicare & Medicaid 

Services 

COLA Cost of living allowance 

CPM Clinical performance measure 

CR Composite rate 

CROWN Consolidated Renal Operations in 

a Web-Enabled Network 

CY Calendar year 

DFC Dialysis facility compare 

DME Durable medical equipment 

EDB Enrollment Data Base 

EPO Epoetin alfa 

ESA Erythropoiesis stimulating agent 

ESRD End-stage renal disease 

FI Fiscal intermediary 

FY Fiscal year 

GAO Government Accountability Office 

GI Gastrointestinal 

HD Hemodialysis 

IDPN Intradialytic parenteral nutrition 

IEF Isolated essential facility 

IHS Indian Health Service 

IPD Intermittent peritoneal dialysis 

IPN Intraperitoneal parenteral nutrition 

IPPS Inpatient prospective payment system 

IQR Interquartile range 

Kt/V A measure of dialysis adequacy where 

K is dialyzer clearance, t is dialysis time, 

and V is total body water volume 

LDO Large dialysis organization 

LPN Licensed practical nurse 

LTC Long term care 

MAC Medicare Administrative Contractor 

MAP Medicare allowable payment 

MBR Master beneficiary record 

MCP Monthly capitation payment 

MCR Medical cost reports 

MedPAC Medicare Payment Advisory 

Commission 

MIPPA Medicare Improvements for Patients 

and Providers Act of 2008 (Pub. L. 110– 

275) 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (Pub. L. 108–173) 

MRSA Methylcyline resistance 

staphylococcus aurues 

MSA Metropolitan Statistical Area 

MUE Medically unbelievable edit 

NAICS North American Industry 

Classification Systems 

NIH National Institutes of Health 

NKF–KDOQI National Kidney Foundation’s 

Kidney Disease Quality Initiative Clinical 

Practice Guidelines 

NOS Not otherwise specified 

NQF National Quality Forum 

OMB Office of Management and Budget 

OPPS Outpatient prospective payment 

system 

OSCAR Online State Certification and 

Reporting System 

PD Peritoneal dialysis 

PDE Prescription drug event 

PFS Physician fee schedule 

PPI Producer price index 

PPS Prospective payment system 

PRS Practice-related risk score 

PVD Peripheral vascular disease 

QIP Quality Incentive Program 

REMIS Renal Management Information 

System 

RN Registered nurse 

RRB Railroad Retirement Board 

RRT Renal replacement therapy 

SAF Standard analytical file 

SB Separately billable 

SDO Small dialysis organization 

SIMS ESRD Standard Information 

Management System 

SSA Social Security Administration 

UM–KECC University of Michigan, Kidney 

Epidemiology & Cost Center 

URR Urea reduction ratio 

USRDS United States Renal Data System 

WAC Wholesale acquisition cost 

I. Background 

A. Overview of the Proposed ESRD PPS 

On September 29, 2009, we published 

in the Federal Register a proposed rule 

entitled ‘‘End-Stage Renal Disease 

Prospective Payment System’’ (74 FR 

49922). In that rule, we proposed that 

the ESRD PPS would combine payments 

for composite rate and separately 

billable services into a single base rate 

of $198.64 developed from CY 2007 

claims data (74 FR 49944). Under the 

proposed rule, the base rate would be 

adjusted using patient-specific case-mix 

adjustment factors developed from 

separate equations for composite rate 

and separately billable services (74 FR 

49949). The case-mix adjusters would 

include variables for age, body surface 

area (BSA), low body mass index (BMI), 

patient sex, eleven co-morbidity 

categories, and the onset of renal 

dialysis. The proposed adjustment 

factors were developed using standard 

techniques of multiple regression 

analysis to yield case-mix adjusted 

payments per treatment. The per 

treatment payment amounts would also 

be adjusted to reflect urban and rural 

differences in area wage levels using an 

area wage index developed from Core 

Based Statistical Area (CBSA) 

definitions (74 FR 49968). The proposed 

rule also provided that ESRD facilities 

treating patients with unusually high 

resource requirements as measured 

through their utilization of identified 

services beyond a specified threshold 

would be entitled to outlier payments, 

that is, additional payments beyond the 

otherwise applicable case-mix adjusted 

prospective payment amount (74 FR 

49988). The proposed ESRD PPS also 

provided for special adjustments for 

pediatric patients (74 FR 49981) and for 

facilities treating a low-volume of ESRD 

patients) 74 FR 49969), as well as a 

4-year transition (phase-in) period 

under which facilities would receive a 

blend of payments under the prior casemix adjusted composite payment system 

and the new ESRD PPS (74 FR 50003). 

This final rule will implement a casemix adjusted bundled PPS for Medicare 

outpatient ESRD dialysis patients 

beginning January 1, 2011, in 

accordance with the statutory 

provisions set forth in section 153(b) of 

MIPPA. 

B. Legislative History and Statutory 

Authority for the ESRD Prospective 

Payment System 

Section 299I of the Social Security 

Amendments of 1972, Public Law 

92–603, established the ESRD program 

under Medicare. That law extended 

Medicare coverage to individuals 

regardless of age who have permanent 

kidney failure, requiring either dialysis 

or kidney transplantation to maintain 

life, and meet certain other eligibility 

criteria. 

The enactment of the Omnibus 

Budget Reconciliation Act of 1981, 

Public Law 97–35, resulted in changes 

to the ESRD payment system. Section 

2145 of Public Law 97–35 amended 

section 1881 of the Act by requiring the 

Secretary to provide by regulation a 

method for determining prospectively 


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the amounts of payments for dialysis 

services furnished by providers of 

services and renal dialysis facilities to 

individuals in a facility, and to such 

individuals at home. In particular, the 

law required that such method be based 

on a single composite weighted formula 

(‘‘composite rate’’) (which takes into 

account the mix of patients who receive 

services at a facility or at home and the 

relative costs for furnishing such 

services) for hospital-based facilities 

and such a single composite rate for 

other renal dialysis facilities, or that 

payment be based on such other method 

or combination of methods which 

differentiate between hospital-based and 

other renal dialysis facilities, and which 

would more effectively encourage more 

efficient delivery of dialysis services 

and would provide greater incentives 

for increased use of home dialysis. 

As a result of these statutory 

requirements, on February 12, 1982, we 

published a proposed rule on 

reimbursement for outpatient dialysis 

services (47 FR 6556) to implement 

section 1881 of the Act, as amended by 

section 2145 of Public Law 97–35. The 

regulations provided that each facility 

would receive a payment rate per 

dialysis treatment (‘‘composite rate’’), 

that is adjusted for geographic 

differences in area wage levels for the 

treatment furnished in the facility or at 

home. We refer to the methodology for 

payment of outpatient maintenance 

dialysis services on a per-treatment 

basis as the ‘‘composite payment 

system’’. 

Final regulations implementing the 

composite payment system were 

published on May 11, 1983 (48 FR 

21254). The initial payment rates, which 

were developed from Medicare cost 

reports for fiscal years ending in 1977, 

1978, and 1979, were established at 

$127 per treatment for independent 

facilities and $131 for hospital-based 

facilities. The composite payment 

system was effective August 1, 1983. It 

was limited to payments for the costs 

incurred by dialysis facilities furnishing 

outpatient maintenance dialysis, 

including some routinely provided 

drugs, laboratory tests, and supplies, 

whether furnished by hospital-based 

and independent facilities in a facility 

or at home. We established separate 

rates for hospital-based and 

independent dialysis facilities, and 

provided a process under which 

facilities with costs in excess of their 

payment rates could seek exceptions to 

those rates under specified 

circumstances. 

With regard to home dialysis, this 

system was the basis for reimbursing 

home dialysis furnished by hospitalbased and independent facilities 

(Method I). (The other is Method II, 

under which the beneficiary works 

directly with a durable medical 

equipment (DME) supplier to obtain the 

supplies and equipment needed.) For 

further information on the distinctions 

between Method I and Method II, see 

section II.A.7. of this final rule. 

The composite payment system 

implemented in 1983 was relatively 

comprehensive with respect to the renal 

dialysis services included as part of the 

composite payment bundle. However, 

over time a substantial portion of 

expenditures for renal dialysis services 

became excluded from the composite 

payment system and reimbursed in 

accordance with the respective fee 

schedules or other payment 

methodologies. For example, payments 

for erythropoiesis stimulating agents 

(ESAs) such as epoetin alfa (EPO, for 

example, Epogen®) and darbepoetin alfa 

(ARANESP®) used to treat anemia, and 

vitamin D analogues (paracalcitol, 

doxercalciferol, calcitriol), are made 

outside of the composite payment 

system as separately billable services. 

These separately billable services 

currently comprise about 40 percent of 

total spending for outpatient 

maintenance dialysis. Thus, the current 

payment for outpatient maintenance 

dialysis under Medicare represents a 

mix of prospective payment, fee-forservice, and other payment rules. 

Subsequent inflation increases to the 

composite payment system occurred 

only in response to specific statutory 

directives. For example, between 1983 

and 2001, the payment rates were 

increased only three times. A $1.00 

increase per treatment was effective 

January 1, 1991 as a result of the 

enactment of the Omnibus Budget 

Reconciliation Act of 1990, Public Law 

101–508. The rates were not revised 

again until the enactment of the 

Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 

1999, Public Law 106–113, which 

increased the payments by 1.2 percent 

effective January 1, 2000 and January 1, 

2001, respectively. 

During the last few years, 

policymakers and other interested 

parties, including the Medicare Payment 

Advisory Commission (MedPac) and the 

Government Accountability Office 

(GAO), have examined the Medicare 

outpatient maintenance dialysis 

payment system and suggested a 

bundled prospective payment approach. 

See Medicare Payment Advisory 

Commission (MedPAC): Report to the 

Congress: Medicare Payment Policy, 

March 2001, March 2005, and March 

2007, and GAO Report GAO–07–77, End 

Stage Renal Disease: Bundling 

Medicare’s Payment for Drugs with 

Payment for All ESRD Services Would 

Promote Efficiency and Clinical 

Flexibility, November 2006. The ESRD 

PPS would combine composite rate 

dialysis services with separately billable 

services under a single payment, 

adjusted to reflect patient differences in 

resource needs or case-mix. As in any 

PPS, dialysis facilities would keep the 

difference if Medicare payments 

exceeded costs for the bundled services, 

and would be liable for the difference if 

costs exceeded Medicare payments. 

Aside from resulting in a single 

comprehensive payment for all services 

included in the bundle, we believe the 

ESRD PPS would meet several 

objectives. These include reducing 

incentives to overuse profitable 

separately billable drugs, particularly 

EPO, the targeting of greater payments 

to ESRD facilities with more costly 

patients to promote both equitable 

payment and access to services, and the 

promotion of operational efficiency. 

Because of the increased flexibility a 

bundled PPS would provide in the 

delivery of outpatient maintenance 

dialysis services, we believe that it 

could also increase desirable clinical 

outcomes, resulting in an enhanced 

quality of care. 

The Congress has twice required 

studies on the bundling of additional 

services into the composite payment 

system. In section 422(c)(2) of the 

Medicare, Medicaid, and SCHIP 

Benefits Improvement and Protection 

Act of 2000 (BIPA), Pub. L. 106–554, the 

Congress required the Secretary to issue 

a report on a bundled system that would 

include separately billable drugs and 

clinical laboratory services routinely 

used in furnishing dialysis. The 

Secretary submitted this report, Toward 

a Bundled Outpatient Medicare End 

Stage Renal Disease Prospective 

Payment System, to Congress in May 

2003. That report contained three major 

findings that would form the basis for 

the subsequent development of the 

ESRD PPS: 

1. Currently available administrative 

data are adequate for proceeding with 

the development of an expanded 

outpatient ESRD PPS. 

2. Case-mix adjustment is potentially 

feasible based on available clinical 

information for ESRD patients in order 

to pay facilities appropriately for 

treating more costly resource intensive 

patients. 

3. Current quality review initiatives 

provide a basis for monitoring the 

impact of a bundled ESRD PPS after 

implementation, to ensure quality of 


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care does not deteriorate in response to 

the system’s efficiency incentives. 

The Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA), Public Law 108–173, also 

required the Secretary to submit to the 

Congress a report detailing the elements 

and features for the design and 

implementation of a bundled ESRD PPS. 

Section 623(f)(1) of the MMA specified 

that such a system should include the 

bundling of separately billed drugs, 

clinical laboratory tests, and other items 

‘‘to the maximum extent feasible’’. That 

section also required the report to 

include a description of the 

methodology to be used to establish 

payment rates and that the report, 

detailing the design of an appropriate 

bundled payment system, be submitted 

to the Congress by October 1, 2005. 

Section 623(e) of the MMA also required 

a demonstration project testing the 

feasibility of using a fully bundled casemix adjusted ESRD PPS. 

In addition to requiring a report on a 

bundled ESRD PPS, section 623 of the 

MMA amended section 1881(b) of the 

Act, by requiring significant revisions to 

the composite payment system. 

Specifically, section 623 of the MMA 

required: 

• An increase of 1.6 percent to the 

composite payment rates effective 

January 1, 2005. 

• An add-on to composite rate 

payments to account for the difference 

in payments for separately billable 

drugs based on a revised drug pricing 

methodology compared to the previous 

method. 

• A ‘‘basic’’ case-mix adjustment to an 

ESRD facility’s composite payment rate 

reflecting a ‘‘limited number of patient 

characteristics.’’ 

• That total payments under the basic 

case-mix adjusted composite payment 

system be budget neutral. 

• An annual increase to the basic case 

mix adjusted payment amounts based 

on projected growth in expenditures for 

separately billed drugs (the ‘‘growth 

update’’). 

• That payment rates be adjusted by 

a geographic index, as determined 

appropriate by the Secretary (and 

phased-in to the extent such index 

differed from the previous payment 

system). 

• Reinstatement of the composite rate 

exceptions process, eliminated for most 

dialysis facilities beginning December 

31, 2000 under BIPA, for ESRD pediatric 

facilities, effective October 1, 2002. 

On August 5, 2004 and November 15, 

2004, we published a proposed rule and 

final rule (69 FR 47487 through 47730 

and 69 FR 66235 through 66915), 

respectively, implementing the 

provisions affecting the composite 

payment system effective January 1, 

2005, as set forth in section 623 of the 

MMA. We refer to the modified 

composite payment system as the ‘‘basic 

case-mix adjusted composite payment 

system’’. The development and 

application of the basic case-mix 

adjustments, using regression based 

adjustment factors for the patient 

variables of age, BMI, and low BMI, are 

explained in each of those rules. (For 

more information, we refer readers to 69 

FR 47529 and 69 FR 66323, 

respectively.) The product of the 

specific adjusters for each patient, 

multiplied by the otherwise applicable 

composite payment rate, yielded the 

basic case-mix adjustment required by 

the MMA. The basic case-mix adjusted 

composite payment system was effective 

April 1, 2005, and was developed from 

research conducted by the University of 

Michigan Kidney Epidemiology and 

Cost Center (UM–KECC) and 

summarized in its report, Methodology 

for Developing a Basic Case-Mix 

Adjustment for the Medicare ESRD 

Prospective Payment System (May 19, 

2004 report and April 1, 2005 

addendum). 

Subsequent to our implementation of 

the MMA requirements discussed 

above, UM–KECC continued its research 

to develop a case-mix adjusted ESRD 

PPS that would combine composite rate 

and separately billable services. UM– 

KECC reported its findings and 

recommendations in a final report 

submitted to CMS in February 2008, 

End Stage Renal Disease Payment 

System: Results of Research on CaseMix Adjustment for an Expanded 

Bundle. That report is available on the 

internet at: http://www.sph.umich.edu/

kecc/assets/documents/UM-KECC%

20ESRD%20Bundle%20Report.pdf. 

UM–KECC’s final report formed the 

basis for the Secretary’s February 2008 

Report to Congress, A Design for a 

Bundled End Stage Renal Disease 

Prospective Payment System, mandated 

under section 623(f)(1) of the MMA. 

The aspects of the basic case-mix 

adjusted composite payment system 

implemented as a result of section 

1881(b)(12) of the Act are important 

because they provide a foundation for 

the development of the case-mix 

adjusted bundled ESRD PPS required 

under Public Law 110–275, the 

Medicare Improvements for Patients and 

Providers Act of 2008 (MIPPA). The 

basic case-mix adjustment mandated 

under the MMA is described in detail in 

the next section and only affects the 

composite rate. It does not reflect costs 

associated with separately billable 

services. Separately billable services, 

particularly injectable drugs, are a 

significant component of the total 

dialysis resources used for each patient. 

The implementation of the basic casemix adjustments to the composite 

payment system effective April 1, 2005, 

and the Secretary’s February 2008 

Report to Congress, suggested that a 

bundled ESRD PPS which combined 

composite rate and separately billable 

services to yield case-mix adjusted 

payments was technically feasible. The 

report defined a payment bundle of 

dialysis-related services, described the 

methodology used to develop the 

regression based case-mix adjusters and 

the base period payment rates to which 

the case-mix adjusters would be 

applied, and discussed numerous other 

issues relevant to the bundling of 

outpatient dialysis services under a 

system of prospective payments. 

As a result of the July 15, 2008 

enactment of MIPPA, section 153(b) of 

MIPPA amended section 1881(b) of the 

Act to require the implementation of an 

ESRD bundled payment system effective 

January 1, 2011 (herein referred to as the 

‘‘ESRD PPS’’). Consistent with the 

language under the statute, we will refer 

to hospital-based and independent renal 

dialysis facilities as ‘‘providers’’ and 

‘‘facilities’’, respectively, and when 

addressing both types of facilities, we 

will collectively refer to such entities as 

‘‘ESRD facilities’’, as set forth in 

§ 413.171. Section 153(b) of MIPPA 

specifies the following: 

• The Secretary must implement a 

payment system under which a single 

payment is made to a provider of 

services or a renal dialysis facility for 

‘‘renal dialysis services’’ in lieu of any 

other payment, and for such services 

and items furnished for home dialysis 

and self-care home dialysis support 

services. 

• A definition for the ‘‘renal dialysis 

services’’ that are included in the 

payment bundle. 

• The estimated amount of total 

payments under the ESRD PPS for 2011 

must be equal to 98 percent of the 

estimated total amount of payments for 

renal dialysis services paid under 

Medicare, including payments for drugs, 

that would have been made with regard 

to services in 2011 if the new system 

was not implemented. Such estimate 

must be made based on per patient 

utilization data from 2007, 2008, or 

2009, whichever year has the lowest per 

patient utilization. 

• The ESRD PPS must include 

adjustments for case-mix variables, high 

cost outlier payments, and low-volume 

facilities and provide for a four-year 

transition (phase-in) period, with all 

facilities transitioned into the ESRD PPS 


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on January 1, 2014. ESRD facilities may 

make a one-time election before January 

1, 2011, to be paid under the ESRD PPS 

and not go through the transition 

period. 

• The ESRD PPS may include other 

payment adjustments, as the Secretary 

determines appropriate, including the 

use of a geographic index, and potential 

adjustments for pediatric patients and 

rural ESRD facilities, and may provide 

for a unit of payment as the Secretary 

specifies (for example, per treatment or 

per unit of time). 

• The ESRD PPS payment amounts 

must be annually increased by an ESRD 

bundled market basket beginning in 

2012, and during the transition. 

• Section 623(e) of the MMA, which 

requires a demonstration project of the 

use of a case-mix adjusted bundled 

ESRD PPS, was repealed. 

Section 153(a)(1) of MIPPA also 

requires that the composite payment 

rates be increased by 1.0 percent 

effective for services furnished on or 

after January 1, 2009, and before January 

1, 2010, and increased by 1.0 percent for 

services furnished on or after January 1, 

2010. In addition, section 153(a)(2) of 

MIPPA requires that the payment rate 

for dialysis services furnished on or 

after January 1, 2009, by ESRD providers 

of services, be the same as the payment 

rate for such services furnished by renal 

dialysis facilities. On November 19, 

2008, we published the CY 2009 

Physician Fee Schedule final rule (73 

FR 69754), implementing the site 

neutral composite rate for ESRD 

facilities and the CY 2009 1.0 percent 

increase to the composite rate. On 

November 25, 2009, we published in the 

Federal Register the CY 2010 1.0 

percent increase to the composite rate in 

the CY 2010 Physician Fee Schedule 

final rule (74 FR 61901). 

In the following sections of this final 

rule, we describe the ESRD PPS we are 

implementing effective January 1, 2011, 

in compliance with the statutory 

requirements of MIPPA, and in response 

to the comments received in connection 

with the proposed rule published 

September 29, 2009. 

C. Existing Basic Case-Mix Adjustments 

Resources required to furnish routine 

dialysis such as staff and equipment 

time vary by patient. Because of the 

variation in resources required to 

furnish routine dialysis to individuals 

with varying patient characteristics, 

facilities that treat a greater than average 

proportion of resource-intensive 

patients could be economically 

disadvantaged if they are paid a rate 

based on average resources. In addition, 

patients who are costlier than average to 

dialyze may face difficulties gaining 

access to care because a fixed composite 

payment rate could create a disincentive 

to treat such patients. The purpose of a 

case-mix adjustment based on patient 

characteristics is to make higher 

payments to ESRD facilities treating 

more resource-intensive patients, 

according to objective quantifiable 

criteria. 

The costs of providing the routine 

maintenance dialysis services that are 

paid under the composite rate are 

reported on the Medicare cost reports 

for hospital-based and independent 

ESRD facilities (Forms CMS 2552–96 

and CMS 265–94, respectively). In order 

to determine a basic case-mix 

adjustment that could be applied to 

each ESRD facility’s composite rate, 

UM–KECC further examined the 

relationship between facility-level costs 

for composite rate services based on the 

Medicare cost reports for hospital-based 

and independent facilities, and the 

average characteristics of patients 

treated by the facility. The research used 

data from Medicare cost reports for 

3,254 ESRD facilities for 2000 to 2002, 

patient characteristics/co-morbidity data 

from CMS’s Medical Evidence Form 

2728 (Form 2728) for 1995 through 

2002, and Medicare claims for 

approximately 360,000 ESRD patients. 

Based on standard techniques of 

multiple regression analysis, UM–KECC 

found that age and body size had 

significant relationships to composite 

rate costs. The body size variables were 

BSA and low BMI, calculated based on 

a patient’s height and weight which is 

reported on Medicare claims. 

A BMI less than 18.5 kg/m2 is 

considered a clinical measure of 

underweight status and is an indicator 

of patients who are malnourished or 

suffering from co-morbidities such as 

wasting syndrome. BSA is closely 

associated with the duration and 

intensity of dialysis required to achieve 

targets for dialysis adequacy. Facilities 

with a larger proportion of patients with 

a greater than average BSA, or with a 

BMI lower than 18.5, were found to 

have greater composite rate costs. The 

research also revealed a U-shaped 

relationship between age and composite 

rate costs, with the youngest and oldest 

age groups incurring greater costs for 

composite rate services due to resource 

needs. 

The outcome of UM–KECC’s research 

was a set of basic case-mix adjusters or 

multipliers for ESRD patients based on 

three variables. These variables were: (1) 

The patient’s age (five groups), (2) BSA 

(a patient-specific value based on 

incremental differences from the 

national patient average), and (3) BMI 

category (two groups, value either less 

than, or equal to/greater than 18.5 kg/ 

m2). CMS also developed a special 

adjuster for pediatric patients outside of 

UM–KECC’s research methodology 

based on analysis of a sample of 

Medicare cost reports. The adjuster for 

each of these three variables is 

multiplied by the facility’s composite 

rate to yield the current ‘‘basic’’ case-mix 

adjustment for each ESRD patient 

according to the specified patient 

characteristics. 

These adjusters are as follows: 


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The above multipliers were derived 

from the coefficients of the regression 

model used to predict facility 

differences in composite rate costs 

based on UM–KECC’s research. For 

example, the case-mix adjuster for a 47 

year old ESRD patient who is 

underweight (BMI < 18.5 kg/m2) and has 

a BSA of 2.0 m2 would be calculated as 

follows: 

Age Adjuster 1.055 

BSA Adjuster 1.037(2.0¥1.84)/0.1 = 1.060 

Low BMI Adjuster 1.112 

Case-Mix Adjuster 1.055 × 1.060 × 1.112 

= 1.244 

The resulting case-mix adjustment 

factor of 1.244 for this patient would be 

multiplied by the facility’s otherwise 

applicable wage adjusted composite 

payment rate. 

The basic case-mix adjustment 

mandated under the MMA only affects 

the composite rate. It does not reflect 

costs associated with separately billable 

services. Separately billable services, 

particularly injectable drugs, are a 

significant component of the total 

dialysis resources used for each patient. 

Prior to the enactment of MIPPA on July 

15, 2008, however, CMS did not have 

authority to bundle those services into 

a case-mix adjusted PPS. 

II. Summary of the Proposed Provisions 

and Responses to Comments on the 

Proposed Rule 

The proposed rule was published in 

the Federal Register on September 29, 

2009 with a comment period that ended 

on November 16, 2009 (74 FR 49922). 

We received approximately 1475 public 

comments, including comments 

resulting from a large write-in campaign 

regarding oral Part D drugs. Interested 

parties that submitted comments 

included numerous dialysis facilities, 

the national organizations representing 

dialysis facilities, nephrologists, and 

patients, the major chain facilities, 

clinical laboratories, pharmaceutical 

manufacturers, hospitals and their 

representatives, individual dialysis 

patients, and MedPAC. Following 

publication of the proposed rule, we 

received several requests to extend the 

comment period to allow time for 

stakeholders to understand the 

proposed ESRD payment changes and to 

formulate comments that would be 

meaningful to CMS. On November 4, 

2009 we published a notice (74 FR 

57127) in the Federal Register 

extending the public comment period 

an additional 30 days to December 16, 

2009, to provide additional time for the 

public to examine the proposed rule and 

provide meaningful comments on its 

provisions. In this final rule we provide 

a summary of each proposed provision, 

a summary of the public comments 

received, our responses to them, and 

any changes to the proposed ESRD PPS 

we are implementing in this final rule 

as a result of comments received. Below 

we address general comments received 

regarding the proposed rule. 

Comment: Clinicians, health systems, 

medical supply companies, patients, 

and hospital-based and independent 

ESRD facilities from small, medium, 

and large dialysis organizations 

requested that rather than proceeding by 

issuing a final rule, CMS issue its next 

public notice as an interim final rule 

with an additional opportunity for 

public comment prior to the 

implementation deadline. Commenters 

provided several reasons for this 

position including: 

• A lack of clarity and specificity 

with regard to the proposals in the 

proposed rule will make 

implementation difficult and 

compromise ESRD facilities’ viability. 

Specifically, operational questions 

remain unanswered such as the way in 

which billing for laboratory tests would 

occur during the transition, the way in 

which medical history would be 

retrieved for purposes of the comorbidity adjustments, and the way in 

which ESRD facilities would provide 

patients with oral drugs. Commenters 

noted that absent additional 

clarification in these areas it would be 

difficult to implement the provisions of 

the ESRD PPS in the short timeframe 

between the expected publication of a 

final rule and its implementation on 

January 1, 2011. 

• A lack of transparency with regard 

to the data used in developing the 

proposed rule. Specifically, some 

commenters noted that they did not 

have access to Part D data or CMS’ rate 

setting data file that would have 

facilitated their ability to fully analyze 

the impact of the ESRD PPS. 

• The absence of administrative or 

judicial reviews, a feature mandated by 

MIPPA, would mean there would be an 

inability to challenge payment making it 


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even more important that the provisions 

of the final ESRD PPS rule are correct. 

• The additional time associated with 

issuing an interim final rule would help 

bring to light inequities between ESRD 

provider types and the level of owned 

service lines including laboratory, 

pharmacy, equipment and supplies. 

• Concern about the potential for 

unintended patient and provider 

consequences that may result from the 

ESRD PPS and believed that issuing an 

interim final rule would reduce this risk 

by allowing additional time to address 

stakeholder concerns. 

Response: We understand the 

commenters’ interest in ensuring that 

potential unintended negative 

consequences associated with the new 

ESRD PPS are minimized. However, we 

believe that we have adequately 

reflected the essential elements of the 

ESRD PPS in the proposed rule 

including basic issues associated with 

implementing the system and have 

received a comprehensive collection of 

public comments from a wide array of 

stakeholders to which we have 

responded in this rule. Specifically, as 

noted in section II.K.2. of this final rule, 

we have clarified the way in which 

provider billing for laboratory tests 

would occur during the transition. We 

have also clarified our position with 

respect to co-morbidity adjustments and 

their associated administrative burden 

in section II.F.3. of this final rule. As 

noted in section II.K.2. of this final rule, 

we have addressed implementation 

issues associated with ESRD facility 

provision of oral drugs. 

With regard to the lack of 

transparency in sharing the data that 

was used in developing the ESRD PPS 

proposed rule, we note that the files to 

which commenters refer contain 

patient-specific data. To maintain 

patient confidentiality and privacy we 

are unable to share such data. However, 

we posted detailed information by 

facility which was used for purposes of 

assessing facility-level impact. 

In addition, we note that following 

publication of the ESRD PPS proposed 

rule, we posted the CY 2011 Proposed 

Rule ESRD PPS Facility Level Impact 

File to the ESRD Payment Web site 

(http://www.cms.hhs.gov/ 

ESRDPayment/PAY/

itemdetail.asp?filterType=

none&filterByDID=99&

sortByDID=4&sortOrder=descending

&itemID=CMS1228517&

intNumPerPage=10). This file includes 

facility level data that was used by CMS 

to assess the impact of the proposed 

ESRD PPS. 

Given that we have issued a proposed 

rule containing a detailed proposal for 

an ESRD PPS, allowed for an extended 

90-day public comment period, and 

carefully considered the comments 

received, we believe that a final rule is 

appropriate. In addition, because of the 

January 1, 2011 implementation 

deadline mandated by MIPPA, we 

believe that finalizing the rule now will 

maximize the amount of time ESRD 

facilities will have to implement the 

provisions of this rule prior to the 

implementation deadline. For these 

reasons we are issuing this document as 

a final rule. 

A. The Proposed ESRD PPS Bundle 

Section 1881(b)(14)(A)(i) of the Act, as 

added by section 153(b) of MIPPA, 

specifies that the ESRD PPS must 

represent a single payment to ESRD 

facilities for ‘‘renal dialysis services’’ in 

lieu of any other payment, and home 

dialysis supplies, equipment, and 

support services furnished pursuant to 

section 1881(b)(4) of the Act. Section 

1881(b)(14)(B) of the Act, which 

identifies the renal dialysis services that 

are to be included in the ESRD PPS 

payment bundle, provides the 

following: 

* * * the term ‘‘renal dialysis services’’ 

includes— 

(i) Items and services included in the 

composite rate for renal dialysis services as 

of December 31, 2010; 

(ii) Erythropoiesis stimulating agents and 

any oral form of such agents that are 

furnished to individuals for the treatment of 

end stage renal disease; 

(iii) Other drugs and biologicals that are 

furnished to individuals for the treatment of 

end stage renal disease and for which 

payment was(before application of this [new 

ESRD PPS]) made separately under this title, 

and any oral equivalent form of such drug or 

biological; and 

(iv) Diagnostic laboratory tests and other 

items and services not described in clause (i) 

that are furnished to individuals for the 

treatment of end stage renal disease. 

1. Composite Rate Services 

Section 1881(b)(14)(B)(i) of the Act 

requires that the ESRD PPS payment 

bundle include composite rate services. 

As we indicated in the proposed rule, 

the current case-mix adjusted composite 

payment system represents a limited 

PPS for a bundle of outpatient renal 

dialysis services that includes 

maintenance dialysis treatments and all 

associated services including 

historically defined dialysis-related 

drugs, laboratory tests, equipment, 

supplies and staff time (74 FR 49928). 

Therefore, consistent with the statute, 

we proposed to include the items and 

services included in the composite rate 

for renal dialysis services as of 

December 31, 2010, (including selfdialysis training services), such as labor, 

supplies, and equipment. 

We proposed to define composite rate 

services at proposed § 413.171. We also 

proposed that the composite rate 

services would not only include 

payments for the costs of services 

directly related to dialysis, but would 

also include payments authorized in 

accordance with the composite payment 

rate exception provisions set forth in 42 

CFR 413.180 through 413.186 (74 FR 

49928). The costs for such composite 

rate services were included in our 

computation of the proposed ESRD PPS 

base rate, as explained in section II.E. of 

this final rule, as well as in the 

development of the proposed composite 

rate regression model used to create the 

two equation patient specific case-mix 

adjusters that would be applied to the 

base rate. We did not receive any public 

comments on our proposed inclusion of 

the renal dialysis services currently 

covered under the composite payment 

system for inclusion under the bundled 

ESRD PPS. Therefore, we are finalizing 

our definition of composite rate services 

as renal dialysis services as proposed in 

§ 413.171. 

2. ESAs and Their Oral Forms 

Section 1881(b)(14)(B)(ii) of the Act 

requires that ESAs and any oral form of 

such agents that are furnished to 

individuals for the treatment of ESRD be 

included in the ESRD PPS payment 

bundle. We proposed that payments for 

injectable ESAs, (for example, Epoetin®

and ARANESP®) would be included in 

the calculation of the proposed ESRD 

PPS base rate, as well as in the 

separately billable regression model 

used to create the two equation patient 

specific case-mix adjusters for the 

proposed ESRD PPS (74 FR 49928). 

Therefore, consistent with our 

interpretation of the statute, we 

proposed that no additional payment 

would be provided for ESAs and their 

oral forms outside of the bundle of renal 

dialysis services included in the ESRD 

PPS. We also noted that oral versions of 

ESAs do not currently exist, but we 

further proposed that to the extent oral 

forms are approved after the 

implementation of the ESRD PPS, those 

drugs would be paid under the ESRD 

PPS (74 FR 49928). We set forth 

provisions regarding the inclusion of 

ESAs and their oral forms as renal 

dialysis services in the ESRD PPS 

payment bundle at proposed § 413.171. 

We received a few comments 

regarding our proposal to bundle ESAs 

and those comments are addressed 

below. 

Comment: Some commenters 

expressed concern that bundling drugs 


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will restrict nephrologists’ ability to 

prescribe necessary medications. One 

commenter stated that including 

medications like EPO and oral 

medications will limit nephrologists 

from prescribing what is necessary. 

Response: We believe that the ESRD 

PPS will establish a bundled payment 

system based on the average cost of care 

with adjustments that target more 

payment to more resource intensive 

ESRD patients. In situations where costs 

for treating patients exceed an 

established threshold, the outlier policy 

would apply. The outlier policy is 

discussed in detail in section II.F.4. of 

this final rule. We expect that ESRD 

facilities and health care providers will 

continue to advocate on behalf of 

patients who require more than the 

average utilization of ESRD-related 

items and services. We note that the 

responsibility for determining the 

appropriateness of medical care resides 

with the ESRD facility, physicians, and 

the interdisciplinary team as stipulated 

by the ESRD Conditions for Coverage. 

Under § 494.90, an ESRD facility would 

be out of compliance if it did not meet 

the patient’s documented needs as 

shown in the patient plan of care. 

Comment: Several commenters 

expressed concern that the inclusion of 

ESAs in the payment bundle will result 

in dialysis facilities decreasing the 

amounts of EPO given to patients, 

resulting in an increase in blood 

transfusions for anemia management, 

and increased stress on the nation’s 

blood supply. 

Response: Section 1881(b)(14)(B)(ii) of 

the Act requires that ESAs be included 

in the ESRD PPS. While the inclusion of 

any item or dialysis service in the 

payment bundle provides an incentive 

for dialysis facilities to maximize profits 

by skimping on the provision of that 

item or service, we point out that an 

important part of our Quality Incentive 

Program (QIP) is the monitoring of 

hemoglobin levels among dialysis 

patients to ensure that target levels are 

met, and that anemia management does 

not deteriorate under the ESRD PPS (see 

section II.M. of this final rule). We also 

plan to monitor the incidence of 

transfusions among dialysis patients 

subsequent to the implementation of the 

PPS to ensure that blood transfusions do 

not replace effective anemia 

management with ESAs as a result of 

the system’s payment incentives. More 

information about monitoring efforts 

planned due to the implementation of 

the ESRD PPS appears in section II.L. of 

this final rule and in future issuances. 

Comment: A few commenters 

opposed the inclusion of EPO or 

intravenous iron in the bundle, claiming 

that if included, there will be a decrease 

in the use of these drugs resulting in 

decreased hemoglobin levels, 

necessitating more in-hospital blood 

transfusions. Another commenter stated 

that bundling would result in a shift to 

subcutaneous administration of ESAs 

with additional needle sticks, decreases 

in hemoglobin levels, and an increase in 

transfusions. Several commenters cited 

the USRDS 2008 Annual Data report as 

showing a large decrease in the use of 

red blood cell transfusions since 1992. 

One commenter questioned how 

patients will obtain EPO as it is 

expensive. One commenter referenced 

National Kidney Foundation (NKF) 

guidelines to support their statement 

that ‘‘intravenous iron is * * * more 

efficacious at helping patients maintain 

adequate iron levels in clinical studies 

of patients * * * undergoing 

hemodialysis and therefore is generally 

the preferred recommended therapy.’’ 

Another commenter claimed, based on 

their analysis of two patients’ 

reimbursement under the proposed 

ESRD PPS, that their facility would face 

significant financial loss, especially for 

those receiving large doses of EPO. 

Some commenters suggested that we 

include only intravenous ESAs. One 

commenter stated that ESRD-related 

intravenous drugs include those used in 

the treatment of anemia, and therefore, 

their oral equivalents should be 

included in the bundle. 

Response: We have no authority to 

exclude ESAs from the ESRD PPS 

bundled payment. As we explained in 

the proposed rule (74 FR 49928), section 

1881(b)(14)(B)(ii) of the Act requires 

that ESAs and any oral form of such 

agents that are furnished to individuals 

for the treatment of ESRD be included 

in the ESRD PPS payment bundle. We 

explained that the payments for 

injectable ESAs (for example Epoetin 

alfa (Epogen®) and darbepoetin 

(ARANESP®), which are separately 

payable outside of the current basic 

case-mix adjusted composite payment 

system, would be included in the 

calculation of the proposed ESRD PPS 

base rate. We also noted in the proposed 

rule that while we were currently 

unaware of any other injectable ESAs or 

oral forms of such ESAs used for the 

treatment of ESRD, if any such agents 

would become available subsequent to 

the implementation of the ESRD PPS on 

January 1, 2011, they would be 

considered renal dialysis services and 

subject to payment under the ESRD PPS 

(74 FR 49928). We are not aware that a 

shift to subcutaneous administration of 

ESAs from intravenous administration 

will lead to decreases in hemoglobin 

levels and increases in transfusions. 

Although several commenters 

suggested that ESRD beneficiaries may 

be denied appropriate and necessary 

treatment because of the perceived 

negative financial impact of the ESRD 

bundled payment system, we point out 

that section 1881(b)(14)(B)(ii) is clear in 

requiring that ESAs and any oral forms 

of ESAs must be included in the ESRD 

PPS payment bundle. In addition, as 

discussed in section II.M. of this final 

rule, we will monitor anemia 

management as part of the ESRD QIP. 

Comment: Several commenters 

expressed concern that the bundling of 

ESAs poses a financial disincentive for 

adequate anemia management, and will 

lead to the maintenance of hemoglobins 

at the lowest possible level, resulting in 

worse outcomes for patients. 

Response: Section 1881(b)(14)(B)(ii) of 

the Act is very clear in requiring that 

ESAs and any oral equivalent forms of 

ESAs furnished for the treatment of 

ESRD must be included in the ESRD 

PPS payment bundle. We have no 

discretion with respect to their 

inclusion or exclusion. 

We do not understand the 

commenters’ conclusion that 

maintaining hemoglobins at the least 

possible level will result in worse 

patient outcomes. We expect ESRD 

facilities to provide the appropriate 

medications at the appropriate dosage to 

maintain patient hemoglobins at the 

required level. We note that we will be 

closely monitoring the anemia 

management of ESRD patients 

subsequent to the implementation of the 

ESRD PPS as part of CMS’s QIP. 

Therefore, after considering the public 

comments and for the reasons stated 

above, we are not making changes to the 

proposed Medicare regulation at 

§ 413.171 and are finalizing the 

inclusion of ESAs and their oral forms 

as renal dialysis services in the ESRD 

PPS payment bundle. 

3. Other Drugs and Biologicals and 

Their Oral Forms 

Section 1881(b)(14)(B)(iii) of the Act 

specifies that other drugs and 

biologicals that were furnished to 

individuals for the treatment of ESRD 

and for which payment was made 

separately under this title, prior to the 

implementation of the ESRD PPS, and 

their oral equivalent forms, must be 

included in the ESRD PPS payment 

bundle. In the proposed rule, we noted 

the reference to ‘‘this title,’’ in the 

statutory language, and we interpreted 

clause (iii) as requiring the inclusion in 

the ESRD PPS payment bundle of all 

drugs and biologicals that were 


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separately payable under title XVIII of 

the Act prior to the implementation of 

MIPPA (74 FR 49928). We proposed at 

§ 413.171 that drugs and biologicals 

used to treat ESRD that were separately 

payable prior to January 1, 2011, be 

included as part of the proposed ESRD 

PPS payment bundle (74 FR 50022). 

Accordingly, we proposed to include 

such drugs and biologicals in the 

development of the proposed patientspecific case-mix adjusters and in the 

calculation of the proposed ESRD base 

rate to which the adjusters would be 

applied. In the proposed rule, we 

identified the top eleven injectable 

drugs furnished to Medicare ESRD 

beneficiaries which we proposed to 

include in the payment bundle (See 

Table 8 at 74 FR 49940). Table 8 also 

contained a category of miscellaneous 

other injectable drugs, as well as a line 

item reflecting other services furnished 

by ESRD facilities. The identification 

and treatment of these other injectable 

drugs and services are addressed in later 

in this section. 

We identified specific National Drug 

Codes (NDCs) for drugs and biologicals 

previously payable under Part D that we 

proposed to include in the payment 

bundle. However, we proposed that the 

ESRD PPS would apply, regardless of 

the emergence of new drugs or 

biologicals or different NDCs for the 

classes of drugs and biologicals 

included in the ESRD PPS bundle. 

Finally, we noted that section 

1881(b)(14)(B) of the Act specifically 

excludes vaccines from the payment 

bundle and, therefore, we did not 

include vaccines in the proposed ESRD 

PPS. We requested comments on our 

proposals above. 

We received numerous public 

comments related to inclusion of ESRDrelated injectable drugs and biologicals; 

the inclusion of oral equivalents of 

ESRD injectable drugs; and the 

inclusion of oral-only ESRD-related 

drugs (that is, drugs for which there is 

no injectable equivalent or other form of 

administration) currently paid under 

Part D in the payment bundle. Most of 

the commenters were opposed to the 

inclusion of all oral drugs and 

biologicals, claiming that their inclusion 

would lead to poorer patient outcomes 

because the proposed amount per 

treatment of $12.47 reflected in the 

calculation of the base rate (Table 8 at 

74 FR 49940) was claimed to be 

inadequate to cover the average cost of 

these drugs. The comments received are 

summarized below. 

a. Oral-Only ESRD–Related Drugs 

Comment: Several commenters agreed 

with CMS that clause (iii) of section 

1881(b)(14)(B) of the Act can be 

interpreted broadly to encompass all 

drugs furnished to individuals for the 

treatment of ESRD, including oral drugs. 

In particular, the commenters did not 

interpret the subsequent reference to 

‘‘any oral equivalent form of such drug 

or biological’’ as limiting the scope of 

oral drugs that may be included. 

Another commenter stated that one 

possible interpretation of MIPPA gives 

CMS authority to broaden the bundle to 

include former Part D oral drugs. 

Finally, another commenter strongly 

endorsed the agency’s proposal to 

include all ESRD-related drugs and 

concurred with CMS’s rationale and 

statutory interpretation set forth in the 

proposed rule. In particular, the 

commenter stated that the plain 

language of the statute with respect to 

clauses (iii) and (iv) gave CMS clear 

authority to include ESRD drugs, 

regardless of the route of administration, 

agreeing with the agency’s 

interpretation of the reference to the 

word ‘‘title’’, and also noting that the 

phrase ‘‘other drugs and biologicals’’ 

included no qualifier that would limit 

clause (iii) to only separately 

reimbursable injectable drugs. 

Response: We appreciate the 

comments on our proposal to bundle 

oral-only drugs, which support our 

interpretation of the statute. 

Comment: One commenter suggested 

that CMS implement an expeditious 

appeals process for physicians to 

challenge payment for drugs that may be 

excluded from dialysis companies’ 

formularies. 

Response: ESRD facility formularies 

are beyond the scope of this final rule. 

However, we expect ESRD facilities to 

provide the appropriate medications, at 

the appropriate dosage, based upon 

individual patient needs. We expect the 

patient’s nephrologist and the 

interdisciplinary team to identify 

medication needs in accordance with 

the individual patient’s plan of care. 

Comment: Many comments indicated 

that CMS’s decision to include oral 

drugs with no injectable equivalent 

(‘‘oral-only’’ drugs) within the statutory 

definition of ‘‘renal dialysis services’’ 

represents a misreading of statutory 

intent and violates principles of 

statutory construction. One commenter 

asserted that CMS’s inclusion of oralonly drugs in the ESRD PPS appeared to 

hinge entirely on the reference to the 

words ‘‘this title’’ under section 

1881(b)(14)(B)(iii) of the Act. The 

commenter stated that this 

interpretation represented too narrow a 

reading of the statute, and was 

inconsistent with the intended meaning 

of ‘‘this title’’ set forth elsewhere in 

section 1881 of the Act. Other 

commenters stated that CMS’s reasoning 

that the use of ‘‘this title’’ in section 

1881(b)(14)(B)(iii) of the Act means that 

all ESRD drugs payable under title XVIII 

of the Act must be included in the 

payment bundle, including drugs 

payable under Part D, represents a 

selective reading of the statute, and that 

the more appropriate approach is to 

read the language as a whole. The 

commenters asserted that the entirety of 

section 1881(b) of the Act focuses on 

payments to ESRD facilities, and that 

the four categories of renal dialysis 

services specified in section 

1881(b)(14)(B) of the Act only pertain to 

services furnished for which payment is 

made to ESRD facilities. 

A few commenters compared 

references to ‘‘this title’’ in other 

subparagraphs of section 1881(b) of the 

Act and argued that our prior 

implementation of payment to dialysis 

facilities did not include oral-only drugs 

when the same reference to ‘‘this title’’ 

was used, stating that the reference has 

been interpreted previously to mean 

separately billable Part B drugs (with 

separate payment to dialysis facilities). 

Consequently, commenters claimed that 

such oral-only products do not fall 

within clause (iii) because they are not 

separately billable Part B drugs (which 

are limited to those products that cannot 

be self-administered by a patient and 

must be furnished in the facility by 

staff), and are not oral equivalents of 

separately billable drugs. Commenters 

claimed that because the oral-only drugs 

(calcimemetics and phosphate binders) 

proposed for inclusion in the ESRD PPS 

payment bundle are currently dispensed 

by a pharmacy for home use, are not 

furnished by ESRD facilities, and are not 

the oral equivalent of an injectable drug 

under clause (iii), such drugs must be 

excluded from the bundle. Therefore, 

these commenters maintained that 

inclusion of such oral-only drugs in the 

expanded bundle under the proposed 

ESRD PPS is inappropriate. Although 

most commenters opposed the inclusion 

of former Part D drugs, several stated 

that there appeared to be sufficient 

statutory support for including them. 

Response: We agree that section 

1881(b) of the Act addresses payments 

to dialysis facilities for dialysis services 

furnished Medicare ESRD beneficiaries, 

either directly by the facility, by a 

supplier (for example, DMEPOS 

supplier), or under arrangement (for 

example, clinical laboratory). However, 

in our view, the intent of section 

1881(b)(14)(B) of the Act was not to 

limit the renal dialysis services 

included in the ESRD PPS payment 

bundle to services for which only ESRD 


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facilities are currently paid. Clause (iii) 

of that section specifies that drugs and 

biologicals for which separate payment 

is made, and their oral equivalents, 

must be included in the bundle as renal 

dialysis services. We have interpreted 

clause (iii) as encompassing not only 

injectable drugs and biologicals (other 

than ESAs, which are included under 

clause (ii)) used for the treatment of 

ESRD, but also all non-injectable drugs 

furnished under Title XVIII. Under this 

interpretation, the ‘‘any oral equivalent 

form of such drug or biological’’ 

language pertains to the oral versions of 

injectable drugs other than ESAs. All 

other ESRD-related drugs and 

biologicals, regardless of the route of 

administration, are addressed by the 

‘‘other drugs * * * under this title’’ 

portion of clause (iii). We disagree with 

the commenters’ argument that we have 

incorrectly expanded the scope of 

clause (iii) to include drugs and 

biologicals based on an inconsistent 

interpretation of ‘‘this title’’ as used 

elsewhere in the Act. Accordingly, we 

continue to believe that the entirety of 

clause (iii) gives us sufficient statutory 

authority to include all ESRD-related 

drugs and biologicals, regardless of 

whether they are furnished by a dialysis 

facility, under the ESRD PPS payment 

bundle. 

Another issue is whether the ‘‘other 

items and services’’ language in clause 

(iv) of section 1881(b)(14)(B) of the Act 

encompasses oral-only drugs furnished 

for the treatment of ESRD. Commenters 

argue that oral-only drugs would not be 

excluded from the definition of renal 

dialysis services under the reasoning 

that the scope of the bundle was 

intended to cover only services for 

which ESRD facilities currently are 

being paid, as payments for the oral 

equivalents of injectables are not made 

to ESRD facilities. 

We do not believe that construing the 

‘‘other items and services’’ language in 

clause (iv) as applying to oral-only 

drugs violates a principle of statutory 

construction, by making clauses (ii) and 

(iii) otherwise redundant. The language 

in clause (iv) does not mean all drugs 

currently available to Medicare 

beneficiaries for the treatment of ESRD 

as the commenters suggest. Rather, we 

believe that it can be interpreted as a 

residual or catch all category for drugs 

which do not fall under the scope of 

those specified renal dialysis services 

identified in clauses (ii) and (iii). 

Medicare regulation under § 400.202 

defines ‘‘services’’ as follows in 

pertinent part: 

Services means medical care or services 

and items, such as medical diagnosis and 

treatment, drugs and biologicals, * * * 

Thus, we are interpreting the use of 

the word services in clause (iv) 

consistent with how we interpret and 

define services under Medicare which 

supports including other oral-only drugs 

not specified in the preceding clauses in 

the bundle, not the exclusion of those 

drugs from the payment bundle. We 

believe that this interpretation of clause 

(iv) neither represents a selective 

reading of the statute, nor an overly 

expansive definition of the scope of the 

renal dialysis services intended to be 

included in the payment bundle. 

Comment: Another commenter stated 

that the reference to ‘‘separate payment’’ 

under section 1881(b)(14)(B)(iii) of the 

Act would exclude Part D drugs because 

under Part D, Medicare is not making 

separate payment for drugs. The 

commenter reasoned that the Medicare 

program makes per beneficiary 

payments to plans, and plans use such 

payments to reimburse pharmacies that 

fill prescriptions for covered Part D 

drugs. The commenter argued that the 

focus of section 1881(b) of the Act is on 

payments to dialysis facilities for 

services furnished to beneficiaries. 

Therefore, the first part of clause (iii) 

pertains to Medicare payments 

separately made to dialysis facilities for 

separately payable Part B drugs and 

biologicals, and does not include Part D 

products. 

Response: We disagree with the 

commenter with regard to the meaning 

of the language in clause (iii) of the 

statutory definition for renal dialysis 

services under section 1881(b)(14)(B) of 

the Act. We believe that such language 

was intended to be broadly interpreted 

given that all drugs are reimbursable 

under Medicare by virtue of being 

authorized for payment under Title 

XVIII. Therefore, drugs covered under 

Part B and formerly covered under Part 

D would be included regardless of 

whether payment was made directly by 

us or by a plan. 

Comment: Several commenters agreed 

with CMS that clause (iv) of section 

1881(b)(14)(B) of the Act is a catch all 

provision that permits inclusion of any 

additional products and services, 

including oral drugs furnished to treat 

individuals with ESRD, and agreed with 

the agency’s interpretation and rationale 

that the inclusion of oral-only drugs in 

the bundle is supported by clause (iv). 

One commenter noted that the term 

‘‘services’’ is used in clause (iv) of the 

definition for renal dialysis services, 

and that for purposes of Medicare such 

term is defined under § 400.202 as 

‘‘medical care or other services and 

items, such as medical diagnosis and 

treatment, drugs and biologicals, 

supplies, appliances, and equipment, 

medical social services, and the use of 

hospital, CAH, or SNF facilities 

[emphasis added].’’ The commenter 

noted that services and items 

encompass drugs and biologicals. The 

commenter further stated that a plain 

reading of clause (iv) leads to the 

conclusion that clause (iv) is inclusive 

of all other drugs and biologicals not 

reimbursed under the ESRD composite 

rate as of December 31, 2010, that are 

furnished to individuals for the 

treatment of ESRD. 

Other commenters disagreed with our 

interpretation, stating that clause (iv) 

should not apply to oral-only drugs, as 

it would render the other clauses of the 

definition unnecessary. Those 

commenters claimed that an 

interpretation of clause (iv) that 

includes all drugs and biologicals fails 

to consider the entire context of the 

statute, and that this reading would 

negate clauses (ii) and (iii) of the 

statutory definition for renal dialysis 

services. Commenters stated that under 

rules of statutory construction, a statute 

should be construed to give meaning to 

all aspects of it, such that ‘‘other items 

and services’’ cannot be read to include 

drugs that are currently used for 

treatment of chronic renal failure, but 

are excluded from clauses (ii) and (iii). 

Response: We believe that clause (iv) 

of the definition for renal dialysis 

services under section 1881(b)(14)(B) of 

the Act could include certain other 

items and services such as ‘‘oral-only’’ 

drugs. We agree with the commenter 

that the definition should be viewed as 

a whole when considering each of the 

four clauses, and particularly, clause 

(iv). With regard to the concerns of 

statutory interpretation that commenters 

have identified, we believe we have 

followed them when interpreting the 

statute. We note, however, that such 

rules must be taken into context based 

on the underlying statutory language at 

issue. In particular, we note that the 

definition for renal dialysis services has 

overlapping categories of services, and 

that certain clauses included arguably 

are unnecessary. For example, given 

that several clauses of the definition 

contain similar types (or categories) of 

items and services, we find 

unconvincing the commenter’s 

suggestion that clause (iv) cannot 

include drugs or biologicals. We note 

that drugs and biologicals are not 

limited to clauses (ii) and (iii) of the 

definition. In particular, clause (i) 

covers the composite rate, which 

contains some drugs. 


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We also agree with the commenter 

who pointed to the Medicare definition 

for ‘‘services’’ that such term includes 

drugs and biologicals. Given that clause 

(iv) addresses laboratory tests and other 

items and services not described in 

clause (i) (that is, non-composite rate 

labs, items, services, etc.), we believe 

that a reasonable interpretation of clause 

(iv) is that certain non-composite drugs 

and biologicals are included. We agree 

with commenters, however, that to 

ensure that meaning is attached to the 

other clauses, such drugs and 

biologicals included in clause (iv) 

would not be the same as those 

included in clauses (ii) and (iii). 

Accordingly, if oral-only drugs are not 

considered to fall within clause (iii) of 

the statutory definition (or clause (ii) for 

that matter), we believe that such drugs 

would appropriately fall under clause 

(iv), and would constitute other items 

and services used for the treatment of 

ESRD that are not described in clause 

(i). 

In addition, as we noted, several of 

the clauses of the definition could be 

viewed as superfluous. Therefore, we 

believe the definition as a whole must 

be considered when determining 

whether an item or service constitutes a 

‘‘renal dialysis service.’’ In particular, we 

note that clause (iii) would have been 

broad enough to include the 

erythropoiesis stimulating agents (ESAs) 

identified in clause (ii), given that such 

agents would constitute ‘‘drugs and 

biologicals that are furnished for the 

treatment of ESRD and for which 

payment was made (before the ESRD 

PPS) separately under this title, and any 

oral equivalent of such drug or 

biological.’’ Hence, clause (ii) arguably is 

unnecessary. Congress decided, 

however, to nevertheless specifically 

identify these agents as a separate 

category under the definition. Given the 

structure of the definition, we do not 

believe Congress’ identification of 

certain ‘‘other drugs and biologicals’’ in 

clause (iii), limits the definition such 

that it excludes other types of drugs or 

biologicals from clause (iv) of the 

definition, if such drugs otherwise meet 

that prong (and are not included in 

clause (iii) or clause (ii)). 

Moreover, we believe that when the 

definition is viewed as a whole, it 

suggests a comprehensive definition 

that wraps in all items and services 

related to outpatient renal dialysis that 

are furnished to individuals for the 

treatment of ESRD. Although the 

definition is perhaps overlapping or 

redundant, we find clause (iv) to be a 

catchall category, and one that provides 

sufficient authority for bundling oralonly drugs (if such drugs do not fall 

under clause (iii)). For a discussion of 

the other items and services under 

clause (iv), please see the next section 

below. 

Comment: One commenter pointed to 

recent legislative proposals and an 

analysis by the Congressional Budget 

Office as support that oral-only drugs 

are not included in the statutory 

definition for renal dialysis services. 

Another commenter pointed to 

legislative history by citing floor 

statements as evidence of Congressional 

intent behind the creation of a broad 

payment bundle, including all oral 

dialysis-related drugs, such as 

calcimimetics and phosphate binders. 

Response: We are not persuaded by 

recent legislative proposals. We 

continue to interpret section 

1881(b)(14)(B) of the Act as including in 

the ESRD PPS, all drugs and biologicals 

furnished for the treatment of ESRD, 

and we believe this interpretation 

reflects the intent of the statute. With 

regard to recent legislation, we note that 

the ESRD PPS proposed rule, in which 

we set forth our interpretation of the 

statute and our proposal for the scope of 

the bundle, was specifically noted and 

acknowledged by Congress in section 

10336 of the Affordable Care Act passed 

on March 23, 2010 (Pub. L. 111–148), 

which requires a study by the GAO on 

the impact on Medicare beneficiaries of 

including oral-only drugs in the 

bundled ESRD PPS. Significantly, this 

new legislation imposes no restrictions 

or additional requirements with regard 

to our proposal to bundle such 

products. 

Comment: Some commenters stated 

that the exclusion of oral-only drugs 

from the payment bundle would not 

make the bundle of services less 

comprehensive, nor would it defeat the 

purpose of the new payment system as 

CMS suggests. These commenters claim 

that the comprehensive bundle of renal 

dialysis services the Congress 

envisioned is a bundle of services 

furnished by ESRD facilities. Therefore, 

some commenters believed that since 

calcimimetics and phosphate binders 

are not furnished by ESRD facilities, 

their exclusion would not make the 

bundle less comprehensive than 

Congress intended. Commenters also 

stated that no cost shifting would occur 

between Part B and Part D, because 

these oral-only drugs have no Part B 

equivalent. 

Response: We do not agree with the 

commenters’ assertion that the intent of 

the payment bundle under the ESRD 

PPS was to include only those services 

furnished by dialysis facilities. For 

example, inclusion of diagnostic 

laboratory tests (which may be 

performed by laboratories under 

arrangements with dialysis facilities, for 

those facilities that do not have their 

own laboratories), and oral equivalent 

forms of injectable drugs, which are 

currently furnished by pharmacies 

under Part D, belie this interpretation. 

Therefore, we believe the exclusion of 

an item or service from the payment 

bundle solely because it is not furnished 

(or traditionally furnished) by ESRD 

facilities is inappropriate. We also 

disagree with the argument that 

excluding drugs from the bundle for 

which there currently is no injectable 

equivalent is acceptable because there is 

no issue of cost-shifting between Part B 

and Part D. Notwithstanding that there 

may not be injectable equivalents of 

certain drugs widely used for the 

treatment of ESRD currently that may 

not be the case in the future as new 

drugs and treatments are developed. 

We also point out that apart from the 

goal of avoiding cost-shifting, we 

believe the purpose of a bundled 

payment system is to ensure that patient 

care is not skewed by financial 

incentives. We believe that access to 

and compliance with recommended 

care can be negatively impacted if 

certain drugs remain outside of the 

payment bundle. Although many 

Medicare beneficiaries may have oralonly drug coverage under Medicare Part 

D, others have private sources, and 

some lack reliable sources of coverage 

altogether. We do not wish to continue 

an uneven payment policy that favors 

certain types of drugs by permitting 

them to remain separately payable 

outside of the payment bundle. 

Comment: Commenters indicated that 

several of the oral-only drugs which 

CMS proposes to include in the 

payment bundle are relatively 

expensive, and that the associated 

payment amount per treatment ($12.48 

as calculated from Table 8 at 74 FR 

49940) for these drugs was inadequate. 

Commenters stated that this will result 

in unintended clinical consequences for 

patients as ESRD facilities seek to 

maximize profits by resorting to cheaper 

but less effective alternatives. 

Response: We believe that by 

including all drugs widely used for the 

treatment of ESRD in the payment 

bundle, we will be providing a level 

playing field that will benefit patient 

care. The purpose of a bundled payment 

system is to make available all treatment 

options under the same payment 

system. When drugs remain outside of 

the payment bundle, financial issues 

can influence both facility and patient 

behavior, as the over-utilization of EPO 

to the detriment of patient care in the 

past has demonstrated. We acknowledge 


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that the contrary effect can occur 

whereby drugs included in the payment 

bundle could also influence behaviors 

with potential underutilization. 

However, we expect ESRD facilities and 

monthly capitation payment (MCP) 

physicians will evaluate the potential 

use of less expensive equally effective 

alternatives for the treatment of 

conditions associated with ESRD, where 

those alternatives are available and not 

contraindicated by the patient’s clinical 

status. Notwithstanding the availability 

of less expensive alternatives, we expect 

that patient care regimens will always 

be selected solely based on patient 

needs as identified in the patient’s plan 

of care. We believe that we have 

developed the bundle, with the 

inclusion of all oral drugs, to account 

for the costs that ESRD facilities will 

incur in furnishing these drugs to 

patients. 

Comment: Several commenters 

expressed concern that the inclusion of 

oral-only drugs in the ESRD PPS 

payment bundle could adversely impact 

beneficiaries through increased copayments. Because the cost of these 

oral-drugs would be included in the 

payment for all of the renal dialysis 

services included in the bundle, 

commenters noted that the beneficiary 

would be responsible for 20 percent of 

the total bundled payment amount, and 

that this has the potential to increase the 

co-payment amount owed by the 

beneficiary. In addition, commenters 

stated that patients, who currently have 

Part D coverage and qualify for the low 

income subsidy, would be required to 

pay coinsurance on these drugs for the 

first time, as Part D coverage limits their 

financial responsibility at very low 

dollar amounts. The commenters 

believe that this will pose a financial 

hardship for these low income patients 

who will be unable to meet their new 

coinsurance obligation, caused by 

including these drugs under Part B. In 

addition, commenters stated that 

patients who are dually eligible for both 

Medicare and Medicaid would also see 

an increase in their coinsurance 

liability, as minimal prescription drug 

copayment amounts are replaced with a 

20 percent coinsurance requirement 

under the ESRD PPS. 

Response: It is inherent with the 

implementation of any PPS that patients 

who incur costs greater than the amount 

covered by the average PPS payment 

will benefit from the ESRD, because 

their coinsurance liability will be based 

on that lower average payment amount 

compared to the actual costs for 

resources consumed. Patients whose 

actual costs for services furnished are 

less than the PPS payment amount will 

see an increase in their coinsurance 

liability, because the actual payment 

exceeds the actual utilization of 

resources. Table 2 shows total Part D 

expenditures for drugs for CYs 2007, 

2008, and the first nine months of 2009 

currently available. The table reveals 

that the portion of these expenditures 

for ESRD drugs borne by the beneficiary, 

or otherwise paid on behalf of the 

beneficiary, ranges from 38 to 41 

percent. 

These amounts compare to the 20 

percent coinsurance liability under Part 

B. We believe that this difference in 

coinsurance liability between Part B 

drugs and Part D drugs is largely caused 

by the beneficiary obligation incurred 

under the Part D ‘‘donut hole’’, and by 

various coinsurance amounts imposed 

by the drug plans because of formulary 

differences. Based on this comparison, 

some beneficiaries will be better off 

with a 20 percent coinsurance 

obligation under Part B compared to the 

range of 37.9 to 41.0 percent liability 

under Part D, particularly if their 

utilization of Part D drugs is high, and 

they have no low income subsidy. 

While there is no equivalent low income 


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subsidy under Part B for those patients 

who currently receive this benefit under 

Part D, we believe our interpretation of 

the statute is consistent with the 

statutory intent to bundle all renal 

dialysis services under Part B. 

In addition, ESRD beneficiaries who 

currently have private market coverage 

of the ESRD drugs that would be 

included in the ESRD PPS and minimal 

copayments will see an increase in their 

copayments because of the classification 

of these drugs under Part B as renal 

dialysis services, for which the 20 

percent coinsurance obligation applies. 

We would expect that the shift in 

coverage for oral drugs formerly Part D 

to Part B will result in drug plans and 

insurers modifying the scope of their 

drug coverage, formularies, premiums, 

and benefits to reflect this shift in 

coverage, in a competitive environment 

to maintain and attract beneficiaries. 

With respect to patients dually eligible 

for Medicare and Medicaid with 

minimal prescription drug copayment 

amounts under Part D, we expect that 

the 20 percent coinsurance for renal 

dialysis services included in the 

payment bundle under the ESRD PPS 

will be covered by the beneficiary’s 

Medicaid benefit, just like other Part B 

coinsurance obligations. We will 

conduct outreach efforts to the States to 

ensure that States understand the 

changes due to the ESRD PPS, and their 

responsibility to process Medicare 

claims and determine their financial 

obligations under the new payment 

system. 

Comment: One commenter proposed 

that oral equivalents of injectable drugs 

be included in the ESRD PPS effective 

January 1, 2011, and that CMS clearly 

indicate that the only currently 

available oral drugs with an injectable 

version are oral iron and oral vitamin D. 

The commenter suggested that if oral 

drugs without an injectable version are 

included in the payment bundle, their 

inclusion should not occur until the 

transition period expires in 2014, or 

later. The commenter proposed that the 

payment rate for oral drugs included in 

the bundle be set at the price which a 

small dialysis organization would need 

to pay to obtain the drug from a 

pharmacy under arrangements. 

Response: Consistent with section 

1881(b)(14)(B)(iii) of the Act, we are 

including the oral equivalents of ESRD 

injectable drugs in the payment bundle 

effective January 1, 2011. These drugs 

include the oral Vitamin D analogues 

(calcitriol, doxercalciferol, and 

paracalcitol) and levocarnitine. Oral 

iron is generally available over the 

counter and not covered under Parts B 

or D. Therefore, it is not included in the 

payment bundle. There are currently no 

oral versions of ESAs for inclusion in 

the ESRD PPS. For reasons set forth in 

greater detail response to the comment 

below, we have adopted the 

commenter’s suggestion that the 

inclusion of oral-only drugs be delayed 

until after the end of the transition 

period, or until January 1, 2014. 

Comment: Several commenters 

expressed concern that the inclusion of 

certain oral-only drugs and laboratory 

tests unrelated to dialysis in the 

payment bundle represented an 

inappropriate shifting of costs to 

dialysis facilities for services unrelated 

to the dialysis treatment. 

Response: Oral-only drugs will not be 

implemented under the ESRD PPS until 

January 1, 2014 for reasons set forth in 

greater detail below. Neither will 

laboratory tests unrelated to the 

treatment of ESRD be included in the 

payment bundle. Laboratory tests 

ordered by a dialysis patient’s MCP, 

nephrologist, or other practitioner for 

reasons unrelated to ESRD will be 

excluded from the ESRD PPS and will 

continue to be reimbursed separately. 

Comment: One commenter urged 

CMS to implement its proposed policy 

to bundle all drugs January 1, 2011, as 

mandated by Congress, stating that 

statutory authority, sound public policy, 

and patient clinical needs support 

inclusion of such drugs in the bundle. 

The commenter stated that any delay 

would potentially create unintended 

financial incentives, leading to adverse 

clinical outcomes. 

Other commenters stated that CMS 

lacks pricing data from all payers to 

accurately determine the payments for 

the inclusion of oral drugs in the 

bundle, and recommended that CMS 

should exercise its authority to delay 

the inclusion of oral drugs. Some 

commenters argued that expanding the 

bundle to include oral-only drugs when 

it had insufficient data and support 

would have the potential to hamper 

future bundling efforts. Many 

commenters cited various policy and 

operational reasons in support of a 

decision to delay the inclusion of oral 

drugs in the ESRD PPS bundle. In 

particular, several commenters asserted 

that if CMS determines that it has 

sufficient legal authority to include oralonly Part D drugs in the payment 

bundle, it should nonetheless delay the 

inclusion of these drugs to a subsequent 

year in order to permit an orderly 

implementation of the ESRD PPS. 

Commenters claimed that a delay would 

also give CMS the necessary time to 

ensure that its billing systems and 

software are appropriately developed 

and tested to make sure that the 

conversion of payment for Part D ESRD 

drugs to renal dialysis services under 

Part B goes smoothly for beneficiaries, 

facilities, and pharmacies. 

Several commenters stated that CMS 

has the discretion to defer the inclusion 

of Part D oral drugs in the payment 

bundle and asserted various statutory 

bases. In particular, commenters stated 

that the requirement to implement the 

ESRD PPS on or after January 1, 2011, 

does not specifically state that CMS 

must include all drugs for which 

payment is made under Title XVIII prior 

to implementation of the ESRD PPS. 

Commenters pointed out that section 

1881(b)(14)(B) of the Act does not time 

limit CMS’s discretion to define renal 

dialysis services for the ESRD PPS, and 

argued that the definition of ‘‘renal 

dialysis services’’ under section 

1881(b)(14)(B)(iv) provides discretion to 

the agency about what items and 

services to include in the ESRD PPS and 

when to include them, claiming that 

Congress likely would not have enacted 

a provision that did not allow new items 

and services to be added. Some 

commenters argued that the ‘‘breadth of 

the language in subparagraph (iv)’’ of the 

statutory definition suggested broad 

discretion to the agency in making this 

determination, such that we may define 

renal dialysis services to exclude oral 

drugs in 2011, while maintaining 

authority to define renal dialysis 

services as including oral drugs in a 

subsequent year. 

Other commenters cited the 4-year 

phase-in (section 1881(b)(14)(E) of the 

Act) as permitting full implementation 

of that portion of the single payment at 

any time before January 1, 2014, 

provided the implementation occurs in 

equal increments. Commenters argued 

that implicit in our interpretation of 

section 1881(b)(14)(E) of the Act is our 

authority to delay inclusion of oral 

drugs in the new bundled payment 

system. Commenters maintained the 

position that the phase-in over equal 

increments relates to coverage and 

payment, and that if CMS interpreted 

the provision to include oral drugs 

entirely at the beginning, CMS could 

implement the inclusion of oral drugs in 

the ESRD PPS in the fourth year of the 

transition period and still comply with 

the statute, including the requirement to 

implement the payment system in 

‘‘equal increments’’. 

Finally, some commenters argued that 

CMS has a statutory obligation to defer 

inclusion of oral drugs in the bundle, 

claiming that there is an obligation to 

delay under section 1881(b)(14)(ii) of 

the Act, because it requires CMS to 

determine the total amount of payments 

for renal dialysis services. If the agency 


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cannot do so because of a lack of data, 

it would be improper to include those 

items and services in the definition 

until it is able to do so. 

Response: As we stated above and in 

the proposed rule, we continue to 

believe that section 1881(b)(14)(B) of the 

Act supports our interpretation that 

ESRD drugs and biologicals, including 

oral-only ESRD drugs, used for the 

treatment of ESRD, meet the definition 

of ‘‘renal dialysis services’’ under section 

1881(b)(14)(B) of the Act, and should be 

included under the ESRD PPS (74 FR 

49928 through 49929). For this reason, 

we have specified that oral ESRD drugs, 

including oral-only ESRD drugs, are 

included in the ESRD PPS. 

However, we disagree with 

commenter’s claims that this statutory 

definition is not ‘‘time-limited’’ such 

that we could delay including under 

this definition certain items or services 

that are currently in existence. We 

believe that the statutory definition 

dictates what services constitute ‘‘renal 

dialysis services’’ and does not afford us 

discretion to postpone such a 

determination for purposes of 

implementing the ESRD PPS. This is not 

to say, as some commenters have 

suggested, that the definition is static 

with regard to new items and services. 

To the extent new renal dialysis items 

or services come onto the market in the 

future and meet the definition, such 

services would be considered ‘‘renal 

dialysis services’’ and bundled under 

the ESRD PPS. For example, as we 

pointed out in the proposed rule, if 

other types of injectable ESAs or new 

oral forms of ESAs become available 

subsequent to the implementation of the 

ESRD PPS on January 1, 2011, such 

agents would be considered renal 

dialysis services and be subject to the 

ESRD PPS (74 FR 49928). Accordingly, 

for the reasons we set forth above and 

in the proposed rule, and after careful 

consideration of the public comments, 

we are finalizing the proposed policy 

decision that ESRD drugs and 

biologicals, including oral drugs, be 

identified as renal dialysis services 

under section 1881(b)(14)(B) of the Act. 

With regard to the issue of inadequate 

data to price for payment oral drugs and 

biologicals, including oral-only drugs 

used for the treatment of ESRD, we 

agree with the commenters in part. We 

have included the Part B injectable 

drugs and biologicals used for the 

treatment of ESRD in the calculation of 

the base rate. Total payments for these 

drugs and biologicals were divided by 

the total number of hemodialysis (HD) 

equivalent treatments to obtain the 

amount of the payment per treatment for 

these drugs and biologicals reflected in 

the base rate. Injectable drugs are priced 

at ASP + 6 percent. Oral drugs with an 

injectable version were included in the 

payment bundle by taking total 

payments for these drugs based on Part 

D claims, and dividing that total by the 

total number of HD-equivalent treatment 

for Medicare ESRD beneficiaries 

enrolled in Part D. As explained in 

section II.K. of this final rule, prices for 

these drugs will be based on the 

national average drug prices developed 

from the Medicare Prescription Drug 

Plan Finder. These prices reflect 

pharmacy dispensing and 

administration fees and will be applied 

to only a limited number of drugs (three 

vitamin D analogues and levocarnitine). 

While this pricing mechanism is also 

available for oral-only ESRD drugs, we 

believe that before we consider its 

adoption in connection with pricing 

these drugs for payment, we should 

evaluate its potential impact on dialysis 

facilities, particularly small dialysis 

facilities who may not be able to obtain 

drugs and biologicals at prices similar to 

those of the larger chains with greater 

purchasing power. Because payments 

for oral ESRD drugs with an injectable 

version in 2007 was about $10.7 

million, while total payments for all oral 

ESRD drugs was about $455.7 million, 

we believe a careful assessment of the 

use of the Medicare Prescription Drug 

Plan Finder as a basis for pricing oralequivalent ESRD drugs is appropriate 

before extending its application to oralonly drugs. Accordingly, we are 

delaying the implementation of oral 

drugs with no injectable equivalent or 

other form of administration (oral-only 

drugs), pending this evaluation. 

As we discuss in more detail below 

and in the section II.K.2. of this final 

rule, we also agree that commenters’ 

concerns about operational and safety 

issues with regard to furnishing oralonly agents should be further examined. 

We believe a delay would allow time to 

examine such issues and address as 

appropriate. For example, we agree with 

the commenters that a delay in 

implementing the inclusion of oral-only 

drugs under the ESRD PPS would 

provide sufficient time for ESRD 

facilities to establish a pharmacy in 

accordance with state licensure 

requirements, or establish arrangements 

with pharmacies to provide oral-only 

drugs to their patients and ensure a 

smoother transition to the dispensing of 

these drugs under Part B. 

We disagree with the commenters 

who have suggested that the 4-year 

phase-in under section 1881(b)(14)(E)(i) 

of the Act provides authority to delay 

inclusion of certain types of renal 

dialysis services such as oral-only drugs 

beyond January 1, 2014. We believe that 

section 1881(b)(14)(E)(i) of the Act 

requires a phase-in of payments under 

the new system for facilities that do not 

opt to go all-in under the new ESRD 

PPS, allows for a blended payment 

under the old and new payment systems 

in equal increments over a 4-year period 

to allow facilities opportunity to 

transition to the new payment under the 

ESRD PPS. It does not, however, 

authorize a phase-in of renal dialysis 

services. 

We also do not agree that the 

requirement under section 

1881(b)(14)(A)(i) of the Act that the 

ESRD PPS be implemented by January 

1, 2011, affords the agency discretion to 

delay identification of renal dialysis 

services to be included in the ESRD 

PPS. Section 1881(b)(14)(A)(i) of the Act 

requires implementation of a payment 

system in which a single payment is 

made for home dialysis and renal 

dialysis services which, as we discussed 

above, represent a specific set of 

services currently in existence that must 

be identified as renal dialysis services 

for the payment bundle. 

We agree, however, with commenters 

with regard to our obligations under 

section 1881(b)(14)(A)(ii) of the Act, 

which requires that we make certain 

estimates about total payments for renal 

dialysis services based on certain data 

(that is, per patient utilization data). We 

agree that we must perform an 

assessment of the use of the Medicare 

Prescription Drug Plan Finder as a basis 

for the pricing of oral equivalent ESRD 

drugs before that pricing mechanism is 

potentially extended to oral-only ESRD 

drugs in order to develop payment rates 

for those drugs. Therefore, it would not 

be appropriate to implement oral-only 

ESRD drugs in the ESRD PPS at this 

time. 

We believe that there are several 

advantages to delaying the 

implementation of oral-only drugs. A 

delay would— 

• Provide additional time to 

determine the propriety of the Medicare 

Prescription Drug Plan Finder for the 

pricing of oral-equivalent ESRD drugs, 

before we consider extending that 

pricing mechanism to include all oral 

ESRD drugs and biologicals. CY 2007 

data reveal that expenditures for the oral 

equivalents of injectable ESRD drugs 

totaled $10,700,083 for Medicare ESRD 

beneficiaries enrolled in Part D. See 

Table 9. Subtracting this amount from 

the total figure of $455,683,740, the total 

payments for all ESRD Part D drugs 

identified in Table 8 of the proposed 

rule (74 FR 49940), reveals that the 

comparable figure for oral-only ESRD 

drugs was $444,983,657. Given the 


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potential impact on the oral drug 

component of the payment bundle, 

evaluating the Medicare Prescription 

Drug Plan Finder and other potential 

alternative data sources for the pricing 

of oral ESRD drugs is essential. 

• Allow ESRD facilities additional 

time to develop the arrangements or 

infrastructure necessary to provide oralonly drugs and negotiate prices with 

drug companies. 

• Provide additional time for CMS to 

thoroughly educate beneficiaries, ESRD 

facilities, and pharmacies on those 

aspects of the bundled ESRD PPS 

involving the furnishing of noninjectable drugs to ensure as smooth a 

transition as possible. 

• Given that oral drugs with an 

injectable version are included in the 

payment bundle as of January 1, 2011, 

provide CMS an opportunity to assess 

potential problems which may arise in 

connection with the provision of oral 

drugs prior to the system’s expansion to 

include oral-only ESRD drugs beginning 

January 1, 2014. 

• Allow time for additional analysis 

regarding the ability of ESRD facilities 

to provide oral-only ESRD drugs. 

• Provide additional time to evaluate 

the need for additional clinical 

indicators applicable to the monitoring 

of certain patient conditions treated 

with oral-only drugs, such as bone loss 

and mineral metabolism associated with 

the provision of calcimimetics and 

phosphate binders. This could assist in 

determining the impact of the fully 

bundled ESRD PPS, and any 

unintentional consequences that might 

ensue, on quality of care. 

• Allow Part D plans sufficient time 

to prepare bids for 2014 that excludes 

those oral-only drugs identified as 

‘‘ESRD related’’. CMS will specify the 

oral-only drugs that are for the treatment 

of ESRD in connection with a proposed 

rule Beneficiaries will have access to 

more accurate premium quotes to assist 

them in making decisions about their 

Part D coverage. 

• Allow Part D plans and pharmacies 

additional time to establish, test, and 

modify the infrastructure necessary to 

identify ESRD patients, as the oral 

equivalents of injectable drugs are 

bundled beginning January 1, 2011. Part 

D sponsors will gain several years of 

experience in identifying ESRD patients 

within CMS systems in order to ensure 

that Part D payments are not made for 

ESRD related drugs. 

Beginning January 1, 2011, 18 oral 

drugs (as discussed below), will be 

included in the ESRD PPS base rate. 

Specifically, facilities will furnish such 

oral drugs beginning January 1, 2011. 

Until comprehensive beneficiary 

protections can be developed in 

anticipation of the inclusion of all 

ESRD-related oral-only drugs in the 

payment bundle under the ESRD PPS 

beginning January 1, 2014, patients will 

have access to these drugs under Part D. 

After considering the public comments 

and for the reasons we discussed above, 

we are retaining the definition of renal 

dialysis services as proposed in 

§ 413.171, including with respect to the 

inclusion of oral-only drugs and 

biologicals. However, we are revising 

the implementation date for oral-only 

ESRD drugs and biologicals to be 

January 1, 2014 in § 413.174(f)(2). We 

believe that the transition period will 

give us sufficient time to address the 

data/pricing issues identified above, and 

to evaluate and correct any potential 

concerns that may emerge as a result of 

the inclusion of the oral drugs and 

biologicals with other forms of 

administration in the payment bundle 

effective January 1, 2011. 

b. Other Drugs and Biologicals 

Below we discuss comments 

regarding drugs and biologicals other 

than oral-only drugs and biologicals (for 

example, injectable drugs, oral drugs 

with some other form of administration, 

etc.). Oral-only drugs are separately 

addressed above. 

Comment: Most commenters who 

expressed opposition to our proposed 

inclusion of oral-only Part D drugs in 

the ESRD PPS payment bundle were 

careful to distinguish these drugs from 

oral equivalents of injectable drugs, for 

which they conceded statutory authority 

existed for their inclusion under section 

1881(b)(14)(B) of the Act. Although the 

commenters maintained that the 

inclusion of any oral drugs in the 

payment bundle would pose 

administrative burdens on dialysis 

facilities, they generally did not 

challenge our authority to include in the 

payment bundle the oral equivalents of 

injectable drugs used to treat ESRD in 

order to prevent the shifting of costs 

from Medicare Part B to Part D. The 

commenters, however, stated that if 

such drugs and biologicals were 

included in the payment bundle, their 

inclusion should be adequately funded. 

Response: We agree with the 

commenters that section 1881(b)(14)(B) 

of the Act specifically requires that oral 

equivalents of injectable drugs used in 

the treatment of ESRD must be 

considered renal dialysis services for 

inclusion in the payment bundle. 

Accordingly, we have included those 

drugs, as described later in this section 

of this final rule. We have also revised 

the methodology for calculating the 

average amount per treatment for these 

drugs and biologicals included in the 

base rate, as described elsewhere in this 

final rule. 

Comment: One commenter pointed 

out that dialysis patients take numerous 

oral medications, many of which are not 

related to ESRD. The commenter stated 

that the inclusion of oral equivalent 

drugs with an injectable version in the 

payment bundle could result in the 

patient receiving these drugs from a 

pharmacy with which the dialysis 

facility has established a relationship for 

the dispensing of these drugs to its 

patients, while the other medications 

are received from a different pharmacy 

of the patient’s choice. Because multiple 

pharmacies would be involved, this 

could result in less attention paid to 

potential adverse consequences 

resulting from drug interactions and less 

coordination of care. 

Response: We agree that under the 

circumstances which the commenter 

has described, multiple pharmacies 

could be involved in the dispensing of 

drugs to dialysis patients. However, the 

prescriptions for these drugs are 

prepared by the patient’s nephrologist, 

primary care physician, or specialist, 

each of whom should be aware of the 

patient’s medications for potential 

adverse interactions. The dialysis 

facility should also be aware of the 

patient’s oral medications as an 

additional safeguard and therefore, we 

expect dialysis facilities to collect 

comprehensive information on patients’ 

oral medications to identify any 

potential drug interactions that might 

otherwise occur. Finally, patients can 

always advise their pharmacist of the 

oral drugs they take when filling a 

prescription, and inquire about 

potential drug interactions as well. 

Therefore, we believe that there are 

sufficient safeguards to ensure that the 

use of several pharmacies to obtain oral 

drugs does not result in adverse 

consequences for dialysis patients. 

Comment: Many commenters 

expressed concern about what they 

believed would occur if drugs were 

included in the ESRD PPS. Some 

commenters were opposed to including 

oral drugs in the bundled payment, 

particularly vitamin D used for bone 

and mineral metabolism. Commenters 

cited negative effects on patients’ health 

because ESRD facilities may consider 

cost saving measures such as purchasing 

less costly and less effective drugs (for 

example, over-the-counter calcium 

binders or vitamin D); limiting the use 

of the more expensive drugs; using oral 

drugs which they believe are not as 

effective as intravenous drugs; 

switching to generic drugs or to drugs 

used in the past, which the commenters 

believed are not as effective; and using 


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lower cost oral drugs instead of 

intravenous drugs resulting in various 

complications as vascular calcification, 

anemia, blood transfusions, and 

hospitalizations. Some commenters 

predicted an increase in the number of 

parathyroidectomies due to poor control 

of hyperparathyroidism. One 

commenter expressed concern that cost 

cutting changes in medication practices 

at his ESRD facility have already begun 

to occur in preparation for the 

implementation of the ESRD PPS. 

Some commenters indicated that 

certain patients would be negatively 

affected by the inclusion of drugs in the 

ESRD PPS bundled base rate. The 

commenters believed that older patients 

would be discriminated against by being 

given less expensive and less effective 

medications. Others believed patients 

needing more medications than others 

would be unable to receive the 

appropriate dose of their medications. 

One commenter believed that patients 

receiving dialysis twice weekly or those 

who miss treatments will be considered 

financially undesirable because ESRD 

facilities will be responsible for the 

entire month for their medications 

while receiving payment for the dialysis 

treatments only. 

Response: We are concerned by the 

issues raised by commenters who 

believe ESRD facilities would 

intentionally and knowingly deny 

medications or provide less effective 

drugs because of the inclusion of drugs 

in the ESRD PPS bundle. We do not 

agree that the inclusion of drugs in the 

ESRD PPS would result in facilities 

denying drugs to patients or necessarily 

using less effective drugs. In particular, 

we do not agree that the use of 

alternative less costly drugs necessarily 

constitutes the use of less effective 

drugs. We expect that ESRD facilities 

will continue to provide necessary care 

to patients with ESRD, and we will be 

monitoring the implementation of the 

ESRD PPS very closely. 

As with any prospective payment 

system, there are patients whose 

medical treatment results in more costly 

care as well as those with less costly 

care. As we have discussed in other 

sections of this final rule, the ESRD PPS 

bundled base rate reflects Medicare 

payment for the average ESRD patient. 

We have incorporated payments under 

the current composite rate payment 

system as well as payments for 

separately billable items and services 

into the ESRD PPS base rate. As a result, 

we believe the ESRD PPS payments are 

sufficient and reflect the average cost of 

providing care to the average patient 

with ESRD and therefore, we expect 

that, on average, high cost patients 

would be offset by low cost patients. We 

have provided for higher acuity patients 

with patient case-mix adjusters as 

discussed in section II.F. and with 

outlier payments for high cost patients 

as discussed in section II.H. of this final 

rule. 

Section 494.80(a)(5)of the regulations 

requires an ESRD patient’s 

comprehensive assessment include an 

‘‘[e]valuation of factors associated with 

renal bone disease.’’ Section 494.80 

outlines other requirements for 

assessing and reassessing patients, as 

well as creating and implementing an 

individual patient plan of care as 

described in § 494.90. Section 

494.90(a)(3) requires all ESRD facilities 

to ‘‘* * * provide the necessary care to 

manage mineral metabolism and 

prevent or treat renal bone disease.’’ 

Patient rights, including the 

mechanisms for filing grievances, are 

established at § 494.70. This means that 

ESRD facilities are required to provide 

care necessary to treat patients. We are 

confident that ESRD facilities will act 

responsibly to provide appropriate care 

under the ESRD PPS and oversight 

activities will identify any ESRD facility 

that may not do so. Therefore, we plan 

to monitor utilization of renal dialysis 

items and services to ensure that quality 

care is being provided. We will discuss 

monitoring in the implementation 

section II.K. of this final rule and in the 

future. 

Comment: One commenter believed 

that separating the dispensing of oral 

renal drugs from oral drugs used for 

non-renal conditions will cause 

confusion for patients, their families, 

and other providers that provide care to 

ESRD patients. 

Response: We believe the commenter 

is referring to ESRD-related drugs and 

biologicals included in the ESRD PPS 

base rate. We do not agree that the 

bundling of ESRD-related drugs or 

biologicals will result in confusion. 

Currently patients may receive 

medications or prescriptions from 

multiple sources especially if they 

require medical specialists for nonESRD conditions. We do not see any 

difference in this process under the 

ESRD PPS. 

Comment: Some commenters believe 

patients will be involuntary discharged 

from ESRD facilities if the patients are 

noncompliant and drugs are included in 

the ESRD bundle. 

Response: As discussed earlier in this 

section of the final rule, the statute 

requires that renal dialysis services 

included in the ESRD PPS include 

specified ESRD-related services 

including injectable and oral drugs and 

biologicals. Because ESRD-related drugs 

and biologicals are in the ESRD PPS 

bundle, ESRD facilities will be 

responsible for furnishing ESRD-related 

drugs and biologicals that their patients 

require. We appreciate the commenter’s 

concern that patients may be 

involuntarily discharged. However, 

§ 494.180 of the ESRD Conditions for 

Coverage explicitly addresses the 

discharge procedure, the acceptable 

circumstances for an involuntary 

discharge or transfer, the required 

actions that must be completed by the 

ESRD facility prior to ceasing treatment, 

as well as the requirement to inform 

patients of their rights and protections. 

Comment: One commenter stated that 

because of the ESRD PPS, patients with 

vascular access dysfunction, who are 

currently treated in the ESRD facility, 

would instead be referred to the 

emergency department in order to be 

able to receive separate payment for 

drugs used to maintain vascular access. 

Other commenters indicated that 

patients would be referred to other 

health care settings such as infusion 

centers or other health care providers to 

administer medications such as 

antibiotics and thrombolytic agents, for 

the purpose of being reimbursed for 

medications. 

Response: We believe that the 

commenter is implying that as a result 

of including anti-thrombolytic drugs 

and antibiotics in the bundled ESRD 

PPS base rate, ESRD facilities would 

refer patients with any difficulties with 

vascular access to the emergency 

department or to other settings rather 

than ensuring that vascular access 

patency is addressed in the ESRD 

facility at the time of dialysis (as is 

currently being done). We believe that 

maintaining vascular access is a renal 

dialysis service and therefore, would be 

included in the ESRD PPS and ESRD 

facilities would continue to be 

responsible for furnishing the service. In 

other words, as ESRD facilities have 

been maintaining vascular access sites 

under the current basic case-mix 

adjusted composite rate system and 

receiving separate payment for antithrombolytic drugs, we will expect that 

they would continue to maintain 

vascular access under the ESRD PPS, 

with payment for anti-thrombolytic 

agents included in the ESRD PPS base 

rate. Accordingly, we expect that ESRD 

facilities would not refer patients to 

another health care setting for the 

purpose of maintaining vascular access. 

We note, we would expect patients to be 

referred to another setting if medically 

necessary and we are not implying that 

ESRD facilities are expected to address 

any and all vascular access 

complications, if doing so would be 


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unsafe for the patient. We merely are 

indicating that we expect ESRD 

facilities to perform the same 

procedures to maintain vascular access 

that they currently perform, and not 

refer patients to other settings for the 

purpose of obtaining additional 

payment. We will monitor ESRD 

facilities to determine whether they are 

continuing to perform the same 

procedures to maintain vascular access 

that they currently perform. 

Comment: Some commenters cited 

patient non-compliance for their 

opposition to including oral drugs in the 

bundle. The commenters believed that 

dialysis facilities could control 

intravenous drugs and dosing but could 

not determine patient compliance with 

pill taking; that inclusion of oral drugs 

would require patients to take 

responsibility for their own care; and 

that patient compliance in inner cities is 

already poor. Others stated that 

reverting to oral medications in place of 

their intravenous forms, would result in 

an increase in the number of pills 

patients with ESRD, who are already 

required to take multiple pills with 

limited daily fluid allowance, would be 

required to take. Other commenters 

were concerned that patients might not 

receive their medications if they forget 

to obtain them during their dialysis 

treatment. Several commenters claimed 

patient non-compliance would increase 

due to the bundling of oral drugs. The 

commenters believed there would be 

higher spending on hospitalizations and 

outpatient care because of decreased 

control of patient’s anemia and bone 

disease. 

Response: We appreciate the concerns 

about patient compliance and pill 

burden. We do not understand the 

commenter’s statement indicating that 

inner city compliance is already poor 

and therefore, we regret that we are 

unable to respond to the comment. 

We do not agree that including oral 

drugs in the bundle will result in 

increased patient compliance 

difficulties, increased pill burden or 

poor control of anemia and bone disease 

because under the ESRD PPS there is no 

requirement that drugs must be 

administered in any particular form or 

by any particular route. It is the 

responsibility of the ESRD facility, the 

patient’s physician, and the ESRD 

interdisciplinary team to develop a plan 

of care that is appropriate and meets 

each patient’s needs. That includes 

determining the most appropriate route 

of administration of a drug. Although 

we believe we are required by statute to 

include oral drugs and biologicals in the 

payment bundle, the use of oral 

equivalents remains a medical decision. 

Section 494.90 of the ESRD Conditions 

for Coverage requires the development 

of an individualized patient plan of care 

to address the patient’s needs. 

Therefore, we believe ESRD facilities 

should make medical decisions based 

on patient needs and not solely on a 

financial basis. 

As we discussed in several responses 

above, we believe that ESRD facilities 

will act responsibly to provide 

appropriate care under the ESRD PPS 

and that continued monitoring may 

serve to help identify the ESRD 

providers who do not. Therefore, we 

plan to monitor utilization of renal 

dialysis items and services to ensure the 

quality care continues to be provided. 

We will discuss monitoring in the 

implementation section II.K. of this final 

rule and in the future. 

Comment: Commenters were divided 

in expressing their support or 

opposition to the inclusion of 

intravenous drugs and their oral 

equivalents in the ESRD PPS base rate. 

Some commenters expressed concern 

that bundling drugs will restrict 

nephrologists’ ability to prescribe 

necessary medications. One commenter 

suggested removing all oral drugs from 

the bundle to allow nephrologists to 

decide what is in the best clinical 

interest of the patient without 

reimbursement concerns. Others 

expressed concern that physicians 

would not prescribe drugs that could 

put a facility at financial disadvantage 

or would be forced to use the ‘‘cheapest 

available therapy which might be 

harmful to patients and further increase 

their cardiovascular mortality.’’ Another 

commenter believed that disparities in 

care will occur when physicians will 

need to determine which patients are 

‘‘most deserving or have the greatest 

need for certain medications’’ placing 

physicians in an adversarial position 

with ESRD facilities. Several 

commenters believed physicians should 

have autonomy to prescribe the most 

appropriate drugs within classes of 

medications. 

Some commenters supported 

inclusion of all drugs and biologicals 

used to treat ESRD regardless of the 

route of administration noting that oral 

and injectable drugs are routinely given 

during the course of dialysis treatment. 

Other commenters indicated that 

inclusion of all drugs, regardless of 

route of administration in the bundle 

was ‘‘ * * * critical to achieving optimal 

patient care.’’ These commenters 

believed that allowing certain drugs and 

biologicals to be unbundled while 

others are bundled would establish 

incentives to select treatment options 

contrary to patient’s clinical needs and 

results in medications from different 

sources jeopardizing adherence to care 

regimens and undermining quality of 

care. 

Response: We thank the commenters 

for their views of the impact of 

including ESRD-related drugs and 

biologicals in the bundle. The general 

premise of the ESRD PPS is that the 

ESRD payments reflect the average cost 

of furnishing renal dialysis items and 

services to patients. In situations where 

costs for treating patients exceed an 

established threshold under the ESRD 

PPS, the outlier policy would apply. 

The outlier policy is discussed in detail 

in section II.H. of this final rule. 

We continue to believe that the 

responsibility for determining the 

appropriateness of medical care resides 

with the ESRD facility, physicians, and 

the interdisciplinary team as stipulated 

by the ESRD Conditions for Coverage. 

We also believe that physicians, the 

interdisciplinary team, and ESRD 

facilities should make medical decisions 

based on patient needs and not solely 

on a financial basis. We plan to monitor 

utilization of renal dialysis items and 

services to ensure the quality care 

continues to be provided. We will 

discuss monitoring in the 

implementation section II.K. of this final 

rule and in the future. 

We note that we do not have the 

discretion to exclude services from the 

ESRD payment system that meet the 

statutory definition of a renal dialysis 

service. We discuss the definition of 

renal dialysis services earlier in this 

section and in section II.D. of this final 

rule. We also discuss the delay in 

implementation of oral-only drugs 

earlier in this section. 

Comment: Several commenters 

expressed concern that there are no 

quality measures for calcium, 

phosphorus, and parathyroid control. 

Others recommended tracking changes 

in transfusion utilization. One 

commenter urged that necessary steps 

be taken to ensure access to drugs 

appropriate for patients and not the 

‘‘least costly alternative.’’ Another 

commenter suggested that MedPAC and 

other entities track drug utilization to 

avoid unintended consequences. 

Response: We agree with the 

commenters that there needs to be 

overall monitoring, tracking measures to 

monitor utilization and measure 

outcomes, and specifically to eventually 

track and report patient levels of 

calcium, phosphorus and 

parathyroidism prior to implementing 

the oral-only drugs in the ESRD PPS in 

2014. We are currently working to 

develop measures for the initial year of 

the QIP and beyond. We note that, as set 


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forth in section 1881(h)(2)(A) of the Act, 

additional measures are being 

considered and developed such as 

patient satisfaction, iron management, 

bone mineral metabolism, and vascular 

access. 

We are currently developing a 

comprehensive monitoring plan which 

includes tracking drug utilization. We 

will discuss monitoring in the 

implementation section II.K. of this final 

rule and in the future. We also plan to 

ensure that patients are educated about 

the ESRD PPS including the 

mechanisms they can use to report 

grievances. We believe that other 

entities such as MedPAC, the GAO, and 

the OIG will be looking into the effects 

of the ESRD PPS. We note that quality 

measures are discussed in section II.M. 

of this final rule. Additionally, we will 

include a discussion of future QIP 

measures forecasting in the ESRD QIP 

proposed rule. 

Comment: One commenter believed 

that if the concern is cost shifting from 

injectable vitamin D to the oral vitamin 

D analogs, it would be better to address 

that issue directly. 

Response: We do not understand what 

the commenter is suggesting with the 

statement about addressing the issue of 

injectable versus the oral version of 

vitamin D directly. However, we believe 

that the ESRD PPS provides an 

opportunity for ESRD facilities to make 

financially sound decisions while 

providing necessary care recognizing 

that some patients may utilize less renal 

dialysis items and services while others 

may use more. In addition, under the 

QIP, we are working towards developing 

quality measures for bone and mineral 

metabolism. Further discussion on 

quality measures are found in section 

II.M. of this final rule. 

Comment: One commenter stated that 

certain injectable drugs used to treat 

ESRD may not have oral equivalents. 

Therefore, the patient would not be able 

to afford obtaining these drugs outside 

of the payment bundle, resulting in a 

lower quality of care. 

Response: We are not clear about the 

point the commenter was attempting to 

make, as ESRD-related injectable drugs 

without oral equivalents would be 

furnished by the dialysis facility. In 

addition, all injectable drugs used to 

treat ESRD are included in the payment 

bundle as Part B renal dialysis services, 

regardless of whether they have an oral 

equivalent. 

Comment: Many commenters 

indicated that they did not know which 

drugs were in the bundled base rate. 

Some commenters questioned whether 

non-dialysis-related drugs are included, 

such as those drugs used to treat 

diabetes, high blood pressure, cardiac 

drugs, or renal vitamins. 

Response: We thank the commenters 

for their suggestions on which drugs 

should be included in the ESRD PPS. 

We also agree that in the proposed rule, 

we did not explicitly indicate which 

drugs would be in the proposed ESRD 

PPS base rate. 

We proposed that payments for all 

drugs and biologicals furnished to ESRD 

patients and separately billable prior to 

January 1, 2011, would be included in 

the ESRD PPS payment bundle as renal 

dialysis services (74 FR 49929). 

Therefore, in the proposed rule, we 

included all drugs and biologicals on 

ESRD claims for 2007 for which 

separate payment was made in 

computing the proposed ESRD PPS base 

rate because the presumption was that 

all drugs and biologicals on ESRD 

claims were ESRD-related. We 

explained in the proposed rule (74 FR 

49940 through 49941), our methodology 

of using CY 2007 claims data for 

determining the Medicare Allowable 

Amounts (MAPs) for the Part B and 

former Part D ESRD-related drugs and 

biologicals components of the ESRD 

PPS bundle, including the use of NDC 

codes for purposes of identifying by oral 

drugs covered under Part D by class. 

With regard to the drugs and 

biologicals we proposed to bundle in 

the ESRD PPS, we identified in the 

proposed rule the top 11 Part B drugs 

and biologicals that accounted for 99.7 

percent of total spending for Part B 

ESRD drugs and biologicals and 

identified the classes of oral ESRDrelated drugs and biologicals currently 

covered under Part D that would be 

bundled. When listing the amount of 

spending for ESRD-related drugs and 

biologicals, we combined the products 

that accounted for the remaining 0.3 

percent of total spending for Part B 

ESRD drugs and biologicals in a general 

category (‘‘Other injectables’’ Part B 

drugs and biologicals) included in the 

proposed base rate (74 FR 49940 

through 49941). 

With regard to commenters’ concerns 

about the inclusion of certain drugs, 

including non-ESRD related drugs, in 

the proposed bundle, in developing the 

proposed rule, we presumed that all 

separately billable items were drugs and 

biologicals on the ESRD claims were 

ESRD-related and therefore, all 

separately billable items on ESRD 

claims were included in the proposed 

ESRD PPS bundled base rate. 

As a result of comments, for this final 

rule, we performed an extensive 

analysis of Medicare payments for 

Part B drugs and biologicals billed on 

ESRD claims in 2007, 2008, and 2009 to 

identify drugs or biologicals that are 

ESRD-related and therefore meet the 

definition of renal dialysis services 

under section 1881(b)(14)(B) of the Act, 

and would be included in the ESRD 

bundled base rate. Drugs and biologicals 

that are generally not ESRD-related (for 

example drugs and biologicals used to 

treat diabetes, cardiac conditions and 

hypertension), would not be renal 

dialysis services and would be excluded 

from the ESRD bundled base rate. 

We believe that categorizing drugs 

and biologicals on the basis of drug 

action would allow us to determine 

which categories (and therefore, the 

drugs and biologicals within the 

categories) would be ESRD-related. We 

evaluated each drug and biological to 

identify its category by indication or 

mode of action. We then analyzed the 

categories to determine those that would 

be expected to be utilized for ESRDrelated conditions in a dialysis unit (and 

therefore would be a renal dialysis 

service). 

We note that the current ESRD claims 

form does not differentiate between 

drugs and biologicals administered for 

an ESRD condition from drugs and 

biologicals administered during dialysis 

for non-ESRD related conditions. During 

this extensive analysis, we discovered 

that our presumption that all drugs and 

biologicals on the ESRD claims were 

ESRD-related was incorrect. In fact, 

there were categories of drugs and 

biologicals (and therefore specific drugs 

on ESRD claims for which separate 

payment had been made) that were not 

ESRD-related. These non-ESRD-related 

drugs and biologicals are discussed in 

detail below. Later in this section, we 

also discuss in detail the method used 

to identify ESRD-related drug and 

biological categories and drugs and 

biologicals included in the final ESRD 

PPS base rate below. Table C in the 

Appendix provides a listing of the 

specific drugs which were included in 

the proposed ESRD PPS base rate and 

how those drugs were treated in the 

final ESRD PPS base rate. 

Specifically, we identified drugs and 

biologicals on the ESRD claims which 

are classified as chemotherapeutic 

drugs, immunosuppressant drugs, and 

vaccines. These drugs and biologicals, 

with the exception of hepatitis B and flu 

vaccines, had been included in the 

proposed ESRD PPS base rate. As these 

are not ESRD-related drugs and 

biologicals because they are not used for 

ESRD-related conditions and therefore, 

are not renal dialysis services, we 

excluded them from the final ESRD 

bundled base rate. As a result, we 

excluded the payments from the 2007 

ESRD facility claims for these drugs and 


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biologicals in computing the final ESRD 

PPS base rate. 

In performing our analysis of the 

ESRD claims for this final rule, we also 

identified drugs and biologicals that are 

included in the current composite 

payment rate but for which ESRD 

facilities received separate payment in 

addition to the composite rate payment. 

Because these composite rate drugs and 

biologicals were listed separately on the 

ESRD claims, separate payment was 

inadvertently made and we included 

these payments in the proposed ESRD 

PPS base rate. However, for this final 

rule, we excluded those inadvertently 

made payments from the final ESRD 

PPS base rate calculation. 

We note that the Medicare Benefit 

Policy Manual, Pub. 100–02, chapter 11, 

section 30.4.1 lists the drugs and fluids 

included under the current composite 

payment system as heparin, 

antiarrythmics, protamine, local 

anesthetics, apresoline, dopamine, 

insulin, lidocaine, mannitol, saline, 

pressors, heparin antidotes, benadryl, 

hydralazine, lanoxin, solu-cortef, 

glucose, antihypertensives, 

antihistamines, dextrose, inderal, 

levophed, verapamil and antibiotics 

used at home by patients being treated 

for catheter site infection or peritonitis 

associated with peritoneal dialysis. The 

Medicare Benefit Policy Manual, Pub. 

100–02, chapter 11, section 30.4.1 also 

explicitly states, ‘‘* * * drugs used in 

the dialysis procedure are covered 

under the facility’s composite rate and 

may not be billed separately. Drugs that 

are used as a substitute for any of these 

items, or are used to accomplish the 

same effect, are also covered under the 

composite rate.’’ The manual further 

provides that ‘‘Administration of these 

items (both staff time and supplies) is 

covered under the current composite 

rate and may not be billed separately.’’ 

Also, in our analysis of drugs and 

biologicals for this final rule, we 

identified ESRD claims that included 

payments for drugs and biologicals, but 

did not include any dialysis treatments. 

Because ESRD facilities receive a 

payment under the current basic casemix adjusted composite payment system 

which is treatment based (that is, based 

on the provision of a dialysis treatment) 

and separate payment is made for any 

items or services provided that are not 

considered part of the composite rate, 

payment for claims without treatments 

should not be paid. Therefore, for this 

final rule, payments for drugs and 

biologicals listed separately on the 

ESRD claim where there was no dialysis 

treatment included on the claim were 

excluded from the computation of the 

base rate. 

In the analysis conducted for this 

final rule, we also identified drugs and 

biologicals on ESRD claims that were 

not identifiable because they were billed 

using unspecified or unclassified 

HCPCS codes. These codes are used 

when a HCPCS code has not yet been 

assigned. As a result, we were unable to 

determine the name of the drug or 

biological or if they were ESRD-related 

or administered for non-ESRD-related 

conditions. Because ESRD-related drugs 

and biologicals have HCPCS codes, we 

considered any drug or biological billed 

using an unclassified or unspecified 

HCPCS code as being non-ESRD-related. 

Therefore, any payments attributed to 

these unspecified codes were not 

included in computing the final ESRD 

base rate. We note that ESRD facilities 

should be using valid HCPCS codes for 

the drugs that they administer and 

should only use the unclassified codes 

for those drugs that do not have codes. 

During our analysis for this final rule, 

we also identified drugs and biologicals 

as well as procedures which would not 

be considered renal dialysis services. 

For example, low molecular weight 

contrast administered for radiological 

purposes; pharmacy and administrative 

pharmacy code for administration of 

oral anti-emetics for cancer treatment; 

chemotherapy; and chest x-rays were 

reported on the ESRD claims. Because 

these procedures are not renal dialysis 

services (that is, they are not procedures 

that are used for the treatment of ESRD), 

we excluded the payments associated 

with these procedures from the final 

ESRD PPS base rate. 

We also identified drugs, biologicals 

and procedures reported on ESRD 

claims which are unlikely to be 

performed or provided in an ESRD 

facility. For example, there were claims 

that included paralytic agents used to 

intubate patients. Because we do not 

believe that these drugs would be used 

to treat ESRD-related conditions, they 

would not be considered to be renal 

dialysis services. As a result, we 

excluded the payments made for these 

drugs in computing the final ESRD PPS 

bundled base rate. 

We list the categories of drugs and 

biologicals that we would not consider 

ESRD-related and therefore would not 

be renal dialysis services included in 

the ESRD PPS base rate in Table 3 

below. We note that the drugs, 

biologicals, and procedures that were 

excluded from the final ESRD PPS base 

rate represent a very small dollar 

amount accounting for less than one 

cent per dialysis treatment and 

represent less than 0.2 percent of 

payments made for separately billable 

drugs and biologicals. Table C in the 

Appendix identifies the Part B 

injectable drugs that were included in 

the proposed base rate and in the final 

base rate. 

BILLING CODE P 


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BILLING CODE C 

Comment: Commenters noted that 

CMS needs to clearly delineate what is 

covered in the bundle. One commenter 

suggested differentiating between 

medications used for acute rather than 

chronic complications. One commenter 

recommended that a list of specific 

ESRD-only related drugs for inclusion in 

the bundle and that these be 

periodically updated to account for new 

technology and innovation. Some 

commenters suggested that we include 

only intravenous ESAs, iron, and 

vitamin D. One commenter stated that 

ESRD facilities separately bill and are 

reimbursed for ESAs, iron, vitamin D, 

alteplase and antibiotics for the 

treatment of access-related infections 

and peritonitis. Other commenters 

suggested that we include only 

intravenous ESAs, iron and vitamin D. 

One commenter believed that ESRDrelated drugs used in the treatment of 

anemia, bone disease and iron 

deficiency should be included in the 

bundle. Some commenters suggested 

that only oral drugs that have 

‘‘equivalent injectables’’ or other 

‘‘equivalent non-oral forms’’ should be 

in the bundle. One commenter 

suggested that only ESRD intravenous 

drugs and their oral equivalents that are 

well known and most manageable be 

included. 

Response: As we discussed in the 

previous response, we identified 

categories of drugs and biologicals 

which were not ESRD-related and 


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therefore, we excluded the payments for 

drugs in those categories from the final 

ESRD PPS base rate. We agree with the 

commenters that drug categories used 

for the treatment of anemia and iron 

deficiency (which includes ESAs and 

intravenous iron), access management 

(which includes alteplase), and bone 

and mineral metabolism (which 

includes vitamin D) would be renal 

dialysis services under the ESRD PPS. 

We also agree that antibiotics used for 

the treatment of venous access 

infections and peritonitis (specifically, 

vancomycin and daptomycin) and 

cellular management (specifically, 

levocarnitine) are renal dialysis services 

under the ESRD PPS. Therefore, 

payments for drugs in these categories 

in injectable forms (covered under Part 

B) and oral or other forms of 

administration (covered under Part D), 

were included in computing the final 

ESRD PPS base rate. We note one 

exception. We understand that the oral 

versions of vancomycin are not used for 

ESRD-related conditions and therefore, 

would not be a renal dialysis service. It 

is also our understanding that 

daptomycin does not have an oral 

equivalent. The categories and drugs 

which are renal dialysis services under 

the ESRD PPS are shown in Table 4 

below. 

With regard to the suggestion that 

there be a differentiation between acute 

and chronic complications, we do not 

believe that such a differentiation is 

required as the definition of renal 

dialysis services does not distinguish 

between renal dialysis services provided 

for acute or for chronic conditions. For 

example, anemia management is a 

chronic condition and access 

management is more acute and the 

drugs and biologicals used for both are 

considered renal dialysis services. 

With regard to the commenter’s 

request to provide a list of specific 

ESRD-only drugs, we recognize that 

drugs and biologicals used for ESRDrelated conditions may change over time 

based upon many factors including new 

developments, evidence-based 

medicine, and patient outcomes. By 

categorizing drugs and biologicals based 

on mechanism of action, we will 

account for other drugs and biologicals 

that may be used for those actions in the 

future under the ESRD PPS. In other 

words, while we have included drugs 

and biologicals used in 2007 in the final 

ESRD base rate, we recognize that these 

may change. Because there are many 

drugs and biologicals that have many 

uses and because new drugs and 

biologicals are being developed, we do 

not believe that a drug-specific list of 

drugs would be beneficial. We have 

provided a list of the specific drugs that 

were included in the ESRD PPS base 

rate in Table C in the Appendix. 

However, any drug or biological 

furnished for the purpose of access 

management, anemia management, 

vascular access or peritonitis, cellular 

management and bone and mineral 

metabolism will be considered renal 

dialysis services under the ESRD PPS. 

We note that any ESRD drugs 

developed in the future that are 

administered by a route of 

administration other than injection or 

oral would be considered renal dialysis 

services and would be in the ESRD 

bundled base rate. Any drug or 

biological used as a substitute for a drug 

or biological that was included in the 

ESRD PPS bundled base rate would also 

be a renal dialysis service and would 

not be eligible for separate payment. 

We believe that categories of drugs 

and biological used for access 

management, anemia management, bone 

and mineral metabolism, and cellular 

management would always be 

considered ESRD-related when 

furnished to an ESRD patient unless the 

ESRD facility indicates a drug or 

biological is non-ESRD-related through 

the use of a modifier. However, because 

anti-infectives are routinely furnished 

for ESRD-related reasons related to 

access infections and peritonitis, we 

included vancomycin and daptomycin 

and all other antibiotics on the 2007 

ESRD claims in computing the final 

ESRD PPS base rate. Therefore, if any 

other anti-infective (including oral or 

other forms used as a substitute for an 

injectable anti-infective) is used for 

vascular access infections or peritonitis, 

the drug would be a renal dialysis 

service and separate payment would not 

be made. 

Under this approach, we are 

presuming these drugs and biologicals 

are renal dialysis services because they 

were included on the ESRD facility 

claims and furnished in conjunction 

with a dialysis treatment. In addition, 

these drugs represent 99.8 percent of 

payments for separately billable drugs 

and biologicals furnished to ESRD 

patients. 

In our analysis for this final rule of 

the drugs and biologicals on the ESRD 

facility claims, we analyzed the remain 

0.2 percent of payments for separately 

billable drugs and identified drug 

categories that we believe could be 

ESRD-related, but are commonly used 

for non-ESRD-related conditions (for 

example, antiemetics and pain 

medications). These are shown in Table 

5. Because these drug and biological 

categories could be ESRD-related, we 

included the payments made under Part 

B for these drugs and biologicals in 2007 

in the final ESRD bundled base rate. In 

other words, for the purpose of the 

ESRD bundle, as of January 1, 2011, 

these drugs are presumed to be renal 

dialysis services unless the ESRD 

facility indicates on the claim (by using 


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a modifier) that a drug or biological in 

these categories is not ESRD-related 

and, separate payment would be made. 

(We discuss the use of the modifier in 

section II.K. of this final rule.) 

Where these drugs are furnished and 

billed by ESRD facilities in conjunction 

with dialysis treatments, we presume 

these drugs and biologicals in whatever 

form they are furnished, to be renal 

dialysis services. As a result, we 

identified the drugs and biologicals for 

these categories and included the 

payments made under Part B for these 

drugs in computing the final ESRD PPS 

base rate. As ESRD facilities are 

required to report all drugs and 

biologicals they furnish and will be able 

to designate drugs and biologicals as 

being ESRD-related or non-ESRD-related 

through the use of a modifier, we will 

be able to monitor the drugs and 

biologicals to identify those that are 

being used for ESRD-related conditions 

and those that are not. 

However, as the oral (or other form of 

administration) substitutes for the drugs 

and biological described above were not 

furnished or billed by ESRD facilities 

nor furnished in conjunction with 

dialysis treatments, we presume that 

these drugs and biologicals currently 

paid under Part D were prescribed for 

non-ESRD-related conditions and are 

not renal dialysis services. Therefore, 

we did not include payment for these 

oral drugs and biologicals with other 

forms of administration in the ESRD 

PPS base rate. However, if these drugs 

and biologicals currently paid under 

Part D are furnished by an ESRD facility 

for ESRD-related purposes, they would 

be considered renal dialysis services. 

We will monitor the use of drugs and 

biologicals in these categories for the 

treatment of ESRD and may add 

categories of drugs and biologicals that 

constitute renal dialysis services (or if 

applicable, eliminate categories of drugs 

and biologicals that no longer constitute 

renal dialysis services) in the future. 

Comment: One commenter questioned 

whether midodrine used to maintain 

blood pressure on dialysis was included 

in the bundle and would the bundle be 

expanded to include all blood pressure 

medications. Another commenter noted 

that the average patient is on 3 to 5 

different anti-hypertensive drugs and 

suggested that if anti-hypertensive drugs 

were in the bundle, that more focus on 

optimal fluid management should 

occur. 

Response: As we discussed above, the 

separately billable Part B payments 

made for cardiac drugs (including antihypertensive drugs) were not included 

in the final ESRD PPS base rate because 

cardiac drugs are included under the 

current basic case-mix adjusted 

composite payment rate. In addition, we 

note that we did not see midodrine 

reported in the 2007 ESRD claims data. 

However, to the extent that that any 

cardiac drug or biological (including 

anti-hypertensive drugs and biologicals) 

are furnished by an ESRD facility for 

ESRD-related conditions, the drug or 

biological would be considered a renal 

dialysis service and separate payment 

will not be made. 

Comment: Some commenters 

indicated that in cooperation with other 

physicians and transplant centers and in 

the patients’ interest, they administer 

medications that are not part of dialysis 

care, such as immunosuppressants and 

antibiotics. One commenter indicated 

that providers will have to undertake an 

expensive appeals process that could 

impair access if there is no recognition 

of non-ESRD-related drugs. The 

commenter further stated if the ESRD 

PPS does not consider that non-ESRDrelated drugs and biologicals are 

furnished by ESRD facilities, 

nephrologists will only be permitted to 

order medications that are included in 

the final ESRD PPS base rate, and 

directly related to dialysis. This 

outcome would make it impossible for 

nephrologists to serve as primary care 

physicians and would force patients to 

see internists and family practice 

physicians incurring additional costs to 

insurers and patients. The commenter 

believed that this will result in 

repetition of unnecessary and expensive 

procedures resulting in higher costs, 

morbidity, and mortality. 

Response: We are aware that drugs 

and biologicals may be administered for 

reasons unrelated to the treatment of 

ESRD or dialysis and would not be renal 

dialysis services covered under the 

ESRD PPS. As discussed above, because 

the 2007 ESRD claims do not 

distinguish between ESRD-related and 

non-ESRD-related drugs and biologicals, 

we were unable to exclude payments for 

those drugs and biologicals from the 

base rate with certainty. To the extent 

that we were able to presume a drug or 

biological was not ESRD-related, we 

excluded the payments. We identify the 

drugs and biologicals that were 

included in the base rate in Table C in 

the Appendix. We have developed a 

mechanism to be used by ESRD 


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facilities to identify and be paid 

separately for non-ESRD-related drugs 

and biological which is discussed in 

section II.K. of this final rule. 

Comment: One commenter 

recommended that we develop a list of 

specific ESRD-only related drugs for 

inclusion in the bundle and that the list 

be periodically updated to account for 

new technology and innovation. 

Response: As discussed above, rather 

than specifying the specific ESRDrelated drugs and biologicals, we 

identified categories based on the 

mechanism of action of these drugs and 

biologicals. We did not specify all of the 

drugs and biologicals within these 

categories because, as we noted above, 

we did not want to inadvertently 

exclude drugs that may be substitutes 

for drugs we identified and we wanted 

the ability to reflect new drugs and 

biologicals developed or changes in 

standards of practice. Therefore, we are 

not restricting or limiting the tables to 

specific drugs or biologicals. However, 

the categories of drugs and biologicals 

which we identified as renal dialysis 

services were included in the final 

ESRD PPS base rate and are shown in 

Table 5. We will monitor the use of 

drugs and biologicals for the treatment 

of ESRD and may add categories of 

drugs and biologicals that constitute 

renal dialysis services (or if applicable, 

eliminate categories of drugs and 

biologicals that no longer constitute 

renal dialysis services) in the future. 

Comment: Some commenters 

suggested that we include levocarnitine 

in the ESRD bundle. 

Response: We agree that levocarnitine 

is used in the treatment of ESRD and 

meets the definition of a renal dialysis 

service. Levocarnitine is included in the 

drug categories shown in Table 4. 

Comment: Some commenters 

indicated that the top 11 ESRD drugs 

and biologicals account for 99.7 percent 

of Part B payments for intravenous 

drugs and biologicals furnished to ESRD 

patients in 2007. The commenters 

believed that the Congress intended that 

only these drugs and their equivalents 

be included in the bundled rate, as these 

drugs normally are administered during 

the course of dialysis treatment. 

Response: We do not agree with the 

commenters that only the top 11 drugs 

and biologicals should be included in 

the ESRD base rate. As we discussed 

above, the top 11 drugs, which in the 

analysis conducted for this final rule 

account for 99.8 percent of ESRD Part B 

separately billable drug payments, are 

included in the ESRD bundled base rate. 

However, there are drugs and 

biologicals (and therefore, categories of 

drugs and biologicals) that were not 

among the top 11 ESRD drugs and 

biologicals, but were determined to be 

renal dialysis services. We discuss these 

categories of drugs and biologicals (for 

example, the pain management 

category), in the discussion above 

concerning categories of drugs that are 

ESRD-related but could be used for nonESRD conditions. 

Comment: A few pediatric dialysis 

facilities noted that drugs administered 

to children usually include antibiotics 

for peritonitis; peritoneal dialysis or 

hemodialysis central venous catheter 

infections; hemodialysis catheter related 

septicemia; alteplase for hemodialysis 

catheter de-clotting; anti-seizure 

medications; ESAs; and vitamin D 

analogs. The commenters indicated that 

antibiotic and alteplase use was more 

prevalent in younger children as well as 

higher ESA dosing per kilogram of body 

weight. Some of these commenters 

provided a list of the pediatric drugs 

and their costs. 

Response: As we discussed above, we 

concur that drugs and biologicals that 

are used for anemia management 

(ESAs), bone and mineral management 

(vitamin D), access infections and 

peritonitis (vancomycin and 

daptomycin), and access management 

(alteplase) are renal dialysis services 

and payments for the drugs in these 

categories have been included in the 

ESRD PPS base rate. However, we did 

not include anti-seizure medications in 

the ESRD PPS base rate because we 

believed that anti-seizure drugs and 

biologicals were used for many 

conditions and were not likely to be 

renal dialysis services. We are not clear 

if the commenter was indicating that 

anti-seizure medications were 

administered to pediatric patients 

because of ESRD-related conditions or 

for other non-ESRD-related conditions. 

However, we will monitor the use of 

anti-seizure drugs and biologicals for 

the treatment of ESRD and may add this 

category of drugs and biologicals that 

constitute renal dialysis services in the 

future. We expect that ESRD facilities 

that treat ESRD patients under the age 

of 18 will report the ESRD-related 

seizure medications on the ESRD 

claims. Where an anti-seizure drug or 

biological is furnished by the ESRD 

facility and reported without a modifier, 

separate payment would not be made. 

Further discussions on pediatric ESRD 

patients are in section II.G. of this final 

rule. 

Comment: Many commenters opposed 

the inclusion of antibiotics in the 

bundled payment indicating that 

antibiotics are often administered 

during dialysis for non-renal reasons 

such as pneumonia or wound infection 

and, therefore, should remain separately 

billable. Others explained that 

antibiotics are administered when an 

infection is suspected in patients 

receiving dialysis treatment, noting that 

administration of antibiotics decreases 

hospitalizations, emergency room visits, 

shortens hospital days, and decreases 

mortality. These commenters believed 

that if antibiotics are included in the 

bundle, it would serve as a disincentive 

for early infection intervention. Others 

explained that antibiotics are often not 

prescribed by nephrologists and, 

therefore, would not be renal dialysis 

services. Still others noted that 

administering antibiotics during dialysis 

is less expensive to administer because 

there is vascular access readily 

available. 

Another commenter indicated that 

antibiotics are administered to severely 

ill patients prior to transfer to the 

emergency department. Several 

commenters explained that dialysis 

‘‘clears many antibiotics’’ and indicated 

that if patients do not receive antibiotics 

during or at the end of dialysis, there is 

a likelihood that their blood levels 

would be subtherapeutic, increasing the 

risk of recurrent infection and 

hospitalization. One commenter 

provided a case example. Some 

commenters predict that providers will 

decline to administer medications not 

directly related to kidney failure, such 

as antibiotics for infected foot ulcers, or 

will use less proven oral regimens to 

complete treatment. 

Response: We acknowledge that 

antibiotics may be administered in an 

ESRD facility for purposes other than 

dialysis or ESRD-related conditions as 

well as for treatment of vascular access 

infections. Included in the top 11 drugs 

and biological are vancomycin and 

daptomycin. We believe that there are 

other antibiotics that may be 

administered for vascular access related 

infections and peritonitis. Therefore, we 

included all antibiotics, with the 

exception of antivirals, that were on the 

2007 ESRD claims, into the ESRD 

bundled base rate. ESRD facilities will 

be able to identify on the ESRD claims 

any antibiotic administered for nonESRD related reasons, and receive 

payment for those non-ESRD related 

antibiotics. We note, if an anti-infective 

(including anti-bacterials and antifungals) are administered for the 

purpose of a vascular access infection or 

peritonitis, the drug would be 

considered a renal dialysis service and 

not eligible for separate payment. This 

also applies to any drugs or biologicals 

that may be developed in the future. 

Comment: In general, commenters 

supported the agency’s reading of the 


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statute with regard to oral drugs with 

injectable equivalents (or some other 

form of administration). In particular, 

several commenters fully supported 

inclusion of oral drugs that are 

equivalent, full replacement products 

for injectable Part B drugs in the ESRD 

PPS. 

Response: We appreciate these 

comments and agree that such oral 

drugs are required to be included in the 

ESRD PPS because such drugs meet the 

definition of ‘‘renal dialysis services’’ 

under section 1881(b)(14)(B) of the Act. 

Comment: One commenter suggested 

that the bundle include oral drugs with 

intravenous equivalents, phosphate 

binders, and calcimimetics essential for 

bone health and mineral metabolism. A 

few commenters provided a list of drugs 

and cost amounts. One commenter 

believed bundling of intravenous drugs 

is straightforward with bundling of oral 

equivalents being less logical. Some 

commenters believed that oral drugs 

such as cinacalcet HCL, lanthanum 

carbonate, calcium acetate, sevelamar 

HCL, and sevelemar carbonate 

commonly taken by patients on dialysis 

and non-dialysis days, should not be in 

the bundle. One commenter 

acknowledged that zemplar and other 

vitamin D products belong in the bundle 

as they are oral equivalents of 

intravenous vitamin D. Another 

commenter believed that vitamin D and 

oral iron were the only currently 

available oral drugs with intravenous 

equivalents and therefore the only oral 

drugs in the bundle. One commenter 

stated that oral drugs with injectable 

equivalents are primarily prescribed for 

peritoneal dialysis and home 

hemodialysis patients. Other 

commenters supported the need to 

revisit the issue and ensure that the only 

drugs in the bundle are those that are 

separately billable by dialysis facilities 

and have an intravenous equivalent. 

Response: As explained in section 

II.A.3. of this final rule, oral-only ESRDrelated drugs and biologicals currently 

paid under Part D meet the definition of 

a renal dialysis service, but 

implementation of these drugs under 

the ESRD PPS is delayed until January 

1, 2014. We do not agree with the 

comment that bundling of oral 

equivalents is less logical than bundling 

injectable drugs. As we have discussed 

above, section 1881(b)(14)(B)(iii) of the 

Act specifies that other drugs and 

biologicals that were furnished to 

individuals for the treatment of ESRD, 

and for which payment was made 

separately under this title, prior to the 

implementation of the ESRD PPS, and 

their oral equivalent forms, must be 

included in the ESRD PPS payment 

bundle. 

Based upon our determination of the 

categories of drugs and biologicals that 

are renal dialysis services, at this time 

there are oral or other forms of 

injectable drugs only for the bone and 

mineral metabolism and cellular 

management categories. As discussed 

earlier in this section, we did not 

include the non-injectable form of 

vancomycin because we believe that the 

oral or other forms of these antiinfectives are not used for ESRD-related 

access infections. In addition, we were 

not able to identify any oral or other 

form of administration for iron 

prescriptions. Therefore, payments 

related to the oral or other forms of 

these injectable drugs were not included 

in the ESRD PPS base rate. As a result, 

for purposes of calculating the ESRD 

PPS base rate, we included the 

payments under Part D for oral vitamin 

D (calcitrol, doxercalcitrol and 

paracalcitrol) and oral levocarnitine. To 

the extent an ESRD facility furnishes an 

injectable, oral or other form of a drug 

or biological that is ESRD-related, the 

facility should report the drug or 

biological on the ESRD claim without a 

modifier and no separate payment 

would be made. 

Therefore, we are finalizing the 

definition of renal dialysis services 

under § 413.171 as proposed. 

4. Diagnostic Laboratory Tests and 

Other Items and Services 

Section 1881(b)(14)(B)(iv) of the Act 

requires that diagnostic laboratory tests 

not included under the composite 

payment rate (that is, currently 

separately billable laboratory tests) must 

be included as part of the ESRD PPS 

payment bundle. We proposed to define 

such laboratory tests as laboratory tests 

that are separately billed by ESRD 

facilities as of December 31, 2010, and 

laboratory tests ordered by a physician 

who receives monthly capitation 

payments (MCPs) for treating ESRD 

patients that are separately billed by 

independent laboratories (74 FR 49929). 

We proposed that payments for these 

laboratory services would be included 

in the development of the proposed 

patient-specific case-mix adjusters and 

in the proposed ESRD base rate to 

which the adjusters would be applied. 

Section 1881(b)(14)(B)(iv) of the Act 

also requires that the ESRD PPS 

payment bundle include ‘‘other items 

and services not described in clause (i).’’ 

In the proposed rule, we noted that this 

language can be reasonably interpreted 

to include other separately billable 

items and services used in the treatment 

of ESRD, such as supplies and other 

self-dialysis services (74 FR 49929). We 

noted that examples of such items and 

services would include, but would not 

be limited to, items such as syringes, 

specialized tubing, as well as blood and 

blood products, which facilities may 

furnish during the dialysis treatment. 

We also stated that we believe that the 

statutory language can be interpreted to 

include the cost of other self-dialysis 

training services in the ESRD PPS (for 

further detail on self-dialysis training 

(74 FR 49930)). We proposed that such 

items and services be included in the 

ESRD PPS bundle and that the inclusion 

of diagnostic laboratory tests and other 

items and services as renal dialysis 

services in the ESRD PPS payment 

bundle is set forth in proposed 

§ 413.171. 

The comments we received on this 

proposal and our responses are set forth 

below. 

Comment: We received many 

comments addressing our methodology 

for the inclusion of diagnostic 

laboratory tests in the ESRD PPS 

payment bundle. Commenters noted 

that the inclusion of such tests in the 

bundled ESRD PPS will subject 

Medicare beneficiaries for the first time 

to a 20 percent coinsurance payment 

obligation. The commenters reasoned 

that our proposal that Medicare pay for 

80 percent of diagnostic laboratory tests 

through their inclusion in the payment 

bundle violates the statutory 

requirement that the Secretary ensure 

that the estimated amount of total 

payments under title XVIII for renal 

dialysis services in 2011 equal 98 

percent of the amount of payments that 

would have been made, but for the PPS. 

Some commenters stated that section 

1833(a)(2)(D)(ii) of the Act specifies that 

for clinical laboratory tests paid under 

Medicare Part B on the basis of 

negotiated rates, the payment amount 

must equal 100 percent of the negotiated 

rate (incidentally, we note that a few 

commenters cited to section 

1883(a)(2)(D)(ii) of the Act, but we 

presume those commenters intended to 

instead reference section 

1833(a)(2)(D)(ii) of the Act). 

Accordingly, the commenters requested 

that we revise the payment amount for 

laboratory tests included in the bundle 

to reflect 100 percent of the allowable 

amount. 

Response: Cost sharing with respect to 

laboratory services is addressed in 

section 1833(a)(2)(D) of the Act. We note 

that nothing changes in terms of the 

cost-sharing structure for non-ESRDrelated laboratory tests. Under the 

definition of renal dialysis services 

under section 1881(b)(14)(B)(iv) of the 

Act, ESRD-related laboratory tests 


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would be considered to be renal dialysis 

services under the new ESRD PPS, 

subject to the usual coinsurance applied 

to such Part B services. A few 

commenters appeared to be under the 

impression that only 80 percent of 

payments for laboratory tests were 

included in the calculation of the base 

rate. This is incorrect. We included 100 

percent of payments for laboratory 

services in the ESRD PPS base rate. As 

with all other renal dialysis services 

included in the payment bundle, these 

laboratory services will be part of the 

ESRD PPS payment rate and would be 

subject to the customary 20 percent Part 

B coinsurance amount. 

Comment: Many commenters took 

issue with our proposal to include 

laboratory tests ordered by MCP 

physicians for treating ESRD 

beneficiaries, and that are billed 

separately by independent laboratories, 

and our proposal to include all these 

tests billed by independent laboratories 

for ESRD patients in the payment 

bundle. Numerous commenters pointed 

out that in many instances the MCP 

physician is the primary care physician 

for the ESRD patient and often has 

laboratory tests performed for 

conditions unrelated to ESRD. The 

commenters asserted that requiring 

ESRD facilities to pay for such tests 

would result in a potentially vast 

number of tests unrelated to the 

treatment of ESRD being inappropriately 

included in the ESRD payment bundle. 

Response: Section 1881(b)(14)(B)(iv) 

of the Act specifies that the ESRD PPS 

must include ‘‘diagnostic laboratory 

tests * * * that are furnished to 

individuals for the treatment of endstage renal disease.’’ We interpreted this 

language to include laboratory tests 

ordered by MCP physicians for treating 

ESRD beneficiaries and that are 

currently billed separately by 

independent laboratories. We recognize 

that there is a small subset of laboratory 

tests that are typically performed in 

connection with a patient’s ESRD, and 

that are appropriately considered renal 

dialysis services because they are 

furnished for the treatment of ESRD, but 

that can also be done for non-ESRD 

reasons. For example, a complete blood 

count (CBC) could be ordered for an 

ESRD patient in connection with 

routine testing for hemoglobin or 

hematocrit to ensure appropriate 

management of anemia, an ESRD-related 

purposes. However, a CBC could also be 

ordered for an ESRD beneficiary to 

measure the amount of blood loss in 

response to a suspected lower 

gastrointestinal bleed, or to measure 

infection (for example, white blood cell 

count for a suspected pneumonia), nonESRD purposes. 

The 2007 ESRD facility claims do not 

distinguish between ESRD-related and 

non-ESRD-related laboratory services. 

We included payments for all tests 

billed by independent laboratories for 

ESRD patients in calculating the final 

base rate in order to appropriately 

account for such tests as renal dialysis 

services. We presumed that MCP 

physicians, for the most part, order 

laboratory tests for ESRD beneficiaries 

for ESRD-related purposes. However, as 

we recognize that certain non-ESRD 

laboratory tests may be ordered in 

conjunction with ESRD-related 

laboratory tests, we have developed 

billing modifiers to provide for separate 

payment where the testing is not ESRDrelated (section II.K.2. of this final rule). 

Comment: Several commenters 

recommended that we include in the 

ESRD PPS payment bundle, only those 

laboratory tests that are generally 

furnished for the treatment of ESRD, 

and included lists of approximately 50 

tests which they believe account for 

about 95 percent of the laboratory tests 

ordered by ESRD facilities for ESRD 

patients. The commenters pointed out 

that such specificity would leave no 

doubt as to whether a particular 

laboratory test would be included or 

excluded from the payment bundle, 

would not create billing rules other than 

the list of 50 to 60 current procedural 

technology (CPT) codes that would not 

be separately billable, and would not 

result in the attachment of testing 

frequencies to the included tests. The 

commenters also stated that there is 

precedent for their recommendation, 

pointing out that CMS excluded ESRDrelated clinical laboratory tests from the 

skilled nursing facility consolidated 

payment, and published a list of those 

ESRD-related tests, which closely 

resemble the tests which the 

commenters submitted for consideration 

as ESRD-related for inclusion in the 

ESRD PPS. Other commenters submitted 

their recommended list of ESRD-related 

laboratory tests. 

Response: We agree with the 

commenters that limiting the laboratory 

tests for payment under the ESRD PPS 

payment bundle to specific tests that are 

customarily performed in connection 

with the treatment of ESRD comports 

with section 1881(b)(14)(B)(iv) of the 

Act and would be a straight forward 

method of capturing only ESRD-related 

laboratory testing. In addition, we 

needed to develop a list of ESRD-related 

laboratory tests for consolidating billing 

edits to ensure that payment is not made 

to independent laboratories for ESRDrelated laboratory tests. However, based 

on a review of the lists of ESRD-related 

laboratory tests in the Medicare Claims 

Processing Manual and received in 

public comments, it appears there is 

currently not consensus among the 

various stakeholders about the 

laboratory testing commonly furnished 

to ESRD patients. 

Therefore, in order to develop a list of 

ESRD-related laboratory tests, we 

identified those laboratory tests that 

were most frequently identified on the 

lists we reviewed. Then, we received 

input from physicians working with 

UM–KECC. Lastly, CMS physicians and 

other clinical staff finalized the list 

which is contained in Table F of the 

Appendix. As discussed in more detail 

in section II.K.2. of this final rule, we 

will be implementing consolidated 

billing edits to prevent payment to 

independent laboratories for tests on the 

list of ESRD-related laboratory tests 

unless a modifier is reported indicating 

the test is not ESRD-related. 

ESRD facilities should report on their 

claims all laboratory tests ordered by the 

MCP physician. We will establish a 

modifier so that ESRD facilities may 

continue to be paid separately for nonESRD-related laboratory tests. We plan 

to review the ESRD-related laboratory 

tests reported by ESRD facilities to 

ensure that the laboratory list continues 

to reflect common ESRD-related 

laboratory testing. 

Comment: Commenters noted that we 

proposed to include in the ESRD PPS 

blood and blood products to the extent 

these items were furnished by ESRD 

facilities and reported on the type ESRD 

claims. One commenter pointed out that 

patients are transfused infrequently in 

ESRD facilities, and that most 

transfusions occur in hospital outpatient 

settings. The commenter stated that if 

ESRD facilities are to be held 

responsible for blood transfusions 

administered to dialysis patients, then 

the costs from other outpatient settings 

need to be captured and added to the 

payments developed from dialysis 

facility claims to compute the ESRD PPS 

base rate. 

Another commenter opposed the 

inclusion of blood and blood products 

in the payment bundle. This commenter 

stated that blood transfusions for 

outpatient dialysis patients do not 

represent the current first line standardof-care intervention for the treatment of 

ESRD, having largely been replaced by 

anemia management drugs. Because 

their administration in dialysis facilities 

is relatively infrequent, the commenter 

requested that to the extent dialysis 

facilities furnish blood or blood 

products ordered by an MCP physician, 

these costs should be excluded from the 


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ESRD PPS payment bundle and remain 

separately billable. 

Response: We agree with the 

commenter that the furnishing of blood 

and blood products by ESRD facilities to 

ESRD beneficiaries is a relatively 

infrequent and unusual occurrence, and 

we believe that it does not represent 

standard clinical practice for the 

management of anemia in connection 

with the treatment of ESRD. ESRD 

facilities may also furnish blood and 

blood products for non-ESRD reasons 

ordered by an MCP physician for the 

convenience of the patient undergoing 

dialysis. We also agree that the 

administration of blood and blood 

products is usually performed in a 

hospital outpatient setting, generally for 

non-ESRD reasons. 

For these reasons, we do not consider 

the furnishing of blood and blood 

products to be renal dialysis services 

under the statute and, therefore, these 

services would be excluded from the 

ESRD PPS payment bundle. The 

furnishing of blood, blood products, and 

blood supplies in connection with 

transfusions will remain separately 

billable when they are administered in 

an ESRD facility. The total payments for 

blood and blood products to ESRD 

facilities as reported on available ESRD 

claims in CY 2007 was $1,504,831. We 

have excluded this amount from the 

computation of the final ESRD PPS base 

rate, consistent with our determination 

that blood and blood products are not 

renal dialysis services. 

We note that the incentives under the 

ESRD PPS may lead to under treatment 

of anemia, a critical clinical indicator 

for ESRD patients, necessitating blood 

transfusions for patients whose 

hemoglobin levels drop too low. We 

plan to monitor the extent to which 

dialysis patients receive transfusions 

after implementation of the ESRD PPS. 

If practice patterns change such that the 

administration of transfusions and 

furnishing of blood and blood products 

substantially increase, we may 

subsequently reexamine whether these 

services should be considered renal 

dialysis services used for the treatment 

of ESRD and included in the ESRD PPS 

payment bundle. 

With respect to the laboratory tests 

included in developing the ESRD PPS 

base rate, we are finalizing our proposal 

to include payments for outpatient 

laboratory tests billed on ESRD facility 

claims, as well as payments for 

laboratory tests ordered by physicians 

receiving MCP amounts and billed on 

carrier claims. We used the list of CY 

2007 MCP physicians for this purpose. 

The ESRD related laboratory tests that 

will be subject to the ESRD PPS are 

identified in Appendix Table F of this 

final rule. 

5. Physicians’ Services 

Section 1881(b)(14)(A)(i), as added by 

MIPPA, states as follows in pertinent 

part: 

* * * the Secretary shall implement a 

payment system under which a single 

payment is made under this title to a 

provider of services or a renal dialysis facility 

for renal dialysis services (as defined in 

subparagraph (B)) in lieu of any other 

payment * * * and for such services and 

items furnished pursuant to [section 

1881(b)(4)]. 

As we indicated in the proposed rule, 

we believe this provision generally 

governs payment to ESRD facilities (74 

FR 49931). With regard to physicians’ 

services related to renal dialysis, such 

services are addressed separately in 

section 1881(b)(3) of the Act. In the 

ESRD PPS proposed rule, we indicated 

that we did not intend to significantly 

modify payment for physicians’ 

services, and stated that any changes 

with regard to the payment for 

physicians’ services related to renal 

dialysis would be addressed in future 

rulemaking (74 FR 49931). 

Comment: Numerous commenters 

supported our decision in the proposed 

rule to exclude physician services from 

the ESRD PPS payment bundle. We 

received no comments endorsing the 

inclusion of these services in the 

bundle. 

Response: We appreciate the views of 

the commenters. As we indicated in the 

proposed rule, we are limiting the scope 

of this rulemaking to payment for home 

dialysis and renal dialysis services 

furnished by ESRD facilities. Therefore, 

we do not, at this time, intend to modify 

payment for physicians’ services. Any 

changes in payment for physicians’ 

services related to renal dialysis would 

be addressed in future rulemaking. 

6. Other Services 

The comments and our responses are 

set forth below. 

Comment: One commenter requested 

that we clarify that services that may be 

furnished to beneficiaries at the time of 

a dialysis session, but not furnished 

specifically for the treatment of ESRD, 

would be excluded from the proposed 

ESRD bundled payment system. The 

commenter cited apheresis treatment as 

an example. Because apheresis, like 

dialysis, filters a patient’s blood, the 

commenter was concerned that this 

treatment regimen may be incorrectly 

viewed as a treatment for ESRD. The 

commenter further explained that 

although both dialysis and apheresis 

filter the patient’s blood, the procedures 

accomplish different objectives. The 

commenter stated that in dialysis the 

purpose is to clear wastes from the 

blood, restore electrolyte balance, and 

eliminate excess bodily fluid, whereas 

the purpose of apheresis is to remove 

from the blood certain blood 

components such as abnormal proteins 

implicated in a disease. 

The commenter recommended that 

Medicare policy take no steps that 

would financially incentivize fracturing 

dialysis and apheresis into separate 

patient visits, but encouraged service 

alignments. 

Response: As described in greater 

detail in section II.A. of this final rule, 

items and services included within the 

ESRD PPS are home dialysis and those 

items and services that meet the 

definition of ‘‘renal dialysis services’’ 

and are furnished to individuals for the 

treatment of ESRD. Moreover, such 

services are considered essential for the 

delivery of outpatient maintenance 

dialysis. Therefore, the fact that an 

unrelated, non-ESRD item or service is 

furnished at the time of a maintenance 

dialysis treatment would not mean that 

the particular item or service would be 

bundled into the ESRD PPS. 

Because at this time, we do not 

consider apheresis to be a renal dialyisis 

service that is furnished to individuals 

for the treatment of ESRD, or to be 

essential for the delivery of maintenance 

dialysis, we have not included apheresis 

services in the ESRD PPS. As a result, 

we would expect that the delivery of 

apheresis in the ESRD facility setting 

would occur infrequently. However, we 

note that to the extent that the coverage 

provisions for apheresis are met, as set 

forth in the National Coverage 

Determination (NCD) Manual, apheresis 

services may be payable outside the 

scope of ESRD facility payment, and in 

accordance with hospital or nonhospital 

setting payment policies (for example, 

hospital inpatient prospective payment 

system (IPPS), outpatient prospective 

payment system (OPPS), or the 

physicians’ fee schedule). 

Medicare coverage provisions for 

apheresis procedures for certain 

indications are set forth in the CMS 

Internet Only Manual (Pub. L. 100–03; 

Chapter 1, Part 2, section 110.14), 

available online at: http:// 

www.cms.hhs.gov/Manuals/IOM/ 

list.asp?listpage=1. Please note that 

indications not specifically addressed in 

section 110.14 of the NCD Manual are 

left to local contractor discretion. 

Comment: One commenter pointed 

out that occasionally a hospital or 

ambulatory surgical center (ASC) may 

furnish services to an ESRD patient. The 

commenter expressed concern that the 


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‘‘other items and services’’ language in 

section 1881(b)(14)(B)(iv) of the Act 

could be interpreted as including such 

services in the ESRD PPS payment 

bundle. The commenter requested that 

CMS clarify that the definition of ‘‘renal 

dialysis services’’ excludes inpatient 

services, emergency hospital services 

(including dialysis furnished to ESRD 

patients), and hospital or ASC services 

relating to the creation or maintenance 

of a patient’s vascular access. 

Response: None of the services which 

the commenter described were included 

in developing the ESRD PPS base rate, 

and none of them are considered renal 

dialysis services for inclusion in the 

PPS payment bundle. Moreover, these 

services are reimbursed under other 

Medicare payment systems. Hospital 

inpatient services, emergency services 

(including emergency dialysis) 

furnished to ESRD patients, and certain 

outpatient procedures necessary to 

maintain vascular access (that is, those 

which cannot be addressed by the ESRD 

facilities using procedures that are 

considered part of routine vascular 

access), are excluded from the definition 

of renal dialysis services and are not 

included in the ESRD PPS payment 

bundle. We note that currently ESRD 

facilities utilize medications to maintain 

vascular access. We would consider the 

administration of medications that are 

currently performed by ESRD facilities 

to fall within the definition of renal 

dialysis services and paid for under the 

ESRD PPS. 

Comment: Several commenters 

requested confirmation that nutritional 

supplements such as intradialytic 

parenteral nutrition (IDPN) and 

intraperitoneal parenteral nutrition 

(IPN) are not included in the ESRD PPS 

payment bundle. 

Response: We do not consider 

nutritional therapies, even though (as in 

the case of IDPN) they are often 

administered during a patient’s dialysis 

treatment, to be related to the treatment 

of ESRD. Nutritional supplements have 

never been considered part of the ESRD 

benefit, because they have not been 

considered integral to the furnishing of 

outpatient maintenance dialysis, and are 

not included in the ESRD PPS as Part B 

renal dialysis services. 

Comment: One commenter stated that 

when adding up the numbers in Table 

8 of the proposed rule (74 FR 49940), 

the total expenditures for composite rate 

and separately billable services 

included in payment bundle was 

$9,876,466,063, more than $636 million 

higher than the total shown of 

$9,239,987,362. The commenter 

inquired as to the reason for the 

discrepancy. 

Response: There is no discrepancy. 

The totals shown in Table 8 of the 

proposed rule for vitamin D 

($402,447,416) and injectable iron 

($234,031,283) are each subdivided to 

show the payment amounts for each of 

the drugs which comprise these 

categories. The commenter has 

inadvertently added the component 

amounts for each of these payment 

categories along with the totals for the 

two categories, resulting in an 

overstatement of ESRD expenditures of 

$636,478,699. 

7. Home Dialysis Patients (Method I and 

II) and Self Dialysis Training 

Section 1881(b)(4) of the Act 

authorizes the Secretary to make 

payment to providers of services and 

renal dialysis facilities, and to suppliers 

of home dialysis supplies and 

equipment, for the cost of home dialysis 

supplies and equipment and self-care 

home dialysis support services 

furnished to patients for self-care home 

dialysis under the supervision of such 

provider or facility. Currently, 

hemodialysis, continuous cycling 

peritoneal dialysis (CCPD), intermittent 

peritoneal dialysis (IPD) and continuous 

ambulatory peritoneal dialysis (CAPD) 

treatment modalities may be performed 

at home by appropriately trained 

patients. Medicare beneficiaries 

dialyzing at home must complete a 

Medicare Beneficiary Form (CMS–382) 

selecting between two methods of 

payment (Method I or Method II) as 

described in detail in the ESRD PPS 

proposed rule (74 FR 49929). 

a. Payment for Home Dialysis (Method 

I and Method II) 

As a result of the enactment of section 

153(b) of MIPPA, we proposed that 

payment for home dialysis services 

(excluding physician services) furnished 

to both Method I and Method II home 

dialysis patients under the current basic 

case-mix adjusted composite payment 

system would be included in the 

bundled payment to the ESRD facility 

under the ESRD PPS (74 FR 49929 

through 49930). We also proposed that 

the costs of home dialysis training be 

included in the composite rate portion 

of the two-equation regression model for 

determining payment adjustments 

under the ESRD PPS (74 FR 49930 

through 49931). 

Below we address the general 

comments we received on home 

dialysis, but in subsequent subsections 

we address more specific comments on 

the proposals on Method I and Method 

II and self-dialysis training. 

Comment: A commenter noted that 

section 1881(b)(14)(D)(iv) of the Act 

gives the Secretary the discretionary 

authority to include payment 

adjustments to the ESRD PPS as the 

Secretary determines appropriate. The 

commenter requested that CMS provide 

a separate adjustment that would 

account for the unique cost associated 

with providing home dialysis that 

would include: (1) Training for home 

dialysis; (2) support services; and (3) 

emergency home dialysis supplies, so 

that dialysis facilities do not neglect 

their responsibility to the care of ESRD 

home dialysis patients for financial 

reasons. The commenter stated that in 

the proposed rule, the training 

reimbursement for home dialysis 

services was fashioned to apply to all 

patients regardless of whether training 

services were actually provided to them. 

The commenter stated that the current 

system fosters a financial disincentive 

for home dialysis by encouraging 

providers to minimize the number of 

home dialysis patients they accept. To 

eliminate this financial disincentive, the 

commenter recommended that CMS 

remove home dialysis costs from the 

bundled rate and include this 

reimbursement in a separate adjustment. 

Response: Section 1881(b)(14)(A)(i) of 

the Act requires the Secretary to 

implement a payment system under 

which a single payment is made under 

this title to an ESRD facility for renal 

dialysis services for such services and 

items furnished pursuant to section 

1881(b)(4) of the Act. Therefore, we are 

required to include payment for home 

dialysis training, equipment and 

supplies, and support services in 

computing the single bundled payment 

base rate. 

As we explained in the ESRD PPS 

proposed rule (74 FR 59930), when 

ESRD facilities furnish home dialysis 

training, Medicare pays the ESRD 

facility its case-mix adjusted composite 

rate plus a training add-on of $12 for 

peritoneal dialysis and $20 for 

hemodialysis and CCPD to account for 

the staff time, supplies, and equipment 

associated with training treatments. We 

believe the ESRD PPS base rate 

adequately accounts for the costs 

associated with equipment and 

supplies. However, we agree with the 

commenter, that the base rate does not 

capture the unique staffing costs 

associated with home dialysis training. 

Section 494.100(a) of the ESRD 

Conditions for Coverage requires that 

training be conducted by a registered 

nurse. Thus, as training involves oneon-one training sessions with a nurse, 

we believe a separate adjustment to 

reflect those costs are warranted. 

We discuss the training payment 

adjustment we are finalizing in 


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subsection (b) of this section of the final 

rule. 

Comment: A commenter suggested 

that CMS evaluate the cost of care for 

nursing home hemodialysis patients and 

create an adjustment for these patients 

under the ESRD PPS. The commenter 

stated that nursing home hemodialysis 

patients incur unique costs that pertain 

to one-machine per patient, 

administrative burdens, co-morbidities, 

higher turn-over rates, and require 

nursing caregiver assistance for dialysis 

administration. The commenter asserted 

that despite certain co-morbidities not 

being included in the ESRD PPS for 

case-mix adjustments, a nursing 

caregiver staff assistant is still required 

for dialysis administration. The 

commenter further stated that CMS 

failed to explain how the inclusion of 

home dialysis costs in the ESRD PPS 

bundled payment system creates an 

incentive to provide home dialysis in 

cases where the costs to treat patients is 

greater than the reimbursement CMS 

proposed. The commenter suggested 

that a special adjustment be afforded to 

cover these unique costs. 

Response: Nursing home patients are 

regarded as home dialysis patients 

because they are considered residents of 

the nursing home and receive dialysis 

treatments at the nursing homes and not 

at dialysis facilities. We disagree with 

this commenter’s assertions because the 

unique costs they described are no 

different from any other home dialysis 

patient where there is one-machine per 

patient, co-morbidities, and patient 

turn-over occurs due to kidney 

transplantation. We, therefore, do not 

believe that a separate adjustment for 

nursing home ESRD patients is 

warranted. 

The other unique costs identified by 

this commenter pertained to nursingrelated caregiver services. The 

commenter stated that all nursing home 

dialysis patients must have a trained 

caregiver in order to dialyze at a nursing 

home and that these caregiver services 

are not covered under the ESRD benefit. 

The commenter is correct that caregiver 

services are not covered under the ESRD 

benefit, including caregiver services 

furnished to nursing home dialysis 

patients. Thus, caregiver services are not 

considered to be renal dialysis services 

and are not reflected in the ESRD PPS 

base rate nor in the payment 

adjustments. 

Comment: Some commenters 

suggested that CMS allow for selfadministration of injectable ESRDrelated drugs at home by home dialysis 

patients. The commenters indicated that 

home dialysis patients would prefer to 

self-administer all injectable ESRDrelated drugs at home to include EPO, 

rather than traveling to the dialysis 

facility to receive the injectable drugs. 

The commenters reasoned that since 

injectable drugs such as EPO, Vitamin 

D, and IV iron are included in the ESRD 

PPS bundle, patients should have the 

option to self-administer these drugs at 

home. 

Response: Under section 1861(s)(2)(O) 

of the Act, self-administration of 

erythropoietin (EPO) is permitted for 

dialysis patients who are competent to 

use such drug without medical or other 

supervision with regard to the 

administration of such drug. If a dialysis 

patient meets this requirement, then he 

or she can self-administer 

erythropoietin at home. Payment for 

erythropoietin and supplies needed to 

self-administer the drug would be 

included in the ESRD PPS payment. 

The ESRD PPS does not 

fundamentally alter how other 

injectable drugs are administered under 

Part B. Thus, under the ESRD PPS, 

home dialysis patients would continue 

to go to the dialysis facility for the 

administration of other injectable drugs. 

Comment: Some commenters 

expressed concern that CMS did not 

fully account for supplies in estimating 

the cost of home dialysis programs. 

They indicated that there is a one-time 

cost associated with certain supplies 

and equipment (scales, thermometer, 

blood pressure equipment, etc.) and 

continuing costs for daily treatment 

including disposable supplies for 

peritoneal dialysis (dialysate, syringes, 

needles, masks, latex gloves, etc.). 

The commenters were also concerned 

that since supplies are delivered 

monthly, the facility pays up front for 

those supplies. Commenters claimed 

that should a patient discontinue 

treatment, change modalities, or for 

other reasons stop using the delivered 

supplies, the dialysis facility cannot 

move supplies from one patient to 

another because of infection control 

issues. Commenters stated that the cost 

of these supplies is borne by the facility. 

The commenter stated that these cost 

are not recognized in the proposed 

ESRD PPS, and facilities will no longer 

be able to bill separately for supplies 

without a treatment. 

Response: In accordance with 

§ 410.52 and § 414.330, Medicare Part B 

pays for all medically necessary home 

equipment and supplies for the effective 

performance of a patient’s dialysis in 

the ESRD patients home. Medicare 

currently pays for home dialysis 

equipment and supplies under the basic 

case-mix adjusted composite rate 

(Method I) and for claims submitted by 

the DME supplier of home dialysis 

equipment and supplies (Method II). We 

proposed that the costs of home dialysis 

services furnished under Method I and 

Method II, regardless of home treatment 

modality, would be included in the 

proposed ESRD PPS (74 FR 49929). 

As explained in great detail in the 

data section of the proposed rule (74 FR 

49934 through 49935), we obtained cost 

information from 4,573 CY 2006 cost 

reports, for both hospital-based and 

independent ESRD facilities. Cost data 

obtained from these cost reports 

included all costs necessary to furnish 

home dialysis treatments including 

staff, equipment and supplies. Even 

though a dialysis facility could incur 

some up-front costs for supplies for 

home dialysis patients, these costs are 

reported as supply costs on the 

provider’s cost report and were 

included in the composite rate part of 

the model. Therefore, by including 

home dialysis costs in the composite 

rate portion of the two-equation ESRD 

PPS model (described in section II.D. of 

this final rule), we believe we have 

appropriately accounted for the cost of 

home dialysis services and supplies. 

Comment: A number of commenters 

indicated that CMS should actively 

monitor home dialysis utilization after 

the ESRD PPS is implemented via a 

formal plan consistent with the GAO’s 

recommendation, which CMS has 

publically supported. 

Another commenter recommended 

that CMS monitor the effect of the new 

payment system on use of training 

services and home dialysis. Also, 

commenters suggested that more 

specific coding would facilitate such an 

effort by enabling CMS and researchers 

to better analyze trends in the use of 

these services. For example, 

commenters indicated that specific 

codes on facility claims could identify 

particular types of training services, 

home dialysis services, and in-facility 

dialysis services. Commenters also 

believe that a strengthened monitoring 

plan should help CMS assess the use of 

dialysis services, identify lapses in care, 

give providers an incentive to furnish 

all clinically necessary care, and lead to 

quality improvement. 

Response: We agree with the 

commenters that increased monitoring 

will be needed to monitor the effects of 

the new ESRD PPS. We concurred with 

the GAO’s recommendation in its May 

2009 report and we intend to assess the 

effect of the expanded bundled payment 

on home dialysis utilization rates. We 

also agreed with GAO on the need to 

establish a monitoring plan under the 

new bundled ESRD PPS that includes 

an examination of home dialysis 

utilization. We expect to establish such 


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a plan after we promulgate this final 

ESRD PPS. With regard to establishing 

more specific code for home dialysis 

equipment, supplies, and services, we 

will take these comments into 

consideration as we make changes to the 

cost report to reflect the ESRD PPS. 

Changes in coding will be established 

through administrative issuances. 

i. Method I—The Composite Rate 

In accordance with § 414.330(a), 

under the basic case-mix adjusted 

composite payment system, the ESRD 

facility receives the same Medicare 

payment rate for a home dialysis 

treatment as it would receive for an infacility treatment. Under Method I, the 

ESRD facility bills the fiscal 

intermediary Medicare administration 

contractor (FI/MAC) for needed 

supplies, equipment, and drugs, and the 

beneficiary is responsible for paying the 

Medicare Part B deductible and the 20 

percent coinsurance on the total 

Medicare payment made to the facility. 

Although we proposed that the costs for 

home dialysis services furnished under 

Method I would be included in the 

single payment rate under the proposed 

ESRD PPS, we did not propose any 

changes to Method I as this approach 

could continue to be used under the 

ESRD PPS (74 FR 49930). 

The comments we received on this 

proposal and our responses are set forth 

below. 

Comment: Several commenters 

expressed support for continuing to 

provide the same payment for home 

dialysis and in-facility treatments, 

which commenters believe will support 

CMS’s goal of increasing the number of 

patients that elect the various home 

dialysis therapies. The commenters 

applauded CMS’s move to a bundled 

payment system and our interest in 

encouraging patient access to home 

dialysis services. 

Response: We appreciate the 

commenters’ support of our move to a 

bundled payment system that we 

believe will encourage patient access to 

home dialysis and recognize the 

importance of various home dialysis 

therapies. 

Comment: Commenters from 

individual home dialysis patients 

thanked CMS for including all home 

dialysis options in the ESRD PPS and 

recognizing the importance of home 

dialysis. Many of the patients stated that 

they have access to more frequent 

dialysis that decrease hospitalizations 

and medications and increase their 

quality of life, which allows them to 

work or go to school and contribute to 

society. 

Another commenter generally pointed 

out that there are no transportation costs 

incurred for home hemodialysis 

patients. Commenters stated that 

decreased hospitalizations are typical of 

home dialysis patients, which further 

reduced the costs within the system. 

Additionally, commenters pointed out 

that early discharge from acute and subacute care facilities to either the 

patient’s home or a nursing home has 

allowed patients to receive care in less 

expensive and more appropriate 

settings. 

Response: We appreciate the 

comments from individual home 

dialysis patients who support our 

recognition of the importance of home 

dialysis which we believe results in a 

better quality of life for the patient. 

We did not receive any public 

comments objecting to our proposal for 

payment under the ESRD PPS of home 

dialysis services furnished under 

Method I payment. As we described 

above, numerous commenters supported 

payment under the bundle for Method 

I home dialysis patients stating it would 

increase beneficiary access to home 

dialysis services, which would increase 

their quality of life. Therefore, 

consistent with section 1881(b)(14)(A)(i) 

of the Act, we are finalizing our 

proposal to bundle home dialysis 

furnished under Method I and pay the 

bundled ESRD PPS rate for such home 

dialysis services, as set forth in 

§ 413.210, § 413.217, and § 414.330, 

respectively. 

ii. Method II—Dealing Directly With 

Suppliers 

Currently, in accordance with 

regulations at § 414.330(a)(2), a 

Medicare ESRD beneficiary can elect to 

obtain home dialysis equipment and 

supplies from a supplier, that is not a 

Medicare approved dialysis facility 

(Method II). If a beneficiary elects 

Method II, the beneficiary deals directly 

with a single Medicare Durable Medical 

Equipment, Prosthetics, Orthotics and 

Supplies (DMEPOS) supplier to secure 

the necessary supplies and equipment 

to dialyze at home. The selected 

DMEPOS supplier must accept 

assignment and bills the Durable 

Medical Equipment Medicare 

Administrative Contractor (DME MAC). 

The beneficiary is financially 

responsible to the supplier for any 

unmet Medicare Part B deductible and 

for the 20 percent Medicare Part B 

coinsurance requirement. Currently, the 

amount of Medicare payment under 

Method II for home dialysis equipment 

and supplies may not exceed $1,974.25 

per month for CCPD and $1,490.85 per 

month for all other modalities of home 

dialysis (see 57 FR 54186, published on 

November 17, 1992). 

For each beneficiary it serves, the 

supplier is required to maintain a 

written agreement with an approved 

ESRD facility to provide backup and 

support services. An ESRD facility that 

has a written agreement to supply 

backup and support services bills the 

FI/MAC for services provided under the 

agreement. Under Method II, an ESRD 

facility may be paid up to $121.15 per 

month for home dialysis support 

services, such as arranging for the 

provision of all ESRD-related laboratory 

tests and billing for the laboratory tests 

that are included in the composite 

payment rate (see 57 FR 54186, 

published on November 17, 1992). An 

ESRD facility may not be paid for home 

dialysis equipment or supplies under 

Method II. 

As we indicated previously, section 

1881(b)(14)(A)(i) of the Act requires that 

a single payment for renal dialysis 

services and items and services under 

section 1881(b)(4) be made to an ESRD 

facility. As a result, we proposed: (1) 

That payment for all home dialysis 

services excluding physicians’ services 

would be included in the bundled 

payment to the ESRD facility; (2) that all 

payments made for home dialysis 

services furnished under Method I and 

Method II, regardless of home treatment 

modality, would be included in 

computing the proposed ESRD PPS base 

rate; and (3) that the Method II home 

dialysis approach in its present form 

would no longer exist when the ESRD 

PPS is implemented January 1, 2011. 

We proposed to revise § 414.330 to 

reflect that the ESRD PPS payment as 

established in section 1881(b)(14) of the 

Act will be the basis of payment for 

home dialysis supplies, equipment, and 

home support services and that payment 

limits applicable for such services 

would no longer apply (74 FR 49930). 

We noted that effective January 1, 2011, 

a supplier could only furnish, home 

dialysis equipment and supplies to a 

Medicare home dialysis beneficiary 

under an arrangement with the ESRD 

facility, and that the supplier would 

need to look to the ESRD facility for 

payment. 

We received several comments from 

various ESRD organizations and 

individuals who rely on the Method II 

home dialysis payment approach who 

oppose our proposed elimination of 

Method II. These and other comments 

we received on our proposals, including 

our responses, are set forth below. 

Comment: One commenter stated that 

working with Method II supply 

companies is vital to their home dialysis 

program because the supply companies 


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take on the costs and responsibility of 

furnishing home dialysis supplies and 

equipment. 

Response: Under the ESRD PPS, the 

supplier could still furnish, under 

arrangement with the dialysis facility, 

home dialysis equipment and supplies 

to a Medicare home dialysis beneficiary. 

However, effective January 1, 2011, the 

supplier would be required to look to 

the ESRD facility for payment since the 

ESRD PPS payment would be made to 

the facility. As such, under the ESRD 

PPS, DME MACs would no longer make 

payment to suppliers of home dialysis 

equipment and supplies. All payments 

previously paid to DME MACs for home 

dialysis supplies and equipment has 

been built into the ESRD PPS base rate 

so that ESRD facilities can pay for the 

supply and equipment costs for their 

home dialysis patients. 

Comment: A commenter stated that 

the elimination of Method II is a 

complete contradiction of the CMS goals 

for promoting better outcomes and 

increased utilization of more cost 

effective home dialysis treatment 

modalities. 

Response: We do not agree that the 

elimination of Method II will 

undermine our goals for increased use 

of home modalities and better outcomes. 

We will continue to support home 

dialysis as indicated in our decision to 

pay the same under the ESRD PPS for 

home and in-center treatments even 

though home dialysis is less costly for 

ESRD facilities and our decisions 

regarding payment for home dialysis 

training discussed later in this section. 

Comment: Some commenters stated 

that the loss of the Method II payment 

system will result in higher 

administrative costs and logistical 

burdens that will greatly increase the 

cost of providing treatment to home 

dialysis patients and create a 

disincentive for ESRD facilities to 

provide home modalities. 

Response: We do not believe that the 

elimination of Method II will result in 

significant increased burdens to ESRD 

facilities such that it would create 

disincentives for ESRD facilities to 

provide home treatment modalities. 

Most ESRD facilities currently have 

arrangements with DME suppliers to 

furnish dialysis equipment and supplies 

for their in-facility dialysis patients and 

home dialysis patients. Under the ESRD 

PPS, in order to minimize the impact on 

patients of the requirement that DME 

suppliers now must look to the ESRD 

facility for payment, home patients 

could continue with these same 

arrangements. We believe that ESRD 

facilities will have a financial incentive 

to provide home treatment modalities 

since we will pay the same base rate for 

less expensive home modalities than we 

pay for in-facility treatments. 

Comment: Commenters from pediatric 

facilities that use Method II suppliers 

expressed concern that the specialty 

products they use are not available 

through the major manufacturers of 

dialysis products and that pediatric 

products are more expensive to 

purchase due to the limited demand and 

negotiating power of pediatric facilities. 

Response: We do not believe that the 

elimination of Method II option under 

the ESRD PPS will have a negative effect 

on pediatric dialysis facilities. The 

pediatric facilities have indicated that 

their home dialysis patients are mostly 

peritoneal dialysis (PD) patients. As 

discussed in the proposed rule, we 

described a comparison of composite 

rate costs by modality for CYs 2004 

through 2006 which showed that PD is 

a substantially less costly mode of 

dialysis compared to in-facility 

hemodialysis (74 FR 49967 through 

49968). Data from the Medicare cost 

report and Medicare claims data showed 

a significant difference in resource 

utilization, with PD patients incurring 

significantly lower composite rate and 

separately billable expenses. Since 

payment under the ESRD PPS for home 

dialysis patients will be based on 

Method I, we believe that paying the 

same amount for all types of dialysis 

modalities will not disadvantage 

pediatric facilities. We believe that 

pediatric facilities will still be able to 

make arrangements with their current 

DME suppliers to furnish the special 

supplies and equipment that are needed 

for small children and infants. The only 

difference is that the DME supplier must 

look to the pediatric ESRD facility for 

payment. Also, we note that pediatric 

facilities could form a group purchasing 

arrangement to enhance their 

negotiating power when purchasing 

supplies and equipment for their home 

patients. 

Comment: Commenters claim that the 

elimination of Method II under the 

ESRD PPS would require children’s 

hospitals to become a ‘‘flow-through’’ for 

supplies and equipment that previously 

would have been obtained by patients 

directly from Method II suppliers. 

Response: We agree with this ‘‘flowthrough’’ description made by the 

commenter because under the ESRD 

PPS, the payments for the equipment 

and for supplies will be made to the 

ESRD facility which then buys the 

equipment and supplies from a DME 

supplier. 

Comment: Commenters from pediatric 

facilities requested that CMS perform 

further analysis to determine whether 

the elimination of Method II billing 

under the ESRD PPS will have a 

negative effect on pediatric dialysis 

facilities. 

Response: Since publication of the 

proposed rule, we have continued to 

examine the ESRD data in order to 

refine the model. The cumulative effect 

of the changes we have made to the 

ESRD PPS is projected to beneficially 

impact pediatric facilities. See section 

IV. of this final rule for specific impacts. 

Comment: Some commenters had 

concerns with the elimination of 

Method II and the resulting change in 

incentives for dialysis facilities. The 

commenters suggested that CMS needs 

to understand the adverse effects that 

eliminating Method II would have on 

the dialysis facilities’ ability to furnish 

home treatment modalities. 

Response: Effective January 1, 2011, 

Medicare will pay the ESRD PPS base 

rate to ESRD facilities for home dialysis 

services furnished to home dialysis 

patients under Method I . Under Method 

I, the incentives will be different 

because we will only pay the ESRD 

facility the ESRD PPS base rate which 

includes the costs of all dialysis services 

such as staff time, equipment, and 

supplies. Despite the elimination of 

Method II under the ESRD PPS on 

January 1, 2011, the Method I payment 

includes the following provisions were 

supported by many other commenters. 

First, Medicare will continue to pay 

on a per treatment unit of payment. 

Second, Medicare will pay the same 

base rate for both in-facility and home 

dialysis. Third, the same base rate will 

also be paid for all dialysis treatment 

modalities furnished by a dialysis 

facility (hemodialysis and the various 

forms of peritoneal dialysis). Since 

home dialysis treatment modalities cost 

less than in-facility dialysis (especially 

home PD, which is the primary home 

dialysis treatment modality for pediatric 

home patients) ESRD facilities that have 

home dialysis programs should 

continue to benefit by providing home 

dialysis under ESRD PPS Method I 

payments. 

We believe there are also some 

administrative benefits for dialysis 

facilities with the elimination of the 

Method II home dialysis. Dialysis 

facilities and home patients will have 

less burden because they will no longer 

need to complete or file the CMS Form382 which is the form currently used to 

determine whether the dialysis patient 

has selected Method I or Method II 

home dialysis. Under the ESRD PPS, 

dialysis facilities will no longer be 

required to submit separate bills for 

home support services and suppliers no 

longer need to bill Medicare for home 


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dialysis equipment and supplies 

furnished to Method II home dialysis 

patients. The costs of home dialysis 

services for all home dialysis treatment 

modalities have been included in the 

composite rate part of the bundled 

ESRD PPS payment. 

Comment: Commenters expressed 

concerns that the elimination of Method 

II payment system will affect the ability 

of ESRD facilities to establish and grow 

their home dialysis program. 

Commenters stated that using the 

Method II approach allows the dialysis 

facility to remove the supply and 

equipment costs associated with a home 

program from their total costs, making 

the utilization of home modalities more 

economically feasible and available to 

their patient population. Another 

commenter stated that CMS created 

financial disincentives for the provision 

of home hemodialysis because the cost 

of treating hemodialysis patients is 

generally higher than the cost of treating 

facility-based patients. 

Response: We disagree with this 

commenter. We do not believe that 

financial disincentives have been 

created because, based on our cost 

report data, the cost for home 

hemodialysis is less costly than infacility. As we noted in the proposed 

rule, the reliance on separately billable 

services as a source of revenue growth 

for ESRD facilities has potentially 

impeded the greater use of less costly 

PD (which typically uses fewer 

separately billable drugs and less 

provider and facility overhead expense) 

(74 FR 49931). We also noted that others 

have argued that constraining payment 

based on number of treatments may 

reduce the use of alternative treatment 

regimens such as increased frequency 

nocturnal dialysis, home HD using 

compact portable dialysis machines, 

and shorter but more frequent dialysis 

sessions (for example, 1.5 to 2 hours, 

five or six days per week). 

We do not agree that a financial 

disincentive has been created for the 

provision of home hemodialysis. Under 

the ESRD PPS, payment for all home 

dialysis services (excluding physician 

services) would be included in the 

bundled payment to the ESRD facility 

and would not be subject to the current 

composite payment limits on what 

Medicare would pay for home dialysis 

supplies, equipment, and home support 

services as described in § 413.330(c). We 

disagree with the commenter that the 

elimination of the Method II payment 

system will affect the ability of ESRD 

facilities to establish and grow their 

home dialysis program, because the 

ESRD PPS takes into account the 

supplies and equipments costs 

associated with a home program. The 

intent is to continue to preserve the 

utilization of home modalities under 

Method I of the ESRD PPS, and to make 

home dialysis economically feasible and 

available to the ESRD patient 

population. 

Comment: A commenter expressed 

concern that the elimination of Method 

II would deprive beneficiaries of access 

to specialty products, recent 

technologies, and cost effective home 

modalities. 

Response: Although Method II would 

be eliminated under the ESRD PPS, we 

note that the suppliers would still be 

able to play a role under the new ESRD 

PPS. The supplier could still furnish, 

under arrangement with the support 

dialysis facility, home dialysis 

equipment and supplies to a Medicare 

home dialysis beneficiary under the 

ESRD PPS. However, the supplier 

would have to look to the ESRD facility 

for payment since the ESRD PPS 

payment would be made to the ESRD 

facility and DME MACs would no 

longer make payment for ESRD-related 

supplies to suppliers. As such, we 

disagree that because of the ESRD PPS, 

beneficiaries would be deprived of 

enjoying specialty products, recent 

technologies and cost effective home 

modalities. Dialysis facilities are 

encouraged to ensure that ESRD patients 

continue to receive all necessary 

supplies and equipment under the 

ESRD PPS. Additionally, under the 

ESRD PPS, lower cost patients offset the 

higher cost for patients who utilize 

specialty products and new technology. 

Comment: A commenter stated that 

the current Method II payment system 

allowed a ‘‘level-playing field’’ in which 

small and medium-sized dialysis 

organizations have the financial 

flexibility to offer their patients home 

modality options. With the elimination 

of Method II under the ESRD PPS, the 

commenter claimed that he is now at a 

disadvantage because the risks are now 

borne by the facilities. 

Response: We believe that the final 

base rate which is addressed in section 

II.E. of this final rule and the revised 

payment for home dialysis training addon adjustment which is addressed later 

in this section, are sufficient. The goals 

of creating a bundled prospective 

payment system were to create a single 

comprehensive payment for all renal 

dialysis services. The elimination of 

Method II under the ESRD PPS serves to 

further this goal by eliminating separate 

payments to suppliers so that a single 

payment is made to ESRD facilities for 

all renal dialysis services. We disagree 

that the elimination of Method II creates 

a disadvantage as the commenter states 

as all payments for renal dialysis 

services, including those paid to 

Method II suppliers, have been included 

in the ESRD PPS base rate. It is our 

belief that such a payment system serves 

to allow a ‘‘level-playing field’’ in which 

all dialysis organizations regardless of 

size, have a single payment method. 

Comment: A few commenters 

currently using Method II claimed that 

the ESRD PPS does not provide for the 

unique equipment and supply services 

costs for providing dialysis to home 

patients. The commenters claimed that 

supply companies install and maintain 

dialysis equipment and deliver both 

equipment and supplies to one patient 

at a time, and further noted that 

reimbursement is based upon a one 

machine per patient model. As a result, 

suppliers cannot achieve the economies 

of scale enjoyed by ESRD facilities. 

Response: We note that having to 

install and maintain dialysis equipment 

and deliver both equipment and 

supplies to individual patients is not 

unique to Method II home dialysis 

patients. Currently all home dialysis 

patients, whether under Method I or 

Method II are impacted by ‘‘economies 

of scale’’ described by the commenter in 

a one patient-one machine application. 

Under the ESRD PPS, while home 

dialysis suppliers may not achieve the 

same economies of scale as dialysis 

facilities, suppliers remain able to 

provide equipment and supplies to 

multiple dialysis facilities and can 

negotiate competitive prices with the 

ESRD equipment and supply 

manufacturers. We note that all 

payments related to Method II suppliers 

and amounts paid by ESRD facilities to 

Method I suppliers have been included 

in the ESRD PPS base rate which we 

believe is sufficient to account for the 

equipment and supply costs of home 

dialysis patients. 

Comment: Several commenters 

expressed concern that the ESRD PPS 

payment and elimination of Method II 

will make them less able to offer nursing 

caregiver staff-assisted dialysis to 

patients in nursing homes. The 

commenters indicated that Method II 

enables beneficiaries with secondary 

private insurance that includes nursing 

caregiver dialysis staff-assistance 

coverage, the opportunity to dialyze in 

their homes or in a nursing home and 

have the cost of a nurse caregiver 

dialysis assistant covered under their 

secondary insurance. Some of the 

commenters suggested that CMS create 

an adjustment or exception to the 

bundled payment rate for home 

hemodialysis patients receiving nursing 

caregiver staff-assisted care in their 

homes or in a nursing home setting. 


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Other commenters suggested that CMS 

offer an alternative that meets the 

equivalent of the current Method II 

mechanism that would serve to deny 

coverage of nursing home caregiver 

dialysis assistance or offer an additional 

Method I option at a reduced PPS rate. 

Because Medicare does not cover 

payment for nursing caregiver staffassistance to dialysis patients, an 

Explanation of Benefits (EOB) denial is 

automatically generated by the FI/MAC. 

The EOB denial would allow suppliers 

to continue to bill for nurse caregiver 

staff-assistance to home hemodialysis 

patients paid by private insurers 

secondary to Medicare. 

Response: Once the ESRD PPS takes 

effect January 1, 2011, DME suppliers 

will no longer be able to bill Medicare 

for ESRD equipment, supplies, and 

nurse caregiver staff-assistance. We will 

consider the commenter’s suggestion to 

create a Medicare denial of these 

services as we develop billing 

instructions later this year. 

Comment: One commenter urged that 

we retain Method II and indicated that 

the costs to Medicare are lower for 

nursing staff-assisted dialysis for home 

dialysis patients than in-facility dialysis 

patients. The commenter believed that 

Method II supply companies dedicated 

to dialysis supplies and services have 

saved the Medicare Program significant 

amounts of money because the DME 

supplier is paid 80 percent of the 

amount paid for supplies, which is less 

than $1,200 each month. The remainder 

is paid by the secondary insurance, as 

a secondary for the supplies and, in 

some cases, as a primary for the nursing 

services. 

Response: Section 1881(b)(14)(A)(i) of 

the Act specifies that the Secretary must 

implement a payment system under 

which a single payment is made to a 

provider of services or a renal dialysis 

facility for renal dialysis services in lieu 

of any other payment, and for such 

services and items furnished for home 

dialysis and self-care home dialysis 

support services. The Method II home 

dialysis option where the supplier of 

dialysis equipment and supplies bills 

the DME MAC is no longer authorized 

under the Act after January 1, 2011. 

Comment: A few commenters 

encouraged CMS to clarify that only 

DME supplies and equipment related to 

the provision of renal dialysis services 

are included in the ESRD PPS payment. 

The commenters further stated that 

there are many DME supplies and 

equipment utilized by ESRD 

beneficiaries that are unrelated to their 

dialysis and should not be included in 

the ESRD PPS such as wheelchairs, 

diabetic testing supplies, oxygen, 

wound care, ostomy and urological 

supplies and equipment. 

Response: We agree with the 

commenters and have clarified in 

section II.A.4. of this final rule that 

renal dialysis services include only 

DME supplies and equipment, necessary 

for the delivery of home dialysis 

services under the ESRD PPS. Although 

we did not provide a specific listing of 

the supplies and equipment, they were 

in fact considered and included. The 

Medicare Claims Processing Manual 

Chapter 8, Section 90.3.2, identifies the 

home dialysis supplies and equipment 

that are (currently) separately billable by 

DME suppliers. 

Comment: Some commenters were 

concerned that under the ESRD PPS, the 

ESRD facility would become responsible 

for the billing of a variety of items and 

services that patients now receive 

directly from other suppliers. The 

commenter stated that the new ESRD 

PPS may create confusion for ESRD 

facilities, Method II suppliers, and 

patients. For example, DME suppliers 

submit their claims to DME MACs for 

reimbursement and the DME MACs are 

guided by their local coverage 

determinations and other aspects of 

DME billing and payment. The 

commenter questioned what would 

apply under the new ESRD PPS during 

the transition period. 

Response: Under the current Method 

II home dialysis payment system, for 

each beneficiary it serves, the supplier 

is required to accept assignment by the 

beneficiary, and bill the DME MAC. 

Suppliers are also required to maintain 

a written agreement with a support 

dialysis facility to provide backup and 

support services. A dialysis facility, in 

turn, is required to maintain a written 

agreement to supply backup and 

support services and bill the FI/MAC for 

services it provides under the 

agreement. 

As explained in the proposal (74 FR 

49929), section 153(b) of MIPPA, section 

1881 (b)(14)(A)(1) of the Act requires the 

Secretary to implement a payment 

system under which a single payment is 

made to an ESRD facility under this title 

for renal dialysis services and items 

furnished pursuant to section 1881 

(b)(4) of the Act. 

All costs associated with home 

dialysis services (both Method I and 

Method II) are included in the 

composite portion of the two equation 

model. Effective January 1, 2011, all 

home ESRD patients will be considered 

Method I home patients and all 

Medicare payments for home dialysis 

services will be made to the ESRD 

facility. Medicare payment for home 

dialysis services will be made to the 

ESRD facility whether the facility elects 

to participate in the transition period or 

elects to be paid under the ESRD PPS. 

DME suppliers will no longer submit 

claims to DME/MACs for home dialysis 

supplies and equipment effective 

January 1, 2011. Since FI/MACs will be 

processing ESRD facility claims for 

Method I home dialysis patients, the 

reasonable charge DME payment rules 

are no longer applicable. After January 

1, 2011, a supplier could only furnish, 

under an arrangement with the ESRD 

facility, home dialysis equipment and 

supplies to a Medicare home dialysis 

beneficiary, and then the supplier 

would need to look to the ESRD facility 

for payment. Payment to the DME 

supplier from the ESRD facility will be 

based upon the payment arrangements 

agreed to between the two parties for 

furnishing home dialysis equipment and 

supplies to the home dialysis patient. 

Comment: Commenters expressed 

concern that Method II suppliers would 

no longer be permitted to bill Medicare 

directly for ESRD-related supplies 

furnished to ESRD beneficiaries. The 

commenters believed that suppliers, 

ESRD facilities, and patients would be 

confused about the changes made under 

the ESRD PPS and urged CMS to ensure 

that all interested parties receive 

adequate provider education regarding 

the changes it implements under the 

ESRD PPS. 

Response: We agree that interested 

parties should receive adequate 

provider education and once the final 

rule is published, we intend to provide 

multiple opportunities for training and 

education to patients and ESRD 

facilities. We also intend to provide 

information at our sponsored open-door 

forums for other groups such as DME 

suppliers and laboratory providers. 

Comment: Two commenters affiliated 

with US Military Services commented 

that they serve many ESRD patients who 

are retirees or dependents of active duty 

military personnel. In order to maintain 

war-time readiness, the commenters 

stated that they keep their physician 

and nursing staff trained by performing 

dialysis on a small population of ESRD 

dialysis patients. The commenter 

explained that Method II has been the 

means of providing seamless home care 

for their patients while allowing them to 

follow these patients and provide their 

ancillary care. Absent a Method II 

reimbursement equivalent, they would 

not be able to maintain a nephrology 

fellowship program which would 

impact the training of military 

physicians. However, another 

commenter affiliated with another 

branch of the military stated that 

utilization of Method II reimbursement 


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for home PD should have no direct 

effect on the quality of their nephrology 

fellowship training program as these 

patients are still required to be 

evaluated monthly. 

Response: While both commenters 

raise points that relate to the ESRD PPS, 

the impacts they describe (military 

readiness training and ongoing 

education needs) are not germane to the 

intent of the legislation and not within 

the scope of this rulemaking. 

Comment: One commenter described 

a study in a recent clinical journal 

which claimed that CMS could save 

more than a billion dollars in five years 

if the utilization of PD increased from 

its current 8 percent to 15 percent. The 

commenter questioned why Method II 

was to be eliminated under the ESRD 

PPS. He described that this was 

tantamount to ‘‘eliminating one of the 

very tools that help dialysis providers 

establish and expand home PD 

programs.’’ 

Response: Although the statute no 

longer provides discretion to retain 

Method II, we believe there remain very 

good reasons to develop and expand 

home PD programs. For example, PD 

treatment costs considerably less than 

comparable in-facility treatments. 

Comment: The commenters claimed 

that as the new ESRD PPS will require 

billing changes and create other 

challenges, CMS should consider 

deferring the application of the 

consolidated billing edits regarding 

DME services until the full 

implementation of the ESRD PPS. 

Response: Although we acknowledge 

that the ESRD PPS will require some 

billing changes, we do not have the 

authority to continue to pay DME 

suppliers directly for ESRD-related 

items furnished to ESRD patients. 

b. Self-Dialysis Training 

Currently, Medicare makes a separate 

payment per treatment for home 

hemodialysis training and two forms of 

PD training programs. Home dialysis 

and self-dialysis can only be performed 

after an ESRD patient has completed an 

appropriate course of training. The 

scope of training services that a certified 

facility provides to ESRD patients is 

described in § 494.100(a). 

We proposed that ESRD facilities 

would no longer receive an add-on of 

$12 for CAPD and $20 for hemodialysis 

and CCPD to the otherwise applicable 

payment amount per treatment for the 

costs of training. We also proposed that 

the ESRD facility training expenses 

would be included in the ESRD PPS 

base rate to which the payment 

multipliers in the proposed payment 

model are applied (74 FR 49930). 

Also, we proposed that training costs 

be included in the regression analysis to 

compute the composite rate payment 

adjusters. We noted that total composite 

rate costs included in the per treatment 

calculation included costs incurred for 

training expenses, as well as all home 

dialysis costs (74 FR 49947). We 

proposed to use the ESRD facility’s cost 

reports to identify provider costs for 

training and include these costs in the 

composite rate portion of the twoequation ESRD PPS model described in 

the proposed ESRD PPS (74 FR 49947.) 

We proposed to include training and 

home dialysis costs, as set forth in 

§ 413.217. We specifically invited 

public comments on our proposal to 

include home dialysis training services 

in the proposed ESRD PPS base rate. 

The comments we received on these 

proposals and our responses are set 

forth below. 

Comment: Numerous commenters 

expressed strong opposition to our 

proposal to include payments for the 

training of patients for home dialysis in 

the ESRD PPS base rate. The 

commenters pointed out that treatment 

of training payments as any other 

overhead expense would have the effect 

of giving every dialysis facility a small 

payment for home dialysis training 

regardless of whether it offered a home 

training program. These commenters 

indicated that our proposal fails to 

target training payments to facilities 

actually furnishing training treatments, 

and reduces the magnitude of the 

training payment by averaging the 

amount over all hemodialysis 

equivalent treatments. The commenters 

believe that the training proposal would 

have a devastating impact on training 

programs and discourage the growth of 

home dialysis. 

Commenters also disagreed with our 

statements that most training treatments 

were likely to occur within the first four 

months after the onset of dialysis and 

that the proposed 47.3 percent 

adjustment (new onset adjustment) to 

the otherwise applicable case-mix 

adjusted payment for treatments 

occurring within this period would 

cover the costs of furnishing home 

dialysis training programs. These 

commenters pointed out that a high 

proportion of training treatments do not 

occur within the first four months after 

the start of dialysis. 

Several commenters pointed out that 

the ESRD Conditions for Coverage result 

in higher training expenses, costs which 

commenters believe should be 

reimbursed through a separate training 

adjustment. Other commenters reasoned 

that failure to provide a separate 

training adjustment will result in 

disparities in care, as facilities would 

find it too expensive to train the elderly, 

patients with language difficulties, or 

patients with complex medical 

conditions. 

Most of the commenters 

recommended that we develop a 

separate payment for training treatments 

outside of the payment bundle. 

However, one commenter opposed the 

implementation of a separate payment 

for training services. The commenter 

maintained that the proposed ESRD PPS 

provides an adequate incentive for PD 

training, while acknowledging the 

higher expenses for home HD training. 

Response: Although we are 

continuing to include training payments 

in computing the ESRD PPS base rate, 

we agree with the commenters that we 

should treat training as an adjustment 

under the ESRD PPS. We believe the 

ESRD PPS base rate alone does not 

account for the staffing costs associated 

with one-on-one focused home dialysis 

training treatments furnished by a 

registered nurse. Because the patientfocused training requires greater nursing 

resources than provided for non-training 

treatments, we feel that a separate 

training add-on adjustment is 

warranted. 

We explored whether we could 

develop a regression-based adjustments 

as we have conducted for the rest of the 

ESRD PPS payment adjustments. 

However, in analyzing training 

information in ESRD facility cost reports 

and comparing those costs to training 

claims submitted by ESRD facilities, we 

found that some training costs were 

under-reported by some facilities and 

over-reported by others. Therefore, we 

were unable to develop a regressionbased adjustment due to a lack of cost 

report data for many ESRD facilities. 

For purposes of developing a training 

adjustment under the ESRD PPS, we 

have decided to use a dollar add-on 

adjustment similar to the existing 

training add-on payments under the 

current basic case-mix adjustment 

payment system. We also explored 

various options for updating the training 

current add-on payment amounts under 

the current basic case-mix adjusted 

composite payment system because the 

training add-on amounts have not been 

updated since they were established in 

the 1970s and do not believe such 

amounts reflect the cost of the training 

nurse. We believe the training add-on 

amounts when first implemented, 

represented staff time, supplies and 

equipment. Thus, under the ESRD PPS, 

we considered various options to update 

the training add-on adjustment to reflect 

1-hour of nursing time because home 

and self-dialysis training must be 


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conducted by a registered nurse in 

accordance with the ESRD Conditions 

for Coverage requirements at 

§ 494.100(a). 

The updated training add-on 

adjustment will be computed by using 

the national average hourly wage for 

nurses from Bureau of Labor Statistics 

data updated to 2011. The amount for 

the training add-on adjustment we are 

finalizing under the ESRD PPS will be 

$33.44 per treatment. This amount 

would be added to the ESRD PPS 

payment amount or ESRD PPS portion 

of the blended payment amount for 

those ESRD facilities in the ESRD PPS 

transition. Specifically, this amount will 

be added to the ESRD PPS payment rate 

or ESRD PPS portion of the blended 

payment amount for those ESRD 

facilities in the ESRD PPS transition, 

each time a training treatment is 

provided by the Medicare certified 

training ESRD facility. 

As the training add-on adjustment is 

directly related to nursing salaries and 

nursing salaries differ greatly based on 

geographic location, we will adjust the 

$33.44 training add-on by the 

geographic area wage index applicable 

to the ESRD facility so that the training 

add-on adjustment reflects local nursing 

wages. Using the proposed wage index 

values issued in the CY 2011 PFS 

proposed rule, the training add-on 

amounts after application of the wage 

index would range from $20.03 to 

$45.84. The wage index is further 

described in section II.G.3.a. of this final 

rule. 

The training add-on adjustment will 

only apply to training treatments 

furnished to dialysis patients by 

Medicare-certified dialysis training 

facilities. This amount represents one 

hour of nursing time to conduct one-onone training with a patient for either 

hemodialysis or PD for training 

treatments furnished by a Medicarecertified training facility. We believe 

that this approach would eliminate the 

differential paid for hemodialysis 

training that accounts for supplies and 

equipment. 

Given that payments for equipment 

and supplies, as required under the 

statute, have been captured in the base 

rate and training facilities would also 

receive the ESRD PPS base rate and all 

applicable adjustments, we no longer 

need to pay these costs as part of a 

training adjustment. We believe this 

provides for an adequate increase in the 

current training adjustment, and that it 

is appropriate to eliminate the 

differential paid for HD training. 

For those ESRD training facilities that 

opt to go through the ESRD PPS 

transition, Medicare will continue to 

pay $20.00 per training treatment for 

hemodialysis and CCPD and $12.00 for 

PD for the basic case-mix adjusted 

composite rate portion of the ESRD PPS 

blended payment. These training rates 

will not be wage adjusted and will 

continue to be paid based on the 

maximum number of training treatments 

explained below. 

The payment adjustments for the 

onset of dialysis adjustment, as well as 

all other adjusters we are finalizing 

under the ESRD PPS, are the result of 

the regression models for composite rate 

and separately billable services. The 

regression analysis for this final rule 

which used cost reports and Medicare 

claims for 2006–2008, indicated higher 

composite rate costs associated with the 

first four months of dialysis. As home 

dialysis training costs represents oneon-one staff time to train a patient for 

home dialysis, we believe we have 

captured staffing costs for training in the 

4-month onset of dialysis adjustment. 

Since we have already accounted for 

training salary costs in the 4-month 

onset of dialysis adjustment, we believe 

that applying the training add-on 

adjustment in addition to the 4-month 

onset of dialysis adjustment would have 

the effect of compounding the 

composite rate costs and result in an 

overpayment of nursing staffing costs 

associated with training dialysis 

patients for home dialysis. Therefore, 

ESRD facilities will not receive the 

training add-on adjustment for patients 

who are receiving the first 4-month 

onset of dialysis adjustment (section 

II.F.3. of this final rule for more detailed 

explanation of the 4-month onset of 

dialysis adjustment). 

The training add-on adjustment is not 

a multiplicative adjustment like the 

other final adjustments under the ESRD 

PPS. Rather, the training adjustment is 

added to the product of the ESRD PPS 

base rate or blended base rate and 

applicable adjustments. For further 

explanation, please refer to the 

Comprehensive Payment Model 

examples provided in section II.I. of this 

final rule. 

Comment: Some commenters 

requested that CMS continue to make 

payment for retraining treatments 

furnished to home dialysis patients. The 

commenters pointed out that under 

some circumstances a home patient may 

change from one mode of dialysis to 

another (for example, from home 

hemodialysis to CAPD) or there are 

changes to the hemodialysis equipment 

which requires the home patient to be 

retained to continue as a self-dialysis 

patient. 

Response: Under the ESRD PPS, we 

will continue to pay for self-dialysis 

training after a patient has completed 

the initial training course. The 

conditions under which we make 

payment for retraining treatments follow 

the same coverage rules for training 

under the ESRD PPS. Criteria for 

retraining are unchanged and explained 

in greater detail in the Medicare Claims 

Processing Manual, Chapter 8, Section 

50.8 Training and Retraining. In 

addition, the patient must continue to 

be an appropriate patient for selfdialysis. 

Comment: Commenters varied in their 

suggestions for how the training 

payments should be applied. For 

example, one commenter recommended 

a ‘‘hold back’’ in which a portion of the 

training payments would be withheld 

from the ESRD facility pending 

demonstration of the patient’s 

successful transition to home dialysis. 

Other commenters recommended that 

we establish a monitoring system to 

determine the degree to which any 

separate adjustment for the provision of 

home training treatments results in 

more patients successfully transitioning 

to home dialysis. 

Response: We will continue to require 

that ESRD facilities are a Medicare 

certified training facility in order to 

receive the training add-on adjustment 

each time a training treatment is 

provided. In an effort to promote more 

training for home dialysis, we are not 

limiting payment for training through a 

hold-back mechanism. We fully intend 

to monitor how the updated training 

add-on adjustment relates to changes in 

the proportion of ESRD patients on 

home dialysis modalities and may 

propose limits in the future. 

Comment: We received numerous 

comments requesting that CMS retain 

the existing policy that limits coverage 

of the total number of training 

treatments at the current level of 15 for 

peritoneal dialysis (CAPD and CCPD) 

and 25 for hemodialysis. 

Response: We agree with the 

commenters. Under the ESRD PPS, we 

will continue the current cap on 

training treatments at 15 for peritoneal 

dialysis (CAPD and CCPD) and 25 for 

hemodialysis training because most 

commenters indicated that they can 

complete training within these training 

treatment parameters. 

In summary, we are finalizing a 

training add-on adjustment under the 

ESRD PPS in the amount of $33.38 per 

training treatment, adjusted based on 

the geographic wage index for nursing 

salaries to account for the hourly 

nursing time for dialysis training 

treatments. This adjustment would 

apply to HD and PD modalities. This 

training add-on adjustment is applied 


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after all other adjustments under the 

ESRD PPS have been made. We have 

added paragraph (c) to § 413.235 and 

revised the description of the per 

treatment payment amount in § 413.230 

to reflect the training add-on 

adjustment. 

B. Unit of Payment 

Under section 1881(b)(14)(C) of the 

Act, as added by section 153(b) of 

MIPPA, the ESRD PPS may provide for 

payment on the basis of renal dialysis 

services furnished during a week, or 

month, or such other appropriate unit of 

payment as the Secretary specifies. We 

proposed to establish an ESRD PPS 

which relies on a per treatment unit of 

payment (74 FR 49931). We proposed to 

continue the present per treatment basis 

of payment in which ESRD facilities 

would be paid for up to three treatments 

per week, unless there is medical 

justification for more than three weekly 

treatments (74 FR 49931). ESRD 

facilities treating patients on PD or 

home HD would also receive payments 

for up to three treatments for each week 

of dialysis, unless there is medical 

justification for the furnishing of 

additional treatments. In the proposed 

rule, we discussed in detail the factors 

and data we considered in developing 

our proposal (74 FR 49931 through 

49934). The comments we received with 

regard to our proposals for the unit of 

payment and our responses are 

discussed below: 

Comment: Numerous commenters 

supported our selection of a per 

treatment unit of payment for the 

bundled payment system. The 

commenters noted that a per treatment 

unit of payment preserved access for 

patients who travel, and would 

minimize operational difficulties and 

administrative complexity for the 

approximately 19 percent of patients 

who incur an interruption of service or 

receive treatment at more than one 

dialysis facility. Generally, commenters 

noted that a larger unit of payment, such 

as a monthly payment, would 

complicate the phase-in of the payment 

system. MedPAC noted that a larger unit 

of payment would be consistent with 

several aspects of dialysis care, pointing 

out that a weekly unit of payment 

corresponds to the typical weekly 

interval for PD. MedPAC also noted that 

Medicare pays nephrologists a monthly 

capitated payment for caring for dialysis 

beneficiaries. MedPAC recommended 

that we reconsider the unit of payment, 

once a strengthened dialysis quality 

monitoring system is implemented, to 

assure that quality of care does not 

decline. 

Response: We agree with the 

commenters that maintaining a per 

treatment unit of payment is the best 

method to achieve the effect of the 

bundled payment system without 

adversely impacting beneficiary access 

to home dialysis services. As we 

explained in the proposed rule (74 FR 

49931), we considered other units of 

payment such as a monthly ESRD PPS, 

which would provide ESRD facilities 

more flexibility in alternative treatment 

requirements, such as increased 

frequency nocturnal dialysis, home HD 

using compact portable dialysis 

machines and shorter but more frequent 

dialysis services. However, given the 

difficulties of implementing a monthly 

ESRD PPS during the transition period 

in which a per treatment methodology 

applies, we proposed to continue the 

current per treatment payment 

methodology in connection with the 

proposed ESRD PPS as set forth in 

§ 413.215. 

In this final rule, we are adopting the 

per treatment unit of payment for the 

ESRD PPS for the reasons set forth 

above. As we indicated in the proposed 

rule, we may reconsider this decision 

after the transition period has ended 

(74 FR 49934). At that time, we may 

evaluate whether the ESRD PPS has 

resulted in improved clinical outcomes, 

the degree to which home dialysis has 

increased, and whether interested 

stakeholders would favor an alternative 

to the per treatment approach we are 

finalizing in this final rule. 

Comment: Several commenters 

recommended that we change the 

definition for reporting the volume of 

treatments to eliminate the use of 

hemodialysis equivalents. The 

commenters stated that the use of HD 

equivalents for the home dialysis 

modalities distorts the real costs 

associated with that modality, pointing 

out that home HD patients may be 

receiving 5–7 treatments per week, with 

some commercial payers paying for 

more than three treatments per week. 

Response: The practice of converting 

PD treatments to HD equivalent 

treatments arose in the context of 

developing an appropriate unit of 

analysis for the PD modalities in which 

multiple exchanges of dialysate occur 

during the course of a day. These 

exchanges are not discrete treatments in 

the same sense that an HD session 

represents a treatment. In order to 

encourage home dialysis, the policy 

decision not to develop separate 

bundled payment rates for the in-facility 

and home dialysis modalities required 

that the base rate also be applied to 

home dialysis. Therefore, we believed 

that conversion of each week of home 

dialysis to three equivalent HD 

treatments was the most feasible 

approach. The alternative would have 

been to develop a separate bundled 

payment rate for each week of home 

dialysis. We rejected this approach in 

order to use a per treatment payment for 

all ESRD treatments, including home 

treatments. 

To the extent that patients on home 

HD receive more than three treatments 

per week, we point out that use of the 

additional treatments to develop the 

base rate would have decreased that 

rate. Particularly for PD, we believe that 

use of three HD equivalent treatments 

for each week of PD represents a 

reasonable basis for establishing 

payment rates per treatment that can be 

applied to both in center and home 

dialysis modalities. 

In summary, we are finalizing 

§ 413.215(a) which established the 

dialysis treatment as the unit of 

payment under the ESRD PPS. 

C. Data Sources 

Section 1881(b)(14)(B) of the Act, as 

added by section 153(b) of MIPPA, 

defines the renal dialysis services that 

must be included in the ESRD PPS. In 

the proposed rule, we identified the 

components used to construct the 

payment bundle (74 FR 49934) based on 

the following Medicare cost and 

payment information: 

• Composite rate services as 

measured using composite rate costs 

calculated from the Medicare cost 

reports; 

• Drugs and biologicals (for example, 

injectables) that are separately billed by 

ESRD facilities on Medicare outpatient 

institutional claims; 

• Drugs and biologicals (for example, 

oral) used to treat ESRD patients 

obtained from claims submitted by Part 

D stand alone prescription drug plans; 

• Laboratory tests that are separately 

billed by ESRD facilities on Medicare 

outpatient institutional claims; 

• Laboratory tests ordered by a 

physician who receives MCPs for 

treating ESRD patients, which are 

separately billed by independent 

laboratories; 

• Other items and services separately 

billed by ESRD facilities that are used in 

conjunction with injectable medications 

or laboratory tests, such as blood 

products, syringes, and other dialysis 

supplies that are billed on Medicare 

outpatient institutional claims. 

The cost report and claims data 

sources used to construct the bundled 

payment system, as set forth in this final 

rule, remain the same as described in 

the proposed rule, with the exception 

that CY 2006, 2007, and 2008 records 


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have been used for this final rule 

instead of CY 2004 through 2006 data 

that were used in the proposed rule. 

This is consistent with our statement in 

the proposed rule that we planned to 

use the latest available cost report and 

claims information to develop the final 

rule, given the lead time necessary to 

prepare the final rule (see 74 FR 49934 

through 49935). 

Section 1881(b)(14)(A)(ii) of the Act 

requires that the estimated total amount 

of payments for 2011 be equal to 98 

percent of the estimated total amount of 

payments for renal dialysis services that 

would have been made in 2011 if the 

ESRD PPS had not been implemented. 

That section requires that we use per 

patient utilization data from 2007, 2008, 

or 2009, whichever has the lowest per 

patient utilization. To comply with this 

provision, we evaluated payment data 

from 2007, 2008, and the first 9 months 

of 2009, the latest available given the 

lead time required to prepare this final 

rule, as described later in this section. 

In the proposed rule, we cited the 

application of a statistical methodology 

referenced in UM–KECC’s February 

2008 report for removing composite rate 

costs with extreme values from the cost 

report database used to develop the 

composite rate portion of the ESRD PPS 

payment model (74 FR 49947). That 

methodology employed a standard outer 

fence definition. The outer fence is a 

threshold for identifying extreme 

outliers. The upper outer fence, which 

is the threshold that was used to 

identify outliers with extremely high 

costs, is defined as the 75th percentile 

plus three times the interquartile range 

(IQR). This is the 75th percentile minus 

the 25th percentile. The lower outer 

fence, which is the threshold that was 

used to identify outliers with extremely 

low costs, is the 25th percentile minus 

three times the IQR. 

The outer fence values for average 

cost per treatment were calculated on 

the log scale, since a log transformation 

was used to estimate the models. When 

retransformed to dollars, the lower outer 

fence for composite rate costs was 

$68.81 per treatment, and the upper 

outer fence was $470.70 per treatment. 

However, a test model that applied 

these exclusion criteria yielded 

especially large prediction errors for 

facilities with reported composite rate 

costs below $100.00 per treatment. 

Accordingly, we applied a separate 

methodology to identify additional 

outliers that could affect the analysis 

and reduce the accuracy of the case-mix 

adjusters resulting from the model 

estimates. 

This method was also used to develop 

the set of composite rate cost per 

treatment values analyzed in connection 

with the proposed rule (74 FR 49947). 

The method involved an analysis of 

studentized residuals, which are 

residuals divided by an estimate of their 

standard deviation. Approximately 95 

percent of the facilities with average 

costs between $68.81 and $100.00 per 

treatment had studentized residuals less 

than ¥2, and approximately 32 percent 

had studentized residuals less than ¥4. 

Based on this analysis of studentized 

residuals, a slightly more restrictive 

lower limit of $100.00 was applied. 

Together, these methodologies for 

identifying outlier values for composite 

rate costs resulted in the exclusion of 

460 facility year records (approximately 

3 percent) from the analysis of 2006– 

2008 data that was used to develop the 

composite rate portion of the ESRD PPS 

payment model described in this final 

rule. 

While cost information for composite 

rate services is available from the 

Medicare cost reports, the cost report 

does not contain information on the 

costs of the separately billable categories 

of services noted above. The ESRD PPS 

described in this final rule incorporates 

payment for separately billable services 

based on separately billable payment 

information from Medicare claims. 

The descriptive statistics, case-mix 

model, and other analyses presented in 

this final rule were based on CMS 

claims files for Medicare ESRD patients, 

and the Medicare cost reports for 

hospital-based ESRD outpatient dialysis 

providers and independent ESRD 

facilities. Resource utilization for 

separately billable services was based 

on patient-level Medicare outpatient 

claims for CYs 2006 through 2008 (the 

latest available claims), in order to be 

able to prepare this final rule. Since 

composite rate cost information is 

available only at the facility level, 

resource utilization for composite rate 

services was measured using the 

Medicare cost reports for CYs 2006 

through 2008 for each outpatient 

dialysis provider and facility (that is, 

hospital-based and independent 

facilities). These years represented the 

latest and most complete data available 

for the preparation of this final rule. 

As we did in the proposed rule (74 FR 

49935), we also used several data 

sources for evaluating the patient and 

facility characteristics that were used 

with the case-mix analyses. Patient 

demographic information was obtained 

from the Renal Management Information 

System (REMIS)/Consolidated Renal 

Operations in a Web-Enabled Network 

(CROWN), and the ESRD Standard 

Information Management System 

(SIMS). These data sources include the 

Medical Evidence Report Form (Form 

2728), which is completed at the onset 

of renal replacement therapy (RRT), 

which is either dialysis or 

transplantation to sustain life at the 

onset of kidney failure. Patient body 

size measures were developed from the 

height and weight values reported on 

the Form 2728. Beginning April 1, 2005, 

these values were obtained from the 

patient claims for outpatient dialysis. 

Although we have revised the proposed 

set of patient co-morbidities used as 

case-mix adjusters in the development 

of this final rule for reasons explained 

in section II.F.3. of this final rule, the 

cost report and paid claims data used to 

develop the case-mix adjusters based on 

co-morbidities described in the 

proposed rule (74 FR 49935) remain the 

same. 

We measured dialysis facility 

characteristics using a combination of 

SIMS (ownership type and geographic 

location), the Medicare cost reports 

(facility size), the Online State 

Certification and Reporting System 

(OSCAR) (hospital affiliation for 

satellite units), and other available 

information (for example, identifying 

facilities with composite payment rate 

exceptions). 

1. Patient Claims Data 

The outpatient facility paid claims file 

is the primary source of information for 

payments that ESRD facilities receive 

for the treatment of ESRD patients. The 

‘‘type 72X’’ claims (ESRD claims) 

provided the detailed data for dialysis 

payments. As we did in the proposed 

rule, the claims files used for the 

analyses in this final rule were based on 

patients with at least one claims record 

for dialysis. We used carrier claims and 

durable medical equipment (DME) 

claims to track dialysis-related 

payments to other providers such as 

independent laboratories. 

The case-mix models were based on 

claims from CYs 2006, 2007, and 2008. 

These were the most complete CY 

records available for use with the 

Medicare cost reports from the same 

periods to develop the payment 

methodology, given the time necessary 

for the preparation of this final rule. As 

with the composite rate costs obtained 

from the Medicare cost reports and 

patient claims used to develop the 

proposed ESRD PPS (74 FR 49936), we 

similarly used the statistical outer fence 

methodology described previously to 

exclude unusually high separately 

billed values (statistical outliers) 

obtained from the claims used to 

develop the system as set forth in this 

final rule. Based on the statistical outer 

fence methodology, claims with total 


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separately billed amounts greater than 

$2,545.65 were excluded from the 

analysis of 2006 through 2008 data used 

to develop the separately billed portion 

of the ESRD PPS payment model. 

Application of this methodology for the 

analysis that was used to develop the 

separately billed portion of the ESRD 

PPS payment model for pediatric 

patients resulted in no exclusions. The 

number of Medicare claims, patients, 

dialysis sessions, and ESRD facilities 

represented in the source claims data 

are shown in Table 6. We have also 

provided the same information for CY 

2005 for comparison purposes. 

We did not receive any public 

comments objecting to our intention to 

use the latest available Medicare cost 

report and claims data to develop the 

final rule. Therefore, we are finalizing 

§ 413.220(a)(1) and (2) as proposed. 

2. Medicare Cost Reports 

We obtained facility-level cost and 

treatment data from the CMS Medicare 

Hospital Cost Report (Form CMS 2552– 

96) and the CMS Medicare Independent 

Renal Dialysis Facility Cost Report 

(Form CMS 265–94). The number of 

available cost reports for CYs 2006 

through 2008, which contained 

necessary cost and treatment data for 

purposes of the composite rate cost 

analyses, are shown in Table 7. For most 

ESRD facilities, a single cost report 

encompassed the entire calendar year. 

For FY cost reports that spanned two 

CYs, we used a weighted average based 

on the proportion falling in each CY. 

3. Patient Claim and Cost Report 

Summary Data 2006–2008 

The case-mix models were based on 

data sets that linked claims and cost 

report records for each year from CY 

2006 through CY 2008. The claims data 

for patients treated in hospital satellite 

facilities were matched to the parent 

hospital using OSCAR, since cost 

reports are only submitted by the parent 

facility. Table 8 shows the resulting 

analysis files that included both claims 

and cost report data for measuring 

separately billable and composite rate 

resource utilization. 


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In the proposed rule, we explained 

that we trimmed claims data to exclude 

statistically aberrant or clinically 

implausible values (74 FR 49947 

through 49948). We received the 

following comments regarding excluded 

claims data. 

Comment: Several commenters 

expressed concern that we 

inappropriately excluded claims from 

the computation of the 2007 base rate 

using arbitrary exclusion criteria. For 

example, one commenter noted that the 

use of 30,000 units of epoetin alfa (EPO) 

per treatment as a clinically implausible 

threshold did not comport with CMS’s 

own EPO Claims Monitoring Policy in 

which 400,000 units per month is the 

established threshold. Another 

commenter stated that the capping of 

patient months in which more than 20 

treatments were furnished at 20 

treatments was an inappropriate 

exclusion. The commenter stated that 

their attempted replication of the 2007 

base rate computation resulted in 1.3 

and 1.45 percent more paid treatments 

than were included in the MAP 

calculation. Other commenters stated 

that nowhere in the proposed rule did 

CMS state exactly how many facilities 

and payments were excluded from its 

calculations. These commenters stated 

that all paid Medicare claims should be 

included in the computation of the MAP 

so as not to yield an understatement of 

the base rate. 

Response: In response to the concerns 

raised by the commenters, we have 

reevaluated our basis for excluding 

certain claims from the calculation of 

the CY 2007 base year amount. All 

payments made on behalf of Medicare 

ESRD beneficiaries as reported on type 

72X claims have now been included, 

but with the following modifications 

and exclusions: 

• Payments for EPO in excess of 

500,000 units per month in 2007, and 

400,000 units per month in 2008 and 

2009 (that is, the medically unbelievable 

thresholds), were capped at 500,000 

units and 400,000 units, respectively, 

consistent with CMS’s ESA monitoring 

policy. A similar cap was applied to 

claims for ARANESP®, in which the 

caps based on the medically 

unbelievable thresholds were 1500 mcg. 

per month in 2007, and 1200 mcg. per 

month in 2008 and 2009. We believe 

that the portion of the base rate that 

reflects ESA utilization should comport 

with the ESA dosing guidelines under 

CMS’s ESA Claims Monitoring Policy in 

effect at the time. 

• Claims in which the number of 

dialysis treatments exceeded the 

number of days in the month were 

capped so that the number of dialysis 

treatments equaled the number of days 

in the month. No adjustments were 

made to the paid amounts associated 

with these claims. Payments to dialysis 

facilities in connection with claims with 

no dialysis treatments reported were 

excluded. On these claims, the 

payments to facilities were for services 

other than dialysis. Accordingly, they 

would not be considered renal dialysis 

services. 

• Payments for blood and blood 

products. ESRD facilities rarely furnish 

blood as part of a patient’s ESRD-related 

anemia management. As we discuss in 

section II.a.4. of this final rule, we have 

determined that blood and blood 

products do not meet the definition of 

renal dialysis services. Therefore, 

payments for blood and blood products 

were excluded. Blood and blood 

products are not included in the ESRD 

PPS payment bundle. 

• Payments for vaccines and vaccine 

administration were excluded. Section 

1881(b)(14)(B) of the Act specifically 

excludes vaccines from the ESRD PPS 

payment bundle. 

• Immunosuppressive drug payments 

were excluded because 

immunosuppressive drugs are paid 

under a separate Medicare benefit. 

• Payments for unclassified drugs 

(HCPCS J3490) and unknown drugs 


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were excluded because we do not know 

whether these drugs are ESRD-related. 

As their status is unknown, we did not 

consider them renal dialysis services. 

• Payments for non-ESRD-related 

drugs, as identified in Table C in the 

Appendix were excluded because such 

drugs would not constitute renal 

dialysis services. 

• Payments for pharmacy supplies, 

procedures not considered ESRDrelated, and other non-ESRD 

miscellaneous services were also 

excluded. 

We believe that these revised 

exclusion criteria permit the inclusion 

of statistically aberrant but plausible 

payments in the calculation of the base 

year amounts, while ensuring that 

amounts paid incorrectly are excluded. 

BILLING CODE P 


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BILLING CODE C 

Table 9 shows the total MAP amounts 

for CY 2007, 2008, and the first 9 

months of 2009. The MAP amount for 

the first nine months of 2009 is shown 

because of the requirement in section 

1881(b)(14)(A)(ii) of the Act that the 

budget neutrality per patient utilization 

comparison include data from 2009. 

Table 9 shows the MAP amounts for 

each period on a per treatment basis, 

after adjustment for price inflation to 

2009, in accordance with the inflation 

factors described below. 

Table 9 reveals that the MAP for CY 

2007, the year with the lowest per 

patient utilization of renal dialysis 

services as described in section II.C.5. of 

this final rule, was $243.65 per 

treatment. 

Comment: One commenter noted that 

we eliminated claims from our analysis 


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with a missing date of birth which is 

necessary in order to assign patients 

accurately to the correct age group 

category for purposes of determining the 

impact of age on composite rate costs 

and separately billable payments under 

the two-equation model. The 

commenter stated that in the Standard 

Analytical Files (SAF), an age range is 

assigned to patients, and the SAF 

denominator file similarly assigns an 

age to patients. The commenter said that 

because their data includes an age 

designation for all patients, no patients 

were eliminated from the commenter’s 

calculations of treatments or payments. 

Response: Our elimination of patients 

with no valid date of birth is only 

relevant in connection with the 

development of the payment adjusters 

for the age variable in the two-equation 

model and not for purposes of the 

computation of the base rate. This was 

done in order to prevent any distortion 

in the age adjusters. We point out that 

the number of claims eliminated was 

extremely small. No claims were 

eliminated due to the lack of a valid 

date of birth in the calculation of the 

base rate because age is not a 

classification variable in computing that 

rate. We are unaware of the assignment 

of an age range in the SAF claims files. 

Rather than relying on a methodology 

which assigns an age to patients, which 

may be incorrect, we believe that the 

exclusion of claims where a correct 

determination of age is necessary for the 

development of payment adjusters is 

appropriate. 

4. Data for the Case-Mix Analyses, 

2006–2008 

The case-mix analyses required data 

for several patient and facility 

characteristics, such as age, comorbidities, facility size, etc. After the 

exclusion of statistical outliers or 

otherwise unusable records (such as 

patients with no valid date of birth), the 

data shown in Table 8 was refined to 

yield the data set used in the primary 

analyses for both composite rate and 

separately billable services. 

Table 10 summarizes these records. 

The primary case-mix analyses relied 

on pooled data from CY 2006 through 

CY 2008, which included a total of 

8,620,926 Medicare ESRD patient 

months. The case-mix analyses included 

97.4 percent of patients with Medicare 

outpatient dialysis claims during CYs 

2006 through 2008. Over the 3-year 

period, the case-mix analyses included 

data for 475,491 Medicare ESRD 

patients treated in ESRD facilities. 

5. Prescription Drug Event Data, CY 

2007, CY 2008, Jan–Sept 2009 

We obtained the total payments for 

Medicare Part D drugs from Part D 

claims submitted by prescription drug 

plans (drugs formerly covered under 

Part D prior to the ESRD PPS). The 

claims were restricted to Part D claims 

for oral drugs with an injectable form 

used to treat ESRD submitted on behalf 

of Medicare ESRD beneficiaries with 

valid ESRD claims in CY 2007, CY 2008, 

and for the first 9 months of 2009 (the 

latest available in time for the 

preparation of this final rule). As 

discussed in section II.A.3. of this final 

rule, payment of oral-only drugs under 

the ESRD PPS is being delayed until 

2014. Therefore, payments for such 

drugs were excluded from the 

calculations. As a result, we are 

finalizing § 413.220, but revising 

paragraph (b) to reflect the exclusion of 

oral-only drugs from the computation of 

the final base rate. 

The drugs included in the ESRD 

bundle are the three vitamin D 

analogues (calcitriol, doxercalciferol, 

and paricalcitol), and levocarnitine. The 

National Drug Coes (NDCs) used to 

identify these drugs in the Part D claims 

are shown in Table D of the Appendix. 

Table 11 below shows the number of 

Medicare ESRD beneficiaries for which 

valid ESRD claims were filed in CY 

2007, CY 2008, and the first nine 

months of 2009; number of ESRD 

beneficiaries with Part D drug coverage 

from the stand alone Part D plans; and 

number of beneficiaries with Part D 

claims for the above oral drugs. 


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D. Analytical Approach 

In the proposed rule, we presented a 

case-mix model that UM–KECC 

developed, using standard techniques of 

multivariate regression. In the proposed 

rule, we described in detail two 

approaches for developing the case-mix 

models using multivariate regression (74 

FR 49938). The case mix model we 

proposed in the development of the 

proposed ESRD PPS rule was the twoequation model. 

We noted that, for those interested, a 

more extensive and detailed 

mathematical explanation of the twoequation model used to develop the 

case-mix adjusters is contained in UM– 

KECC’s February 2008 report, End Stage 

Renal Disease Payment System: Results 

of Research on Case-Mix Adjustment for 

an Expanded Bundle (see pp. 38–44 and 

Technical Appendix). 

We did not receive any public 

comments in connection with our use of 

the two-equation model to develop the 

case-mix adjusters. 

E. Development of ESRD PPS Base Rate 

The patient-specific case-mix 

adjustments developed from the twoequation model for composite rate and 

separately billable services are applied 

to a base payment rate per treatment 

(‘‘base rate’’). We proposed that the 

ESRD base rate would be adjusted to 

reflect ESRD facility differences in area 

wage levels using a proposed wage 

index (74 FR 49947). 

In this section, we describe the 

calculation of the ESRD base rate, as set 

forth in § 413.220, and the computation 

of the reduction factors used to adjust 

the ESRD base rate for projected outlier 

payments and budget neutrality in 

accordance with sections 

1881(b)(14)(D)(ii) and 1881(b)(14)(A)(ii) 

of the Act. We define the ESRD base rate 

at § 413.171. The proposed ESRD base 

rate, which represents the average 

Medicare allowable payment (MAP) for 

composite rate and separately billable 

services, was developed from CY 2007 

claims data. 

We used claims data from CY 2007 in 

connection with the preparation of the 

proposed rule because such data were 

the latest available. In the proposed 

rule, we stated that we expected to have 

claims data for CY 2008 and partial 

claims information for CY 2009 in 

connection with our preparation of the 

final rule (74 FR 49939). We also stated 

that in order to comply with the 

statute’s requirement to use per patient 

utilization data from 2007, 2008, or 

2009 (whichever year had the lowest per 

patient utilization), we planned to use 

available claims for Medicare ESRD 

beneficiaries from those years, to 

determine which year resulted in the 

lowest average payment amount per 

treatment (74 FR 49934). 

We received several comments in 

connection with our proposed 

methodology for determining the year 

with the lowest per patient utilization of 

renal dialysis services, as required 

under section 1881(b)(14)(A)(ii) of the 


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Act. The comments received, and our 

responses to them, are set forth below. 

Comment: Several commenters 

pointed out that section 

1881(b)(14)(A)(ii) of the Act directs the 

Secretary to use ‘‘per patient utilization 

data from 2007, 2008, or 2009’’ in 

estimating the total amount of payments 

that would have been made under title 

XVIII in 2011 for renal dialysis services. 

The year selected in making that 

estimation must be the year which has 

the lowest per patient utilization. The 

commenters explained that CMS’s 

proposed methodology for determining 

the unadjusted base rate per treatment, 

in which the total expenditures for the 

specified renal dialysis services 

included in the payment bundle is 

divided by the total annual number of 

hemodialysis (HD)-equivalent 

treatments (74 FR 49940 through 

49942), represents an inaccurate 

approach for complying with the law. 

The commenters maintained that the 

effect on the Part D drugs component of 

the payment bundle was to inflate the 

denominator (that is, total HDequivalent treatments) to include all 

eligible Medicare ESRD beneficiaries, 

regardless of Part D participation, while 

the numerator with respect to Part D 

drugs only included ESRD drug 

payments for Medicare Part D enrollees. 

The commenters stated that this 

resulted in a gross understatement of the 

Part D drugs component of the payment 

bundle. The commenters asserted that 

in order to calculate per patient 

utilization accurately, the pool of 

patients in the numerator and 

denominator of the base rate per 

treatment computation must be 

congruent. 

Response: We believe that the 

commenters are correct in concluding 

that our proposed methodology for 

calculating the base rate yielded an 

inappropriately low payment amount 

for the Part D component of the ESRD 

PPS payment bundle. This occurred 

because the total payments for the Part 

D drugs we proposed to include in the 

bundle reflected payments for those 

drugs for those Medicare ESRD 

beneficiaries enrolled in Part D, while 

the denominator reflected the total 

number of HD-equivalent treatments for 

all Medicare ESRD beneficiaries, 

regardless of their enrollment in Part D. 

For this final rule, we have revised the 

denominator in the calculation 

described above to reflect the total 

number of treatments for those ESRD 

beneficiaries enrolled in Part D. 

In addition, given the commenters’ 

concerns regarding our proposal for 

determining the lowest per patient 

utilization year and the calculation of 

the per treatment base year amount, we 

reevaluated our proposed methodology 

and adopted a revised approach. We 

believe our revised methodology more 

closely comports with the language set 

forth in section 1881(b)(14)(A)(ii) of the 

Act, requiring the determination of the 

year with the lowest per patient 

utilization of renal dialysis services by 

Medicare ESRD beneficiaries. The 

methodology is similar to the 

calculation used for the composite rate 

drug add-on, in that the effects of price 

and enrollment are removed from total 

expenditures to obtain per patient 

utilization. The method used is 

described in detail below. We have also 

revised our computation of the base rate 

with respect to the Part D drug 

component to yield an amount which 

we believe is no longer understated. 

Section 1881(b)(14)(A)(ii) of the Act 

requires that we compare data from 

2007, 2008, and 2009 to select the year 

with the lowest per patient utilization of 

renal dialysis services. Although we 

have complete data for 2007 and 2008, 

we only have partial year data for 2009. 

To control for the effects of potential 

seasonal variation in the utilization of 

dialysis services, we first compared 

renal dialysis expenditures for the first 

nine months of each year. We felt this 

approach was preferable to completing 

the 2009 data, in order for it to represent 

a full year’s value, as this could 

introduce bias in the estimation. 

We eliminated the effects of price 

inflation by adjusting expenditures for 

2007 and 2008 to reflect 2009 price 

levels using the actual annual rates of 

inflation for the various components of 

the bundle. Payments for composite rate 

services were inflated to the 2009 base 

rate of $133.81 per treatment and drug 

add-on percentage of 15.2 percent. The 

inflators for Part B drugs and biologicals 

were based on actual ASP+6 percent 

prices, because that is what they were 

paid (see Table 12 below for the full 

year prices). 

Payments for laboratory tests were 

inflated 4.5 percent from 2007 to 2009 

and from 2008 to 2009. The inflators for 

laboratory services are based on updates 

to the laboratory fee schedule. The 

laboratory fee schedule is required to be 

updated using the CPI–U and any 

statutory adjustments to the CPI–U 

update factor. As the price update for 

laboratory services from 2007 to 2008 

was statutorily set to be 0 percent, no 

inflator was applied for that year. 

Because DME supplies and 

equipment, and self dialysis support 

services for Method II patients are 

subject to a monthly capitation payment 

that has not increased, we did not use 

an inflation adjustment. In addition, 

because supplies and other services are 

primarily composed of the $0.50 

administration fee for separately billable 

Part B drugs, and this has not increased, 

we did not inflate this category. 

Part D drugs were inflated 6.0 percent 

from 2007 to 2009, and 3.4 percent from 

2008 to 2009, using the growth rates for 

overall prescription drug prices that 

were used in the National Health 

Expenditure Projections. 

Table 13 shows payments per 

Medicare ESRD beneficiary for the first 

nine months of each year, for the renal 

dialysis services which comprise the 

payment bundle, excluding former Part 

D oral drugs, with prices inflated to 

2009 levels. Table 14 shows payments 

for Medicare ESRD beneficiaries 

enrolled in Part D, for the oral drugs 

with an injectable equivalent based on 

Medicare Part D claims, similarly 

adjusted for price inflation to 2009. 

By looking at these components 

separately, we are able to calculate the 

per capita spending based on the 

number of beneficiaries that are eligible 

for the service. By calculating the 

spending on a per capita basis, we are 

eliminating the effects of enrollment. 

The sum of the two values yielded the 

average expenditures per Medicare 

ESRD beneficiary for the renal dialysis 

services included in the payment 

bundle. These values are shown in 

Table 15. The indicated per capita 

spending amounts represent the per 

patient price and utilization of renal 

dialysis services. Because we are 

controlling for the effects of price 

inflation for the comparable 9 month 

periods in 2007, 2008, and 2009, the 

variability in per capita amounts is due 

to utilization. We believe that this 

methodology is responsive to the 

commenters’ concerns in that the Part D 

spending amount is divided by the 

number of beneficiaries enrolled in Part 

D, and there is no understatement of 

this component. 

Table 15 reveals that for the 9-month 

periods, 2007 was the year with the 

lowest per patient utilization, with per 

capita expenditures of $21,568. We 

performed the same computations using 

the full year of data for 2007 and 2008, 

as a check for the results obtained. 

(Tables 16, 17, and 18). We did not use 

the 2009 data in this comparison, as it 

is incomplete. The results revealed that 

per capita spending for Medicare ESRD 

beneficiaries was again lower in 2007, 

with total expenditures per beneficiary 

of $27,232. 

Accordingly, we have determined that 

2007 is the year representing the lowest 

per patient utilization of the renal 

dialysis services which comprise the 

ESRD payment bundle, and have used 


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that year to develop the base rate set 

forth in this final rule. For the reasons 

described above, we are finalizing 

413.220(b)(1). However, we have revised 

the title to reflect per patient utilization 

in CY 2007, 2008 or 2009 and revised 

the content to clarify that we remove the 

effects of enrollment and price growth 

from total expenditures for 2007, 2008 

or 2009 to determine the year with the 

lowest per patient utilization. In 

addition, we have revised 

§ 413.220(a)(3) to clarify that 2007 is the 

year with the lowest per patient 

utilization. 


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1. Calculation of the CY 2007 

Unadjusted Rate Per Treatment 

Sections 1881(b)(14)(A)(i) and 

1881(b)(14)(B) of the Act, as added by 

MIPPA, specify the renal dialysis 

services, and other items and services, 

which must be included in the payment 

bundle of the ESRD PPS. We proposed 

to include payments for the various 

components (see Table 8 at 74 FR 

49940), which comprise the renal 

dialysis services in the development of 

the proposed base rate. A detailed 

description of each of the components 

of the ESRD PPS payment bundle 

included in the CY 2007 unadjusted rate 

per treatment was discussed in the 

ESRD PPS proposed rule (74 FR 49941). 

We also described the adjustments used 

to calculate the ESRD PPS base rate 

from the CY 2007 unadjusted rate per 

treatment (74 FR 49942). Table 19 

shows the various components of the 

ESRD PPS payment bundle based on CY 

2007 claims, after adjustment for price 

inflation to 2009. 

BILLING CODE P 


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BILLING CODE C 

As we explained above, we 

determined that CY 2007 was the year 

with the lowest per patient utilization of 

renal dialysis services. The categories 

which comprise the ESRD PPS payment 

bundle remain the same as set forth in 

the proposed rule (Table 8 at 74 FR 

49940). The payment amounts 

associated with each component are 

presented in Table 19, and reflect the 

modifications and exclusions previously 

described (for example, the Part D drug 

component excludes oral-only drugs 

and biologiclas, payments for blood and 

blood products are excluded, payments 

for separately billed drugs which should 

be considered composite rate drugs 

were excluded, etc.). 

a. Composite Rate Services 

The first MAP component of the 

ESRD PPS payment bundle shown in 

Table 19 is ‘‘Composite rate services’’. 

This line item refers to total CY 2007 

payments for composite rate services as 

obtained from ESRD facility claims (bill 

type 72X claims), inflated to 2009. This 

total includes all composite rate 

payments to ESRD facilities, including 

exception payments made in accordance 

with § 413.182 through § 413.186. 

b. Part B Drugs and Biologicals 

The next 11 line items in Table 19 

reflect the categories of injectable drugs. 

In the proposed rule, we noted that the 

top 11 Part B drugs and biologicals 

accounted for 99.7 percent of total 

separately billable Part B drug payments 

(74 FR 49943). For this final rule, we 

found that total payments in 2007 for 

the top 11 Part B drugs and biologicals 

reported on ESRD claims, and used to 

calculate the base rate, accounted for 

99.8 percent of total spending for Part B 

drugs. Monthly payments for EPO and 

ARANESP® were capped in accordance 

with the applicable medically 

unbelievable edits, described previously 

in this section. For all other injectable 

Part B drugs, we have provided a 

separate line item. In section II.A.3. of 

this final rule, we discuss Part B drugs 

and biologicals in detail. 

c. Laboratory Tests 

Another component of the ESRD PPS 

bundle shown in Table 19 is laboratory 

tests. Payments for laboratory tests 

represent the total amount paid to 

dialysis facilities for outpatient 

laboratory tests billed on ESRD claims, 

as well as payments for laboratory tests 

ordered by physicians receiving MCP 

amounts and billed on carrier claims. 

We identified laboratory tests ordered 

by physicians receiving MCP using the 

list of physicians for CY 2007, which 

was the latest list available in 

connection with the publication of the 

final rule. We discuss laboratory tests 

under the ESRD PPS in detail in section 

II.K.2. of this final rule. 

d. Durable Medical Equipment (DME) 

and Supplies 

DME and supplies is another 

component of the ESRD PPS payment 

bundle. Payments for these items and 

services were obtained from the form 

CMS 1500 claims for Method II home 

patients. 

e. Dialysis Support Services 

We computed a total amount for the 

next component of the ESRD PPS 

payment bundle shown in Table 19, 

‘‘Dialysis support services.’’ This total 

represents total payments for support 

services furnished to Method II home 

dialysis patients, and reported under 

subcategory 5 of revenue codes 082X 

through 085X on ESRD claims. 

f. Supplies and Other Services Billed by 

Dialysis Facilities 

This category of the ESRD PPS 

payment bundle primarily includes 

payments for syringes used in the 

administration of intravenous drugs 

during the provision of outpatient 

dialysis. These supplies and services 

were billed by the dialysis facilities on 

ESRD claims. 

g. Former Part D Drugs 

This amount represents total 

payments made on behalf of the ESRD 

beneficiaries with Part D coverage in CY 

2007 (inflated to 2009), for the oral 

equivalents of injectable drugs and 

biologicals which were furnished for the 

treatment of ESRD. These drugs and 

biologicals (three vitamin D analogues 

and levocarnitine) were obtained from 

Part D claims submitted on behalf of the 

Medicare ESRD beneficiaries with valid 

type 72X claims in CY 2007 with Part 

D coverage. We received several 

comments concerning payment for Part 

D drugs. 

Comment: One commenter suggested 

that the payment amount for oral drugs 

included in the base rate use the Part D 

data for beneficiaries with the low 

income subsidy. The commenter stated 

that this amount would then be applied 

to all Medicare ESRD beneficiaries, 

regardless of their particular insurance 

arrangement (Part D coverage, retiree 

coverage, or out-of-pocket). The 

commenter believed that such an 

approach would likely produce a more 

robust estimate of the costs of the drugs 

for inclusion in the payment bundle. 

Response: In calculating the 

component of the base rate which 

reflects payments for former Part D 

drugs (excluding oral-only drugs), we 

used Part D claims for 2007 for all 

Medicare ESRD beneficiaries who were 

enrolled in Part D. This included 

payments not only made by the Part D 

drug plan, but also payments made by 

or on behalf of the beneficiary, for 

which the Part D beneficiary was 

responsible. Total Part D drug 

expenditures for the oral equivalents of 

ESRD injectables were divided by the 

number of treatments for Medicare 

ESRD Part D enrollees. This amount per 

treatment was added to the per 

treatment amount reflecting total 2007 

ESRD expenditures for all Medicare 

ESRD beneficiaries, divided by the 

number of treatments for those 

beneficiaries. Because total payments 

for Part D drugs were divided by the 

number of HD-equivalent treatments 

furnished to Part D enrollees, we believe 

that this methodology does not result in 

an understatement of the oral drug 

component of the payment bundle. 

Comparison of the price adjusted 

amounts for 2007, 2008, and available 

data for 2009 revealed that 2007 was the 

year with the lowest per patient 

utilization of renal dialysis services (see 

paragraph E. above). The NDC codes 


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used to identify these drugs are shown 

in Table D of the Appendix. 

Comment: Several commenters 

asserted that even if CMS has the 

statutory authority to include oral-only 

Part D drugs in the calculation of the 

base rate, the proposed computed 

amount of $12.48 per treatment is 

inordinately low. The commenters 

believed the amount was too low 

because it reflected the amount of 

payments made for two-thirds of all 

beneficiaries divided by the number of 

Medicare HD-equivalent treatments 

provided to the entire universe of 

Medicare ESRD beneficiaries, including 

those not enrolled in Part D. One 

commenter stated that this represents 

the imposition of an unfunded mandate. 

After consideration of inflation, 

prescription rates, and patient 

compliance, the commenter presented 

an analysis suggesting that the proper 

per treatment amount in 2011 for oral 

Part D drugs should be about $45.00. 

Response: We have revised the base 

rate component of the bundled ESRD 

PPS for Part D drugs so that it excludes 

oral-only ESRD drugs (see section II.A.2. 

of this final rule for a discussion of our 

decision to delay payment of oral-only 

ESRD drugs under the ESRD PPS until 

January 1, 2014). We have also revised 

the methodology for computing the 

portion of the base rate attributable to 

Part D drugs so that it represents the 

average Part D payment per treatment 

for each Part D enrollee. This revision 

responds to the commenter’s concern 

that the payment amount included in 

the proposed rule was understated 

because it represented Part D payments 

for only two-thirds of all Medicare 

ESRD beneficiaries, divided by the 

number of HD-equivalent treatments for 

all Medicare ESRD beneficiaries. With 

respect to the suggestion that the Part D 

payment amount included in the base 

rate should also be adjusted to reflect 

increased inflation, prescription rates, 

and patient compliance, we decline to 

include these factors for the following 

reasons. 

The commenter asserted that the 

actual rate of price inflation in Part D 

drugs would be about 16 percent 

annually from 2007 through 2011 based 

on historical data, but calculated a 

projection using a more conservative 

figure of 12.2 percent. We reject the 

magnitude of this projection as it differs 

significantly from forecasted rates of 

drug price inflation using the producer 

price index. Moreover, we believe that 

using projected increases in patient 

prescription rates and anticipated 

increases in patient compliance as a 

basis for calculating the Part D drug 

component of the base rate is highly 

speculative. 

We believe the data we used for the 

Part D drugs that we are including in the 

base rate at this time are appropriate 

and reflect an adequate payment 

amount for this component of the base 

rate. Accordingly, we decline to 

incorporate the commenter’s suggested 

variables. We note that we will address 

data issues pertaining to oral-only drugs 

and the base rate payment amount for 

such drugs in the future when we 

bundle oral-only drugs beginning 

January 1, 2014. 

With respect to the commenter’s 

concern that the per treatment amount 

for the Part D drugs component of the 

bundle is inordinately low because the 

number of treatments used reflected all 

Medicare ESRD beneficiaries, not just 

those enrolled in Part D, we point out 

in a response to a previous comment 

that we have addressed this concern by 

revising the computation of the base 

rate, so that the Part D drugs component 

reflects Part D payments divided by HDequivalent treatments for Part D 

enrollees. With respect to the adequacy 

of Part D drug payments, we have 

delayed the inclusion of oral-only drugs 

until January 1, 2014. We will address 

data issues pertaining to oral-only 

drugs, and the per treatment payment 

amount for these drugs, in the future 

when these drugs are included in the 

payment bundle. For the Part D drugs 

which we are including in the ESRD 

PPS beginning January 1, 2011, the 

source data are the actual payments 

from the 2007 Part D claims for the oral 

drugs with an injectable version. We 

believe that these data are appropriate 

and adequate. 

Comment: Several commenters 

pointed out that our proposed 

methodology for calculating the base 

rate resulted in an understatement of the 

Part D drug component of the payment 

bundle (74 FR 49940). This occurred 

because, while total payments for renal 

dialysis services (excluding Part D 

drugs) were properly divided by the 

total number of HD-equivalent 

treatments for Medicare ESRD 

beneficiaries, the total payments for Part 

D drugs for Medicare ESRD beneficiaries 

enrolled in Part D, was similarly 

divided by the same number of HDequivalent treatments. This yielded an 

understatement in the amount of the 

payments per treatment for Part D drugs 

included in the payment bundle, 

because the number of treatments for 

Part D enrollees was overstated, 

reflecting total treatments for all ESRD 

beneficiaries instead of treatments for 

Part D enrollees only. 

Response: The commenters are 

correct. In this final rule, for all 

components of the base rate excluding 

the portion for Part D drugs, we used the 

total number of CY 2007 Medicare HDequivalent dialysis sessions (36,747,662) 

to calculate the portion of the base rate 

attributable to all composite rate and 

separately billable services. For the 

portion of the MAP attributable to oral 

Part D drugs with an injectable version, 

the number of CY 2007 HD-equivalent 

treatments used to compute the Part D 

drugs component was 24,737,326. This 

represents the number of treatments for 

Medicare ESRD beneficiaries enrolled in 

Part D. 

Comment: Several commenters stated 

that based on a plain reading of the 

statute, the Congress intended CMS to 

take into account all of the costs for Part 

D drugs, regardless of Medicare 

beneficiaries’ source of prescription 

drug coverage. Therefore, some 

commenters asserted that an accurate 

estimate of total Part D drug costs 

should include a determination of the 

cost of oral drugs for Medicare ESRD 

beneficiaries who obtain their drug 

coverage from Medicare Part D or 

through another source. One commenter 

included a specially commissioned 

study which purported to quantify the 

utilization of oral ESRD drugs (using 

pill counts) among three payer groups: 

Medicare Part D, private coverage 

(including employer coverage), and 

other/unclassified coverage. Because the 

average pill counts for specific oral 

ESRD drugs varied among the payer 

groups, the commenter suggested that 

this difference in utilization would need 

to be considered to adjust the Part D 

component of the base rate. In addition, 

the commenter recommended that CMS 

adjust this component to reflect 

anticipated changes in oral drug use, 

expected improvements in beneficiary 

adherence to oral drug regimens, and an 

appropriate inflation adjustment. 

Response: For reasons expressed in 

the response to the preceding comment, 

we decline to adjust the Part D 

component of the base rate using 

expected increases in oral drug use, and 

increases in patient compliance. We 

also believe that we have appropriately 

inflated the base rate to 2011 to reflect 

price changes. Under the methodology 

for calculating the per treatment amount 

for the specified renal dialysis services 

included in the base rate, the sum of the 

composite rate and separately billable 

components is divided by the number of 

treatments for ESRD beneficiaries. Total 

payments for the oral equivalents of 

injectable drugs were divided by the 

number of treatments for Medicare 

ESRD Part D enrollees. These two 


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amounts were summed to obtain the 

unadjusted MAP per treatment. 

Therefore, the Part D component of the 

unadjusted base rate amount was 

calculated only using beneficiaries with 

Part D coverage. 

The commenter’s cited study suggests 

that differences in oral drug utilization 

occur depending on the source of the 

payment. Although the commenter’s 

study was limited to a sample using 

12,706 Medicare ESRD beneficiaries and 

did not control for differences in dosage 

(utilization was based on pill counts 

regardless of the dosage amount), we 

believe that a finding that the utilization 

of Part D drugs among Medicare ESRD 

beneficiaries differs depending on payer 

source would have no impact on our 

calculation of the base rate. Section 

1881(b)(14)(A)(ii) of the Act refers to the 

total amount of payments ‘‘under this 

title,’’ which we have interpreted as 

meaning under Title XVIII of the Social 

Security Act. 

Therefore, even if differences in the 

utilization of Part D drugs among 

Medicare ESRD patients were confirmed 

based on non-Medicare sources of 

payment for these drugs, we believe this 

information could not be used to 

develop weighting factors to adjust the 

Part D component of the base rate based 

on differences in utilization across 

payer groups. Non-Medicare sources of 

payment for these drugs, such as 

employer groups, unions, private 

insurance, etc., could not be considered 

because we interpret section 

1881(b)(14)(A) of the Act as requiring 

that the ESRD PPS reflect payments 

under Title XVIII for renal dialysis 

services. 

h. Total Medicare Hemodialysis (HD)- 

Equivalent Sessions 

In order to calculate the proposed 

ESRD PPS base rate per treatment, it 

was necessary to divide the total 

payments for each MAP amount 

described above by the number of 

corresponding Medicare HD-equivalent 

sessions. The number of Medicare HDequivalent sessions represents the total 

Medicare treatments for outpatient 

dialysis as reported on ESRD claims 

submitted by dialysis facilities. For PD 

patients, patient weeks were converted 

to HD-equivalent sessions. For this 

purpose, one week of PD was 

considered equivalent to three HD 

treatments. Accordingly, a patient on PD 

for 21 days would have (21/7) × 3 or 9 

HD-equivalent sessions. In determining 

the total number of Medicare 

treatments, the number of HDequivalent sessions was capped so as 

not to exceed the number of days in the 

month in which treatments were 

furnished. 

i. Average MAP per Treatment 

We summed the total payments for 

the composite rate and separately 

billable portions of the bundle. The total 

of $8,936,542,191 (which excludes all 

Part D drugs) was divided by the 

number of HD-equivalent treatments 

(36,747,662), to yield an average MAP 

per treatment of $243.19. The MAP per 

treatment for Part D drugs (excluding 

oral-only drugs) was similarly computed 

by dividing the total payment for those 

drugs ($11,340,484) by the number of 

HD-equivalent treatments for Medicare 

ESRD Part D enrollees (24,737,326), to 

obtain a MAP per treatment of $0.46. 

The sum of the MAP amount for all 

renal dialysis services excluding Part D 

drugs ($243.19), plus the MAP amount 

for the Part D drugs component, which 

excludes oral-only drugs, ($0.46), 

yielded the total average MAP per 

treatment for the renal dialysis services 

included in the ESRD PPS payment 

bundle. This amount, $243.65, is the 

unadjusted base rate amount and 

reflects price inflation to 2009. The 

renal dialysis services which comprise 

the base rate, both in terms of total 

payments for each component and the 

average payment per treatment, inflated 

to 2009, are shown in Table 19. 

2. Determining the Update Factors for 

the Budget-Neutrality Calculation 

In order to estimate payments under 

the current payment system for each 

facility in CY 2011, the first year of the 

ESRD PPS, the components of the CY 

2007 unadjusted per treatment rate were 

updated to reflect estimated 2011 prices, 

using the methodology as described in 

the proposed ESRD PPS rule (74 FR 

49942). It is necessary to estimate 2011 

payments under the current ESRD 

payment system (including all 

separately billable items) for each 

facility in order to meet the statutory 

budget-neutrality requirement for the 

ESRD PPS. 

Section 1881(b)(14)(A)(ii) of the Act 

requires that the ESRD PPS payment 

system be 98 percent budget neutral in 

2011. In other words, the estimated total 

amount of payments under the ESRD 

PPS in 2011, including any payment 

adjustments, must equal 98 percent of 

the estimated total amount of payments 

for renal dialysis services that would 

have been made with respect to services 

in 2011 if the ESRD PPS system had not 

been implemented. In the proposed 

ESRD PPS, we described the update 

factors used to estimate CY 2011 

payments for each component (74 FR 

49939). 

a. Composite Rate Services 

In order to update the basic case-mix 

adjusted composite payments to 2011, 

we began with the CY 2009 base 

composite rate ($133.81) and the CY 

2009 drug add-on percentage of 15.2 

percent. At the time of the proposed 

rule (74 FR 49942), in accordance with 

section 1881(b)(12)(G) of the Act, as 

amended by section 153(a)(1) of MIPPA 

and in accordance with section 

1881(b)(14) of the Act, we updated the 

composite rate by 1.0 percent for CY 

2010 and by the estimated ESRD 

bundled market basket percentage 

increase minus 1 percentage point (1.5 

percent) for CY 2011, respectively, 

resulting in a proposed 2011 composite 

rate of $137.18. 

We proposed (74 FR 49942 through 

49943) to use this base composite rate 

for CY 2011, which included the ESRD 

bundled market basket update minus 1 

percentage point to update the CY 2010 

composite rate, for purposes of 

establishing the ESRD PPS base rate, 

given that we interpreted section 

1881(b)(14)(F)(ii) of the Act to require us 

to update the composite rate portion of 

the blend by the market basket update 

minus 1.0 percentage point in all years 

of the transition (which included CY 

2011). We stated that using the market 

basket in this way would be a consistent 

approach (74 FR 49943). At the time of 

the proposed rule, we proposed an 

ESRD bundled market basket update of 

2.5 percent for CY 2011. Therefore, we 

proposed (74 FR 49942 through 49943) 

a 1.5 percent update to the composite 

rate for CY 2011, resulting in a proposed 

CY 2011 composite rate of $137.18 

($135.15 * 1.015). 

We noted that the drug add-on 

percentage was reduced from 15.2 

percent to 14.8 percent as a result of the 

increases to the composite rate in CYs 

2010 and 2011. Since the drug add-on 

is calculated as a percentage of the base 

composite rate, the drug add-on 

percentage decreases with increases in 

the composite rate. The CY 2009 PFS 

final rule (73 FR 69755) explains why 

increases to the base composite rate 

require decreases to the drug add-on 

percentage to ensure that the total drug 

add-on dollar amount remains the same. 

We stated our intent to update the drug 

add-on, if necessary, for the ESRD PPS 

final rule (73 FR 69755). 

In the proposed rule, we used the 

applicable facility-level and patientlevel basic case-mix adjustments from 

the CY 2007 claims to re-compute 

payment using the applicable basic 

case-mix adjustments applied to a 100 

percent CBSA wage-adjusted composite 

rate using the most recently available 


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ESRD wage index, which is the CY 2009 

final rule ESRD wage index with a 0.60 

floor. We stated that we did this to use 

the most recent wage indexes available 

in estimating 2011 payments (74 FR 

49943). We also noted that the other 

components of the bundle discussed in 

the proposed rule do not have payments 

which are computed with wage indexes 

(74 FR 49943). In addition, we noted in 

the proposed rule that payment rates to 

facilities that have chosen to retain their 

exceptions under the basic case-mix 

composite payment system are not 

updated because, once approved, the 

exception amounts were fixed payment 

amounts, and hence the 2007 amounts 

represent the 2011 amounts (74 FR 

49943). 

We did not receive any public 

comments regarding our proposal with 

regard to composite rate services. 

However, following the release of the 

ESRD PPS proposed rule, section 

3401(h) of the Affordable Care Act of 

2010 amended section 1881(b)(14)(F) of 

the Act, by revising the ESRDB market 

basket update for CY 2011 from a 

market basket update minus one percent 

to a full market basket update. Thus, a 

2.5 percent update to the composite rate 

for CY 2011, results in a final CY 2011 

composite rate of $138.53 ($135.15 * 

1.025). We note that $135.15 is the final 

CY 2010 composite rate, which was 

derived from the CY 2009 composite 

rate of $133.81 increased by one percent 

as required by section 153(a)(1) of 

MIPPA ($133.81 * 1.01). We also note 

that, as discussed in the CY 2011 PFS 

proposed rule issued on June 25, 2010, 

we have used the proposed CY 2011 

drug add-on percentage of 14.7 percent, 

and the CY 2011 proposed ESRD wage 

index values with a 0.60 floor for 

computing the ESRD PPS budget neutral 

base rate. In this way, we are using the 

most current data available for 

computing the final CY 2011 ESRD PPS 

base rate. The final CY 2011 ESRD PPS 

base rate will not be adjusted to reflect 

final decisions regarding the drug addon percentage and the wage index floor 

for CY 2011. However we note that we 

will use the final drug add-on and wage 

index floor values in computing the 

composite rate portion of the blended 

payments during the transition. 

b. Self-Dialysis support services for 

Method II patients 

Currently, the allowance per month 

under Method II for home dialysis 

support services may not exceed 

$121.15 per month for all forms of 

dialysis. Since home dialysis support 

services for Method II patients are 

subject to a monthly capitation payment 

that is not increased, we proposed (74 

FR 49943)that the CY 2007 amounts 

represent the CY 2011 amounts. 

We did not receive any public 

comments regarding our proposal. Since 

the monthly capitation payment has not 

increased, we are finalizing the 

approach that the CY 2007 amounts 

represent the CY 2011 amounts. 

c. Part B Drugs and Biologicals 

Under the current system, payments 

for ESRD drugs and biologicals under 

Part B are paid on average sales price 

plus 6 percent (ASP+6 percent) 

methodology. For the proposed rule, we 

reviewed ASP prices for four quarters of 

2006, 2007, 2008, and two quarters of 

2009 for the top eleven separately 

billable drugs. We proposed to use the 

2009 prices as a proxy for 2011 values 

(74 FR 49943). We indicated that we 

would revaluate our decision with 

updated quarterly ASP pricing data. 

For other ESRD-related Part B drugs, 

we used a proposed weighted average of 

the top eleven Part B drugs to update 

those drug prices to 2011. As the top 

eleven drugs represented 99.7 percent of 

total separately billable Part B drug 

payments at the time of the proposed 

rule, we indicated that the overall 

weighted average was representative of 

the remaining 0.3 percent of drugs. (See 

Table 10 in the ESRD PPS proposed rule 

(74 FR 49943) for the price updates 

used.) We have refined our data and the 

top eleven drugs that now represent 

99.8 percent of total separately billable 

Part B drug payments. 

The comments we received on this 

proposal and our responses are set forth 

below. 

Comment: Commenters expressed 

concern about the lack of an update for 

ASP-priced drugs and biologicals and 

suggested that we use the Producer 

Price Index for Drugs (PPI) to inflate 

Part B drug prices. 

Response: We agree with the 

commenters about the need for an 

update in ASP prices for Part B drugs 

and to use the PPI for the update. For 

that reason, we took the latest available 

ASP pricing data, which represented the 

second quarter of 2010, and updated 

these prices using the PPI for drugs. 

This update resulted in a 3.9 percent 

increase to the top eleven separately 

billable Part B Drugs from 2010 to 2011. 

Similar to the proposed rule, since the 

top eleven drugs account for over 99 

percent of total spending, for the final 

rule we used a weighted average growth 

of the top eleven drugs (4.6 percent) for 

the remaining Part B drugs. Table 20 

below shows the price increases, from 

2007 to 2011, of the separately billable 

Part B drugs. 


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d. Laboratory Tests 

We proposed to update payments for 

laboratory tests paid through the 

laboratory fee schedule to 2011 using 

projected CPI–U increases and any 

legislative adjustments that would be 

applied to this fee schedule (74 FR 

49943). Using this approach, we 

proposed (74 FR 49943) a growth update 

of 5.1 percent from 2007 to 2011. 

We did not receive any public 

comments regarding our proposal. Since 

the CPI–U increase, with any legislative 

adjustments, is the statutory updated 

required for laboratory testing, we are 

finalizing this approach. However, we 

have updated the growth percentage 

using more recent forecasts of the CPI– 

U data. For this final rule, the growth 

from 2007 to 2011 is 3.9 percent. 

e. DME Supplies and Equipment 

Since payments for supplies and 

equipments for Method II patients are 

subject to a monthly capitation payment 

that has not increased, we proposed that 

the CY 2007 amount represents the 2011 

amounts (74 FR 49943). 

We did not receive any public 

comments regarding our proposal. 

Therefore, for the reasons above, we are 

finalizing the proposed approach for 

updating the amount for DME supplies 

and equipment. 

f. Supplies and Other Services 

This category primarily includes the 

$0.50 administration fee for separately 

billable Part B drugs. Since this fee has 

not increased, as there is no update for 

such fees, we proposed no price update 

(74 FR 49943). 

We did not receive any public 

comments regarding our proposal. 

Given that the administration fee has 

not increased, we are finalizing the 

proposed approach for supplies and 

other services. 

g. Former Part D Drugs 

We proposed that former Part D drugs 

would be updated by the growth rates 

for overall prescription drug prices that 

were used in the National Health 

Expenditure Projections and referred to 

the following link for further 

information on the National Health 

Expenditure Projections: http:// 

www.cms.hhs.gov/

NationalHealthExpendData/03

_NationalHealthAccounts

Projected.asp#TopOfPage. Using the 

National Health Expenditure 

Projections, we proposed a growth of 

12.2 percent from 2007 to 2011 (74 FR 

49943). We proposed this approach 

because we did not have enough data to 

establish a trend for Part D prices and 

we use this price growth in the overall 

Part D projections. Therefore, we 

believed it was an adequate proxy for 

updating prices for former Part D drugs. 

The comments we received on this 

proposal and our responses are set forth 

below. 

Comments: A few commenters 

suggested the use of the PPI to update 

the Part D drugs. 

Response: We continue to feel that the 

growth rates for overall prescription 

drug prices that are used in the National 

Health Expenditure Projections are the 

best proxy, as they are consistent with 

the price growth proxy used in Part D 

spending projections. However, due to 

new National Health Expenditure 

Projections, the final growth for Part D 

drugs is 12.9 percent. This growth factor 

would be applied to those Part D drugs 

that are to be included in the ESRD PPS 

bundle as of January 1, 2011. We note 

that oral-only Part D drugs will not be 

included until after the transition, as 

discussed in section II.A.3. of this final 

rule. 

Once we determined updated CY 

2011 payments for each component of 

the items and services discussed above, 

we proposed to add the components 

together to determine each ESRD 

facility’s total payments under the 

current payment system in CY 2011. 

These estimated total 2011 MAPs 

divided by the total 2007 Medicare HDequivalent sessions yielded the 

proposed unadjusted per treatment base 

rate for renal dialysis services in CY 

2011 of $261.58 (74 FR 49944). 

The comments we received on this 

proposal and our responses are set forth 

below. 

Comments: We received comments 

that we should account for increases in 

enrollment and utilization in 

determining the base rate. 

Response: We do not typically make 

utilization increase assumptions in 

setting budget neutrality for PPS 

payment systems. In addition, the 

statute requires us to use the utilization 

for the lowest of 2007, 2008 and 2009. 

Enrollment growth assumptions would 

not affect a per treatment rate 

calculation, as it would increase total 

spending and total treatments. 

However, due to changes in the 

components of the final ESRD PPS 

bundle described in section II.A. of this 

final rule, the final updated unadjusted 

per treatment base rate for renal dialysis 

services in CY 2011 is $251.60. We note 

that the reduction is primarily due to 

the delay in implementing oral-only 

Part D drugs under the ESRD PPS, as we 

have removed these MAPs from the 

unadjusted base rate computation. Other 

changes related to the composition of 


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the final ESRD bundle and hence the 

reduction in the unadjusted per 

treatment base rate are discussed in 

section II.A. of this final rule. 

We are finalizing $251.60 as the 

starting point for further adjustments in 

determining the final ESRD PPS per 

treatment base rate. The 2011 

unadjusted average payment per 

treatment of $251.60 was then used in 

the payment model to estimate final 

total payments under the ESRD PPS in 

CY 2011. These final CY 2011 ESRD 

PPS estimated payments are based on 

treatment data from the CY 2007 claims 

file. 

3. Standardization Adjustment 

CY 2011 payments under the 

proposed ESRD PPS were initially 

estimated without a budget-neutrality 

adjustment, using the unadjusted CY 

2011 average payment per treatment 

amount of $261.58 (74 FR 49944). We 

calculated the proposed PPS payments 

using treatment counts from the 2007 

claims file. The wage index and all 

applicable proposed patient-level and 

facility-level adjustments were applied 

to the unadjusted CY 2011 average 

payment per treatment to determine the 

estimated payment amount under the 

proposed ESRD PPS for each treatment 

and ESRD facility. We noted that to 

simulate payments, we used the latest 

available final CY 2009 ESRD wage 

indexes, with no floor (74 FR 49944) 

because it was the latest available wage 

index data at the time, and we had 

proposed to apply no floor to the PPS 

payments beginning January 1, 2011. In 

the proposed rule, we discussed how we 

standardized payments (74 FR 49942) 

and calculated the standardization 

factor (74 FR 49944) for the ESRD PPS. 

Payments were standardized to 

account for the overall effects of the 

proposed ESRD PPS case-mix patient 

and facility adjustment factors and wage 

indexes. We must standardize payments 

in order to ensure that total projected 

PPS payments are equal to the payments 

under the current basic case-mix 

adjusted composite payment system. 

The proposed standardization factor 

was calculated to be 21.73 percent. As 

a result, the proposed CY 2011 

unadjusted per treatment base rate of 

$261.58 was reduced by 21.73 percent 

to $204.74 (74 FR 49944). 

The comments we received on this 

proposal and our responses are set forth 

below. 

Comment: We received numerous 

comments disagreeing with the 

significant reduction in the per 

treatment base rate caused by 

standardization. The commenters 

indicated that the per treatment base 

rate is too low to account for their high 

staffing and medical costs. The 

commenters suggested fewer 

adjustments yielding a smaller 

standardization adjustment and a high 

per treatment base rate. 

Response: In an effort to respond to 

the concerns expressed about the 

amount of the base rate, as discussed in 

section II.F.3. of this final rule, we have 

removed a number of patient 

adjustments and co-morbidity 

categories. Following the methodology 

from the proposed rule, we have 

recomputed the standardization 

adjustment using the final ESRD PPS 

adjustments. The final standardization 

factor was calculated by dividing total 

estimated payments in 2011 under the 

current payments system by estimated 

payments under the final ESRD PPS in 

2011. We have used the same method as 

in the proposed rule and since we 

received no comments on the 

standardization calculation, we are 

finalizing this approach and 

§ 413.220(b)(3) as proposed. The final 

standardization adjustment is .9407 or a 

reduction of 5.93 percent from the 

unadjusted per treatment base rate. As 

a result, the CY 2011 standardized per 

treatment base rate is $236.68. 

Based upon our review of the public 

comments and for the reasons described 

above, we are finalizing § 413.220(b)(3). 

However, we have corrected the cross 

reference to reflect the patient-level and 

facility-level adjustment sections 

(§ 413.231 through § 413.235). 

4. Calculation of the Budget-Neutrality 

Adjustments 

a. Outlier Adjustment 

Section 1881(b)(14)(D)(ii) of the Act 

provides that the ESRD PPS shall 

include a payment adjustment for high 

cost outliers due to unusual variations 

in the type or amount of medically 

necessary care, including variations in 

the amount of ESAs necessary for 

anemia management. We proposed that 

outlier payments be applied in a budget 

neutral manner, as doing so would 

ensure that estimated total payments 

under the proposed ESRD PPS equals 98 

percent of the estimated total amount of 

payments for renal dialysis services that 

would have been made with respect to 

services in 2011 if the ESRD PPS system 

had not been implemented (74 FR 

49944). 

To ensure that the proposed outlier 

policy (74 FR 49944) under the ESRD 

PPS is budget neutral, we proposed to 

reduce the base rate by the proposed 

outlier percentage, or 1.0 percent. 

Specifically, we proposed to reduce the 

base rate from $204.74 to $202.69. We 

did this to account for the 1.0 percent 

of aggregate ESRD PPS payments 

estimated to be made as outlier 

payments. We then re-estimated the 

prospective payment amounts with the 

new reduced base rate of $202.69, 

allowing 1.0 percent of payments to be 

outliers. The outlier amount was 

computed for all treatments and the 

total outlier payment amount across all 

treatments was added to the prospective 

payment amount for all treatments. 

We did not receive any public 

comments regarding our proposal to 

reduce the base rate to account for the 

outlier percentage and, therefore, we are 

finalizing 413.220(b)(4) as proposed. 

Specific comments about the outlier 

policy are discussed in section II.H. of 

this final rule. However, using the final 

standardized base rate of $236.68, we 

reduced this amount by 1.0 percent to 

account for outlier payments. This 

reduction resulted in a revised base rate 

of $234.31. 

b. 98 Percent Budget-Neutrality 

Adjustment 

Section 1881(b)(14)(A)(ii) of the Act 

requires that the ESRD PPS payment 

system be 98 percent budget neutral. In 

other words, the estimated total amount 

of payments under the ESRD PPS in 

2011, including any payment 

adjustments, must equal 98 percent of 

the estimated total amount of payments 

for renal dialysis services that would 

have been made with respect to services 

in 2011 if the ESRD PPS had not been 

implemented. Therefore, we proposed 

to reduce the 2011 standardized base 

rate, which was already adjusted for 1.0 

percent outlier payments, by an 

additional 2.0 percent, from $202.69, to 

yield a proposed base rate of $198.64 

(74 FR 49944). 

The comments we received on this 

proposal and our responses are set forth 

below. 

Comment: We received numerous 

comments indicating that the proposed 

per treatment base rate of $198.64 is too 

low to account for the costs of dialysis. 

Response: As we indicated in the 

previous section, due to changes made 

to the final ESRD PPS payment model 

(specifically, the patient-level and 

facility-level adjustment factors 

described in sections II.F.3. and II.F.4, 

respectively, of this final rule), the final 

standardization adjustment is 

considerably lower that the proposed 

adjustment. For this reason, the final 

standardized base rate used as the 

starting point for the budget-neutrality 

adjustments is over $31 higher than the 

proposed amount. 

Comment: Several commenters 

requested that the outlier percentage be 


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withheld after the 98 percent budgetneutrality adjustment. 

Response: The budget-neutrality 

adjustments are multiplicative, and as a 

result, the order of the reductions has no 

effect on the final adjusted base rate. 

The adjustments for the outlier 

payments and the 98 percent budgetneutrality requirement are needed to 

ensure that total payments under the 

PPS are equal to 98 percent of payments 

under the current basic case-mix 

adjusted composite payment system. 

In consideration of the comments 

received and for the reasons discussed 

above, we are finalizing § 413.220(b)(5). 

However, we have deleted the crossreferences to the ESRD PPS regulatory 

citations. Instead, we have revised the 

language to clarify that CMS adjusts the 

per treatment base rate so that the 

aggregate payments in 2011 are 

estimated to be 98 percent of the 

amount that would have been made 

under Title XVIII of the Act if the ESRD 

PPS described in section 1881(b)(14) of 

the Act were not implemented. We 

made this change because we believe 

the revised language is more 

straightforward and clear. 

To summarize, the final base rate per 

treatment with an outlier adjustment 

and budget-neutrality is calculated to be 

$229.63. This amount includes a 5.93- 

percent reduction from $251.60 to 

account for standardization to the 

projected CY 2011 current system 

payment per treatment, a 1.0 percent 

reduction to account for outlier 

payments, and a 2.0 percent reduction 

for the required 98 percent budgetneutrality. We note that if the reader 

were to multiply the outlier adjusted 

base rate of $234.31 by .98 for the 

budget-neutrality requirement, they 

would calculate $229.62. However we 

did not round the figures in the 

calculation of each step and arrived at 

$229.63. 

5. Calculation of the Transition BudgetNeutrality Adjustment 

Section 1881 (b)(14)(E)(i) of the Act 

requires the Secretary to provide ‘‘a fouryear phase-in’’ of the payments under 

the ESRD PPS for renal dialysis services 

furnished on or after January 1, 2011, 

with payments under the ESRD PPS 

‘‘fully implemented for renal dialysis 

services furnished on or after January 1, 

2014.’’ Although the statute uses the 

term ‘‘phase-in’’, we are using the term 

‘‘transition’’ to be consistent with other 

Medicare payment systems. 

Section 1881(b)(14)(E)(ii) of the Act 

permits ESRD facilities to make a onetime election to be excluded from the 

transition. An ESRD facility that elects 

to be excluded from the transition 

receives payments for renal dialysis 

services provided on or after January 1, 

2011 based on 100 percent of the 

payment rate under the ESRD PPS, 

rather than a blended payment based in 

part on the payment rate with regard to 

the current basic case-mix adjusted 

composite payment system and in part 

on the payment rate under the ESRD 

PPS. The proposed implementation of 

the transition is discussed in detail in 

the proposed rule (74 FR 50003). 

Section 1881(b)(14)(E)(iii) of the Act 

also requires that we make an 

adjustment to payments for renal 

dialysis services provided by ESRD 

facilities during the transition so that 

the estimated total amount of payments 

under the ESRD PPS, including 

payments under the transition, equals 

the estimated total amount of payments 

that would otherwise occur under the 

ESRD PPS without such a transition. 

In the proposed rule (74 FR 49944 

through 49947), we discussed that the 

transition budget-neutrality adjustment 

would be comprised of two parts. First, 

we proposed to make a payment 

adjustment under the basic case-mix 

adjusted composite payment system 

portion of the blended rate during the 

transition to account for the per 

treatment costs of drugs that are 

currently paid under Part D. Second, we 

proposed to compute a factor that would 

make the estimated total amount of 

payments under the ESRD PPS, 

including payments under the transition 

equal the estimated total amount of 

payments that would otherwise occur 

without such a transition (3.0 percent 

reduction). 

In the proposed rule, we described in 

detail our rationale for the transition 

budget-neutrality adjustment and 

alternatives considered (74 FR 49944). 

We invited comments on the calculation 

and application of the proposed twopart transition budget-neutrality 

adjustment factor. The comments we 

received on this proposal and our 

responses are set forth below. 

Comment: We received numerous 

comments about the proposed transition 

budget-neutrality adjustment. Many 

commenters focused on the transition 

budget-neutrality adjustment related to 

payment for Part D oral drugs. The 

commenters indicated that the proposed 

$14 adjustment is too low and does not 

reflect all of the ESRD patients covered 

under the ESRD PPS. 

Response: As discussed in section 

II.A.3. of this final rule, although oralonly Part D drugs meet the definition of 

renal dialysis services and are included 

in the ESRD PPS bundle, we are not 

implementing these drugs under the 

PPS until after the transition. That 

section also addresses our rationale for 

the Part D component of the base rate 

and the data used for that analysis. As 

a result, we removed the amounts for 

those drugs from the base rate. However, 

oral drugs or other forms of ESRDrelated Part B injectable drugs are in the 

ESRD PPS bundle and will be 

implemented January 1, 2011. 

In addition, as discussed in section 

II.E. of this final rule, based on the 

comments, we reviewed our 

methodology to determine if there were 

ways to compute the Part D per 

treatment amount that would more 

accurately reflect payments for Part D 

ESRD-related drugs by ESRD 

beneficiaries. As a result of this review, 

for this final rule we revised the method 

of computing the Part D per treatment 

amount to divide by the number of Part 

D enrolled ESRD beneficiaries rather 

than total ESRD beneficiaries. As a 

result of these changes, the final 

transition budget-neutrality adjustment 

related to Part D drugs has been 

recomputed to be $.49. If we had not 

changed our methodology to divide by 

the number of Part D enrolled ESRD 

beneficiaries and had instead divided by 

the number of Part B enrolled ESRD 

beneficiaries, we would have calculated 

the Part D per treatment amount to be 

$.33. While we recognize the $.49 does 

not cover all the ESRD patients under 

the PPS, the statue limits us to 

payments made under Title XVIII of the 

Act. 

Comment: Numerous commenters 

questioned CMS’s legal authority to 

impose a transition budget-neutrality 

adjustment. They expressed concern 

about the proposed 3.0 percent 

reduction going beyond the 98 percent 

budget neutrality requirement in 2011. 

Commenters also expressed concern 

about the size of the transition budgetneutrality adjustment related to the cost 

of the transition. The commenters 

indicated that the adjustment was too 

high and may not reflect ESRD facility 

decisions regarding the transition, and 

expressed concern about our proposed 

method of determining which facilities 

would choose to opt out of the 

transition. Several commenters believed 

that the 3.0 percent reduction during the 

years 2012 and 2013 will go beyond the 

98 percent budget-neutrality 

requirement. Commenters expressed 

concern that we should consider 2012 

and 2013 payments in calculating this 

part of the transition budget-neutrality 

adjustment. 

Response: We believe section 

1881(b)(14)E)(iii) of the Act requires us 

to implement the transition budgetneutrality adjustment. We do not 

believe the proposed 3.0 reduction goes 


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beyond the 98 percent budget neutrality 

requirement; as it is necessary to ensure 

that total payments under the PPS do 

not exceed the 98 percent requirement. 

Since we assume that facilities will act 

in their best financial interest and opt to 

transition if it is beneficial, it is likely 

that total payments would exceed what 

is allowed. As we discussed in the 

proposed rule (74 FR 49946), we 

proposed to apply this adjustment to 

both the ESRD PPS and the blended 

payment so as not to affect provider 

decisions in opting out of the transition. 

We recognize that the transition 

budget-neutrality adjustment may not 

reflect actual choices made by ESRD 

facilities regarding opting out of the 

ESRD PPS transition. We are requiring 

that ESRD facilities notify their FI/ 

MACs by November 1, 2010 of their 

decision to opt out of the ESRD PPS 

transition. We are unable to wait until 

then to establish the transition budgetneutrality adjustment which is 

necessary to meet statutory budgetneutrality requirement. 

As a result, we based the final 

transition budget-neutrality adjustment 

on our best projections of how ESRD 

facilities will fare under the ESRD PPS 

compared to the basic case-mix adjusted 

composite payment system. With regard 

to conducting the analysis using 2012 

and 2013 projections, we note that the 

transition budget-neutrality adjustment 

will be updated each year of the 

transition to reflect the appropriate 

blend of PPS and composite rate 

payments. We agree that it is not 

possible for us to predict accurately 

which facilities will opt out of the ESRD 

PPS transition. Given that the transition 

budget neutrality adjustment applies in 

each year of the transition, we are 

considering whether to prospectively 

correct for over or understatement of the 

number of facilities that choose to opt 

out of the transition when we update 

the adjustment for 2012. We would 

address this issue in rulemaking for the 

CY 2012 ESRD PPS. 

We conducted a preliminary analysis 

for the final rule, to simulate payments 

for 2012 and 2013 in order to assess 

whether considering these years in the 

calculation of the transition budgetneutrality adjustment is warranted due 

to the change in the blend of payments 

for those years. We determined that it 

makes very little difference in the 

adjustment calculation. 

In consideration of the public 

comments and for the reasons described 

above, we are finalizing § 413.220(b)(6). 

In § 413.239(d), we proposed to apply 

the transition budget neutrality 

adjustment during the first three years 

of the transition. As this 

characterization of the period during 

which the transition budget neutrality 

adjustment applies, we are revising 

proposed § 413.239(d) to clarify that 

there is a 4-year transition period. 

In summary, for the final rule, due to 

revised estimates of simulated payments 

under the current basic case-mix 

adjusted payment system and under the 

ESRD PPS payment system by facility, 

we estimate that 43 percent of ESRD 

facilities will choose to be excluded 

from the transition and that 57 percent 

of ESRD facilities will choose to be paid 

the blended rate during the transition. 

Consequently, we estimate that during 

the first year of the transition, total 

payments to all ESRD facilities would 

exceed the estimated payments under 

the ESRD PPS in the absence of the 

transition. 

Thus, in order to maintain the 98 

percent budget-neutrality required by 

section 1881(b(14)(E)(iii) of the Act 

during the initial year of the transition 

period, we are finalizing the reduction 

of all payments to ESRD facilities in CY 

2011 by a factor that is equal to 1 minus 

the ratio of the estimated payments 

under the ESRD PPS were there no 

transition (that is, 98 percent of total 

estimated payments that would have 

been made under the current basic casemix adjusted payment system) to the 

total estimated payments under the 

transition, or 3.1 percent. 

For 2011, application of this factor 

would result in a 3.1 percent reduction 

in all payments to ESRD facilities, that 

is, we intend to apply this adjustment 

to both the blended payments made 

under the transition and payments made 

under the 100 percent ESRD PPS. We 

are finalizing this approach because, as 

we stated in the proposed rule (74 FR 

49946), we believe that it would evenly 

distribute the effect of the transition 

budget-neutrality adjustment and it 

would not affect ESRD facilities’ 

incentives with respect to whether to 

opt out of the transition. 

F. Regression Model Used To Develop 

Final Payment Adjustment Factors 

1. Regression Analysis 

In the proposed rule, we described the 

two-equation methodology used to 

develop the proposed adjustment factors 

that would be applied to the base rate 

to calculate each patient’s case-mix 

adjusted payment per treatment (74 FR 

49947 through 49949). The twoequation approach used to develop the 

proposed ESRD PPS included a facility– 

based regression model for composite 

rate service, and a patient-level 

regression model for separately billable 

services. The composite rate and 

separately billable components of the 

model described in the proposed rule, 

used CY 2004–2006 Medicare cost 

report and claims data to develop the 

specific adjusters associated with the 

variables included in the payment 

model (74 FR 49947). 

For purposes of developing the 

payment adjusters included in this final 

rule, we have updated the proposed 

two-equation methodology using CY 

2006–2008 Medicare cost report and 

claims data. These are the latest 

available cost reports and claims given 

the time necessary for the preparation of 

this final rule. We have also reduced the 

number of co-morbidities and revised 

the definitions of co-morbidities for 

which payment adjusters apply; 

modified the separately billable 

regression model so that it reflects 

information for a patient-month rather 

than patient-year; added facility training 

status as a control variable; and 

eliminated sex and race as payment 

variables. 

The addition of facility training status 

as a control variable and modification to 

the separately billable regression so that 

it reflects information for a patientmonth rather than patient-year are 

described below. The basis for the 

reduction in the number of comorbidities used to develop the casemix adjusters and elimination of sex 

and race as payment variables are 

discussed in section II.F.3. of this final 

rule. For this final rule, the measures of 

resource use, specified as the dependent 

variables for developing the payment 

model in each of the two equations, are 

also explained below. 

a. Dependent Variables 

i. Average Cost per Treatment for 

Composite Rate Services 

As described in the proposed rule (74 

FR 49947) and for purposes of this final 

rule, we measured resource use for the 

maintenance dialysis services included 

in the current bundle of composite rate 

services, using ESRD facility data 

obtained from the Medicare cost reports 

for hospital-based ESRD providers and 

independent ESRD facilities. The 

average composite rate cost per 

treatment for each ESRD facility was 

calculated by dividing the total reported 

allowable costs for composite rate 

services for CYs 2006, 2007, and 2008 

(Worksheet B, column 11, rows 7–16 on 

CMS 265–94; Worksheet I–2, column 

11, rows 2–11 on CMS 2552–96) by the 

total number of dialysis treatments and 

Worksheet C, column 1, rows 1–10 on 

CMS 265–94; Worksheet I–4, column 1, 

rows 1–10 on CMS 2552–96). CAPD and 

CCPD patient weeks were multiplied by 


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3 to obtain the number of HD-equivalent 

treatments. We point out that our 

computation of the total composite rate 

costs included in this per treatment 

calculation includes costs incurred for 

training expenses, as well as all costs 

incurred by ESRD facilities for home 

dialysis patients. 

The resulting composite rate cost per 

treatment was adjusted to eliminate the 

effects of varying wage levels among the 

areas in which ESRD facilities are 

located using the proposed ESRD PPS 

CY 2011 wage index published July 13, 

2010, in connection with the proposed 

CY 2011 physician fee schedule 

(PFS)(75 FR 40673), and the estimated 

labor-related share of costs from the 

composite rate market basket. This was 

done so that the relationship of the 

studied variables on dialysis facility 

costs would not be confounded by 

differences in wage levels. The 

description of that labor-related share 

was contained in the Secretary’s 2008 

Report to Congress, A Design for a 

Bundled End Stage Renal Disease 

Prospective Payment System. 

The proportion of composite rate 

costs determined to be labor-related 

(53.711 percent of each ESRD facility’s 

composite rate cost per treatment) was 

divided by the ESRD wage index to 

control for area wage differences. No 

floor or ceiling was imposed on the 

wage index values used to deflate the 

composite rate costs per treatment in 

order to give the full effect to the 

removal of actual differences in area 

wage levels from the data. We applied 

a natural log transformation to the wagedeflated composite rate costs per 

treatment to better satisfy the statistical 

assumptions of the regression model, 

and to be consistent with existing 

methods of adjusting for case-mix, in 

which a multiplicative payment adjuster 

is applied for each case-mix variable. 

As with other health care cost data, 

there was skewness in the cost 

distribution for composite rate services 

in which a relatively small fraction of 

observations account for a 

disproportionate fraction of costs. Cost 

per treatment values which were 

determined to be unusually high or low 

in accordance with predetermined 

statistical criteria, were excluded from 

further analysis. (For an explanation of 

the statistical outer fence methodology 

used to identify unusually high and low 

composite rate costs per treatment, see 

pages 45 through 48 of UM–KECC’s 

February 2008 report.) 

ii. Average Medicare Allowable 

Payment (MAP) for Separately Billable 

Services 

For purposes of the final rule, 

resource use for separately billable 

ESRD-related services was measured at 

the patient level using the payment data 

on the Medicare claims for CYs 2006– 

2008. This time period corresponded to 

the most recent three years of Medicare 

cost report data that were available to 

measure resource use for composite rate 

services. Measures of resource use 

included the following separately 

billable services: injectable drugs billed 

by ESRD facilities, including ESAs; 

laboratory services provided to ESRD 

patients, billed by freestanding 

laboratory suppliers and ordered by 

physicians who receive monthly 

capitation payments for treating ESRD 

patients, or billed by ESRD facilities; 

other services billed by ESRD facilities, 

including support services for Method II 

home patients; medical equipment and 

supplies for Method II home patients 

billed by durable medical equipment 

suppliers. 

In the proposed rule, we stated that 

complete data for CYs 2006–2008 for 

Part D claims were not available in 

sufficient time for the development of 

the proposed case-mix adjusters (74 FR 

49947). Our decision not to implement 

oral-only drugs in the ESRD PPS until 

after the transition period ends January 

1, 2014, as explained in section II.A.3. 

in this final rule, means that only oral 

drugs with an injectable version (that is, 

drugs other than oral-only drugs) would 

be relevant for inclusion in the 

separately billable regression model. 

Total payments for these drugs in 2007 

and 2008 averaged about $12.8 million 

each year, an amount which on a per 

treatment basis would have a minimal 

impact on the magnitude of the casemix adjustments. 

In addition, there is a technical issue 

of how payments for prescription drugs 

taken at home over a period of time 

should be linked to specific patient HDequivalent treatments, so that the 

regression results for patient utilization 

of separately billable services would not 

be distorted. Because of the time 

necessary to prepare for this final rule, 

we deferred resolution of this issue. 

Given that oral drugs and biologicals 

included in the payment bundle 

represent a very small proportion of the 

total annual total expenditures for the 

renal dialysis services included in the 

ESRD PPS ($8.8 billion in 2007), we 

believe that not including these drugs in 

the regression model used to develop 

the case-mix adjusters at this time is of 

little consequence. 

We will need to revisit this issue prior 

to the expansion of the ESRD PPS to 

include all oral ESRD-related drugs and 

biologicals beginning in January 2014, 

because expenditures for oral-only 

ESRD-related drugs are significantly 

higher ($445 million in 2007), compared 

to those for the oral and other forms of 

injectable drugs. Including drug 

expenditures of this magnitude in the 

regressions used to develop the casemix adjusters could impact the size of 

the adjustment factors in the ESRD PPS 

and will need to be evaluated. 

Accordingly, the regression model set 

forth in this final rule does not reflect 

the inclusion of oral or other forms of 

injectable ESRD-related drugs. Although 

these drugs have been excluded from 

the regression model, we point out that 

payments for these drugs have been 

included in the calculation of the ESRD 

base rate to which the case-mix 

adjusters will be applied. 

We obtained Medicare claims data for 

separately billable services for CYs 

2006–2008 for patient-months in which 

outpatient dialysis was provided and 

Medicare was the primary payer. 

Measures of resource use were based on 

MAPs, which were calculated using the 

payment data on the claims. 

Medicare payments were inflated by a 

factor of 1.25 for services that have a 20 

percent patient co-insurance (for 

example, ESRD-related injectable 

drugs), to yield the MAP. For laboratory 

tests that have no patient co-insurance 

obligation, the Medicare payment is 

identical to the MAP. The MAP 

amounts do not include the annual Part 

B payment deductible which may apply 

to separately billable services because 

we were unable to determine whether 

the deductible amount was incurred in 

connection with another Part B service. 

We point out that the Part B payment 

deductible can apply in connection with 

any Part B service, not just outpatient 

dialysis. As required under section 

1881(b)(14)(B) of the Act, vaccines are 

excluded from the ESRD PPS and, 

therefore, were excluded from the 

computation of separately billable 

drugs. 

Comment: One commenter questioned 

why CMS repriced injectable drugs, but 

not other payments included in the 

analysis. The commenter noted that the 

repricing was done to the first quarter of 

2008 and pointed out that the ASP value 

for EPO for this period was the lowest 

value for the drug in four years. The 

commenter stated that the effect of 

selecting this quarter was to reprice 

several injectable drugs downward, 

dampen variations in payments, and 

lower the value of the case-mix 

adjustments. 


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Response: In the proposed rule, we 

repriced the payments for injectable 

drugs for CYs 2004–2006 to the first 

quarter of 2008. This was accomplished 

by using a ratio which was obtained by 

dividing the Medicare payment rate in 

the first quarter of 2008 by the Medicare 

rate in 2004, 2005, and 2006. The ratios 

used to adjust the MAPs for the 11 

specified injectable drugs were shown 

in Table 11 in the proposed rule (74 FR 

49948). The basis for the repricing of the 

top 11 injectable drugs in the proposed 

rule was due to the shift in the drug 

pricing methodology in 2006, from 

Average Wholesale Price to ASP+6 

percent. The first quarter of 2008 was 

selected as the end quarter for the 

repricing because it represented the 

latest available quarter for which we 

had pricing information, consistent with 

the lead time necessary for the 

preparation of the proposed rule. 

There was no attempt to select a 

quarter which would lead to reduced 

prices and reduced case-mix 

adjustments. For this final rule, we 

believe there is no need to reprice 

injectable drugs due to a change in the 

pricing methodology, because CY 2006, 

2007, and 2008 drug prices consistently 

reflect the ASP+6 percent method. 

The adjusted MAP values were 

standardized to reflect the number of 

Medicare outpatient dialysis treatments 

reported on the claims. This approach is 

consistent with the unit of payment 

under the current composite payment 

system. For patients who received PD 

during the month, the number of PD 

days reported on the claims was 

multiplied by 3⁄7 to obtain the number 

of HD-equivalent treatments. For 

example, 7 PD days were converted to 

3 treatments since hemodialysis is 

typically performed 3 times per week. 

Monthly treatments reported on the 

claims were capped so as not to exceed 

the number of days in the month 

treatments were furnished, as treatments 

in excess of this number were 

considered clinically implausible. 

Comment: Several commenters 

pointed out that our exclusion of claims 

in which the average utilization of EPO 

per treatment exceeded 30,000 units 

based on clinical implausibility was 

inconsistent with CMS’s ESA Claims 

Monitoring Policy. 

Response: We agree with the 

commenters and have revised the 

thresholds to conform with the 

medically unbelievable edit thresholds 

(MUE) for EPO and ARANESP® 

applicable to each year. Payments for 

EPO and ARANESP® in excess of the 

MUE thresholds of 500,000 units for 

EPO in 2006 and 2007, and 400,000 

units in 2008 were excluded from the 

claims. Similarly, payments for 

ARANESP® in excess of the MUE 

thresholds of 1500 mcg in 2006 and 

2007, and 1200 mcg in 2008 were also 

excluded from the claims. The ratio of 

the adjusted MAP values for separately 

billable services divided by the total 

number of treatments was used to 

calculate the average adjusted MAP per 

treatment. 

As with the analysis of composite rate 

services described in section II.D. of this 

final rule, we similarly used the 

statistical outer fence methodology to 

exclude unusually high separately 

billed values. Claims with total 

separately billed amounts greater than 

$2,545.65 were excluded from the 

analysis of 2006 through 2008 data, 

used to develop the separately billed 

portion of the ESRD PPS payment 

model for patients age 18 and older. For 

the analysis used to develop the 

separately billed portion of the ESRD 

PPS payment model for pediatric 

patients for purposes of the pediatric 

payment adjustment, the application of 

this methodology resulted in no 

exclusions. 

b. Independent Variables 

In the proposed rule, we explained 

that two major types of independent or 

predictor variables were included in the 

composite rate and separately billable 

regression equations—case-mix 

payment variables and control variables 

(74 FR 49948 through 49949). Case-mix 

payment variables were included as 

factors that may be used to adjust 

payments in either the composite rate or 

in the separately billable equation. 

Control variables, which generally 

represent characteristics of ESRD 

facilities such as size, type of 

ownership, facility type (whether 

hospital-based or independent), etc., 

were specifically included to obtain 

more accurate estimates of the payment 

impact of the potential payment 

variables in each equation. Control 

variables were excluded from 

consideration as actual payment 

adjusters because they represent facility 

characteristics rather than patient 

characteristics. In the absence of using 

control variables in each regression 

equation, the relationship between the 

payment variables and measures of 

resource use may be biased. 

i. Control Variables 

In the proposed rule, we described 

seven control variables that were 

included in the regression analysis (74 

FR 49948). They were: (1) Renal dialysis 

facility type (hospital-based versus 

independent facility); (2) facility size 

(<3,000 for less than three years, 3,000– 

5,000, 5,000–10,000, and > 10,000 

dialysis treatments); (3) type of 

ownership (independent, large dialysis 

organization, regional chain, unknown); 

(4) whether the ESRD facility received a 

composite rate payment exception 

between November 1993 and July 2001; 

(5) adequacy of dialysis, based on the 

percentage of patients having a urea 

reduction ratio (URR) < 65 percent; (6) 

rural versus urban location; and (7) 

calendar year. For the proposed rule, 

calendar years 2004, 2005, and 2006 

were included as a control variable in 

analyses that pooled three years of data. 

In order to avoid excluding dialysis 

facilities that treated PD patients from 

the analysis with control variables, for 

these facilities, if no URR was available 

for any patients in the facility, we used 

the average percentage of patients with 

a URR greater than 65 percent. 

For this final rule, we have added an 

eighth control variable, training 

treatments, in which the proportion of 

training treatments furnished by each 

dialysis facility is specified. This was 

done in order to remove any 

confounding cost effects of training on 

other independent variables included in 

the payment model, particularly the 

onset of dialysis within 4-months 

variable. In addition, for the calendar 

year control variable, we have used CYs 

2006, 2007, and 2008 in analyses that 

pooled 3 years of data. 

ii. Case-Mix Adjustment Variables 

Section 1881(b)(14)(D)(i) of the Act 

requires that the ESRD PPS include a 

payment adjustment based on case-mix, 

but gives the Secretary broad discretion 

with regard to the selection of patientspecific measures which would 

comprise the case-mix adjusters. In the 

proposed rule, we stated that as part of 

our case-mix analysis, we identified the 

same patient demographic variables 

used in connection with the basic casemix adjusters under the current 

composite payment system: age (five 

groups, excluding patients less than age 

18), BSA, and low BMI (values less than 

18.5 kg/m2) (74 FR 49949)). BSA was 

calculated as a function of height (H, in 

centimeters) and weight (W, in 

kilograms) using the following formula: 

BSA = 0.007184 × H(0.725) × W(0.425)

BMI values below 18.5 kg/m2 were 

used to identify patients who were 

underweight. BSA and low BMI are 

currently used as part of the basic casemix adjustment for the composite 

payment system. 

The same set of independent variables 

was included in both the composite rate 

and separately billable regression 

equations. To define the independent 


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variables for each equation, however, it 

was necessary to link patient and 

facility-level data. For example, 

measures for patient characteristics (for 

example, female gender) were included 

as potential payment variables in the 

facility-level composite rate equation, 

while measures for facility 

characteristics (for example, hospitalbased or independent facility) were 

included as control variables in the 

patient level separately billable 

equation. For the composite rate 

equation, we defined case-mix measures 

using data for all Medicare dialysis 

patients treated in each facility. 

Specifically, we determined the 

percentage of a facility’s patients having 

each patient characteristic. For example, 

patient sex was measured as the 

percentage of patients that were female. 

For the equation of the separately 

billable MAPs, we defined measures for 

facility characteristics using data for all 

facilities that treated each Medicare 

dialysis patient. 

These patient and facility control 

variables were weighted to give greater 

emphasis to patient and facility 

observations that accounted for more of 

the care that was delivered, based on the 

number of dialysis treatments. For 

example, in defining facility-level casemix measures, the characteristics of 

patients who were treated at the dialysis 

facility for twelve full months (for 

example, with 13 treatments each 

month), were given twelve times as 

much weight as the characteristics of 

patients who were treated at the facility 

for only 1 month (that is, with 13 

treatments). Similarly, to define patientlevel measures for the control variables, 

the characteristics of the facility that 

treated the patient for nine full months 

were given three times as much weight 

as the characteristics of the facility that 

treated the patient for the remaining 

three full months. 

The resulting case-mix variables were 

examined as potential payment 

variables in the composite rate equation 

(for example, percent female and 

average BSA among patients in each 

facility). This was the same approach 

used to define the basic case-mix 

measures under the composite payment 

system. The resulting facility variables 

were included as control variables in 

the separately billable equation (for 

example, percent of a patient’s 

treatment furnished in a hospital-based 

facility). 

We have not departed from the use of 

facility control and patient-specific 

variables as described above in 

developing the case-mix adjusters set 

forth in this final rule. In the sections 

that follow, in response to public 

comments and for the reasons outlined 

below, we describe how we reevaluated 

and revised the proposed independent 

variables for use as potential case-mix 

adjusters in the ESRD PPS to determine 

their relationship to composite rate 

costs and separately billable payments. 

Before we explain how the final set of 

case-mix adjustment variables was 

determined, we must first explain the 

difference between an annual model 

and a monthly model in connection 

with the separately billable regression 

equation component of the two equation 

model used to develop the case-mix 

adjustments. There are subtle but 

important differences in the 

interpretation of what variation in costs 

is being captured by the case-mix 

multipliers depending upon whether an 

annual model or monthly model is used. 

This has particular relevance in 

connection with the multipliers for comorbidities. 

2. Choosing Between a Separately 

Billable Model Based on Patient-Year or 

Patient-Month Data 

The composite rate cost component of 

the two-equation model is based on 

Medicare cost reports that are submitted 

annually. The separately billable 

payment portion of the two-equation 

model is based on claims submitted 

monthly by ESRD facilities. 

Accordingly, the composite rate model 

is based on data that are observed 

annually, while the separately billable 

model is based on data that are observed 

monthly. In order to create consistency 

between the two models, the various 

versions of the separately billed models 

which we have analyzed have been 

based on annualized data. 

For a chronic condition, the 

measurement of the co-morbidity at the 

annual or monthly level does not vary, 

because the patient either always has 

the condition or never has it. Aside from 

first time diagnoses, there is no 

distinction in how the co-morbidity is 

coded on an annual or monthly level, 

that is, patients will either have a zero 

or one for the variable. However, most 

patients with acute conditions (as will 

be shown later), are measured as present 

in the current month of treatment or 

previous 3 months, only have the 

condition for part of the year. Therefore, 

the coding of the co-morbidity variable 

for an acute condition will differ 

substantially on the annual versus 

monthly basis. On an annual basis, the 

value often lies between zero and one, 

representing the fraction of treatments 

in the year which occurred in months 

with the co-morbidity present (currently 

or within the three prior months). On a 

monthly basis, the value for the comorbidity variable will be either zero or 

one, depending on whether the 

diagnosis is present in that month or the 

three preceding months. 

We believe this distinction is 

important. The values of the case-mix 

adjustments for the acute co-morbidity 

variables in an annual model compared 

to a monthly model, create subtle but 

significant differences in the 

interpretation of what variation in costs 

the multipliers capture. Statistically, an 

omitted variable bias occurs when 

variables that predict the outcome (cost) 

are not included in the model, but are 

correlated with some of the variables 

that are included. As more variables 

predictive of costs are dropped from the 

model, the magnitude of the bias tends 

to increase. In this context, the proper 

interpretation of the multipliers is that 

they capture the costs directly 

associated with the co-morbidity being 

measured, plus part of the costs related 

to the omitted factors correlated with 

the condition. 

In a payment model, this could be 

seen as either a positive or a negative 

characteristic. On the positive side, the 

omitted variables bias allows the model 

to partially adjust for unmeasured 

factors that influence costs, but are not 

reflected in the payment system. 

However, this bias undercuts the face 

validity of the case-mix multipliers 

because part of what they are capturing 

is unknown. Further, the larger 

multipliers would increase the incentive 

to report relatively minor cases of the 

co-morbidity that may not even be 

associated with whatever unmeasured 

conditions the multiplier reflects. 

With respect to using an annual 

versus monthly unit of analysis in the 

separately billable model, the case-mix 

multipliers for acute co-morbidities in 

the annual model are likely to be subject 

to a greater degree of omitted variables 

bias because of the longer time span. In 

the annual specification, the question 

being answered is ‘‘Is a patient with this 

acute co-morbidity more costly to treat 

throughout the year? ’’ Those higher 

costs could be directly attributable to 

the co-morbidity and occur in those 

months in which the co-morbidity was 

present. However, they could also 

represent costs directly attributable to 

the co-morbidity that occur outside the 

three month time interval in which the 

co-morbidity was coded as present (for 

example, if there is some impact on 

costs beyond three months), or costs 

attributable to any other correlated 

omitted conditions that occur at any 

time of the year. 

Therefore, for those patients with the 

acute conditions coded for only part of 

the year, the case-mix adjuster in an 


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annual model can reflect costs occurring 

outside the time frame during which the 

co-morbidity was actually present. In 

other words, having the acute condition 

present for part of the year might be a 

marker for having other costly 

conditions at any time of the year. 

In a monthly model, the case-mix 

multiplier can still reflect costs 

associated with correlated, omitted 

variables, but only if those costs occur 

in the same months the co-morbidity is 

coded as present. Any costs occurring 

outside the months in which the comorbidity is coded as present, 

regardless of whether those costs are 

directly related to the co-morbidity, or 

arise from correlated, omitted 

conditions, will not be reflected in the 

multiplier because the co-morbidity is 

coded as zero in those months. 

We want to focus on specific 

conditions that are associated with more 

costly resource intensive dialysis, not 

other unspecified conditions that may 

be an indicator for more costly care at 

any time of the year. We also want to 

minimize omitted variables bias as 

much as possible, but particularly for 

omitted conditions that can occur at any 

time of the year. Accordingly, in 

connection with this final rule, we have 

adopted the patient-month separately 

billable model. The case-mix adjusters 

reflected in the proposed rule were 

based on the annual unit of analysis for 

separately billable services (Table 14 at 

74 FR 49954). 

As shown in Table A of the Appendix 

in this final rule, the case-mix adjusters 

for acute conditions are substantially 

smaller in the patient-month model in 

comparison to the annual model. This 

indicates that the multipliers in the 

annual model are capturing costs that 

occur outside the time window during 

which the condition was coded as 

present. As will be explained later in 

section II.F.3. of this final rule, on comorbidities, we have dropped certain 

co-morbidities after considering 

comments received and for the reasons 

highlighted below, with more of an 

emphasis on acute as opposed to 

chronic conditions, and modified the 

definitions of others. As conditions are 

dropped from the model, the tendency 

is for omitted variables bias to become 

more pronounced in the patient-year 

model. In the patient-month model, the 

case-mix adjustments are less affected 

by the elimination of co-morbidities as 

independent variables. 

In selecting a patient-month 

separately billable model, we believe 

that the case-mix adjustments more 

closely reflect costs associated with the 

specific co-morbidity being measured, 

and occurring in the specific months in 

which the co-morbidity was present. We 

believe that this approach will more 

closely align the costs of furnishing 

dialysis with patient-specific conditions 

requiring more resource intensive care 

in a timely manner. Because composite 

rate cost data are only available on an 

annual basis through the Medicare cost 

reports, the option of switching to a 

monthly model for the composite rate 

component of the two equation 

regression model used to develop the 

case-mix adjusters is not possible. 

Therefore, the case-mix adjustments set 

forth in this final rule were developed 

using an annual model for the 

composite rate portion of the regression 

model and a patient-month model for 

the separately billable portion. 

3. Patient-Level Adjustments 

We proposed to include patient age, 

patient sex, body surface area (BSA), 

body mass index (BMI), onset of dialysis 

and certain co-morbidities as patientlevel adjusters (74 FR 49949). Over one 

hundred commenters representing 

patients, health care professions and 

their professional organizations, ESRD 

facilities and ESRD organizations, renal 

organizations, and pharmaceutical 

companies commented on the patientlevel adjusters. 

The comments we received relating to 

the specific adjusters and our responses 

to those specific comments are 

discussed in their respective sections 

below. 

Comment: Some commenters 

indicated that weight, size and age have 

little impact on overall costs of 

providing dialysis. One commenter did 

not believe that our analysis of the 

proposed adjustments reflected actual 

payments that facilities would receive. 

Another commenter suggested that the 

proposed adjustments would increase 

patients’ co-payment obligations. 

Several commenters were concerned 

that the patient-level adjustments would 

lead to facilities ‘‘cherry picking’’ 

patients with better defined case-mix 

adjustments and turn away others 

whose reimbursement would not cover 

costs. 

Response: As discussed in the 

proposed rule, multiple regression 

analysis was used to develop the 

proposed payment adjustment factors. 

The results of the proposed twoequation model (composite rate and 

separately billable items) using the 

latest data that was available at that 

time, demonstrated that age, sex, BSA, 

BMI, co-morbidities and onset of 

dialysis were indicators of higher cost 

patients (74 FR 49947). The discussion 

on the current analysis and findings is 

in section II.F.3. of this final rule. We 

appreciate the concerns raised about 

ESRD facilities ‘‘cherry picking’’ 

patients. We plan to monitor the effects 

of the payment system, which are 

discussed in section II.K. of this final 

rule and will be discussed in the future, 

and could make adjustments to the 

ESRD PPS in the future. We expect that 

ESRD facilities will not ‘‘cherry pick’’ 

patients under the ESRD PPS. 

We believe that the same incentives 

and concerns could exist under the 

current composite rate payment system, 

as well. In other words, if ESRD 

facilities will select more lucrative 

patients under the ESRD PPS, they 

could also do so currently under the 

basic case-mix adjusted composite 

payment system. We also believe that in 

the absence of such adjustments, high 

cost patients could be turned away, 

thereby ‘‘cherry picking’’ only the least 

costly patients. Providing patient-level 

adjustments to the ESRD PPS base rate 

should result in adequate payment for 

the higher resource utilization and 

therefore higher cost patients. 

Comment: Some commenters 

suggested that we decrease the number 

of case-mix adjustments to include only 

those affecting cost. Others stated that 

multiple adjustments will decrease the 

overall base payment rate taking 

funding away from the cost of providing 

care to the majority of patients. Some 

commenters suggested that money from 

the case-mix adjustments should be 

added to the base rate to provide the 

same reimbursement for all patients. 

Response: As discussed in the 

proposed rule (74 FR 49938), our 

analysis demonstrated that the proposed 

patient-level adjustments did affect cost 

and those that did not were rejected. 

However, we did consider the concerns 

and comments about the adjustments 

and have eliminated some of them. 

These adjustments are discussed in the 

respective sections below. We discuss 

the methodology for computing the 

ESRD base rate in section II.E. of this 

final rule. 

Comment: One commenter suggested 

that we provide all facilities with an 

electronic calculator to ensure 

consistency among providers. Several 

commenters believed that CROWNWeb 

would be used for documentation to be 

eligible for the patient-level 

adjustments. One commenter disputed 

our belief that nephrologists complete 

the Medical Evidence Form 2728 (Form 

2728) indicating that the form is more 

likely completed by someone not 

medically trained. Therefore, this 

commenter believed the data on the 

form could be inaccurate, missing or 

incompletely filled out. 


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This observation was reiterated by 

another commenter who suggested that 

a study be conducted prior to the ESRD 

PPS 2011 implementation to determine 

who should complete the Form 2728. 

The commenter suggested that the study 

also include the experience and training 

of personnel completing the Form 2728 

as well as a random selection of Form 

2728. The commenter further suggested 

that the Form 2728 be compared with 

patient/family interviews, physician 

interviews, and medical record review. 

One commenter suggested that we 

continue to study and research 

additional variables that demonstrate a 

good correlation between resource 

consumption and patient 

characteristics. 

Response: We appreciate the 

commenter’s concerns regarding 

consistency among providers and agree 

that it is important. However, we do not 

believe that providing a tool such as an 

electronic calculator will ensure 

consistency as ESRD providers will be 

required to identify the appropriate 

patient-level adjustments for their 

individual patients. In addition, it is the 

responsibility of each ESRD facility to 

ensure that all information on patient 

claims submitted is accurate under any 

Medicare payment system. Contrary to 

the commenter’s belief, CROWN is not 

the source for documenting eligibility 

for the patient-level adjustments. For 

the purposes of payment, the requisite 

information would be obtained from the 

claim or from sources that are discussed 

in the specific patient-level adjustments 

below. 

We are concerned about the assertion 

made by the commenters about the 

completion of the Form 2728. We 

maintain that it is the ESRD facilities’ 

responsibility to ensure that the 

information provided to Medicare is 

accurate. While there is no requirement 

that the nephrologist complete the form, 

instructions on the Form 2728 specify 

that the form ‘‘[b]e signed by the 

physician supervising the patient’s 

kidney treatment [sic].’’ The instructions 

also specify that stamp signatures are 

not acceptable. In other words, the 

nephrologist may not complete the 

entire form but his or her signature 

serves to attest that the information is 

accurate. Therefore, we do not believe 

that performing a study to determine the 

qualifications of the person completing 

the form is warranted. However, we do 

believe that ESRD facilities are 

responsible for ensuring that 

appropriate staff who provide care, 

include documentation as appropriate. 

We agree with the commenter that we 

should continue to study and research 

the correlation between resource 

consumption and patient characteristics 

and we plan to do so. 

After considering these comments and 

other comments below, we are finalizing 

age, BSA, BMI, certain co-morbidities 

and onset of dialysis as the patient-level 

case-mix adjustments in this final rule. 

Our rationale for including these factors, 

as well as the reasons for excluding 

patient factors for patient sex and race 

or ethnicity, are discussed below. We 

are revising § 413.235 to reflect the 

patient-level, case-mix adjustments to 

be implemented effective January 1, 

2011. 

a. Patient Age 

Section 1881(b)(14)(D)(i) of the Act 

requires that the ESRD PPS include a 

payment adjustment based on case-mix 

that may take into account a patient’s 

age. In the proposed rule we pointed out 

that the basic case-mix adjusted 

composite payment system currently in 

effect includes payment adjustments for 

age based on five age groups (74 FR 

49949), based on analyses that showed 

a strong relationship between composite 

rate costs and patient age. Table 12 from 

the proposed rule (74 FR 49950) 

contained the payment multipliers for 

each of these groups, along with a 

special multiplier that applies to 

pediatric dialysis patients. The 

proposed ESRD PPS adjustment factors 

for age reflected the U-shaped 

relationship of age with the CY 2007 

MAP per treatment, a relationship 

similar to that observed in developing 

the current basic case-mix adjusted 

composite payment system. 

The regression analyses performed in 

connection with the development of the 

ESRD PPS payment adjustments for this 

final rule indicate that age continues to 

be a strong predictor of variation in 

composite rate costs and separately 

billed payments, although the 

magnitude of the adjusters for the two 

oldest age categories has been 

attenuated as a result of other changes 

in the payment model (for example, 

elimination of sex and race/ethnicity as 

payment variables, revisions in the comorbidities used for payment, 

modification of the low-volume 

threshold, etc.). Therefore, we are 

implementing payment adjustment 

factors for the same five age groups as 

proposed, calculated in accordance with 

the two equation regression 

methodology described elsewhere in 

this final rule. The final payment 

adjustment factors for age are shown in 

Table 21. 

We received several comments on our 

proposed use of age as a payment 

variable in the proposed ESRD PPS. 

Comment: Several commenters stated 

that age is an objective and easily 

collected variable, demonstrably related 

to cost, and that continuing to collect 

age data would not be burdensome or 

require systems changes. 


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Response: We agree with the 

commenters. The use of a payment 

variable that is objective, easily 

collected, and related to patient-specific 

differences in the cost of dialysis 

strongly support its use as a case-mix 

adjuster in the ESRD PPS. 

Comment: Several commenters 

suggested that we combine age with 

gender and ethnicity. Another 

commenter recommended that we 

match age with an adjuster for home 

dialysis training. 

Response: The reason that age is 

included in the ESRD PPS is because 

analyses demonstrate that age is a 

significant independent predictor of 

variation in composite rate costs and 

separately billable payments. For 

reasons explained elsewhere later in 

this section, we have not adopted 

patient sex and race/ethnicity as 

payment adjusters in connection with 

the ESRD PPS set forth in this final. For 

information on our development of a 

special add-on to the otherwise 

applicable prospective payment rate for 

the costs of home dialysis training, see 

section II.A.7. of this final rule. 

Comment: Several commenters 

suggested that we use an age adjuster for 

patients of ‘‘advanced age and/or 

frailty’’. One commenter recommended 

age specification of pediatric patients, 

claiming that both groups require 

specialized care resulting in higher costs 

for ESRD facilities. 

Response: Both the proposed rule (74 

FR 4995) and this final rule incorporate 

an age group for patients age 80+. 

Further disaggregation of the proposed 

age groups did not result in more 

statistically homogeneous age groups for 

the application of case-mix adjustments 

based on age. Therefore, we have not 

modified the proposed age classification 

categories. Nor have we identified a 

separate variable for patient frailty, as 

this would be very difficult to quantify 

objectively and measure with currently 

available sources of claims data. With 

respect to age classification groups for 

pediatric patients, we point out that we 

have adopted pediatric payment 

adjustments for two age groups (<13, 

and 13–17), and explain the basis for the 

selection of these two age categories in 

section II.G. of this final rule. 

Comment: Two commenters 

representing ESRD facilities opposed 

the use of age as a basis for case-mix 

adjustment, claiming that they did not 

see any merit in its use. 

Response: We strongly disagree with 

the commenters. The analyses in 

support of the payment adjustments for 

age used in connection with the basic 

case-mix adjusted composite payment 

system, the proposed ESRD PPS (74 FR 

49949 through 49950), and the ESRD 

PPS described in this final rule, show 

that age is an important predictor of 

facility differences in ESRD composite 

rate costs, and patient-specific 

differences in separately billed 

payments. Therefore, we are 

incorporating age as a case-mix payment 

variable in the final ESRD PPS, and 

have specified the use of age as a 

patient-level adjustment in § 413.235(a). 

b. Patient Sex 

Section 1881(b)(14)(D)(i) of the Act 

requires that the ESRD PPS include a 

payment adjustment based on case-mix 

that may take into account a number of 

variables and may include ‘‘other 

appropriate factors.’’ Consequently, for 

the proposed rule (74 FR 49950), we 

analyzed patient sex as part of the 

regression analysis and found that 

patient sex was a strong predictor of 

variation in payments for ESRD 

patients. In addition, we indicated that 

we believed patient sex is an objective 

measure and that data on patient sex are 

readily available. 

Based on our analysis, we found that 

females were 13.2 percent more costly 

on a per treatment basis than males, 

primarily due to differences in use of 

ESAs. Therefore, we proposed an 

adjustment of 13.2 percent for female 

patients (74 FR 49951). We solicited 

public comments on this proposed 

adjustment, in addition to raising the 

possibility of unintended consequences 

of providing a payment adjustment for 

female patients that may lead to 

admission practices favoring female 

patients. 

The comments we received on this 

proposal and our responses are set forth 

below. 

Comment: Most commenters 

supported adding patient sex as a casemix adjustment. One commenter 

recommended that CMS monitor ESRD 

facility admission practices with regard 

to female patients. Two commenters 

indicated that they did not believe 

patient sex affects the cost of dialysis. 

Response: As discussed in the 

proposed rule, the regression analysis 

showed that patient sex (female) was a 

strong predictor of variation in ESRD 

payments and the cost of dialysis. 

However, we are not convinced that a 

patient sex adjustment is necessary to 

ensure beneficiary access to ESRD 

services. That is, we believe that there 

may be sex-neutral factors that have not 

been identified in the ESRD PPS 

modeling that would explain the 

increased cost associated with providing 

renal dialysis services to members of a 

certain sex. 

We intend to work to identify 

underlying patient-specific conditions 

that may result in increased treatment 

costs and also how a patient sex 

adjustment might be applied. To the 

extent that these factors are identified, 

they could be incorporated into the 

ESRD PPS model as patient-level 

adjustments. We will also continue to 

monitor and evaluate the impact of 

patient sex on cost to determine 

consistency in findings and identify 

other variables that may be responsible 

for producing cost variations. 

Comment: Many commenters were 

opposed to or expressed concerns about 

the inclusion of patient sex as a casemix adjuster. Some commenters 

opposed patient sex as a variable 

outright, while others indicated that the 

addition of patient sex adjustment could 

result in limited access to care for male 

patients, if providers engaged in 

‘‘cherry-picking’’ behavior. Other 

commenters felt the impact would be 

debatable in view of a study that had 

been done 5 years ago indicating that 

men rather than women were the most 

costly beneficiaries in the dialysis 

setting and, therefore, would we see 

another shift in costs during the next 5 

years. 

Response: Beneficiary access to ESRD 

services and medications was an 

important factor we considered with 

regard to using a patient sex adjustment. 

At this point, we are not convinced that 

a patient sex or gender adjustment is 

necessary to ensure beneficiary access to 

appropriate ESRD services and 

medications. As we discussed above, 

the issue of patient sex influencing the 

cost of ESRD drugs and services will 

continue to be monitored with the 

possibility of including an adjustment 

for patient sex at some future date. 

Therefore, in this final rule, we are 

not finalizing our proposal to include 

patient sex as a patient-level case-mix 

adjustment. We have revised 

§ 413.235(a) to reflect the exclusion of 

patient sex (female) as a patient-level 

adjustment. 

c. Body Surface Area and Body Mass 

Index 

Section 1881(b)(14)(D)(i) of the Act 

requires that the bundled ESRD PPS 

must include a payment adjustment 

based on case-mix that may take into 

account patient weight, BMI, and other 

appropriate factors. Consequently, we 

evaluated height and weight because the 

combination of these two characteristics 

allows us to analyze two measures of 

body size: BSA and BMI. In the 

proposed rule, we analyzed both BSA 

and low BMI (< 18.5 kg/m2) as 

independent variables in the regression 


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analysis and found that both body size 

measures are strong predictors of 

variation in payments for ESRD 

patients. In addition, both BSA and BMI 

are objective measures and the 

necessary data, that is, height and 

weight, to compute them are readily 

available from patient claims. In the 

proposed rule, we discussed our 

rationale for developing the adjustment 

factors for BSA and BMI in detail (74 FR 

49951). 

The comments we received on this 

proposal and our responses are set forth 

below. 

Comment: Some commenters agreed 

that CMS should continue to use only 

the existing case-mix adjustments which 

include age, BSA and BMI, because 

these adjustments are familiar to 

facilities and eligible patients can be 

identified using information that is 

currently available to ESRD facilities. 

Response: We disagree with the 

commenters that we should only use the 

existing case-mix adjustments. As we 

discussed in the proposed rule (74 FR 

49947), the results of our analysis 

demonstrated that in addition to the 

existing case-mix adjustments, other 

variables such as co-morbidities, were 

predictive of patient differences in cost. 

In this final rule, our analysis continues 

to show that BMI and BSA are strong 

predictors of variation in costs and 

payments for ESRD patients. Their use 

as payment variables ensure that ESRD 

facilities receive appropriate 

compensation for the costs associated 

with their specific patient population. 

Comment: Two commenters believed 

that it was untrue that small-sized 

patients require less medication and 

fewer laboratory tests than larger-sized 

patients. The commenters believed that 

the ‘‘one size fits all’’ approach for drugs 

and laboratory tests based on the size of 

the dialysis patient may lead to 

discrimination against smaller patients 

and those patients with fewer applicable 

case-mix adjustments may find it 

difficult to gain admission to a dialysis 

center or possibly be undertreated with 

medications. One commenter suggested 

that the proposed rule created the false 

impression that dialysis is prescribed in 

a dosing format like drugs with well 

known pharmacokinetics that must be 

prescribed on patients parameters of 

BSA and BMI. 

Response: As we discussed in the 

proposed rule, we individually analyzed 

both BSA and BMI (as two measures of 

body size) as part of the regression 

analysis, and found that both body size 

measures were significant predictors of 

variation in composite rate costs and 

separately billed payments for ESRD 

patients. Our analysis for this final rule 

demonstrates the same relationship. We 

do not believe that our analysis and 

findings imply a ‘‘one size fits all’’ 

approach. Because we recognized that 

there are other variables that explain the 

variation in costs for ESRD patients, we 

included other factors such as age, comorbidity and onset of dialysis. We 

explain these variables in great detail in 

the proposed rule and later in this 

section. Because of these findings, we 

have included these variables as patientlevel adjustments, as well as BSA and 

BMI. 

Comment: One commenter questioned 

the methodology used to address the 

BMI fluctuation between a post dialysis 

weight on the last treatment and the 

post dialysis weight on the prior 

treatment. The commenter wanted to 

know if there would be an adjusted 

payment reflecting the two differing 

post dialyses weights or would the 

physician prescribed dry weight (weight 

without the excess fluid that builds up 

between dialysis treatments) be applied 

as the qualifier for the case-mix 

adjustment, because the post dialysis 

weight may drift enough to trigger a 

cost-adjustment. The commenter 

expressed concern that by using the 

physician prescribed dry weight, the 

treatment facilities and physicians 

would be rewarded for adjusting dry 

weights to reflect more profitable casemix adjustments. 

Response: As described in the 

Medicare Claims Processing Manual, 

Chapter 8, Section 50.3, facilities are 

required to report the weight of the 

patient after the last dialysis session of 

the month. However, the commenter 

raises an interesting point. We will need 

to consider the use of dry versus wet 

weight in future rulemaking. 

In this final rule, the case-mix patientlevel adjustment for BSA (per 0.1m2) is 

1.020 and for low BMI (BMI <18.5) is 

1.025 effective for renal dialysis services 

provided on or after January 1, 2011. We 

are also finalizing the inclusion of the 

factors for BSA and BMI in § 413.235(a). 

d. Onset of Dialysis (New Patient 

Adjustment) 

Section 1881(b)(14)(D)(i) of the Act, as 

added by MIPPA, requires that the 

ESRD PPS include a payment 

adjustment based on case-mix that may 

take into account a patient’s length of 

time on dialysis. Consequently, we 

analyzed the length of time beneficiaries 

have been receiving dialysis. We noted 

in the proposed rule (74 FR 49952), that 

the regression analysis demonstrated 

that patients who are in their first 4 

months of dialysis have higher costs. 

We also looked at the amount of 

separately billable payments relative to 

the number of months the patients had 

been on dialysis. After reviewing the 

separately billable payment amounts for 

patients ranging from one month to 

twelve months since the onset of 

dialysis, we found that there was a drop 

in the separately billable payment 

amounts after the first 4 months of 

dialysis. Therefore, we proposed to 

define the onset of dialysis beginning 

with the starting date reported on Form 

2728 through the first 4 months a 

patient is receiving dialysis (74 FR 

49952). 

We also proposed that the onset of 

dialysis adjustment be applied to both 

in-facility and home dialysis patients. 

We acknowledged that there may be 

patients whose first 4 months of dialysis 

occur when they are not yet eligible for 

the Medicare ESRD benefit. In these 

circumstances, we proposed that no 

onset of dialysis adjustment would be 

made. In other words, the onset of 

dialysis adjustment would be made only 

in the first 4 months of dialysis where 

the individual is also eligible for the 

ESRD benefit (74 FR 49952). 

We received over 70 comments from 

nephrologists, ESRD facilities, nurses, 

ESRD organizations, health care 

professionals, patients, professional 

organizations, and hospitals. Most 

commenters supported the inclusion of 

an onset of dialysis patient-level 

adjustment factor. Some commenters 

were, however, opposed to the inclusion 

of home dialysis training as part of the 

onset of dialysis adjustment factor and 

recommended that the training be 

removed from the onset of dialysis 

adjustment. The commenters suggested 

that CMS create a separate training 

adjustment instead. Home training is 

discussed in detail in section II.A.7. of 

this final rule. 

Comment: A few commenters 

recommended that the onset of dialysis 

adjustment not be implemented because 

the commenters believed it would be 

duplicative of other adjusters such as 

hospitalization and race that the 

commenters believed more accurately 

predicted treatment costs. Another 

commenter recommended that CMS 

eliminate the onset of dialysis 

adjustment in favor of other adjustments 

which focused on the root causes of 

higher costs during the first 4 months of 

dialysis. 

Response: We do not agree with the 

commenters who stated that the onset of 

dialysis adjustment is duplicative of 

other adjustments in predicting 

treatment costs. The adjustment for the 

onset of dialysis reflects higher costs 

seen during the first 4 months a patient 

receives dialysis and is independent of 

the effects of other adjustment factors 


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(such as hospitalization), included in 

the regression analysis. There is 

however a risk that a hospitalization 

adjustment would create an 

inappropriate financial incentive for 

ESRD patients to be hospitalized for the 

purpose of receiving a payment 

adjustment. We discuss the issue of 

using race as an adjustment factor in 

section II.F.3. of this final rule. 

We agree with the commenters who 

noted that patients in the first 4 months 

of receiving dialysis may be frail and 

unstable. We believe that the onset of 

dialysis case-mix adjustment recognizes 

the higher costs associated with newly 

diagnosed patients and reflects the care 

required to stabilize their conditions. As 

discussed above, in the proposed rule 

our analysis showed that patients who 

are in their first 4 months of receiving 

dialysis have higher costs. Subsequent 

to the proposed rule, we performed 

additional analyses. 

In our analysis for this final rule, our 

findings confirmed that higher costs 

were attributed to the first 4 months of 

dialysis in both the composite rate 

model and in the separately billable 

model. We believe that at the current 

time, the onset of dialysis adjustment is 

a good predictor of higher costs during 

the first 4 months of receiving dialysis 

and, therefore, in this final rule we are 

retaining the onset of dialysis payment 

adjustment. 

Comment: Several commenters 

strongly urged adoption of the onset of 

dialysis adjuster because of the effort 

required to obtain consents, waivers, 

and complete forms and all other 

compliance documents required under 

the Conditions for Coverage for new 

ESRD patients from nursing homes. 

Response: As discussed in the 

proposed rule, we believe that the 

higher costs associated with patients 

during the first 4 months of receiving 

dialysis may be due to: the need to 

stabilize patients’ conditions; 

administrative and labor costs 

associated with patients new to dialysis; 

or initial costs to train patients (74 FR 

49952). The analysis conducted for this 

final rule continues to indicate higher 

composite rate costs and separately 

billable payments associated with 

patients new to dialysis. As the 

commenter indicates, some of the 

increased administrative costs 

associated with providing dialysis in the 

first 4 months that a beneficiary begins 

dialysis treatment may be attributed to 

the costs associated with obtaining 

medical or other records from other 

providers and suppliers of services. 

Therefore, we are retaining the onset 

of dialysis adjustment under the final 

ESRD PPS. We note that the onset of 

dialysis adjustment is applicable only 

for those patients 18 years or older, 

during the first 4 months of the onset of 

dialysis and would not apply to any 

patient who might receive renal dialysis 

services by an ESRD facility for 

subsequent treatments. 

Comment: One commenter claimed 

that there are higher costs due to the 

need to increase hemoglobin levels; 

hospitalizations in the first months of 

diagnosis for cardiovascular disease and 

catheter-induced infections; and staff 

time needed for patient assessment and 

care planning required by the new 

conditions for coverage. Other 

commenters also supported this 

assertion stating that it was ‘‘well 

documented that staff and drug costs 

with new patients and the conditions of 

participation outline the intense 

responsibilities during this period.’’ 

Response: We thank the commenters 

for their support of the onset of dialysis 

adjustment. We acknowledge that our 

analysis in the proposed rule and this 

final rule showed higher composite 

costs and payment for separately 

billable items during the first 4 months 

of dialysis. As we noted in the proposed 

rule, the higher costs for new patients in 

the first 4 months of receiving dialysis, 

may be due to stabilization of a patient’s 

condition; administrative and labor 

costs associated with the patient being 

new to dialysis; or initial costs of 

training patients and their caregivers to 

perform home dialysis (74 FR 49952). 

Therefore, the intent of the onset of 

dialysis adjustment was to account for 

the higher costs through the first 4 

months a patient is receiving dialysis in 

response to the need for separately 

billable items such as ESAs. 

Due to our further analysis of onset of 

dialysis for this final rule, our findings 

confirm an increase in costs for the 

composite rate portion of the twoequation model for patients in their first 

4 months of dialysis. The analysis also 

demonstrates an increase in measured 

costs based on the separately billable 

portion of the model, particularly for 

ESA utilization. Because of the absence 

of patient-level data on resource use for 

composite rate services, and the 

relatively small number of individuals 

who historically received home dialysis 

training during the first 4 months of 

dialysis (which limits the potential of 

facility-level analysis to examine 

resource utilization for home training), 

we are unable at this time to determine 

the extent of overstatement of composite 

rate costs if we apply both the onset of 

dialysis adjustment and the training 

adjustment discussed in section II.A.7. 

of this final rule. In order to avoid 

potentially overstating payments to 

ESRD facilities under the ESRD PPS for 

costs related to new dialysis patients 

and training during the first 4 months of 

dialysis, the training add-on adjustment 

will not apply for patients receiving the 

onset of dialysis adjustment. We note 

that home dialysis training is not 

included in the onset of dialysis 

adjustment and is a separate payment 

adjustment which we discuss in section 

II.A.7. of this final rule. 

Comment: One commenter disagreed 

with the onset of dialysis adjuster 

indicating that there was little data 

proving that higher labor costs was 

associated with the onset of dialysis. 

The commenter stated that costs 

associated with the initial months of 

dialysis do not prevent access to 

dialysis care and, therefore, if the intent 

of case-mix adjustments is to erase 

disincentives to treat costly patients, the 

adjustment is not necessary. 

Response: Contrary to the 

commenters’ views, our analysis 

demonstrates that the first 4 months of 

receiving dialysis was a predictor of 

higher resource utilization. As 

discussed in previous responses, our 

subsequent analysis for this final rule 

confirmed our findings as discussed in 

the proposed rule (74 FR 49952). Our 

updated analysis for this final rule 

shows a drop in the amount of 

separately billable payments after 4 

months on dialysis, which was the basis 

for our establishing a 4-month time 

period for the onset of dialysis 

adjustment. 

The intent of a case-mix adjustment is 

to provide payment that reflects the 

resources associated with patients, 

whose needs are greater than patients 

without certain characteristics or 

conditions. The onset of dialysis 

adjustment is intended to provide 

payment that reflects the higher 

composite rate costs and higher 

separately billable payments associated 

with patients during the first 4 months 

of dialysis. 

Comment: One commenter alleged 

that dialysis services are provided at 

great expense to the taxpayer with ‘‘very 

little benefit to the individual’’ and 

questioned if this adjustment was ‘‘good 

policy.’’ 

Response: We do not agree with this 

commenter. We believe that the onset of 

dialysis adjustment reflects the average 

higher costs associated with patients 

during the first 4 months of dialysis. We 

believe that the ESRD PPS will support 

the care needed by Medicare 

beneficiaries receiving dialysis 

treatment while controlling costs. 

Comment: One commenter questioned 

whether the onset of dialysis adjuster 

was underestimated because of the 90- 


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day delay in Medicare entitlement for 

the ESRD benefit under Medicare and 

suggested that the period be 180 days. 

Other commenters suggested that the 

eligibility requirement be reduced to 

allow ESRD facilities to receive the 

adjustment for more than one month. 

One commenter suggested that the 90- 

day waiting period be reduced and the 

payment be increased. The commenter 

acknowledged that statutory change 

would be required to make these 

changes. 

Response: We do not agree that the 

onset of dialysis adjustment is 

underestimated. We analyzed ESRD 

facility claims beginning with the 

dialysis onset date on the Form 2728 

and found an increase in separately 

billable payments in the first 4 months. 

We also found increased composite rate 

costs. We believe that our analysis 

adequately and accurately reflects the 

higher costs associated with the first 4 

months of dialysis among patients 

eligible for Medicare. 

We believe the commenters are 

referring to the need for legislative 

changes to reduce the 90-day waiting 

period for entitlement to benefits under 

Part A and eligibility to enroll under 

Part B required by section 226A of the 

Act and an increase in payment to ESRD 

facilities. We agree that a legislative 

change would be required to change the 

90-day waiting period, however, such 

changes are beyond the scope of this 

final rule. 

Comment: One commenter noted that 

new patients are costly to care for, but 

indicated that many of the patient 

‘‘problems’’ are not ESRD-related. The 

same commenter believed that the onset 

of dialysis adjustment will give ESRD 

facilities an incentive to care for new 

patients. 

Response: Our analysis demonstrated 

that patients in the first 4 months of 

dialysis have higher composite rate 

costs and separately billable payments. 

To the extent that ESRD patients may 

have other non-ESRD–related issues or 

conditions, we do not believe that our 

analysis would have captured this. 

Therefore, in this final rule, we do not 

believe that we captured non-ESRDrelated costs. 

We agree with the commenter that the 

onset of dialysis adjustment will have a 

positive effect in access to care for 

patients during the first 4 months of 

receiving dialysis. 

Comment: Several commenters 

indicated that the proposed onset of 

dialysis adjustment was too high and 

that the duration for the eligibility 

requirement for ESRD facilities to 

receive payment was too long. A few 

commenters noted that the high onset of 

dialysis adjustment would result in 

beneficiaries assuming responsibility for 

large co-payments. Some of these 

commenters provided recommendations 

on changing the time frame for the onset 

of dialysis, as well as the amount of the 

adjustment. 

Some commenters suggested the 

adjustment should be a 90-day initial 

adjustment with the difference reallocated for a home dialysis 

adjustment. Another commenter noted 

that if the onset of dialysis adjuster is 

intended to protect small dialysis 

providers who cannot easily spread risk, 

than the weighting should be 

recalculated to ensure accuracy as the 

proposed weight of 1.47 appears quite 

high. Others believed the adjustment 

should be reduced to 15 or 30 percent 

using the remaining percentage for a 

home dialysis adjustment. 

Response: The multiplier amounts for 

the onset of dialysis adjustment, as well 

as all other adjustments, are the result 

of the regression models for composite 

rate and separately billable services. In 

the proposed rule, we analyzed 

Medicare claims for 2004–2006, which 

indicated greater resource utilization for 

separately billable items among patients 

treated during the first 4 months of 

dialysis. An analysis of cost reports for 

the same period indicated higher costs 

for composite rate services associated 

with the first 4 months of dialysis. 

Based on our subsequent analysis for 

this final rule, (which used cost reports 

and Medicare claims for the years 2006– 

2008), the onset of dialysis adjustment 

under the ESRD PPS for ESRD items and 

services provided on or after January 1, 

2011 is 1.510. 

We note that our analyses also suggest 

there are effects of co-morbidities on 

resource utilization for separately 

billable items that are independent of 

the onset of dialysis. We performed 

further analysis of the co-morbidity 

diagnostic categories for this final rule, 

in combination with the onset of 

dialysis. We found that while costs were 

higher on average for dialysis patients 

with co-morbidities during the first 4 

months of dialysis, the effect of 

compounding a co-morbidity 

adjustment along with the onset of 

dialysis adjustment would, on average, 

result in overstatement for separately 

billable services. Therefore, ESRD 

facilities will not receive a co-morbidity 

adjustment for dialysis patients during 

the first 4 months of dialysis. 

We plan to continue to study the 

onset of dialysis adjustment because we 

believe that it is important for us to be 

cognizant of the impacts of additional 

adjustments made to ESRD facilities, the 

ESRD base rate, as well as effects on 

patient co-insurance liabilities. 

Comment: One commenter strongly 

opposed the onset of dialysis 

adjustment citing a number of reasons 

such as: (1) Most of the higher costs 

occurring in the first 4 months of 

dialysis are explained by 

hospitalization, race, and age; (2) most 

beneficiaries in the first 120 days do not 

receive home training; (3) those under 

65 are not covered by Medicare for the 

first 90 days unless they begin training 

for home dialysis. 

The commenter asserted that this 

would then have the effect of increasing 

the number of patients who become 

entitled to Medicare earlier. The 

commenter further stated that the 

characterization of the onset of dialysis 

adjustment as independent of the other 

ESRD patient-level adjustments will 

overestimate the onset of dialysis 

adjustment’s value. The commenter 

suggested that the onset of dialysis 

adjustment be examined in tandem with 

other parts of the proposed rule to 

formulate a fair and accurate facility 

payment. The commenter further 

suggested that if reliable data such as 

labor costs are elevated (as asserted by 

CMS) at the beginning of dialysis, are 

found to not exist, the onset of dialysis 

adjuster should not be included in the 

ESRD PPS. The commenter further 

noted that CMS’s reliance on cost 

reports is misplaced because the cost 

reports are not limited to Medicare, 

thereby skewing the sample with nonMedicare patients. The commenter 

asserted that patients with commercial 

primary insurance are over-represented 

among new dialysis patients. Other 

commenters believed the onset of 

dialysis adjustment would lead to 

patients under 65 years of age, to begin 

home dialysis therapy in the first 90 

days in order to trigger early Medicare 

entitlement for the purpose of higher 

payment. 

Response: In our analysis we found 

that there was an association of higher 

composite rate costs and separately 

billable costs even when controlling for 

race and age. The onset of dialysis 

adjustment reflects higher costs for 

patients eligible for Medicare during the 

first 4 months of dialysis. 

With regard to concerns about the 

inclusion of patients not covered under 

the Medicare ESRD benefit, patients 

who were not entitled to the ESRD 

benefit under Medicare during this 

period were not used in our analysis for 

determining the onset of dialysis 

adjustment because they would not be 

eligible for the adjustment. As we 

discussed in a previous response, the 

onset of dialysis adjustment we are 


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finalizing under the ESRD PPS will not 

be applied in combination with either 

the co-morbidity adjustment or the 

home training payment add-on 

adjustment. 

We do not agree with the commenter 

who expressed concern that the onset of 

dialysis adjustment would trigger an 

earlier Medicare entitlement. We will be 

monitoring the onset of dialysis 

adjustment, specifically, to determine if 

there is an increase in the number of 

individuals who become entitled to 

Medicare prior to the 90-day waiting 

period as a result of receiving home 

dialysis training. 

We are aware of the prevalence of 

patients who receive home dialysis 

during the first 4 months of dialysis. As 

many commenters have noted, few 

patients receive home or self dialysis 

training during the first 4 months of 

dialysis. We would not expect to see 

more patients receiving home or self 

dialysis training in the first 4 months of 

dialysis in order for ESRD facilities to 

receive the onset of dialysis payment 

adjustment. We expect that ESRD 

facilities, nephrologists and other health 

care providers will provide care in 

accordance with the established plan of 

care and would not require home or self 

dialysis for the purpose of a payment 

adjustment. 

With regard to the comment 

concerning our misplaced reliance of 

cost reports, cost reports capture ESRD 

data and provide the only 

comprehensive national data source to 

measure ESRD resource use of 

composite rate services, and reflect costs 

for Medicare patients. Therefore, we 

believe cost reports provide the best 

available data. 

Comment: One commenter expressed 

concern that many facilities will no 

longer accept patients for no fees (free) 

for the first 90 days since overall 

payments will be decreased. 

Response: We do not understand the 

association between the onset of dialysis 

adjustment and the facility’s decision to 

not accept patients for free. However, 

we believe the decision of an ESRD 

facility to accept or not accept patients 

without payment is beyond the scope of 

this final rule. 

Comment: One large dialysis 

organization noted that an adjuster ‘‘of 

this magnitude invites gaming or cherry 

picking.’’ The commenter expressed 

concern that ESRD providers could or 

do routinely provide dialysis services 

for the first 4 months of dialysis, and 

then transferred the patient to another 

ESRD facility. 

Response: We are concerned about 

ESRD facilities ‘‘cherry picking’’ patients 

for the purpose of receiving the onset of 

dialysis adjustment. We believe that in 

the absence of any case-mix adjustments 

which provide for additional payments 

for patients with higher resource 

utilization and associated higher costs, 

ESRD facilities may refuse to provide 

dialysis services to higher cost patients 

over less costly patients. 

We are also concerned that ESRD 

patients may be inappropriately placed 

on home dialysis who either do not 

want home treatments or who require 

more frequent monitoring for medical, 

social and other reasons, in order to 

decrease the eligibility period for the 

purpose of receiving the onset of 

dialysis adjustment. 

The ESRD patient’s plan of care must 

reflect the patient’s needs. If a patient is 

unwilling or unable to self-dialyze at 

home, insisting that the patient go on 

home dialysis would be a violation of 

the patient plan of care as described in 

§ 494.90. An ESRD patient who cannot/ 

would not comply with a home dialysis 

plan of care is likely to have poor 

clinical outcomes and may require 

additional care, both of which negate 

any cost benefits for ESRD facilities of 

home dialysis. The ESRD Conditions for 

Coverage can be found at 42 CFR Part 

494. We expect that ESRD facilities will 

provide an appropriate plan of care and 

continued monitoring will identify 

ESRD facilities that do not. 

Comment: Several commenters 

believed the onset of dialysis adjuster 

should apply to all patients and not 

solely Medicare beneficiaries, as all 

dialysis patients receive more care at the 

beginning of dialysis. A few 

commenters complained that patients 

under 65 only have 30 days of increased 

payment as facilities would need to wait 

for these patients to be covered by 

Medicare before they can receive 

payment. 

Response: The onset of dialysis 

adjustment will only apply to ESRD 

patients who are entitled to receive the 

ESRD benefit under Medicare. As 

explained in a previous response, data 

for patients who were not eligible for 

Medicare during this period were not 

used in the analysis for determining the 

onset of dialysis adjustment. ESRD 

facilities would only receive the onset of 

dialysis adjustment for patients that are 

covered under the ESRD Medicare 

benefit. Therefore, the onset of dialysis 

adjustment would not apply to 

individuals receiving dialysis care paid 

for by other third party payers during 

the first 90 days. We note that ESRD 

facilities would receive the onset of 

dialysis adjustment for the 4-month 

adjustment period for its new patients 

who are already entitled to Medicare at 

the time of the onset of dialysis. 

Comment: A few commenters noted 

that the onset of dialysis adjuster had 

‘‘limited administrative complexity or 

burden’’ and therefore, approved the 

onset of dialysis adjuster. 

Response: Information on the Form 

2728 and stored in our systems will be 

used to determine if a patient is within 

the first 4 months of dialysis. Therefore, 

ESRD facilities will not have any 

additional reporting requirements or 

burden associated with the onset of 

dialysis adjustment. 

Comment: While one commenter was 

in favor of including home training in 

the onset of dialysis adjuster because 

the commenter believed it could help 

increase the number of patients on 

home dialysis, most commenters 

opposed inclusion of home dialysis 

training costs in the onset of dialysis 

adjustment. Many of the commenters 

were opposed to the inclusion of home 

dialysis training indicated that training 

ESRD patients for home dialysis does 

not occur in the first 4 months of 

dialysis because individuals are more 

likely to receive the initial treatments in 

a facility. Other commenters believed 

that expecting newly diagnosed ESRD 

patients to assume responsibility for 

home dialysis while they are adjusting 

to an overwhelming diagnosis would be 

inappropriate. Commenters also stated 

that new patients are often medically 

unstable, psychologically compromised 

by anxiety and depression, and unable 

to make home dialysis decisions. 

Several commenters noted that 

training or retraining for home dialysis 

may be needed for modality changes 

after the initial 4 months of dialysis and 

therefore, the training portion of the 

onset adjustment should be removed. 

These commenters all recommended 

that training be adjusted separately 

regardless of when training begins. 

One commenter noted that ESRD 

facilities that do not provide home 

dialysis training would receive the same 

enhanced reimbursement as the 

facilities that do provide the home 

training. The same commenter further 

believed that inclusion of home training 

in the onset of dialysis adjustment 

would penalize facilities with active 

growing ESRD programs. One 

commenter noted that the increased 

payment from this adjustment ‘‘defrayed 

some increased expenses with indigent 

patients and as most patients elect home 

dialysis after 120 days there is little 

incentive to initiate training.’’ One 

commenter believed that even a 

significant increase in payment will not 

encourage home treatments. 

Response: The data analysis 

conducted for this final rule supports 

the commenters’ views that most ESRD 


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patients are not trained for home 

dialysis in their first 4 months of 

dialysis. In our analysis, there were too 

few training patients in their first 4 

months of dialysis to assess the 

composite rate costs associated with 

patients training for home dialysis 

compared to those related to the onset 

of dialysis. 

With regard to payment for both 

training and the onset of dialysis 

adjustments, as we discussed in a 

previous response, we believe that the 

costs associated with the onset of 

dialysis adjustment and the training 

add-on adjustment overlap (that is, costs 

for services could be accounted for in 

both adjustments). Therefore, to avoid 

duplicative payment, ESRD facilities 

will not receive the home dialysis 

training adjustment while they are 

receiving the onset of dialysis 

adjustment for a patient. We will 

continue to study the relationship 

between costs related to the onset of 

dialysis and home training for future 

refinement of the ESRD PPS. 

The payment multipliers are based on 

the regression analysis that compared 

costs and payments among Medicare 

ESRD patients. It would not be 

appropriate for Medicare to make 

duplicative payments to fund care for 

indigent or other patients. 

Therefore, after considering the public 

comments and for the reasons stated 

above, we are finalizing the onset of 

dialysis adjustment. ESRD facilities will 

receive the onset of dialysis adjustment 

for renal dialysis services provided on 

or after January 1, 2011. We are 

finalizing an adjustment of 1.510 for infacility and home dialysis patients 

eligible for the Medicare ESRD benefit 

for the first 4 months of the initial onset 

of dialysis. We are finalizing the 

definition of the onset of dialysis as the 

date reported on the Form 2728 that 

dialysis begins through the first 4 

months a patient is receiving dialysis. 

The onset of dialysis adjustment will 

only apply for the period of time in the 

first 4 months of dialysis that occurs 

while the patient is covered under the 

ESRD benefit. In other words, the onset 

of dialysis adjustment will not apply 

after the initial 4 months of dialysis. We 

are finalizing that ESRD facilities that 

are eligible for and receive the onset of 

dialysis adjustment for a patient may 

not receive a co-morbidity adjustment, 

nor will they receive the home training 

add-on adjustment for that patient 

during the first 4 months of dialysis. We 

are finalizing § 413.225(a) to include 

onset of dialysis (new patient) as a 

patient-level adjustment. 

e. Co-morbidities 

Section 1881(b)(14)(D)(i) of the Act 

requires that the bundled ESRD PPS 

include a payment adjustment based on 

case-mix that may take into account 

patient co-morbidities. In the proposed 

rule, we analyzed co-morbidities as part 

of the regression analysis and found that 

certain co-morbidities are predictors of 

variation in costs for ESRD patients (74 

FR 49952). We noted that the potential 

co-morbidity adjustments are intended 

to recognize the increased costs by 

providing additional payments for 

certain conditions that occur 

concurrently with the need for dialysis. 

We explained that we used stepwise 

regression analysis for the current basic 

case-mix adjusted composite payment 

system to identify case-mix factors that 

explained statistically significant 

variation in ESRD facility costs. We 

summarized our findings as a result of 

our analysis (74 FR 49952). 

As discussed in the proposed rule, we 

retained UM–KECC to assist us in 

developing a case-mix adjustment for 

the ESRD PPS (74 FR 49947). One of the 

tasks was the identification of specific 

diagnoses within co-morbidity 

categories. We explained the 

methodology we used to capture 

changes in patient conditions and 

patient co-morbidities. We explained 

that we began with a long list of patient 

characteristics based on diagnostic 

categories developed for the Medicare 

Advantage Program and categories 

developed for the co-morbidities on the 

Form 2728. 

We also explained that we used comorbidity diagnoses reported in 

multiple types of Medicare claims 

(inpatient dialysis and other outpatient, 

skilled nursing facility, physician/ 

supplier, hospice, and home health). We 

acknowledged that because some 

diagnoses reported on laboratory claims 

may represent a condition being 

excluded by the test, diagnoses reported 

on laboratory claims were not used. We 

solicited recommendations on the type 

of claims that reflect the co-morbidities 

for beneficiaries receiving renal dialysis 

services that could be used in future 

analyses (74 FR 49953). 

Comment: We received a few 

comments questioning our use of claims 

rather than relying on Form 2728 to 

identify co-morbidities of ESRD 

patients. Some commenters questioned 

the use of other sources such as 

emergency room claims to determine comorbid conditions for ESRD patients. 

Response: We believe that the 

predominant use of hospital and 

physician claims, as well as other types 

of claims (such as skilled nursing 

facilities, home health and hospice 

claims) to identify co-morbidities, 

provided for a more comprehensive 

picture of co-morbidities that ESRD 

patients may have during the course of 

their dialysis. The Form 2728 accurately 

provides the co-morbid conditions at 

the time the ESRD diagnosis was made 

and, therefore, does not reflect any other 

medical condition(s) that may have 

come about subsequent to that time. We 

note that the level of co-morbidity 

reporting on the Form 2728 is quite low. 

The ICD–9–CM diagnostic codes for 

patients’ co-morbid medical conditions 

should be reported in compliance with 

coding requirements on the ESRD 72x 

claim, as well as the official ICD–9–CM 

Coding guidelines, which can be found 

at: http://www.cdc.gov/nchs/icd.htm, 

regardless of whether a payment 

adjustment could be associated with the 

diagnosis. Entering complete and 

accurate codes enables CMS to better 

evaluate our payment systems and 

provide updates as necessary. 

In the proposed rule, we discussed 

how we would ensure that each 

proposed case-mix adjuster would have 

a statistically significant relationship to 

cost in order to ensure that the 

magnitude of the relationship is 

economically meaningful. We also 

explained that we evaluated a refined 

list of case-mix co-morbidities 

comprised of 1,022 ICD–9–CM diagnosis 

codes for persistence of effect and cost. 

The co-morbidity categories we 

proposed were: Cardiac arrest; 

pericarditis; substance abuse; positive 

HIV status and AIDS; gastrointestinal 

tract bleeding; cancer since 1999 

(excludes non-melanoma skin cancer); 

septicemia/shock; opportunistic 

infections (pneumonias); aspiration and 

specified bacterial pneumonias; 

pneumococcal pneumonia, empyema, 

lung abscess; monoclonial gammopathy; 

myelodysplastic syndrome; leukemia; 

hereditary hemolytic anemias and sickle 

cell anemia; lymphoma; Hepatitis B; 

and multiple myeloma (74 FR 49953). 

We also discussed the use of the 

stepwise regression model in analyzing 

co-morbidity data for case-mix 

adjustments (74 FR 49953). We 

explained that the eleven proposed comorbidity variables had statistically 

significant relationships to cost. 

However the magnitude of the comorbidity effects varied substantially. 

We found that short-term acute 

conditions (for example, infections, 

gastrointestinal bleeds, and pericarditis) 

would result in a temporary ESRD 

payment adjustment. We found that 

long-term chronic conditions would 

result in a permanent increase of an 

ESRD payment adjustment. We believe 


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the long-term chronic conditions may 

tend to have a more persistent effect on 

cost (74 FR 49953). 

We explained how we applied the 

composite rate and separately billable 

services using the modeling approach 

(74 FR 49952). We discussed the 

rationale for proposing to include 

cancer, for example, as a co-morbidity 

eligible for a patient-level adjustment if 

the cancer has a direct effect on the cost 

of ESRD treatment. We also explained 

why HIV/AIDS was included as our 

proposed co-morbidity case-mix 

adjustment although it has since been 

eliminated from the current basic casemix adjusted composite payment 

system. We acknowledged that 

including HIV/AIDS as a co-morbid 

adjuster would have benefits that would 

need to be balanced with stringent 

confidentiality concerns (74 FR 49954). 

In our proposed rule, we also solicited 

public comments on suggested 

conditions or diseases that CMS should 

consider for future refinements. 

We received comments from 

approximately one hundred 

commenters on the proposed inclusion 

of co-morbidities as a patient-level casemix adjustment. In general, most 

commenters were opposed to the 

inclusion of co-morbidities, or specified 

co-morbidities that they would like to 

see included. Many commenters offered 

suggestions on certain diagnoses to 

include as an adjustment, as well as 

those that should be eliminated. A few 

commenters expressed support for the 

proposed co-morbidities, stating that 

these adjusters would provide a more 

accurate payment for complex patients. 

Specific comments and responses are 

discussed below. 

Comment: A few commenters offered 

to work with CMS to identify comorbidities that: Influence the cost of 

dialysis care; are based on verifiable 

data; and can be implemented and 

administered in a practical manner. 

They also urged CMS to develop 

methods to enhance access to 

information for conditions that predict 

hospitalization. 

Response: We reviewed public 

comments on co-morbidities and 

considered each for this final rule. In 

general, we believe that the commenters 

were suggesting future collaborative 

efforts to identify co-morbidities that 

influence the cost of dialysis care. We 

thank these commenters and we 

anticipate continuing to work with 

ESRD facilities, patients, physicians, 

organizations, and other stakeholders to 

refine the ESRD PPS. 

Comment: One commenter suggested 

that we use facility size as a comorbidity adjustment. 

Response: As we discussed in the 

proposed rule, a co-morbidity is a 

specific patient condition that is 

secondary to the patient’s principal 

diagnosis that necessitates dialysis, yet 

has a direct effect on dialysis (74 FR 

49952). Therefore, contrary to the 

commenter’s suggestion, a facility’s size 

does not meet the definition of a comorbidity. 

Comment: Some commenters asserted 

that CMS excluded the co-morbidities 

that affect dialysis treatment, such as: 

Hyperglycemia; hypoglycemia; 

peripheral vascular disease (PVD) 

manifested as gangrene requiring wound 

care or special therapy; amputations and 

peripheral artery disease (which they 

believed were the major cause of 

morbidity, hospitalization, antibiotic 

expense and poor outcomes); recent reentry of transplant patients with reintroduction, continuation, and tapering 

of transplant medication; hypertension; 

hypotension; angina with chest pain; 

post-operative affecting heparin dose; 

sepsis with antibiotics; routine 

Coumadin with diagnosis unrelated to 

ESRD; recurrent transfusions for 

hematologic problems and site access 

issues. A few commenters indicated that 

patients returning after hospitalizations 

incur extra cost and changes in 

outcome. One commenter alleged that 

ESRD facilities need to address 

nutritional and volume issues after 

hospitalizations that require extra time 

and attention. 

Response: We thank the commenters 

for their many suggestions. The 

inclusion or exclusion of a diagnostic 

category was based on the regression 

model. As we explained in the proposed 

rule, we found that certain comorbidities are predictors of variation in 

costs for ESRD patients. We also 

explained that these co-morbidities have 

a direct effect on dialysis. We discussed 

the process used in identifying the 

universe of ICD–9–CM codes that were 

initially used in the analysis and how 

we derived the proposed eleven 

diagnostic categories. 

We do not agree with the commenters’ 

conclusion that we had excluded comorbidities that affect treatment 

because, in fact, we did analyze comorbidities that affect ESRD patients 

and contribute to increased payments. 

In our proposed rule, we explained that 

to ensure that each potential case-mix 

adjuster had a relationship to cost that 

was statistically significant and to 

ensure that the magnitude of the 

relationship was economically 

meaningful, low magnitude association 

with cost, as well as co-morbidities with 

ambiguous definitions were excluded. 

Several patient co-morbidities were 

analyzed having statistical significance 

and low magnitude association with 

cost in the preliminary models. Also, 

co-morbidities with high prevalence 

such as diabetes and vascular disease 

were excluded from the proposed 

diagnostic categories (74 FR 49952). 

Based on various issues and concerns 

raised in public comments regarding the 

proposed co-morbidity categories 

recognized for a payment adjustment, 

we further evaluated the co-morbidity 

categories with regard to: (1) Inability to 

create accurate clinical definitions; (2) 

potential for adverse incentives 

regarding care; and (3) potential for 

ESRD facilities to directly influence the 

prevalence of the co-morbidity either by 

altering dialysis care, diagnostic testing 

patterns, or liberalizing the diagnostic 

criteria. We utilize these criteria 

(referred to ‘‘criteria’’) in subsequent 

discussions below. 

We reiterate that it is important for 

ESRD facilities to report all patient comorbidities accurately, regardless of 

whether or not these codes are or are not 

eligible for an ESRD PPS adjustment. 

The ICD–9–CM diagnosis codes should 

be reported in compliance with coding 

requirements on the ESRD 72x claim as 

well as the official ICD–9–CM Coding 

Guidelines. 

Comment: Several commenters cited 

the higher cost of treating patients with 

Hepatitis B because of facility costs 

associated with complying with the 

isolation requirements under the ESRD 

Conditions for Coverage. Commenters 

stated that facility costs include 

providing isolation rooms, protective 

garments such as gowns and gloves, and 

special cleaning protocols. Another 

commenter did not believe the Hepatitis 

B adjustment amount covered the actual 

costs for full isolation, special gowning, 

and the limitations on staff while also 

caring for additional patients. The same 

commenter recommended either 

eliminating the Hepatitis B adjuster or 

substantially increasing the amount. 

Response: Our model demonstrated 

that Hepatitis B is a stable predictor of 

separately billable costs. We also 

recognize that there are costs associated 

with the ESRD Conditions for Coverage 

requirements. We utilized the criteria as 

described above in evaluating the 

inclusion of Hepatitis B for a payment 

adjustment. We believe that while there 

are accurate definitions of Hepatitis B, 

in our analysis for the proposed and the 

final rule, we did not access whether a 

shorter term (acute) or a longer term 

(chronic) payment adjustment would be 

most appropriate. This information may 

depend on the conditions reported on 

the claims in our determination of 

whether Hepatitis B is classified as an 


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acute or chronic co-morbidity 

adjustment. Further research could also 

be helpful to determine if the cost of 

providing care to ESRD beneficiaries 

with Hepatitis B approximates or 

exceeds the costs associated with the 

coefficient. Because we recognize that 

we need additional research on 

Hepatitis B, we did not proceed with the 

remainder of the evaluation. Therefore, 

in this final rule, we are eliminating 

Hepatitis B as a co-morbidity diagnostic 

category adjustment to the ESRD PPS 

base rate. 

Comment: Some commenters opposed 

the inclusion of cardiac arrest as a 

patient-level adjustment. One 

questioned if someone with end-stage 

cardiac disease would be less 

complicated to care for in the absence 

of cardiac arrest. Another commenter 

asked how long a history of cardiac 

arrest could be valid in order to receive 

the cardiac arrest adjustment. Some 

commenters objected to the cardiac 

arrest adjustment, citing reasons such 

as: The nephrologist would need to 

know about the cardiac arrest and 

communicate this to staff; HIPPA 

(patient privacy) may restrict sharing of 

such information; cardiac arrest is more 

costly to hospitals but not to ESRD 

facilities; and difficulty in obtaining 

cardiac arrest information by the ESRD 

facility. One commenter recommended 

eliminating this adjustment because 

they believed a cardiac event did not 

significantly affect the amount of time 

required to provide care for an ESRD 

patient unless the cardiac arrest was 

very recent and the patient was 

unstable. Another commenter 

tentatively supported inclusion of 

cardiac arrest as a patient-level adjuster, 

pending clarification of the testing and 

documentation required to substantiate 

the initial and ongoing diagnosis. 

Response: We believe the commenters 

have expressed valid concerns. We 

applied the criteria as discussed above 

to cardiac arrest. We believe the first 

criterium is met because there is a 

potential for misclassifying a medical 

episode as a cardiac arrest (for example, 

considering a patient with transient 

unresponsiveness during dialysis to 

have had a cardiac arrest). Other 

medical episodes and situations can be 

mistakenly classified as a cardiac arrest, 

when in fact they are not an actual 

cardiac arrest. As a result, there is the 

potential for ESRD facilities to influence 

the prevalence of cardiac arrest as a comorbidity recognized for a payment 

adjustment (criteria number 3). Because 

we believe there is a lack of consistency 

in what constitutes a cardiac arrest 

diagnosis and because commenters 

generally did not support the inclusion 

of cardiac arrest as a co-morbidity 

adjustment, we are not finalizing 

cardiac arrest as a co-morbidity 

diagnostic category recognized for a comorbidity payment adjustment under 

the ESRD PPS in this final rule. 

Comment: Several commenters were 

in favor of the payment adjustment for 

infections because commenters believed 

that treating infections adds cost and 

intensity of care. A few commenters 

suggested that an additional outlier 

payment should be given for each 

patient month in which a patient is 

treated for either infections or 

symptoms of infection to reflect the 

additional costs of laboratory work, 

greater use of antibiotics and higher 

ESA needs. The commenters believed 

that this met the legislative intent for 

outliers. 

Response: We assume the commenters 

believed that Congress intended outlier 

payments to address infections and 

therefore suggested that an outlier 

payment be made for each patient 

month in which symptoms of infection 

existed or an infection was treated. We 

do not agree with the commenters 

because we do not believe that Congress 

intended for any particular co-morbidity 

to be eligible for outlier payments. 

Rather, under the outlier policy 

described in section II.H. of this final 

rule, an outlier payment will be made to 

share the cost of renal dialysis services 

beyond a fixed dollar loss amount. To 

the extent that the use of outlier services 

(that is, drugs and laboratory tests) as a 

result of an infection exceeds the fixed 

dollar loss amount, Medicare will make 

an outlier payment. 

As we discussed in the proposed rule, 

we used a stepwise regression analysis 

model in analyzing co-morbidity data 

for case-mix adjustments. The 

relationship between patient 

characteristics was related to the 

reported facility costs. A patient-level 

model was used to identify potential 

payment adjusters for separately billable 

services. We identified co-morbidities 

that had statistically significant 

relationships to cost. Based on our 

analyses, we proposed adjustments for 

eleven co-morbidity categories. In other 

words, because our analyses found a 

correlation between the diagnostic 

categories (including infections) and 

higher costs, we proposed to provide a 

payment adjustment to be applied to the 

proposed ESRD PPS base rate. For comorbidities found to be short term, we 

proposed that the condition must have 

existed within the past 3 months and 

affected treatment. In the proposed rule, 

infections were classified as a shortterm co-morbidity eligible for a payment 

adjustment to the ESRD proposed base 

rate (74 FR 49953 and 49954). However, 

we are not including all infections as comorbidities recognized for separate 

payment in the final ESRD PPS as we 

discuss in greater detail below. 

Comment: Other commenters opposed 

the inclusion of infections citing the 

facilities’ success in decreasing 

infections. Several commenters 

expressed concern that higher payment 

(such as the infection adjustment) may 

be provided for conditions such as 

bacteremia (related to dialysis catheter) 

or pneumonia (related to lower 

vaccination rate) that could be 

attributed to poor care. 

MedPAC expressed concern that 

paying more for septicemia, for 

example, could give ESRD facilities an 

incentive not to provide the necessary 

care to minimize infections, and could 

reverse the effectiveness of Medicare’s 

quality improvement efforts for 

promoting arterio-venous fistulas. 

(Septicemia was included in the 

proposed infections co-morbidity 

category recognized for a proposed 

payment adjustment.) MedPAC further 

opined that suboptimal care should not 

be rewarded. 

A few commenters suggested that an 

adjuster for sepsis/septicemia should be 

excluded because the commenters 

believe that it is not a consistent factor 

in the cost of dialysis care and that 

paying for infections and 

hospitalizations serves as a disincentive 

for reducing catheter use. One 

commenter believed that if infections 

remain as an adjustment, peritonitis for 

patients on PD should be added. 

One commenter noted that in addition 

to the vague meaning of septicemia, the 

adjustment largely reflects high use of 

Epoetin® from the acute illness and 

inflammation. The commenter further 

stated that variation in Epoetin® dose 

accounted for almost all cost variation 

among dialysis patients, thereby driving 

the associations in the statistical 

models. 

Response: Our analysis for the 

proposed rule demonstrated that certain 

diagnostic categories showed effects on 

cost either long-term or short-term (74 

FR 49953). Infections showed higher 

cost effects for 3 months after the date 

of diagnosis. Our analysis for this final 

rule indicated the same findings. We 

are, however, convinced by the 

concerns expressed by commenters who 

opposed the inclusion of infections as a 

co-morbidity diagnostic category 

recognized for a payment adjustment to 

the ESRD PPS base rate. 

The intent of a case-mix adjustment is 

not to award higher payments to ESRD 

facilities for medical conditions that 

could be avoided through ESRD facility 


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Federal Register / Vol. 75, No. 155 / Thursday, August 12, 2010 / Rules and Regulations 49097 

practices. To do so, would have the 

effect of inadvertently rewarding poor 

quality care. We acknowledge that there 

may be a greater risk for certain types 

of infections that we proposed for 

payment adjustment, including 

septicemia known to result from 

vascular access infections. 

We evaluated pneumonia, septicemia, 

and other pneumonia/opportunistic 

infections using the three criteria 

described earlier in this section. It is our 

understanding that vascular access 

infections are often the result of 

organisms that cause bacteremia/ 

septicemia conditions in ESRD patients. 

Prevention of these infectious 

conditions is a fundamental tenet of 

dialysis care. Septicemia is a clinical 

syndrome consisting of a number of 

non-specific symptoms and signs. In the 

context of a suspected or known 

infection, the diagnosis of sepsis is 

considered when some or all of the 

defining signs and symptoms are 

present depending on the severity of 

those signs and symptoms. The inherent 

ambiguity of this definition makes the 

diagnosis subjective. Lack of an 

objective standard in the diagnosis of 

septicemia creates the opportunity for 

providers to increase their payments by 

changing the sensitivity of the 

diagnostic criteria for this condition. 

Furthermore, we are concerned the 

inclusion of septicemia as part of the 

infection co-morbidity category could 

create perverse financial incentives not 

to follow this fundamental tenet. This is 

an area where further research may 

inform us that subsequent modification 

of the case-mix adjustment is needed. 

As additional information becomes 

available for further analysis, it may be 

possible to develop an adjustment for 

septicemia while not negating facility 

efforts to minimize vascular access 

infections. Therefore, in this final rule, 

we are not finalizing septicemia as part 

of the infection co-morbidity diagnostic 

category. 

We also are not finalizing other 

pneumonias/opportunistic infections as 

part of the infection co-morbidity 

category. We believe that other 

pneumonias/opportunistic infections 

meet all of the criteria. Therefore, their 

inclusion as a co-morbidity payment 

adjustment category could, as 

commenters have noted, negate the 

positive gains made in controlling 

infections. In the analysis conducted for 

this final rule, we analyzed the 

pneumonias/opportunistic infections 

separately from other infections and did 

not find the same degree of association 

with higher costs associated with higher 

separately billable items and services, as 

was seen with bacterial pneumonia. For 

this reason, we do not believe these 

infection diagnoses warrant a comorbidity adjustment. 

We note that the elimination of ‘‘other 

pneumonias’’ has a limited effect on the 

magnitude of the adjustment for patients 

with bacterial pneumonia and only 

slightly reduces the number of 

pneumonias that would be used to 

determine eligibility for the adjustment. 

Therefore, for this final rule, we 

excluded the diagnoses for primary 

plague pneumonia, unspecified 

pneumonia, primary coccidiodomycosis 

unspecified, and rare non-bacterial 

opportunistic infections. 

We believe that bacterial pneumonia 

does not meet the 3 criteria and, 

therefore, should be included as a comorbidity adjustment. Once the other 

infections were removed, we reran the 

regression analysis. The regression 

analysis showed that bacterial 

pneumonia have a strong validity as a 

cause of ESA resistance and, therefore, 

increased ESA requirement for 4 

months. Therefore, we are finalizing 

bacterial pneumonia as the infection comorbidity diagnostic category eligible 

for a payment adjustment under the 

ESRD PPS. The list of bacterial 

pneumonia ICD–9–CM codes that will 

be recognized for a payment adjustment 

to the ESRD PPS base rate appears in 

Table E of the Appendix. We note that 

as discussed earlier in this section, an 

ESRD facility will not receive comorbidity adjustments during the 4- 

month onset of dialysis time period. 

We will require a documented 

radiographic diagnosis in the patient’s 

clinical or medical record, in order for 

an ESRD facility to be eligible for the comorbidity payment adjustment for the 

bacterial pneumonia infection category. 

We will discuss the documentation 

requirements in future administrative 

issuances. After the implementation of 

the ESRD PPS, we will monitor the 

reporting of bacterial pneumonia on 

ESRD claims and compare the 

prevalence of bacterial pneumonia with 

their prevalence over the past several 

years. 

Comment: A few commenters 

believed that patients with 

gastrointestinal bleeding should be 

eligible for a fixed outlier payment due 

to ESA and transfusion expense, 

because this meets the legislative intent 

of high cost outliers. 

Response: We do not agree with the 

commenters who believed that there 

should be an additional outlier payment 

for patients with gastrointestinal 

bleeding due to ESA and transfusion 

expense because we believe that the comorbidity adjustment is more 

appropriate than applying the outlier 

policy. We discuss the outlier policy in 

detail in section II.E.4. of this final rule. 

The regression analysis for this final 

rule demonstrated that certain 

diagnostic categories showed higher 

costs over either the long term or the 

short term. Gastrointestinal bleeding 

showed higher cost effects for three 

months after the date of diagnosis (that 

is, the month of the diagnosis and three 

months after). As we indicated above, 

based on various issues raised in public 

comments regarding the proposed comorbidity payment adjustment 

categories, we further evaluated the 

proposed categories, including the 

gastrointestinal tract bleeding diagnostic 

category, based on three criteria. The 

gastrointestinal tract bleeding comorbidity category met all of the three 

criteria, however, as we discussed 

above, we believe that by limiting 

gastrointestinal bleeding to 

gastrointestinal bleeding with 

hemorrhage, we have satisfied the 

established criteria by creating accurate 

clinical definitions and mitigating the 

potential for adverse incentives 

regarding care for ESRD facilities to 

influence the prevalence we are 

finalizing it as a co-morbidity diagnostic 

category because our analysis for this 

final rule also indicated significant 

validity of gastrointestinal tract bleeding 

as a cause for increased ESA utilization 

and, therefore, higher separately billable 

costs. 

However, because we are concerned 

that the gastrointestinal tract bleeding 

diagnostic category we proposed is 

overly broad (as determined by criteria 

number 1) and could be ‘‘gamed’’ (as 

noted by the commenter), we have 

limited in this final rule the diagnoses 

to gastrointestinal tract bleeding with 

hemorrhage and have limited the ICD– 

9–CM codes for luminal ulcers with 

associated hemorrhage which would be 

eligible for the payment adjustment. In 

addition, in order to receive a comorbidity payment adjustment for this 

co-morbidity category there must be 

documentation of an associated 

hemorrhage with a gastrointestinal tract 

bleed. We will monitor ESRD claims 

after the implementation of the ESRD 

PPS is implemented to see if the 

prevalence has changed over the past 

several years. 

Comment: Most commenters opposed 

the inclusion of HIV/AIDS and alcohol 

or substance dependence as patientlevel adjustments. Many cited State 

confidentiality laws protecting patients’ 

privacy against discrimination, as well 

as difficulty in obtaining this 

information for the purposes of 

documenting the presence of HIV/AIDS 

and substance abuse. 


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One commenter questioned how a 

substance abuse diagnosis would be 

made if not disclosed by the patient. 

The same commenter indicated that the 

inclusion of these codes would be 

inappropriate, as it would stigmatize 

patients and require facilities to violate 

State law in order to meet the 

requirements to be eligible for the 

payment adjustment. The commenters 

therefore believed that if they did not 

comply with the requirements, they 

would be inappropriately forced to 

forego payment. Several commenters 

stated that substance abuse is highly 

subjective diagnoses and prone to 

‘‘gaming’’ and, therefore, should be 

eliminated as payment adjustments. 

A few commenters believed that a 

diagnosis of HIV should be a patient 

level adjuster due to the increased cost 

of care. However, the commenter 

questioned how the information would 

be obtained in order to qualify as an 

adjustment. Other commenters 

indicated that HIV/AIDS and substance 

abuse diagnoses could not be reported 

without the patient’s permission. Other 

commenters stated that often the ESRD 

facilities would not be aware of the 

diagnoses. One commenter opined that 

providers do not alter their overall 

treatment practices because of HIV/ 

AIDS suggesting that HIV/AIDS actually 

may be a surrogate for other costly 

patient characteristics such as being 

hypo-responsive to ESA, increased 

hospitalization, or race. The same 

commenter suggested that if HIV/AIDS 

remains a payment adjustment, it 

should be as a facility-level adjuster. 

Response: We concur with the 

commenters that requiring ESRD 

facilities to place a diagnosis of HIV/ 

AIDS or a diagnosis of alcohol/drug 

dependence on the claim may be 

contradictory to State and other privacy 

requirements. We acknowledged in the 

proposed rule that we recognized the 

difficulties encountered by ESRD 

facilities that must comply with State 

privacy requirements (74 FR 49953 and 

49954). As a result, the diagnostic 

categories may be misreported. We do 

not understand the commenter’s 

suggestion that HIV/AIDS should be a 

facility adjustment rather than a patientlevel adjustment. 

Because of the concerns expressed by 

commenters about State privacy 

requirements, we are not finalizing HIV/ 

AIDS and Alcohol/Drug Dependence as 

co-morbidity diagnostic groups and, 

therefore, HIV/AIDS and Alcohol/Drug 

Dependence will not be recognized as 

co-morbidity diagnostic groups for 

purposes of the co-morbidity payment 

adjustment under the ESRD PPS. 

Comment: Several commenters 

expressed concerns about patients in 

nursing homes or long term care (LTC) 

facilities. One commenter believed the 

adjustment for alcohol and drug 

dependency was adequate to 

compensate for the effort required to 

determine dependency needs and that 

alcohol and drug dependency were 

frequent problems in nursing homes. 

One commenter indicated that many of 

the new admissions in nursing homes 

were for infection. The commenter did 

not indicate whether to include or 

exclude the infection adjustment as a 

payment adjustment until further 

clarification was provided by CMS 

regarding testing and documentation 

requirements. Another commenter 

claimed that the cost for treating nursing 

home dialysis patients is higher than 

community-dwelling patients, because 

nursing home dialysis patients had 

higher acuity due to the extent of their 

co-morbidities; the need for one-on-one 

caregiver assistance; and higher staffing 

costs. 

Some commenters complained that 

many of the co-morbidities seen in 

nursing homes, such as hypertension, 

diabetes, coronary artery disease, 

peripheral vascular disease, 

Alzheimer’s, senile dementia, and other 

mental impairments and ventilator 

dependence were not considered as 

being eligible for a payment adjustment. 

One commenter indicated that the 

administrative burden for a provider 

with a disproportionate number of 

nursing home dialysis patients, because 

of the limited time they were under the 

care of the ESRD provider, as well as 

high turnover. The commenter also 

suggested that the request for medical 

records to obtain nursing home patient 

information should be added to the comorbidity condition information being 

tracked on the Form 2728 to help 

determine patient acuity and cost to 

treat. Other commenters believed that 

functional limitations such as inability 

to walk should be factors included in 

determining payment adjustments. 

Response: The purpose of the comorbidity adjustments is to provide 

added payment for those co-morbid 

diseases that result in higher dialysis 

costs. Therefore, to the extent that a 

patient residing in a nursing facility has 

one of the designated co-morbidity 

diagnostic categories, the ESRD facility 

would receive an adjustment to the 

ESRD PPS base rate. 

The only information on functional 

limitations available to us is from Form 

2728 (inability to ambulate or transfer). 

Our analyses used in developing the 

proposed rule did explore functional 

variables, when they were reported, and 

found no statistically significant 

relationship to cost for such functional 

variables. We believe, however, that 

functional limitations are important 

measures and will consider these in the 

future if more complete data become 

available and show a significant 

relationship to costs. 

We disagree with the commenter 

requesting changes on Form 2728 to 

allow it to be used to determine changes 

in patients’ acuity and the resulting cost 

to treat them. We do not believe that 

adjustments on a form which is used for 

the purpose of establishing the ESRD 

diagnosis should be the basis for 

determining on-going case-mix 

adjustments because the Form 2728 

would not reflect changes in patient’s 

conditions. In other words, the Form 

2728 is a snapshot at the time of the 

onset of ESRD (capturing, for example, 

any co-morbidity that exists at the onset 

of dialysis) and not an ongoing 

reflection of that individual (capturing, 

for example, any co-morbidity that 

might occur during the span of dialysis). 

Comment: Some commenters stated 

that they often do not know about 

patient’s temporary conditions, such as 

pneumonia, gastrointestinal (GI) 

bleeding, and pericarditis and, 

therefore, would not be able to indicate 

their presence on ESRD claims for the 

purpose of a payment adjustment. 

Response: We believe it is important 

for ESRD facilities to be aware of 

patients’ conditions. For example, 

§ 494.80(a)(1) indicates that a patient’s 

comprehensive assessment must 

include evaluation of current health 

status and medical condition, including 

co-morbid conditions. For the purpose 

of receiving a payment adjustment, the 

appropriate ICD–9–CM codes are 

required to be present on the claim, and 

documentation in the patients’ medical 

record supporting the diagnosis is also 

required. 

We discussed in previous responses 

that bacterial pneumonias and 

gastrointestinal tract bleeding with 

hemorrhage as short-term, acute comorbidity diagnostic categories that 

would be recognized for the comorbidity payment adjustment under 

the ESRD PPS. In addition, our analysis 

for this final rule supports the inclusion 

of pericarditis as a co-morbidity 

diagnostic category because ESRD 

patients with pericarditis have 

increased ESA utilization. Therefore, we 

believe pericarditis would be a predictor 

of higher costs in ESRD patients with 

this condition. 

We evaluated the pericarditis comorbidity diagnostic category using the 

criteria discussed earlier. Because there 

are distinct clinical definitions for 


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pericarditis (and diagnostic criteria) and 

we do not believe that pericarditis has 

the potential for adverse incentives or 

the potential to be directly influenced 

by ESRD facilities (in that an ESRD 

facility could not influence the 

development or prevalence of 

pericarditis), we are finalizing 

pericarditis as a co-morbidity diagnostic 

category recognized for the co-morbidity 

payment adjustment under the ESRD 

PPS. 

We will require ESRD facilities to 

provide documentation in the patient’s 

medical/clinical record to support any 

diagnosis recognized for a payment 

adjustment, utilizing specific criteria. 

We will address these documentation 

requirements in sub-regulatory 

guidance. As we have responded to 

previous comments, we will be 

monitoring the prevalence of any comorbidity diagnoses recognized for the 

co-morbidity payment adjustment under 

the ESRD PPS as compared to the 

prevalence of these categories over the 

past several years. In this manner, we 

will be able to identify any changes in 

the prevalence of any of the comorbidity diagnoses recognized for 

purposes of the co-morbidity payment 

adjustment as compared to previous 

trends. 

Comment: We received a wide variety 

of comments suggesting an array of comorbidities that commenters believed 

should or should not be included as 

being eligible for the co-morbidity 

payment adjustment. Most commenters 

opposed the inclusion of the proposed 

co-morbidity categories, either in 

totality or in part. 

Of the commenters who supported the 

inclusion of the proposed co-morbidity 

categories, most supported the chronic 

co-morbidity categories such as cancers, 

Hepatitis B, hereditary hemolytic 

anemias/sickle cell anemia, monoclonal 

gammopathy, and myelodysplastic 

syndrome. Some commenters offered 

suggestions regarding co-morbidities 

they believed should have been 

included in the ESRD PPS such as 

senility and Alzheimers; methylcyline 

resistance staphlococcus aureus 

(MRSA); staphylococcus septicemias; 

and diabetes. Other commenters 

opposed the inclusion of cardiac arrest, 

pericarditis, septicemia, bacterial 

pneumonia, gastrointestinal bleeding, 

sickle cell anemia, cancer, 

myelodysplastic syndrome and 

monoclonal gammopathy. Some 

commenters indicated that they were 

unaware of patients’ prior medical 

histories, such as a history of cancer. 

Response: As we explained in the 

proposed rule, we found that certain comorbidities are predictors of variation in 

resources for ESRD patients. We 

discussed the process we used to 

identify the ICD–9–CM codes that we 

initially used in the analysis and how 

we derived the proposed eleven 

diagnostic categories. We also explained 

why certain conditions such as diabetes 

and vascular disease were excluded 

from the proposed diagnostic categories 

(74 FR 49952). 

With regard to the cancer comorbidity diagnostic category, we 

recognize that a co-morbidity payment 

adjustment would be applied for 

patients that may differ greatly in the 

clinical severity of their cancer 

diagnosis. 

For example, we believe that for 

patients successfully treated in the past 

for their cancer, there may be few or no 

implications for the dialysis care 

currently being received in an ESRD 

facility. In contrast, we believe patients 

undergoing treatment for cancer may 

require a higher intensity of care (that is, 

higher use of separately billable 

services) and, therefore, have higher 

costs. 

We believe that the proposed payment 

adjustment for the cancer co-morbidity 

category may have overstated costs for 

some patients whose dialysis treatment 

is no longer affected by their history of 

cancer and may have understated the 

costs of patients whose current cancer 

diagnosis and treatment affect their 

dialysis treatment because, at the 

current time, we are unable to 

differentiate the cost impact between 

the two groups. Therefore, we are not 

finalizing cancer as a co-morbidity 

diagnostic category recognized for the 

co-morbidity payment adjustment under 

the ESRD PPS. 

Future research may identify the cost 

of providing dialysis care to patients 

receiving active cancer treatment and 

potentially could be used to determine 

a co-morbidity payment adjustment that 

would more accurately reflect the ESRD 

resources being used. We believe that 

differentiating a history of a cancer 

diagnosis from an active cancer 

diagnosis, could provide information on 

how the type of cancer or whether the 

cancer is being treated affects the cost of 

dialysis care. 

Using the three criteria referenced 

above, we evaluated the proposed comorbidity diagnostic categories for 

chronic, long-term conditions of 

hereditary hemolytic anemia, 

myelodysplastic syndromes, and 

monoclonal gammopathy. Due to the 

consistent effect (that is, not limited to 

a short period of time) of the hereditary 

hemolytic anemias (including sickle cell 

anemia) on higher EPO useage and 

therefore, higher separately billable 

costs, we are finalizing this as a comorbidity diagnostic category eligible 

for a payment adjustment to the ESRD 

PPS. We also believe that 

myelodysplastic anemia and 

monoclonal gammopathy should be 

finalized as co-morbidity diagnostic 

categories because both of these comorbidity diagnostic categories have 

shown an association with higher ESA 

usage and, therefore, higher separately 

billable costs. However, we have 

excluded multiple myeloma, a form of 

cancer included in the monoclonal 

gammopathy diagnostic co-morbidity 

category, because multiple myeloma is a 

form of cancer and, as we noted above, 

additional research is needed on the 

effect of cancer on dialysis costs. 

Accordingly, we are finalizing six comorbidity diagnostic categories and the 

associated payment adjustment 

multipliers, which are as shown in 

Table 22, recognized for the comorbidity payment adjustment under 

the ESRD PPS for renal dialysis services 

provided on or after January 1, 2011. We 

also are finalizing the diagnostic codes 

for each of the six diagnostic categories 

found in Table E in the Appendix. For 

the co-morbidity payment adjustment to 

apply, an ESRD facility must document 

in the patient’s medical or clinical 

records the presence of one of the 

diagnosis codes eligible for the comorbidity payment adjustment under 

the ESRD PPS. We will provide specific 

instructions for such documentation in 

the future. 


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The ICD–9–CM diagnostic codes 

should be reported in compliance with 

coding requirements on the ESRD 72x 

claim, as well as the official ICD–9–CM 

Coding guidelines. Accurate reporting of 

co-morbid diagnoses will enable CMS to 

evaluate the need to update the comorbidities that would be recognized 

for the co-morbidity payment 

adjustment under the ESRD PPS. 

Comment: One commenter believed 

that facilities should receive higher 

payments for certain ‘‘problematic’’ 

patients to balance losses on average 

patients with few adjustments. 

Response: We believe that the 

commenter is referring to financial 

losses that ESRD facilities may 

experience under the ESRD PPS treating 

patients with few characteristics that 

would be recognized for a payment 

adjustment. We do not agree with the 

commenter that ESRD facilities will 

experience losses on the average patient 

to whom few payment adjustments 

would apply and that this would be 

balanced by higher payments for certain 

‘‘problematic’’ (that is, patients for 

whom the facility receives multiple 

payment adjustments) patients. The 

ESRD PPS base rate reflects the cost of 

the average patient. 

Our analysis has identified certain comorbidity diagnostic categories that 

have shown higher use of separately 

billable renal dialysis items and 

services, which are recognized for a 

payment adjustment under the ESRD 

PPS. The co-morbidity payment 

adjustments are based on evidence from 

the regression model that the presence 

or absence of certain co-morbid 

conditions are related to costs. 

Therefore, the payment model should 

neither favor nor disfavor patients with 

co-morbidity adjustments relative to 

those who do not qualify for such 

adjustments; rather the payment 

adjustment should reflect the higher 

costs associated with providing renal 

dialysis services. 

As we discussed above, we will need 

to conduct further research to identify 

additional co-morbidity categories and 

diagnoses that could be recognized for 

the co-morbidity payment adjustment. 

For these reasons, for this final rule, we 

have reduced the number of comorbidity diagnostic categories from 

eleven to six and among these 

categories, we are finalizing three acute, 

short-term diagnostic categories 

(pericarditis, pneumonia, and 

gastrointestinal bleeding) and three 

chronic diagnostic categories (hereditary 

hemolytic anemia, myelodysplastic 

syndrome, and monoclonal 

gammopathy). 

Under the final ESRD PPS, the three 

acute co-morbidity adjustments will be 

paid for the month the diagnosis is 

reported on ESRD facility claims and for 

the next three months. The chronic comorbidity adjustments will continue to 

apply to all claims submitted. 

Comment: One commenter questioned 

how the Form 2728 would be updated 

once it has been completed. Another 

commenter expressed concern about the 

time period for applying the comorbidity adjuster, particularly for 

gastrointestinal bleeding. 

Response: The purpose of the Form 

2728 is to attest to the initial ESRD 

diagnosis. Included in that attestation 

are additional demographic and clinical 

information that are present at the time 

of the initial ESRD diagnosis. As we 

indicated earlier, the Form 2728 is a 

snapshot of the ESRD patient’s status at 

the onset of dialysis. Therefore, we 

would not use information on the Form 

2728 to determine the presence of a comorbid condition for payment 

adjustment under the ESRD PPS. 

Instead, co-morbidity payment 

adjustments under the ESRD PPS will 

be based upon the diagnosis codes 

reported by ESRD facilities on their 

Medicare claims. We plan to use those 

reported diagnoses for future 

refinements to the co-morbidity 

categories and diagnoses. 

Comment: Several commenters 

indicated that they were unable to 

replicate the proposed co-morbidity 

adjustments. One commenter claimed 

that we had overestimated the number 

of co-morbidities, resulting in an 

overestimation of reimbursement. 

Several commenters provided their own 

analyses (using data resources available 

to them, such as their own medical 

records, electronic medical records, 

hospital discharge summaries, paper 

charts, health care professional notes, 

and discussions with professional staff) 

and were unable to replicate our 

findings. The commenters indicated that 

in each of their analyses, their 

calculated adjustment was lower than 

the adjustments in the proposed rule. 

The commenters acknowledged that 

they do not have access to the vast data 

resources regarding patient conditions 

and, therefore, CMS can more accurately 

determine the adjustments. The 

commenters questioned CMS’ 

projections of the financial 

consequences on ESRD facilities due to 

the proposed ‘‘overstated’’ adjustment 

factors. 

Response: We regret the inability of 

commenters to replicate our findings. 

As the commenters acknowledged, 

claims data are not available due to 

confidentiality requirements and, 

therefore, commenters are unable to 

replicate our findings. We believe that 

the inability of the commenters to 

replicate CMS’ findings may contribute 

to the commenters’ belief that we have 

over- or under estimated reimbursement 

amounts. Historically, there has not 

been a financial incentive for ESRD 

facilities to document the presence of 

co-morbidities. We believe that by 

including co-morbidity adjustments 

under the ESRD PPS, ESRD facilities 


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will implement more active processes 

for gathering diagnostic information, 

which will facilitate care planning. We 

appreciate that commenters were able to 

identify co-morbidities for their patients 

for their analyses as it confirms our 

belief that co-morbidity information is 

available to ESRD facilities. 

Comment: One commenter claimed 

that six of the proposed co-morbidities 

were unstable. The commenter 

indicated that when comparing the comorbidity adjusters in the proposed rule 

with the adjusters published by UM– 

KECC in 2008, six of the adjusters (HIV/ 

AIDS, Hepatitis B, bacterial/other 

pneumonias/opportunistic infections, 

hereditary hemolytic/sickle cell 

anemias, cancer and monoclonal 

gammopathy) were highly ‘‘unstable’’ 

and not reliable predictors of cost and, 

therefore, they should be eliminated as 

payment adjustments. 

Response: Three of the six comorbidities referred to by the 

commenter as unstable are not being 

used to adjust payments in this final 

rule (HIV/AIDS, Hepatitis B, and 

cancer). Their exclusion as co-morbidity 

adjusters was based on other factors 

which are described above in the 

response to other comments. 

For the three remaining comorbidities mentioned by the 

commenter (bacterial/other 

pneumonias/opportunistic infections, 

hereditary hemolytic/sickle cell 

anemias, and monoclonal gammopathy), 

similar measures are included as 

payment adjusters for the final rule. 

These measures, which have undergone 

several refinements since the proposed 

rule, are bacterial pneumonia, 

hereditary hemolytic/sickle cell 

anemias, and monoclonal gammopathy. 

In conjunction with the exclusion of 

cancer as a co-morbidity adjuster, the 

monoclonal gammopathy category has 

been narrowed by the exclusion of 

multiple myeloma (a malignancy). As 

with the bacterial pneumonia category 

being used for the final rule that 

excludes other pneumonias and 

opportunistic infections, making this 

category more homogeneous may also 

serve to enhance its stability. Similarly, 

sickle cell trait is no longer sufficient for 

the patient to be classified into the 

heredity hemolytic anemia/sickle cell 

anemia category, which should also 

serve to focus this classification on 

relatively severe cases most likely to 

impact dialysis facilities. 

For each of these co-morbidity 

measures, the adjustments in the final 

rule are for separately billable services 

only, where the estimated payment 

multipliers were found to be relatively 

stable both in the analyses for the final 

rule and in previous analyses of similar 

measures that were used for the 

proposed rule and for the 2008 UM– 

KECC report. It should be noted that for 

some co-morbidities, there has been less 

stability in the estimated payment 

multipliers based on facility level 

models for composite rate services. 

Partly for this reason, the co-morbidity 

adjusters in this final rule are based on 

separately billable services only, and are 

not based on composite rate services. 

Generally, the payment adjusters are 

those deemed to best satisfy multiple 

criteria for inclusion (for example, 

objective measurability, limited 

variability in severity, not likely to 

result from poor quality care, consistent 

relationship to costs in multiple years of 

data, and non-trivial impact on costs). 

Comment: One commenter asserted 

that the co-morbidities were not 

predictive of dialysis costs because they 

involved medical conditions that are not 

relevant to dialysis treatment, especially 

when significant time has elapsed 

between the condition and the onset of 

dialysis. Another commenter believed 

the purpose of case-mix adjusters was 

valid, but questioned how well the 

adjustments reflect resource 

consumption. Another commenter 

complained that the co-morbidity 

adjustments do not identify differences 

in patient utilization of drugs and other 

resources. One commenter believed the 

proposed co-morbidity categories did 

not align with actual resource 

utilization for dialysis treatment. The 

commenter believed that CMS was 

inconsistent in assigning co-morbidity 

adjustments used for the regression 

analysis which casts doubt on the 

predictive value of adjusters produced. 

Response: We do not agree with the 

commenter who believed the comorbidities were not predictive of 

dialysis costs because they involved 

medical conditions not relevant to 

dialysis treatment. We believe that the 

co-morbidity adjustments reflect 

resource consumption and utilization 

because they reflect higher separately 

billable payments made for ESRDrelated drugs and biological and 

laboratory tests for patients with certain 

co-morbid diagnoses. Our analysis has 

demonstrated that the co-morbidity 

adjustments have predictive value as 

evidenced by the overall predictive 

power of the model. We articulated in 

the proposed rule how we determined 

co-morbidities. We began by discussing 

the process initiated in the CY 2005 PPS 

proposed rule, whereby we proposed a 

limited number of patient 

characteristics including a large number 

of specific co-morbidities. We explained 

the methodology we used in selecting 

the co-morbidities as well as why 

certain ones were excluded (74 FR 

49952). We then explained the rationale 

used for the CY 2005 final rule 

(including why we did not include comorbidities), which implemented the 

current case-mix adjusted composite 

payment system (74 FR 49953). 

In the proposed rule (74 FR 49953), 

we explained that the relationship 

between patient characteristics and cost 

for composite rate services was 

estimated using a facility level 

regression model. We stated that the 

average patient characteristics were 

related to the reported facility costs. We 

further stated that a patient level model 

was used to identify potential payment 

adjusters for separately billable services. 

While the modeling approach used 

separate equations for the composite 

rate and separately billable services to 

select patient characteristics as payment 

variables, we combined the estimated 

payment multipliers for composite rate 

and separately billable services. The 

payment multipliers were calculated as 

the weighted average of the composite 

rate and separately billable multipliers 

(74 FR 49953), where the weights are 

the shares of total costs attributable to 

composite rate and separately billable 

services. As the cost reports are not 

patient specific, we believe that we 

addressed costs using the best 

methodology with the data available. 

The range used in the analysis in the 

proposed rule was based on the years 

during which our contractor began and 

continued analyzing ESRD data. For 

some categories, which we identified as 

acute, there was a clear break in the data 

at the 4-month interval, with the 

presence of the co-morbidity more than 

3 months prior to the current month 

resulting in a substantially weaker 

relationship to current costs. For others, 

which we identified as chronic 

conditions, we could not identify a clear 

break. For this final rule, the analysis of 

the co-morbidity diagnostic categories 

looked at 2006, 2007, and 2008 claims 

for acute conditions and claims since 

2000 for a 6-year span for the chronic 

conditions. We used 2006, 2007, and 

2008 claims for the separately billable 

analyses. 

While the proposed rule used a 

patient year separately billable model to 

create consistency between the 

composite rate and the separately 

billable models, for this final rule, we 

used a patient-month level separately 

billable model for the acute short-term 

diagnostic category, as the coding of the 

variable will differ substantially on the 

annual versus monthly basis because 

patients only have the condition for part 

of the year. Measurement for a chronic 


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condition at the annual or monthly level 

generally does not vary because the 

patient either has the condition or does 

not. The change to the monthly 

observation tended to reduce the 

multipliers, especially the short-term 

acute co-morbidity diagnostic 

categories. Statistically, this reduction 

in multipliers for acute conditions is 

likely to have occurred because patients 

coded as having the acute condition for 

part of the year may also have had 

higher costs at other times of the year. 

Therefore, the multiplier in an annual 

model can reflect not just the costs 

during the months in which an acute 

condition was present. Because we 

wanted the short-term multipliers to 

reflect short-term increases in costs, we 

believe that changing to a monthly 

model is appropriate. The net effect in 

the changes to the separately billable 

model is smaller adjustments for the 

acute, short-term diagnostic categories. 

By using the patient-month separately 

billable model, the multipliers would 

more closely reflect costs associated 

with the specific co-morbidity being 

measured and occurring in the specific 

months in which the co-morbidity was 

present. 

The composite rate model continues 

to be based on data only observed 

annually. In the proposed rule, the only 

short-term co-morbidity adjustment in 

the composite rate model was for 

bacterial pneumonias/other pneumonias 

and opportunistic infections. For the 

final rule, we dropped a measure of 

bacterial pneumonia from the composite 

rate model. The exclusion of this comorbidity adjustment from the 

composite rate model involves the same 

reasoning that was used in changing the 

unit of analysis for the separately 

billable model from the patient year to 

the patient-month. We found, for 

example, that the bacterial pneumonia 

multiplier in the composite rate model 

was relatively sensitive to the presence 

of other co-morbidities in the model, 

including those that were used in the 

composite rate model for the proposed 

rule. As a result, a relatively large 

portion of this adjustment is likely to 

capture the effects of other unmeasured 

factors that increase facility costs. 

Unlike the separately billable model, 

however, the same option is not 

available to change the unit of analysis 

for modeling composite rate costs, 

because the cost data are only available 

at the facility level. 

Another concern with applying the 

bacterial pneumonia adjustment from 

the composite rate model was that the 

magnitude of the effect was relatively 

unstable from year to year in the 

analysis for the final rule. Therefore, in 

this final rule, the composite rate model 

was not applied. 

Comment: One commenter suggested 

that we calculate co-morbidity 

adjustments not from data from other 

settings, but on data readily available to 

ESRD facilities. Other commenters 

claimed that use of hospital and 

emergency department records to 

determine co-morbidities overstated 

adjusters because these claims include 

acute illnesses. Commenters suggested 

that CMS delineate chronic outpatient 

co-morbidities, resulting in higher 

reimbursement, and discount the 

unadjusted mean bundled payment. 

Response: We presume that the 

commenter is referring to sources, such 

as hospital and physician claims, that 

were used in conjunction with the ESRD 

claims. In the proposed rule, we 

explained our rationale for using the 

Form 2728, the ESRD cost reports, and 

claims from various health care 

providers (74 FR 49952 through 49954). 

We indicated that we had encouraged 

ESRD facilities in the past to report comorbidities on the ESRD claims (74 FR 

49953) for purposes of establishing 

future payment refinements. However, 

as sufficient co-morbidity diagnoses 

were not reported on ESRD facility 

claims, we used other sources of data for 

the regression analyses. 

We believe that given the comorbidity adjustments under the ESRD 

PPS, ESRD facilities will take a more 

active role in gathering information in 

order to receive a payment adjustment. 

If so, it may be possible to use 

diagnostic information reported on 

claims for future refinements to the 

ESRD PPS. 

With regard to the comment 

concerning chronic co-morbidities, we 

believe that the commenter is alleging 

that chronic co-morbidities rather than 

acute co-morbidities should be 

considered for payment adjustment. We 

do not share this view. As we explained 

in detail above, we believe the 

methodology used in determining acute 

and chronic co-morbidities recognized 

for the co-morbidity payment 

adjustment captures those conditions 

that require more composite rate and 

separately billable services. 

Comment: One commenter expressed 

concern that many of the proposed comorbidity adjusters were neither 

reliable nor robust and, therefore, the 

commenter recommended the exclusion 

of the proposed 11 co-morbidity 

categories. The commenter claimed that 

the regression methodology that CMS 

proposed results in overestimation of 

the adjuster values. The commenter 

further stated that unless clinical 

evidence exists to support the 

independence of the variables in the 

model, as they pertain to ESRD services 

furnished and such services’ cost 

distribution, the co-morbidities should 

be excluded. 

One commenter stated that it was not 

clear how the co-morbidities were 

identified in the regression analysis or 

in assigning patients. The commenter 

also stated there was no reference, 

analysis, or statistical evaluation of the 

period of time in the past, for which the 

co-morbidity condition is relevant. The 

commenter concluded that flagging 

patients for each adjuster could be 

different if co-morbidity codes were 

searched on claims at different time 

periods. The same commenter stated 

that in the proposed rule, we did not 

provide an explanation about how we 

determined that an ‘‘old’’ diagnosis no 

longer affected treatment and, therefore, 

did not qualify as an adjuster, nor did 

we discuss how we had historically 

evaluated which co-morbidity condition 

was relevant. 

Response: As we discussed in the 

proposed rule (74 FR 49952), we 

proposed case-mix adjusters in the CY 

2005 PFS proposed rule. We explained 

in the proposed rule that for some 

diagnoses, such as cancer, we looked at 

any occurrence since 1999. We also 

explained that in the proposed rule we 

used 2007 claims (74 FR 49954). For 

this final rule, co-morbidities referred to 

as ‘‘acute’’ were identified in the current 

month of the analysis or previous 3 

months of claims. Co-morbidities 

referred to as ‘‘chronic’’ were identified 

in claims since 2000. 

For some categories, which we 

identified as acute, there was a clear 

break in the data at the four-month 

interval, with presence of the comorbidity more than three-months prior 

to the current month resulting in a 

substantially weaker relationship to 

current costs. For others, which we 

identified as chronic conditions, we 

could not identify a clear break. 

For this final rule, the analysis of the 

co-morbidity diagnostic categories 

involved 2006, 2007, and 2008 claims 

for acute conditions and claims since 

2000 for a six-year span for the chronic 

conditions, although the actual 

Medicare history will vary based on 

when a patient became entitled under 

Medicare. Because some patients have 

shorter Medicare histories, the claims 

may miss some diagnoses that were 

actually present, resulting in an 

underestimate of their clinical 

prevalence. 

We used 2006, 2007, and 2008 claims 

for the separately billable analyses. 

Estimating the regression models year 

by year (rather than for the full 3-year 


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period) showed that the same comorbidities tended to predict costs in 

each year, which suggested the adjusters 

were reliable and robust. In our analysis 

for this final rule, we once again 

identified a clear break in the higher 

utilization of separately billable items 

and services after 4 months for the acute 

conditions and no break for the chronic 

conditions. 

In the proposed rule, we used a 

patient year separately billable model to 

create consistency between the 

composite rate and the separately 

billable models. For this final rule, we 

used a patient-month level separately 

billable model for the acute short-term 

diagnostic category. The coding of the 

variable will differ substantially on the 

annual versus monthly basis because 

patients only have the condition for part 

of the year. Measurement for a chronic 

condition at the annual or monthly level 

generally does not vary, because the 

patient either has the condition or does 

not. The change to the monthly 

observation tended to reduce the 

multipliers, especially the short-term 

acute co-morbidity diagnostic 

categories. 

Statistically, this reduction in 

multipliers for acute conditions is likely 

to have occurred because patients coded 

as having the acute condition for part of 

the year, may also have had higher costs 

at other times of the year. Therefore, the 

multiplier in an annual model can 

reflect not just costs during the months 

in which an acute condition was 

present. Because we wanted the shortterm multipliers to reflect short-term 

increases in costs, we believe that 

changing to a monthly model is 

appropriate. The net effect in the 

changes to the separately billable model 

is smaller adjustments for the acute, 

short-term diagnostic categories. The 

composite rate model remains as data 

only observed annually because the cost 

reports which are used are completed 

on an annual basis. By using the patientmonth separately billable model, we 

believe that the multipliers would more 

closely reflect costs associated with the 

specific co-morbidity being measured 

and occur in the specific months in 

which the co-morbidity was present. 

As for the assertion by commenters 

that there was a lack of independence of 

predictors, we found that there were no 

strong correlations between the 

presence of different co-morbidities. 

Regression analysis identifies the 

independent contribution of different 

variables on the outcome of interest. If 

multiple variables were highly 

correlated, the regression analysis 

would be unlikely to show that each of 

the variables had a statistically 

significant, independent effect on the 

outcome. 

Comment: One commenter opposed 

the inclusion of the proposed comorbidities out of the belief that ESRD 

facilities’ lack access to reliable data, 

which would prevent facilities from 

tracking and reporting co-morbidities in 

a manner that is adequate to support 

reimbursement. The commenter argued 

that the disparity in the findings using 

data available to ESRD facilities was not 

surprising and referenced an article 

published in the Journal of the 

American Society of Nephrology. The 

commenter alleged that in the article, 

the CMS contractor, UM–KECC, had 

conceded that additional data not 

currently available to CMS is required to 

improve the predictive power of its 

case-mix model. The commenter further 

alleged that what data exists is 

incomplete or inaccurate with respect to 

occurrence, frequency, and severity. The 

commenter also stated that in the 

article, UM–KECC acknowledged that 

some co-morbidities were difficult to 

collect and the prevalence varies with 

the ‘‘look-back’’ period. The commenter 

further noted that in the article, UM– 

KECC stated that reporting on the claims 

would create a new administrative 

burden and that adjusting payments for 

co-morbidities could create 

inappropriate incentives. 

Response: Although UM–KECC 

acknowledged that the article does refer 

to limitations that exist in the available 

data, they believe that the available data 

are sufficient to estimate some of the 

important predictors of costs. UM– 

KECC has indicated that it does not 

doubt that additional data would 

improve the predictive power of the 

models, but acknowledges that such 

data are not available. UM–KECC noted 

the prevalence varied most with lookback period for those co-morbidities that 

were used as acute conditions. For those 

conditions, older diagnoses had 

substantially weaker relationships to 

costs and therefore, were not proposed 

as case mix adjusters. 

Given the low level of reporting of comorbid conditions on current ESRD 

claims, UM–KECC agrees that obtaining 

and reporting the information could 

create some new burden, but hopes that 

encouraging facilities to increase 

awareness of co-morbid conditions will 

facilitate improvements in the care 

planning process. Given that in-center 

dialysis patients typically are in the 

facility three times weekly and see a 

nephrologist about four times per 

month, we believe the additional 

burden will be relatively minor. 

Comment: Some commenters claimed 

that we overstated the prevalence of the 

co-morbidity diagnoses because their 

findings did not demonstrate the same 

prevalence for the adjusters we 

identified. One commenter noted their 

findings about prevalence were lower 

than the prevalence that we reported in 

the proposed rule, with the magnitude 

of the difference very large for hepatitis 

B, septicemia, cancer HIV/AIDS, 

hemolytic or sickle cell anemia, 

monoclonal gammopathy, 

myelodysplastic syndrome, and 

pericarditis. One commenter reported a 

higher prevalence for cardiac arrest, 

pneumonia/other opportunistic 

infections, alcohol-drug dependence, 

and gastrointestinal bleeding, but noted 

that in each case the difference was less 

than 2 percent. 

One commenter stated they were only 

able to replicate the prevalence rate for 

cardiac conditions. The commenters 

acknowledged that they used their own 

data sources, which they recognize are 

not as comprehensive as the data 

available to CMS. 

Response: We appreciate that 

commenters were able to identify comorbidities for their patients for their 

analyses, as it confirms our belief that 

co-morbidity information is available to 

ESRD facilities. 

As we discussed above in response to 

commenters’ inability to replicate our 

findings, historically there has not been 

a financial incentive for ESRD facilities 

to document the presence of comorbidities because there was no 

payment associated with a co-morbidity. 

We believe that given the co-morbidity 

adjustments under the ESRD PPS, ESRD 

facilities will take a more active role in 

gathering and reporting co-morbid 

diagnostic information. 

However, frequencies of comorbidities found in the Medicare 

claims files may still differ from those 

found in the historical records of ESRD 

facilities, because each ESRD facility 

may not have the same number or 

percentage of patients with the same comorbidities as other ESRD facilities or 

they may differ from the national 

average. The reported diagnosis 

information provided by ESRD facilities 

will serve as the basis for subsequent 

revisions to and improvements in the 

case-mix adjustments. 

Comment: One commenter believed 

that without access to all the claims data 

that was used to ascertain the adjusters, 

ESRD facilities will under-report them, 

resulting in systematic underpayment. 

Response: We believe that the 

commenter means that if ESRD facilities 

do not have access to other claim 

sources (such as hospital claims), they 

may under-report co-morbidities. We 

acknowledge that ESRD facilities will 


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need to be proactive in obtaining comorbidity information from other health 

care providers. 

We will require ESRD facilities to 

report the appropriate ICD–9–CM code 

for the co-morbid condition recognized 

for purposes of the co-morbidity 

payment adjustment under the ESRD 

PPS, if the ESRD facility wishes to 

receive the adjustment. However, as we 

discussed and explained above, we are 

finalizing a smaller number of comorbidity diagnostic categories in this 

final rule. The number of co-morbidity 

diagnostic categories we are finalizing 

for purposes of the co-morbidity 

payment adjustment has been reduced 

from eleven to six. 

We also are providing in Table E in 

the Appendix, the list of ICD–9–CM 

codes that would be recognized for 

purposes of the co-morbidity payment 

adjustment. The number of specific 

diagnostic ICD–9–CM codes eligible for 

the co-morbidity payment adjustment 

has been reduced from hundreds to 

eighty-eight. We believe these 

reductions will mitigate many of the 

concerns expressed by commenters. 

As we discussed in a previous 

response, § 494.80 in the ESRD 

Conditions for Coverage, specifies that a 

patient’s comprehensive assessment 

must include an evaluation of current 

health status and medical condition, 

including co-morbidities. We 

acknowledge that the Conditions for 

Coverage do not require that comorbidities be documented on the ESRD 

claim using ICD–9–CM codes. However, 

for the purpose of receiving a comorbidity payment adjustment for an 

eligible co-morbidity, ESRD facilities 

will be required to document the ICD– 

9–CM code on the ESRD claim with 

documentation to support the ICD–9– 

CM code maintained in the patient’s 

medical or clinical chart. We will 

discuss the documentation requirements 

further in the future in administrative 

issuances. 

Comment: One commenter expressed 

concern that our reliance on cost reports 

is misplaced and claimed that there is 

nothing to support a presumption that 

facility cost report data can be linked 

with patient-level variance in the cost of 

care. The same commenter claimed that 

company practices, such as staffing 

practices, volume discounting, and 

group purchasing, may have a greater 

impact on facility costs than a transitory 

combination of patient characteristics 

and conditions that may not be tied to 

the cost reporting period. 

Response: We do not share the 

commenter’s view that the use of cost 

reports is misplaced. We acknowledge 

that ESRD facility cost reports cannot be 

linked with individual patient level 

variance in the cost of care. In the 

proposed rule, we indicated that the 

relationship between patient 

characteristics and cost for composite 

rate services was estimated using a 

facility-level regression model to relate 

the average patient characteristics to the 

reported facility costs. We further stated 

that a patient level model was used to 

identify potential payment adjusters for 

separately billable services. While the 

modeling approach used separate 

equations for the composite rate and 

separately billable services to select 

patient characteristics as payment 

variables, we combined the estimated 

payment multipliers for composite rate 

and separately billable services. The 

payment multipliers were calculated as 

the weighted average of the composite 

rate and separately billable multipliers 

(74 FR 49953). 

To assess the relationship between 

patient characteristics and costs for 

composite rate services, we are 

currently limited by the absence of 

patient-level cost data. Instead, this 

analysis must be done by relating 

differences in patient characteristics 

across facilities with differences in 

average facility costs for composite rate 

services, using cost report data. For 

example, if each 10 percent increase in 

the prevalence of a co-morbidity within 

an ESRD facility’s population is 

associated with one percent higher cost 

per treatment (across all treatments the 

ESRD facility provides), that 

characteristic would have a multiplier 

of 1.10. This is the same approach that 

was used to develop the basic case-mix 

adjustment for the composite rate. 

We recognize there are limitations to 

this approach for co-morbidities that are 

relatively uncommon, where estimates 

of the increment in cost for a particular 

condition are generally based on very 

small differences in the prevalence of 

the condition across facilities. 

Therefore, unlike the payment model in 

the proposed rule, the current payment 

model does not reflect co-morbidity 

adjustments for composite rate costs. 

Most cost reports cover a calendar 

year. In cases where the cost report does 

not coincide with the calendar year, 

weighted averages of success cost 

reports were calculated to link the cost 

reporting period more closely to the 

period over which patient 

characteristics were measured. For 

example, if a facility’s reporting period 

is October 1 through September 30, its 

2006 costs would be a weighted average 

of its report covering October 1, 2005 

through September 30, 2006 and its 

report covering October 2006 through 

September 30, 2007, with three quarters 

of the weight placed on the earliest 

report (which included three quarters of 

the 2006 calendar year). 

Comment: One commenter indicated 

that we did not take into account certain 

diseases that require more care and 

costs. The commenter believed we 

failed to take into account the variations 

in caring for individual patients, and 

were penalizing facilities that provide 

more comprehensive care (thus 

eliminating patients’ need to spend nondialysis days in other health care 

settings). Examples that the commenter 

cited were diabetes management, 

hypertension management, anticoagulant monitoring, and pretransplant testing. 

Response: We do not believe that we 

are penalizing ESRD facilities that 

provide comprehensive care to patients. 

For example, as discussed in section 

II.E.1. of this final rule, commenters 

indicated that ESRD facilities 

administer drugs and biological for 

purposes other than for renal dialysisrelated conditions. Consequently, we 

provided for these services to continue 

to be paid as separately billable items. 

In section II.K. of this final rule, we 

discuss how we will provide for 

laboratory tests that are performed for 

non-ESRD-related conditions, to be paid 

as separately billable items. 

With regard to the comment that we 

have not accounted for other conditions 

that require more care or costs, in the 

proposed and in this final rule, we have 

addressed the methodology of how we 

identified payment adjustments that 

capture higher resource utilization and, 

therefore, higher costs. We believe that 

the patient-level adjustments, the home 

training add-on adjustment and the 

outlier payment all address patients 

who require higher resource utilization. 

We will continue to analyze ESRD 

claims and costs after the 

implementation of the ESRD PPS and 

will discuss any refinements that may 

be needed in future rulemaking. 

Comment: Most commenters cited 

administrative reasons for wanting to 

exclude the co-morbidity categories as 

patient-level adjusters, such as 

difficulties in obtaining hospital data; 

difficulties in determining beginning 

and end dates of co-morbidities such as 

gastrointestinal bleeding; the financial 

burden on the facilities due to the cost 

of training and hiring coders to 

document conditions properly with cost 

possibly exceeding payment increases; 

changes in systems to collect and 

update data continuously to capture 

adjusters and codify them on claims 

requiring additional staff; limited 

number of diagnoses that facilities use 

to justify dialysis treatment; complexity 


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overwhelming facilities; risk of reducing 

staff time from patient care to allow 

them to code diagnoses; incurring fees 

from other providers for copying 

medical records; difficulty in tracking 

co-morbidities; the need to create new 

documentation processes to capture 

necessary medical information and 

accurately code, entailing efforts by 

medical records personnel, clinical 

personnel, nurses, and physicians; and 

the need to add complex administrative 

resource intensive systems. 

Several commenters claimed the comorbidity adjustments would cause 

administrative burdens to small dialysis 

organizations. The same commenters 

indicated that the information would be 

hard to collect and assure accuracy 

except for hepatitis B. Others cited lack 

of reporting of co-morbidities due to 

patients’ and caregivers with poor 

memories or cognitive abilities; multiple 

hospitalizations in multiple hospitals; 

and the need to obtain information from 

nephrologists. 

One commenter believed the 

adjustments were too high and that 

there would be a financial risk to 

providers who will require increased 

resources to code correctly. One 

commenter claimed that the facilities 

facing severe financial losses would 

reduce costs and shift from the goal of 

seeking the best or highest standards of 

patient care towards those that are 

merely acceptable or adequate. Some 

commenters claimed that the comorbidities have not historically been 

collected and should be eliminated 

because it is difficult, unreasonable, 

unrealistic and almost impossible to 

obtain the information that may affect 

the ability to provide care. Another 

commenter stated that the 

administrative and information 

technology burden for tracking comorbidities outweighed the benefit. 

A few commenters opined that the 

new payment system should revert back 

to the system prior to 2005, whereby all 

facilities received a lump sum payment 

for every dialysis treatment provided to 

all patients. Several commenters 

believed the system is too complex for 

patients and families to follow the 

calculations to determine their 

responsibility. Several commenters 

indicated that most providers accurately 

code all chronic ESRD problems and 

rely on hospital certified coders to code 

problems in the discharge summary. 

The same commenters were concerned 

that they will need to capture all new 

co-morbidities in the month that they 

occur with incomplete data thereby 

delaying claims processing resulting in 

lost reimbursement. A few commenters 

suggested that the adjusters be limited 

to those at the time of initiation of 

dialysis, because they claim there is no 

mechanism to update information when 

co-morbidities change. Others cited the 

lack of access to hospital and other 

records. 

Response: We thank the commenters 

for sharing their concerns. We 

understand that the implementation of 

the ESRD PPS, including the 

requirement to document co-morbidity 

diagnostic categories to be eligible for 

adjustment to the ESRD PPS, will be 

new to some ESRD facilities. However, 

since the ESRD Conditions for Coverage 

were issued in 2008, ESRD facilities 

have been aware of their responsibility 

to assess and record co-morbid medical 

conditions in the medical records. 

We believe that ESRD facilities will 

obtain diagnostic information through 

increased communication with their 

patients, their patients’ nephrologists 

and their patients’ families. When an 

ESRD patient misses a treatment, the 

ESRD facility should determine whether 

the patient has been hospitalized and, if 

so, what was the condition treated. To 

the extent the patient is unable to 

provide the information the ESRD 

facility would consult with the patient’s 

nephrologists or family to seek 

additional information. 

The reduction of the number of comorbidity diagnostic categories should 

reduce the burden on ESRD facilities to 

identify co-morbidity diagnostic 

categories that would need to be entered 

on ESRD claims to be recognized for a 

payment adjustment. Given that we 

have reduced the number of comorbidity adjustments and that incenter dialysis patients typically are in 

the ESRD facility three times per week, 

and that ESRD patients typically see a 

nephrologist about four times per 

month, we believe the burden of 

tracking co-morbidities will not be as 

onerous as the commenters fear. 

Comment: Some commenters 

suggested that co-morbidity adjusters 

should only be those that are chronic in 

nature and do not change each month, 

and that we should consider operating 

costs in deciding which adjusters to use. 

Response: The determination of 

which co-morbidity diagnostic category 

would be recognized for purposes of the 

co-morbidity payment adjustment is 

based on results of the analyses we 

described above. We identified and are 

finalizing three chronic and three acute 

co-morbidity diagnostic categories that 

would be recognized for the comorbidity payment adjustment under 

the ESRD PPS. 

Comment: Several commenters 

suggested that CMS be responsible for 

assessing when adjusters are necessary. 

The commenters noted that because 

CMS has access to all claims, CMS 

should incorporate the co-morbidities 

that it identifies into payment 

determinations without burdening 

providers. The commenters further 

suggested that if CMS assumed 

responsibility for determining which 

diagnosis were eligible for a payment 

adjustment, adjustments would not be 

subject to fraud and abuse. 

Response: We believe that ESRD 

facilities should be aware of patients’ 

co-morbidities and we assume are in the 

best position to determine such 

information and, therefore, should be 

responsible for identifying all comorbidities on the ESRD claim whether 

or not they are eligible for a payment 

adjustment. Accordingly, we do not 

believe that we should be assuming 

responsibility for identifying patient comorbidities for ESRD facilities. We do 

not believe that our assuming 

responsibility for identifying payment 

adjustments would, in itself, serve to 

eliminate fraud and abuse, because 

other health care providers would be 

documenting co-morbidities on their 

respective claims and we would be 

obtaining the co-morbidities from those 

claims. It is incumbent on all providers 

to put correct information on claims, 

whether or not there are payments 

associated with the information. 

As we noted above, in order to receive 

a payment adjustment to the ESRD PPS 

base rate, ESRD facilities will be 

required to document on ESRD claims 

the co-morbidity using the appropriate 

ICD–9–CM code in accordance with 

ICD–9–CM coding guidelines. 

Comment: One commenter expressed 

concern that ESRD organizations will 

determine which combination of comorbidities would generate large 

payments. One commenter suggested 

that we consider the compound effect of 

multiple adjusters that may have a 

singular association, but may not 

warrant compounding when used for a 

single patient and treatment. Other 

commenters believe that the adjusters 

will result in facilities only treating the 

sickest patients with the most comorbidities in order to increase revenue. 

Some commenters expressed their 

concerns about adjusters being 

manipulated resulting in up-coding in 

order to seek higher payment. Another 

commenter indicated that facilities 

would be motivated to have patients 

with as many adjustments as possible 

regardless of whether there were 

appropriate numbers and quality of 

trained staff or the ability to care for 

more complex patients. 

Several commenters predicted that 

the fallout of including co-morbidities 


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as adjusters would result in ‘‘cherry 

picking’’ leading to a crisis in dialysis 

care. One commenter expressed concern 

that extra care may be the same for a 

patient with a single co-morbidity, as a 

patient with multiple ones. Another 

commenter indicated adjusters are 

based on past history and subject to 

interpretation and abuse. The 

commenter questioned whether ESRD 

facilities will try to maximize revenues 

by qualifying patients for greater 

reimbursement due to previous medical 

histories that have no impact on 

patients and do not add costs to their 

current treatment regimen. 

Some commenters expressed concern 

that sicker patients with multiple comorbidities may not find an ESRD 

facility to provide care. A few 

commenters believed patients with few 

or no co-morbid conditions may be 

unable to transfer to another facility 

because facilities will fill open slots 

with patients who have enough comorbid conditions to cover the cost of 

providing dialysis to them. Other 

commenters acknowledged the potential 

of errors and manipulation with the comorbidities, citing alcohol dependency 

as an example. One commenter 

suggested eliminating the adjusters, if 

ESRD facilities would be responsible for 

tracking them. 

Response: We appreciate the concerns 

raised by commenters. We do not agree 

that the inclusion of co-morbidities as 

payment adjustments will lead to 

‘‘cherry picking’’ of patients, because in 

the absence of case-mix adjustments 

reflecting patient cost, ‘‘cherry picking’’ 

the healthiest patients may well be a 

more serious problem. We believe that 

ESRD facilities will provide appropriate 

care under the ESRD PPS and we 

believe that our continued monitoring 

will identify the few ESRD facilities that 

do not. 

We acknowledge that the number of 

co-morbidities that an individual has 

does not necessarily determine the need 

for additional care. As commenters have 

noted, there may be other factors, such 

as functional limitations, that result in 

the need for additional care. However, 

at this time, with the data available to 

us, we have identified six co-morbidity 

diagnostic categories which have shown 

higher costs due to higher separately 

billable costs. These co-morbidity 

diagnostic categories will be recognized 

for the co-morbidity payment 

adjustment under the ESRD PPS base. 

We will continue to look at other factors 

and other co-morbidities as ESRD 

facilities begin to enter co-morbidities 

on ESRD claims. 

With regard to the commenters 

expressing concerns about dialysis 

organizations determining which 

combination of co-morbidities would 

generate large payments and ‘‘cherry 

picking’’ these patients, we performed 

further analysis of the co-morbidity 

diagnostic categories for this final rule. 

We found that although costs were 

somewhat higher for patients with 

multiple co-morbidities, the effect of 

compounding two or more co-morbidity 

adjustments would on average result in 

a higher payment adjustment than is 

warranted. However, because we are 

unable to determine the extent of this 

higher cost, we do not believe that 

providing an adjustment for more than 

one co-morbidity, is warranted at this 

time. In addition, the costs the comorbidity adjustments are capturing are 

mostly related to separately billable 

services, primarily the use of EPO. We 

believe that providing multiple comorbidity adjustments would overstate 

EPO utilization, especially in light of 

the medically unbelievable edits 

applied under the EPO Claims 

Monitoring Policy. 

In order to avoid overly-high 

payments for co-morbidities, under the 

final ESRD PPS an ESRD facility may 

receive only one co-morbidity case-mix 

adjustment per co-morbidity category 

per claim, regardless of whether the 

patient has co-morbid conditions from 

different co-morbidity diagnostic 

categories. In the event that there is 

more than one co-morbidity diagnosis 

category that is applicable, we will 

apply the highest payment adjustment 

in order to reflect the slightly higher 

costs associated with patients with 

multiple co-morbidities. 

In addition, our analysis has shown 

that it is very rare for an ESRD patient 

to have more than one of the final 

diagnostic categories recognized for a 

payment adjustment. Using the same 

comprehensive data sources we used to 

identify co-morbidity categories 

(including claims from hospital 

inpatient stays, outpatient encounters, 

physician, skilled nursing facilities, 

etc.), we determined that approximately 

92 percent of patient-months have no 

co-morbidities reported; approximately 

7.4 percent of patient-months had only 

one reported co-morbidity. Less than 

0.45 percent of patient-months had two 

co-morbidities reported. 

Therefore, in the rare event that a 

patient has more than one co-morbidity 

diagnostic category, the adjustment for 

the category with the highest adjustment 

factor would be applied. Where there 

are two chronic categories reported, a 

payment adjustment would be applied 

using only the chronic co-morbidity 

category with the highest adjustment. 

Since the acute co-morbidity categories 

all have higher values than the highest 

chronic co-morbidity category, in the 

event a patient with a chronic condition 

that is eligible for a payment adjustment 

acquires an acute condition that is also 

eligible for a payment adjustment, the 

payment adjustment would only apply 

for the acute condition. In the event that 

a patient has 2 or more acute comorbidities eligible for a payment 

adjustment, the adjustment would only 

apply to the acute co-morbidity with the 

highest adjustment. 

We wish to ensure that patients 

continue to have access to high quality 

dialysis care. It will be an important 

focus of our monitoring efforts to review 

multiple data sources on co-morbidities 

and determine if these trends change as 

a result of the ESRD PPS and the comorbidity adjustments so that we can 

ensure continued access for patients. 

We will track data on co-morbidities to 

detect changes in prevalence or type of 

conditions coded. To the extent that an 

ESRD patient has higher resource needs, 

as a result of multiple co-morbid 

conditions, or some other complication, 

we expect that the outlier adjustment 

and blended transition payments, as set 

forth in this rule, would provide 

sufficient protection against 

extraordinarily high costs, particularly 

in the first year of the transition. We 

will consider future refinement of our 

co-morbidity adjustment policy based 

on data from ESRD claims and other 

sources from the period after 

implementation of the new payment 

system to ensure that patients continue 

to have access to high quality care. 

As we noted in the onset of dialysis 

discussion earlier in this section of this 

final rule, our analysis for this final rule 

indicates an increase in costs for the 

composite rate portion of the twoequation model, which may reflect an 

increase in the level of resource 

utilization required to stabilize 

individuals who are new to dialysis. 

The analysis also demonstrates an 

increase in measured costs for the 

separately billable portion of the model, 

particularly for ESA utilization. While 

we found that costs were higher, on 

average, for dialysis patients with a comorbidity during the first 4 months 

following the onset of dialysis, the effect 

of compounding a co-morbidity 

adjustment with the onset of dialysis 

adjustment would, on average, result in 

higher payment adjustment than is 

warranted for separately billable 

services. Therefore, the co-morbidity 

payment adjusters will not apply for 

facilities receiving the onset of dialysis 

payment adjustment. 

With regard to the comment that 

adjusters are based on past history, we 


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are finalizing three chronic co-morbidity 

categories which are based on the 

patient’s medical history and, which 

would be recognized for a continuous 

payment adjustment (except when there 

is an acute co-morbidity as described 

above); and, three acute co-morbidities 

that are based on the co-morbidity’s 

presence in the current claim month 

and for three subsequent months. 

With regard to commenters’ concern 

about errors and manipulation of the 

reporting of co-morbidities, specific 

documentation of co-morbid conditions 

in patient medical/clinical records using 

specific guidelines will be required for 

this payment adjustment and we will 

address such details in future 

administrative issuances. We anticipate 

monitoring the use of co-morbidities. 

We will continue to assess the current 

as well as future co-morbidity 

diagnostic categories to ensure that all 

Medicare beneficiaries with ESRD have 

access to appropriate renal dialysis 

services. 

Comment: One commenter cautioned 

that the number of co-morbidities would 

go up, stating the analogy of increased 

Epogen® use by the LDOs due to 

financial gains. The same commenter 

suggested that providers will encourage 

physicians to admit high-cost patients to 

other facilities and order expensive 

medications and tests at these facilities. 

One commenter expressed concern that 

the current claims processing system 

does not accommodate the potential 

number of adjustments needed. 

Response: The current claims are able 

to accommodate the reporting of nine 

co-morbidities as secondary diagnoses. 

We will explain billing issues relating to 

co-morbidity adjustments in subregulatory guidance in the future. 

As we indicated above, we expect 

ESRD facilities to furnish appropriate 

care to their patients under the ESRD 

PPS, but we will monitor the ESRD PPS 

to identify the ESRD facilities that may 

not. We believe the concerns raised by 

the commenters could also exist under 

the current basic case-mix adjusted 

composite payment system. 

Comment: Some commenters 

explained that many adjustments do not 

have significant impact on the delivery 

of care. One commenter believed that 

the case-mix adjusters are for the 

purpose of protecting small providers 

against financial consequences of highrisk patients. 

Response: We recognize that the 

presence of a co-morbidity does not 

always result in high costs. As 

explained in the discussion of the 

regression model in this final rule, 

adjustments to the ESRD PPS base rate 

are based on average costs. In other 

words, on average, patients with 

diagnoses in the co-morbidity diagnostic 

categories will have higher separately 

billable costs. The payment adjustment 

reflects this average. There may be 

patients with the co-morbidity who 

have less-than-average separately 

billable costs and others with higher 

costs. Because of this variability, some 

patient costs will be lower than the 

adjusted payment rate while others will 

be higher. In the absence of comorbidity payment adjustments, 

differences between patient costs and 

payment are greater. The purpose of 

adjusting for co-morbidities and other 

patient characteristics is to reduce the 

average difference between actual 

patient cost and payment. 

Comment: Several commenters 

expressed concern that the adjustments 

decrease the base rate. These 

commenters recommended a higher 

base rate with fewer adjustments. Some 

commenters stated that in order to 

recapture the payment lost to the base 

rate, ESRD facilities would have to 

ensure that some of their patients have 

the co-morbidities recognized for a 

payment adjustment to the ESRD PPS 

base rate. Several commenters suggested 

eliminating all adjustments and 

providing the same payment for all. 

Response: The commenters are correct 

that the base rate has been reduced as 

a result of the co-morbidity diagnostic 

categories in order to maintain budget 

neutrality as discussed in section II.E.3. 

of this final rule. Failure to adjust for 

patient characteristics related to cost 

could result in reduced access to care 

for patients with characteristics 

generally known to be associated with 

cost. 

Eliminating all adjusters and 

providing the same payment for all 

facilities is not an option, as section 

1881(b)(14)(D)(i) of the Act specifies 

that the Secretary shall include a 

payment adjustment based on case-mix 

that may take into account patient 

weight, body mass index, comorbidities, length of time on dialysis, 

age, race, ethnicity, and other 

appropriate factors. We believe that 

providing for the case-mix and other 

adjustments we are including in this 

final rule to account for the higher costs 

for certain patients meets the intent of 

the statute. 

Comment: One commenter believed 

that bundling oral drugs would impact 

management of common co-morbidities 

such as anemia, secondary 

hyperparathyroidism and metabolic 

bone disease. 

Response: We discuss the oral drugs 

in section II.A.3. of this final rule. With 

regard to the co-morbidities that the 

commenter identified (anemia, 

secondary hyperparathyroidism, and 

metabolic bone disease), we are not 

finalizing these three diagnoses for 

purposes of the co-morbidity payment 

adjustment under the ESRD PPS. We 

explained in detail in the proposed rule 

and in this final the methodology that 

was utilized in identifying comorbidities that would be recognized 

for a payment adjustment. Furthermore, 

anemia, secondary parathyroidism and 

metabolic disease are complications that 

occur in ESRD patients (that is, they are 

ESRD-related). If we apply the criteria 

that we discussed above, these 

conditions would meet two of the three 

criteria. That is, because these 

conditions are ESRD-related, there is a 

potential for adverse incentives 

regarding care (criteria number 2) and 

there is a potential for ESRD facilities to 

directly influence the prevalence of the 

co-morbidity either by altering dialysis 

care, diagnostic patterns, or liberalizing 

the diagnostic criteria. Therefore, they 

would not be considered as comorbidities recognized for a payment 

adjustment. 

Comment: One commenter expressed 

concern that facilities obtaining 

multiple co-morbid adjustments would 

result in patients paying more coinsurance and those lacking 

supplemental coverage facing financial 

hardship or even involuntary discharge 

for non-payment. One commenter 

suggested adding money for units that 

provide care to higher-acuity patients. 

Response: As discussed in section 

II.K.l. of this final rule, beneficiary coinsurance liability is based upon the 

total payments made to an ESRD facility 

on behalf of the beneficiary. As we 

discussed earlier, ESRD facilities will 

only receive a payment adjustment for 

one co-morbidity and, therefore, 

beneficiaries will not be held financially 

accountable for a co-insurance based 

upon multiple co-morbidities. 

With regard to the commenter who 

suggested adding money for units that 

provide care to higher acuity patients, 

we note that the patient-level 

adjustments are intended to provide 

additional payment for higher cost 

patients. 

f. ICD–9–CM Coding 

We proposed that in order to receive 

a co-morbidity payment adjustment, the 

appropriate ICD–9–CM code, using the 

official ICD–9–CM Coding Guidelines, 

would need to be entered on the claims 

(74 FR 49954). This includes codes from 

both the individual body system 

chapters (codes 001.0–999.2), as well as 

appropriate codes from the 

supplementary classification of factors 


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influencing health status and contact 

with health services chapter (VO1.0– 

V89.09). We acknowledge that many of 

these codes, such as those for a history 

of a disease would not be eligible for a 

co-morbidity adjustment. We noted that 

we would issue through sub-regulatory 

guidance, any changes in codes eligible 

for a co-morbidity payment adjustment 

in the event of any changes in coding in 

the future (74 FR 49954). For example, 

ICD–10–CM will be implemented for 

services occurring on or after October 1, 

2013. (See 74 FR 3328–2238–3362 for 

information on the Implementation of 

ICD–10–CM). We are finalizing our 

determination that in order to receive a 

co-morbidity payment adjustment, the 

appropriate ICD–9–CM code, using the 

official ICD–9–CM Coding Guidelines, 

would need to be entered on the claims. 

In the proposed rule (74 FR 50027), 

we explained the analyses that we 

performed to determine the extent that 

specific diagnoses within the eleven comorbidity categories are on ESRD 

claims. We also explained our analysis 

of the ICD–9–CM diagnosis codes, as 

identified by UM–KECC, and we 

provided a complete list of the codes 

identified by UM–KECC. We also 

provided a list of codes associated with 

diseases/conditions that we proposed 

would be recognized for the purposes of 

an ESRD co-morbidity payment 

adjustment (74 FR 50069). 

We also explained that we eliminated 

specific ICD–9–CM codes associated 

with specific diseases/conditions that 

we proposed would not be recognized 

for purposes of a co-morbidity payment 

adjustment, and we provided a listing of 

these ineligible codes (74 FR 49955). 

Comment: Some commenters 

expressed concern that facilities will 

face a huge administrative burden to 

ensure accuracy of data in order to be 

eligible for the patient-level adjusters, 

which ‘‘could and likely will result in 

cutting corners in care delivery.’’ Others 

expressed concern about the need to 

change systems or lack of data to 

support eligibility for adjusters. A few 

commenters suggested including only 

adjustments that do not require 

administrative time, have a real impact 

on care, and do not need to be changed 

or documented. Other commenters 

stated that they have access neither to 

ICD–9–CM codes nor to claims from 

other health care providers who do 

document ICD–9–CM codes. Some 

commenters lamented that the comorbidity adjustments did not offset the 

cost to change systems, obtain staff, and 

document codes correctly. One 

commenter believes that the difficulty of 

documenting ICD–9–CM codes would 

indicate that the co-morbidities should 

be eliminated. 

Response: We do not believe that 

changes in a payment structure that 

represent appropriately case-mix 

adjusted payments should be eliminated 

because of administrative changes that 

result. We also do not agree that patientlevel adjusters should be comprised of 

only those that do not require staff to 

ensure accuracy or are easier to manage 

administratively. We agree with the 

comment that adjustments with ‘‘real 

impact on patient care and care 

planning should be principle factors for 

which information should be reported,’’ 

as we believe that our analysis on 

correlating payment with the 

adjustments does support patient care 

and planning principles. 

Comment: We received two comments 

indicating that the elimination of the 

heading for myelodysplastic syndrome 

resulted in no codes for this condition 

that would be eligible for the co-morbid 

payment adjustment. 

Response: We thank the commenter 

for bringing this to our attention and for 

providing a list of codes that can be 

used. We acknowledge that we 

inadvertently omitted the specific ICD– 

9–CM codes for myelodysplastic 

syndrome in the proposed rule. We have 

indicated the specific ICD–9–CM codes 

for myelopdysplastic syndromes in 

Table E of the Appendix. 

In the proposed rule (74 FR 49955 

through 49962), we proposed a number 

of tables identifying specific ICD–9–CM 

codes which would not be recognized 

for purposes of the co-morbidity 

payment adjustment. We solicited 

comments on the ICD–9–CM codes 

which we proposed to not recognize. 

We did not receive any comments 

pertaining to the ICD–9–CM codes we 

proposed not to recognize for purposes 

of the co-morbidity adjustments. 

Therefore, in this final rule, we are 

eliminating the tables with ICD–9–CM 

codes for co-morbidities not affecting 

costs in outpatient ESRD facilities; NEC/ 

NOS/Unspecified codes; benign tumors; 

and category headings. 

In this final rule, we are finalizing in 

Table E of the Appendix, the ICD–9–CM 

codes for the six co-morbidity 

diagnostic categories which would be 

recognized for an adjustment to the 

ESRD PPS base rate. As we have 

reduced the final co-morbidity 

diagnostic categories to six and made 

changes to the diagnoses we are 

finalizing in this final rule, we have 

updated Table E to contain only the 

ICD–9–CM codes which will be 

recognized purpose of the co-morbidity 

payment adjustment under the ESRD 

PPS. We note that we have included the 

list of ICD–9–CM codes that were used 

by UM–KECC in the analysis of the comorbidity diagnostic categories for this 

final rule. This list is in Table E in the 

Appendix of this final rule. We are also 

finalizing the inclusion of comorbidities as patient-level adjustments 

in § 413.235(a). 

As we discussed earlier, 

documentation supporting the eligible 

co-morbidity diagnosis on the ESRD 

claim will be required in the patient’s 

medical record. We will be providing 

specific instructions about such 

documentation requirements in the 

future. 

g. Race/Ethnicity 

Section 1881(b)(14)(D)(i) of the Act 

requires that the ESRD PPS include a 

payment adjustment based on case-mix 

that may take into account a patient’s 

race and ethnicity (as well as other 

patient characteristics such as patient 

weight, body mass index, etc.). In the 

proposed rule, we presented analyses of 

potential case-mix adjustments based on 

race and ethnicity (74 FR 49962). We 

indicated that while the inclusion of 

race and ethnicity factors may improve 

the predictive value of the proposed 

ESRD PPS, we had concerns about 

whether the data were of sufficient 

quality upon which to base payment 

adjustments (74 FR 49966). The 

regression analysis we conducted for 

purposes of the proposed rule relied on 

two separate data sources for race and 

ethnicity status to assess the extent to 

which race and ethnicity would account 

for cost factors that are otherwise 

unexplained in the model. The first 

analysis was based on race and ethnicity 

data retrieved from the Renal 

Management Information System 

(REMIS) and the second analysis was 

based on data retrieved from the 

Medicare Enrollment Database (EDB). 

We note that in the proposed rule we 

inadvertently indicated that race and 

ethnicity data that were collected on the 

Form 2728 were retrieved from REMIS 

for purposes of conducting the analysis. 

We wish to clarify that these data were 

retrieved from the Standard Information 

Management System (SIMS). From this 

point forward we refer to data that were 

collected from the Form 2728 as SIMS 

data. 

In the proposed rule, we presented a 

comparison between SIMS and EDB 

data of the potential for race and 

ethnicity to predict differences in 

composite rate costs among ESRD 

facilities, as well as differences in MAP 

for separately billable services at the 

patient level (74 FR 49962 through 

499650). We identified several concerns 

with the quality of the SIMS and the 


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EDB data (74 FR 49966). With respect to 

the SIMS data, we noted that for data 

analysis purposes, it was necessary to 

default beneficiaries into the category of 

‘‘Other’’ making it more difficult to 

assess the effect of race and ethnicity on 

costs and payments (74 FR 49966). With 

respect to the EDB data, we noted that 

race and ethnicity data was either 

unavailable or defaulted into the 

‘‘Unknown’’ category (74 FR 49966). We 

also indicated that in accordance with 

MIPPA, we planned to explore 

opportunities for improving Medicare 

program data on race and ethnicity for 

purposes of addressing health care 

disparities (74 FR 49966). 

Although we did not propose casemix adjustments for race and ethnicity, 

we requested comments on the data 

issues presented, other potential data 

sources for race and ethnicity that we 

could consider, and specifically, the 

need for adjustments for race and 

ethnicity in the final ESRD PPS. The 

comments that we received on whether 

race or ethnicity adjustments may be 

warranted under the ESRD PPS and our 

responses are set forth below. 

Comment: We received three types of 

comments-–some in support, some in 

opposition and some that requested that 

CMS delay the inclusion of race and 

ethnicity as payment adjusters until the 

accuracy of Medicare race and ethnicity 

data could be improved. Commenters 

presented a variety of views. Some 

commenters believed that we should 

implement race and ethnicity 

adjustments in the final rule as a 

mechanism of preserving access to care 

for patients in the high cost racial 

categories. Many commenters believed 

that an adjustment for race has the 

potential to improve payment accuracy 

and to meet clinical needs of African 

Americans and other minority dialysis 

patients. Some commenters asserted 

that the exclusion of an adjustment for 

race would produce significant social 

and racial inequalities. Commenters 

cited fundamental concerns with the 

implementation of race or ethnicity 

adjustments indicating that such policy 

would not be appropriate. The 

commenters expressed concerns 

pertaining to individual rights, equality, 

and stereotyping. Commenters also 

opposed the implementation of 

adjustment factors that were not 

clinically or biologically based. Several 

commenters expressed concern about 

basing payment on racial or ethnic 

status indicating that race or ethnicity 

adjustments may infringe on individual 

rights. Some commenters believed that 

we should not implement race or 

ethnicity payment adjustments, 

suggesting that such a policy could be 

viewed as discriminatory. One 

commenter believed that 

implementation of race or ethnicity 

adjustments would open CMS up to risk 

of claims of racial bias and legal 

challenge. 

Finally, other commenters believed 

that we should continue to work to 

improve the accuracy of the data, study 

the extent to which race or ethnicity 

discrimination was occurring, and 

consider implementing race or ethnicity 

adjustments at a future date. 

Response: To maximize Medicare 

payment accuracy, we considered 

targeting higher payments to facilities 

on behalf of patients of certain racial or 

ethnic groups that, as demonstrated in 

the regression analysis, have been 

shown to have higher resource needs. 

We note the regression analysis is 

discussed further in section II.F. of this 

final rule. However, given the concerns 

we noted in the proposed rule, we do 

not believe it is appropriate to provide 

a patient-level payment adjustment 

based on race or ethnicity at this time. 

In particular, we are not convinced 

that race or ethnicity adjustments are 

necessary to ensure beneficiary access to 

ESRD services. That is, we believe that 

there may be race-neutral biological 

factors that have not yet been identified 

in the ESRD PPS modeling that could 

explain the increased cost associated 

with providing renal dialysis services to 

members of certain racial or ethnic 

groups. We intend to work to identify 

underlying patient-specific conditions 

that may result in increased treatment 

costs and also how a race/ethnicity 

adjuster might be applied. To the extent 

that these factors are identified, they 

could be incorporated into the ESRD 

PPS model as patient-level adjustments. 

We anticipate presenting our further 

analyses in future rulemaking. 

Comment: Several commenters 

believed that a race adjustment may 

shift payment for a large portion of the 

population on behalf of one racial 

group, African Americans. Another 

commenter noted that some groups, 

such as African Americans, would 

‘‘gain’’ with the adjuster, while other 

groups such as Asians and Hispanics 

would ‘‘lose’’. 

Response: We believe the commenter 

is referring to the financial implications 

of a race adjuster. While a case-mix 

adjustment may result in higher 

payments to ESRD facilities that treat 

patients with the specified 

characteristic, the adjustment is 

intended to offset a demonstrated 

increased cost associated with treating 

patients with that characteristic. As 

described further in section II.E.3. of 

this final rule, all adjustment factors are 

accounted for in reductions to the base 

rate. As a result, all facilities will be 

impacted by the reduced base rate 

whereas only those facilities that treat 

patients who qualify for the adjustment 

factors would receive the higher 

payments associated with those factors. 

We intend to continue to study this 

issue and will present our findings in 

future rulemaking. 

Comment: Some commenters opposed 

adjustments based on race or ethnicity, 

including patients who would be 

included as part of the class/group to 

which the adjustment would apply. One 

commenter who opposed 

implementation of race or ethnicity 

adjustments, raised concerns about 

being labeled or stereotyped based on 

race, especially when the label may 

adversely affect that individual’s care. 

Other commenters argued that it would 

be wrong to reimburse dialysis based on 

a patient’s identification with a 

particular ethnic group. The 

commenters believed that all dialysis 

patients, without regard to racial or 

ethnic status, deserve the best care that 

is provided equally to all. 

One commenter who supported the 

inclusion of an ethnicity adjustment 

suggested that in clinical practice 

certain patient ethnic groups are more 

or less compliant as patients. The 

commenter further indicated that noncompliant patients require greater effort 

in counseling, monitoring and 

communication with physicians. 

Response: ESRD facilities are required 

to provide care that is based on 

individual patient need without regard 

to race or ethnicity. It is not our intent 

for ESRD facilities to rely on collective 

identity whereby the characteristics of a 

group are attributed to every member of 

that group, rather than basing treatment 

decisions on individual patient 

characteristics. We believe that patients 

should be assessed and treated 

according to their individual need, not 

according to the stereotypical traits 

ascribed to or manifested by (many or 

most but not all members of) their 

group. 

Comment: Several commenters 

opposed the implementation of race and 

ethnicity adjustments stating that these 

factors would not be clinically 

verifiable. Commenters expressed 

concern about whether race has been 

shown to be a clinically-driven, 

independent variable that predicts the 

cost of providing ESRD services. One 

commenter stated that race is not a 

biological concept, but rather, it is a 

social concept. The commenter asserted 

that basing public policy on the social 

concepts of race or ethnicity has been 

judged by the Supreme Court to deserve 


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condemnation. The commenter further 

asserted that there would need to be a 

biological basis for racial and ethnic 

classifications upon which payment 

adjustments would be made. The 

commenter stated that there is no 

biological basis for racial categories 

noting that a person’s classification is 

commonly based on self-reported 

information. 

Other commenters who supported 

race or ethnicity adjustments asserted 

that scientific literature supports the 

validity of self-reported data. In 

addition, a commenter stated that major 

epidemiological entities in the U.S. 

government such as the U.S. Census, 

CDC, NIH and OMB use self-reported 

race and self-reported race is used to 

make national policy decisions. 

Response: We agree with the 

commenter that race and ethnicity are 

not biological factors. According to the 

OMB, racial and ethnic categories 

should not be interpreted as being 

biological or genetic in reference. 

Rather, the race and ethnicity variables 

are based purely on categorization. By 

definition, race and ethnicity are based 

on social and cultural characteristics 

and ancestry. 

OMB considers self-reported race and 

ethnicity classification to be the most 

appropriate mechanism for establishing 

an individual’s race or ethnicity. As 

OMB further indicated in its Provisional 

Guidance on the Implementation of the 

1997 Standards for Federal Data on Race 

and Ethnicity, self-identification means 

that the race and ethnicity responses are 

based on self-perception and therefore, 

are subjective, but by definition, the 

responses are accurate (December 15, 

2000, http://www.whitehouse.gov/omb/ 

assets/ 

information_and_regulatory_affairs/ 

re_guidance2000update.pdf). 

While race and ethnicity are not 

biologically based, as described above, 

we intend to perform additional studies 

to determine whether there are 

underlying clinical or biological factors 

contributing to the increased cost of 

providing renal dialysis services to 

certain racial or ethnic groups. For this 

reason, we are not implementing a casemix adjustment for race or ethnicity in 

this final rule. We intend to continue 

analyses that may identify the raceneutral factors that explain the higher 

costs concentrated in certain racial or 

ethnic groups. If associations between 

race or ethnicity and cost are present 

after addressing race-neutral factors that 

may be associated with increased 

treatment cost, we will consider 

development and implementation of 

race or ethnicity adjustments in future 

rulemaking. In the interim, we will 

continue to monitor for evidence of 

decreased access to renal dialysis 

services by racial or ethnic groups, 

following implementation of the ESRD 

PPS. 

Comment: Several commenters 

expressed concern over decreasing the 

base rate and adjustment amounts for 

case-mix variables that are objective and 

clinically verifiable, to account for the 

factors of race and ethnicity, which are 

not objective and clinically verifiable. 

The commenters indicated that it would 

be better to provide a sufficient base rate 

to support better treatment delivery. 

Response: As described above, we are 

not implementing in this final rule, 

case-mix adjustments under the ESRD 

PPS for race or ethnicity. As a result, 

there will be a lower standardization 

factor resulting in a higher base rate as 

described further in section II.E.3. of 

this final rule. 

Comment: A patient asserted that if 

CMS were to consider a patient’s 

perception of their racial or ethnic 

status as a basis for an adjustment, then 

CMS should also consider accounting 

for the patient’s perception of their 

dialysis provider’s performance based 

on how they feel, whether they are 

informed about the dialysis process, etc. 

Response: We appreciate the 

commenter’s suggestion to consider an 

adjustment based on patient’s 

satisfaction with care received at the 

ESRD facility. We intend to take this 

suggestion under consideration in future 

rulemaking, as we develop QIP 

measures. 

Comment: Many commenters cited 

studies demonstrating differences in 

cost and utilization of renal dialysis 

services, primarily medications, among 

racial and ethnic groups. These 

commenters asserted that research 

demonstrates that race is a predictor of 

health care cost and believe that race 

may explain cost variability in patients 

more effectively than other adjusters. 

These commenters stated that African 

American patients require more ESAs, 

vitamin D therapies, and calcimimetics 

for bone and mineral metabolism 

disorders than other racial and ethnic 

groups. Commenters also stated that 

African Americans have higher rates of 

venous catheter use than other groups. 

Several commenters cited studies 

illustrating differences in disease 

severity and clinical management for 

secondary hyperparathyroidism 

between African Americans and other 

races. 

Several commenters provided 

alternative suggestions for race 

adjustments including a patient-level 

‘‘black vs. non-black’’ adjustment or a 

facility-level race adjustment. 

Response: We thank the commenters 

for their analysis of studies on race and 

we will take them into consideration. 

Comment: Several commenters noted 

that case-mix adjusters help ensure 

equal access to care, especially for those 

with higher costs of care. Several notfor-profit small dialysis organizations 

(SDOs) did not believe that facilities 

would discriminate against African 

American patients in the absence of race 

or ethnicity adjustments by withholding 

adequate doses of ESAs. 

Response: We agree with the 

commenters and intend to monitor 

access to care under the ESRD PPS and 

stand poised to take necessary measures 

to ensure equal access to care for all 

ESRD patients regardless of cost. 

Comment: Commenters believed that 

the payment policy should not hinder 

access to care for minority populations. 

Many commenters provided their 

analyses of regional impacts, and 

compared them to CMS’ impact analysis 

in the proposed rule. 

Commenters were concerned that in 

instances where higher costs are 

associated with a racial group, such as 

costs for ESAs associated with hyporesponsive patients, and given that these 

costs would be bundled into the ESRD 

PPS and no longer separately paid, 

facilities with patients who are mostly 

in the high cost racial group will be 

negatively impacted. 

Many commenters referred to CMS’ 

impact files showing that facilities 

serving the African American 

population have the most significant 

reduction in payments. We received 

divergent comments with respect to 

where the most severe impact of not 

implementing race or ethnicity 

adjustments would be realized 

including those facilities in various 

regions of the country according to 

facility-type, urban and rural status. 

Response: We expect facilities to treat 

ESRD patient regardless of their race or 

ethnicity. To a certain extent, variations 

in resource intensity and the associated 

cost of providing renal dialysis services 

to individual patients, are reflected in 

the patient-level adjustments within the 

ESRD PPS model. However, to protect 

ESRD facilities from unusually high 

costs attributed to individuals, we have 

finalized an outlier policy described in 

section II.H. of this final rule. In 

instances where costs of providing 

ESRD services exceed the projected 

amount plus a fixed dollar loss amount, 

we will pay a percentage of the 

difference. 

Comment: One commenter asserted 

that scientific studies provide evidence 

that for-profit ESRD facilities engaged in 

gaming behavior that resulted in higher 


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cost to the Medicare ESRD program and 

compromised patient safety. 

Commenters claim that these studies 

illustrated that ‘‘* * * patients in forprofit facilities were EPO ‘‘sensitive’’ 

during the period of time that payments 

were being made per administration and 

they became EPO ‘‘resistent’’ when the 

reimbursement system changed.’’ These 

commenters believed that a large 

portion of increased pharmaceutical 

costs related to African Americans are 

based on past over-utilization of antianemia drugs and that factoring out the 

overuse identified in scientific studies 

may result in a smaller cost difference 

among racial or ethnic groups. 

One commenter asserted that forprofit providers will rely on race and 

ethnicity adjustments to circumvent the 

elimination of incentives currently in 

place related to drugs such as Epogen®. 

Response: We thank the commenter 

for identifying these scientific studies. 

We plan to consider such information 

for further analysis of race or ethnicity 

adjustments in the future. 

Comment: Several commenters 

questioned whether other factors in the 

model may be correlated with the 

increased cost associated with treating 

African American patients. One 

commenter stated that race and weight 

or BMI, may be correlated and points to 

a study that found a correlation between 

African Americans and higher than 

average weight and BMI. A commenter 

also noted that the manufacturer of EPO 

includes dosing instructions calling for 

an increase in dose as the patient’s BMI 

increases. The commenter believes that 

one may infer that treating African 

American patients may be more costly 

simply based on their higher than 

average BMI and associated greater use 

of EPO. 

Another commenter questioned 

whether adjusting for co-morbidities 

would address the variability between 

patients of different races. The 

commenter stated that there is not 

enough scientific evidence for CMS to 

account for every underlying cause of 

utilization differences among races. A 

commenter who conducted an 

independent analysis of the proposed 

rule asserted that based on their 

analysis, race is a better predictor of cost 

than the co-morbidities and onset of 

dialysis that were specified in the 

proposed rule. 

Many commenters supported the 

concept of patient level adjustments that 

are based on a demonstrated variation in 

resource utilization. MedPAC reiterated 

this point in referring to our analysis in 

the proposed rule that demonstrated 

associations between race and ethnicity 

and composite rate costs and separately 

billable payments (74 FR 49966). 

MedPAC stated that if race and ethnicity 

predict providers’ resource needs, then 

these factors should be included as 

adjusters. Alternatively, MedPAC 

suggested that we include clinical 

factors that are correlated with race and 

ethnicity that would make moot the 

effect of race and ethnicity on 

predictors’ resource needs. 

Response: We believe that a portion, 

but not all, of the incrementally higher 

dialysis costs among African American 

patients are accounted for by other 

patient characteristics in the model, 

such as body size and co-morbidities. 

Despite the remaining effect that race 

has on the model, we have decided not 

to implement race or ethnicity as casemix adjustments in this final rule. As 

described above, we believe that there 

are specific underlying factors that 

contribute to higher costs among certain 

racial groups and intend to study this 

further. We will continue to assess 

payments made on behalf of patients 

under the ESRD PPS during the 

transition. The results of this additional 

study potentially could be incorporated 

into future refinements of the ESRD 

PPS. 

Comment: Several commenters 

indicated that according to their own 

analyses, when the basic case-mix 

adjusters were implemented under the 

basic case-mix adjusted composite 

payment system, reimbursement for 

Chinese, Japanese and other Asians with 

smaller body size dropped. These 

commenters were concerned that a casemix adjuster for race or ethnicity would 

extend this reimbursement inequality to 

laboratory tests and medications under 

the expanded bundle of services in the 

ESRD PPS, resulting in lower 

reimbursement for laboratory tests and 

medications on behalf of average Asian 

patients, than average White or African 

American patients. Commenters 

believed that the basic case-mix 

variables have little impact on 

providers’ overall cost of care. 

One commenter indicated that Asian 

patients do not have shorter dialysis 

times nor the associated decrease in the 

ESRD facility’s staffing and salaries. 

This commenter asserted that Asian 

patients have the same needs regarding 

assessment, dietary education and 

monitoring, psychosocial issues, 

medications and laboratory tests. The 

commenter asserted that race and 

ethnicity adjustments would create a 

bias against patients of Asian descent 

and further decrease reimbursement for 

dialysis care that is already below the 

national average and create inequalities 

in reimbursement. 

Response: Many of the services 

described by the commenter have been 

taken into account in developing the 

base rate amount. As described above, 

we are not implementing a case-mix 

adjustment for race or ethnicity under 

the ESRD PPS in this final rule. We 

intend to continue studying the 

underlying clinical conditions behind 

the increased cost that is linked to 

certain racial groups. We note that, as 

described in section II.F.3. of this final 

rule, we are finalizing our proposal to 

retain the adjusters for body size, BSA 

and low BMI, that are currently in place 

under the basic case-mix adjusted 

composite payment system in the final 

ESRD PPS. 

Comment: One commenter was 

concerned about a decrease in 

reimbursement for medications noting 

that beneficiaries of certain races may be 

perceived as potentially costly, which 

could result in these patients being 

denied access to care. Another 

commenter believed that individuals 

who require the most resources may be 

at increased risk of not receiving 

adequate care for conditions such as 

anemia and bone and mineral disorders 

under the ESRD PPS. 

Response: We are also concerned 

about beneficiaries being denied access 

to care based on racial or ethnic status 

and are concerned about any potential 

for a provider to make choices to 

provide treatment solely based on that 

provider’s perception of an individual’s 

racial or ethnic status. For this reason, 

and as discussed previously, we have 

decided to continue to study this issue 

and therefore, we will not implement 

race or ethnicity case-mix adjustments 

under the ESRD PPS at this time. We 

have been and will continue to monitor 

inappropriate care based upon race and 

ethnicity. 

Comment: Several commenters 

believe that the inclusion of 

calcimimetics and phosphate binders in 

the ESRD PPS is likely to result in 

negative consequences 

disproportionately for African 

Americans. 

Response: As discussed previously in 

section II.A.3. of this final rule, the 

implementation of the oral-only 

medications, including calcimimetics 

and phosphate binders, into the ESRD 

PPS will be delayed until January 1, 

2014. Potential impacts of including 

these drugs under the ESRD PPS, 

including those on racial and ethnic 

groups, will be addressed through future 

rulemaking. 

Comment: Several commenters 

asserted that considering each patient’s 

differing makeup, there may be a builtin disparity in patient co-insurance 


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amounts for relatively the same care 

plan. Another commenter indicated that 

a race case-mix adjuster would increase 

individuals’ co-insurance obligations 

regardless of whether the individual 

required increased amounts of 

medications such as ESAs. 

Similarly, MedPAC indicated that 

including payment adjusters for 

beneficiaries’ demographic and clinical 

characteristics would result in some 

beneficiaries having higher copayments 

than others. MedPAC intends to study 

this issue in the future. 

Response: For the various reasons we 

have discussed above, we have decided 

to exclude the race and ethnicity casemix adjustments from the ESRD PPS. 

Similarly, as described in section II.F.3. 

of this final rule, we have narrowed the 

list of patient co-morbidity case-mix 

adjusters which will decrease 

beneficiary co-insurance obligations. In 

doing so, we believe that co-insurance 

payment obligations will be more 

uniform among beneficiaries. We are 

targeting higher payments and the 

associated higher beneficiary coinsurance obligations to facilities that 

treat patients with verifiable conditions 

known to be associated with an 

increased treatment cost. 

Comment: Several commenters 

indicated that they were unable to 

replicate UM–KECC’s regression 

analysis that supported the proposed 

case-mix adjustments in the proposed 

rule. Commenters further noted that 

higher costs are not distributed evenly 

or randomly across the population but 

are concentrated in areas where 

demographics are dominated by one 

group. These commenters also found 

increased payment by racial group, 

primarily for medications for African 

Americans. In addition the commenters’ 

analyses revealed that whites have 

higher costs compared to Native 

American, Hispanic and Asian patients. 

Another commenter indicated that its 

analysis differed from the regression 

analysis set forth in the proposed rule. 

The commenter’s findings suggested 

that the case-mix adjustment for African 

Americans would be approximately 11 

percent and 3 percent for Whites. 

Response: The results of the 

regression based case-mix adjustments 

for the race and ethnicity categories are 

summarized in the proposed rule (74 FR 

49965). We believe that the reason for 

the differing results between our 

proposed rule analysis and that of the 

commenter relates to the data that was 

used. Specifically, we believe that the 

commenter’s data was more limited in 

scope to the facility or chain with which 

the commenter was associated. As 

indicated above, we have decided to 

study this further and are not 

implementing race and ethnicity casemix adjustments in this final rule. 

Comment: One commenter indicated 

that minorities are disproportionately 

affected by chronic kidney disease 

(CKD) and believes that the solution lies 

in addressing the root cause of this 

problem by providing stage 4 CKD 

education, pre-dialysis anemia and 

access care and other means rather than 

race and ethnicity case-mix adjusters 

within the ESRD PPS. 

Response: We appreciate the 

commenter’s view on this matter and 

note that kidney disease patient 

education provisions authorized under 

section 152(b) of the MIPPA were 

implemented in the CY 2010 Medicare 

PFS final rule (74 FR 61894). We intend 

to evaluate the extent to which patient 

participation in the new kidney disease 

patient education benefit impacts the 

cost of dialysis and whether these 

patient outcomes would be relevant to 

the adoption of race or ethnicity 

adjustments. 

Comment: Several commenters 

believed that the data sources identified 

in the proposed rule provided a 

significant amount of data to inform 

decisions regarding race and CMS 

currently has the means to implement a 

case-mix adjuster based on race. 

Commenters referred to CMS’ efforts 

that have improved the quality of race 

data including beneficiary surveys, 

annual file updates from NUMIDENT, 

and work with the Indian Health 

Service that helps to identify American 

Indians and Alaska Natives. Other 

commenters were skeptical about the 

implementation of race or ethnicity 

adjustments and suggested that we 

conduct further analysis. 

Response: As described in the 

proposed rule, we considered two 

distinct sources of race and ethnicity 

data upon which the race or ethnicity 

adjustments could be modeled. We 

believe this commenter is referring to 

the EDB data source. We agree that the 

accuracy of the EDB data has improved 

as a result of our supplementary data 

file matching procedures over the last 

15 years such as the annual updates, 

surveys and coordination with the 

Indian Health Service (74 FR 49963). 

Despite these efforts, the core race and 

ethnicity data for the Medicare 

population that are sent to us by the 

Social Security Administration (SSA) on 

a daily basis from the master beneficiary 

record (MBR) are not currently collected 

in a format that is compliant with OMB 

standards for the collection of this data. 

To summarize, OMB requires race and 

ethnicity data to be collected using a 

two-question format, with the ethnicity 

question preceding the race question. In 

addition, OMB also requires the 

following minimum set of race 

categories: (1) White, (2) Black or 

African American, (3) American Indian 

or Alaska Native, (4) Asian, and (5) 

Native Hawaiian or Other Pacific 

Islander. However, as described in the 

proposed rule, the SSA’s collection 

instrument includes the following 

categories: (1) Asian, Asian-American or 

Pacific Islander; (2) Hispanic; (3) Black 

(Not Hispanic); (4) North American 

Indian or Alaska Native; or (5) White 

(Not Hispanic). Conversely, the SSA’s 

collection instrument groups race and 

ethnicity into one question with 

instructions to ‘‘check one only.’’ We are 

obligated to follow OMB standards. 

We note that OMB’s standards were 

last updated in the October 30, 1997 

Federal Register Notice: Revisions to 

the Standards for the Classification of 

Federal Data on Race and Ethnicity (62 

FR 58782). OMB also released 

Provisional Guidance on the 

Implementation of the 1997 Standards 

for Federal Data on Race and Ethnicity 

on December 15, 2000. That guidance is 

available at: http:// 

www.whitehouse.gov/omb/assets/ 

information_and_regulatory_affairs/ 

re_guidance2000update.pdf. 

As a result, these data with EDB are 

known to be inaccurate. Only an 

improvement of the MBR’s race and 

ethnicity data collection will provide a 

long-range solution to the problem. We 

do not believe that it would be 

appropriate to establish race or ethnicity 

adjustments that would be based on 

EDB data until additional improvements 

are made to ensure that EDB race and 

ethnicity data are collected in a manner 

that is consistent with OMB standards. 

Comment: Several commenters 

suggested that CMS continue to improve 

the data. One commenter suggested 

methods set forth in various reports 

generated from public, private and 

academic entities. One commenter 

suggested that HHS issue guidelines for 

the uniform collection of data on race by 

health care organizations. Another 

commenter specified that CMS should 

consider conducting a mailing to 

persons with race coded as ‘‘other’’ or 

‘‘unknown’’ and evaluate the 

effectiveness of using surnames to 

identify the race of enrollees. 

One commenter believed that we may 

be able to develop coding modifiers to 

further verify the accuracy of the data 

provided. A commenter also believed 

that Medicare Advantage plans should 

be required to collect and report to CMS 

the race of all Medicare members. The 

commenter further suggests that the 

SSA should collect race information on 


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the SS–5 Form and through the 

enumeration at birth process using 1997 

OMB standards for race. 

Response: We appreciate the 

commenters’ suggestions for improving 

race and ethnicity data. Improving the 

accuracy of race and ethnicity data by 

establishing consistent mechanisms by 

which race and ethnicity data are 

collected are essential for identifying 

and addressing health disparities. We 

are in the process of carrying out 

provisions of MIPPA and the Affordable 

Care Act (ACA) of 2010 that require the 

Secretary of Health and Human Services 

to evaluate race and ethnicity data and 

provide recommendations for improving 

the quality of the data. 

We appreciate the commenter’s 

suggestion that Medicare Advantage 

plans should collect and report the race 

of their enrollees. We will take this 

suggestion under consideration, but 

note that Medicare Advantage plan 

requirements are beyond the scope of 

this rule. Similarly, we clarify that it 

would be beyond our authority to 

impose requirements on the SSA. 

Comment: Several commenters 

believed that race and ethnicity should 

not be case-mix adjusted asserting that 

the current data does not provide a 

rigorous statistical basis for reaching a 

reliable conclusion on the relevance of 

this characteristic. 

Other commenters believed that the 

reliability of CMS’ existing data sets 

(REMIS and EDB) is sufficient for 

purposes of implementing race and 

ethnicity case-mix adjusters. Several 

commenters referred to a presentation at 

the 2009 American Society of 

Nephrology meeting that revealed near 

perfect agreement between the Medicare 

EDB and REMIS for three major U.S. 

race groups (Caucasian, African 

American and Asian) suggesting that 

race could be used as a case-mix 

adjuster for these three race groups. 

Another commenter believed that 

ESRD facilities may face operational 

difficulties in collecting race and 

ethnicity data, but believed that the 4- 

year phase-in period would allow 

providers to operationalize data 

collection. Other commenters stated that 

if deemed appropriate upon 

reconsideration, CMS should implement 

race and ethnicity adjustments. Several 

commenters stated that race and 

ethnicity adjustments would be more 

administratively manageable to report 

and would not require ongoing 

documentation especially for facilities 

that do not have sophisticated systems 

capabilities to track multiple patientlevel adjusters. 

Response: Based on subsequent 

analyses, we agree with the commenter 

that the agreement between data 

collected on the Form 2728, located in 

SIMS, as compared to data in EDB is 

very high for Blacks and Whites. 

However we continue to have concerns 

that about the level of accuracy for the 

remaining racial and ethnic groups. 

Specifically, analyses reveal that the 

agreement for Asians is considered 

substantial and low moderate for 

American Indians or Alaska Natives and 

Hispanics. As indicated previously, we 

intend to continue to evaluate race and 

ethnicity data and provide 

recommendations for improving the 

quality of the data and re-evaluate the 

extent to which it would be appropriate 

to adopt race or ethnicity adjustments. 

As described above, we intend to set 

forth our additional analyses and 

proposal for handling race or ethnicity 

adjustments in future rulemaking. 

Comment: In comparing the two data 

analyses conducted by CMS, REMIS and 

EDB, one commenter believes that 

payment amounts would vary by as 

much as $21,000 on behalf of 

individuals whose race is defaulted to 

‘‘Other.’’ The commenter believes that 

this difference is unacceptable 

considering the volume of Medicare 

ESRD beneficiaries. Another commenter 

stated that the category ‘‘Other’’ 

produced wildly different results for 

adjusters in REMIS as compared to other 

databases. 

Response: To the extent that we were 

to implement race or ethnicity payment 

adjustments in the future, we do not 

believe that it would be appropriate to 

provide an adjustment for ‘‘Other’’ as 

this category may fail to reflect the 

characteristics of the individual. Rather, 

we would rely on OMB’s established list 

of racial categories including: (1) White, 

(2) Black or African American, (3) 

American Indian or Alaska Native, (4) 

Asian, and (5) Native Hawaiian or Other 

Pacific Islander. As mentioned 

previously we intend to consider the 

extent to which OMB’s guidance for 

allocating individuals who select more 

than one racial category into a single 

category would be appropriate for 

payment adjustment purposes. 

Comment: One commenter believed 

that we would need to further refine the 

race and ethnicity categories to avoid 

distortions that might result from 

lumping Native Hawaiians (the largest 

race/ethnic group) with Asians (one of 

the smallest race/ethnic groups). 

Response: As indicated in the 

proposed rule (74 FR 49963) the EDB is 

populated with race and ethnicity data 

that come from the SSA. The SSA’s race 

and ethnicity data are collected on the 

SS–5 form which groups Asian, AsianAmerican or Pacific Islander into a 

single category. We agree with the 

commenter that to the extent we were to 

rely on data obtained from the EDB, 

there would be an increased risk of 

distortion. We further believe that it 

would be essential to base any proposed 

race or ethnicity adjustments on data 

collected from a source that is supplied 

by data that is collected in a manner 

that is consistent with OMB standards. 

Comment: One commenter asserted 

that Native Hawaiians have the highest 

average BMI and increased rates of 

obesity and diabetes. As such, the 

commenter believes that CMS should 

include a payment adjuster for ESRD 

patients in the state of Hawaii to reflect 

the higher costs involved in treating 

patients in that state. 

Response: As described in section 

II.F.3. of this final rule, we are finalizing 

the BMI case-mix adjustment under the 

ESRD PPS. To the extent Native 

Hawaiians have higher than average 

BMI, the ESRD facilities that provide 

treatment to these individuals will be 

compensated for this factor. In addition, 

our impact analysis reveals that the 

ESRD PPS would adequately reimburse 

ESRD facilities located in Hawaii. 

Specifically, facilities located in Hawaii 

are expected to see a 4.2 percent 

increase in payment. Therefore, 

consistent with our decision to not 

implement race or ethnicity 

adjustments, we decline to adopt the 

commenter’s suggestion. 

Comment: One commenter suggested 

that we collect patient-level data for 

purposes of determining the extent to 

which race and ethnicity are 

independent predictors of cost 

associated with the treatment of ESRD. 

The commenter believed that 

implementation should only occur after 

CMS has an appropriate mechanism by 

which to collect the data. Another 

commenter questioned the extent to 

which the race and ethnicity variables 

used in the proposed rule were 

independent in relation to the other 

factors being used in the model. The 

commenter emphasized the importance 

of independence of the variables to 

assure accurate payments that are 

reflective of the differences in cost in 

treating certain patients. The commenter 

asserted that the discussion in the 

proposed rule pertaining to the findings 

from the different regression models 

suggests that the variables may not be 

independent. Thus, the model may 

result in overpayment to certain patients 

and underpayment to others. 

Response: As we indicated in the 

proposed rule, the race and ethnicity 

case-mix adjustments were based on a 

regression analysis that used patientlevel separately billable payments and 


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facility-level costs (74 FR 49962). Each 

of the proposed payment variables, 

including race and ethnicity were 

independent variables. However, we 

believe that the race and ethnicity 

adjustment factors may reflect factors 

that are not otherwise reflected in the 

model. We intend to study this further 

and include our findings in future 

rulemaking. 

Comment: One commenter stated that 

many minority populations are of lower 

socioeconomic status and lack sufficient 

insurance coverage outside of Medicare. 

As such, the commenter indicated that 

race and ethnicity adjustments are even 

more important. Another commenter 

requested that we consider an 

adjustment for socioeconomic status to 

encourage dialysis providers to establish 

facilities in disadvantaged communities. 

The commenter suggested that a 

socioeconomic status adjustment may 

be a less problematic patient-level 

adjustment, as compared to other 

adjustments in the proposed ESRD PPS. 

For example, the commenter asserted 

that socioeconomic status cannot be 

gamed and would not raise privacy 

issues. 

Response: We do not have access to 

socioeconomic status data within our 

Medicare databases. However, because 

Medicaid eligibility is based on an 

individual’s income and resources, we 

consider it to be one measure of 

socioeconomic status and one for which 

we have data. We have started to 

explore the extent to which Medicaid 

status is associated with increased cost. 

To date, we have not found that 

Medicaid status is associated with 

increased cost but we intend to study 

this potential variable in future 

proposed rulemaking. 

Comment: Several commenters 

believed that we should delay 

implementation of race and ethnicity 

case-mix adjusters and continue to 

investigate the degree to which such 

adjusters would be appropriate. 

Commenters asserted that the goal 

should be to close health disparity gaps 

first and then create an adjuster for any 

differences that remain. The 

commenters stated that to provide an 

adjustment without fully understanding 

the cause of the health disparity would 

create inappropriate incentives. 

The commenters suggested that we 

work to improve the adequacy of data 

that could be used as the basis of future 

race or ethnicity adjustments. For 

example, commenters asserted that 

specifying the race adjuster eligibility 

criteria would improve data accuracy 

and decrease the risk of provider 

gaming. Commenters requested that we 

specify the timeframe for completing 

refinements that would allow for 

adjustment. In the meantime, 

commenters stated that we should 

continue to collect data based on the 

categories included on the Form 2728 

that was implemented on June 1, 2005 

and develop a placeholder that 

recognizes the impact of race on the cost 

of dialysis. Other commenters believed 

that we should implement an 

adjustment for race while working with 

the community to develop further 

appropriate case-mix adjusters in the 

future. Another commenter stated that 

the initial adjusters could be 

periodically revised as additional, 

proven sources of data become 

available. 

Response: As described in the most 

recent IOM report in December 2009 

(Standardization for Health Care Quality 

Improvement, Institute of Medicine, 

2009), Kilbourne and colleagues identify 

three key phases in addressing 

disparities: Detecting, understanding 

and reducing. We are currently in the 

detecting phase of accurately identifying 

vulnerable racial and ethnic groups and 

developing valid measures. Part of this 

phase involves implementation of a 

reliable tool for collecting racial and 

ethnic data that will ensure the linking 

of data to quality measures. Once we 

have a more complete understanding of 

the determinants of health disparities, 

we will be positioned to consider the 

extent to which a payment intervention 

is appropriate. We do not believe that it 

would be appropriate to implement 

payment intervention until the earlier 

phases of detecting and understanding 

racial and ethnic health disparities have 

been completed. 

As indicated previously, section 185 

of MIPPA requires further study to 

identifying and addressing healthcare 

disparities in the Medicare program 

including those related to race or 

ethnicity. In addition, section 4302 of 

ACA requires ongoing analysis of race 

and ethnicity data to detect and monitor 

for trends in health disparities. In 

addition to these analyses, we intend to 

issue a Report to Congress 

recommending improvements to 

identifying health care disparities. 

Comment: Several commenters 

believed that we should continue to 

explore race and ethnicity case-mix 

adjustments and develop a methodology 

to collect racial and ethnic data that is 

reliable for reimbursement purposes. 

MedPAC suggested that CMS use 

current OMB categories to collect race 

and ethnicity data. This data could be 

collected via Form 2728. Other 

commenters believed that Form 2728 

has sufficiently provided the race and 

ethnicity data for USRDS utilization 

analyses for several years. 

Other commenters were concerned 

about the potential for providers to 

misidentify racial and ethnic status to 

qualify for greater payments. The 

commenter suggested that we consider 

expanding racial and ethnic categories 

to minimize gaming and account for 

patients who associate with more than 

one racial category. Another commenter 

believed that instructions to patients to 

identify themselves with only one 

supplied race and ethnicity category on 

the form would mitigate data quality 

issues. Another commenter suggested 

that patients who elect to not select race 

or ethnicity categories should default to 

other or unknown and thus, become 

ineligible for the race or ethnicity 

adjustments. 

Other commenters indicated that 

many facilities rely on clerical 

personnel to complete the Form 2728. 

The commenter was concerned that this 

practice may result in incorrect or 

missing data which would have an 

impact on reimbursement. 

Response: To the extent we were to 

implement race or ethnicity adjustments 

in the future, we would rely on a 

collection instrument that is consistent 

with OMB standards. However, as 

discussed previously, we are not 

including a race or ethnicity adjustment 

in the ESRD PPS at this time. With the 

exception of the self-identification 

criteria, race and ethnicity data 

collected on the Form 2728 after May 

31, 2005 is consistent with the OMB 

collection standards. As mentioned 

previously in section II.C. of this final 

rule, the final ESRD PPS model is based 

on 2006–2008 data. Therefore, race and 

ethnicity data collected on the Form 

2728 during the timeframe and reflected 

in SIMS is consistent with OMB’s race 

categorizations. We note that ESRD 

facility costs and payments on behalf of 

patients during 2006–2008 that have 

been incorporated into the ESRD PPS 

model would not have been limited to 

incident patients. That is to say, costs 

and payments on behalf of patients 

between 2006–2008 included patients 

for whom the Form 2728 was completed 

prior to June 1, 2005. As indicated in 

the proposed rule, the Form 2728 that 

was in use prior to June 1, 2005 did not 

reflect the current OMB standards for 

collecting racial and ethnic information 

(74 FR 49963). 

With respect to addressing 

individuals who identify with more 

than one racial category, we note that 

OMB standards do not permit guiding 

an individual to select only one race. 

However, to account for individuals 

who select more than one racial 


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category, we believe that it may be 

possible to allocate these individuals 

into one race category. OMB has issued 

guidance to agencies for the allocation 

of multiple race responses for use in 

civil rights monitoring and enforcement. 

The March 9, 2000 OMB bulletin No. 

00–02 is available on OMB’s Web site at: 

http://www.whitehouse.gov/omb/

BULLETINS_b00–02/?print=1. 

While we believe that this guidance 

may also be appropriate for purposes of 

establishing individuals’ most 

appropriate payment adjustment factor 

related to racial designation, we intend 

to consider this issue further and 

present our analyses in subsequent 

rulemaking and solicitation of public 

comments. 

In response to the commenters 

concern that data on the Form 2728 may 

be incorrect or missing, we believe that 

for the majority of patients the 

information is correct. We note that 

block 49 includes a physician 

attestation that the information on the 

form is correct. For this reason, we 

expect that information collected on the 

form to be correct and reliable. 

In summary, we believe that the use 

of data collected from the Form 2728 

may be appropriate both for purposes of 

establishing race or ethnicity 

adjustments and making payment 

adjustments under the ESRD PPS in the 

future. However, to ensure consistency 

with OMB’s standards for the collection 

of race and ethnicity data, we intend to 

modify the administration instructions 

for completing the Form 2728 to specify 

that the information on race and 

ethnicity must be self reported. We 

believe that this modification will 

further improve the accuracy of the race 

and ethnicity data collected on the Form 

2728. In addition, we believe that the 

physician attestation would verify that 

the patient had self-reported the racial 

and ethnic status. At that time we could 

also consider the extent to which it 

would be appropriate to expand the race 

categories. 

For the various reasons we discussed 

above, and after considering the public 

comments, we are not finalizing race or 

ethnicity case-mix adjustments in this 

final rule. We intend to continue efforts 

in improving Medicare program data on 

race and ethnicity. As described above, 

we intend to modify the Form 2728 to 

ensure consistency with OMB’s 

standards for data collection. We also 

intend to complete the studies required 

under MIPPA and ACA that will assist 

us in identifying and monitoring health 

disparities on the basis of race or 

ethnicity. Upon completion of these 

studies, further analysis of studies 

referenced by commenters, and using 

updated data, we intend to re-evaluate 

the extent to which it would be 

appropriate to include patient-level 

case-mix adjustments for race or 

ethnicity under the ESRD PPS. We will 

set forth a description of our further 

analysis and the basis of any proposed 

race or ethnicity adjustments in 

rulemaking to the extent that it is 

warranted. 

h. Modality 

Section 1881(b)(14)(D)(iv) of the Act, 

as added by section 153(b) of MIPPA, 

gives the Secretary the authority to 

establish an ESRD PPS, which may 

include payment adjustments as the 

Secretary determines appropriate. 

Therefore, the Act gives the Secretary 

the authority to develop an ESRD PPS 

under which payment rates are based on 

dialysis modality. 

In the proposed rule, we presented 

data showing that per treatment 

composite rate PD costs were 

approximately 11 percent less than HD 

costs ($151.15 vs. $168.99) (74 FR 

49967). Separately billable PD per 

treatment payments were about 60 

percent less than those for HD 

payments. (See tables at 74 FR 49967.) 

We also cited data from the United 

States Renal Data System (USRDS) (74 

FR 49967) showing that the average 

annual cost for PD patients ($53,327) 

was substantially less than that for HD 

patients ($71,889) (74 FR 49967). 

Despite these differences in cost 

between HD and PD, we did not propose 

to develop an ESRD PPS which uses 

type of dialysis modality as a payment 

variable. Using modality as a payment 

variable would result in increased 

predictive power in the resulting 

regression equations. Because composite 

rate costs and separately billable 

payments are lower for PD, the use of a 

modality payment variable would result 

in substantially lower payments for PD 

patients. The payment rates for HD 

patients would be slightly higher, 

because of the greater volume of HD 

patients, and the exclusion of the 

smaller proportion of PD patients from 

the average payment amount that would 

apply to HD patients. We stated that we 

believed the substantially lower 

payments for PD patients that would 

result if modality were used as a 

payment adjuster in the ESRD PPS 

would discourage the increased use of 

PD for patients able to use that modality 

(74 FR 49967). Because we want to 

encourage home dialysis, in which PD 

is currently the prevailing mode of 

treatment, we proposed an ESRD PPS 

which did not rely on separate payment 

rates based on modality (74 FR 49967). 

We stated that by establishing 

prospective payment rates that are 

higher for PD patients than they 

otherwise would be if separate 

payments were established based on 

modality, we believed home dialysis 

would be encouraged for patients able to 

use PD. We invited comments on this 

approach. 

The comments we received and our 

responses are as follows: 

Comment: Several commenters 

expressed gratitude that CMS had not 

proposed an ESRD PPS in which 

differential payments were made based 

on modality. By using the same base 

rate for HD and PD, the commenters 

maintained that this would encourage 

PD. A few commenters cited their own 

personal experiences on both HD and 

PD, pointing out the benefits of home 

PD, and how their quality of life, certain 

clinical outcome measures, and sense of 

well being improved after switching to 

PD. These commenters stated that more 

should be done to encourage PD. 

Response: We agree with the 

commenters, and we are finalizing the 

application of the same base rate 

payment amount for both HD and PD 

patients. We are hopeful that this will 

encourage the use of home PD for those 

patients able to benefit from that 

modality. 

Comment: One commenter stated that 

in countries such as Canada and 

Australia, payers incentivize PD when 

patients can benefit from dialysis at 

home. The commenter noted that 

currently there is no incentive to make 

PD more available in the U.S., but 

supported one bundled payment system 

for both HD and PD. 

Response: We believe that by 

providing one basic payment rate under 

the ESRD PPS for both PD and HD, 

facilities will have a powerful financial 

incentive to encourage the use of home 

PD among dialysis patients where 

feasible. Accordingly, we are finalizing 

the application of the same base rate 

payment amount under the ESRD PP for 

both HD and PD patients in this final 

rule. We will be monitoring the degree 

to which home dialysis increases in the 

future under the ESRD PPS. 

In the proposed rule, we pointed out 

that the case-mix adjustments proposed 

for pediatric patients (74 FR 49981), 

distinguished between HD and PD as a 

payment variable. The small number of 

pediatric dialysis patients, the limited 

ability of the two-equation regression 

model to accurately predict the 

separately billable MAP for pediatric 

patients, and the far greater prevalence 

of PD among pediatric patients, led us 

to examine alternative approaches in 

devising case-mix adjustments for those 

patients. The pediatric payment 


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adjustments described in the proposed 

rule, used modality, in part, to 

determine the case-mix adjusters for 

pediatric dialysis patients. 

For responses to the comments on the 

use of modality as a payment variable in 

connection with the proposed pediatric 

payment model, see section II.G. of this 

final rule. 

4. Proposed Facility-Level Adjustments 

a. Wage Index 

Section 1881(b)(14)(D)(iv)(II) of the 

Act, as added by section 153(b) of 

MIPPA, specifies that the ESRD PPS 

may include such other payment 

adjustments as the Secretary determines 

appropriate, such as a payment 

adjustment by a geographic index, such 

as the index referred to under the 

existing basic case-mix adjusted 

composite payment system. 

In the current basic case-mix adjusted 

composite payment system, we use an 

index based on hospital wage and 

employment data from Medicare cost 

reports. In the CY 2006 PFS final rule 

with comment period (70 FR 70167), we 

announced our adoption of the Office of 

Management and Budget’s (OMB’s) 

CBSA-based geographic area 

designations to develop revised urban/ 

rural definitions and corresponding 

wage index values for purposes of 

calculating ESRD composite rates under 

the basic case-mix adjusted composite 

payment system. OMB’s CBSA-based 

geographic area designations are 

described in OMB Bulletin 03–04, 

originally issued June 6, 2003, and is 

available online at: http:// 

www.whitehouse.gov/omb/bulletins/ 

b03-04.html. In addition, OMB has 

published subsequent bulletins 

regarding CBSA changes, including 

changes in CBSA numbers and titles. 

We stated that this and all subsequent 

ESRD rules and notices are considered 

to incorporate the CBSA changes 

published in the most recent OMB 

bulletin that applies to the hospital 

wage index (73 FR 69758). The OMB 

bulletins may be accessed online at: 

http://www.whitehouse.gov/omb/ 

bulletins/index.html. 

We also stated in the proposed rule 

that we intended to update the current 

ESRD wage index values annually (70 

FR 70167). The ESRD wage index values 

used in the basic case-mix adjusted 

composite payment system are 

calculated without regard to geographic 

reclassifications authorized under 

sections 1886(d)(8) and (d)(10) of the 

Act and utilize pre-floor hospital data 

that are unadjusted for occupational mix 

(71 FR 69685 and 73 FR 69758). Also as 

stated in proposed rule, we applied the 

current ESRD wage index to a 53.711 

labor-related share of the composite 

rate. As we indicated, this labor-related 

share was developed from the laborrelated components of the ESRD 

composite rate market basket (70 FR 

70168). The ESRD wage index in the 

current basic case-mix adjusted 

composite payment system applies a 

wage index budget neutrality factor to 

ensure that the ESRD wage index is 

made in a budget neutral manner (70 FR 

70170). As we previously noted, in our 

current basic case-mix adjusted 

composite payment system, we 

incorporate the wage index budget 

neutrality factor into the wage index. 

We compute a wage index factor and 

adjust it so that wage index budget 

neutrality can be achieved by the labor 

share component only. 

In the ESRD PPS proposed rule (74 FR 

49968), we proposed to use the same 

method and source of wage index values 

as we have been using for the basic casemix adjusted composite payment 

system. Specifically, we proposed that 

the ESRD wage index values to be used 

in the proposed ESRD PPS, would be 

calculated without regard to geographic 

reclassifications authorized under 

sections 1886(d)(8) and (d)(10) of the 

Act, and would utilize pre-floor hospital 

data that are unadjusted for 

occupational mix (74 FR 49968). We 

also proposed to use the OMB’s CBSAbased geographic area designations to 

define urban/rural areas and 

corresponding wage index values. 

Consistent with those definitions, we 

proposed to define urban and rural areas 

at § 413.231(b) (74 FR 50024). 

Under the current basic case-mix 

adjusted composite payment system, we 

apply a floor as a substitute wage index 

for areas with very low wage index 

values. However, we have gradually 

reduced the ESRD wage index floor 

from 0.90 in CY 2005, to 0.85 in CY 

2006, 0.80 in CY 2007, 0.75 in CY 2008, 

0.70 in CY 2009, and 0.65 in CY 2010 

(74 FR 33637 and 33638). We also stated 

that a gradual reduction was needed to 

ensure patient access in areas that have 

low wage index values, and that we 

would continue to reassess the need for 

a wage index floor in future years. 

In the ESRD PPS proposed rule, we 

proposed not to adopt a wage index 

floor (74 FR 49968). We noted that 

ESRD facilities affected by the floor may 

opt to go through the transition to the 

ESRD PPS, where the portion of their 

payment that is based on the ESRD PPS 

would be gradually increased from 25 

percent of their payments in 2011 to 100 

percent of their payments in 2014. We 

intended to continue to gradually 

reduce the ESRD wage index floor for 

the portion of the payment that is based 

on the current basic case-mix adjusted 

composite payment system during the 

transition. Applying a gradual reduction 

only to the floor that applies to the 

existing basic case-mix adjusted 

composite payment system ESRD wage 

index was intended to accelerate the 

decline in the floor so that ESRD 

facilities would be less dependent on 

the floor. At the end of the transition, 

we indicated that we would apply their 

actual wage index values (74 FR 49968). 

In CY 2006, while adopting the CBSA 

designations for the basic case-mix 

adjusted payment system, we identified 

a small number of ESRD facilities in 

both urban and rural areas where there 

are no hospital data from which to 

calculate ESRD wage index values. 

Since there are ESRD facilities in these 

areas, we developed policies for each of 

these areas. The areas with ESRD 

facilities that have no hospital data are 

rural Massachusetts, rural Puerto Rico, 

and Hinesville, GA (CBSA 25980). In 

the ESRD PPS proposed rule (74 FR 

49969), we proposed to continue with 

our current policies for rural 

Massachusetts and Hinesville, Georgia 

(74 FR 49969). For rural Massachusetts, 

we proposed to adopt the methodology 

originally adopted, for CY 2008 PFS 

final rule, in which we compute the 

entire rural area consists of Dukes and 

Nantucket Counties. We determined 

that the borders of Dukes and Nantucket 

Counties are contiguous with CBSA 

12700, Barnstable Town, MA, and CBSA 

39300, Providence-New Bedford-Fall 

River, RI for establishing a wage index 

value. For Hinesville, GA (CBSA 25980), 

we proposed to continue to use the 

methodology, that is, we computed the 

average wage index value of all urban 

areas within the State of Georgia, that 

was adopted in the CY 2007 PFS final 

rule. 

Since the publication of the ESRD 

PPS proposed rule, we have determined 

that there is an additional urban area, 

Anderson, South Carolina (SC) (CBSA 

11340), with no hospital data. For this 

urban area, Anderson, SC, we are using 

the same methodology we have used for 

the other urban area with no hospital 

data, that is, Hinesville-Fort Stewart, GA 

(CBSA 25980). Under the methodology 

used for that area, we computed the 

average of all urban areas within the 

State of South Carolina. We continue to 

believe that this method of establishing 

a wage index value for areas with no 

hospital data is the most appropriate 

method. 

We did not receive comments on the 

proposed continuation of our current 

policies for rural Massachusetts and 

Hinesville, Georgia. Therefore, in this 


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final rule we are finalizing the same 

methodology we have used for areas 

with no hospital data in the past, that 

is, compute the average wage index 

value of all urban areas within the state 

and use that value as the wage index. 

In the ESRD PPS proposed rule (74 FR 

49969), we proposed to eliminate the 

wage index floor under the ESRD PPS 

and to use the value for rural Puerto 

Rico (0.4047) that has been used by 

other payment systems for rural areas 

that do not use a wage index floor. In 

particular, we have previously applied 

the ESRD wage index floor for rural 

Puerto Rico, because all areas in Puerto 

Rico that have a wage index were 

eligible for the ESRD wage index for the 

proposed ESRD PPS (74 FR 49969). 

We also proposed to use the laborrelated share as measured by the 

proposed ESRD bundled market basket, 

which was 38.160 percent in the 

proposed rule (74 FR 49969, 50003). 

Our proposed adjustment for wages was 

set forth in § 413.231 (74 FR 50024). 

For the proposed rule (74 FR 49969), 

we used the most current final wage 

index available at that time to complete 

the analysis. As we indicated, we 

anticipated that the proposed CY 2011 

ESRD PPS wage index data for purposes 

of the ESRD PPS (that would not 

include any wage index budgetneutrality adjustment) along with the 

CY 2011 proposed update to the existing 

basic case-mix adjusted composite 

payment system, would be published in 

the CY 2011 PFS proposed rule (75 FR 

40167 through 40168). We also 

proposed to publish the final CY 2011 

ESRD PPS wage index along with the 

CY 2011 final rule update to the existing 

basic case-mix adjusted composite 

payment system in the CY 2011 

Physician Fee Schedule final rule, 

which we expect would be published in 

November of 2010 (74 FR 49969). 

The comments we received on the 

wage index proposal and our responses 

are set forth below. 

Comment: One commenter indicated 

that the CMS’ use of the composite rate 

separately billable wage index listed on 

the facility level impact file is 

inaccurate and questioned the accuracy 

of the spreadsheet used in the proposed 

rule. Also, the commenter believed that 

the labor-related share of the proposed 

bundle would be significantly lower 

than the share under the current rate. 

Response: The labor-related share 

based on the ESRD PPS bundled market 

basket ESRDB is lower than the laborrelated share under the basic case-mix 

adjusted composite payment system. 

This is due to the fact that the laborrelated share for the current system does 

not include the labor-related share 

component associated with separately 

billable items and services. The laborrelated share in the proposed ESRDB 

market basket was 38.160 percent (74 

FR 50003). This share represents the 

proportion of an ESRD facility’s 

payment that is adjusted for geographic 

wage differences. For this final rule, in 

response to public comment, we made 

several methodological changes to the 

ESRDB market basket described in 

section II.J. of this final rule. The 

revised labor-related share is 41.37 

percent. 

Comment: Many of the commenters 

agreed that for some rural facilities, 

additional staff must be recruited from 

nearby large cities, and travel costs and 

wage premiums are paid to encourage 

employees to endure the long 

commutes. 

Response: The wage data used to 

construct the wage index are updated 

annually, based on the most current 

data available and are based on OMB’s 

definitions when applying the rural 

definitions and corresponding wage 

index values. As a result, the wage 

index reflects increased efforts by rural 

ESRD facilities. 

Comment: Commenters believed that 

the wage index floor should be 

maintained for all rural geographic 

locations to prevent access barriers and 

resulting rural disparities. The 

commenters also expressed concern that 

the proposed removal of this floor 

would aggravate disparities in care and 

would impair access to care at rural 

facilities. 

One commenter believed that the 

elimination of the wage index floor will 

result in a decline in a per treatment 

cost and questioned the adequacy of the 

methodology used to develop the wage 

index. Commenters from Puerto Rico 

strongly urged CMS to retract its 

proposal to eliminate the wage index 

floor applicable to dialysis services 

rendered in Puerto Rico in order to 

avoid endangering timely and accurate 

renal dialysis services to their patients. 

The commenters also believed that the 

wage index values are flawed because of 

the use of 4-year-old data to calculate 

current values in all areas of Puerto 

Rico. 

Response: As stated above, the wage 

data used to construct the wage index 

are updated annually, based on the most 

current data available and are based on 

OMB’s definitions when applying the 

rural definitions and corresponding 

wage index values. Since publication of 

the ESRD PPS proposed rule, we have 

proposed a CY 2011 wage index floor of 

0.60 for the case-mix portion of the 

blended payment for purposes of the 

transition in the CY 2011 PFS proposed 

rule (75 FR 40167). 

The only CBSAs that would be 

affected by the proposal to eliminate the 

wage index floor value for the ESRD 

PPS wage index are located in Puerto 

Rico. In Puerto Rico, the majority of 

ESRD facilities’ wage indices are 

significantly below the current floor. As 

a result of public comments, we believe 

maintaining the wage index floor under 

the ESRD PPS will benefit ESRD 

facilities that have low wage index 

values. 

Therefore, for this final rule, we will 

finalize our proposal regarding the use 

of the OMB’s CBSA-based geographic 

area designations to define urban/rural 

areas and corresponding wage index 

values as proposed. Also, although we 

proposed to eliminate the wage index 

floor under the ESRD PPS, we will 

continue to apply the wage index floor 

during the transition to the PPS portion 

of the ESRD PPS payment in 2011. We 

note that eliminating the wage index 

floor over the course of the transition, 

provides an additional cushion to those 

facilities going through the transition, 

because they will continue to receive 

the benefit of the floor as they adjust to 

payments under the ESRD PPS. 

Although a commenter suggested that 

we apply the floor to all rural area 

values, it is important to note that no 

rural ESRD facilities outside Puerto Rico 

would benefit from the current floor 

because their wage indexes exceed 0.60. 

As we indicated in the proposed rule 

(74 FR 49969), we issued the proposed 

CY 2011 wage index for the composite 

rate portion of the blended payment in 

the CY 2011 PFS proposed rule (75 FR 

40167) and will respond to public 

comments and finalize the CY 2011 

ESRD PPS wage index in the CY 2011 

PFS final rule later this year. Lastly, we 

are finalizing 413.231 (Adjustment for 

wages), however, we are revising the 

provision to indicate the wage index is 

applied to the labor-related share of the 

base rate. 

b. Low-Volume Adjustment 

Section 1881(b)(14)(D)(iii) of the Act 

requires a payment adjustment that 

‘‘reflects the extent to which costs 

incurred by low-volume facilities (as 

defined by the Secretary) in furnishing 

renal dialysis services exceed the costs 

incurred by other facilities in furnishing 

such services, and for payment for renal 

dialysis services furnished on or after 

January 1, 2011, and before January 1, 

2014, such payment adjustment shall 

not be less than 10 percent.’’ 


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i. Defining a Low-Volume Facility 

As indicated above, section 

1881(b)(14)(D)(iii) of the Act authorizes 

the Secretary to define ‘‘low-volume 

facilities’’ for purposes of a payment 

adjustment in the proposed ESRD PPS. 

As discussed in the proposed rule (74 

FR 49969), we believed the low-volume 

adjustment should encourage small 

ESRD facilities to continue to provide 

access to care to an ESRD patient 

population where providing that care 

would otherwise be problematic. For the 

proposed rule, UM–KECC performed 

analyses using data from CMS Medicare 

cost reports, SIMS, and OSCAR for years 

2004–2006 to assist us in determining 

what the ESRD facility-level 

characteristics are that best demonstrate 

a low-volume facility (74 FR 49969). In 

the proposed rule, we described the 

methodology used to define a lowvolume facility by setting the 

parameters for ESRD facility size. We 

explained that the term ‘year’ would be 

established by the ESRD facility’s finalsettled cost report, where the finalsettled cost report reports costs for 12 

consecutive months (74 FR 49970). 

For purposes of exploring possible 

definitions for low-volume facilities, we 

began by developing a measure for 

facility size. Under the initial 

categorization, an ESRD facility that 

furnished less than 5,000 treatments per 

year was considered small, an ESRD 

facility that furnished 5,000 to 10,000 

treatments per year was considered 

medium, and an ESRD facility that 

furnished 10,000 treatments per year or 

more was considered large. We then 

categorized all ESRD facilities into four 

ESRD facility ownership types: (1) 

Independent, (2) regional chains, (3) 

Large Dialysis Organizations (LDOs), 

and (4) unknown ownership type. Of 

the hospital-based ESRD facilities, we 

found that 75.5 percent were 

independent, 10.7 percent were 

members of a regional chain/other 

category, 0.7 percent were members of 

an LDO, and 13.2 percent had unknown 

ownership status. 

The comparison between ESRD 

facility size and ownership type 

indicated that ownership varied with 

ESRD facility size and smaller ESRD 

facilities, especially those with less than 

3,000 treatments, were relatively more 

likely to be independent than larger 

ESRD facilities. The comparison also 

indicated that while smaller ESRD 

facilities were less likely to be members 

of an LDO than larger ESRD facilities, a 

relatively large fraction of smaller ESRD 

facilities were members of an LDO. As 

a result of the comparison between 

ESRD facility size and ESRD facility 

ownership type, we chose to use ESRD 

facility ownership type as a variable in 

a two-equation regression analysis to 

test whether cost varied by ESRD 

facility ownership type within an ESRD 

facility size category (74 FR 49970). 

We also looked at the distribution of 

ESRD facility size across ESRD facilities 

that have an urban or rural status. We 

found that nearly half of the small ESRD 

facilities were rural and larger ESRD 

facilities were less likely to be rural. The 

comparison also indicated that because 

most ESRD facilities were urban, even 

with the lower percentage of small 

ESRD facilities in urban areas, more 

urban ESRD facilities than rural ESRD 

facilities would benefit from a lowvolume payment adjustment. As a result 

of the comparison between ESRD 

facility size and urban/rural status, we 

used urban/rural status as a variable in 

a two-equation regression analysis to 

test whether cost varies by urban/rural 

status within an ESRD facility size 

category (74 FR 49971). 

In the proposed rule, we discussed 

the methodology used to identify the 

factors that could be targeted to ensure 

that we had the right population of 

ESRD facilities that were low-volume as 

well as the methodology used to 

identify the treatment threshold (74 FR 

49971 through 49975). We found that 

the cost multipliers for small ESRD 

facilities were greater than 1.1 for any of 

the definitions for small ESRD facility 

size with respect to number of 

treatments per year and that the cost 

multipliers tended to decline for 

successively higher cutoffs for defining 

small ESRD facilities. We also noted 

that if a payment multiplier fully 

reflected the cost multiplier, there 

would be a strong disincentive for ESRD 

facilities to increase volume above the 

cutoff. However, to the extent that a 

payment multiplier was smaller than 

the cost multiplier, this disincentive 

was somewhat diminished (74 FR 

49974). 

We explained that since the analyses 

included data that spanned a 3-year 

period (2004–2006), we further 

evaluated the three ESRD facility size 

categories that we applied in the 

previous regression analysis, that is, less 

than 2,000 treatments, less than 3,000 

treatments, and less than 4,000 

treatments per year. We were interested 

to see the number of small ESRD 

facilities that were able to maintain their 

ESRD facility size status each year of the 

3-year period. We proposed to use a 

threshold of ESRD facilities that provide 

less than 3,000 treatments per year 

across the 3-year period because it 

struck a balance between establishing an 

increment in payment that reflected the 

substantially higher treatment costs 

incurred by low-volume facilities (an 

increment that tended to decrease as the 

low-volume threshold was raised) but 

still applied to a sufficiently large 

number of ESRD facilities to have an 

impact (74 FR 49975). 

In the proposed rule, we explained 

that in accordance with the statute, we 

defined low-volume facilities in 

§ 413.232, as an ESRD facility that meets 

the following criteria: (1) Furnished less 

than 3,000 treatments in each of the 3 

years preceding the payment year; and 

(2) has not opened, closed, or received 

a new provider number due to a change 

in ownership during the 3 years 

preceding the payment year (74 FR 

49975). 

In the proposed rule, we expressed 

our awareness that there are Medicarecertified ESRD facilities that solely 

furnished support services and training 

for home hemodialysis and home 

peritoneal dialysis to ESRD 

beneficiaries. We expressed our concern 

that it may not be appropriate to extend 

low-volume eligibility to these types of 

facilities (74 FR 49975). 

In addition, in the proposed rule, we 

expressed our concerns about potential 

misuse of the proposed low-volume 

adjustment. Specifically, our concern 

was that the low-volume adjustment 

could incentivize dialysis companies to 

establish small ESRD facilities in close 

geographic proximity to other ESRD 

facilities, thereby leading to 

unnecessary inefficiencies, in order to 

obtain the low-volume adjustment. To 

address our concern, we proposed 

criteria for ESRD facilities to be eligible 

for the low-volume adjustment. We 

proposed that for the purposes of 

determining the number of treatments 

under the proposed definition of a lowvolume facility, the number of 

treatments considered furnished by the 

ESRD facility would be equal to the 

aggregate number of treatments actually 

furnished by the ESRD facility and the 

number of treatments furnished by other 

ESRD facilities that are both: (i) Under 

common ownership with; and (ii) 25 

road miles or less from the ESRD facility 

in question. However, we proposed to 

grandfather those commonly owned 

ESRD facilities that had been in 

existence and certified for Medicare 

participation on or before December 31, 

2010, thereby exempting them from the 

geographic proximity restriction (74 FR 

49975). 

In the proposed rule, we discussed 

that there would need to be a method 

in place so that existing ESRD facilities 

that met the definition of a low-volume 

facility could be identified. We 

proposed that ESRD facilities could 


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attest to the FI/MAC that they qualify as 

a low-volume facility (74 FR 49975 

through 49976). 

We solicited comment on the change 

of ownership element of the proposed 

definition of a low-volume facility. We 

did not receive any comments and, 

therefore, we are finalizing the change 

of ownership element of the low-volume 

definition at § 413.232. 

We did not receive comments on the 

proposed grandfathering provision nor 

the ESRD facilities attestation of lowvolume status requirement. Therefore, 

in this final rule, we are finalizing those 

provisions as proposed. We received a 

few comments on the appropriateness of 

applying the low-volume adjustment to 

training ESRD facilities as set forth 

below. 

Comment: One commenter was 

opposed to applying the low-volume 

adjustment to ESRD facilities that solely 

furnish support services and training to 

home patients. The commenter believed 

that because these facilities do not treat 

patients, they should not be eligible for 

the low-volume adjustment. Two 

commenters believed that it is 

appropriate to apply the low-volume 

adjustment to eligible ESRD facilities 

that solely furnish support services and 

training to home patients. One 

commenter explained that allowing 

these types of facilities to be eligible for 

the low-volume adjustment is consistent 

with encouraging home dialysis options. 

Another commenter provided a detailed 

explanation as to why small facilities 

that only furnish PD should qualify for 

the adjustment. This commenter also 

asked for clarification as to how CMS 

would identify facilities that solely 

furnish support services and training 

and if these facilities would be excluded 

from the analysis. One commenter 

expressed concern about CMS’ 

treatment of home dialysis services in 

the low-volume policy indicating that 

CMS does not have the ability to 

properly identify training programs. 

Response: We maintain a database of 

all ESRD facilities and their respective 

Medicare certifications. We are able to 

use this database to develop reports and 

to analyze and monitor the different 

facility characteristics and trends. The 

cost reports used in determining lowvolume ESRD facilities for the analyses 

of costs for composite rate and 

separately billable services identifies 

both home and in-facility dialysis 

treatments, including training 

treatments. 

With regard to the comments 

concerning the facilities that solely 

furnish support services and training, in 

our analysis we controlled for the 

percentage of training treatments in the 

facility so that the adjustment for lowvolume facilities would be independent 

of costs associated with home dialysis 

training. Therefore, we are including 

ESRD facilities that solely furnish 

support services and training as being 

eligible for the low-volume adjustment. 

We believe that including this type of 

ESRD facility as being eligible for the 

low-volume adjustment could 

encourage ESRD facilities in rural areas, 

to provide home dialysis training. We 

will monitor the extent to which 

facilities that solely furnish home 

dialysis training support receive the 

low-volume payment adjustment and 

whether the number of these facilities 

increases after implementation of the 

ESRD PPS. 

We received many comments on the 

possible unintended effects of 

establishing a treatment threshold and 

other comments on the definition of a 

low-volume ESRD facility as set forth 

below. 

Comment: Many commenters 

expressed concern regarding potential 

disincentives low-volume facilities 

could have regarding patient care. The 

commenters suggested that CMS 

consider strategies for monitoring the 

low-volume adjustment in addition to 

those stated in the proposed rule. The 

commenters claimed that facilities will 

not offer additional treatments if it 

means that those additional treatments 

will render the facilities ineligible for 

the low-volume adjustment. The 

commenters also asserted that dialysis 

chains will establish facilities in a 

market where another facility is 

sufficiently servicing a location just to 

be able to take advantage of the 

adjustment. The commenter stated that 

a dialysis chain could create an artificial 

low-volume facility that purposely 

operates below its efficiency level in 

order to receive the adjustment. The 

commenters recommended that CMS 

enact controls and measures to prevent 

gaming of the low-volume adjustment 

and to ensure that those facilities which 

serve disadvantaged areas are correctly 

identified. One commenter suggested 

that CMS only apply the adjustment to 

facilities that are not within 30 road 

miles of another facility. 

Response: We share the commenter’s 

concerns and agree that there is 

potential for gaming as a result of the 

low-volume adjustment. At this time, 

we are not finalizing any additional 

criteria or requirements. We believe that 

the geographic proximity restriction, as 

described in the ESRD PPS proposed 

rule (74 FR 49975), produces the same 

effect as the commenter’s suggestion of 

not allowing ESRD facilities that are 

within 30 road miles of another ESRD 

facility to be eligible for the low-volume 

adjustment. We believe that the 

commenter’s suggestion is too restrictive 

in that there could be independent 

small ESRD facilities that are servicing 

areas efficiently even if there are within 

30 road miles of another independent 

ESRD facility. We will monitor 

payments under the ESRD PPS and the 

location of new facilities to determine if 

changes in the criteria that qualify ESRD 

facilities as being low-volume are 

warranted. 

Comment: Many commenters 

supported the low-volume adjustment 

indicating that the adjustment would 

encourage small ESRD facilities to 

continue to provide access in areas 

where the patient base is low. 

Response: We thank the commenters 

for their support. 

Comment: A couple of commenters 

questioned the rationale we used in 

determining the treatment threshold. 

Specifically, the commenters stated that 

CMS used an arbitrary selection of 3,000 

treatments, which ignores the real and 

measurable higher costs per treatment 

incurred by low-volume facilities 

performing 4,000 or 5,000 treatments 

per year. A few commenters requested 

that CMS provide a detailed explanation 

of its methodology for selecting facilities 

as being eligible for the low-volume 

adjustment and verify that facilities 

identified as low-volume meet the 

criteria of providing less than 3,000 

treatments. 

A few commenters expressed concern 

that the proposed treatment threshold of 

less than 3,000 treatments would 

capture too low of a population of small 

facilities leaving out many facilities that 

they believe should receive the 

adjustment. Several commenters 

expressed concern that most pediatric 

facilities may not qualify based on the 

less than 3,000 treatment threshold. The 

commenters suggested that CMS raise 

the treatment threshold portion of the 

low-volume definition to less than 4,000 

treatments. 

Response: We disagree with the 

comment that our proposal to establish 

a threshold of less than 3,000 treatments 

was arbitrary. As discussed in the 

proposed rule, we began the 

development of the low-volume 

adjustment by analyzing facility size. 

We determined facility size by looking 

at the total number of treatments that a 

facility furnished annually because that 

was the basis for which they receive 

payment. We used the total treatment 

counts from cost reports for 2004, 2005, 

and 2006. We carefully assessed 

treatment counts beginning at less than 

1,000 and moved upward to more than 

10,000. We performed comparisons of 


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different facility characteristics against 

the different treatment thresholds and 

studied the trends. We found that in 

each comparison, when the number of 

treatments increased, the cost that 

facilities incurred for composite rate 

services decreased (74 FR 49970). 

For this final rule, we repeated the 

analyses using cost reports for 2006, 

2007, and 2008. We also used SIMS data 

for total treatments for calendar year 

2008 to see the change in the percentage 

of certain ESRD facility types that 

would be eligible with a less than 4,000 

treatment threshold that may not have 

been eligible with a less than 3,000 

treatment threshold. As displayed in 

Tables 23 and 24, we compared 

characteristics of facilities eligible for a 

low-volume adjustment that are based 

on a 3,000 treatment threshold for 

determining low-volume status to 

characteristics of facilities eligible for 

the low-volume adjustment that are 

based on a 4,000 treatment threshold. 

We found the percent of Medicare HDequivalent dialysis treatments that 

would qualify for the low-volume 

adjustment increased from 0.7 percent 

using a 3,000 treatment threshold to 1.9 

percent using a 4,000 treatment 

threshold. The tables also show that 

when compared to larger facilities, 

facilities that would be eligible for the 

low-volume adjustment are more likely 

to be located in a rural area, less likely 

to be part of an LDO, more likely to be 

hospital based, likely to have a 

somewhat higher percentage of 

Medicare patients, more likely to be a 

pediatric facility, more likely to have 

previously received an isolated essential 

facilities (IEF) composite rate payment 

exception, and more likely to 

concentrate on home dialysis. 

Based on the commenter’s arguments 

and our subsequent analysis regarding 

the treatment threshold, in this final 

rule, we are finalizing a threshold of less 

than 4,000 treatments and we are 

revising the regulation at § 413.232 to 

reflect this threshold. 

BILLING CODE P 


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BILLING CODE C 


jlentini on DSKJ8SOYB1PROD with RULES2ER12AU10.027</GPH>
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Comment: One commenter 

recommended that CMS consider a 

stratified differential payment to all 

ESRD facilities based on treatment 

thresholds. The commenter further 

explained that under a differential 

payment method, facilities would 

receive the largest adjusted payment for 

the first 1,000 treatments and then as 

the number of treatments increases, the 

payment amount would decrease. 

Response: We thank the commenter 

for their suggestion. We will monitor the 

number of facilities that are low-volume 

throughout the initial years of the ESRD 

PPS and analyze their behaviors to 

decide if we should develop a different 

methodology in determining lowvolume eligibility in future refinements. 

Comment: We received a few 

comments objecting to our proposal to 

use total annual treatments as a criterion 

in the low-volume definition. The 

commenters explained that there are too 

many variables associated with using 

treatments, such as, patients 

hospitalized, patients who travel, 

patient-visitors, and missed treatments. 

The commenters stated that a stable 

method of determining the volume of a 

facility is by patient census or by 

counting the number of chairs available 

for furnishing treatments (stations) in 

the facility. 

Response: We disagree that a stable 

method of determining the volume of an 

ESRD facility would be by patient 

census or stations in the facility. In the 

proposed rule, we explained that in the 

initial analysis, an ESRD facility size 

was defined by the number of 

treatments (74 FR 49970). Payments to 

ESRD facilities are paid on a per 

treatment basis and we noted that 

patient census accounted for by the 

number of treatments that are furnished. 

We believe that furnishing care to 

patients that get hospitalized, patients 

who travel, patient-visitors, and those 

patients that miss treatments is a 

universal occurrence among all ESRD 

facilities and, therefore, these 

circumstances neither serve as an 

advantage nor a detriment in an ESRD 

facility’s eligibility for the low-volume 

adjustment. We do not consider patient 

census or number of stations as 

indicators of low-volume status, because 

these would not reflect the actual 

number of treatments provided. In 

addition, we continue to believe the use 

of total treatments, including those 

covered by other payers, is necessary to 

determine eligibility for low-volume 

status. 

Comment: A few commenters from 

hospital associations requested 

clarification on which treatments would 

count toward the proposed treatment 

threshold, because they furnish both 

inpatient and outpatient dialysis 

services. 

Response: Payment for renal dialysis 

services under the current payment 

system and under the ESRD PPS is 

made to Medicare-certified ESRD 

providers of services or renal dialysis 

facilities for furnishing outpatient 

maintenance renal dialysis items and 

services. Given that the ESRD PPS 

pertains to outpatient maintenance 

dialysis, the low-volume adjustment 

treatment threshold only pertains to 

outpatient dialysis and therefore, the 

treatments counted do not include 

inpatient dialysis treatments. 

Comment: One commenter suggested 

that CMS include payer mix as a 

criterion in determining the eligibility of 

a low-volume facility. The commenter 

expressed concern that facilities that 

have a higher percentage of Medicareonly patients, or patients that are 

Medicare and Medicaid eligible, have a 

high risk of having low profit margins. 

Response: We disagree with the 

commenter that payer mix should be 

used as a criterion in determining lowvolume eligibility. As we stated in the 

proposed rule (74 FR 49969), we believe 

the low-volume adjustment is intended 

to encourage small ESRD facilities to 

continue to provide access to care to an 

ESRD patient population where 

providing that care would otherwise be 

problematic. Therefore, we will provide 

an adjustment based on the volume of 

treatments provided and not on the 

basis of a payer mix. We note that many 

ESRD facilities determined eligible for 

the low-volume adjustment have a high 

percentage of Medicare patients (see 

Table 24). 

Comment: Some commenters 

suggested that the implementation of 

the low-volume criteria should be more 

specific and clear in stating eligibility 

for the adjustment. Two commenters 

questioned how CMS will determine 

when a facility reaches its 3000th 

treatment. The commenters suggested 

that one way we could determine when 

a facility reached the 3,000 treatment 

threshold is to use Medicare claims. The 

commenter explained that if CMS uses 

Medicare claims to make this 

determination, then this would suggest 

that CMS is not including non-Medicare 

treatments. The commenters suggested 

that the alternative to using Medicare 

claims would be to use cost reports. 

However, the commenters expressed 

concern that using cost reports would 

create too long of lag time from when 

the facility is no longer eligible for the 

low-volume adjustment and when the 

FI/MAC would be able to identify total 

treatments. The commenters expressed 

concern that using the cost reports to 

verify that a facility does or does not 

continue to be eligible for the lowvolume adjustment means that CMS 

would retroactively collect monies paid 

out on all treatments that exceeded the 

threshold in that payment year. Other 

commenters suggested that CMS use 

cost reports to terminate the application 

of the low-volume adjuster at the time 

the cost report is submitted and to not 

claw back the dollars already paid out. 

Response: We believe that we were 

explicit in our discussion of criteria in 

the proposed rule (74 FR 49975), but we 

agree that we did not discuss the 

implementation in the proposed rule. 

We will provide additional information 

on the implementation of the lowvolume adjustment in the future. 

Therefore, we are finalizing the lowvolume definition and the applicable 

criteria as set forth in § 413.232. 

We used all treatments including nonMedicare treatments from the cost 

reports to establish the low-volume 

threshold, as we believe that inclusion 

of all treatments regardless of payer type 

represents the true volume of treatments 

that are provided to ESRD patients. If 

we had not included treatments from 

other payer types, we would have not 

determined the actual volume of 

services provided to individuals with 

ESRD. Therefore, we will use cost 

reports to confirm facility status as lowvolume. 

We agree with the commenter that 

there is a lag time from when the facility 

may no longer be eligible for the lowvolume adjustment and when the FI/ 

MAC finalizes its cost report for that 

payment year. It is our understanding 

that ESRD facilities have accounting 

systems in place that allow them the 

ability to record the number of patients 

that they currently care for, and are 

therefore aware of the number of 

treatments it furnishes on a monthly 

basis. 

We recommend that once a facility 

determines it has furnished over 4,000 

treatments in the payment year that it 

would notify its respective FI/MAC that 

it no longer qualifies as a low-volume 

facility and request to no longer have 

the adjustment applied to its treatments. 

Where a facility no longer meets the 

eligibility requirements and does not 

notify its FI/MAC, CMS will develop 

procedures to ensure that ESRD 

facilities receive the appropriate 

payments. We will address these 

procedures in detail in the future. 

Comment: A few commenters stated 

that they do not believe that the data 

CMS used to develop the low-volume 

adjustment was appropriate. The 

commenters explained that cost reports 


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have not been used for purposes of 

setting payment and that their 

experience with cost reports is that they 

typically have extreme values/errors 

that can distort results. The commenters 

suggested that CMS perform a more 

detailed review of the individual 

facilities that it identified as being 

qualified to receive the low-volume 

adjustment to ensure that the correct 

facilities are being identified. The 

commenters recommended that we 

consider adhering to the statutory 

recommendation of a 10 percent 

adjustment in absence of clear, concrete 

data. 

Response: We use the cost report 

information to obtain facility level 

information that includes facility costs 

for composite rate services and the 

number of dialysis treatments provided 

by a facility. Because the low-volume 

payment adjustment is a facility level 

adjustment, whereby an ESRD facility 

would receive a payment adjustment 

based on the number of maintenance 

dialysis treatments it furnished, we 

believe the cost report would be the 

appropriate source to obtain that 

information. We agree with the 

commenter that in our data analysis for 

the ESRD PPS, we found that there were 

individual cost reports with extreme 

values or errors and a methodology has 

been used to exclude these records from 

the analyses (discussed further in 

section II.C. of this final rule). We will 

be monitoring the use of the low-volume 

adjustment to ensure that appropriate 

ESRD facilities, which have not 

exceeded the 4,000 treatment threshold, 

will receive the low-volume payment 

adjustment. In the meantime, we believe 

using the adjustment derived from the 

regressions analysis is a better measure 

of the costs of low-volume facilities. 

Comment: We received two comments 

requesting clarification of why we used 

89 low-volume facilities in the lowvolume adjustment analysis but listed 

166 low-volume facilities in the impact 

file. The commenters provided 

examples of facilities that were 

identified by CMS as low-volume in the 

impact analysis, but according to their 

research, did not meet the low-volume 

criteria, such as (1) 6 facilities closed in 

2007 or 2008; (2) 11 facilities had 

greater than 3,000 total treatments for 

cost report year 2006; (3) 2 facilities 

were start-ups or may have changed 

ownership in 2007; and (4) 30 facilities 

have zero workstations which would 

indicate that they appear to be home 

dialysis programs. The commenters 

stated that these examples indicate that 

CMS is incorrectly identifying facilities 

as low-volume. 

Response: As discussed in the 

proposed rule (74 FR 49969), the data 

used for the regression analysis which 

was used to determine the magnitude of 

the adjustment for low-volume facilities 

(not to identify the actual ESRD facility), 

was made from Medicare cost reports, 

SIMS, and OSCAR for the years 2004, 

2005, and 2006. Using the data available 

at the time the analysis was completed, 

we estimated that 89 facilities with cost 

report data available for the regression 

analysis would qualify as low-volume 

facilities (74 FR 49975). 

However, to assess the impact of the 

ESRD PPS in 2011, we used the most 

recent data available to determine total 

facility treatments. Because cost reports 

for 2007 were generally not complete at 

the time of the analysis, we used SIMS 

data to identify low-volume facilities 

that would be eligible for the 

adjustment. The information in SIMS is 

populated from the Annual Facility 

Survey which is submitted by all ESRD 

facilities on a yearly basis. Based on the 

data available at the time the impact 

analysis was completed, 166 facilities 

met the low-volume definition proposed 

at § 413.232 (74 FR 50018). Therefore, it 

is possible that there is conflict between 

CMS’s data and the data that was being 

analyzed by the commenter due to the 

timing of when the analysis was 

completed and the difference in data 

sources. 

Comment: One commenter disagreed 

with the proposed requirement that an 

ESRD facility must provide less than the 

treatment threshold for three 

consecutive years before becoming 

eligible for the low-volume payment 

adjustment if the ESRD facility serves a 

population of patients located in remote 

areas. The commenter suggested 

reducing the qualification time period to 

one year. One commenter expressed 

concern that limiting the low-volume 

adjustment to facilities that have been in 

operation for three years would freeze 

the number of ESRD facilities in rural 

areas, thereby causing patient access 

issues. 

Response: We appreciate the 

commenter’s suggestion however we do 

not have a mechanism in place to 

determine if a facility is in a remote 

area. We discuss rural facilities later in 

this section of this final rule. 

We believe that a 3-year waiting 

period serves as a safeguard against 

facilities that have the opportunity to 

take a financial loss in establishing new 

facilities that are purposefully small. We 

structured our analysis of the ESRD PPS 

by looking across data for three years as 

we believe that the 3-year timeframe 

provided us with a sufficient span of 

time to view consistency in business 

operations. 

Comment: Several commenters 

recommended that the IEF be 

considered eligible for the low-volume 

adjustment regardless of the number of 

treatments they provide each year. Two 

commenters expressed concern that 

twelve of the 37 facilities with current 

IEF Medicare exceptions exceeded the 

3,000 low-volume threshold. The 

commenters believe that the facilities 

that currently have IEF status have been 

deemed as an IEF through the exception 

process by providing evidence of their 

excess costs due to furnishing dialysis 

treatments in areas that are isolated. 

One commenter suggested that CMS 

review the cost reports for these IEFs 

and base the adjustment on current and 

accurate costs. Another commenter 

suggested the same idea but added that 

the adjustment be at least 10 percent. 

Response: To be eligible for an IEF 

exception rate under the current basic 

case-mix adjusted composite payment 

system, an ESRD facility was required to 

demonstrate that it met the criteria 

established by us. As discussed in 

section II.L. of this final rule, all 

exceptions currently in place will no 

longer apply under the ESRD PPS. The 

IEFs that retained their exception rate 

after the implementation of the basic 

case-mix adjusted composite payment 

system will no longer be able to retain 

that rate after the implementation of the 

ESRD PPS. As a result, there is no 

mechanism to reassess or grant 

exceptions. However, in the event that 

an ESRD facility elects to receive 

payment under the ESRD PPS transition 

period, any existing exceptions would 

be recognized for the purpose of the 

basic case-mix adjusted composite 

payment system portion of the blended 

payment through the transition. 

In the proposed rule, we indicated 

that there are currently 37 facilities that 

retained their exception rates (74 FR 

50018). However, the 37 facilities are 

not exclusively IEFs. The total 

represents both facilities that met the 

criteria for an IEF exception and 

facilities that demonstrated they have 

atypical service intensity. 

We do not believe that IEF facilities 

should automatically be considered 

low-volume because the criteria 

required for the IEF exceptions differ 

from the criteria established to be 

eligible for the low-volume adjustment. 

Comment: One commenter 

recommended that CMS develop a 

methodology similar to the one used to 

identify critical access hospitals (CAH). 

The commenter further explained that 

this would include mileage proximity to 


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another dialysis facility as well as 

number of treatments per year. 

Response: We appreciate this 

suggestion; however, we believe that 

ESRD facilities and CAHs are not 

comparable provider types. CAHs, 

defined at section 1820(c)(2)(B) of the 

Act, furnish a multitude of services and 

have provider-specific conditions of 

participation, and therefore, have 

criteria established to identify them. We 

believe that we have developed criteria 

that are appropriate to establish if an 

ESRD facility is eligible for a lowvolume payment adjustment. Therefore, 

as we indicated in the previous 

response, we are finalizing the criteria 

to be used to determine low-volume 

eligibility in § 413.232. We will monitor 

the growth of low-volume facilities to 

see if additional criteria are warranted 

in the future. 

Comment: Several commenters 

expressed concern that the low-volume 

adjustment would not ‘‘level the 

marketplace between competitors and 

therefore would not help the average 

small dialysis organization (SDO)’’. 

Some commenters stated that CMS 

should support small businesses 

because most SDOs are dependent on 

Medicare patients for the majority of 

their treatments. The commenters 

further stated that only facilities that are 

not part of an LDO should receive the 

low-volume adjustment because in 

comparison with the LDOs, SDOs 

furnish a small percentage of the 

dialysis patient population. As a result, 

commenters claimed that they are 

unable to benefit from the economies of 

scale of LDOs. 

Response: We appreciate the 

commenters’ concerns, however, we 

continue to believe that the definition of 

a low-volume facility discussed in the 

proposed rule (74 FR 49975), and 

subsequently modified by this final rule 

which increased the treatment threshold 

from 3,000 treatments to 4,000 

treatments, identifies the ESRD facilities 

that incur high costs for furnishing renal 

dialysis items and services in areas that 

would otherwise be problematic. We 

believe that with our data analysis 

which provided empirical evidence of 

higher costs and our selection of 

criteria, we have identified those 

facilities that are low-volume. We note 

that in response to comments from 

SDOs, we have done an analysis to 

compare how the smaller dialysis 

facilities that are neither low-volume 

nor affiliated with a large dialysis 

organization will fair after 

implementation of the ESRD PPS. This 

analysis is discussed in section IV.B.1. 

of this final rule. 

We received a few comments on the 

proposed geographic requirements used 

to determine the number of treatments 

furnished by an ESRD facility to be 

eligible for the low-volume payment 

adjustment as set forth below. 

Comment: One commenter expressed 

concern that the low-volume adjustment 

should be developed based on the 

proximity of a facility to all other 

facilities and the total volume of 

services a facility furnishes. The 

commenter suggested that CMS 

implement a low-volume adjuster that is 

based on the total volume and proximity 

of the facility in question to other 

facilities. Another commenter suggested 

that CMS consider the regularity and 

frequency of dialysis care that patients 

need when determining the distance 

threshold as most dialysis patients are 

treated three times weekly. The 

commenter indicated the 25 road mile 

standard may not be appropriate and 

that CMS may want to consider a 

shorter distance. 

Response: In the proposed rule, we 

explained that we were concerned about 

the potential misuse of the proposed 

low-volume adjustment because the 

low-volume adjustment could 

incentivize dialysis companies to 

establish small ESRD facilities in close 

geographic proximity to other ESRD 

facilities leading to unnecessary 

inefficiencies. Therefore, for the 

purposes of determining the number of 

treatments, we proposed that the 

number of treatments considered 

furnished by the ESRD facility would be 

equal to the aggregate number of 

treatments furnished by the other ESRD 

facilities that are both under common 

ownership, and 25 road miles or less 

from the ESRD facility in question. We 

developed the proximity criteria as a 

parameter to be used by the FI/MACs 

when they evaluate eligibility for the 

low-volume adjustment of new facilities 

that open in the future (74 FR 49975). 

We do not believe that the frequency 

that a patient receives dialysis 

treatments is relevant to determine the 

location of a new facility as the distance 

traveled would be different for each 

patient. 

Therefore, for the reasons above and 

those set forth in the proposed rule (74 

FR 49975), in this final rule we are 

finalizing the geographic requirements 

used to determine the number of 

treatments furnished by an ESRD 

facility, which is to consider the total 

number of treatments furnished by an 

ESRD facility to be equal to the 

aggregate number of treatments 

furnished by the other ESRD facilities 

that are both under common ownership, 

and 25 road miles or less from the ESRD 

facility in question, to be eligible for the 

low-volume payment adjustment at 

§ 413.232. 

Comment: One commenter expressed 

concern that although they agree with 

the extra monies being allocated to high 

cost facilities for meeting the lowvolume criteria, the effect on the 

patients that receive care in these 

facilities will be an increase in their coinsurance amounts. 

Response: We agree with the 

commenter that the ESRD PPS will 

affect patient co-insurance amounts. 

However, we note that this adjustment 

was required under the statute. 

ii. Defining the Percent of Increase 

Section 1881(14)(D)(iii) of the Act also 

requires the ESRD PPS include a 

‘‘payment adjustment that reflects the 

extent to which costs incurred by lowvolume facilities (as defined by the 

Secretary) and for payment for renal 

dialysis services furnished on or after 

January 1, 2011, and before January 1, 

2014, such payment adjustment not be 

less than 10 percent.’’ In the proposed 

rule, we discussed the definition and 

our analysis for a low-volume facility 

(74 FR 49969). Based on the definition 

and the analysis, the resulting lowvolume payment adjustment was 

determined to be 20.2 percent (74 FR 

49974). Using our proposed low-volume 

criteria, we measured the payments 

received by these ESRD facilities and 

determined that 76.4 percent of ESRD 

facilities meeting the proposed lowvolume criteria would get an adjustment 

of 10 percent or more increase in 

payment relative to what they received 

under the current system. 

In our proposed rule (74 FR 49977), 

we proposed a 20.2 percent increase to 

the base rate to account for the costs 

incurred by low-volume facilities for 

renal dialysis services furnished on or 

after January 1, 2011, and before January 

1, 2014. The proposed low-volume 

adjustment policy was set forth at 

proposed § 413.232 (74 FR 49969). We 

invited comments on the low-volume 

facility proposed adjustment, which was 

discussed above. 

In addition, for purposes of 

determining the appropriate adjustment 

for the low-volume facilities defined 

above, we considered other options in 

addition to the 20.2 percent adjustment 

(74 FR 49978). As mentioned 

previously, section 1881(14)(D)(iii) of 

the Act requires the payment 

adjustment for low-volume facilities be 

not less than 10 percent during the 

transition. One alternative we 

considered in determining the 

adjustment for low-volume facilities 

was the minimum statutory adjustment 


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of 10 percent. We stated that this 

adjustment would provide relief to lowvolume facilities of the costs they incur 

to provide services. In addition, 

providing a lower payment adjustment 

results in less of a decrease in the ESRD 

PPS base rate that would apply to 

treatments furnished by all ESRD 

facilities and less beneficiary coinsurance obligation. 

The other alternative we mentioned 

for the low-volume adjustment was use 

of the midpoint between the statutory 

adjustment of 10 percent and the results 

of our data analysis which was 20.2 

percent (74 FR 49978). We stated that 

we believed that a 15 percent increase 

could establish an appropriate 

adjustment amount that would provide 

low-volume facilities the incentive to 

utilize resources more efficiently and 

control their costs. 

We invited comments on these 

alternative options for determining the 

percent low-volume adjustment. 

The comments we received on this 

proposal and our responses are set forth 

below. 

Comment: Two commenters 

recommended that we reduce the 20.2 

percent increase to the minimum 10 

percent permitted by law because at 10 

percent, facilities would be less likely to 

deny treatments to ensure that they 

remain under the threshold. 

Response: For this final rule, we 

updated our ESRD PPS model with data 

for 2006, 2007, and 2008 and found that 

with a treatment threshold of 4,000 

treatments, the updated increase to the 

base rate is 18.9 percent. We believe that 

since we will be monitoring payments 

under the ESRD PPS and the location of 

new facilities as they are established, 

the 18.9 percent increase to the base rate 

is an appropriate adjustment that will 

encourage small facilities to continue to 

provide access to care. In addition, we 

believe it is more appropriate to use the 

regression driven adjustment rather than 

the 10 percent minimum adjustment 

mentioned in the statute. We believe 

that using the regression driven 

adjustment which is based on empirical 

evidence allows us to implement a 

payment adjustment that is a more 

accurate depiction of higher costs. 

Therefore, in this final rule we are 

finalizing a 18.9 percent increase to the 

base rate to account for the costs 

incurred by low-volume facilities for 

renal dialysis services furnished on or 

after January 1, 2011. 

c. Alaska/Hawaii Facilities 

Section 1881(b)(14)(D)(iv) of the Act 

permits the Secretary to include other 

payment adjustments as the Secretary 

determines appropriate. The basic casemix adjusted composite payment system 

currently does not provide a separate 

adjustment for ESRD facilities located in 

Alaska and Hawaii. However, some 

prospective payment systems, such as 

the hospital inpatient PPS and the 

inpatient psychiatric facility PPS, 

provide a cost of living adjustment 

(COLA) for facilities located in Alaska 

and Hawaii. These COLA adjustments 

are applied to the non-labor portion of 

the payment and are based on the 

rationale that the wage index 

adjustment to the labor portion of the 

payment is not sufficient to provide for 

the higher costs incurred by facilities in 

Alaska and Hawaii. For example, the 

same supplies used by an ESRD facility 

located in Hawaii may cost more 

because there are additional (higher) 

transportation costs incurred to receive 

the same supplies compared to an ESRD 

facility located in the United States 

mainland. An analysis completed for 

the 2008 Report to Congress indicated 

there was no need for a COLA for these 

areas. After all adjustments (including 

wage and other adjustments), our 

analysis of ESRD facilities located in 

Alaska and Hawaii did not demonstrate 

any adverse impact from the ESRD PPS. 

In the proposed rule, we stated that 

our analysis continues to support that 

the ESRD PPS would adequately 

reimburse ESRD facilities located in 

Alaska and Hawaii (74 FR 49978). 

Therefore, we did not propose to adopt 

COLA adjustments for ESRD facilities in 

Alaska and Hawaii under the ESRD PPS. 

We invited public comments on the 

proposal. 

We received a few comments 

regarding the COLA for Alaska and 

Hawaii as set forth below. 

Comment: Two commenters believed 

that the adjustments contained in the 

proposed ESRD PPS did not adequately 

address the incremental costs incurred 

by providing dialysis services and 

supplies to ESRD patients in Alaska and 

Hawaii. The commenters urged CMS to 

reconsider the proposal to not apply a 

COLA adjustment for these States and 

indicated that the costs associated with 

furnishing ESRD treatments in these 

States remains higher than the cost of 

providing dialysis services in the 

contiguous United States. 

Response: We recognize the costs 

incurred by Alaska and the many 

islands of Hawaii might be attributable 

to the geographical barriers that may not 

be a burden to ESRD facilities located in 

the contiguous United States. However, 

as we indicated in the ESRD PPS 

proposed rule (74 FR 49978), the 

various analyses of ESRD facilities 

located in Alaska and Hawaii did not 

demonstrate any adverse impact from 

the ESRD PPS. 

Therefore, we do not believe that 

application of the COLA would be 

appropriate. As a result, in this final 

rule, we are not adopting COLA 

adjustments for ESRD facilities in 

Alaska and Hawaii under the ESRD PPS. 

d. Rural 

Section 1881(b)(14)(D)(iv)(III) of the 

Act provides that the ESRD PPS may 

include payment adjustments as the 

Secretary determines appropriate such 

as a payment adjustment for facilities 

located in rural areas. We proposed to 

define rural facilities at § 413.231(b)(2) 

as facilities that are outside a 

Metropolitan Statistical Area or a 

Metropolitan Division (in the case 

where a Metropolitan Statistical Area is 

divided into Metropolitan Divisions), as 

defined by OMB (74 FR 49978). 

In the proposed rule, we indicated 

that based on our impact analysis, rural 

facilities would be adequately 

reimbursed under the proposed ESRD 

PPS. Therefore, we did not propose a 

facility-level adjustment based on rural 

location and we invited public 

comments on our proposal (74 FR 

49978). 

Many of the commenters were 

concerned about beneficiary access to 

care that may result from insufficient 

payment to cover the costs of delivering 

renal dialysis services to patients in 

rural areas. This was particularly 

concerning to commenters who pointed 

out that ESRD beneficiaries who reside 

in rural locations already have fewer 

choices with regard to their care. 

We received comments opposing our 

proposal not to include a facility-level 

adjustment that is based on rural 

location, which included the following 

two assertions: (1) Currently the costs of 

providing renal dialysis services in rural 

areas are higher than in urban areas and 

that costs would further increase by 

expanding the bundle to include 

additional medications and laboratory 

tests; and (2) currently patient access to 

renal dialysis services in rural areas is 

limited and insufficient reimbursement 

would result in closure of these 

facilities further hindering patient 

access. 

The specific comments that we 

received on this proposal and our 

responses are set forth below. 

Comment: Several ESRD facilities and 

health care professionals indicated that 

rural and small facilities have higher 

operating cost and lower revenue than 

the larger, urban or suburban facilities. 

These facilities are forced to operate at 

a low margin or at a financial loss. 

Commenters identified several factors 


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that contribute to higher costs 

including: higher recruitment costs to 

secure qualified staff, a limited ability to 

offset costs through economies of scale, 

and decreased negotiating power in 

contractual arrangements for 

medications, laboratory services or 

equipment maintenance. One 

commenter indicated that compared to 

the large chains, rural dialysis providers 

will be unable to compete in negotiating 

prices for drugs and that this would be 

especially problematic for the 

manufacturers’ monopoly on EPO and 

Cinacalcet. 

Commenters further noted that the 

lower revenues among rural ESRD 

facilities are attributed to serving a 

smaller volume of patients of which a 

larger proportion are indigent and lack 

insurance, and a smaller proportion 

have higher paying private insurance. 

Several commenters requested that CMS 

consider cost differentials in 

determining whether rural ESRD 

facilities warrant a payment adjuster. 

Other commenters requested that small 

rural facilities be paid based on the cost 

of providing services to allow them to 

break even. 

Response: As indicated in section II.L. 

of this final rule, rural facilities are 

expected to experience a ¥1.5 percent 

decline in payments in 2011 due to 

implementation of the ESRD PPS. We 

note, however, in accordance with 

section 1881(b)(14)(A)(ii) of the Act and 

discussed in section II.E.4. of this final 

rule, the ESRD PPS base rate was 

reduced by 2.0 percent so that the 

estimated total amount of payments in 

2011 equals 98 percent of what would 

otherwise be paid if the ESRD PPS were 

not implemented. Therefore, rural 

facilities as a group are projected to 

receive less of a reduction than urban 

facilities and many other subgroups of 

ESRD facilities. 

We also note that as described in 

section II.A.3. of this final rule, 

implementation of oral-only Part D 

drugs will be delayed until 2014. This 

delay will provide small, rural facilities 

additional time to consider negotiating 

options for obtaining the most favorable 

prices on drugs possible. For example, 

small rural facilities may benefit from 

joining cooperative arrangements to 

improve negotiating capacity. We intend 

to monitor how rural ESRD facilities 

fare under the ESRD PPS and will 

consider other options if access to renal 

dialysis services in rural areas is 

compromised under the ESRD PPS. 

Comment: Some commenters claimed 

that under the proposed rule, some rural 

facilities may not receive adequate 

reimbursement to continue to provide 

dialysis services in remote areas, 

resulting in compromised patient access 

to care. Commenters requested that CMS 

reassess its data for rural facilities 

following its reassessment of the data 

for low-volume facilities. 

Response: As the commenter 

suggested, we reassessed the impact on 

ESRD facilities based on the final 

payment adjustments described in this 

final rule. As mentioned previously, the 

impact analysis conducted for this final 

rule indicates a 1.5 percent decrease in 

total payments to rural ESRD facilities. 

This small decline reflects the fact that 

44.5 percent of low-volume ESRD 

facilities are located in rural areas (as 

discussed earlier in this section of this 

final rule). 

Comment: One commenter was 

concerned that the 3 percent transition 

budget neutrality adjustment may 

particularly disadvantage the quality of 

care for rural dialysis patients, given 

their higher costs for patient transport, 

staff salary, and facility maintenance 

costs. 

Response: As described in section 

II.E.5. of this final rule, we are required 

by section 1881(b)(14)(E)(ii) of the Act 

to apply a transition budget neutrality 

adjustment to account for the effect of 

the transition on aggregate payments in 

order to stay within the overall 

requirement for a 2 percent reduction in 

expenditures in 2011. 

Comment: One commenter questioned 

whether defining every facility not 

located within a Metro statistical area 

(MSA) as rural reflects the variation in 

the degree of geographical isolation and 

therefore, cost among providers that are 

not located within an MSA. The 

commenter noted that cost differences 

may exist among facilities classified as 

rural that are further from an MSA 

compared to facilities closer to an MSA. 

Response: We recognize that there 

may be differences among rural facilities 

based on distance from an MSA. 

However, we do not have a separate 

mechanism to identify additional 

variation among facilities in the area 

outside of a particular MSA. 

Comment: A few commenters 

indicated that in rural settings the 

nephrologist facilitates care for other 

specialties by drawing laboratory tests 

or administering medications for 

conditions other than ESRD. One 

commenter stated that because the rural 

patients often do not have 

transportation to access these services 

separately from the dialysis visits, the 

ESRD facility cooperates by drawing 

these laboratory tests or administering 

medications ordered by the nephrologist 

in the interest of providing the patient 

with efficient healthcare delivery. The 

commenter stated that non-ESRDrelated laboratory tests and medications 

ordered by the nephrologist should 

remain separately payable. 

Response: In the interest of patient 

convenience and in minimizing their 

transportation burden, we will not 

preclude ESRD facilities from drawing 

non-ESRD related laboratory tests on 

behalf of ESRD patients. As described in 

section II.K.2. of this final rule, the 

laboratory tests used for non-ESRDrelated purposes would be identified 

with a modifier and paid separately. 

Similarly, as described in section II.K.2. 

of this final rule, there may be instances 

in which non-ESRD-related medications 

may be administered in the ESRD 

facility. These medications would also 

be identified with a modifier and paid 

separately. 

Comment: Several commenters 

indicated that ensuring access to home 

dialysis and home dialysis training is 

essential to successfully serving a rural 

area. 

Response: We share the commenters’ 

view with respect to the importance of 

ensuring access to home dialysis and 

home training. As discussed in section 

II.A.7. of this final rule, all home 

dialysis services will be included in 

ESRD PPS payments to ESRD facilities 

as of January 1, 2011. In addition, as 

discussed in section II.A.7. of this final 

rule, we are finalizing a training add-on 

adjustment to compensate ESRD 

facilities for the additional resources 

associated with home dialysis or selfdialysis training. 

For the reasons we explained above in 

response to the public comments and 

based on the data analysis conducted for 

this final rule, we are finalizing the 

proposed definition of rural facilities at 

§ 413.231(b)(2) of this final rule and we 

are not implementing a facility-level 

payment adjustment that is based on 

rural location. 

e. Site Neutral ESRD PPS Rate 

For dialysis services furnished before 

January 1, 2009, the basic case-mix 

adjusted composite rate differentiated 

between hospital-based and 

independent ESRD facilities. That is to 

say, the composite rate for hospitalbased facilities was on average $4.00 

more per treatment more than the 

composite rate for independent dialysis 

facilities. 

Section 1881(b)(12)(A) of the Act, 

requires a site neutral composite rate so 

that the payment rate for services 

furnished on or after January 1, 2009, by 

hospital-based ESRD facilities is the 

same as the payment rate paid to 

independent facilities under the current 

system. In addition, section 

1881(b)(12)(A) of the Act requires that 


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in applying the geographic index to 

hospital-based facilities, the laborrelated share shall be based on the 

labor-related share otherwise applied to 

the renal dialysis facilities. In the CY 

2009 final rule (72 FR 69881 and 72 FR 

69935), we revised § 413.174, which 

described the methodology for 

prospective rates for ESRD facilities, to 

conform to the statutory requirement. 

Section 1881(b)(14)(A)(i) of the Act 

provides that for services furnished on 

or after January 1, 2011, the Secretary 

shall implement a payment system 

under which a single payment is made 

under this title to ESRD facilities for 

renal dialysis services, in lieu of any 

other payment. Therefore, the site 

neutral payment provisions discussed 

above will be incorporated under the 

ESRD PPS and used to establish a single 

base rate that will apply to ESRD 

facilities. 

5. Determination of ESRD PPS Payment 

Adjusters 

In the proposed rule, we described the 

selection of patient characteristics as 

potential case-mix adjusters using a 

modeling approach that relied on 

separate regression equations for CR and 

SB services (see Table 29 in the 

proposed rule 74 FR 49979). We stated 

that the predictive power of the separate 

estimating equation for CR services in 

terms of the proportion of variance 

explained (R2) was 46.0 percent. The 

comparable figure for the SB regression 

equation was 8.7 percent. The overall 

estimated R2 for the ESRD PPS payment 

model is 39.0 percent (74 FR 49978). 

While the case-mix adjustments were 

based on separate estimating equations, 

the equations were combined into a 

single payment formula for the ESRD 

PPS. The methodology for combining 

the separate composite rate and 

separately billable estimating equations 

was described in the proposed rule (74 

FR 49980 through 49981). 

We did not receive any public 

comments in connection with our 

methodology for combining the separate 

composite rate and separately billable 

estimating equations into a single 

payment formula for calculating the 

ESRD PPS payment adjusters. 

Accordingly, we are using that same 

methodology to combine the separate 

composite rate and separately billable 

payment adjusters using the payment 

variables adopted for this final rule. 

Table A in the Appendix shows how 

the payment adjusters from the separate 

CR and SB regressions were combined. 

The first two columns in Table A in the 

Appendix represent the CR and SB 

model results for each of the regression 

equations, carried to three significant 

figures. The third column of Table A of 

the Appendix presents a single payment 

multiplier for each patient characteristic 

based on its relationship to resource use 

for both CR and SB services. The 

payment adjusters in the third column 

(PmtMultEB) were calculated as the 

weighted average of the CR and SB 

multipliers. The weights correspond to 

each component’s proportion of the sum 

of the average CR costs and SB 

payments per treatment for CYs 2006– 

2008, as shown in Table 25. 

The weights were calculated using the 

three years of pooled data. Based on this 

analysis, the average cost for CR services 

per treatment as computed from the 

Medicare cost reports was $177.72. The 

average MAP per treatment for SB 

services based on Medicare claims for 

the same period was $83.97. Based on 

total estimated costs of $261.69 per 

treatment ($177.72 + $83.97), the 

relative weights are weightCR = 0.6791 

for composite rate services ($177.72/ 

$261.69) and weightSB = 0.3209 for 

separately billable services ($83.97/ 

$261.69). The payment multipliers 

presented in the third column of Table 

A in the Appendix were calculated as 

PmtMultEB = 0.6791 × PmtMultCR + 

0.3209 × PmtMultSB. In this manner, the 

separate case-mix adjusters for 

composite rate and separately billable 

services were combined to obtain a 

single set of multipliers (shown in the 

third column of Table A in the 

Appendix) to compute the payment 

rates under the proposed ESRD PPS. 

Six co-morbidities were identified as 

payment adjusters for separately billable 

services only, as they did not have a 

statistically significant association with 

composite rate costs based on the 

regression results. These patient 

characteristic variables have a 

composite rate multiplier in Table A in 

the Appendix of 1.000. For these comorbidities, there is no payment 

adjuster for composite rate services. 

Therefore, the payment multiplier is 

equal to 0.6791 × 1.000 + 0.3209 × 

PmtMultSB. The payment multipliers in 

the third column of Table A in the 

Appendix reflect the combined results 

from the two-equation model described 

in this final rule, and represent the casemix adjustment factors that will be 


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applied to the base rate to compute the 

payment amount per treatment under 

the finalized ESRD PPS. 

G. Pediatric Patients 

In section IX. of the proposed rule (74 

FR 49981 through 49987), we pointed 

out that section 1881(b)(14)(D)(iv)(I) of 

the Act gave the Secretary the 

discretionary authority to develop a 

pediatric payment adjustment under the 

ESRD PPS. Consistent with that 

authority, we proposed our 

methodology for developing a pediatric 

payment adjustment and proposed 

pediatric patient-specific case-mix 

adjustment factors (74 FR 49987). 

Using the same two-equation 

regression methodology developed for 

adult patients, the pediatric payment 

model incorporated the proposed 

adjustment factor of 1.199 from the 

adult payment model for patients less 

than age 18 for the purpose of 

computing the composite rate portion of 

the bundled payment for pediatric 

patients (74 FR 49982). In order to 

adjust the separately billable portion of 

the payment rate, we proposed the use 

of specific adjusters for each of eight 

pediatric classification categories (see 

Table 32 at 74 FR 49986). These 

classification groups reflected two age 

groups (<13 and 13–17), two comorbidity classification groups (none 

and one or more) based on the presence 

of either HIV/AIDS, diabetes, septicemia 

within 3 months, or cardiac arrest, and 

two modality groups (PD or HD). The 

result was a set of eight pediatric 

classification groups, each of which had 

its own bundled ESRD PPS payment 

multiplier. Those multipliers reflected 

the combined composite rate and 

separately billable adjustment factors 

developed in accordance with the twoequation regression methodology used 

in connection with the adult payment 

model. These adjustment factors were 

weighted according to the relative 

utilization of resources among pediatric 

patients obtained from the Medicare 

cost reports for 2004 through 2006 for 

composite rate services, and 2004 

through 2006 claims for separately 

billable services. The proposed 

adjustment factors, which would be 

applied to the base rate under the ESRD 

PPS, ranged from 0.963 to 1.215 (see 

Table 33 at 74 FR 49987). 

We received numerous comments 

from industry representatives including 

children’s hospitals and other dialysis 

facilities treating pediatric patients, 

LDOs, hospital organizations, physician 

representatives, dialysis industry 

groups, and laboratories on our 

proposed pediatric payment model. 

Commenters were opposed to the 

methodology used to develop the 

proposed pediatric payment adjusters. 

The comments we received and our 

responses are set forth below. 

Comment: Several commenters stated 

that the proposed methodology 

underestimated the cost of caring for 

pediatric patients with ESRD, and that 

application of the proposed payment 

adjusters would cause severe financial 

hardship for facilities treating ESRD 

pediatric patients. The commenters 

pointed out that the proposed payment 

multiplier of 1.199 used to adjust the 

composite rate portion of the pediatric 

MAP, as well as the composite rate 

portion of the MAP, is based on the 

costs of adult dialysis units, not 

pediatric specific services. The 

commenters suggested that the 

composite rate cost portion of the 

pediatric MAP, and the composite rate 

adjustment factor, should be based on 

actual cost data from pediatric dialysis 

units. 

The commenters believed that the 

present multiplier of 1.62 applied to the 

composite rate per treatment for 

pediatric patients was likely more 

reflective of actual pediatric costs, not 

the proposed factor of 1.199. Other 

commenters recommended that CMS 

should perform further statistical 

analysis which uses the actual costs 

from pediatric ESRD facilities, or the 

pediatric units of ESRD facilities to 

determine the composite rate cost 

portion of the pediatric MAP, and the 

composite rate pediatric adjustment 

factor. 

Response: In the proposed rule, we 

pointed out the current pediatric 

adjustment factor of 1.62 was developed 

from only those ESRD facilities that 

sought and obtained an exception to 

their otherwise applicable composite 

payment rates (74 FR 49984). This factor 

only reflected the costs of ESRD 

facilities which exceeded their 

composite payment rates. Therefore, the 

1.62 adjustment factor was likely biased 

upward because it was not developed 

from the costs of ESRD facilities with 

costs below their composite rates. 

However, the commenters raise a 

valid point. The generally lower 

payments for treating adult ESRD 

patients were commingled with 

pediatric payments in developing the 

composite rate portion of the proposed 

base rate. The multipliers from the 

composite rate and separately billable 

portions of the proposed pediatric 

payment adjustments were weighted 

based on average ESRD composite rate 

facility costs for 2004 through 2006. The 

multipliers were developed from data 

that were not restricted to pediatric 

ESRD facilities. Similarly, the 

adjustment factor of 1.199 applied to the 

composite rate portion of the proposed 

pediatric payment adjustment factors 

reflect the composite rate costs of 

pediatric patients treated in all facilities, 

not just pediatric ESRD facilities or the 

pediatric units of dialysis facilities. 

Because these costs reflect 

predominantly adult patients, they may 

be understated if, as is likely, the cost 

of care for pediatric patients in 

primarily adult facilities is less than the 

cost of care for pediatric patients in 

primarily pediatric facilities. We agree 

that further additional statistical 

analysis is warranted to determine 

whether a robust case-mix adjusted 

pediatric payment model can be 

developed based on co-morbid 

characteristics of pediatric dialysis 

patients, one which does not dilute the 

higher composite rate costs of pediatric 

patients with the generally lower 

composite rate costs of adult patients. 

We agree with the commenters that 

the proposed pediatric case-mix 

adjusters reflect composite rate costs 

that may understate the cost of treating 

pediatric dialysis patients, because of 

the predominance of adult patients in 

ESRD facilities. To respond to the 

commenters’ concern that adoption of 

the proposed pediatric payment 

adjusters would not compensate ESRD 

facilities for the actual costs of 

furnishing dialysis to pediatric patients, 

we have modified the proposed 

payment adjusters applied to pediatric 

patients (see Table 33 in the proposed 

rule at 74 FR 49987). The pediatric 

payment adjusters we have adopted for 

this final rule reflect the higher average 

composite rate payment per treatment 

that we made in CY 2007 for pediatric 

dialysis treatments compared to those 

for adult patients and the lower average 

per treatment payments made for 

separately billable services furnished 

pediatric patients in that year. As 

discussed in section II.E.1. of this final 

rule, CY 2007 is the year used to 

develop the ESRD PPS base rate 

amount. Combined composite rate and 

separately billable average payments per 

treatment in CY 2007 for pediatric 

dialysis patients exceeded the 

comparable figure for adult patients by 

10.5 percent ($264.55 versus $239.39). 

This differential has been reflected in 

the pediatric payment adjusters set forth 

in this final rule. 

Comment: Several commenters 

maintained that the four co-morbidities 

included in the proposed rule for 

classifying pediatric ESRD patients into 

one of eight classification groups (HIV/ 

AIDS, septicemia, diabetes, and cardiac 

arrest) (74 FR 49987) were not 

appropriate for the pediatric patient 


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population and were not frequently 

encountered. The commenters stated 

that these co-morbidities, while perhaps 

relevant in the adult population, do not 

accurately reflect the complexity and 

cost of providing dialysis treatments to 

children. The commenters 

recommended alternative co-morbidities 

which they believed would be more 

reflective of the clinical conditions 

encountered among pediatric ESRD 

patients and require more costly 

resource intensive care. Suggested comorbidities included developmental 

delay/mental retardation, growth 

retardation and renal osteodystrophy, 

deafness, seizure disorders, anxiety, 

secondary hyperparathyroidism, and 

rare genetic disorders such as cystinosis, 

primary hyperoxaluria, congenital 

hepatic fibrosis and other congenital 

diseases, chronic lung disease from 

hypoplastic lungs, and bone marrow 

and other solid organ transplants. 

Response: We appreciate the 

commenters’ concerns that any comorbidity used as an ESRD pediatric 

payment adjustment reflects the cost 

and intensity of care necessary to 

provide outpatient dialysis to children. 

Unfortunately, because ESRD facilities 

rarely report co-morbidities on the 

Medicare type 72X claims submitted for 

payment, we obtained the comorbidities used to establish the 

proposed pediatric classification groups 

from the same Medicare claims data 

used to identify the co-morbidities in 

the adult payment model. The small 

size of the outpatient ESRD pediatric 

dialysis patient population (about 860 

patients in 2008) precluded the 

development of specific adjusters for 

individual co-morbidities due to a lack 

of statistical robustness. Therefore, we 

used a count of the number of defined 

co-morbidities in developing the 

pediatric classification groups. 

The commenters’ suggestion to use 

co-morbidities typical of the clinical 

conditions encountered among ESRD 

pediatric patients merits consideration, 

although we believe that it might 

require a specific data collection effort 

to obtain the co-morbidities for analysis. 

Although the co-morbidities in the 

proposed rule were derived from 

measures originally developed using 

claims from the adult population, their 

inclusion in the pediatric payment 

model was based on analyses that 

showed their relationship to cost 

specifically in the pediatric population. 

As explained below, we have developed 

pediatric adjustment factors for this 

final rule which do not rely on specific 

co-morbidities. We will consider the 

commenters’ suggested alternative comorbidities in future refinements to the 

pediatric payment adjusters adopted in 

this final rule. 

Comment: Several commenters 

disagreed with the two age classification 

groups we used in the proposed 

pediatric payment model (age <13; 

13–17). The commenters stated that the 

use of these two age groups undervalued 

the complexity and additional facility 

costs incurred in dialyzing children. 

Some commenters recommended only 

one age group (age <18) to simplify the 

bundle for pediatric dialysis. 

Other commenters recommended 

alternative age groups. One commenter 

with clinical experience treating 

pediatric ESRD patients pointed out that 

dialysis patients under age 5 use one 

nurse per dialysis station and patients 

ages 5–12 use one nurse for every two 

stations. The commenter suggested that 

adopting age categories using this 

information would result in three 

categories for pediatric ESRD patients 

(<age 5, ages 5–12, and ages 13–18). 

Another commenter’s clinical 

observations that younger children 

typically require more staff time than 

older teenagers or adults, led to a 

recommendation that we use age groups 

that match the age groups contained in 

the codes used for MCPs in Medicare’s 

physician fee schedule (<2, ages 2–11, 

and ages 12–19). 

Response: The two age groups that we 

used in connection with the proposed 

pediatric payment adjustments (<13, 

ages 13–17) reflected the measurable 

difference in the utilization of 

separately billable services among ESRD 

patients due to the onset of adolescence. 

We found that subdividing these age 

categories further did not yield 

statistically significantly more 

homogeneous groups with respect to 

separately billable services. As the two 

age groups presented in the proposed 

rule were empirically determined, we 

see no reason to revise them based on 

the wide range of opinions shown in the 

comments received. Further, the 

comments about the nursing intensity of 

different age groups pertain to 

composite rate services. For composite 

rate services, only one age range applies 

(under 18). Accordingly, in creating 

pediatric payment adjusters for both 

composite rate and separately billable 

services for this final rule, we have 

adopted the two proposed age groups 

(<13, ages 13–17) to classify pediatric 

patients. 

Comment: Several commenters 

acknowledged the difficulty of 

developing pediatric payment 

adjustments because of the relatively 

small number of Medicare ESRD 

pediatric patients. The commenters 

stated that because both Congress and 

CMS have recognized the higher costs of 

treating children by exempting 

children’s hospitals from the Medicare 

inpatient PPS, it would be appropriate 

to exclude pediatric facilities (and by 

extension, treatments for pediatric 

patients not treated in pediatric 

facilities) from the ESRD PPS. 

Response: Although we may develop 

in the future pediatric payment 

adjusters based on co-morbidities that 

are prevalent among pediatric dialysis 

patients after additional research and 

analysis, we believe the changes we 

have made with regard to the final 

pediatric payment adjustments will 

provide sufficient payment to ESRD 

facilities that treat pediatric ESRD 

patients and that excluding pediatric 

patients from the bundled ESRD PPS 

would not be appropriate. We have 

adopted two payment variables from the 

proposed methodology used to develop 

the pediatric payment adjusters, that is, 

age and modality (74 FR 49987). 

Although, in response to comments, we 

are no longer adopting co-morbidities 

with regard to the pediatric payment 

adjustments, we are using actual 

payments to ESRD facilities for 

composite rate services in CY 2007 for 

treating pediatric dialysis patients to 

determine payment for pediatric ESRD 

patients under the ESRD PPS. We 

believe that modifying the methodology 

used to develop the proposed pediatric 

payment adjusters is responsive to 

commenters’ concerns that the proposed 

composite rate portion of the pediatric 

payment adjusters predominantly 

reflected the cost of treating adult 

patients and understated the composite 

rate costs of treating pediatric dialysis 

patients. 

Comment: Several commenters 

opposed the use of modality as a 

payment variable in the pediatric 

payment adjustments. The commenters 

stated that according to the American 

Society of Pediatric Nephrologists, 

between 40 and 50 percent of pediatric 

dialysis patients receive CCPD. They 

indicated that PD for pediatric ESRD 

patients is often preferred because it 

avoids the difficulty of obtaining 

vascular access in small children, 

allows fewer dietary restrictions, and 

permits the ability to attend school 

regularly because dialysis is provided at 

home. The commenters maintained that 

adjusting payment by modality for 

pediatric patients may undervalue 

payment for PD and provide a 

disincentive to provide PD for pediatric 

patients. 

Response: In our proposed rule, we 

stated that the main problem with a 

separately billable payment model that 

does not recognize modality for 


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pediatric patients is that it results in an 

underpayment for HD and an 

overpayment for PD (74 FR 49985). In 

developing pediatric payment 

adjustments, analyses that did not 

differentiate by modality revealed that 

the average prediction errors (that is, the 

degree to which the predicted values 

differed from the actual values) were 

positive for PD and negative for HD. 

Moreover, the prediction errors in both 

directions were large relative to the 

average predicted values. 

By contrast, the prediction errors in 

alternative analyses that distinguished 

payment by modality were much 

smaller and did not consistently favor 

PD over HD. Payment by modality 

reduced the difference between the 

actual and predicted payments. 

Therefore, use of modality as a payment 

variable reduced the incentive to steer 

patients to a particular modality based 

purely on the payment implications. It 

also substantially improved the 

predictive power of the payment 

models. 

We noted that payment by modality 

in the proposed pediatric payment 

adjustments was inconsistent with the 

way modality is treated in the adult 

payment adjustments, which do not 

include a modality adjustment (74 FR 

49985). We also said that payment by 

modality was not consistent with the 

goal of encouraging home dialysis. 

However, given the already relatively 

high utilization of PD in the pediatric 

ESRD population, a point substantiated 

by the commenters, we pointed out that 

it may not be necessary to further 

encourage home therapies for this 

population. 

PD has many advantages for pediatric 

patients able to utilize that dialysis 

modality. We do not believe that its 

prevalence will be diminished by the 

inclusion of modality as a pediatric 

payment classification variable. Because 

the use of modality as a classification 

variable results in enhanced predictive 

power, reducing the likelihood of 

underpaying for pediatric HD patients 

and overpaying for PD patients, we have 

retained modality as a payment variable 

for the pediatric payment adjustments 

described in this final rule. 

Comment: One commenter suggested 

that CMS undertake a separate 

rulemaking process to develop a 

payment model for pediatric patients. 

The commenter noted the substantially 

different circumstances in connection 

with furnishing dialysis to children, and 

recommended that hospital cost report 

data and co-morbidity data from claims 

be used to develop case-mix 

adjustments that are better reflective of 

the costs and complexity of treating 

pediatric dialysis patients. 

Response: The Medicare hospital cost 

reports do not contain patient-specific 

cost information. Because there are so 

few pediatric dialysis patients, hospital 

cost reports, similar to those from 

independent facilities, largely reflect the 

total costs of treating adult patients. The 

co-morbidities in the proposed rule 

were derived from measures originally 

developed using claims from the adult 

population. However, their inclusion in 

the proposed pediatric payment 

adjustments was based on analyses that 

showed their relationship to cost in the 

pediatric population. Less than 2 

percent of dialysis facility claims reflect 

a co-morbid condition. Therefore, the 

use of claims data as the commenter 

suggests based on this current degree of 

reporting would not be very helpful in 

developing alternative case-mix 

adjusters. 

Unless ESRD facilities begin to 

include co-morbid medical conditions 

on their claims, a separate data 

collection effort may be necessary to 

obtain co-morbidities specific to the 

pediatric dialysis population. Once we 

have completed the research necessary 

to determine if co-morbidities prevalent 

among pediatric dialysis patients can be 

used to refine the pediatric payment 

adjusters adopted in this final rule, any 

proposed revisions would be 

implemented through rulemaking. 

Comment: One commenter noted that 

training for home dialysis should not be 

included in a bundled payment system 

for pediatric patients. The commenter 

explained that the level and duration of 

training required varies according to the 

ability and age of the child and his or 

her caretaker. Because children rely on 

adult caretakers, a change in a child’s 

familial or living situation would 

necessitate one or more periods of 

retraining. Therefore, training should be 

reimbursed separately from a bundled 

ESRD PPS for pediatric patients. 

Response: We have developed a 

separate add-on amount for training that 

will apply for both adult and pediatric 

dialysis patients. Although the CY 2007 

base rate applicable to both adult and 

pediatric patients includes payments for 

training treatments, we point out that 

training treatments for both adult and 

pediatric dialysis patients under the 

ESRD PPS will be increased $33.44, 

subsequently adjusted for area wage 

levels using the dialysis facility’s 

applicable wage index, to reflect the 

additional costs of training. For an 

explanation of how this adjustment was 

developed, see section II.A.7. of this 

final rule. 

Comment: One commenter stated that 

the pediatric case-mix adjusters failed to 

recognize the unique nature of pediatric 

facilities by failing to account for higher 

staffing ratios imposed by state 

regulatory mandates, additional 

ancillary and nursing personnel 

required to treat pediatric ESRD 

patients, and higher supply costs of 

these patients. 

Response: We agree with the 

commenter’s concerns. As noted 

previously, the routine operating costs 

associated with treating pediatric ESRD 

patients included in the composite rate 

cost component of the pediatric 

payment adjustments may be 

understated because they largely reflect 

the overhead and operating costs of 

facilities treating predominantly adult 

patients. Therefore, in this final rule, we 

are modifying our methodology for 

determining the pediatric payment 

adjustments. 

As described later in this section, we 

have incorporated in the pediatric 

payment adjusters a 10.5 percent 

increase (an adjustment of 1.105) to 

reflect the degree to which total actual 

CY 2007 payments for composite rate 

and separately billable services for 

pediatric ESRD patients exceed the 

comparable figure for adult patients. In 

CY 2007, Part B composite rate 

payments per treatment for pediatric 

dialysis patients were approximately 

38.6 percent higher than those for adult 

patients ($216.46 versus $156.12), while 

separately billable payments per 

treatment were approximately 42.2 

percent lower ($48.09 versus $83.27) 

(see Table 26). The total difference was 

10.5 percent ($216.46 + $48.09 = 

$264.55; $156.12 + $83.27 + $239.39; 

$264.55/$239.39 = 1.105). 

By incorporating this difference in the 

formula used to develop the pediatric 

payment adjusters set forth in this final 

rule, as described in paragraph E below, 

we believe that we are appropriately 

reflecting the higher costs for composite 

rate services furnished to pediatric 

ESRD patients in the payment adjusters, 

in response to commenters’ concerns 

that the proposed pediatric payment 

adjusters would underpay for pediatric 

patients. 


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1. The Revised Methodology for the 

Pediatric Payment Adjustments 

Section 1881(b)(14)(A)(i) of the Act 

requires that a single payment apply to 

‘‘renal dialysis services’’, including 

home dialysis, beginning January 1, 

2011. These services include composite 

rate and certain separately billable 

services. In response to commenters’ 

concerns that the proposed pediatric comorbidities used to develop the 

proposed pediatric payment adjusters 

were not prevalent among pediatric 

dialysis patients, and that the composite 

rate costs used to derive the proposed 

adjusters largely represented the costs of 

treating adult patients, thereby 

understating the costs of treating 

pediatric dialysis patients, we have 

revised the methodology for calculating 

the pediatric payment adjusters to 

reflect the actual average Part B 

Medicare payment per treatment for 

pediatric patients in CY 2007. In the 

following section, we describe the 

changes. 

2. Composite Rate Payments for 

Pediatric Patients 

As part of the basic case-mix 

adjustment for composite rate services, 

dialysis treatments furnished to 

pediatric patients are currently 

reimbursed at a rate equal to 1.62 

percent of the facility’s composite 

payment rate (that is, we use an 

adjustment factor of 1.62 to the 

composite rate as the payment for 

pediatric patients). This composite rate 

payment adjustment for pediatric 

patients was established relative to the 

lowest cost adult age category (age 60– 

69). The other basic case-mix 

adjustments for body surface area and 

body mass index are not applied to 

claims for pediatric ESRD patients. 

In the proposed rule, we described the 

proposed pediatric payment model 

which used the two-equation 

methodology to develop the case-mix 

adjusters applicable to pediatric patients 

(74 FR 49982 through 49987). The 

payment adjustment applicable to 

composite rate services for pediatric 

patients was obtained from the facilitylevel model of composite rate costs for 

patients less than 18, yielding a 

regression-based multiplier of 1.199. In 

response to commenters’ concerns that 

the magnitude of the composite rate 

portion of the proposed payment 

multipliers or adjusters for pediatric 

dialysis patients may be understated, we 

have revised the methodology for 

calculating the pediatric composite rate 

payment amount. 

Instead of using the regression-based 

composite rate multiplier of 1.199, we 

have incorporated in the pediatric 

payment adjusters the overall difference 

in average payments per treatment 

between pediatric and adult dialysis 

patients for composite rate services in 

CY 2007 based on the 872 pediatric 

dialysis patients reflected in the data. 

We selected CY 2007 consistent with 

our determination that 2007 represented 

the year with the lowest per patient 

utilization of dialysis services in 

accordance with section 

1881(b)(14)(A)(ii) of the Act, using the 

methodology previously described in 

this final rule. Table 26 reveals that the 


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average CY 2007 MAP for composite 

rate services for pediatric dialysis 

patients was $216.46, compared to 

$156.12 for adult patients. This 

difference in composite rate payment is 

reflected in the overall adjustment for 

pediatric patients calculated below. 

3. Separately Billable Services 

Based on comments received that our 

proposed pediatric co-morbidities were 

not appropriate because they were not 

prevalent among pediatric dialysis 

patients, we modified the payment 

adjusters for separately billable services 

for pediatric patients to exclude the comorbidities we proposed. We developed 

adjustments using the variables of age 

(<13, 13–17) and modality (PD or HD). 

As with the methodology described in 

the proposed rule (74 FR 49984), all of 

the analyses were performed using loglinear regression models of the average 

separately billable MAP per treatment 

for each of three years (CYs 2006, 2007, 

and 2008). The data were pooled over 

the 3-year period, resulting in up to 

three yearly observations for each 

pediatric patient. 

As with the payment multipliers that 

were developed in connection with the 

proposed rule, the payment multipliers 

developed in connection with this final 

rule using only two variables, age and 

modality, often required a statistical 

‘‘smearing’’ adjustment to improve the 

accuracy of the payment adjusters upon 

transformation of the regression model 

results from the log dollar scale to the 

dollar scale (that is, to limit 

retransformation bias). 

Under statistical ‘‘smearing’’, a 

correction factor is applied to the 

predictions from a model that is 

estimated on the logarithmic scale (for 

example, the log of the average MAP per 

treatment). In the context of examining 

healthcare cost or payment data that do 

not follow the normal distribution curve 

(that is, are not normally distributed), 

retransformation bias may occur when 

converting predicted values that are 

made on the log scale (that is, log 

dollars) back to the original scale (that 

is, dollars), yielding biased estimates of 

the mean cost in dollars. In order to 

develop valid payment adjusters that 

reflect the relationships between patient 

characteristics and the MAPs (that is, in 

dollars), it is essential that 

retransformation bias be limited as 

much as possible. Because the 

difference between residuals (that is, the 

difference between the measured MAP 

and predicted MAP for each 

observation) did not vary in the desired 

random pattern, indicating correlation 

between the variance of the residuals 

and some of the patient characteristics 

based on age and modality (statistically 

known as ‘‘heteroscedasticity’’), separate 

smearing adjustments were applied by 

patient subgroup. The smearing 

adjustments were based on the average 

retransformed residual for each patient 

category. For further information on the 

use of statistical smearing, 

retransformation, and 

heteroscedasticity, see Duan, N., 

Smearing estimate: a nonparametric 

retransformation method, Journal of the 

American Statistical Association, 78, 

1983, pp. 605–610, and Manning, W.G., 

The logged dependent variable, 

heteroscedasticity, and the 

retransformation problem, Journal of 

Health Economics, 17, 1998, pp. 283– 

295. To develop the pediatric payment 

multipliers or adjustments for the four 

pediatric classification groups adopted 

for this final rule, we similarly 

performed statistical smearing 

adjustments to minimize 

retransformation bias. 

4. No Caps Applied to the Separately 

Billable MAP per Treatment 

In the proposed rule, we explained 

that we capped the separately billable 

MAP per treatment for pediatric dialysis 

patients at $289.00 based on the 

standard outer fence method for 

identifying statistically aberrant values 

(see 74 FR 49984). The outer fence was 

defined as the 75th percentile of the 

separately billable MAP per treatment, 

plus three times the interquartile range, 

which is the 75th percentile minus the 

25th percentile. 

However, we found that capping the 

separately billable MAP had little effect 

on the magnitude of the payment 

multipliers, suggesting that the 

predicted payments are not biased 

through the inclusion of valid or invalid 

values. Accordingly, we have not 

applied caps to the computation of the 

separately billable MAPs for pediatric 

patients in developing the pediatric 

payment adjusters presented in this 

final rule, with the exception of EPO 

and ARANESP®. Payments for these 

ESAs were capped at the same 

medically unbelievable thresholds used 

in connection with the development of 

adjustments applied to adult patients. 

The final pediatric payment 

adjustments for separately billable 

services use two age categories (<13, age 

13–17) and dialysis modality (PD or 

HD), as the bases for classifying 

pediatric patients, consistent with what 

we proposed and after consideration of 

public comments. In addition, as we 

discussed above, in response to public 

comments, the final pediatric payment 

adjustments do not use co-morbidity 

categories based on the number of 

specified co-morbidities as one of the 

variables used to classify pediatric 

dialysis patients. Accordingly, we are 

finalizing four pediatric classification 

groups or cells, not eight as originally 

proposed (74 FR 49987). Using data for 

CYs 2006–2008, we present the 

pediatric payment adjuster or multiplier 

results in Table 27 below. 


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For purposes of the payment 

adjustments, the relevant column is 

labeled ‘‘Separately billable (SB) 

multiplier’’. These values reflect the 

relative costliness of separately billable 

services for each of the four pediatric 

patient groups. The SB multipliers were 

calculated relative to the average SB 

multiplier among pediatric patients, 

weighted by treatments, such that the 

average SB payment multiplier is 1.000. 

5. A Combined Composite Rate and 

Separately Billable Payment Model for 

Pediatric Patients 

Calculation of an overall pediatric 

adjustment factor reflects the higher 

payments for composite rate services 

under the current system, and allows 

the pediatric payment adjusters for 

separately billable services to be applied 

to the total base rate amount. As noted 

above, the composite rate MAP for 

pediatric patients is higher than that for 

adult patients ($216.46 versus $156.12). 

However, the separately billable MAP is 

lower for pediatric patients ($48.09 

versus $83.27), largely because of the 

predominance of PD among pediatric 

patients, in which the utilization of 

separately billable services is lower, and 

the smaller body size of younger 

pediatric patients. The overall 

difference in the CY 2007 MAP between 

adult and pediatric dialysis patients is 

10.5 percent ($216.46 + $48.09 = 

$264.55. $156.12 + $83.27 = $239.39. 

$264.55/$239.39 = 1.105). The use of the 

1.105 adjustment to develop the final 

pediatric adjustment factors set forth in 

this final rule reflects the higher 

payment for composite rate services and 

lower utilization of separately billable 

services among pediatric dialysis 

patients. 

The pediatric payment adjustments 

shown in Table B in the Appendix for 

each of the four classification categories 

would normally be applied to the 

separately billable portion of the MAP 

for pediatric patients. However, for the 

reasons discussed above, for simplicity 

of application, we can convert the 

separately billable pediatric multipliers 

shown in Table B in the Appendix to 

values that can be applied to the total 

base rate amount, reflecting both the 

composite rate and separately billable 

components. This can be accomplished 

as follows: 

Let P represent the ratio of the total 

CR and SB MAP per treatment for 

pediatric patients relative to adult 

patients (calculated above to be 1.105), 

WCR and WSB the proportion of MAP for 

CR and SB services, respectively, among 

pediatric patients, C the average casemix multiplier for adult patients, and 

MultSB the SB payment multiplier 

shown in Table 27. The expanded 

bundle payment multiplier for CR and 

SB services for each of the four pediatric 

classification cells can be calculated as: 

MultSB = P * C * (WCR + WSB * MultSB) 

Based on the average MAP per 

treatment for CR and SB services of 

$264.55 for pediatric patients, and 

$239.39 for adult patients shown in 

Table 26, P is calculated as: 

P = $264.55/$239.39 = 1.105 

It should be noted that this method of 

computing P, which reflects the relative 

payments for pediatric patients 

compared to adult patients, is based on 

CR and SB services covered under Part 

B only, and does not include payments 

for oral equivalent drugs under Part D. 

To be consistent with the two-equation 

model that is used to determine the 

payment adjustments for adult patients 

under the ESRD PPS, the approach that 

is used to determine the pediatric 

payment adjustments also reflects 

comparisons involving Part B services 

only. This is also consistent with our 


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proposed pediatric payment 

methodology (see 74 FR 49986 through 

49987). 

The CR and SB weights for pediatric 

patients are calculated as the ratio of the 

MAP per treatment for CR and SB 

services relative to the sum of the CR 

and SB MAP per treatment in 2007, 

where 

WCR = $216.46/$264.55 = 0.8182 

and WSB = $48.09/$264.55 = 0.1818 

The average case-mix multiplier for 

adult patients (C = 1.067) is applied to 

offset the standardization for case-mix 

adjustments (that is, BSA, low BMI, 

onset of renal dialysis, and comorbidities) which are not used for 

pediatric patients. If this 

standardization factor of 1.067 were not 

used to increase the otherwise 

applicable pediatric payment 

adjustments or multipliers, those 

multipliers would be inappropriately 

understated by 6.7 percent. (For a 

discussion of how the difference in the 

case-mix adjustment variables which 

apply to adult and pediatric dialysis 

patients result in different 

standardization factors for adult and 

pediatric patients in developing the 

outlier payment thresholds, see section 

II.H.1.ii. of this final rule.) For example, 

the expanded payment multiplier for 

pediatric classification group 1 (cell 1) 

is calculated as: 

MultEB = 1.105 * 1.067 * (0.8182 + 

0.1818 * 0.319) = 1.033 

This formula yields the four pediatric 

payment multipliers shown in Table B 

in the Appendix that are applied to the 

overall adjusted base rate amount of 

$229.63 per treatment, depending upon 

each pediatric patient’s classification 

cell. 

6. Adult Payment Adjustments That Do 

Not Apply to Pediatric Patients 

As explained above, the payment 

adjustments developed for pediatric 

dialysis patients do not reflect comorbidities, which are included as 

payment adjustments for adult patients. 

Similarly, the payment adjustments 

based on BSA, low BMI, and onset of 

dialysis were developed for adults based 

on characteristics of adult patients and 

their relationship with measured costs 

for services in the ESRD PPS, and, 

therefore, do not apply to pediatric 

patients. Pediatric dialysis patients 

under the ESRD PPS which we are 

finalizing in this rule will not be eligible 

for case-mix adjustments based on BSA, 

low BMI, and the onset of dialysis. In 

addition, the low-volume adjustment 

described in section II.F.3. of this final 

rule will not apply to pediatric patients. 

We point out that the payment 

adjusters for pediatric patients reflect a 

10.5 percent increase to account for the 

overall difference in average payments 

per treatment for pediatric patients 

compared to adult patients. While the 

difference overall is 10.5 percent, 

payments for composite rate and other 

dialysis services for pediatric patients 

exceeded those for adult patients by 

38.6 percent ($216.46 versus $156.12; 

see Table 26). The average composite 

rate payments for pediatric patients 

under the current basic case-mix 

adjusted composite payment system 

include the 62 percent increase 

otherwise applied to pediatric patients, 

plus any exception payments dialysis 

facilities may have received under 

§ 413.184–§ 413.186 of the Medicare 

regulations. (It should be noted that the 

pediatric payment adjustment under the 

basic case-mix adjusted payment system 

increased pediatric payments by 62 

percent relative to the lowest cost adult 

age group, ages 60–69, and not relative 

to the average adult patient overall. 

Further, pediatric patients were not 

eligible for other adjustments under the 

basic case-mix adjusted composite 

payment system. As a result, the average 

pediatric payment under this system 

will be less than 62 percent higher than 

the average payment for adults.) Both 

the pediatric basic case-mix adjustment 

and these facility exception payments 

were developed to account for the 

higher costs of facilities that treat 

pediatric patients. 

To the extent the additional payments 

currently provided for pediatric patients 

under the basic case-mix composite 

payment system are likely to reflect 

higher costs for smaller dialysis 

facilities otherwise qualifying for the 

low-volume adjustment under the ESRD 

PPS, application of the low-volume 

adjustment for pediatric patients would 

be duplicative. Therefore, the lowvolume payment adjuster of 1.189 that 

we are finalizing will only be applicable 

to adult patients, and will not be used 

in calculating the payment rate per 

treatment for pediatric dialysis patients. 

Facilities qualifying for the low-volume 

adjustment which treat both adult and 

pediatric patients, may only receive the 

low-volume adjustment for adult 

dialysis patients. We point out that the 

training add-on amount of $33.44 per 

treatment, subsequently adjusted by the 

area wage index, is applicable to both 

adult and pediatric patients. 

For comprehensive examples showing 

the application of the pediatric payment 

adjusters shown in Table B in the 

Appendix in connection with 

computing the payment amounts per 

treatment for pediatric dialysis patients, 

see section II.I. of this final rule. 

Based on the comments received and 

the responses provided above, we are 

revising § 413.235(b) to reflect the 

revised pediatric ESRD patient 

adjustments of age and modality. In 

addition, as payment under § 413.235(b) 

is limited to claims for patients under 

18 years of age, we are revising 

§ 413.171 to define a pediatric ESRD 

patient as an individual less than 18 

years of age who is receiving renal 

dialysis services. 

H. Outlier Policy 

Section 1881(b)(14)(D)(ii) of the Act 

requires that the ESRD PPS include a 

payment adjustment for high cost 

outliers due to unusual variations in the 

type or amount of medically necessary 

care, including variations in the amount 

of ESAs necessary for anemia 

management. In the proposed rule, we 

discussed our rationale for outlier 

payments to facilities under the ESRD 

PPS (74 FR 49987) and proposed that 

the ESRD outlier policy parallel the 

outlier policies adopted under other 

Medicare PPSs. 

We proposed an outlier policy of 1.0 

percent of total ESRD expenditures (74 

FR 49993). We stated that we believed 

an outlier percentage of 1.0 percent 

strikes an appropriate balance between 

our objective of paying an adequate 

amount for the most costly resource 

intensive patients, while providing an 

appropriate level of payments for those 

patients who do not qualify for outlier 

payments. An ESRD facility would be 

eligible for an outlier payment when its 

imputed MAP amount per treatment for 

the outlier services exceeded the outlier 

threshold, or the facility’s predicted 

MAP amount per treatment for the 

outlier services plus the fixed dollar loss 

amount. Finally, we proposed that the 

outlier payment would be equal to 80 

percent of the amount by which the 

facility’s imputed costs exceeds the 

outlier threshold. 

1. Eligibility for Outlier Payment 

We proposed that an ESRD facility 

would be eligible for an additional 

payment under the ESRD PPS where the 

facility’s imputed, average per treatment 

costs for ESRD outlier services 

furnished to a beneficiary exceeded the 

predicted per treatment MAP amount 

for outlier services plus the fixed dollar 

loss amount, as indicated at § 413.237(b) 

(74 FR 49993 and 50024). We proposed 

to base eligibility for outlier payments 

on what we consider ESRD outlier 

services, that is, only those items and 

services that are separately billable 

under Medicare Part B under the current 


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basic case-mix adjusted composite 

payment system, and renal dialysis 

service drugs proposed for inclusion in 

the ESRD PPS bundle that currently are 

covered under Medicare Part D, rather 

than all items and services comprising 

the bundled payment under the 

proposed ESRD PPS (74 FR 49988). 

The comments we received in 

connection with our proposed outlier 

payment policy and our responses are 

set forth below. 

Comment: Instead of our proposed 

approach under which outlier payments 

would be linked to high utilization of 

specified outlier services, several 

commenters suggested that we base 

eligibility for outlier payment on 

specific conditions or characteristics 

including patients undergoing home 

training or self-care training, patients 

with gastrointestinal bleeding, 

infections, including vancomycin 

resistant infections, chronic fluid 

overload, obesity, or pregnant patients. 

These commenters suggested that fixed 

outlier payment amounts could be made 

on behalf of the patient each month in 

which the patient condition or 

characteristic is present. 

Response: We disagree with the 

commenters’ suggested alternative 

approach to establishing outlier 

eligibility and for making outlier 

payments. It does not necessarily follow 

that dialysis patients with specific 

conditions or characteristics will utilize 

resources to the extent that they would 

always qualify for outlier payments. 

Conversely, it is very likely that patients 

without the conditions suggested by the 

commenters could qualify for outlier 

payments because of the presence of 

other co-morbidities, the need for 

particularly expensive ESRD-related 

drugs and biologicals, more frequent 

laboratory testing, or other factors. 

Neither do we believe that paying a 

fixed outlier payment amount each 

month in which a specified co-morbid 

condition or other suggested patient 

condition is present is an appropriate 

method for paying for outlier services, 

as it does not reflect a patient’s actual 

utilization of resources. 

The ESRD PPS described in this final 

rule provides for case-mix payment 

adjustments which recognize specified 

co-morbidities which result in higher 

treatment costs. The ESRD PPS also 

includes payment variables that reflect 

differences in patient size and weight 

through the BSA and low BMI 

adjustments. All of these payment 

adjustments result in the application of 

a targeted or predicted payment rate per 

treatment for dialysis services reflecting 

a patient’s particular case-mix. In 

addition, we have also provided an addon to a patient’s otherwise applicable 

payment rate per treatment for home 

dialysis training. Notwithstanding a 

patient’s specific case-mix adjustments, 

where the utilization of resources 

exceeds the predicted payment amount 

per treatment beyond a specified 

threshold, we believe it is appropriate to 

make outlier payments. Therefore, we 

are retaining our proposed outlier policy 

that is based on higher than predicted 

utilization of outlier services. 

Comment: One commenter indicated 

that certain conditions, such as sepsis, 

are associated with higher treatment 

costs. The commenter specified that 

post-hospitalization antibiotics that are 

often administered by the ESRD facility 

and the debility of septic patients 

contribute to the added cost, and should 

be considered for outlier payments. 

Response: Antibiotics used for the 

treatment of non-ESRD-related 

infections are not included in the ESRD 

PPS bundle. To the extent these 

injectable drugs are furnished in an 

ESRD facility, they would continue to 

be separately payable. The cost of 

services that are outside of the ESRD 

PPS payment bundle, and which remain 

separately billable, are not eligible for 

outlier payments. 

Comment: One commenter stated that 

the co-morbidities that would trigger 

outlier payment do not have validity in 

children. 

Response: The presence of a comorbid condition alone does not trigger 

outlier payments for either adult or 

pediatric patients. Rather, it is the 

provision of additional services that are 

defined as outlier services that 

contributes towards outlier eligibility. 

Comment: One commenter asserted 

that the proposed outlier policy would 

be inadequate to cover the costs 

associated with home hemodialysis. The 

commenter believed that the outlier 

policy would only cover some of the 

additional expenses incurred as a result 

of home dialysis patients and providers 

with a disproportionate number of 

nursing home hemodialysis patients. 

Response: The outlier payment policy 

is intended to compensate ESRD 

facilities for treating patients whose 

consumption of separately billable 

ESRD-related services results in 

unusually high costs per treatment 

beyond a specified threshold which 

exceeds the predicted cost per 

treatment. The predicted cost per 

treatment is determined by multiplying 

the adjusted base rate by all of the 

pertinent patient and facility specific 

payment adjusters that apply. 

The payment adjusters do not 

distinguish between HD furnished in a 

facility and home HD. Because home 

HD is provided to only a very small 

segment of HD patients, the ESRD PPS 

overwhelmingly reflects the costs of 

treatment for in-facility patients. 

Because the availability of compact 

portable HD machines for home use is 

a relatively recent phenomenon, we do 

not yet have sufficient historical data to 

determine the impact of the predicted 

payment rates and application of the 

proposed outlier payment policy on 

home hemodialysis patients. Therefore, 

we are unable to determine if the 

commenter is correct. We point out, 

however, that our methodology for 

calculating the amount of outlier 

payments used the same computation of 

the separately billable MAP per 

treatment, regardless of where 

hemodialysis was performed, and was 

not biased in favor of any site of service. 

a. ESRD Outlier Services 

We proposed at § 413.237(a), to base 

eligibility for outlier payments under 

the ESRD PPS on a comparison of the 

predicted MAP amounts and imputed 

MAP amounts for (1) items and services 

that currently are separately billable 

under Medicare Part B, including ESRDrelated drugs, ESRD-related laboratory 

tests, and other ESRD-related services; 

and (2) renal dialysis service drugs 

proposed for inclusion in the ESRD PPS 

bundle that currently are covered under 

Medicare Part D (74 FR 50024). We 

referred to those services as the ‘‘ESRD 

outlier services.’’ 

In the proposed rule, we also stated 

that we were considering the extent to 

which the 50 percent rule pertinent to 

the Automated Multi-Channel 

Chemistry (AMCC) separately billable 

laboratory tests under the basic case-mix 

adjusted composite payment system 

should continue to apply under the 

ESRD PPS (74 FR 49988). Section 

1881(b)(14) prohibits the unbundling of 

services, including laboratory services. 

In the proposed rule, we indicated that 

because Medicare would not make a 

separate payment for ESRD-related 

laboratory tests under the ESRD PPS, 

the 50 percent rule would be rendered 

irrelevant for payment purposes. We 

indicated that the 50 percent rule’s 

relevance would be limited to its use in 

determining eligibility for outlier 

payments. 

We requested public comments on 

whether or not to include the AMCC 

tests to which the 50 percent rule 

applies within the definition of outlier 

services, and retain the 50 percent rule 

under the proposed ESRD PPS (74 FR 

49988). We also invited comment on our 

proposal to limit the ESRD outlier 

services to items and services that were 

separately billable under Part B, and 


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those renal dialysis service drugs 

formerly covered under Part D (74 FR 

49988). 

The comments we received with 

respect to the proposed definition of 

ESRD outlier services and our responses 

are set forth below. 

Comment: Several commenters 

recommended that laboratory tests 

should be removed from the definition 

of outlier services, claiming that such 

testing does not widely vary based on 

time on dialysis or type of patient. The 

commenters maintained that the 

exclusion of laboratory tests from the 

definition of outlier services would have 

a minimal impact on the distribution of 

outlier payments. 

Response: Table 26 reveals that in CY 

2007, laboratory tests for Medicare 

ESRD beneficiaries averaged 3.4 percent 

or $8.04 of the total MAP amount per 

treatment of $239.88 for patients of all 

ages. While this amount is relatively 

small, we point out that the need for 

laboratory testing can vary widely 

depending on changes in a patient’s 

condition. For example, the inpatient 

hospitalization of an ESRD beneficiary, 

particularly if the patient does not 

receive his usual dose of dialysis while 

hospitalized, can result in severe 

deviations of dialysis clinical indicators 

from baseline values upon discharge. 

This often requires additional laboratory 

testing and above average doses of 

ESRD-related drugs and biologicals to 

return them to normal levels. Such a 

patient could be costly for the dialysis 

facility in terms of the additional 

laboratory testing required. 

The additional laboratory tests, 

coupled with higher utilization of 

ESRD-related drugs and biologicals, 

could make the patient eligible for 

outlier payments. Accordingly, we do 

not believe that it would be appropriate 

to exclude ESRD-related laboratory 

testing services from the separately 

billable services which comprise the 

definition of ESRD outlier services. 

Comment: Several commenters 

supported a narrow definition of outlier 

services limited to intravenous drugs. 

The commenters believed that 

utilization of these drugs is the primary 

driver of variation in patient costs. 

Response: While high utilization of 

injectable drugs, such as ESAs, may 

largely determine the need for outlier 

payments for many patients, these drugs 

and biologicals are not the only reason 

an ESRD facility incurs unusually high 

costs in treating patients. A greater need 

for ESRD-related laboratory testing 

subsequent to a hospitalization or for 

other reasons can also contribute to high 

separately billable expenditures. Oral 

drugs can also be an important factor. 

Because it is a patient’s total utilization 

of separately billable items and services 

that is relevant in determining eligibility 

for outlier payments, we have not 

limited these payments to a particular 

category in this final rule. 

Comment: One commenter asserted 

that to the extent we specify the ESRDrelated laboratory tests that would be 

included in the payment bundle, it 

would not be necessary to identify these 

tests on the claim for purposes of the 

outlier payment computation. 

Response: The commenter is 

incorrect. Laboratory tests included in 

the ESRD PPS payment bundle 

represent laboratory tests that were 

included in the composite rate of the 

basic case-mix adjusted composite 

payment system, and tests that prior to 

January 1, 2011, were separately billable 

under Part B. To establish whether a 

laboratory test qualifies as an eligible 

outlier service, it is necessary to 

determine whether the test had been (or 

would have been for new ESRD-related 

laboratory tests) separately billable 

under Part B prior to January 1, 2011. 

Despite the list of laboratory tests 

considered ESRD-related included in 

Table F of the Appendix to this final 

rule, all laboratory tests furnished an 

ESRD beneficiary must be specified on 

the facility claim in order that we can 

determine which meet the definition of 

a separately billable service and 

determine any potential outlier 

payments. We recognize that some 

laboratory tests that would otherwise be 

considered ESRD-related may be 

ordered for ESRD beneficiaries for 

purposes other than ESRD. These tests 

will be excluded from the ESRD PPS 

payment bundle, will remain separately 

billable, and would not be considered 

an eligible outlier service. 

Comment: One commenter suggested 

that given the high cost of blood 

transfusions and their unpredictable 

rate of utilization, blood transfusion 

procedures should be classified as 

outlier services. 

Response: As explained elsewhere in 

this final rule, blood and blood products 

have been excluded from the ESRD PPS 

payment bundle and remain separately 

billable. Items and services excluded 

from the payment bundle are not 

considered outlier services. 

Comment: Several commenters 

favored broadening the definition of 

outlier services, while others suggested 

narrowing the definition, claiming that 

a smaller list of services would simplify 

the administrative burden associated 

with billing. One commenter in favor of 

a broader definition of outlier services 

maintained that all renal dialysis 

services should be considered within 

the definition of outlier services, not 

only items and services that were 

previously separately billable. The 

commenter stated that the separately 

billable designation, a feature of the 

basic case-mix adjusted composite 

payment system, is obsolete under the 

ESRD PPS because all items and 

services within the payment bundle, 

including composite rate services, are 

classified as renal dialysis services. 

Response: Cost information regarding 

ESRD-related services considered to be 

composite rate services are not available 

on a patient-specific basis, only at the 

ESRD facility level, based on average 

costs collected from the Medicare cost 

reports. Neither do the Medicare claims 

identify specific composite rate items 

and services for ESRD patients. 

Therefore, if all renal dialysis services 

included in the ESRD PPS payment 

bundle were considered under the 

definition of outlier services, variation 

in the patient-specific utilization of 

resources would reflect only differences 

in non-composite rate services (that is, 

separately billable drugs and 

biologicals, laboratory tests, and 

medical supplies). This would occur 

because in the cost report, facilities 

identify the average of all composite rate 

costs across all patients treated at the 

ESRD facility. 

We stated in the proposed rule that if 

we were to include all ESRD-related 

items and services in our definition of 

outlier services, including composite 

rate services, we would need to collect 

patient-level data on composite rate 

items and services utilized, and modify 

the ESRD facility claim form (74 FR 

49989). Such an undertaking is not 

possible prior to the January 1, 2011 

implementation of the ESRD PPS. 

Accordingly, we have developed our 

outlier payment policy based on the 

utilization of separately billable items 

and services. 

The commenter who pointed out that 

the distinction between composite rate 

and separately billable services will 

become irrelevant under the ESRD PPS, 

in which bundled services are classified 

as Part B renal dialysis services, is 

correct. However, we find that it is 

necessary to maintain the distinction at 

this time in order to identify ESRDrelated items and services eligible for 

outlier payments. Based on the 

commenter’s suggestion, however, we 

have revised the definition of 

‘‘separately billable items and services’’ 

as defined in § 413.171 to clarify that 

outlier services include items and 

services that were, or would have been, 

prior to January 1, 2011, separately 

payable. 


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With respect to the commenter’s 

suggestion that a smaller list of outlier 

services would simplify the 

administrative burden associated with 

billing, we point out that ESRD facilities 

currently are required to report all 

separately billable items and services 

furnished each ESRD beneficiary. We 

did not propose revisions to the ESRD 

facility claim form. Therefore, for 

purposes of determining eligibility for 

outlier payments, separately billable 

items and services would continue to be 

reported on ESRD facility claims. 

Comment: Several commenters stated 

that removing laboratory tests from the 

definition of outlier services would 

render the 50 percent rule unnecessary 

and relieve some of the reporting 

burden. Another commenter maintained 

that the 50 percent rule is based on a 

panel of AMCC tests included in the 

composite rate in 1983 and no longer 

reflects current medical standards. 

Response: The specification of all 

ESRD-related laboratory tests as either 

composite rate or separately billable for 

the purpose of determining outlier 

eligibility renders the 50 percent rule 

moot. However, we cannot, as the 

commenter suggests, eliminate the 50 

percent rule at this time, because it is 

necessary in order to calculate the basic 

case-mix adjusted composite rate 

portion of the blended payment during 

the three year transition period. 

As described in section 40.6 of the 

Medicare Claims Processing Manual, 

Publication 100–04, chapter 16—Billing 

for End Stage Renal Disease (ESRD) 

Related Laboratory Tests, for a 

particular date of service to a 

beneficiary, if 50 percent or more of the 

covered laboratory tests are 

noncomposite rate tests, Medicare 

allows separate payment beyond that 

included in the composite rate. If 50 

percent or more of the covered tests are 

included under the composite rate 

payment, then all submitted tests are 

included within the composite payment 

and no separate payment in addition to 

the composite rate is made for any of the 

separately billable tests. If less than 50 

percent of the covered tests are 

composite rate tests, all AMCC tests 

submitted for the date of service for that 

beneficiary are separately payable. 

Because we need to retain the 50 

percent rule to compute the basic casemix adjusted portion of the blended 

payment during the ESRD PPS 

transition and, we believe that it is 

appropriate to also retain the 50 percent 

rule to determine whether AMCC panel 

tests would be considered composite 

rate or separately billable for the ESRD 

PPS portion of the blended payment, we 

are retaining the 50 percent rule and 

laboratory tests as outlier services. 

Individual laboratory tests comprising 

an AMCC panel in which the majority 

of the laboratory tests are separately 

billable, would be considered all 

separately billable for the purpose of 

determining outlier eligibility. 

In order to consistently apply this 

policy during the transition period, both 

ESRD facilities that opt out of the 

transition period and those that go 

through the transition, will be required 

to follow the 50 percent rule until the 

transition period ends January 1, 2014. 

With respect to a commenter’s concern 

that the 50 percent rule was based on a 

panel of AMCC tests that no longer 

reflects current medical standards, once 

the transition period ends, we will 

reevaluate the application of the 50 

percent rule and determine its future 

status in relation to laboratory tests 

which qualify as outlier services. 

Comment: One commenter believed 

that we should replace the 50 percent 

rule with a reasonable alternative. 

Specifically, the commenter 

recommended that we determine the 

dollar value of the AMCC tests in the 

current composite rate. The commenter 

asserted that for purposes of calculating 

outlier payments, the imputed value of 

these tests performed above the 

composite rate value should be 

calculated based on the same AMCC 

panel rates that apply to all clinical 

laboratories. 

Response: We believe the commenter 

is suggesting an approach in which the 

dollar value of the composite rate 

laboratory tests included in an AMCC 

panel would need to be determined. The 

laboratory fee schedule value in excess 

of this amount, regardless of the number 

of composite rate or separately billable 

individual laboratory tests comprising 

the panel, would then be considered 

eligible for outlier payments. 

Determining the composite rate 

‘‘payment’’ value of all individual 

composite rate laboratory tests which 

are part of AMCC panel tests for the 

purpose of the commenter’s suggested 

calculation would be problematic. 

In addition, we do not believe we 

should create an alternative policy for 

distinguishing composite rate laboratory 

tests at this time. Once the transition is 

over and we no longer need to use the 

50 percent rule to compute blended 

payments under the ESRD PPS, we plan 

to reconsider continuation of the 50 

percent rule in connection with our 

outlier payment policy. Accordingly, we 

have not adopted the commenter’s 

suggestion. 

Comment: Several commenters 

asserted that outlier payments on behalf 

of patients with higher drug costs may 

not be enough to prevent ESRD facilities 

from withholding non-calcium 

phosphate binders and cinacalcet. 

Response: As indicated in section 

II.A.3. of this final rule, we are delaying 

the implementation of oral-only ESRDrelated drugs until January 1, 2014, after 

the transition period ends. We intend to 

further assess this concern in a future 

notice of proposed rulemaking. 

Comment: One commenter believed 

that the additional cost of providing 

extra treatments and supplies should be 

accounted for within the outlier 

payment policy. 

Response: As discussed elsewhere in 

this final rule, with medical 

justification, payments will continue to 

be made for additional treatments 

required beyond the usual three per 

week under the ESRD PPS. Most 

medical supplies associated with 

furnishing dialysis treatments are 

currently included in the composite rate 

of the basic case-mix adjusted 

composite payment system. However, 

medical/surgical supplies used to 

administer ESRD-related drugs that 

prior to January 1, 2011, were separately 

billable, but are included in the ESRD 

PPS payment bundle, would be 

included in the definition of outlier 

services. These supplies would count 

towards outlier eligibility and potential 

outlier payments. 

Comment: One commenter requested 

that CMS provide guidance as to how it 

intends to deal with the allocation of 

services that occur at infrequent, but 

routine and predictable intervals (for 

example, monthly), and that appear on 

a claim with a high imputed value on 

one day in a claim. 

Response: The commenter is correct 

that we described much of the outlier 

methodology in terms of per treatment 

amounts consistent with the per 

treatment unit of payment under the 

ESRD PPS (74 FR 49993 through 49994). 

In other words, we have not developed 

individual outlier adjustments 

applicable to infrequently furnished 

costly items and services. 

We believe that our methodology is 

consistent with a bundled payment 

approach that takes into account the 

aggregate monthly use of resources. We 

clarify that in instances in which a 

facility’s imputed costs exceed the 

proposed outlier threshold plus the 

fixed dollar loss amount, outlier 

payments would apply to all treatments 

the ESRD facility furnished the patient 

that month, and reported on the 

monthly claim, regardless of the 

frequency with which these services 

were provided. 

Comment: One commenter requested 

clarification as to whether we will make 


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49138 Federal Register / Vol. 75, No. 155 / Thursday, August 12, 2010 / Rules and Regulations 

outlier payments to ESRD facilities that 

do not line item bill outlier services on 

the monthly claim. 

Response: To calculate outlier 

eligibility and payments, ESRD facilities 

must identify which outlier services 

have been furnished. To the extent that 

an ESRD facility fails to identify outlier 

services on the monthly claim, we 

would have no way of making outlier 

eligibility determinations or any 

potential corresponding outlier 

payments. We view this billing 

approach as similar to the way in which 

ESRD facilities currently bill under the 

basic case-mix adjusted composite 

payment system. That is, currently 

ESRD facilities identify by line item 

date of service all separately billable 

items and services. Because our 

definition of ESRD outlier services is 

based on ESRD-related items and 

services that were or would have been, 

prior to January 1, 2011, separately 

billable, we believe that ESRD facilities 

are well positioned to identify outlier 

services on their monthly claims and 

this reporting should not result in 

substantial burden. 

Comment: Several commenters 

asserted that our approach for 

determining outlier payment 

adjustments is too complex, and will 

increase administrative costs as 

facilities will need to submit itemized 

summaries of formerly separately 

billable expenses and analyze whether 

each treatment meets the criteria for 

outlier payments. Specifically, the 

commenters pointed out that the timely 

transfer of information on oral drugs 

dispensed or purchased from 

pharmacies will need to occur in order 

for the ESRD facility to itemize these 

drugs on the monthly claim. Another 

commenter stated that the outlier policy 

could harm small ESRD facilities 

lacking the resources to properly 

evaluate and bill for high cost patients. 

Response: We believe that ESRD 

facilities are currently well positioned 

to continue the reporting of all 

separately billable items and services 

used by ESRD patients in order to 

determine their eligibility as outlier 

services, and potential for triggering 

outlier payments. CMS will automate 

the pricing and calculation of outlier 

payments to the maximum extent 

feasible. We agree that ESRD facilities 

will need to report the purchase and 

payment for the oral drugs and 

biologicals (excluding oral-only drugs 

until 2014) for ESRD beneficiaries as 

soon as practicable for reporting on the 

monthly claim. Although we appreciate 

the commenters’ concerns with respect 

to the need to report all outlier eligible 

services on the monthly claim, this is 

necessary in order to calculate any 

potential outlier payments. 

Once claims data can be collected 

which reflect the utilization of outlier 

services under the ESRD PPS, we intend 

to analyze those data to identify which 

outlier services are associated with the 

greatest proportion of outlier payments. 

We intend to weigh those results against 

the administrative burden of continuing 

to collect and record each outlier 

eligible service on the claim. We would 

propose any alterations to the definition 

of outlier services in a future notice of 

proposed rulemaking. 

Comment: MedPAC recommended 

that CMS develop clinical criteria, 

similar to the ESA Claims Monitoring 

Policy, for the utilization of drugs and 

laboratory tests under our outlier 

payment policy to ensure their 

appropriate use. 

Response: At this point, we believe it 

is premature to determine whether a 

monitoring policy is necessary to 

determine the appropriate utilization of 

separately billable services under our 

outlier payment policy. If we determine 

based on data analysis of the 

consumption of outlier eligible services 

under the ESRD PPS that inappropriate 

use of outlier services is leading to 

excessive outlier payments, we will 

reconsider MedPAC’s suggestion and 

propose revisions to the outlier policy 

in the future. 

After consideration of all public 

comments received, we are modifying 

our proposed definition of ESRD outlier 

services set forth in proposed § 413.237 

(74 FR 50024) in order to clarify our 

definition of eligible outlier services. 

That section references proposed 

§ 413.171 (74 FR 50022) with respect to 

the definition of separately billable 

items and services that will be 

considered eligible outlier services. We 

are revising the definition of separately 

billable services set forth in proposed 

§ 413.171 to read as follows: ‘‘Separately 

Billable Items and Services. Items and 

services used in the provision of 

outpatient maintenance dialysis for the 

treatment of individuals with ESRD that 

were or would have been, prior to 

January 1, 2011, separately payable 

under Title XVIII of the Act and not 

included in the payment systems 

established under section 1881(b)(7) and 

section 1881(b)(12) of the Act’’. 

We are finalizing the definition of 

outlier services to include the following 

items and services that are included in 

the ESRD PPS bundle: (1) ESRD-related 

drugs and biologicals that were or 

would have been, prior to January 1, 

2011, separately billable under 

Medicare Part B; (2) ESRD-related 

laboratory tests that were or would have 

been, prior to January 1, 2011, 

separately billable under Medicare Part 

B; (3) medical/surgical supplies, 

including syringes, used to administer 

ESRD-related drugs that were or would 

have been, prior to January 1, 2011, 

separately billable under Medicare Part 

B; and (4) renal dialysis service drugs 

that were or would have been, prior to 

January 1, 2011, covered under 

Medicare Part D, notwithstanding the 

delayed implementation of ESRDrelated oral-only drugs effective January 

1, 2014. 

We point out that with respect to the 

former Part D drugs, other than the oralonly drugs that are delayed for inclusion 

in the ESRD PPS payment bundle until 

January 1, 2014, the current outlier 

eligible drugs are limited to drugs and 

biologicals required to regulate bone 

and mineral metabolism and cellular 

metabolism. Currently these drugs are 

calcitriol, paracalcitol, doxercalciferol, 

and levocarnitine. The list of separately 

billable items and services that will be 

considered ESRD outlier services is 

dynamic. If new ESRD-related 

laboratory tests or new oral drugs 

emerge within the classifications noted, 

they will be considered eligible for 

outlier payments, provided they would 

have been considered separately billable 

under Part B or covered under Part D 

prior to January 1, 2011. We intend to 

publish a list of currently eligible 

separately billable outlier services in a 

subsequent administrative issuance. 

We are revising § 413.237 of the 

regulations to define outlier services as 

separately billable items and services as 

defined in § 413.171 of this part and 

renal dialysis service drugs and 

biologicals proposed for inclusion in the 

ESRD PPS that currently are covered 

under Medicare Part D (including those 

Part D oral-only drugs that are bundled 

but for which implementation is 

delayed until after the ESRD PPS 

transition period ends). 

b. Predicted ESRD Outlier Services MAP 

Amounts 

We proposed that predicted outlier 

services MAP amounts for a patient 

would be determined by multiplying the 

adjusted average outlier services MAP 

amount by the product of the patientspecific case-mix adjusters applicable 

using the outlier services payment 

multipliers developed from the 

regression analysis to compute the 

payment adjustments (74 FR 49989). 

The predicted separately billable 

MAP amounts in the proposed rule were 

based on the patient-level regression for 

separately billable services. Thus, it was 

possible to predict patient-specific 

separately billable MAP amounts for 


jlentini on DSKJ8SOYB1PROD with RULES2
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these services by multiplying the 

average separately billable MAP 

amounts by the separately billable casemix adjusters. 

We provided tables that listed the 

case-mix adjustment multipliers for 

outlier services for adult and pediatric 

patients (74 FR 49989 through 49990) 

and described the process for 

calculating the adjusted average outlier 

services MAP amount (74 FR 49990). 

The proposed adjusted average outlier 

services MAP amount was $64.54 (74 

FR 49991). That amount was multiplied 

by the product of the patient-specific 

outlier services payment multipliers to 

yield the predicted outlier services MAP 

amount. Lastly, the fixed dollar loss 

amount was added to this amount. 

In the proposed rule, we stated that 

we intended to include former Part D 

drugs and biologicals into the separately 

billable services regression model that 

generates the case-mix payment 

adjusters (74 FR 49989). However, for 

reasons set forth in section II.F. of this 

final rule, we have been unable to 

include payments for former Part D 

drugs in the regression model used to 

develop the separately billable case-mix 

adjusters. Payments for these drugs, 

however, have been included in the 

computation of the CY 2007 base rate to 

which the case-mix adjustments are 

applied. 

Accordingly, effective January 1, 

2011, the outlier services payment 

adjustments are based solely on the 

items and services that, prior to January 

1, 2011, were separately billable under 

Medicare Part B. Therefore, in this final 

rule, the outlier services multipliers are 

represented by the separately billable 

services payment multipliers. The 

updated list of outlier services payment 

multipliers on behalf of adult patients is 

presented in Table A of the Appendix 

under the heading ‘‘separately billable 

services.’’ The updated list of outlier 

services payment multipliers on behalf 

of pediatric patients is presented in 

Table B of the Appendix under the 

heading ‘‘SB payment multiplier.’’ 

The average outlier services MAP 

amount per treatment in this final rule 

is based on payment amounts reported 

on 2007 claims and adjusted to reflect 

projected prices for 2011. In the 

proposed rule, we used a single outlier 

services MAP amount based on the 

average utilization of separately billable 

services for all Medicare ESRD patients 

(74 FR 49991). For this final rule, we 

have adopted separate outlier services 

MAP amounts for adult and pediatric 

patients. We did this because of the 

change in methodology for developing 

the final pediatric payment adjustments, 

and to ensure that the outlier thresholds 

for determining outlier payments for 

pediatric patients were not 

inappropriately high, resulting in fewer 

outlier payments. This change in 

methodology is appropriate because of 

the lower utilization of separately 

billable dialysis services among 

pediatric patients compared to adult 

patients. The final average outlier 

services MAP amounts are $54.14 for 

patients < 18, and $86.58 for patients 

age 18 and older. 

In the proposed rule, we described 

how the average MAP amount per 

treatment for outlier services was 

adjusted by the case-mix and wage 

index standardization factor in order to 

avoid duplicate payments, because 

adjustments for case-mix and the wage 

index are applied to the adjusted MAP 

amount per treatment to compute the 

ESRD PPS payment amount for each 

patient (74 FR 49990). Although the 

standardization factor cited in the 

proposed rule reflected low volume 

payments, we inadvertently omitted 

stating that this standardization factor 

also included any estimated low-volume 

payments. After application of this 

standardization factor (0.7827 in the 

proposed rule), we also applied the 1.0 

percent reduction for total estimated 

outlier payments (0.99 outlier 

reduction) and the 2.0 percent reduction 

mandated under MIPPA (MIPPA 

reduction factor of 0.98) (74 FR 49990 

through 49991). After application of 

reductions described above, the 

resulting adjusted average outlier 

services MAP amount would be 

multiplied by the applicable patientspecific case-mix adjustments to obtain 

the predicted outlier services MAP 

amount (74 FR 49991). As described 

further in section d., ‘‘Outlier Percentage 

and Fixed Dollar Loss Amounts’’ below, 

the fixed dollar loss amount would be 

added to this amount to obtain each 

patient’s outlier threshold. Total 

separately billable payments per 

treatment will have to exceed this 

amount in order for outlier payments to 

apply. 

In the proposed rule, the 

standardization factor reflected all of the 

proposed case-mix and facility-level 

adjustment variables, including 

estimated low-volume payments (74 FR 

49991). Because we have revised the 

proposed payment methodology for 

adult patients to reflect a patient month 

approach to determine the separately 

billable regression adjustments and 

excluded certain case-mix adjustments 

as described below, and eliminated comorbidities entirely from the proposed 

pediatric payment methodology as 

discussed in section II.G. of this final 

rule, we have recomputed the proposed 

standardization factor (0.7827) for casemix and the wage index to reflect the 

following final patient characteristics 

for adult patients: Age, BSA, 

underweight (BMI < 18.5), time since 

onset of renal dialysis < 4 months, 

pericarditis (acute), bacterial pneumonia 

(acute), gastro-intestinal tract bleeding 

(acute), hereditary hemolytic or sickle 

cell anemia (chronic), myelodysplastic 

syndrome (chronic), monoclonal 

gammopathy (chronic), and the lowvolume adjustment as discussed in 

section II.E.3. of this final rule. 

For pediatric patients, no 

standardization for outlier services is 

necessary since the final pediatric 

adjustments for outlier services were 

calculated such that the average overall 

pediatric multiplier is 1.000. The final 

adjustments are based on age (< 13 and 

13–17) and modality (PD or HD) as 

discussed in section II.G. of this final 

rule. It should be noted that the lowvolume adjustment will not apply to 

pediatric dialysis patients for reasons 

explained in section II.G. of this final 

rule. 

As shown in Table 28 below, the 

average outlier service MAP amount per 

treatment, adjusted for the 

standardization, MIPPA reduction, and 

outlier payment factors just described 

for adult and pediatric patients, results 

in the adjusted average outlier services 

MAP amounts, which are multiplied by 

the patient-specific case-mix 

adjustments, to yield a patient’s 

predicted outlier services MAP 

amounts. As described further in section 

‘‘d. Outlier Percentage and Fixed Dollar 

Loss Amounts’’ below, the fixed dollar 

loss amounts for adult and pediatric 

patients will be added to these amounts 

to obtain each patient’s outlier threshold 

for separately billable services. This is 

the amount which must be exceeded on 

a per treatment basis in order for outlier 

payments to apply. 


jlentini on DSKJ8SOYB1PROD with RULES2
49140 Federal Register / Vol. 75, No. 155 / Thursday, August 12, 2010 / Rules and Regulations 

We received the following comments 

in connection with our proposed outlier 

payment methodology. The comments 

received and our responses are set forth 

below. 

Comment: One commenter expressed 

concern that the outlier services MAP 

amount would be decreased by 25 

percent as a result of the standardization 

for case-mix and wage adjustments, the 

MIPPA reduction, and the outlier policy 

reductions. 

Response: We believe the commenter 

was concerned about the magnitude of 

the reduction. Under the proposed rule, 

the standardization for case mix, lowvolume payments, area wage level 

adjustments, the 2 percent reduction 

required by MIPPA, and the 1 percent 

outlier policy, resulted in a 24.1 percent 

reduction from the base rate. Based on 

the revisions to the payment models 

used to develop the payment 

adjustments finalized in this rule, 

application of the revised 

standardization factor (for case-mix, 

low-volume payments, and area wage 

levels), the MIPPA reduction, and 

outlier policy reduction factors, has 

reduced the reduction to the outlier 

services MAP amount to 6.9 percent for 

pediatric patients, and 4.4 percent for 

adult patients. Based on our updated 

analyses conducted for purposes of this 

final rule, we are finalizing the adjusted 

average outlier services MAP amounts 

of $53.06 for pediatric patients and 

$82.78 for adult patients. 

c. Estimating the Imputed ESRD Outlier 

Services MAP Amounts 

As discussed above, we proposed to 

base eligibility for outlier payments on 

a comparison of an ESRD facility’s 

predicted MAP amount per treatment 

for ESRD outlier services to the facility’s 

imputed MAP amount per treatment for 

those same services. In the proposed 

rule, we discussed our proposed 

methodology for determining the 

predicted outlier services MAP amounts 

for a patient (74 FR 49988) and the 

imputed outlier services MAP amounts 

for a patient (74 FR 49991). We 

proposed to estimate an ESRD facility’s 

imputed costs for the ESRD outlier 

services based on the actual utilization 

of separately billable services. 

We noted that although ESRD 

facilities currently identify costs 

associated with certain outlier services 

such as EPO and vaccines, our analysis 

revealed that other ESRD-related drugs 

and biological appear to be underreported or not reported. For this 

reason, we did not believe that a costto-charge ratio that would be based on 

such reported information would 

accurately reflect an ESRD facility’s cost 


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for drugs. As a result, we proposed to 

estimate a provider’s costs based on 

available pricing data rather than 

applying a cost-to-charge ratio to facility 

charges to impute their cost (74 FR 

49991). 

i. Data Used To Estimate Imputed ESRD 

Outlier Services MAP Amounts 

With respect to estimating the 

imputed MAP amounts of ESRD outlier 

services that are separately billable 

under Part B, we proposed to use ASP 

data for the Part B ESRD-related drugs 

(which is updated quarterly), and the 

annual laboratory fee schedule for the 

previously separately billable laboratory 

tests (74 FR 49991). We proposed to use 

various pricing mechanisms for the 

other separately billable ESRD-related 

services. Specifically, for medical/ 

surgical supplies used to administer 

separately billable drugs, we proposed 

to estimate MAP amounts based on the 

predetermined fees that apply to these 

items under the current base case-mix 

adjusted composite payment system. 

For example, we pay $0.50 for each 

syringe identified on an ESRD facility’s 

claims form. 

For other medical/surgical supplies 

such as IV sets and gloves, the Medicare 

Claims Processing Manual (CMS Pub. 

100–04) currently allows Medicare 

contractors to elect among various 

options to price these supplies, such as 

the Drug Topics Red Book, Med-Span, 

or First Data Bank (CMS Pub. 100–04, 

Chapter 8, Section 60.2.1). We proposed 

that the FI/MAC would continue to use 

the pricing mechanisms that are 

currently in place for items and services 

that currently are separately billable 

under Part B to estimate costs for these 

other medical/surgical supplies. 

We proposed to estimate hospitalbased and independent ESRD facilities’ 

costs for blood, supplies used to 

administer blood, and blood processing 

fees using the pricing mechanisms that 

are currently in place for items and 

services that currently are separately 

billable under Part B (74 FR 49991). We 

did not propose a specific mechanism 

for estimating the imputed MAP 

amounts for drugs formerly covered 

under Medicare Part D but that would 

become renal dialysis service drugs 

when the ESRD PPS would be 

implemented in 2011. Rather, we 

requested public comments on the five 

potential approaches for estimating the 

imputed MAP amounts of these drugs 

and on alternative approaches. In the 

proposed rule, we discussed our 

rationale for each approach (74 FR 

49992). 

To summarize, we considered the 

following pricing mechanisms: (1) ASP, 

(2) national average Part D plan prices, 

(3) wholesale acquisition cost (WAC), 

(4) national average prescription drug 

event (PDE) Part D claims data, and (5) 

ESRD facility costs net of manufacturer 

rebates, discounts, and other price 

concessions. 

The comments received on the pricing 

data proposed for use in estimating 

imputed ESRD outlier services MAP 

amounts and our responses are set forth 

below. 

Comment: Several commenters 

requested that we clarify the specific 

pricing mechanism that will be used in 

estimating the imputed outlier services 

MAP amounts for separately billable 

drugs within the outlier calculation. 

Several commenters believed that 

ASP+6 would be a reasonable 

approximation of average acquisition, 

preparation and handling costs for the 

Part B separately billable drugs that are 

included in the definition of outlier 

services. 

Response: We solicited public 

comments on the various pricing 

approaches that we proposed (74 FR 

49992), but received very few 

comments, each of which are addressed 

below. As discussed below, only one 

commenter cited a preference for a 

particular pricing methodology among 

those presented. Because ASP data for 

the Part B ESRD-related drugs and 

biologicals are updated quarterly, and is 

the current basis for payment for these 

drugs, in this final rule we are finalizing 

the use of ASP pricing for these drugs 

and biologicals for the purpose of 

determining outlier eligibility and 

payments. The prices for estimating 

payments for Part B drugs and 

biologicals that were separately billable 

prior to January 1, 2011, will be 

determined by continuing to apply 

ASP+6 pricing for these drugs as we do 

currently under the basic case-mix 

adjusted composite payment system. 

Comment: One commenter expressed 

concern that the separately billable 

prediction equation predicts 8.7 percent 

of the payment model’s variance. The 

commenter believed that it would be 

better to pay providers based on actual 

spending on high cost outliers. 

Response: We believe that by referring 

to actual spending, the commenter 

meant their cost for outlier services. We 

appreciate the commenter’s input on the 

pricing scheme for outlier services, as 

noted above, we are not using provider 

cost for pricing of outlier services. As 

we explained in the proposed rule (74 

FR 49991), although ESRD facilities 

currently identify costs associated with 

certain ESRD outlier services such as 

EPO and vaccines, our analysis revealed 

that charges for other ESRD-related 

drugs and biologicals appear to be 

under-reported or not reported. For this 

reason, we do not believe that a cost-tocharge ratio that would be based on 

such reported information would 

accurately reflect an ESRD facility’s 

cost. 

After implementation of the ESRD 

PPS, we intend to analyze the extent of 

outlier payments under the ESRD PPS 

and may reconsider the commenter’s 

suggestion that we use actual provider 

cost (net of rebate, discounts, or other 

reductions) for high cost patients. We 

note that the updated analysis using 

2006–2008 data yielded an R-squared 

value for the patient-level separately 

billable payment model of 3.3 percent 

due to revisions in the payment 

adjustments described in section II.F.3. 

and 4, and II.G. of this final rule. 

Comment: A drug manufacturer stated 

that it would be willing to voluntarily 

report its ASP for ESRD-related drugs. 

One commenter encouraged CMS to rely 

on current Part D pricing information as 

a basis for calculating outlier eligibility. 

The commenter recommended that 

payment for oral ESRD-related drugs be 

based on the price at which the SDO 

would need to buy the drug from a 

pharmacy under arrangements. The 

commenter stated that contract 

pharmacies will expect a profit on 

contracting arrangements, thus 

penalizing SDOs. Another commenter 

suggested that in light of the difficulties 

in attempting to impute Part D drug 

costs for purposes of the outlier 

calculation, it would be best to limit the 

payment bundle to only those Part D 

covered drugs that are the oral 

equivalent form of an intravenous drug 

now covered under Part B, and 

separately billed by ESRD facilities. 

Response: We appreciate the drug 

manufacturer’s willingness to report 

ASP pricing for drugs that are covered 

under Part D. Although CMS does not 

have the authority to compel drug 

manufacturers to submit such data, we 

are encouraged by the willingness of 

some manufacturers to report such data, 

and may consider the use of ASP data 

in the future, including whether a 

voluntary reporting approach would be 

appropriate or feasible to determine 

pricing for ESRD-related drugs formerly 

covered under Part D. Although one 

commenter suggested using wholesale 

acquisition cost (WAC)(see comment 

below), with the exception of the use of 

ASP pricing, no other commenters 

expressed a preference for a particular 

pricing approach among the ones 

proposed. 

We have elected to adopt the national 

average drug prices based on the 

Medicare Prescription Drug Plan Finder. 


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Similar to acquisition costs, the prices 

retrieved from the Medicare 

Prescription Drug Plan Finder reflect 

pharmacy dispensing and 

administration fees. Those prices also 

reflect the negotiated prices of both 

large and small prescription drug plans. 

We urge ESRD facilities to indicate on 

the claims their acquisition costs for 

ESRD-related oral drugs that are used as 

substitutions for injectable drugs. In this 

way, we can compare acquisition costs 

to the prices from Medicare Prescription 

Drug Plans. 

We share the commenter’s concern 

about imputing oral drug costs and note 

that, as described previously, the 

implementation of oral-only Part D 

drugs within the ESRD PPS is delayed 

until after the transition period ends 

and will be discussed in a future notice 

of proposed rulemaking. 

Comment: One commenter requested 

clarification as to whether blood, blood 

products and blood transfusion 

procedures are included in calculating 

eligibility for outlier payments. The 

commenter requested that we specify 

the pricing mechanism that would be 

used to estimate the imputed MAP 

amounts for blood and blood products. 

Response: As indicated in section 

II.A.3. of this final rule, we are not 

finalizing the bundling of blood, blood 

products, and blood transfusion 

procedures in the ESRD PPS payment. 

These services will continue to be 

separately payable. Therefore, these 

services do not meet the definition of 

ESRD outlier services and the imputed 

MAP amounts for use in the outlier 

calculation will not include payments 

for these services. 

Comment: One commenter stated that 

payment for outpatient medications 

should be based on evidence-based 

guidelines. This commenter asserted 

that because there is no evidence 

supporting the superiority of brand 

name Vitamin D receptor drugs, the 

reasonable cost of generic equivalents 

would be an appropriate basis for 

pricing these and other drugs. 

Response: The listing of ESRD outlier 

service drugs and their corresponding 

prices is not limited to brand name-only 

drugs. 

Comment: One commenter requested 

that new technologies be included in 

the definition of outlier services 

suggesting that we consider paying for 

the full cost of any innovative drug or 

technology when an outlier payment is 

triggered. The commenter believed that 

this approach could serve as an interim 

measure until CMS and ESRD facilities 

acquire experience with the new drug or 

technology. 

Response: We appreciate the 

commenter’s suggestion for assessing 

outlier eligibility and calculating 

potential outlier payments for new 

technologies. We intend to publish a list 

of ESRD outlier services for 

implementation on January 1, 2011, in 

a subsequent administrative issuance 

along with the methodologies for 

updating the list. We plan to continue 

to assess options for accounting for the 

cost of new technologies within the 

ESRD PPS, whether through the outlier 

payment policy or some other feature of 

the ESRD PPS. We would include our 

assessment and any proposed options in 

future notices of proposed rulemaking. 

Comment: One commenter suggested 

that CMS use wholesale acquisition cost 

(WAC) for purposes of pricing new 

drugs. 

Response: Although the commenter 

suggested the use of WAC for pricing 

new drugs, no reason was given. With 

respect to new Part D drugs, we would 

rely on the national average drug price 

by NDC code based on data from the 

Medicare Prescription Drug Plan Finder 

as discussed previously in this section. 

As such, we will be unable to establish 

prices for new drugs that would meet 

the definition of ESRD outlier services 

until prices for those drugs are included 

in the Prescription Drug Plan Finder 

and we have updated the ESRD outlier 

services list to reflect the new drug and 

established the price in CMS systems 

that price ESRD claims. We point out 

that although new drugs would only be 

eligible for outlier payment after the 

outlier services list has been updated, 

the otherwise applicable ESRD PPS 

bundled payment rate would still apply 

to any new drugs within the 

classification categories. We intend to 

update the ESRD outlier services list 

annually to reflect new prices and new 

drugs within our classification 

categories described in section II.A.3. of 

this final rule. 

As a result of the public comments 

received, we are finalizing the bases for 

estimating imputed outlier services 

MAP amounts as follows: ‘‘(1) Part B 

drugs that were or would have been 

separately billable prior to January 1, 

2011, will continue to be priced based 

on the most current ASP pricing plus 6 

percent’’. (2) Laboratory tests that were 

or would have been separately billable 

prior to January 1, 2011, will continue 

to be priced based on the most current 

laboratory fee schedule amounts. (3) 

ESRD-related supplies used to 

administer separately billable Part B 

drugs (for example, syringes) that prior 

to January 1, 2011, were or would have 

been separately billable, will continue 

to be priced as they are currently. (4) 

Renal dialysis drugs and biologicals that 

prior to January 1, 2011, were or would 

have been separately covered under Part 

D, including ESRD-related oral-only 

drugs and biologicals for which we have 

delayed implementation until January 1, 

2014, will be priced by NDC code based 

on the national average pricing data 

retrieved from the Medicare 

Prescription Drug Plan Finder’’. 

ii. Determining the Imputed per 

Treatment ESRD Outlier Services MAP 

Amount 

In the proposed rule, we indicated 

that for purposes of determining 

whether an ESRD facility would be 

eligible for an outlier payment, it would 

be necessary for the facility to identify 

the actual ESRD outlier services 

furnished to the patient (74 FR 49992). 

We proposed that the ESRD facility 

would identify by line item on the 

monthly claim, all ESRD outlier services 

furnished to the patient. We would then 

estimate the imputed MAP amount for 

these services applying one of the 

proposed pricing methodologies 

discussed above. The imputed outlier 

services MAP amounts for each of these 

services would be summed and divided 

by the corresponding number of 

treatments identified on the claim to 

yield the imputed outlier services MAP 

amount per treatment. An ESRD facility 

would be eligible for an outlier payment 

if the imputed average outlier services 

MAP amount per treatment exceeded 

the sum of the predicted outlier services 

MAP amount per treatment and the 

fixed dollar loss amount. 

We did not receive comments on our 

proposed methodology for determining 

the imputed ESRD outlier services MAP 

amounts per treatment, beyond those 

already addressed in the previous 

section. For this reason and because it 

is a reasonable method to determine the 

amount that would have been paid for 

these services absent the ESRD PPS, we 

are finalizing our methodology for 

imputing an outlier services MAP 

amount per treatment. 

d. Outlier Percentage and Fixed Dollar 

Loss Amounts 

In the proposed rule, we indicated 

that payments under section 

1881(b)(14)(D)(ii) of the Act for outlier 

cases would be applied in a budget 

neutral manner (74 FR 49992). 

Therefore, we proposed to reduce the 

base rate by the proposed outlier 

percentage (that is, 1.0 percent), 

reflecting the total amount of estimated 

payments for outlier cases, as discussed 

in section II.E.4. of this final rule. In the 

proposed rule, we discussed our 

rationale for determining outlier 


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payments and outlier percentages for 

the ESRD PPS (74 FR 49992). 

We proposed that the outlier 

percentage would be 1.0 percent of total 

ESRD PPS payments (74 FR 49993). We 

stated that we believed an outlier 

percentage of 1.0 percent struck an 

appropriate balance between our 

objectives of paying an adequate amount 

for for the most costly patients, while 

providing an appropriate level of 

payment for those patients who did not 

qualify for outlier patients. We also said 

that this percentage is consistent with 

other Medicare PPSs, such as the 1 

percent outlier policy under the 

outpatient PPS (74 FR 49993). We also 

proposed that the fixed dollar loss 

amounts that would be added to the 

predicted, outlier services MAP 

amounts would differ for adult and 

pediatric patients due to differences in 

the use of separately billable services 

among adult and pediatric patients, 

particularly drugs (74 FR 49993). We 

proposed separate fixed dollar loss 

amounts, defined in proposed 

§ 413.237(a), of $134.96 for adult 

patients and $174.31 for pediatric 

patients (74 FR 49993, 50024). 

We received the following comments 

on our proposals pertaining to these 

features of the outlier policy. 

Comment: Many commenters 

supported the proposed features of the 

outlier policy including the 1.00 percent 

outlier percentage, indicating that it will 

assist all facility types including 

independent, hospital-based, and 

pediatric facilities in providing 

adequate care to complex and costly 

patients. However, to maximize the base 

rate amount, commenters urged CMS to 

keep the outlier percentage as small as 

possible. 

Another commenter urged us to 

eliminate the outlier policy and pay the 

same bundled rate for all patients 

asserting that the 1.0 percent outlier 

reduction from the base rate for small 

and midsized dialysis facilities would 

have a punitive impact, because these 

facilities are not able to spread their 

outlier risk over a large patient 

population. 

Response: As indicated in the 

proposed rule, we believe that a 1.00 

percent outlier percentage strikes an 

appropriate balance between our 

objectives of paying an adequate amount 

for the most costly patients while 

providing an appropriate level of 

payment for those patients who do not 

qualify for outlier payments. We have 

updated the information in the Table 37 

that appeared in the proposed rule (74 

FR 49993) based on the ESRD PPS 

adopted in this final rule to show how 

outlier payment reductions in the base 

rate beyond 1 percent would revise the 

number of estimated patient months 

that would qualify for outlier payments 

for both adult and pediatric patients. 

See Table 29 below. 

As with Table 37 in the proposed rule 

(74 FR 49993), we believe that Table 29 

continues to support our belief that a 1 

percent outlier payment percentage 

balances the need for paying for 

unusually costly resource intensive 

cases, while at the same time ensuring 

an adequate base rate for patients who 

do not qualify for outlier payments. 

Based on the updated analysis, a 1.0 

percent outlier policy results in 4.7 

percent of patient months qualifying for 

outlier payment compared to 5.3 

percent based on the analysis conducted 

for the proposed rule. An increase in the 

outlier percentage would result in a 

lower fixed dollar loss threshold and 

more patient months qualifying for 

outlier payment. 

However, each percent increase in the 

outlier percentage decreases the base 

rate applied to all patient months. 

Public comments addressed in previous 

sections of this final rule advocating for 

fewer adjustments, a lower 

standardization reduction, and a higher 

base rate provide additional support for 

a 1.0 percent outlier policy. 

With respect to the commenter who 

urged us to eliminate the outlier 

payment policy, we point out that 

section 1881(b)(14)(D)(ii) of the Act 

requires us to have an outlier payment 


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adjustment. Accordingly, we are 

finalizing the 1.0 percent outlier 

percentage. 

Comment: One commenter stated that 

an independent analysis revealed that 

an outlier payment policy similar to that 

proposed by CMS was ‘‘optimal’’ in that 

it resulted in minimal reduction to the 

base rate and provided a reasonable 

distribution of outlier payments to 

providers. The commenter found that 

outlier payments were distributed in 

higher proportion to African American 

patients than for other racial groups. 

Response: We note that the outlier 

percentage of 1.0 percent which we 

have adopted in this final rule comports 

with our analysis and the commenter’s 

analysis. 

Comment: Several commenters 

recommended that we re-evaluate 

outlier payments and the outlier 

percentage on an ongoing basis and 

adjust it periodically as needed, adding 

back any excessive reduction in the base 

rate if projected outlier payments 

exceed actual outlier payments. 

Similarly, another commenter believed 

that because ESRD facilities may not 

receive adequate payment for outlier 

expenses, we should return any 

unanticipated decrease in 

reimbursement to providers on a pro 

rata basis at the end of the year. The 

commenter asserted that this would 

ensure budget neutrality, not budget 

negativity. 

The commenters concluded that 

adjustments must reflect the changes in 

the reported cost of care for the outlier 

patient population to ensure equity in 

access for all ESRD patients. 

Response: We disagree with the 

commenters’ recommendations. We 

have put forth our best effort to project 

the impact of a 1.0 percent outlier 

payment policy on the magnitude of the 

fixed dollar lost amounts for adult and 

pediatric patients in order to calculate 

the outlier payment thresholds. The 

ESRD PPS is intended to provide a fixed 

reliable payment rate per treatment for 

the cost of furnishing outpatient dialysis 

services. 

While we intend to update the fixed 

dollar loss amounts on an annual basis 

in order to maintain a 1.0 percent 

outlier percentage, and evaluate the 

degree to which our estimated 

projections of outlier payments match 

actual outlier expenditures, we do not 

intend to adjust the base rate in future 

years to reflect the difference between 

actual and projected outlier payments. 

We have taken the same position in 

connection with other PPSs, and do not 

believe a departure from this policy 

would be appropriate. Therefore, we 

have not adopted the commenters’ 

suggestion that we make prospective 

corrections in the base rate amounts to 

correct for over/underestimates in 

projected outlier payments for prior 

years. 

Based on our review of all public 

comments received, the updated data 

analyses conducted for purposes of this 

final rule, and for the reasons discussed 

above, we are finalizing the fixed dollar 

loss amounts and outlier percentage as 

set forth in proposed § 413.237(a). 

Specifically, we are finalizing fixed 

dollar loss amounts of $155.44 and 

$195.02 for adult and pediatric patients, 

respectively, and a 1.0 percent outlier 

percentage. 

2. Outlier Payments 

In the proposed rule, we proposed an 

80 percent loss sharing percentage as 

the percentage of costs exceeding the 

fixed dollar loss amount that would be 

paid by Medicare (74 FR 49993). We 

conveyed our interest in preserving the 

efficiency incentives inherent under a 

PPS, stating that an 80 percent loss 

sharing percentage would strike a 

reasonable balance between the policy 

objective of paying an adequate amount 

for high cost cases, while at the same 

time preserving the efficiency incentives 

inherent in a PPS. We also stated that 

an 80 percent loss sharing percentage 

was consistent with that used in other 

Medicare payment systems. We also 

proposed to implement an annual 

monitoring process that would identify 

patterns of increased utilization of 

outlier services, and any associated 

outlier payments across ESRD facilities 

(74 FR 49993). 

For treatments eligible for outlier 

payments, we proposed that the per 

treatment outlier payment equal 80 

percent (the loss sharing percentage) of 

the imputed average ESRD outlier 

service MAP amounts in excess of the 

sum of the predicted, outlier services 

MAP amount per treatment, and the 

fixed dollar loss amount, as specified in 

proposed § 413.237(c). We indicated 

that for treatments eligible for the 

outlier payments, the outlier payment 

would be added to each ESRD PPS per 

treatment payment amount. 

The comments we received on our 

outlier payment proposal and our 

responses are set forth below. 

Comment: One commenter stated that 

to facilitate cost containment, outlier 

payments, by design, do not cover all 

losses. This commenter asserted that 

ESRD facilities pay for the treatment of 

infections in the interest of continuity of 

care when these infections may have 

little to do with dialysis care. The 

commenter estimated an outlier 

payment for a high cost patient based on 

AWP pricing for daptomycin and 

concluded that the facility would lose 

$1,600 in one month after accounting 

for the outlier policy’s loss sharing 

feature. The commenter believed that to 

compensate for this loss, ESRD facilities 

would either reduce the provision of 

medications to other patients, defer this 

treatment to be provided at home or in 

infusion centers, or turn the patient 

away. 

Response: As discussed in section 

II.A.3. of this final rule, we will provide 

a mechanism whereby an ESRD facility 

can identify and be paid separately for 

antibiotics (and other drugs and 

biologicals) that are administered in the 

ESRD facility, but are not renal dialysis 

services. Because non-renal dialysis 

services do not meet the definition of an 

outlier service, they would not be 

included in the calculation of outlier 

eligibility or payments. 

Comment: One commenter stated that 

pay for performance does not clearly 

define how to prevent penalty for noncompliant patients or patients with 

underlying disease as related to 

adequacy or anemia. The commenter 

considered these cases to be ‘‘outliers.’’ 

Response: The commenter is 

apparently using the term ‘‘outliers’’ in 

a manner different than that addressed 

in the proposed and final rules with 

respect to our establishment of an 

outlier payment policy. The types of 

cases which the commenter cites may be 

aberrant or unusual, but they would not 

necessarily qualify as outlier cases in 

the context of this final rule. We refer 

readers to section II.M. of this final rule 

for more information about the pay-forperformance element of the ESRD PPS, 

referred to as the QIP. 

As a result of the public comments 

and for the reasons we have explained 

above and in the proposed rule, we are 

finalizing § 413.237(c) of the regulations 

to provide that the per treatment outlier 

payment equal 80 percent (the loss 

sharing percentage) of the imputed 

average ESRD outlier service MAP 

amounts in excess of the sum of the 

predicted, outlier services MAP amount 

per treatment and the fixed dollar loss 

amount. 

3. Hypothetical Outlier Payment 

Examples Hypothetical Example—Adult 

Patient 

Martha, a 66 year old female who is 

167.64 cm. tall, weighs 105 kg., and has 

a recent diagnosis of GI bleeding. A 

patient of this weight and height is not 

below the threshold for underweight 

status and thus would not qualify for a 

low BMI adjustment. 

The formula for calculation of a 

patient’s BSA is: 


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BSA = 0.007184 * heightcm.725 * 

weightkg.425

Martha’s BSA is calculated as: 

BSAMartha = 0.007184 * 167.64.725 * 

105.425 = 0.007184 * 40.9896 * 

7.2278 = 2.1284 

Table 29 reveals that the separately 

billable multiplier for BSA is 1.014. 

Martha’s case-mix adjustment based on 

her BSA of 2.1284 would be: 

= 1.014(2.1284¥1.87/0.1)

= 1.0142.584

= 1.037 

Step 1: Determine the predicted, 

ESRD outlier services MAP amount 

using the product of all applicable casemix adjusters. 

The product of the patient-level 

outlier services case-mix adjusters as 

identified in Table 29: 

= 66 year old: 1.000, BSA: 1.037, and GI 

bleeding: 1.571: 

= 1.000 * 1.037 * 1.571 

= 1.6291 

The adjusted, average, ESRD outlier 

services MAP amount = $82.78 

The adjusted, average ESRD outlier 

services MAP amount * product of the 

outlier services case-mix adjusters: 

= $82.78 * 1.6291 

= $134.86 

Step 2: Determine the imputed 

average, per treatment, ESRD outlier 

services MAP amount based on 

utilization of all separately billable 

services on the monthly ESRD facility 

bill. 

Assume the imputed monthly ESRD 

outlier services amount = $4,000 and 

that the corresponding total number of 

treatments in the month = 10 

The imputed, average, per treatment, 

outlier services MAP amount 

= $4,000/10 

= $400 

Step 3: Add the fixed dollar loss 

amount to the predicted, ESRD outlier 

services MAP amount. 

The fixed dollar loss amount = $155.44 

The predicted, ESRD outlier services 

MAP amount = $134.86 

= $134.86 + $155.44 

= $290.30 

Step 4: Calculate outlier payment per 

treatment. 

Outlier payment = imputed average, 

per treatment, outlier services MAP 

amount ¥ (predicted, ESRD outlier 

services MAP amount plus the fixed 

dollar loss amount) * loss sharing 

percentage: 

= ($400.00¥$290.30) * .80 

= $109.70 * .80 

= $87.76 

Hypothetical Example—Pediatric 

Patient: 

John, is a 13 year old HD pediatric 

patient. 

Step 1: Determine the predicted, 

ESRD outlier services MAP amount. 

As specified in Table 29, determine 

the patient-level ESRD outlier services 

case-mix adjuster: 

= 13 year old HD patient = 1.459 

The adjusted, average, ESRD outlier 

services MAP amount = $53.06 

The adjusted, average, ESRD outlier 

services MAP amount * the product of 

the outlier services case-mix adjusters: 

= $53.06 * 1.459 

= $77.41 

Step 2: Determine the imputed, 

average, per treatment, ESRD outlier 

services MAP amount. 

The imputed monthly ESRD outlier 

services amount = $4,000 

Assume the corresponding total number 

of treatments = 10 

The imputed, average, per treatment, 

outlier services MAP amount = 

= $4,000/10 

= $400 

Step 3: Add the fixed dollar loss 

amount to the predicted, ESRD outlier 

services MAP amount. 

The fixed dollar loss amount = $195.02 

The predicted, ESRD outlier services 

MAP amount = $77.41 

= $77.41 + $195.02 

= $272.43 

Step 4: Calculate outlier payment per 

treatment. 

Outlier payment = imputed, average, 

per treatment, outlier services MAP 

amount ¥(predicted, ESRD outlier 

services MAP amount plus the fixed 

dollar loss amount) * loss sharing 

percentage: 

= ($400.00 ¥ $272.43) * .80 

= $127.57 * .80 

= $102.06 

The outlier payment amount would 

be added to the ESRD PPS payment 

amount, per treatment. For a detailed 

description of calculating the ESRD PPS 

payment amount per treatment, please 

refer to the hypothetical examples in the 

Comprehensive Payment Examples 

presented later in this section of this 

final rule. 

4. Application of Outlier Policy During 

the Transition and in Relation to the 

ESA Monitoring Policy, Other Claims 

Processing Tools, and Other CMS 

Policies 

In the proposed rule, we indicated 

that the outlier payment policy would 

be limited to the proposed ESRD PPS 

(74 FR 49994). We proposed that for 

those ESRD facilities that do not elect to 

be excluded from the three year 

transition, outlier payments would be 

limited to the portion of the blended 

rate based on the payment rates under 

the proposed ESRD PPS. 

We also indicated that nothing within 

the proposed outlier payment policy 

would replace the claims monitoring 

implications related to the utilization of 

separately billable ESAs including 

currently available epoetin alfa 

(EPOGEN®, or EPO), darbepoetin alfa 

(ARANESP®) or any ESAs that may be 

developed in the future and used by 

beneficiaries receiving renal dialysis 

services (74 FR 49994). 

The comments received on 

application of our proposed outlier 

policy during the transition and in 

relation to the ESA Claims Monitoring 

Policy and our responses to them are set 

forth below. Approximately half of the 

commenters supported and half 

opposed the continuation of our claims 

monitoring policy with respect to the 

utilization of ESAs. 

Comment: Some commenters stated 

that they believed there would be no 

incentive to overuse ESAs once the 

ESRD PPS is implemented in 2011 and, 

therefore, the ESA Claims Monitoring 

Policy should be discontinued. Other 

commenters supported continuing to 

apply the ESA Claims Monitoring Policy 

under the ESRD PPS, maintaining that 

it would help ensure that ESAs would 

not be overutilized in order to obtain 

outlier payments. One commenter 

suggested that in instances where the 

patient’s ESA and iron therapies are 

within the QIP parameters, then CMS 

should provide outlier payments. The 

commenter believed that it would be 

appropriate to include the costs of ESA 

therapy while the patient’s hemoglobin 

remained at 13 or lower and the 

patient’s iron stores were adequate, but 

exclude from the outlier calculation the 

costs of ESA therapy in instances where 

a patient’s hemoglobin exceeded 13, or 

if the patient’s iron level was above an 

adequate level. 

Response: Currently there are two 

claims processing edits associated with 

the ESA Claims Monitoring Policy—the 

reduction in the payable ESA amount 

based on reported hemoglobin (or 

hematocrit) level, and medically 

unbelievable edits (MUEs) based on the 

ESA total administered dose. During the 

transition, ESRD facilities will be 

expected to meet our quality measures 

under the QIP, notwithstanding that the 

implementation of the QIP does not 

occur until January 1, 2012, in addition 

to complying with other policies for 

coverage and claims processing. 

With respect to the basic case-mix 

adjusted composite payment system 

portion of the blended payment during 

the transition, we will continue to apply 


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both ESA Claims Monitoring Policy 

processing edits and implement any 

corresponding payment reductions. 

Although several commenters believed 

that the implementation of the ESRD 

PPS would provide sufficient incentives 

not to overutilize ESAs, obviating the 

need for continuation of the ESA Claims 

Monitoring Policy, we believe that the 

continued application of this policy will 

help ensure the proper dosing of ESAs, 

and provide an added safeguard against 

the overutilization of ESAs, particularly 

where the consumption of other 

separately billable services may be high, 

in order to obtain outlier payments. 

With respect to the commenter’s 

suggestion that payments for ESAs 

should only be considered outlier 

eligible payments when a patient’s 

hemoglobin is at 13 or lower, and 

excluded when the value exceeds 13, 

this recommendation does not consider 

the fact that hemoglobin levels can be 

volatile even when proper doses are 

administered. Fluctuations will occur 

because of the time required to titrate 

levels in response to the patient’s 

specific condition. Therefore, linking 

ESA eligibility for outlier payments to a 

patient’s achieved hemoglobin level is 

not a feasible payment option. 

With respect to the ESRD PPS portion 

of the blended payment, we will apply 

dosing reductions resulting from the 

application of the ESA Claims 

Monitoring Policy prior to any 

calculations of outlier eligibility. We 

believe that continuation of this policy 

is necessary in order to provide a 

disincentive for overutilization of ESAs 

in order to receive outlier payments, 

notwithstanding that the 

implementation of the ESRD PPS will 

tend to discourage overuse of ESAs, as 

ESAs are part of the payment bundle. 

The ESA dose edits will be applied 

prior to pricing so that we do not 

overvalue these services in determining 

eligibility for outlier payments. We note 

that the ESA Claims Monitoring Policy 

provides an opportunity for appeal to 

address those situations where there 

might be medical justification for higher 

hematocrit or hemoglobin levels. 

Beneficiaries, physicians, and dialysis 

facilities may submit additional 

documentation to justify medical 

necessity, and any payment reduction 

amounts may be subsequently reinstated 

when documentation supports the 

higher hematocrit or hemoglobin levels. 

To the extent successful appeals impact 

the amount of outlier payments on 

behalf of beneficiaries, those claims will 

be reprocessed to reflect the correct 

amount of outlier payments. 

Comment: One commenter believed 

that EPO dosing among ESRD patients 

has been historically high and 

recommended that we cap the EPO 

contribution in the base rate at 14,000 

units per week. Similarly, the 

commenter questioned whether the 

inclusion of current ESA dosing 

parameters within the outlier 

calculation would be in the best interest 

of the patient and suggested that high 

doses related to hyporesponsiveness 

should be further investigated. The 

commenter recommended that we cap 

ESA dosing at 160,000 units per month 

(IV administration) until further valid 

studies have determined safer dosing 

levels. 

Response: With respect to the 

commenter’s specific concern about the 

extent to which the cap on ESA dosing 

is appropriate, we note that this concern 

is beyond the scope of this rule. We 

appreciate the commenter’s concern 

about potential excess ESA dosing of 

ESRD patients but, as discussed in 

section II.E. of this final rule, the 

amount of ESA payment included in the 

base rate comports with limits 

established under the ESA Claims 

Monitoring Policy. 

We stated in the proposed rule that 

both the base rate and the features of the 

outlier policy, including the outlier 

percentage and fixed dollar loss 

thresholds, were based on 2007 claims 

data (74 FR 49990). In developing the 

base rate for the proposed rule we 

applied a medically unbelievable EPO 

limit of 30,000 units per treatment. This 

edit contributed to lower fixed dollar 

loss amounts. For purposes of the final 

rule, we have revised the ESA medically 

unbelievable edits to comport with 

CMS’s own ESA Claims Monitoring 

Policy. Specifically, in 2007, the ESA 

claims monitoring policy included a 

monthly medically unbelievable edit 

threshold of 500,000 for EPO and 1,500 

mcg. for ARANESP®. The medically 

unbelievable edit thresholds were 

reduced to 400,000 units for EPO and 

1,200 mcg. for ARANESP® in 2008 

(Transmittal 1307, Change Request 5700 

(July 20, 2007)). 

For purposes of this final rule, the 

base rate and the features of the outlier 

policy, including the outlier percentage 

and the fixed dollar loss thresholds as 

reflected in Table 28 were based on 

2007 data. Although the medically 

unbelievable edits that were in place for 

EPO and ARANESP® were 500,000 

units and 1,500 mcg., respectively in 

2007, we chose to apply the edits that 

are currently in place. That is, we 

applied medically unbelievable edits of 

400,000 units for EPO and 1,200 mcg. 

for ARANESP® in establishing the 

outlier policy’s fixed dollar loss 

amounts. We believe that this edit is 

necessary for purposes of reflecting 

current CMS policy and to bring the 

projected fixed dollar loss amounts into 

line with ESA dosing that is consistent 

with the current ESA Claims Monitoring 

Policy. We point out that we applied a 

similar edit to the calculation of the 

base rate, in that the medically 

unbelievable edits that were in place for 

EPO and ARANESP® in 2007 were also 

used to calculate the components of the 

base rate that reflect payments for ESAs. 

Comment: One commenter responded 

to our request for identifying potential 

safeguards against the overuse of ESAs 

under the ESRD PPS. This commenter 

noted that there are certain diseases in 

which ESAs should not serve as the 

primary treatment approach for anemia 

where transfusion may be the better 

choice. This commenter suggested that 

we could implement measures to ensure 

that ESAs are not administered or 

reimbursed in the absence of evidence 

of iron depletion. 

Response: We agree with the 

commenter that there are multiple 

causes (for example, iron deficiency 

anemia, vitamin B12 deficiency, or folic 

acid deficiency) and treatment 

approaches for anemia. We expect that 

patients will be evaluated to determine 

the cause of their anemia and treated 

appropriately. We would also expect 

that ESRD facilities that administer 

ESAs in accordance with their patients’ 

plans of care would do so in accordance 

with the FDA’s approved indications. 

Comment: One commenter requested 

that we do further research into higher 

hemoglobin levels because the 

commenter believes that some patients 

do not do well with lower hemoglobin 

levels and therefore need more EPO. 

Response: Although we are not 

performing such research, we would 

agree that any research that attempts to 

examine the relationships among 

hemoglobin levels, ESA utilization, and 

clinical outcomes is welcome and 

should be encouraged. 

Comment: One commenter expressed 

concern that establishing 

reimbursement policy based on what 

the commenter believed are ‘‘misguided/ 

unguided and perhaps dangerous 

treatment patterns,’’ eroded the 

opportunity to improve quality of care 

and establish a financially sound policy. 

The comment included a copy of a 

report from the Department of Health 

and Human Services’ Office of the 

Inspector General (US DHHS OIG) 

which described inconsistencies in 

ESRD facilities’ policies and protocols 

for administering ESAs. Other 

commenters submitted comments 

indicating that there have not been 

studies that have reported an 


jlentini on DSKJ8SOYB1PROD with RULES2
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appropriate target hematocrit and 

expressed concern that the proposed 

rule might encourage underutilization of 

EPO. 

Response: We are closely following 

the growing body of scientific evidence 

that describes the usage patterns of 

ESAs, as well as their potential benefits 

and harm. In order to further evaluate 

this body of evidence, CMS held a 

Medicare Evidence Development and 

Coverage Advisory Committee 

(MEDCAC) meeting on March 24, 2010. 

The purpose of the MEDCAC was to 

provide independent guidance and 

expert advice to us about the evidence 

on the use of ESAs in the management 

of anemia in patients with chronic 

kidney disease and end-stage renal 

dialysis disease. On June 16, 2010, we 

formally opened a new National 

Coverage Determination (NCD) 

regarding ESAs. 

Comment: Several commenters 

questioned specific features of the ESA 

Claims Monitoring Policy and ESA 

dosing of patients with chronic kidney 

disease (CKD). 

Response: We thank the commenters 

for stating their concerns. However, we 

solicited public comments on the extent 

to which we should continue to apply 

the ESA Monitoring Policy under the 

proposed ESRD PPS, which is a 

payment system applicable to Medicare 

beneficiaries with end-stage renal 

disease, not CKD. Comments concerning 

the ESA Claims Monitoring Policy and 

ESA dosing of patients with CKD are 

beyond the scope of this final rule. 

In developing this final rule, we have 

considered the extent to which it would 

be appropriate to extend the ESA Claims 

Monitoring Policy to include home 

dialysis patients who self-administer 

ESAs. Currently, the ESA Claims 

Monitoring Policy does not apply to 

ESA claims for patients who receive 

their dialysis at home and selfadminister their ESAs and we will 

continue this policy in 2011. 

We expect ESRD facilities managing 

home dialysis patients to use prudent 

judgment in ESA dosing and monitoring 

hemoglobin levels. Because outlier 

payments may be made on behalf of 

home dialysis patients as well as infacility ESRD patients, we intend to 

monitor outlier payments for any 

unusual trends in outlier payments for 

all patients, including home dialysis 

patients who self-administer ESAs. We 

will continue to evaluate outlier 

payments and, if necessary, will address 

changes in the future. 

As a result of the public comments 

received and for the reasons we 

addressed above, we will continue to 

apply the ESA Claims Monitoring Policy 

edits on ESRD facility claims for 

purposes of calculating the basic casemix adjusted composite payment system 

portion of the blended payment during 

the transition period, and in connection 

with determining the eligibility of ESA 

payments for outlier payments. 

I. Comprehensive Payment Model 

Examples 

In section II.D. of this final rule, we 

demonstrated how the case-mix 

adjustments based on separate 

estimating equations for CR and SB 

services (that is, the two equation 

model) were combined to obtain a single 

payment formula under the ESRD PPS. 

Table A in the Appendix contains the 

case-mix adjustments applicable to 

adult patients. In section II.G. of this 

final rule, we addressed the pediatric 

payment adjustments under the ESRD 

PPS. Table B in the Appendix contains 

the four pediatric classification 

categories and corresponding case-mix 

adjusters that will be applied to 

pediatric patients. In this section, we 

explain how the area wage index and 

case-mix adjustments will be applied to 

the adjusted base rate amount described 

in section II.E.4. of this final rule, 

reflecting combined CR and SB services, 

resulting in a patient-specific per 

treatment payment amount under the 

ESRD PPS, as set forth in § 412.56. We 

demonstrate how the case-mix 

adjustments presented in Tables A and 

B in the Appendix would be applied for 

eight hypothetical ESRD patients to 

obtain the per treatment payment 

amounts under the ESRD PPS. We refer 

to the product of the applicable casemix adjustment factors as the patient 

multiplier or PM. The ESRD PPS casemix adjusters are shown in Table A in 

the Appendix for adult patients and 

Table B in the Appendix for pediatric 

patients. 

Each example uses the adjusted base 

rate of $229.63, covering Part B renal 

dialysis services and self-care home 

dialysis services as set forth under 

section 1881(b)(4) of the Act. Each 

example also assumes an ESRD wage 

index value of 1.1000. The labor-related 

share derived from the ESRD PPS 

market basket, described in section II.J. 

of this final rule, is 41.737 percent. 

Therefore, the starting point in each 

example prior to determining the 

patient-specific PM is a wage index 

adjusted base rate of $239.21. This 

amount was computed as follows: 

Base rate $229.63 

Labor-related share of base rate ($229.63 

* .41737 = $95.84) $95.84 

Wage index adjusted labor-related share 

($95.84 * 1.1000 = $105.42)

$105.42 

Non labor-related share of base rate 

($229.63 * (1 ¥ .41737) = $133.79

$133.79 

Wage index adjusted base rate ($105.42 

+ $133.79 = $239.21) $239.21 

We also point out that each case-mix 

adjusted payment amount is reduced by 

3.1 percent through the application of 

an adjustment factor of .969 to account 

for budget neutrality during the 

transition period. This is referred to as 

the transition budget neutrality 

adjustment, and is included as the last 

item in the computation of the payment 

amount for each patient, after 

application of all other case-mix 

adjustment factors (that is, all PMs), 

including any applicable add-on 

amounts for training treatments. It also 

applies to any outlier payments. 

Example 1—Relatively Healthy ESRD 

Patient With No ESRD Payment CoMorbidities; No Outlier Payments 

Apply 

John, a 45 year old male Medicare 

beneficiary, is 187.96 cm. (1.8796 m.) in 

height and weighs 95 kg. John was 

diagnosed with ESRD in early 2010 and 

has been on HD since July 2010. He has 

chronic glomerulonephritis and 

hypertension, and has an AV fistula. 

The patient also has secondary 

hyperparathyroidism. John’s payment 

rate for treatments furnished in January 

2011 would be calculated as follows. 

Table A in the Appendix reveals that 

none of John’s co-morbidities is among 

those for which a case-mix adjustment 

applies. The only pertinent factors to 

adjust the base rate amount are age, 

height, and weight. Using the formula 

for BMI, we see that John is not 

underweight, having a BMI of 26.89 

kg/m2, which is greater than the 

threshold value of 18.5, the cut-off for 

underweight status: 

BMIJohn = weightkg /height (m2) 

= 95/1.87962

= 95/3.5329 

= 26.89 

Therefore, there is no case-mix 

adjustment for low BMI. The formula for 

calculation of a patient’s BSA is: 

BSA = 0.007184 * heightcm.725 * 

weightkg.425

John’s BSA is calculated as: 

BSAJohn = 0.007184 * 187.96.725 * 95.425

= 0.007184 * 44.5346 * 6.9268 

= 2.2161 

Using the Table A in the Appendix 

multiplier of 1.020, John’s case-mix 

adjustment or payment multiplier (PM) 

based on his BSA of 2.2161 is computed 

as follows: 

PMBSA = 1.020(2.2161-1.87)/0.1

= 1.0203.461


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49148 Federal Register / Vol. 75, No. 155 / Thursday, August 12, 2010 / Rules and Regulations 

= 1.0709 

John’s PM would reflect the 

applicable case-mix adjustments from 

Table A in the Appendix for both age 

and BSA and may be expressed as: 

PMJohn = PMage * PMBSA

= 1.013 * 1.0709 

= 1.0848 

John’s ESRD payment rate for 

treatments furnished in January 2011 

would be: 

$239.21 * 1.0848 * .969 = $251.45 

Example 2—Same as Example 1, Except 

Dialysis Began November 15, 2010 

John’s PM would have to include the 

adjustment for the onset of dialysis, 

because the treatments for which we are 

calculating the payment amount occur 

within 4 months of November 15, 2010. 

Because the onset of dialysis adjustment 

is limited to a maximum of 120 days, 

this particular adjustment would apply 

for treatments furnished between 

January 1, 2011 and March 15, 2011. 

John’s applicable case-mix adjustments 

would be for a patient new to dialysis, 

age, and BSA, and may be expressed as: 

PMJohn = PMDialQuest * PMAge * PMBSA

Using the adjustment factors from 

Table 10, John’s PM is: 

PMJohn = 1.510 * 1.013 * 1.0709 = 

1.6381 

For treatments furnished between 

January 1, 2011 and March 15, 2011, 

John’s payment rate per treatment 

would be: 

$239.21 * 1.6381 * .969 = $379.70 

After March 15, 2011, when the onset 

of dialysis adjustment has expired, the 

payment would be $251.45, as 

calculated in Example 1. 

Example 3—ESRD Patient With 

Multiple Co-Morbidities 

Mary, a 66 year old female, is 167.64 

cm. (1.6764 m.) in height and weighs 

105 kg. She has diabetes mellitus and 

cirrhosis of the liver. Mary was 

diagnosed with ESRD in 2006, and has 

been on HD since that time. Mary was 

admitted for a two week hospitalization 

from January 2–16, 2011 due to 

gastrointestinal tract bleeding, a 

diagnosis confirmed upon discharge. 

Mary’s hemorrhaging due to her GI 

bleeding ceased during her 

hospitalization. While in the hospital, 

Mary received inpatient dialysis. Mary 

was also discharged with a diagnosis of 

monoclonal gammopathy. After 

convalescing at home for 3 days, she 

resumed HD at an ESRD facility on 

January 20, 2010. The facility records 

the GI bleeding and monoclonal 

gammopathy diagnoses using the 

relevant ICD–9–CM codes for treatments 

received during the month of January. 

For claims submitted beginning with the 

month of February and continuing 

thereafter, the facility reports only the 

monoclonal gammopathy diagnosis, a 

chronic condition. 

The BMI calculation is: 

BMI = weight kg/height(m2) 

BMIMary = 105/1.6764 2

= 105/2.8103 

= 37.3626 

Table A in the Appendix reveals that 

the PM in this example must be 

considered using the case-mix 

adjustments for gastrointestinal tract 

bleeding, monoclonal gammopathy, age, 

and BSA. Although Mary has diabetes 

and cirrhosis of the liver, these 

co-morbidities are not used in 

determining the case-mix adjusters 

under the ESRD PPS. The formula for 

calculation of a patient’s BSA is: 

BSA = 0.007184 * heightcm.725 * 

weightkg.425

BSAMary = 0.007184 * 167.64.725 * 

105.425

= 0.007184 * 40.9896 * 7.2278 

= 2.1284 

Using the Table A in the Appendix 

multiplier of 1.020, Mary’s case-mix 

adjustment or PM based on her BSA of 

2.1284 is computed as follows: 

PMBSA = 1.020 (2.1284¥1.87)/0.1

= 1.020 2.584

= 1.0525 

Although Mary has both an acute comorbidity (GI bleeding) and a chronic 

co-morbidity (monoclonal gammopathy) 

for the month of January, the facility 

may only be paid using the condition 

with the higher adjustment factor for the 

maximum number of 4 consecutive 

claim months in which payment for 

both co-morbidities must be considered. 

Because the case-mix adjustment for GI 

bleeding (1.183) exceeds that for 

monoclonal gammopathy (1.024), 

Mary’s case-mix adjustment for comorbidities will reflect GI bleeding only 

for treatments received in January 2011 

through April 2011. Therefore, for these 

treatments, Mary’s PM may be 

expressed as: 

PMMary = PMage * PMBSA * PMGIBleed

= 1.000 * 1.0525 * 1.183 

= 1.2451 

For treatments received from January 

20, 2011 through April 2011, Mary’s 

payment rate per treatment is: 

$239.21 * 1.2451 * .969 or $288.61 

Beginning with claims for May, only 

one co-morbidity applies for payment 

purposes, monoclonal gammopathy, for 

which the PM is 1.024. As this is a 

chronic condition, beginning with 

treatments furnished in May and 

continuing thereafter, Mary’s PM may 

be expressed as: 

PMMary = PMage * PMBSA * PMMono

= 1.000 * 1.0525 * 1.024 

= 1.0778 

For treatments received in May 2011 

and thereafter, provided no other comorbidities apply, Mary’s payment rate 

per treatment would be: 

$239.21 * 1.0778 * .969 or $249.83 

Example 4—ESRD Patient With 

Multiple Co-Morbidities, Onset of 

Dialysis Adjuster, Training Treatments, 

and Acute Co-Morbidity Recurrence 

Apply 

Ted, a 30-year-old male, began incenter HD on March 20, 2011. Ted has 

type II diabetes mellitus, sickle cell 

anemia, and was diagnosed on March 2 

with bacterial pneumonia, which was 

treated with antibiotics. After 

completing his course of treatment with 

antibiotics, Ted was declared free of 

pneumonia on April 15. Because the 

patient has family caregivers available 

to assist him, Ted expressed a desire to 

become a PD patient. His nephrologist 

agreed that Ted was a suitable candidate 

for CAPD. On June 20, 2011, Ted began 

a series of 12 training treatments at his 

dialysis facility (one which does not 

qualify for the low-volume adjustment, 

but which is certified to provide home 

dialysis training) to transition to CAPD. 

These training treatments ended on July 

21, 2011. Between July 18 and July 21, 

Ted had 2 training treatments. Ted 

successfully began CAPD on July 23, 

2011, but was again diagnosed with 

bacterial pneumonia on August 10. 

After prolonged treatment with 

antibiotics, Ted was declared free of 

pneumonia on November 15, 2011. 

Ted is 170 cm. (1.70 m.) in height and 

weighs 78 kg. Table A in the Appendix 

reveals that the case-mix adjusters 

which must be considered in this case 

are those for age, BSA, onset of dialysis, 

bacterial pneumonia, and sickle cell 

anemia. As will be shown Ted does not 

qualify for the low BMI adjustment. In 

addition, the training add-on of $33.44 

per treatment (prior to adjustment for 

area wage levels) must also be 

considered in the payment 

computations. 

BMITed = weightkg/height (m2) 

= 78/1.702

= 78/2.89 

= 26.99 

Because Ted’s BMI exceeds the 

required threshold value of 18.5, there 

is no case-mix adjustment for low BMI. 

The formula for the calculation of a 

patient’s BSA is: 

BSA = 0.007184 * heightcm.725 * 

weightkg.425


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Federal Register / Vol. 75, No. 155 / Thursday, August 12, 2010 / Rules and Regulations 49149 

Ted’s BSA is calculated as: 

BSATed 0.007184 * 170.725 * 78.425

= 0.007184 * 41.4072 * 6.3700 

= 1.8949 

Using the Table A in the Appendix 

multiplier of 1.020, Ted’s case-mix 

adjustment based on his BSA of 1.8949 

is computed as follows: 

PMBSA = 1.0201,8949-1.87)/0.1

= 1.020.249

= 1.0049 

The onset of dialysis adjustment is 

applicable in Ted’s case, and extends 

from March 20, 2011 through July 17, 

2011 (120 days). During this period, no 

case-mix adjustments for co-morbidities 

may be applied because the onset of 

dialysis adjustment supersedes the 

application of case-mix adjusters for comorbidities. Neither may the training 

add-on be paid for the 10 training 

treatments furnished during the period 

the onset of dialysis adjustment is in 

effect. The only pertinent case-mix 

adjustments are those for age, BSA, and 

the onset of dialysis. For the 120 day 

period from March 20, 2011, through 

July 17, 2011, Ted’s PM is calculated as 

follows: 

PMTED = PMage * PMBSA * PMDial/Onset

= 1.171 * 1.0049 * 1.510 

= 1.7769 

Ted’s ESRD payment rate per 

treatment from March 20, 2011 through 

July 17, 2011 would be: 

$239.21 * 1.7769 * .969 = $411.88 

For the 2 training treatments 

furnished between July 18 and July 21, 

the dialysis facility would receive a 

training add-on for each treatment, 

computed as follows: 

Training rate—$33.44 

Wage index—1.10 

Training payment—$33.44 * 1.10 = 

$36.78 

Because Ted has a chronic comorbidity, sickle cell anemia, the 

payment rate per treatment for dialysis 

treatments beginning July 18 must 

reflect case-mix adjustments for age, 

BSA, and sickle cell anemia: 

PMTed = PMage * PMBSA * PMSickle

= 1.171 * 1.0049 * 1.072 

= 1.2615 

Ted’s ESRD payment rate per 

treatment (excluding the training add-on 

amount for 2 training treatments) would 

be: 

$239.21 * 1.2615 = $301.76 

Total payments for each of the 2 

training treatments provided between 

July 18 and July 21 would be: 

($301.76 + $36.78) * .969 = $328.05 

For claims submitted beginning 

August 2011, Ted’s dialysis facility 

correctly reported the co-morbidities of 

sickle cell anemia and bacterial 

pneumonia. Because payment can only 

be made for the condition which yields 

the highest payment where two or more 

co-morbidities apply, Table A in the 

Appendix reveals that bacterial 

pneumonia is the condition with the 

higher case-mix adjuster (1.135). 

Therefore, this is the co-morbidity that 

will be reflected in the computation of 

Ted’s PM as follows for claims 

submitted for the 4 months of August 

2011 through November 2011 (the 

maximum number of claim months an 

acute co-morbidity case-mix adjuster 

can be applied without a subsequent 

recurrence): 

PMTed = PMage * PMBSA * PMPneum

= 1.171 * 1.0049 * 1.135 

= 1.3356 

Ted’s ESRD payment rate per treatment 

for the months of August 2011 through 

November 2011 would be: 

$239.21 * 1.3356 * .969 = $309.58 

After November 2011, the only comorbidity that would apply in 

computing the payment rate is Ted’s 

chronic sickle cell anemia, for which 

the PM is 1.072. Beginning with claims 

submitted for the months of December 

2011 and thereafter, assuming no other 

changes in Ted’s condition, the payment 

rate per treatment would be based on 

the following case-mix adjusters: 

PMTed = PMage * PMBSA * PMSickle

= 1.171 * 1.0049 * 1.072 

= 1.2615 

Beginning with monthly claims for 

December 2011 and thereafter, Ted’s 

ESRD payment rate per treatment would 

be: 

$239.21 * 1.2615 * .969 = $292.41 

Example 5—Aged ESRD Patient With 

Low BMI (< 18.5kg/m2), History of 

Hospitalization, Multiple CoMorbidities, and Treatment in a 

Facility Qualifying for the Low-Volume 

(LV) Adjustment 

Agnes, an 82 year old female, is 

160.02 cm. (1.6002 m.) in height and 

weighs 45.36 kg. She has longstanding 

type II diabetes mellitus and was 

diagnosed with ESRD in 2008. The 

patient has coronary artery disease and 

peripheral vascular disease. In January 

2009, Agnes began dialyzing with an 

upper arm AV fistula which had been 

created the previous year. In March 

2010, after an unsuccessful attempt to 

declot the AV fistula during 

hospitalization, Agnes experienced 

additional bleeding complications and 

has been dialyzed using a catheter ever 

since. In December 2010, the patient 

was admitted to the hospital after 

fainting during an outpatient dialysis 

treatment. She was diagnosed with 

pericarditis and discharged January 11, 

2011. She resumed outpatient dialysis 

on January 13, 2011 at a facility which 

qualifies for the LV adjustment, because 

it has never had a treatment volume 

exceeding 3500 treatments since it 

opened in 2005. Her treating physician 

declared her free of pericardial 

inflammation on February 12, 2011. On 

April 10, 2011, Agnes was hospitalized 

with bacterial pneumonia and remained 

hospitalized until April 25. She 

resumed outpatient dialysis on April 28. 

Agnes was declared free of bacterial 

pneumonia on May 15, 2011, after posthospitalization treatment with 

antibiotics. The facility submitted 

monthly claims for the months of 

January and February 2011 with the 

reported diagnosis of pericarditis. For 

dialysis treatments furnished during the 

month of March, the facility submitted 

a monthly claim reporting no comorbidities. For dialysis treatments 

furnished Agnes during the months of 

April and May, the facility reported on 

the monthly claims the co-morbidity of 

bacterial pneumonia. 

We must first use Agnes’ height and 

weight to determine if a case-mix 

adjustment for low BMI applies and 

determine Agnes’ BSA. BMI is 

computed as follows: 

BMIAgnes = weightkg/height(m2) 

= 45.36/1.60022

= 45.36/2.5606 

= 17.71 

Agnes’ BMI is less than 18.5. 

Therefore, her PM must include the 2.5 

percent case-mix adjustment for 

underweight status. 

The BSA formula is: 

BSA = 0.007184 * heightcm.725 * 

weightkg.425

Agnes’ BSA is calculated as: 

BSAAgnes = 0.007184 * 160.02.725 * 

45.36.425

= 0.007184 * 39.6302 * 5.0592 

= 1.4404 

Using the Table A in the Appendix 

multiplier of 1.020, Agnes’ case-mix 

adjustment based on her BSA of 1.4404 

is calculated as follows: 

PMBSA = 1.020(1.4404¥1.87)/0.1

= 1.020¥4.296

= .9184 

The applicable factors that should be 

used to calculate Agnes’ PM are the 

case-mix adjusters for age, BSA, low 

BMI, pericarditis, bacterial pneumonia, 

and the facility adjuster for LV. 

For the months of January and 

February 2011, Agnes’ ESRD facility 

reported on her monthly claims the 

pericarditis co-morbidity. Using the 


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49150 Federal Register / Vol. 75, No. 155 / Thursday, August 12, 2010 / Rules and Regulations 

Table A in the Appendix adjusters, 

Agnes’ PM for the months of January 

and February may be expressed as: 

PMAgnes = PMage * PMBSA * PMBMI * 

PMPericard * PMLV = 1.016 * .9184 * 

1.025 * 1.114 * 1.189 = 1.2668 

Agnes’ ESRD payment rate for 

treatments furnished in January, 

February, and March 2011 would be: 

$239.21 * 1.2668 * .969 = $293.64 

Although Agnes no longer had 

pericarditis as of February 12, 2011, her 

facility is entitled to payments for 

treatments furnished in March which 

reflect a case-mix adjustment for this 

acute co-morbidity, because case-mix 

for an acute co-morbidity may be 

applied for claims submitted for four 

claim months unless another comorbidity yields a higher payment 

amount. Agnes’ PM for April 2011 

reflecting pericarditis is as follows: 

PMAgnes * PMage * PMBSA * PMBMI * 

PMPericard * PMLV = 1.016 * .9184 * 

1.025 * 1.114 * 1.189 = 1.2668 

Her PM reflecting the co-morbidity of 

bacterial pneumonia is: 

PMAgnes = PMage * PMBSA * PMBMI * 

PMPneum * PMLV = 1.016 * .9184 * 

1.025 * 1.135 * 1.189 = 1.2907 

Agnes’ dialysis facility normally 

would be entitled to a payment 

adjustment for treatments reflecting the 

pericarditis co-morbidity for 3 claim 

months after February 2011, because a 

payment adjustment reflecting a comorbidity may be paid for 4 claim 

months, including the month in which 

the diagnosis was present and dialysis 

treatments were furnished. However, in 

April Agnes was diagnosed with 

bacterial pneumonia. Because Agnes’ 

PM based on pneumonia is higher than 

that for pericarditis, her payment rate 

for April 2011 will be based on the 

bacterial pneumonia co-morbidity as 

follows: 

$239.21 * 1.2907 * .969 = $299.18 

Because Agnes’ dialysis facility is 

entitled to payments reflecting the 

bacterial pneumonia co-morbidity for 

claims for 4 claim months, the payment 

rate of $299.18 per treatment would 

apply for all treatments furnished in 

April through the month of July 2011, 

provided there are no other changes in 

Agnes’ condition. 

Example 6—Same as Example 1, With 

Outlier Payments (For a Description of 

the Outlier Payment Methodology, See 

Section II.H. of This Final Rule) 

John receives HD 3 times weekly. 

However, in January 2011 he suffered a 

compound ankle fracture and was 

hospitalized for 4 days from January 10 

through 14. During the hospitalization 

John did not undergo any dialysis 

treatments. After discharge John 

resumed his dialysis treatments, but it 

was noted that his dialysis clinical 

indicators were markedly perturbed 

from baseline values, requiring 

additional laboratory testing and above 

average doses of several injectable 

drugs, particularly EPO, to return them 

to normal levels. During January 2011 

John received 9 outpatient HD 

treatments at his usual facility. The 

facility submitted a claim for allowable 

outlier services including drugs and 

biologicals, laboratory tests, and 

supplies totaling $3,000.00 

Using Table A in the Appendix, we 

begin by computing the predicted 

outlier services MAP per treatment 

based on the SB case-mix adjustment 

factors for the PM variables applicable 

to John, age and BSA: 

SBPMJohn = PMageSB * PMBSASB

John’s BSA from Example 1 is 2.2161. 

Applying the SB adjustment factor from 

Table 10 for BSA, John’s outlier services 

PM for BSA is computed as follows: 

SBPMBSA = 1.014(2.2161¥1.87)/0.1 = 

1.0143.461 = 1.0493 

John’s outlier services PM is 

calculated as: 

SBPMJohn = .992 * 1.0493 = 1.0409 

From Table 28, we determine that the 

outlier services MAP per treatment for 

adult patients is $82.78. Therefore, the 

case-mix adjusted predicted outlier 

services MAP per treatment for John is: 

$82.78 * 1.0409 = $86.17 

Next, we determine the imputed 

outlier services MAP amount per 

treatment which reflects the cost of 

outlier services actually incurred by the 

ESRD facility. John’s outlier services 

imputed amount averaged $3000.00/9 or 

$333.33 per session. 

Next, we must determine if John’s 

dialysis facility is entitled to outlier 

payments by comparing the predicted 

outlier services MAP amount to the 

imputed outlier services MAP amount. 

But first, we must add the fixed dollar 

loss amount to the predicted outlier 

services MAP amount. 

The fixed dollar loss (FDL) amount for 

the predicted outlier services MAP, 

reflecting the case-mix adjustments for 

John for age and BSA is: 

JohnFDL = $86.17 + $155.44 = $241.61 

Because John’s average outlier 

services MAP for the outlier services 

services received was $333.33, which 

exceeds the outlier services MAP plus 

the FDL totaling $241.61, John’s ESRD 

facility is eligible for outlier payments 

beyond the otherwise applicable ESRD 

PPS payment amount of $251.45. 

The outlier payments are calculated 

as follows: 

Amount by which the imputed amount 

exceeds the predicted amount plus 

the FDL— $333.33 ¥ $241.61 = 

$91.72 

Loss sharing ratio—80% 

Outlier payments per treatment—$91.72 

* .80 = $73.38 

Outlier payments—$73.38 * 9 

treatments * .969 = $639.95 

Regular ESRD payments for January 

2011—$251.45 * 9 = $2263.05 

Total ESRD PPS payments for January 

2011—$2263.05 + $639.95 = 

$2903.00 

Example 7—Pediatric ESRD Patient 

Receiving Treatments in a Low-Volume 

(LV) Facility; Outlier Payments Apply 

Timmy is a 16 year old male with 

ESRD due to renal hypoplasia. The 

patient was on PD until 2009, when he 

received a deceased donor kidney 

transplant. Timmy’s transplant failed in 

August 2010, and he has been on HD 

since that time. The patient receives 

dialysis through an AV graft. Timmy has 

a history of post-transplant lymphoma, 

which is in remission. He also has 

diabetes mellitus, which developed after 

the kidney transplantation. Timmy 

weighs 66.2 kg. and is 161.6 cm. in 

height. He was hospitalized in 

December 2010 with Staph bacteremia. 

As part of his HD, Timmy receives 

ARANESP® 60 mcg. IV q 2 weeks, 

paracalcitol 4 mcg. IV 3 times a week, 

and iron dextran 100 mg. IV every 2 

weeks. The patient also takes 2 tablets, 

667 mg. each of calcium acetate 3 times 

per day. Timmy had 12 HD treatments 

in January 2011. The ESRD facility, 

which qualifies for the LV adjustment 

for adult patients, submitted a January 

claim for allowable outlier services 

including drugs and biologicals, 

laboratory tests, and supplies totaling 

$3800.00. 

Co-morbidities are not used to 

determine a pediatric patient’s ESRD 

payment rate because these factors have 

been taken into account in the pediatric 

payment adjustments. Neither is the LV 

adjustment applicable to pediatric 

dialysis patients. The only variables 

relevant in determining Timmy’s 

payment amount per treatment, without 

regard to outlier payments, are age and 

dialysis modality. Because Timmy is 16 

and undergoes HD, Table B in the 

Appendix reveals that his pediatric 

classification group is category 4, for 

which the PM is 1.277. Timmy’s 

payment rate per treatment, without 

regard to outlier payments, is: 

$239.21 * 1.277 * .969 = $296.00 

Timmy’s dialysis facility would 

receive $296.00 for each of the 12 


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treatments it furnished in January 2011. 

Table B in the Appendix reveals that the 

SB case-mix adjustment factor for 

Timmy’s pediatric classification group 

(cell 4) is 1.459. 

From Table 28, we determine that the 

outlier services MAP per treatment for 

pediatric patients is $53.06. Therefore, 

the case-mix adjusted predicted outlier 

services MAP per treatment for Timmy 

is: 

$53.06 * 1.459 = $77.41 

Next, we determine the imputed 

outlier services MAP amount per 

treatment which reflects the cost of 

outlier services actually incurred by the 

ESRD facility. Timmy’s outlier services 

imputed amount averaged $3800.00/12 

or $316.67 per treatment. 

We then determine if Timmy’s 

dialysis facility is entitled to outlier 

payments by comparing the predicted 

outlier services MAP amount to the 

imputed outlier services MAP amount. 

But first, we must add the fixed dollar 

loss amount to the predicted outlier 

services MAP amount. The fixed dollar 

loss (FDL) amount for the predicted 

outlier services MAP, reflecting 

Timmy’s pediatric classification group, 

is: 

TimmyFDL = $77.41 + $195.02 = $272.43 

Because Timmy’s average outlier 

services MAP for the outlier services 

received was $316.67, which exceeds 

the outlier services MAP plus the FDL 

totaling $272.43, Timmy’s ESRD facility 

is eligible for outlier payments beyond 

the otherwise applicable ESRD PPS 

payment amount of $296.00. 

The outlier payments are calculated 

as follows: 

Amount by which the imputed amount 

exceeds the predicted amount plus 

the FDL—$316.67¥$272.43 = 

$44.24 

Loss sharing ratio—80% 

Outlier payments per treatment—$44.24 

* .80 = $35.39 

Outlier payments—$35.39 * 12 

treatments * .969 = $411.51 

Regular ESRD payments for January 

2011—$296.00 * 12 = $3552.00 

Total ESRD PPS payments for January 

2011—$3552.00 + $411.51 = 

$3963.51 

Example 8—Pediatric ESRD Patient 

Receiving Training Treatments in a 

Low-Volume Facility 

Andrew, a 12 year old male with 

diabetes mellitus, has been on CCPD 

since June 2010. Andrew’s father has 

been deceased for 5 years. His mother, 

who assists him with his dialysis at 

home, will be unable to assist Andrew 

with dialysis beginning on February 10, 

2011, because of major surgery which 

will leave her physically unable to 

participate in her son’s care for an 

extended period of time. Andrew’s Aunt 

Millie, who lives nearby, has agreed to 

be Andrew’s caregiver and assist him 

with his dialysis. Millie required 17 

training sessions at Andrew’s dialysis 

facility, which is certified to provide 

home dialysis training, in order to 

become knowledgeable and skilled 

sufficiently to perform this role. These 

training sessions began February 16 and 

ended March 10. Andrew’s dialysis 

facility, which has been open for 5 

years, has never furnished more than 

3100 treatments in a year, and qualifies 

for the low-volume (LV) adjustment. 

Table B in the Appendix reveals that 

Andrew’s pediatric dialysis 

classification group is cell 1, with an 

associated PM of 1.033. Although 

Andrew’s dialysis facility is eligible for 

the LV adjustment for its adult patients, 

the LV multiplier does not apply to 

pediatric patients. During the months of 

January and February 2011, Andrew’s 

ESRD payment rate per HD-equivalent 

treatment would be: 

$239.21 * 1.033 * .969 = $239.44 

However, Andrew’s dialysis facility is 

entitled to receive payment for a 

maximum of 15 training treatments 

furnished in connection with Andrew’s 

new caregiver, Aunt Millie. Because the 

amount of the training add-on is 

adjusted by the dialysis facility’s wage 

index (1.10), the amount of the training 

add-on is calculated as follows: 

Training rate—$33.44 

Wage index—1.10 

Training payment—$33.44 * 1.10 = 

$36.78 

For the maximum number of 15 

training treatments for which the 

training adjustment may be provided in 

connection with a PD patient, Andrew’s 

payment rate, including the training 

add-on, would be: 

($239.21 * 1.033 + $36.78) * .969 = 

$275.08 

J. ESRD Bundled Market Basket 

Under section 1881(b)(14)(F)(i) of the 

Act, as added by section 153(b) of 

MIPPA and amended by section 3401 of 

Public Law 111–148, beginning in 2012, 

the ESRD bundled payment amounts are 

required to be annually increased by an 

ESRD market basket increase factor that 

is reduced by the productivity 

adjustment described in section 

1886(b)(3)(B)(xi)(II) of the Act. The 

statute further provides that the market 

basket increase factor should reflect the 

changes over time in the prices of an 

appropriate mix of goods and services 

used to furnish renal dialysis services. 

Under section 1881(b)(14)(F)(ii) of the 

Act, as added by section 153(b) of 

MIPPA and amended by section 3401(h) 

of Public Law 111–148, the ESRD 

bundled rate market basket increase 

factor will also be used to update the 

composite rate portion of ESRD 

payments during the ESRD PPS phasein period from 2011 through 2013, 

though beginning in 2012, such market 

basket increase factor will be reduced by 

the productivity adjustment. We intend 

to address in future rulemaking the 

productivity adjustment that will be 

applicable beginning in 2012. With 

regard to application of the ESRD 

bundled rate market basket in CY 2011, 

we note that as a result of amendments 

by section 3401(h) of Public Law 111– 

148 to section 1881(b)(14)(F) of the Act, 

a full market basket will be applied to 

the composite rate portion of the 

blended payment during the first year of 

the transition (i.e., 1.0 percentage point 

will not be subtracted). Therefore, we 

have modified § 413.196 by making 

conforming changes as a result of the 

Affordable Care Act. 

As required under section 1881(b)(14) 

of the Act, effective for CY 2012 (and for 

purposes of the first year of the 

transition, CY 2011), CMS has 

developed an all-inclusive ESRD 

bundled rate (ESRDB) input price index. 

Although ‘‘market basket’’ technically 

describes the mix of goods and services 

used to produce ESRD care, this term is 

also commonly used to denote the input 

price index (that is, cost categories, their 

respective weights, and price proxies 

combined) derived from that market 

basket. Accordingly, the term ‘‘ESRDB 

market basket’’ as used in this document 

refers to the ESRDB input price index. 

A market basket has historically been 

used under the Medicare program to 

account for the price increases of the 

requisite inputs associated with the 

services furnished by providers. The 

percentage change in the ESRDB market 

basket reflects the average change in the 

price of goods and services purchased 

by ESRD facilities in providing renal 

dialysis services. Since a single payment 

rate exists for both operating and 

capital-related costs, the ESRDB market 

basket for ESRD facilities includes both 

operating and capital-related costs. 

In the proposed rule (74 FR 49997 

through 50003), we discussed the 

development of the proposed cost 

categories and their respective weights 

for the ESRDB market basket using CY 

2007 as the base year, the choices of 

price proxies, and an explanation of the 

methodology and results of the 

proposed ESRDB market basket. As 

described in the proposed rule (74 FR 

49997), using a base year of CY 2007 

and Medicare cost report data, we first 


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computed cost shares for the following 

nine major expenditure categories: (1) 

Wages and Salaries, (2) Employee 

Benefits for direct patient care, (3) 

Pharmaceuticals, (4) Supplies, (5) 

Laboratory Services, (6) Blood Products, 

(7) Administrative and General and 

Other (A&O), (8) Housekeeping and 

Operations, and (9) Capital-Related 

costs. We then supplemented the 

Medicare Cost Report data with 

additional data sources and expanded 

these cost categories to ultimately derive 

the 16 proposed ESRDB market basket 

cost categories and weights (74 FR 

49998 through 50001). Also in the 

proposed rule, we described our 

selection of, and the rationale for, the 

appropriate price proxies to measure the 

rate of price change for each category 

(74 FR 50001 through 50002), as well as 

provided the projected annual rates of 

growth in the ESRDB market basket for 

CY 2009 through CY 2019 based on the 

most recent forecast available at the 

time. Additionally, we proposed that 

the ESRDB labor-related share equal 

38.160 percent, which represented the 

sum of the weights for the following 

cost categories: Wages and Salaries, 

Benefits, Housekeeping and Operations, 

All Other Labor-related Services, 87 

percent of the cost weight for 

Professional Fees, and 46 percent of the 

weight for Capital-related Building and 

Equipment expenses (74 FR 50003). 

The comments we received on these 

proposals and the responses are set forth 

below. 

Comment: A commenter expressed 

concern that the proposed ESRD 

bundled PPS suggests that 42.8 percent 

of the facility’s ESRD treatment costs are 

labor-related. The commenter was 

concerned that staff levels will be 

reduced to compensate for the revenue 

loss realized by the regressive formula 

of the proposed payment system. 

Response: The labor-related share in 

the ESRD bundled proposed rule was 

38.160 percent (74 FR 50003). We are 

uncertain how the commenter 

calculated 42.8 percent. To provide 

clarification for the commenter, we note 

that the labor-related share of the 

ESRDB market basket is defined as the 

national average proportion of operating 

costs that are related to, influenced by, 

or vary with the local labor market. This 

share represents the proportion of an 

ESRD facility’s payment that is adjusted 

for geographic wage differences. As 

discussed below, we have made several 

methodological changes to the ESRDB 

market basket based on the public 

comments received. The new laborrelated share is 41.737 percent. We will 

closely monitor the cost structure of the 

ESRD industry and the labor-related 

share of the ESRDB market basket, 

following implementation of the ESRD 

PPS. If new data show material shifts in 

the average cost structure for ESRD 

providers, including changes in the 

labor-related share, we will propose to 

rebase the ESRDB market basket, as 

technically appropriate. 

Comment: Several commenters 

recommended using 2008 or 2009 as the 

base year for the ESRDB market basket 

in order to more accurately represent 

the changes in facility operating costs 

that resulted from the compliance with 

the Conditions for Coverage and other 

trends. Commenters stated that cost 

reports from 2008 are available for CMS 

to use, and although they are not settled, 

MedPAC analysis found little difference 

between submitted and settled cost 

reports. 

Response: We agree with the 

commenters with regard to the issue of 

using more updated data for the base 

year for the development of the CY 

ESRDB market basket. As we indicated 

in the proposed rule, we proposed to 

use CY 2007 because it was the most 

recent year that both relatively complete 

Medicare cost report data and 

supplemental data from the Census’ 

Business Expenditure Survey (BES) 

were available (74 FR 49997). That is, 

the proposed ESRDB market basket was 

developed over the winter of 2008 and 

spring of 2009. At that time, 2007 

Medicare cost reports (MCR) 

represented the most complete set of 

data available. Therefore, the 

methodology used to finalize the 

proposed ESRDB market basket 

estimates was completed well in 

advance. The 2007 MCR data are 

comprised of financial data for ESRD 

facilities reporting on different fiscal 

years, including but not limited to 

federal fiscal, calendar, and ‘‘state’’ fiscal 

year (July 1 to June 30). A facility’s MCR 

data are typically available between 

nine months and one year from the end 

of the facility’s fiscal period. Since 

publication of the proposed rule, we 

have reviewed the 2007 MCR data using 

a complete sample and found that the 

cost weights are not materially different 

relative to those found in the proposed 

2007 ESRDB market basket. 

The agency monitors market basket 

cost weights regularly to determine if 

significant changes have occurred from 

one year to the next. To that end, and 

based on public comment, we have 

constructed and analyzed cost weights 

from the newly available 2008 MCRs 

and determined there has been a 

material shift in the cost structure of 

ESRDs from 2007 to 2008. Specifically, 

there was a notable decrease in the 

Pharmaceuticals cost weight for 2008 

compared to 2007 (as discussed in more 

detail below). Therefore, we believe it is 

appropriate to use the 2008 MCR data 

for the base year cost weights of the 

ESRDB market basket. We will continue 

to closely monitor the cost report data 

as the ESRD PPS is implemented; and 

should we observe any additional 

material changes in the cost structure of 

the industry, we will propose to rebase 

and revise the ESRDB market basket 

accordingly. 

Comment: Several commenters 

applauded CMS’s decision to use the 

Producer Price Index (PPI) for 

prescription drugs as the price proxy for 

measuring price growth in ESRD drugs 

in the proposed ESRDB market basket. 

Response: We appreciate commenters’ 

support for using the PPI for 

prescription drugs as the price proxy for 

measuring price growth for the ESRD 

drugs cost category. In this rule, we are 

finalizing the selection of this proxy for 

the following three reasons: 

(1) Relevance: This index contains an 

appropriate level of aggregation for use 

in the Medicare market baskets 

(including former Part D drugs covered 

in the ESRD bundle), as well as reflects 

competitive pricing observed in efficient 

markets. 

(2) Reliability: This index represents a 

consistent time series and allows for 

projections of future price changes that 

are based on technically sound 

econometric modeling techniques that 

are widely accepted. 

(3) Timeliness/Public Availability: 

The Bureau of Labor Statistics 

independently publishes this data on a 

monthly basis with no significant 

methodological changes. 

Comment: Several commenters 

believe that a better price proxy for 

drugs in ESRD facilities is the National 

Health Expenditure (NHE) estimate of 

prescription drug spending. 

Response: We believe the NHE 

estimate of prescription drug spending 

growth is not an appropriate price proxy 

for use in the ESRDB market basket. 

NHE growth rates reflect changes in 

total spending (that is, prices and 

quantities). The ESRDB market basket is 

intended to only reflect price changes, 

holding quantities fixed in a base year. 

For the reasons outlined above, we 

believe the PPI for prescription drugs is 

the appropriate price proxy to apply to 

the drugs cost category in the ESRDB 

market basket. 

Comment: Several commenters 

opposed the use of the Employment 

Cost Index (ECI) for Health Care and 

Social Assistance as the price proxy for 

Wages and Salaries. These commenters 

recommended that CMS use the ECI for 

Hospitals as the price proxy because 


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they claim it more accurately reflects 

the occupational mix in ESRD facilities 

than the ECI for Health Care and Social 

Assistance. 

Response: In the proposed rule, we 

proposed to use the ECI for Health Care 

and Social Assistance to proxy the 

Wages and Salaries cost category (74 FR 

50001). That selection was largely 

driven by the ESRD industry’s inclusion 

in the North American Industry 

Classification System’s (NAICS) 

category 621, Ambulatory Health Care 

Services, which is one component that 

makes up the ECI for Health Care and 

Social Assistance (NAICS 62). 

In response to commenters’ concerns, 

we have reviewed the occupational mix 

of ESRD facilities and compared it in 

detail to that of hospitals (found in 

NAICS category 622), nursing and 

residential care facilities (found in 

NAICS category 623), and the 

compilation of industries contained in 

the Health Care and Social Assistance 

category (NAICS category 62). To do 

this, we compared Full Time Equivalent 

(FTE) data from the ESRD Medicare cost 

reports with occupational composition 

data found in the Occupational 

Employment Statistics produced by the 

Bureau of Labor Statistics (BLS). We 

found that ESRD facilities have a 

somewhat unique occupational mix that 

differs, to varying degrees, from 

hospitals, nursing and residential care 

facilities, and the compilation of 

industries found in the health care and 

social assistance classification. These 

three comparisons were selected as they 

represent the health industries for 

which ECIs are available. 

Based on our analysis, we agree with 

the commenters that it would be 

appropriate to consider the use of the 

ECI for Hospitals as a price proxy for 

this category. In our follow-up analysis, 

we noted that the ESRD industry’s 

occupational and skill mix (including 

physicians, registered nurses (RN), 

licensed practical nurses (LPN), and a 

variety of technicians) is not fully 

represented in NAICS category 62 

(Health Care and Social Assistance). In 

comparing the ESRD occupational mix 

to the occupational mix of hospitals, we 

found that for many of the higher skilled 

occupations, the ESRD industry did bear 

certain similarities to that of the 

hospital industry. As a result, we have 

determined it would be appropriate to 

account for the unique occupational mix 

in ESRD facilities by utilizing a blended 

price proxy for the Wages and Salaries 

cost category. The blended proxy will 

incorporate the Wages and Salaries ECI 

for Health Care and Social Assistance 

(representing 50 percent of the blend) 

and the Wages and Salaries ECI for 

Hospitals (representing the other 50 

percent of the blend). In addition to 

using a blended ECI as the price proxy 

for Wages and Salaries, we will also use 

a blended ECI as the price proxy for the 

Benefits cost category using the same 

50/50 ratio. Those ECIs include the 

Benefits ECI for Health Care and Social 

Assistance (50 percent) and the Benefits 

ECI for Hospitals (50 percent). 

Comment: Several commenters 

requested that CMS provide additional 

detail on the ESRDB market basket, 

stating that there were holes in 

documenting the methodology for its 

development. Particularly, the 

commenters stated that CMS omitted a 

significant amount of detail on the price 

proxies and did not provide the 

prospective reference data from which 

the price proxies are extracted. These 

commenters requested that CMS put the 

detailed forecast of the price proxies on 

the CMS Web site for public view. They 

noted that the information provided 

should be available to replicate the 

results of the ESRDB market basket, as 

proposed. 

Response: We agree that the public 

should be able to replicate the 

methodology used to construct the 

ESRDB market basket. We disagree, 

however, with the commenters’ claim 

that the proposed rule lacked significant 

documentation regarding the 

methodology used to construct the 

ESRDB market basket. The proposed 

rule provided a detailed description of 

the data sources used to develop the 

ESRDB market basket cost weights (74 

FR 50001). Likewise, as indicated in the 

proposed rule, the price proxies used in 

the ESRDB market basket were listed for 

each cost category and are based on data 

maintained and published by the BLS 

(74 FR 50001 through 50002). We would 

refer the commenter to BLS regarding 

any specific information on the detailed 

price proxies. 

To assist the commenter and other 

interested stakeholders in locating these 

price proxies on the BLS Web site, we 

have provided the individual BLS series 

codes for the indexes in the price proxy 

discussion of this final rule (below). The 

price proxies can be obtained by 

entering these codes at the BLS Web site 

(http://data.bls.gov/cgi-bin/srgate). 

Regarding the individual forecasts of the 

price proxies used to develop the CY 

2011 ESRDB market basket update 

factor, these forecasts are developed by 

IHS Global Insight, Incorporated (IGI), a 

nationally recognized economic and 

financial forecasting firm. We purchase 

IGI’s detailed price proxy projections for 

use in the Medicare market baskets. As 

a matter of practice, we publish all of 

the underlying detail for each price 

proxy for the historical period. 

However, because the projections of 

each individual price proxy are 

proprietary, we typically aggregate those 

projections into higher level categories 

and then publish the results with 

usually a one-quarter lag. Since the 

ESRDB market basket is a new market 

basket that is still progressing through 

the rule-making process, we have not 

published additional detail other than 

what has been published in the 

proposed rule. Following 

implementation of this PPS, we will 

begin publishing the ESRDB market 

basket, including the detail as described 

above, on the CMS Web site (http:// 

www.cms.hhs.gov/ 

MedicareProgramRatesStats/ 

04_MarketBasketData.asp#TopOfPage). 

Comment: Several commenters stated 

that CMS did not specify a plan for the 

frequency of rebasing and revisions of 

the ESRDB market basket. Commenters 

stated that CMS usually rebases on a 4- 

year cycle in other provider indexes. 

They noted that this is an appropriate 

timeframe for the rebasing of the ESRDB 

market basket. 

Response: We monitor the market 

basket cost weights regularly to 

determine if significant changes have 

occurred from one year to the next. In 

general, we have typically proposed to 

rebase and revise the market baskets 

roughly every five years; although we 

have proposed alternatives to that rate 

when technically appropriate or when 

mandated by law (for example, the 

Inpatient Hospital Prospective Payment 

System (IPPS) market basket is required 

to be rebased more frequently than 

every five years, in accordance with 

Section 404 of Pub. L.108–173). We are 

unable to provide a specific rebasing 

schedule for the ESRDB market basket, 

in part, because this is a new payment 

system that is being implemented 

making it particularly difficult to say 

with certainty how frequently rebasings 

would be technically appropriate. In 

general, we do not explicitly state how 

often any market basket will be rebased 

or revised, unless there is a mandated 

rebasing schedule. As is the agency’s 

practice, we will continuously monitor 

the composition of the new ESRDB 

market basket to determine the next 

technically appropriate time to rebase 

and revise the index. At that time, the 

agency will go through the notice and 

comment rulemaking process including 

proposing and finalizing any changes 

after consideration of public comments. 

Comment: One commenter believes 

that the ESRDB market basket update 

will not address the low margins for 

small dialysis organizations (SDOs), 

especially in the context of a two 


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percent reduction in payments under 

the ESRD PPS. The commenter stated 

that ESRDB market basket updates to 

payments in the following years should 

reflect increases in costs, and that it will 

likely not be enough to increase the 

SDO margins even to current levels. 

Response: The impact on SDOs is 

addressed in section IV.B of this final 

rule. The ESRDB market basket 

calculations produced by the Office of 

the Actuary in CMS are constructed 

entirely independent from any margins 

analysis. The ESRDB market basket 

updates represent the net result of 

combining price projections for each 

individual cost category with that 

category’s respective cost weight. 

Notably, the CMS market baskets are 

not intended to update payments based 

on projected costs, which are equal to 

prices multiplied by quantities. The 

purpose of the ESRDB market basket, 

rather, is to update the base payment 

rate to account for the projected input 

price inflation associated with the goods 

and services required to provide ESRD 

bundled services while holding that 

market basket of goods and services 

constant. 

As a result of public comments, we 

have made several methodological 

changes to the proposed ESRDB market 

basket. First, as discussed above, we are 

using a 2008 base year rather than a 

2007 base year for the ESRDB market 

basket. This year represents the latest 

year for which appropriately complete 

data are available. Second, we have 

changed the price proxies for the Wages 

and Salaries and the Benefits cost 

categories from ECIs for Health Care and 

Social Assistance (NAICS category 62) 

to blended indexes of the ECIs for 

Hospitals and the ECIs for Health Care 

and Social Assistance (as detailed 

above). Third, we are no longer 

including blood and blood products in 

the ESRDB market basket. 

In the proposed rule, blood and blood 

products were included in the proposed 

ESRDB market basket (74 FR 49999) 

since these products were included in 

the proposed ESRD bundled payment. 

However, as explained in section II.A.4. 

of this final rule, we have decided to 

remove blood and blood products from 

the bundled payment in response to 

public comment. Therefore, since blood 

and blood products are no longer 

included in the ESRD bundled payment, 

it is no longer appropriate to include 

that category in the ESRDB market 

basket. 

Lastly, we are delaying the inclusion 

of costs associated with oral-only drugs 

and biologicals formerly covered under 

Part D that have no injectable 

equivalents (or other form of 

administration) in the ESRDB market 

basket. Similar to blood and blood 

products, these costs were included in 

the ESRDB market basket in the 

proposed rule (74 FR 49999) due to 

these products being included in the 

proposed ESRD bundled payment. 

However, in response to public 

comment, CMS has decided to delay 

implementation of including ESRDrelated oral-only Part D drugs (without 

injectable equivalents or other forms of 

administration) in the bundled 

payment, as stated in section II.A.3. of 

this final rule. Therefore, it is no longer 

appropriate to include the costs 

associated with these products in the 

ESRDB market basket for this final rule. 

Below we discuss the ESRDB market 

basket we are finalizing, including the 

changes noted above. Additionally, in 

response to public comments, where 

relevant, we include the applicable BLS 

series code for the various price proxies. 

We believe this provides added 

transparency for the new ESRDB market 

basket. 

Cost Category Weights 

The ESRDB market basket cost 

weights in this final rule are based on 

the CY 2008 cost report data for 

independent ESRD facilities. We refer to 

the ESRDB market basket as a CY 

market basket because the base period 

for all price proxies and weights are set 

to CY 2008 = 100. Source data included 

CY 2008 Medicare cost reports (Form 

CMS–265–94), supplemented with 2002 

data from the U.S. Department of 

Commerce, Bureau of the Census’ 

Business Expenditure Survey (BES). The 

BES data were aged to 2008 using 

appropriate price proxies to estimate 

price growth. The price proxies used for 

the aging of the BES data come from 

publicly available price indexes such as 

various producer price indexes (PPI), 

consumer price indexes (CPI), or 

employment cost indexes (ECI). All of 

these price proxies are based on data 

published by the U.S. Department of 

Labor, Bureau of Labor Statistics (BLS). 

Using Worksheets A, A2, and B from 

the CY 2008 Medicare cost reports, we 

first computed cost shares for eight 

major expenditure categories: Wages 

and Salaries, Employee Benefits for 

direct patient care, Pharmaceuticals, 

Supplies, Laboratory Services, 

Administrative and General and Other 

(A&O), Housekeeping and Operations, 

and Capital-Related costs. In the 

proposed rule, we had initially 

computed cost shares for nine major 

expenditure categories (74 FR 49997); 

however, as stated earlier, we are now 

removing blood and blood products 

from the ESRDB market basket for this 

final rule, and therefore, we now yield 

one less major expenditure category 

than stated in the proposed rule. Edits 

were applied to include only cost 

reports that had total costs greater than 

zero. In order to reduce potential 

distortions from outliers in the 

calculation of the cost weights for the 

major expenditure categories, cost 

values for each category less than the 

5th percentile or greater than the 95th 

percentile were excluded from the 

computations. The resulting data set 

included information from 

approximately 3,869 independent ESRD 

facilities’ cost reports from an available 

pool of 4,299 cost reports. Expenditures 

for the eight cost categories as a 

proportion of total expenditures are 

shown in Table 30 below. We note that 

the values calculated for the cost 

weights in this table differ from those 

that were published in the proposed 

rule (74 FR 49998). This is a result of 

several factors including: The use of 

2008 Medicare cost report data rather 

than 2007 Medicare cost report data, the 

removal of blood and blood products 

costs from the ESRDB market basket, 

and the removal of costs associated with 

ESRD-related oral Part D drugs without 

injectable equivalents from the ESRDB 

market basket. While some of these 

changes in the cost weights are minor, 

we discuss the more notable differences 

in the CY 2007 and CY 2008 cost 

weights in the text below. 


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Some costs that are required to be 

included in the ESRD bundled payment 

are not reported on the Medicare cost 

report. As a result, we supplemented 

Medicare cost report data with 

expenditure estimates for various ESRDrelated oral drugs with injectable 

equivalents that are currently covered 

by Medicare Part D, as well as with 

additional lab expenses. The estimates 

for both of the aforementioned 

expenditures were provided by Kidney 

Epidemiology and Cost Center of the 

University of Michigan (UM–KECC). 

There are also costs that are reported on 

the Medicare cost report that are not 

included in the ESRD bundled payment. 

For instance, expenses related to 

vaccine costs were removed from total 

expenditures since these are excluded 

from the ESRD bundled payment. 

We expanded the expenditure 

categories developed from the Medicare 

cost reports to allow for a more detailed 

expenditure decomposition. To expand 

these cost categories, BES data were 

used as the Medicare cost reports do not 

collect detailed information on the 

items in question. Those categories 

include: Benefits for all employees, 

professional fees, telephone, utilities, 

and all other services. We chose to 

separate these categories to more 

accurately reflect changes in ESRD 

facility costs. We describe below how 

the initially computed categories and 

weights were modified to yield the final 

ESRDB market basket expenditure 

categories and weights presented in this 

final rule. 

Wages and Salaries 

The weight for Wages and Salaries 

that was initially computed was derived 

from Worksheet B of the Medicare cost 

report. However, because Worksheet B 

only includes direct patient care 

salaries, it was necessary to derive a 

methodology to include all salaries, not 

just direct patient care salaries, in order 

to calculate the appropriate ESRDB 

market basket cost weight. This was 

accomplished in four steps, as follows: 

(1) From the trial balance of the cost 

report (Worksheet A), we computed the 

ratio of salaries to total costs in each 

cost center. The cost centers for which 

we calculated this ratio were drugs, 

housekeeping and operations, A&O, 

supplies, laboratories, capital-related 

machinery, and EPO. 

(2) We then multiplied the ratios 

computed in step 1 by the total costs for 

each corresponding cost center from 

Worksheet B. This provided us with an 

estimate of non-direct patient care 

salaries for each cost center. 

(3) The estimated non-direct patient 

care salaries for each of the cost centers 

on Worksheet B estimated in step 2 

were subsequently summed and added 

to the direct patient care salary figure 

(resulting in a new total salaries figure). 

(4) The estimated non-direct patient 

care salaries (see step 2) were then 

subtracted from their respective cost 

categories to avoid double-counting 

their values in the total costs. 

As a result of this process, we moved 

from an estimated Wages and Salaries 

cost weight of 22.297 percent (as 

estimated using only direct patient care 

salaries as a percent of total costs found 

on the Medicare cost report) to a weight 

of 26.338 percent (capturing both direct 

and non-direct patient care salaries and, 

again, dividing that by total costs found 

on the Medicare cost report), as seen in 

Table 30. For comparison purposes, we 

note that the Wages and Salaries cost 

weight in the proposed rule was 25.106 

percent (74 FR 49998). 

When we add the expenditures 

related to laboratory expenses that were 

previously paid for under the Medicare 

fee schedule, and are not included in 

the Medicare cost report, the 

expenditures for ESRD-related oral 

drugs with injectable equivalents that 

are currently covered under Part D that 

are not included in the Medicare cost 

report, and remove the estimated 

vaccine costs that are to be paid outside 

of the bundle, then the cost weight for 

the Wages and Salaries category falls to 

24.965 percent. 

The final adjustment made to this 

category is to include contract labor 

costs. These costs appear on the 

Medicare cost report; however, they are 

embedded in the Administrative and 

General and Other category and cannot 

be disentangled using the Medicare cost 

reports alone. To move the appropriate 

expenses from the A&O category to 

Wages and Salaries, we used data from 

the BES. We first summed total contract 

labor costs in the survey. We then took 

80 percent of that figure and added it to 

Wages and Salaries. At the same time, 

we subtracted that same amount from 

A&O. The 80-percent figure that was 

used was determined by taking salaries 

as a percentage of total compensation 

(excluding contract labor). The resulting 

cost weight for Wages and Salaries 

increases to 26.755 percent. 

Benefits 

The Benefits weight was derived from 

the 2002 BES data aged forward to 2008 

as a benefit share for all employees is 

not available from the ESRD Medicare 

cost report. Due to the change in the 

base year from CY 2007 (used in the 

proposed rule (74 FR 49998)) to CY 

2008 (used in this final rule), the 2002 

BES data for each of the appropriate cost 

categories were aged to 2008 as opposed 

to 2007. The cost report only reflects 

benefits associated with direct patient 

care. In order to include the benefits 

related to non-direct patient care, we 

estimated this marginal increase from 


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the BES Benefits weight. This resulted 

in a Benefits weight that was 1.143 

percentage point larger (6.306 vs. 5.163) 

than the Benefits weight for direct 

patient care calculated directly from the 

cost reports. To avoid double-counting 

and to ensure all of the market basket 

weights still totaled 100 percent, we 

removed this additional 1.143 

percentage point for Benefits from 

Pharmaceuticals, Administrative and 

General and Other, Supplies, Laboratory 

Services, Housekeeping and Operations, 

and the Capital-related Machinery 

components. This calculation 

reapportions the benefits expense for 

each of these categories using a method 

similar to the method used for 

distributing non-direct patient care 

salaries as described above. 

The final adjustment made to this 

category is to include contract labor 

costs. Once again, these costs appear on 

the Medicare cost report; however, they 

are embedded in the Administrative and 

General and Other category and cannot 

be disentangled using the Medicare cost 

report alone. To move the appropriate 

expenses from the A&O category to 

Benefits, we followed the same 

methodology used to apportion contract 

labor wages and salaries noted 

immediately above. For Benefits, we 

applied the remaining 20 percent of 

total contract labor costs, as estimated 

using the BES, and included that in the 

Benefits cost weight. At the same time, 

we subtracted that same amount from 

A&O. The 20-percent figure that was 

used was determined by summing direct 

patient care benefits (as estimated using 

the Medicare cost report) and non-direct 

patient care benefits (as estimated using 

the BES) and taking that sum as a 

percentage of total compensation 

(excluding contract labor). The resulting 

cost weight for Benefits increases to 

6.754 percent. 

Utilities 

We developed a weight for Utility 

expenses using the 2002 BES data, as 

utilities are not separately identified on 

the Medicare cost report. We aged these 

2002 BES-based utility expenditures to 

2008. We then disaggregated the 

Utilities category to reflect three 

subcategories: Electricity, Fuel (Natural 

Gas), and Water and Sewerage. We 

computed the ratio of each BES category 

to the total BES operating expenses. We 

then applied each ratio to the total 

operating expense percentage share as 

calculated from the cost reports, 

including the additions of ESRD-related 

oral drugs with injectable equivalents 

that are currently covered under Part D 

and additional lab expenses, to estimate 

the ESRD facility weight for each utility 

expenditure category. These amounts 

were then deducted from the share of 

the combined Operation & Maintenance 

of Plant and Housekeeping cost 

category, where the expenses are 

included on the Medicare cost report 

(but cannot be separately identified). 

The resulting Electricity, Fuel (Natural 

Gas), and Water and Sewerage ESRDB 

market basket weights are 0.621, 0.127, 

and 0.516 percent, respectively, yielding 

a combined Utilities cost weight of 

1.264 percent. 

Pharmaceuticals 

The ESRDB market basket includes 

expenditures for all drugs included in 

the ESRD bundled payment, including 

separately billable drugs and ESRDrelated oral drugs with injectable 

equivalents that are currently covered 

under Medicare Part D. We were able to 

calculate an expenditure weight for 

pharmaceuticals directly from the Drugs 

cost center on Worksheet B plus the 

expenditures of EPO which are reported 

on worksheet A2 of the Medicare cost 

reports. Vaccine expenditures, which 

are mandated as separately 

reimbursable, were excluded when 

calculating this cost weight. Section 

1842(o)(1)(A)(iv) of the Act requires that 

influenza, pneumococcal, and hepatitis 

B vaccines described in subparagraph 

(A) or (B) of section 1861(s)(10) of the 

Act be paid based on 95 percent of 

average wholesale price (AWP) of the 

drug. Since these drugs are excluded 

from other prospective payment 

systems, we exclude them from the 

ESRDB market basket, as well. We 

estimate that expenditures for these 

three vaccines are approximately 1 

percent of the total Medicare-allowable 

payments for separately billable drugs. 

The resulting cost weight determined 

from the Medicare cost report for 

Pharmaceuticals is 26.358 percent, as 

seen in Table 30. For comparison 

purposes, we note that this cost weight 

in the proposed rule was 28.775 percent 

(74 FR 49998). 

Expenditures in 2008 for ESRDrelated oral drugs with injectable 

equivalents that are currently covered 

under Part D were added to cost report 

totals. The estimate we used for these 

ESRD-related Part D drugs with 

injectable equivalents, provided by UM– 

KECC, is approximately $15 million for 

2008. Finally, to avoid double-counting, 

the weight for the Pharmaceuticals 

category was reduced to exclude the 

estimated share of non-direct patient 

care salaries and benefits associated 

with the Drugs and Epoetin cost centers. 

This resulted in an ESRDB market 

basket weight for Pharmaceuticals of 

25.52 percent. EPO expenditures 

accounted for 17.359 percentage points 

of the Pharmaceuticals weight, ESRDrelated oral drugs with injectable 

equivalents that are currently covered 

under Part D accounted for 0.153 

percentage point of the Pharmaceuticals 

weight, and all other drugs accounted 

for the remaining 7.541 percentage 

points of the Pharmaceuticals weight. 

Supplies 

We calculated the weight for Supplies 

included in the bundled rate using the 

reimbursable and separately billable 

expenditure amounts for the Supplies 

cost center on Worksheet B of the 

Medicare cost report. Supplies that are 

separately billable are reported as a 

separate line item on the cost reports 

and were also included. This total was 

divided by total expenses to derive a 

weight for the Supplies component in 

the ESRDB market basket. The 

computed weight for this category was 

reduced by the non-direct patient care 

salaries and benefits associated with the 

Supplies cost center. The resulting 

ESRDB market basket weight for 

Supplies is 9.216 percent. 

Laboratory Services 

We calculated the weight for 

Laboratory Services included in the 

bundled rate using the reimbursable and 

separately billable expenditure amounts 

for the Laboratory cost center on 

Worksheet B of the Medicare cost 

report. The cost report expenditures do 

not include laboratory services paid for 

under the Medicare fee schedule, only 

facility-furnished laboratory tests. Since 

a large majority of laboratory tests are 

paid via the fee schedule, we adjusted 

the laboratory fees upward. The 

inflation factor was computed from the 

ratio of ESRD facility Medicare 

laboratory payment data to the other 

facility Medicare laboratory payment 

data. This provides a measure of the 

extent to which laboratory services fall 

under the Medicare fee schedule. The 

weight for this category was similarly 

reduced by the non-direct patient care 

salaries and benefits associated with the 

Laboratory cost center. The resulting 

ESRDB market basket weight for 

Laboratory Services is 5.497 percent. 

Housekeeping and Operations 

We developed a market basket cost 

weight for this category using data from 

Worksheet A of the Medicare cost 

reports. Worksheet B combines the 

capital-related costs for buildings and 

fixtures with the Operation and 

Maintenance of Plant (Operations) and 

Housekeeping cost centers, so we were 

unable to calculate a weight directly 

from Worksheet B. We separated these 


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expenses from capital-related costs 

because we believe housekeeping and 

operations expenditures, such as 

janitorial and building services costs, 

are largely service-related and would be 

more appropriately proxied by a servicerelated price index. To avoid doublecounting, we subtracted from the 

Housekeeping and Operations weight 

the utilities proportion described above, 

as well as the non-direct patient care 

salaries and benefits share associated 

with the Operations and Housekeeping 

cost center. The resulting ESRDB market 

basket cost weight for Housekeeping 

and Operations is 2.029 percent. 

Administrative and General and Other 

(A&O) 

We computed the proportion of total 

A&O expenditures using the A&O cost 

center data from Worksheet B of the 

Medicare cost reports minus the A&O 

expenditures related to the Blood 

Products and Vaccine categories. As 

described above, we exclude contract 

labor from this cost category and 

apportion these costs to the salary and 

benefits cost weights. Similar to other 

expenditure category adjustments, we 

then reduced the computed weight to 

exclude salaries and benefits associated 

with the A&O cost center. The resulting 

A&O cost weight is 13.899 percent. This 

A&O cost weight is then fully 

apportioned to derive detailed cost 

weights for Professional Fees, 

Telephone, All Other Labor-Related 

Services, and All Other Nonlaborrelated Services. 

Professional Fees 

A separate weight for Professional 

Fees was developed using the 2002 BES 

data aged to 2008. Professional fees 

include fees associated with the 

following: advertising, accounting, 

bookkeeping, legal, management, 

consulting, administrative, and other 

professional services fees. To estimate 

professional fees, we first calculated the 

ratio of BES professional fees to a total 

of administrative and other expenses 

from BES. We applied this ratio to the 

A&O total cost weight to estimate the 

proportion of ESRD facility professional 

fees. The resulting weight is 1.773 

percent. This cost weight is then 

separated into Labor-related 

Professional Fees (1.549 percent) and 

Nonlabor-related Professional Fees 

(0.224 percent), which is described in 

more detail below. 

Telephone 

Because telephone service expenses 

are not separately identified on the 

Medicare cost report, we developed a 

Telephone Services weight using the 

2002 BES expenses aged to 2008. We 

estimated a ratio of telephone services 

expenses to total administrative and 

other expenses from BES. We applied 

this ratio to the total A&O cost weight 

to estimate the proportion of ESRD 

facility telephone expenses. The 

resulting ESRDB market basket cost 

weight for Telephone Services is 0.597 

percent. 

All Other Labor-Related Services 

A separate weight for All Other Laborrelated Services was developed using 

the 2002 BES data aged to 2008. All 

other labor-related services include 

repair and maintenance fees. We 

estimated a ratio of all other laborrelated services expenses to total 

administrative and other expenses from 

BES. We applied this ratio to the total 

A&O cost weight to estimate the cost 

weight for ESRD facility All Other 

Labor-related Services. The resulting 

ESRDB market basket cost weight is 

1.219 percent. 

All Other Nonlabor-Related Services 

A separate weight for All Other 

Nonlabor-related Services was 

developed using the 2002 BES data aged 

to 2008. Non labor-related services 

include insurance, transportation, 

shipping, warehousing, printing, data 

processing services, and all other 

operating expenses not otherwise 

classified. We estimated a ratio of all 

other nonlabor-related services expenses 

to total administrative and other 

expenses from BES. We applied this 

ratio to the total A&O cost weight to 

estimate the cost weight for ESRD 

facility All Other Nonlabor-related 

Services. The resulting ESRDB market 

basket cost weight is 10.311 percent. 

Capital 

We developed an ESRDB market 

basket cost weight for the Capital 

category using data from Worksheet B of 

the Medicare cost reports. Capitalrelated costs include depreciation and 

lease expense for buildings, fixtures, 

movable equipment, property taxes, 

insurance, the costs of capital 

improvements, and maintenance 

expense for buildings, fixtures, and 

machinery. Because housekeeping and 

operations costs are included in the 

Worksheet B cost center for Buildings 

and Fixtures capital-related expense, we 

excluded these costs and developed a 

separate expenditure category as noted 

above. Similar to the methodology used 

for other ESRDB 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 capitalrelated cost categories, one for Buildings 

and Fixtures, and one for Machinery. 

We reasoned this was particularly 

important given the critical role played 

by dialysis machines. Likewise, because 

price changes associated with Buildings 

and Fixtures could move differently 

than those associated with Machinery, 

we believe that separate price proxies 

would be more appropriate to track 

price changes for the different capitalrelated categories over time. The 

resulting ESRDB market basket cost 

weights for Capital-related Buildings 

and Equipment and Capital-related 

Machinery are 7.459 and 2.074 percent, 

respectively. 

Table 31 lists all of the expenditure 

categories in the ESRDB market basket 

and their corresponding CY 2008 cost 

weights and proxies, as developed in 

accordance with the methodology 

described above. For comparison 

purposes, we have added the 

corresponding CY 2007 cost weights as 

published in the proposed rule (74 FR 

50010). 

BILLING CODE P 


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BILLING CODE C 

Price Proxies 

Once we determined the CY 2008 

ESRDB market basket expenditure 

categories and weights, appropriate 

wage and price series or proxies were 

selected to measure the rate of price 

change for each category. All of the 

proxies are based on BLS data, and are 

grouped into one of the following three 

BLS categories: 

(1) PPIs: PPIs measure changes in the 

prices producers receive for their 

outputs. PPIs are the preferable price 

proxies for goods and services that 

ESRD facilities purchase as inputs in 

producing dialysis services, since these 

facilities generally make purchases in 

the wholesale market. The PPIs that we 

use measure price change at the final 

stage of production. 


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(2) CPIs: CPIs measure changes in the 

prices of final goods and services 

purchased by the typical consumer. 

Because these indexes may not reflect 

the prices faced by a producer, we used 

CPIs only if an appropriate PPI was not 

available, or if the expenditure more 

closely resembled a retail rather than 

wholesale purchase. For example, we 

used the CPI for telephone services as a 

proxy for the Telephone cost category 

because there is no corresponding PPI, 

and we reasoned that commercial and 

residential rates change similarly. 

(3) ECIs: ECIs measure the rate of 

change in employee wage rates and 

employer costs for employee benefits 

per hour worked. They are fixed-weight 

indexes that strictly measure changes in 

wages and benefits per hour, and are not 

affected by shifts in employment mix. 

We evaluated the price proxies using 

the criteria of reliability, timeliness, 

availability, and relevance. Reliability 

indicates that the index is based on 

valid statistical methods and has low 

sampling variability. Timeliness implies 

that the proxy is published regularly, 

preferably at least once a quarter. 

Availability means that the proxy is 

publicly available. Finally, relevance 

means that the proxy is applicable and 

representative of the cost category 

weight to which it is applied. The CPIs, 

PPIs, and ECIs we use meet these 

criteria. 

Wages and Salaries 

As discussed above, we use a blend of 

the Wages and Salaries ECI for Hospitals 

(Civilian) (50 percent)(series code 

CIU1026220000000I) and the Wages and 

Salaries ECI for Health Care and Social 

Assistance (Civilian) (50 percent) (series 

code CIU1026200000000I) as the 

measure of price growth for Wages and 

Salaries in ESRD facilities. This 

particular blend was chosen to—(1) 

account for the presence of ESRDs in 

NAICS 62 (Health Care and Social 

Assistance), and (2) reflect the 

similarities observed in the 

occupational mixes between the ESRD 

industry and the hospital industry. We 

believe this approach results in an 

appropriate price index that reflects 

changes in the price of wages and 

salaries in the ESRD industry. 

Benefits 

As discussed above, we use a blend of 

the Benefits ECI for Hospitals (Civilian) 

(50 percent) and the Benefits ECI for 

Health Care and Social Assistance 

(Civilian) (50 percent) as the measure of 

price growth for Benefits in ESRD 

facilities. We believe this approach 

results in an appropriate price index 

that reflects changes in the price of 

benefits in the ESRD industry. 

Professional Fees 

We use the Compensation ECI for 

Professional and Related Occupations 

(Private) (series code 

CIU2010000120000I) as the proxy for 

professional fees. We selected this price 

proxy because it includes occupations 

such as lawyers, accountants, and 

bookkeepers that are represented in this 

cost category. 

Utilities 

We use the PPI for Commercial 

Electric Power (series code WPU0542) 

and the PPI for Commercial Natural Gas 

(series code WPU0552) as the proxies 

for the Electricity and Natural Gas cost 

categories, respectively. We use the CPI 

for Water and Sewerage Maintenance 

(series code CUUR0000SEHG01) as the 

price proxy for the Water and Sewerage 

cost category. 

Capital-Related—Building and 

Equipment 

We use the CPI for Owner’s 

Equivalent Rent of Residences (series 

code CUUR0000SEHC) as the price 

proxy for the Capital-related Building 

and Equipment cost category. We refer 

to this price proxy generally as the CPI 

for Residential Rent. As described 

earlier, this cost category includes 

building and fixtures, leased buildings, 

fixed equipment, and moveable 

equipment. Because machine 

equipment, particularly dialysis 

machines, is reflected in a separate cost 

category, the bulk of the expenditures 

captured here are for building and fixed 

equipment. Therefore, we would prefer 

to have a proxy that captures the price 

change associated with this type of 

capital expense. While there can 

sometimes be differences in the price 

levels for residential and commercial 

rent, we believe the CPI for Residential 

Rent approximates the change in the 

underlying costs associated with ESRD 

facilities’ capital costs such as 

depreciation, interest, taxes, and other 

capital costs. Given the lack of an ESRDspecific proxy for capital costs, we 

believe that the CPI for Residential Rent 

represents the best available proxy for 

the changes in capital costs facing ESRD 

facilities. 

Capital-Related—Machinery 

We use the PPI for Electrical 

Machinery and Equipment (series code 


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WPU117) as the price proxy for the 

capital-related machinery cost category. 

This PPI includes dialysis machines, 

which are a significant component of 

machine equipment costs reported by 

ESRD facilities. Therefore, we believe 

that this price proxy is the best measure 

of the price growth of this cost category. 

Pharmaceuticals 

ESRD facilities use a variety of drugs 

during dialysis treatment including EPO 

which is currently a separately billable 

drug and accounts for the majority of 

ESRD facility drug expenses. We pay for 

erythropoietic agents to treat chronic 

anemia in ESRD patients. At present, 

Epogen© and ARANSP© (both 

manufactured by a single supplier) are 

two of the prevailing erythropoietic 

drugs available to treat anemia in ESRD 

patients. Medicare is the dominant 

purchaser of EPO since it is mainly used 

to treat kidney dialysis patients. For the 

ESRDB market basket, we use the PPI 

for Pharmaceuticals for Human Use 

(Prescription) (series code WPUSI07003) 

as the price proxy for the 

Pharmaceuticals category. We refer to 

this price proxy generally as the PPI for 

Prescription Drugs. We use this proxy 

for a variety of reasons. First, all of the 

market baskets that we produce include 

price proxies that are intended to reflect 

the efficient average price increase 

associated with the purchase of the 

particular input category. Accordingly, 

we have chosen to proxy the 

Pharmaceuticals cost category in the 

ESRDB market basket, which includes 

the mix of all prescription drugs 

purchased by dialysis facilities, by the 

PPI for Prescription Drugs because it 

reflects price changes associated with 

the average mix of all pharmaceuticals 

in the overall economy. Second, we 

anticipate the price changes associated 

with the assortment of drugs 

administered in ESRD facilities should, 

over time, be similar to the average 

prescription drug price changes 

observed across the entire economy. 

Finally, this price series was chosen as 

it is both publicly available and 

regularly published. 

Supplies 

We use the commodity-based PPI for 

Medical, Surgical, and Personal Aid 

Devices (series code WPU156) as a 

proxy for changes in ESRD supply 

prices. Many of the supplies used in 

dialysis are included in this PPI, such 

as dialyzers, catheters, I.V. equipment, 

syringes, and other general medical 

supplies used in dialysis treatment. 

Laboratory Services 

We use the PPI for Medical and 

Diagnostic Laboratories (series code 

PCU6215—6215—) as the price proxy 

for the ESRD Laboratory Services cost 

category. Most of the laboratory tests 

used in dialysis are blood chemistry 

tests (a covered component of the PPI 

for Medical and Diagnostic 

Laboratories). Additionally, some ESRD 

facilities are using diagnostic imaging 

services to monitor patient site access, 

and the points where waste exchange 

takes place (also a covered component 

of this price proxy). 

Telephone 

We use the CPI for Telephone 

Services (series code CUUR0000SEED) 

as the price proxy for the Telephone 

cost category. This index is used as the 

price proxy for Telephone Services in 

other market baskets produced by CMS. 

Housekeeping and Operations 

We use the PPI for Janitorial Services 

(series code PCU561720561720) as the 

price proxy for the Housekeeping and 

Operations cost category. This is the 

same price proxy that was used in the 

proposed rule; however, we referred to 

this proxy as the PPI for Building, 

Cleaning and Maintenance in the 

proposed rule (74 FR 50002). This PPI 

includes housekeeping, janitorial, and 

maintenance (excluding repairs) 

services, and is representative of the 

types of costs included in this cost 

category. 

All Other Labor-Related Services 

We use the Compensation ECI for 

Service Occupations (Private) (series 

code CIU2010000300000I) as the price 

proxy for the All Other Labor-Related 

Services cost category. This category 

includes expenses related to repair 

services. We feel that the service 

occupations most accurately reflect the 

costs for these types of repair and 

maintenance services purchased by 

ESRD facilities. 

All Other Nonlabor-Related Services 

We use the CPI for All Items Less 

Food and Energy (series code 

CUUR0000SA0L1E) as the price proxy 

for the All Other Nonlabor-Related 

Services cost category. This category 

includes costs such as data processing, 

purchasing, taxes, home office costs, 

and malpractice costs. The costs 

represented in this category are diverse 

and are primarily associated with the 

purchase of services. These costs are 

best represented by a general measure of 

inflation such as the CPI for All Items 

Less Food and Energy. Food and energy 

are excluded from the index to remove 

the volatility associated with those 

items. Additionally, energy prices are 

already captured in the utility price 

proxies. 

ESRDB Market Basket Increases 

The final ESRDB market basket 

reflects the combination of cost weights 

and price proxies discussed above. As 

explained above, under section 

1881(b)(14)(F) of the Act, as added by 

section 153(b) of MIPPA and amended 

by section 3401(h) of Public Law 111– 

148, for 2012 and each subsequent year, 

the Secretary shall reduce the market 

basket increase factor by the 

productivity adjustment described in 

section 1886(b)(3)(B)(xi)(II) of the Act, 

which is equal to ‘‘the 10-year moving 

average of changes in annual economywide private nonfarm business multifactor productivity (as projected by the 

Secretary for the 10-year period ending 

with the applicable fiscal year, year, 

cost reporting period, or other annual 

period)’’. For purposes of providing a 

forecast, Table 32 contains the projected 

rate of growth for CY 2011 through CY 

2020 for the ESRDB market basket 

(adjusted, where applicable, based on 

the estimated productivity adjustment 

for a given year). Although we provide 

a forecast here, we will address in future 

rulemaking the implementation and 

application of the productivity 

adjustment to the ESRDB market basket 

increase factor that will be required 

beginning in 2012. Also, as we indicated 

above, in CY 2011, we note that as a 

result of amendments by section 3401(h) 

of Public Law 111–148 to section 

1881(b)(14)(F) of the Act, a full market 

basket will be applied to the composite 

rate portion of the blended payment 

during the first year of the transition. 


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ESRD Labor-Related Share 

The labor-related share of a market 

basket is determined by identifying the 

national average proportion of operating 

costs that are related to, influenced by, 

or vary with the local labor market. The 

labor-related share is typically the sum 

of Wages and Salaries, Benefits, 

Professional Fees, Labor-related 

Services, and a portion of the Capital 

share from a given market basket. We 

used the 2008-based ESRDB market 

basket cost weights to determine the 

labor-related share for ESRD facilities 

under a bundled system. Under the 

ESRDB market basket, the labor-related 

share for ESRD facilities is 41.737 

percent; as shown in Table 33 below. 

These figures represent the sum of 

Wages and Salaries, Benefits, 

Housekeeping and Operations, All 

Other Labor-related Services, 87 percent 

of the weight for Professional Fees 

(details discussed below), and 46 

percent of the weight for Capital-related 

Building and Equipment expenses 

(details discussed below). 

The labor-related share for 

Professional Fees (87 percent) reflects 

the proportion of ESRD facilities’ 

professional fees expenses that we 

believe varies with local labor market. 

As stated in the proposed rule (74 FR 

50003), we recently conducted a survey 

of ESRD facilities to better understand 

the proportion of contracted 

professional services that ESRD 

facilities typically purchase outside of 

their local labor market. These 

purchased professional services include 

functions such as accounting and 

auditing, management consulting, 

engineering, and legal services. Based 

on the survey results, we determined 

that, on average, 87 percent of 

professional services are purchased 

from local firms and 13 percent are 

purchased from businesses located 

outside of the ESRD’s local labor 

market. Therefore, we are including 87 

percent of the cost weight for 


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Professional Fees in the labor-related 

share. 

The labor-related share for capitalrelated expenses (46 percent of ESRD 

facilities’ adjusted Capital-related 

Building and Equipment expenses) 

reflects the proportion of ESRD 

facilities’ capital-related expenses that 

we believe varies with local labor 

market wages. Capital-related expenses 

are affected in some proportion by 

variations in local labor market costs 

(such as construction worker wages) 

that are reflected in the price of the 

capital asset. However, many other 

inputs that determine capital costs are 

not related to local labor market costs, 

such as interest rates. The 46-percent 

figure is based on regressions run for the 

inpatient hospital capital PPS in 1991 

(56 FR 43375). We use a similar 

methodology to calculate capital-related 

expenses for the labor-related shares for 

rehabilitation facilities (70 FR 30233), 

psychiatric facilities, long-term care 

facilities, and skilled nursing facilities 

(66 FR 39585). 

K. Implementation 

1. Transition Period 

Section 1881(b)(14) of the Act 

replaces the current basic case-mix 

adjusted composite payment system 

with a case-mix adjusted bundled ESRD 

PPS, for Medicare outpatient ESRD 

facilities beginning January 1, 2011. 

Section 1881(b)(14)(E)(i) of the Act 

requires the Secretary to provide ‘‘a fouryear phase-in’’ of the payments under 

the ESRD PPS for renal dialysis services 

furnished on or after January 1, 2011. 

Although the statute uses the term 

‘‘phase-in’’, other Medicare payment 

systems use the term ‘‘transition’’ to 

describe the timeframe during which 

payments are based on a blend of the 

payment rates under the prior payment 

system and the new payment system. 

For purposes of this ESRD PPS final 

rule, we use the term ‘‘transition’’ to 

describe this timeframe. 

Section 1881(b)(14)(E)(i) of the Act 

further requires that the transition occur 

‘‘in equal increments,’’ with payments 

under the ESRD PPS ‘‘fully implemented 

for renal dialysis services furnished on 

or after January 1, 2014.’’ In addition, 

section 1881(b)(14)(E)(ii) of the Act 

permits an ESRD facility to make a onetime election to be excluded from the 

transition from the current basic casemix adjusted composite payment 

system, with its payment amount for 

renal dialysis services based entirely on 

the payment amount under the ESRD 

PPS. This election must be made prior 

to January 1, 2011. Lastly, section 

1881(b)(14)(E)(iii) of the Act requires 

that we make an adjustment during the 

transition so that payments during the 

transition equal the estimated total 

amount of payments that would 

otherwise occur under the ESRD PPS 

without such a transition. The transition 

budget-neutrality adjustment policy is 

set forth at § 413.239 and is discussed 

further in section II.E.5. of this final 

rule. 

In accordance with section 

1881(b)(14)(E) of the Act, we proposed 

to implement the transition from the 

current basic case-mix adjusted 

composite payment system in equal 

increments, so that renal dialysis 

services furnished on or after January 1, 

2014, would be paid entirely based on 

the payment amount under the ESRD 

PPS. Specifically, we proposed that for 

renal dialysis services provided during 

the transition period beginning January 

1, 2011 and ending December 31, 2013, 

ESRD facilities would receive a blended 

payment for each dialysis treatment 

consisting of the payment amount under 

the basic-case mix adjusted composite 

system and the payment amount under 

the ESRD PPS (74 FR 50003). We noted 

that, because ESRD facilities would 

receive an all-inclusive payment during 

the transition period for all renal 

dialysis services, other entities, such as 

Method II DME suppliers and 

laboratories would no longer bill 

Medicare beginning January 1, 2011 for 

renal dialysis services furnished to 

ESRD patients. These entities would 

need to seek payment from the patient’s 

ESRD facility (74 FR 50003). 

The comments we received and our 

responses are set forth as follows: 

Comment: Many commenters 

suggested that we consider 

implementing Part D drugs in the 

bundled payment during the last year of 

the transition and, indicated that the 

inclusion of these drugs would impact 

an ESRD facility’s decision of whether 

to elect to go into the transition period 

or to receive full payment under the 

ESRD PPS. The commenters believed 

that we should collect accurate data on 

the costs of Part D drugs before they are 

implemented as part of the ESRD PPS 

bundle. 

Response: In this final rule and in 

response to public comment, we are 

delaying implementation of payment 

under the ESRD PPS of ESRD-related 

oral-only drugs that are currently 

separately paid under Part D until 

January 1, 2014. The decision to delay 

implementation of oral-only drugs is 

discussed in section II.A.3.a. of this 

final rule. The implementation of ESRDrelated drugs and biologicals under the 

ESRD PPS is discussed in section II.A.3. 

of this final rule. Because we are 

implementing all other ESRD-related 

former part D drugs and biologicals 

effective January 1, 2011, we included a 

$0.49 adjustment to the portion of the 

blended payment amount related to the 

basic case-mix adjusted composite 

payment system to account for those 

drugs. To derive the $0.49 adjustment, 

we used the 2011 price inflated 

payment amounts divided by the Part D 

HD-equivalent treatments for Part D 

enrollees as discussed in section II.F.5. 

of this final rule. We will continue to 

analyze the prices paid under Part D for 

oral-only ESRD-related drugs so that we 

are able to appropriately price these 

drugs in the ESRD PPS base rate. 

Comment: Many commenters 

suggested that we consider 

implementing laboratory tests in the 

bundled payment during the last year of 

the transition. The commenters 

explained that there will be 

administrative burden in contracting for 

laboratory services during the transition 

period. The commenters indicated that 

even if laboratories are willing to enter 

into a contract, they are concerned 

about their ability to negotiate 

reasonable prices given the low volume 

of services that they would request from 

the laboratories. 

Response: Section 1881(b)(14)(A)(i) of 

the Act requires CMS to include all 

renal dialysis services, which include 

ESRD-related diagnostic laboratory tests, 

into one single payment effective 

January 1, 2011. Section 1862(a)(24) of 

the Act prohibits unbundling of 

expenses for renal dialysis services (as 

defined in section 1881(b)(14)(B) of the 

Act). Therefore, we do not have the 

authority to pay laboratories directly for 

ESRD-related diagnostic laboratory tests. 

We note, under the current basic casemix adjusted composite payment 

system, certain ESRD-related laboratory 

tests are included in the composite rate. 

ESRD facilities would have been 

required under the current basic casemix adjusted composite payment system 

to establish arrangements with 

laboratories to perform these laboratory 

tests and receive payment from the 

ESRD facility. Therefore, we do not 

agree that bundling all ESRD-related 

laboratory tests under the ESRD PPS 

will pose a significant burden. 

For CY 2011, we proposed to make 

payments based on 75 percent of the 

payment rate under the basic case-mix 

adjusted composite payment system and 

25 percent of the payment rate under 

the ESRD PPS. For CY 2012, we 

proposed to make payment based on 50 

percent of the payment rate under the 

basic case-mix adjusted composite 

payment system and 50 percent of the 

payment rate under the ESRD PPS. For 


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CY 2013, we proposed to make payment 

based on 25 percent of the payment rate 

under the basic case-mix adjusted 

composite payment system and 75 

percent of the payment rate under the 

ESRD PPS. For renal dialysis services 

furnished on or after January 1, 2014, 

we proposed that payment to ESRD 

facilities would be based on 100 percent 

of the payment amount under the ESRD 

PPS (74 FR 50003). 

We did not receive public comments 

on the proposed blending methodology 

for the transition from the basic casemix composite payment system to the 

ESRD PPS bundled payment system 

and, therefore, we are finalizing the 

blending methodology as proposed in 

§ 413.239(a). 

We proposed that the portion of the 

blended rate based on the payment 

amount with regard to the basic casemix adjusted composite payment system 

would be comprised of the composite 

payment rate (which is adjusted by the 

basic case-mix adjustments and a wage 

index), the drug add-on amount, and 

payment amounts for items and services 

furnished to dialysis patients that are 

currently separately paid under Part B 

by Medicare to entities other than the 

ESRD facility. We also proposed to 

include a $14 adjustment to the portion 

of the blended payment amount related 

to the basic case-mix adjusted 

composite payment system during the 

transition to account for the ESRDrelated drugs and biologicals that are 

currently separately paid under Part D 

and were proposed to be included in the 

ESRD PPS base rate (74 FR 50004). 

Because we are delaying payment under 

the ESRD PPS for former Part D oralonly drugs, the proposed $14 

adjustment will be $0.49 for this final 

rule, as discussed in section II.E.5. of 

this final rule. 

We did not receive comments on the 

composition of the portion of the 

blended rate based on the basic casemix adjusted composite payment 

system. Therefore, we are finalizing our 

proposal that the portion of the blended 

rate based on the basic case-mix 

adjusted composite payment system 

will be comprised of the composite 

payment rate (which is adjusted by the 

basic case-mix adjustments and a wage 

index), the drug add-on amount, and 

payment amounts for items and services 

furnished to dialysis patients that are 

currently separately paid under Part B. 

We will include a $0.49 adjustment to 

the portion of the blended payment 

amount related to the basic case-mix 

adjusted composite payment system 

during the transition to account for the 

ESRD-related drugs and biologicals 

(currently separately paid under Part D), 

but effective January 1, 2011, will be 

bundled under the ESRD PPS, (as 

discussed in section II.E.5. of this final 

rule). 

In the proposed rule, we discussed 

that for the years during which the 

transition is applicable, section 

1881(b)(14)(F)(ii) of the Act requires the 

Secretary to annually increase the 

portion of the ESRD PPS that is based 

on the composite rate that would 

otherwise apply if the ESRD PPS had 

not been enacted (74 FR 50004). In 

particular, at the time the ESRD PPS 

proposed rule was published, section 

1881(b)(14)(F)(ii)(II) of the Act required 

the composite rate portion of the 

blended payment to be updated 

annually by the ESRDB market basket 

update minus 1.0 percentage point. 

Therefore, for each year of the 

transition, to maintain the 98 percent 

budget-neutrality amount, we proposed 

that the composite payment rate portion 

of the blended amount would be 

updated by the applicable case-mix 

adjustments, the drug add-on 

adjustment, the current wage index, and 

the ESRDB market basket update minus 

1.0 percentage point. 

We also proposed that payments for 

items and services furnished to dialysis 

patients that are paid separately under 

Part B under the current composite 

payment rate methodology, that is, 

ESRD-related laboratory tests, ESRDrelated drugs, and ESRD-related 

supplies, blood, and blood products 

would no longer be paid separately. 

Instead, those items and services would 

be priced to reflect how they are 

currently paid (for example, using a fee 

schedule or ASP amount) (74 FR 50004). 

We address comments related to the 

market basket in section II.J. of this final 

rule; laboratory tests in section II.A.4; 

ESRD-related drugs in sections II.A.2. 

and II.A.3.; ESRD supplies in section 

II.A.4; and, blood and blood products in 

section II.A.6. of this final rule. As 

discussed in these respective sections, 

for this final rule, ESRD-related blood 

and blood products will not be included 

in the ESRD PPS bundle and ESRDrelated laboratory tests and ESRDrelated drugs will no longer be 

separately paid. In addition, in 

accordance with section 3401(h) of the 

Affordable Care Act, which revised 

section 1881(b)(14)(F) of the Act, for CY 

2011, the full ESRDB market basket 

update will apply and, for CY 2012, the 

ESRDB market basket update reduced 

by a productivity adjustment would 

apply as discussed in section II.J. of this 

final rule. 

In the proposed rule, we noted that 

there are ESRD facilities that have 

existing exception amounts that are 

used for payment in lieu of the 

composite rate, drug add-on payment, 

and basic case-mix adjustments. Any 

existing exception amounts would not 

be updated by the ESRDB market basket 

throughout the transition (74 FR 50004). 

Finally, in the proposed rule, we 

discussed that the portion of the 

blended rate based on the ESRD PPS 

would include the base rate and all 

applicable patient-level, facility-level 

adjustments, and outlier payments as set 

forth in proposed § 413.231, § 413.232, 

§ 413.235 and § 413.237. We respond to 

comments regarding exceptions in 

section II.L.1; the ESRD PPS base-rate in 

section II.E; patient-level adjusters in 

section II.F.3; and, facility-level 

adjusters in section II.F.4. of this final 

rule. 

As noted in the proposed rule, section 

1881(b)(14)(E)(ii) of the Act gives an 

ESRD facility the option to make a onetime election to be excluded from the 

four-year transition from the current 

basic case-mix adjusted composite 

payment system in the form and manner 

specified by the Secretary (74 FR 

50004). Once made, this election may 

not be rescinded. ESRD facilities may 

choose to be paid the blended rate 

under the transition period in order to 

give them time to determine the impact 

of the ESRD PPS on their operations and 

to make necessary adjustments. We 

indicated in the ESRD PPS proposed 

rule that we believed ESRD facilities 

would choose to be excluded from the 

transition if they concluded that they 

would benefit financially from the 

payment amount under the ESRD PPS 

(74 FR 50004). 

Section 1881(b)(14)(E)(ii) of the Act 

requires that ESRD facilities wishing to 

be excluded from the transition must 

make an election to be excluded and 

their election must be made prior to 

January 1, 2011, in the form and manner 

specified by the Secretary. We proposed 

that ESRD facilities notify their FI/MAC 

of their election choice in a manner 

established by the FI/MAC no later than 

November 1, 2010, regardless of any 

postmarks or anticipated delivery dates. 

We proposed that ESRD facilities that 

become certified for Medicare 

participation and begin to provide renal 

dialysis services between November 1, 

2010 and December 31, 2010, would 

notify their FI/MAC of their election 

choice at the time of enrollment. Once 

an ESRD facility notifies its respective 

FI/MAC of their election choice, on or 

before November 1, 2010 (or at the time 

of enrollment for newly-certified ESRD 

facilities that begin to provide renal 

dialysis services between November 1, 

2010 and December 31, 2010), the ESRD 


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facility’s election cannot be rescinded 

(74 FR 50004). 

We also proposed that ESRD facilities 

that fail to affirmatively make an 

election by November 1, 2010, would be 

paid based on the blended amount 

during the transition. We proposed that 

elections submitted by ESRD facilities 

that wish to be excluded from the 

transition that are received, postmarked, 

or delivered by other means after 

November 1, 2010, would not be 

accepted. Thus, we proposed that all 

ESRD facilities wishing to be excluded 

from the transition should submit their 

election choice by the proposed 

deadline. ESRD facilities electing to be 

excluded from the transition will 

receive full payment under the ESRD 

PPS for renal dialysis services furnished 

on or after January 1, 2011 (74 FR 

50004). 

We did not receive any comments 

regarding the proposed one-time 

election process and, therefore, in this 

final rule we are finalizing § 413.239 

with modifications to indicate that the 

FI/MAC will establish the manner in 

which an ESRD facility will indicate its 

intention to be excluded from the 

transition, consistent with our proposal. 

We received the following general 

comments regarding the transition 

period. 

Comment: Most of the commenters 

appreciated the transition period and 

agreed that the time from 2011 through 

2014 allows them time to make 

adjustments to their operations. One 

commenter requested that we allow the 

SDOs the time to consider the final rule 

so that they can make informed 

decisions regarding transitioning. 

Another commenter suggested that we 

eliminate the transition period, continue 

to pay ESRD facilities based on the 

current composite rate system, and then 

implement the ESRD PPS fully in 2014. 

The commenter explained that this 

approach would simplify the 

implementation and remove the need 

for a complex dual payment system 

during the transition period. 

Response: The statute requires a 4- 

year transition period for ESRD facilities 

that do not opt to be excluded from the 

transition. In addition, after January 1, 

2011, the statute requires that a single 

payment for renal dialysis services be 

made to ESRD facilities for renal 

dialysis services furnished to ESRD 

beneficiaries. 

a. New ESRD Facilities 

Section 1881(b)(14)(E)(i) of the Act 

permits a provider of services or a renal 

dialysis facility to make a one-time 

election to be excluded from the 

transition, it also provides that this 

election must be made prior to January 

1, 2011. As a result, we proposed that 

ESRD facilities that are certified for 

Medicare participation and begin 

providing renal dialysis services or 

home dialysis services on or after 

January 1, 2011, would not have the 

option to choose whether to be paid a 

blended rate under the transition or the 

payment amount under the ESRD PPS. 

Rather, we proposed in § 413.239(c) that 

new ESRD facilities would be paid 

based on 100 percent of the payment 

amount under the ESRD PPS (74 FR 

50004). As we did not receive any 

public comments regarding this 

proposal, we are finalizing § 413.239(c) 

as proposed. 

We proposed to define a new ESRD 

facility as an ESRD facility that is 

certified for Medicare participation on 

or after January 1, 2011 in § 413.171. We 

did not receive any public comments 

regarding this proposal. Accordingly, for 

the reasons we set forth in the proposed 

rule, we are finalizing § 413.171 as 

proposed. 

b. Limitation on Beneficiary Charges 

Under the ESRD PPS and Beneficiary 

Deductible and Co-Insurance 

Obligations 

Section 1833 of the Act governs 

payments of benefits for Part B services 

and the cost sharing amounts for 

services that are considered medical and 

other health services. In general, many 

Part B services are subject to a payment 

structure that requires beneficiaries to 

be responsible for a 20 percent coinsurance after the deductible (and 

Medicare pays 80 percent). With respect 

to dialysis services furnished by ESRD 

facilities to individuals with ESRD, 

under section 1881(b)(2)(a) of the Act, 

payment amounts are 80 percent (and 

20 percent by the individual) (74 FR 

50005). 

We proposed the items and services 

that would be considered renal dialysis 

services included in the ESRD PPS 

payment, such as composite rate 

services, certain separately billable 

ESRD-related injectable drugs, ESRDrelated drugs and biologicals currently 

covered under Part D, laboratory testing, 

etc. We acknowledged that certain items 

and services such as laboratory tests and 

Part D drugs currently have different 

beneficiary co-insurance structures. 

However, we indicated that these items 

and services would be considered renal 

dialysis services after the ESRD PPS is 

implemented when furnished by an 

ESRD dialysis facility to an ESRD 

beneficiary. Therefore, we proposed that 

a 20 percent beneficiary co-insurance 

would be applicable to the ESRD PPS 

payment for these services including 

any adjustments to the ESRD PPS 

payment such as adjustments for casemix, wage index, outlier, etc. (74 FR 

50005). 

We proposed that an ESRD facility 

receiving an ESRD PPS payment could 

charge the Medicare beneficiary or other 

person only for the applicable 

deductible and co-insurance amounts as 

specified in proposed § 413.176. 

Therefore, the beneficiary co-insurance 

amount under the ESRD PPS would be 

20 percent of the total ESRD PPS 

payment (including payments made 

under the transition). We noted that the 

amount of co-insurance is based on the 

proposed ESRD PPS payment for renal 

dialysis services and home dialysis in 

42 CFR Part 413. We explained that, in 

general, ESRD facilities are paid 

monthly by Medicare for the ESRD 

services they furnish to a beneficiary 

even though payment is on a per 

treatment basis. We proposed to 

continue this practice to pay ESRD 

facilities monthly for services furnished 

to a beneficiary beginning January 1, 

2011 (74 FR 50005). 

During the transition period before 

January 1, 2014, ESRD facilities that do 

not elect to go 100 percent into the 

ESRD PPS in 2011 would receive a 

blended payment amount. We proposed 

that the blended monthly payment 

amount would be subject to a 20 percent 

beneficiary co-insurance (74 FR 50005). 

Additionally, in accordance with 

section 1881(b)(1) of the Act, we 

proposed in § 413.172(b) that an ESRD 

facility may not charge a beneficiary for 

any service for which payment is made 

by Medicare. This policy would apply, 

even if the ESRD facility’s costs of 

furnishing services to that beneficiary 

are greater than the amount the ESRD 

facility would be paid under the 

proposed ESRD PPS (74 FR 50005). 

We received about 230 comments on 

beneficiary co-insurance obligations 

which are summarized below. 

Comment: A number of commenters 

believed dialysis facilities would be 

burdened by collecting the beneficiary 

coinsurance, especially co-insurance 

associated with the Part D oral drugs. 

The commenters stated that ESRD 

facilities are caregivers and not 

pharmacies and, therefore, their staff 

does not currently collect co-insurance 

and that if staff had to collect coinsurance, it would interrupt patient 

care. Other commenters expressed 

concern about the burden associated 

with collecting co-insurance liabilities 

because they would have to develop 

new systems. 

Response: We do not agree with the 

commenters that collecting co-insurance 

would be a new requirement for ESRD 


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facilities because there has been a 

beneficiary co-insurance liability on the 

composite payment system as well as 

the basic case-mix adjusted composite 

rate payment. As discussed in section 

II.A.3. of this final rule, implementation 

of oral-only drugs will be delayed until 

January 1, 2014. Therefore, we do not 

believe that ESRD facilities will 

experience additional burden as a result 

of the implementation of the ESRD PPS 

effective January 1, 2011. 

Comment: A number of commenters 

were concerned about the financial 

affects on beneficiaries with ESRD due 

to the copays that would result from the 

new bundled PPS. The commenters 

believed the new bundled PPS would 

increase beneficiary co-insurance and, 

therefore, would be a financial burden 

on patients, many who have limited 

income. Some commenters believed 

CMS should do an analysis of the 

impact of the increased beneficiary coinsurance on patients since there is no 

data available. A number of commenters 

with ESRD were worried about being 

able to pay for their dialysis treatment. 

Response: Under the current basic 

case-mix adjusted composite system, 

there has been an incentive for excess 

use of separately billable items and 

services and patients have been 

responsible for a 20 percent coinsurance liability on most of these 

separately billable. For this reason, in 

addressing co-insurance obligations 

under the current composite payment 

methodology, it is important to consider 

not only the co-insurance associated 

with the composite rate itself, but also 

the 20 percent co-insurance obligation 

for most separately billed drugs and 

biologicals. 

Under the ESRD PPS, the base rate 

(which includes composite rate services 

as well as items and services that are 

currently separately billable) reflects the 

average cost for furnishing dialysis 

services to patients. For this reason, if 

patients use less than the average of 

separately billable items and services 

(that is, items and services that were 

separately paid under the current basic 

case-mix adjusted composite payment 

system), they can expect an increase in 

their co-insurance obligation. However, 

if patients use more than the average of 

separately billable items and services, 

they should pay less in co-insurance 

under the ESRD PPS. The amount of the 

difference in co-insurance under the 

current basic case-mix adjusted 

composite payment system and the 

ESRD PPS for an individual patient is 

directly related to how their use of 

separately billable services compares to 

the average amount. We acknowledge 

that this comparison does not reflect 

that under the ESRD PPS, beneficiaries 

will assume a 20 percent co-insurance 

liability for non-routine laboratory tests 

that was not assumed under the current 

basic case-mix adjusted composite 

payment system. However, we note that 

under the current basic case-mix 

composite rate system, certain routine 

laboratory tests are included in the 

composite rate. Therefore, beneficiaries 

have been responsible for co-insurance 

associated with ESRD-related laboratory 

tests that are included in the composite 

rate. 

A bundled PPS allows patients to pay 

co-insurance based upon the bundled 

rate for all items and services needed for 

their treatment without additional coinsurance costs if more separately billed 

items or services are needed. 

Comment: Many commenters raised 

concerns about the financial burden for 

patients under the ESRD PPS because 

patients would have to pay co-insurance 

for oral drugs and laboratory tests. The 

commenters stated that shifting the oral 

drugs from Part D to Part B could result 

in significant increases in out-of-pocket 

costs for beneficiaries. Other 

commenters indicated that some ESRD 

patients currently have high out-ofpockets costs for their oral drugs and 

believed bundling the oral drugs would 

cause this cost to be even higher. Some 

commenters indicated that beneficiaries 

would not have the option to use 

generics or less expensive drugs in order 

to save money. Other commenters 

indicated that some ESRD patients 

would not reach catastrophic coverage 

under Part D with the new bundled 

system because they will be in the 

coverage gap for a longer time. 

Some commenters were concerned 

that beneficiaries who have the lowincome subsidy under Part D will have 

to pay higher co-pays for these drugs. 

Some commenters stated that data 

presented at the recent American 

Society of Nephrology meeting, showed 

that 68 percent of dialysis patients are 

enrolled in Medicare Part D and 76 

percent of these patients have the lowincome subsidy. A few commenters 

were concerned that States’ Medicaid 

programs may not cover the 20 percent 

co-insurance for oral drugs for dualeligibles, which they would have 

received under Part D. One commenter 

stated that including Part D drugs in the 

bundle could eliminate access to 

financial programs that assist patients 

with co-pays, such as Medicare Low 

Income Assistance programs as well as 

program such as the American Kidney 

Fund’s Part D Program for Prescription 

Bone Medication. Some commenters 

suggested that CMS should delay the 

inclusion of the oral drugs specifically 

the ones with no injectable equivalent 

because of the lack of data available on 

the use of these drugs so that CMS can 

obtain data to assess the financial 

impact on beneficiaries and facilities. A 

few commenters requested that CMS 

assess the possible negative effects on 

beneficiaries who would now be 

responsible for co-insurance payments 

for both oral drugs and laboratory tests. 

Response: As discussed in section 

II.A.3.a. of this final rule, we are 

delaying the implementation of oralonly drugs currently covered under Part 

D under the ESRD PPS until January 1, 

2014. In section II.A.3. of this final rule, 

we discuss the inclusion of a limited 

number of ESRD-related oral drugs and 

biologicals with other forms of 

administration. Therefore, the oral-only 

drugs will continue to be covered under 

Medicare Part D until January 1, 2014. 

At that time, when oral-only drugs are 

paid under the ESRD PPS, the same coinsurance structure described in this 

section will apply for oral-only drugs. 

We plan to collect data on the oral-only 

ESRD-related drugs to assess the impact 

on beneficiaries and ESRD facilities. We 

will address the implementation of the 

oral-only drugs in the ESRD bundle in 

future notice of proposed rulemaking. 

Comment: A few commenters were 

concerned about the negative impact the 

additional co-insurance would place on 

beneficiaries which may contribute to 

decisions to discontinue treatment, 

medications, etc. The commenters 

stated that many patients have difficulty 

in meeting the co-pays under the 

current system. The comments believe 

that if there is an increase in 

beneficiaries’ payments, there is the 

possibility of beneficiaries missing 

treatments that would affect their 

quality of care. A few commenters were 

specifically concerned about patient 

noncompliance with taking their 

medications due to higher out-of-pocket 

costs. One commenter expressed 

concern that facilities would be held 

responsible for the drop in the 

compliance rates under the QIP. 

Response: We appreciate the 

commenters’ concerns about the affects 

of the co-insurance liability on patients. 

However, as we discussed in the 

proposed rule (74 FR 50005), section 

1833 of the Act governs payments of 

benefits for Part B services and the cost 

sharing amounts for services that are 

considered medical and other health 

services. We also explained that with 

respect to dialysis services furnished by 

ESRD facilities to individuals with 

ESRD, under section 1881(b)(2)(a) of the 

Act, payment amounts are 80 percent 

(and 20 percent by the individual). 

Therefore, we do not have the authority 


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to eliminate the beneficiary coinsurance liability. 

As we have discussed in previous 

responses, beneficiaries have been 

responsible for co-insurance under the 

current basic case-mix adjusted 

composite payment system. Under the 

ESRD PPS, beneficiaries will continue 

to assume the co-insurance liability for 

the renal dialysis services provided by 

ESRD facilities. However, rather than a 

co-insurance for each separately billable 

item and for the basic case-mix adjusted 

composite rate under the current 

system, beneficiaries will pay coinsurance on the ESRD PPS payment 

amount which includes the ESRD PPS 

base rate and all applicable payment 

adjustments under the ESRD PPS. 

We discuss the applicable 

adjustments which would be applied to 

the ESRD PPS base rate and subject to 

the beneficiary co-insurance liability in 

sections II.F.3. of this final rule. As 

discussed in section II.A.3.a. of this 

final rule, oral-only ESRD-related drugs 

will not be implemented under the 

ESRD PPS until January 1, 2014. 

Therefore, we do not believe that 

implementation of the ESRD PPS 

effective January 1, 2011, will cause 

patients to make decisions to 

discontinue any medications or 

treatment because of their co-insurance 

liability. 

Comment: Many commenters 

expressed concern that ESRD facilities 

would need to develop systems for 

collecting medication co-payments. 

Other commenters expressed concern 

for the safety of ESRD facility staff 

stating that ESRD facilities maintaining 

cash on hand from patients’ medication 

co-payments would place their staff and 

patients at risk for crime and theft. The 

commenters also stated they would 

need to hire additional security to 

protect against crime and theft. Another 

commenter stated that there is currently 

no billing mechanism in place between 

ESRD facilities and pharmaceutical 

companies nor is there a mechanism by 

which the pharmaceutical company 

could collect the patient’s co-payment 

obligation for drugs included in the 

ESRD PPS bundle. 

Response: Because ESRD-related 

drugs are included in the ESRD PPS 

bundle and, therefore, are in the ESRD 

base rate, the ESRD facility is 

responsible for obtaining any applicable 

co-insurance from their beneficiaries. A 

beneficiary would not have a coinsurance liability on each prescription, 

but rather on the bundled ESRD PPS 

payment amount. Beneficiaries have a 

co-insurance liability under the current 

basic case-mix adjusted composite rate. 

Therefore, we do not understand the 

concerns being raised about the need to 

collect co-insurance payments under the 

ESRD PPS, as this responsibility exists 

under the current payment system. We 

expect that ESRD facilities will employ 

any necessary measures that they 

require to ensure their staff’s safety. We 

believe that because collection of coinsurance payments exist under the 

current ESRD payment system, the same 

safety concerns exist and the same 

measures to address these concerns are 

in place. 

Comment: A number of commenters 

expressed concern that under the ESRD 

PPS, beneficiaries will have to pay coinsurance on laboratory tests. The 

commenters noted that beneficiaries 

currently have no financial 

responsibility to pay for their laboratory 

tests because Medicare pays 100 

percent. The commenters believed the 

inclusion of laboratory tests in the ESRD 

PPS bundle would lower Medicare’s 

obligation to only 80 percent of the 

payment and require beneficiaries to 

pay the 20 percent co-insurance for 

associated costs, resulting in increased 

out-of-pocket costs for beneficiaries. The 

commenters indicated that both 

beneficiaries and dialysis facilities 

would be penalized financially for 

laboratory services. 

A few commenters complained about 

the burden and cost of collecting coinsurance for laboratory tests because 

most facilities do not have their own 

laboratories. One commenter indicated 

that according to the proposed rule, 

Medicare beneficiaries with ESRD who 

require dialysis will not have access to 

needed laboratory tests, which will be 

discriminatory. The commenter further 

believed patients who currently do not 

have a co-insurance obligation for 

laboratory tests, will now be responsible 

for 20 percent which might result in 

financial burden for many patients who 

already might be on limited or fixed 

incomes. Another commenter noted that 

those with limited or fixed incomes may 

be subject to an additional $300 to $400 

per year for co-insurance on laboratory 

tests. One commenter believed the 

additional co-insurance would 

presumably be covered by Medicare 

Supplemental plans but could not 

predict the effects of the bundle for the 

costs of Medicare supplemental 

insurance. One commenter noted that 

Congress in MIPPA did not indicate that 

the longstanding policy that Medicare 

paying 100 percent for laboratory tests 

would change under the ESRD bundled 

system. Another commenter stated that 

historically CMS recognized the 

difficulty of placing a co-insurance on 

laboratory tests on facilities and patients 

and excluded diagnostic testing from 

beneficiary co-insurance obligations. 

Response: As we discussed in section 

II.A.4. of this final rule, ESRD-related 

laboratory tests are considered renal 

dialysis services and are included in the 

ESRD PPS bundled base rate, and 

therefore, as part of the ESRD base rate 

after applicable adjustments are applied, 

would be subject to the 20 percent coinsurance (that is, individual laboratory 

services would not be subject to a 

separate beneficiary co-insurance 

liability). In other words, under the 

ESRD PPS, beneficiaries will not have a 

co-insurance liability for each laboratory 

test, but rather beneficiaries will have a 

co-insurance liability on the total 

payment that Medicare makes to an 

ESRD facility on their behalf. This is 

analogous to the beneficiary coinsurance liability under the current 

basic case-mix adjusted composite rate 

where beneficiaries have a co-insurance 

liability for the composite payment 

made to ESRD facilities on their behalf 

and not co-insurance liability on each 

composite rate service they receive. 

We note that most routine laboratory 

tests for ESRD-related purposes are 

currently included in the basic case-mix 

adjusted composite rate. This means 

that currently, beneficiaries with ESRD 

have a co-insurance liability for the 

composite rate, which includes 

laboratory tests. We do not see the 

inclusion of ESRD laboratory tests in the 

ESRD PPS as being any different than 

what occurs currently under the basic 

case-mix adjusted composite rate 

system. 

Comment: One commenter expressed 

concern that the implementation of the 

bundled ESRD PPS presents a 

substantial risk to ESRD facilities 

because of the potential for nonrecovery of co-insurance payments for 

patients who are dually eligible under 

Medicare and Medicaid. The commenter 

recommended that CMS should create a 

new billing code for the bundle of 

services under the ESRD PPS and 

require States to recognize the new 

Medicare payment system. The 

commenter stated that CMS could work 

through the National Association of 

State Medicaid Directors to educate the 

States well in advance of the 

implementation of the PPS to provide 

ample time for them to adjust their coinsurance amounts, as required. 

Response: We have already begun 

outreach efforts with the States to 

ensure that State Medicaid Agencies 

understand their responsibilities to 

adjust their systems so that co-insurance 

amounts are properly determined and 

paid appropriately for dually-eligible 


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beneficiaries upon implementation of 

the ESRD PPS. 

Although an ESRD PPS billing code 

may make it easier for States to 

determine whether they have an 

obligation to pay co-insurance on behalf 

of a patient with ESRD, line item billing 

by date of service (where each renal 

dialysis service is itemized on the 

claim) will continue to be necessary in 

order for blended payments to be made 

during the transition and for 

identification of outlier services. 

Comment: Several commenters were 

concerned about dialysis beneficiaries 

who have Medigap supplemental plans 

because oral drugs and laboratory tests 

have not previously been covered under 

Medigap. The commenters were 

specifically concerned about how 

Medigap plans will adjust to the 

inclusion of oral drugs in the ESRD PPS. 

A commenter questioned if Medigap 

plans would consider drugs as renal 

dialysis services. Several commenters 

stated that Medigap insurers may deny 

payment of the beneficiary co-insurance 

because statute prevents them from 

coordinating benefits for oral drugs. 

Several commenters believed that 

Medigap premiums would increase 

significantly and would financially 

burden patients. 

One commenter stated that CMS 

should take into consideration that 

Medicare is the only insurance available 

to stage 5 chronic kidney disease 

patients (that is, ESRD patients). 

Another commenter believed that the 

ESRD PPS will target patients with 

private insurance and their co-insurance 

for additional revenue which would be 

an unfair burden on those that pay their 

insurance and co-insurance out-ofpocket. A commenter with private drug 

insurance was concerned about the 

costs and processes to pay two sets of 

premiums and co-insurance. Another 

commenter stated that the copayment 

under Medicare could significantly 

exceed the current copayments for those 

with private insurance. 

Response: We believe that generally, 

Medigap and other private insurance 

plans cover co-insurance and 

copayment obligations for Medicare Part 

B services after the beneficiary meets 

the Part B deductible amount. We do 

not expect this to change under the 

ESRD PPS bundle. We are unable to 

address if these plans will continue to 

cover the co-insurance under the ESRD 

PPS. As we discussed in a previous 

response, ESRD-related oral drugs and 

laboratory tests included in the ESRD 

PPS bundle are considered renal 

dialysis services under the Part B 

benefit. Therefore, we do not believe 

there should be issues with Medigap 

plans because such oral drugs are renal 

dialysis services. We reiterate that 

payment under the ESRD PPS for oralonly drugs currently covered under Part 

D will be delayed until January 1, 2014. 

We do not agree with the comments 

that Medicare will target patients with 

private insurance and their copays for 

additional revenue. The ESRD PPS, as a 

Medicare Part B payment system for 

outpatient maintenance dialysis, 

provides payment on behalf of Medicare 

beneficiaries to ESRD facilities that 

provide home dialysis and renal dialysis 

services. Therefore, beneficiary’s coinsurance liability is not based on the 

absence or presence of private 

insurance. 

We also do not anticipate any change 

with regard to beneficiaries with private 

drug insurance and the costs and 

processes to pay two sets of premiums 

and co-insurance under the ESRD PPS. 

As we discussed in previous responses, 

under the current basic case-mix 

adjusted composite payment, 

beneficiaries are subject to co-insurance 

liability for composite and separately 

billable payments made to ESRD 

facilities. We acknowledge that this coinsurance obligation changes under the 

ESRD PPS because the Medicare 

payment made to ESRD facilities will 

include items and services that are 

separately billable under the current 

basic case-mix adjusted composite 

payment system. 

Comment: A few commenters 

expressed concern that the wide array of 

case-mix adjusters would create an 

inequity for patients, especially the 

sicker patients, because their bundled 

payment rate will be higher due to the 

adjustments with sicker patients having 

higher co-insurance. Other commenters 

stated that the proposed adjusters like 

age, health history, and clinic size 

would add extra work and complexity 

to reimbursement and would increase 

the co-payment. Another commenter 

was concerned that patients would not 

withstand the additional out-of-pocket 

costs associated with the ESRD bundle 

and the case-mix adjusters. One 

commenter opposed the application of 

beneficiary co-payment amounts to 

outlier payments asserting that this 

would set a dangerous precedent for 

discrimination on the basis of patient 

characteristics. The commenter 

recommended that CMS limit all 

patients’ co-payment responsibility to 

20 percent of the base rate payment 

amount. 

Response: We do not have the 

authority to determine how the 

beneficiary co-insurance liability is 

applied. Section 1881(b)(2)(A) of the Act 

requires payments for dialysis services 

furnished by ESRD facilities to 

individuals with ESRD for which 

payments may be made under Part B to 

be equal to 80 percent of the amounts 

determined. The statute further requires 

that payments from individuals are to be 

20 percent of the amount for such 

services after the deductible. Therefore, 

Medicare is required by statute to pay 

80 percent and the beneficiary’s 

responsibility is 20 percent of the 

amounts established for ESRD PPS renal 

dialysis services. This would include 

applying the beneficiary co-insurance 

liability to the ESRD PPS base rate and 

all applicable adjustments, including 

the outliers. 

We do not agree that applying the 

beneficiary co-insurance liability based 

on characteristics is discriminatory. We 

discuss the patient characteristics that 

have demonstrated higher usage of 

separately billable items in section 

II.F.3. of this final rule. Because these 

characteristics (such as age, BSA and 

BMI) result in higher resource 

utilization and therefore higher costs, 

ESRD facilities will receive a payment 

adjustment to the ESRD PPS base rate 

and beneficiaries will be required to 

assume 20 percent of the costs. We note 

that under the current basic case-mix 

adjusted composite payment system, 

many of the same patient characteristics 

have been applied to the composite rate 

(age, BMI and BSA) and beneficiaries 

have been required to assume 20 

percent of those payments. 

Payments under the ESRD PPS reflect 

the extent to which additional resources 

are utilized. In situations where a 

patient with ESRD is sicker and, 

therefore, utilizes more resources, the 

payment to the ESRD facility providing 

renal dialysis services to that patient 

would reflect the higher resource use. 

Under the current basic case-mix 

adjusted composite payment system, 

greater resource utilization is reflected 

by greater use of separately billable 

items that are subject to a beneficiary 

co-insurance liability. In other words, 

patients have been subject to paying coinsurance under the current payment 

system based on the use of resources. 

Therefore, based on the comments 

and the reasons discussed above, we are 

finalizing the beneficiary co-insurance 

liability of 20 percent applied to the 

ESRD PPS payment inclusive of all 

applicable payment adjustments. 

2. Claims Processing 

Section 1881(b)(14)(A)(i) of the Act 

requires the Secretary to implement a 

payment system under which a single 

payment is made for renal dialysis 

services and other items and services 

(for example, supplies and equipment 


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used to administer dialysis, drugs, 

biologicals, laboratory tests, and support 

services) related to home dialysis. In the 

proposed rule, we noted that 

implementation of the ESRD PPS will 

require changes to the way we process 

claims. Some of the changes we 

proposed may involve establishing 

consolidated billing rules and edits and 

changes to the data elements reported 

on claims (74 FR 50005). 

The consolidated billing approach 

essentially confers to the ESRD facility 

the Medicare billing responsibility for 

all of the renal dialysis services that its 

patients receive. The consolidated 

billing rules and edits that are being set 

forth in this final rule are described 

further below. 

a. Consolidated Billing Rules and Edits 

In the proposed rule (74 FR 50005), 

we explained that since the ESRD PPS 

payment model represents an allinclusive payment for renal dialysis 

services and home dialysis items and 

services, the ESRD facility is responsible 

for all of the ESRD-related services that 

its patients receive. Items and services 

that are paid separately under the 

current basic case-mix adjusted 

composite rate (such as laboratory tests), 

would no longer be billed for by entities 

(such as laboratories and DME 

suppliers), and therefore, payment for 

these services would be made only to 

the ESRD facility so that duplicate 

payment is not made by Medicare. 

Although DME suppliers and 

laboratories may not bill Medicare for 

ESRD-related services paid under the 

ESRD PPS beginning January 1, 2011, in 

the event an erroneous bill is submitted, 

consolidated billing edits will prevent 

payment for those services under the 

ESRD PPS. 

In the proposed rule, we also 

discussed the difficulty in 

differentiating between a renal dialysis 

service and a service furnished for other 

non-ESRD conditions (74 FR 50005). In 

order to ensure proper payment in all 

settings, we explored the use of 

modifiers to identify those services 

furnished that are not ESRD-related (74 

FR 50005). 

We received one comment regarding 

consolidated billing. 

Comment: One commenter expressed 

concern that consolidated billing would 

require entirely new billing and 

payment arrangements for dialysis 

facilities and for the suppliers under 

arrangement. The commenter explained 

that building these relationships may be 

particularly challenging for SDOs. 

Further, the commenter stated that the 

proposed consolidated billing 

arrangement is similar to the provisions 

applicable to skilled nursing facilities 

(SNF). However there is a large 

difference in volume of administrative 

employees that can implement the new 

set of business practices necessitated by 

consolidated billing. 

Response: We do not expect that the 

billing requirements under the ESRD 

PPS will require substantial changes in 

billing. Under the current basic casemix adjusted composite payment system 

ESRD facilities that do not provide 

laboratory testing services, drugs, DME 

and supply services directly, would 

have to provide these items and services 

under arrangements. However, under 

the ESRD PPS there may be more 

services furnished than those under 

existing arrangements. 

With respect to changes to the claims, 

under the ESRD PPS, there are 

requirements for ESRD facilities to 

provide additional information in 

existing fields. For example, ESRD 

facilities will be required to (1) itemize 

all drugs and biologicals provided to 

each individual patient; (2) itemize all 

laboratory tests provided to each 

individual patient; (3) place a modifier 

for non-ESRD related laboratory tests, 

drugs and biologicals, and supplies and 

equipment for the purpose of receiving 

separate payment; and (4) enter a comorbidity ICD–9–CM diagnostic code 

(as described in section II.A.3. of this 

final rule) recognized for purposes of 

the co-morbidity payment adjustment. 

Because ESRD facilities have been 

required to line itemize under the 

current basic case-mix adjusted 

composite payment system and as ESRD 

facilities had been encouraged to enter 

co-morbidities on ESRD claims, we do 

not consider any of these reporting 

requirements to be an additional 

burden. 

We are not requiring ESRD facilities 

to itemize supplies and equipment that 

are ESRD-related and are therefore paid 

through the bundle. However, in the 

event that supplies or equipment are not 

ESRD-related, ESRD facilities will place 

a modifier for those supplies and 

equipment signifying that they were 

used for services that are not ESRDrelated and eligible for separate 

payment. 

Comment: One commenter suggested 

that we consider deferring the 

consolidated billing edits for laboratory 

tests, drugs, and DME equipment and 

supplies until the full implementation 

of the ESRD PPS. The commenter also 

requested that we ensure that all 

interested parties receive adequate 

provider education regarding the 

changes implemented with the final 

rule. 

Response: We are unable to delay 

implementation of the consolidated 

billing rules and edits because, as 

mentioned above, the ESRD PPS is an 

all-inclusive payment for home dialysis 

and renal dialysis services and ESRD 

facilities are responsible for all ESRDrelated services furnished to their 

patients. Because it is a bundled 

payment system for which a single 

payment is made the ESRD facility, we 

are required to ensure that payment for 

these services is made only to the ESRD 

facility so that duplicate payment is not 

made by Medicare. We intend to issue 

educational materials regarding the 

implementation of the ESRD PPS to all 

interested parties in the near future. 

i. Laboratory Tests 

Section 1881(b)(14)(B)(iv) of the Act 

requires that ESRD-related diagnostic 

laboratory tests not included under the 

current basic case-mix composite 

payment system must be included as 

part of the ESRD PPS payment bundle. 

In the proposed rule, we explained that 

patients with ESRD often have comorbid conditions which would require 

many of the same laboratory tests as 

those required to monitor the patients’ 

ESRD (74 FR 50005). Therefore, we 

acknowledged that it may be difficult to 

differentiate between an ESRD-related 

laboratory test and tests ordered for nonESRD-related conditions. We indicated 

that to ensure proper payment in all 

settings, we were exploring the use of 

modifiers to identify laboratory tests 

furnished for ESRD-related conditions 

from those furnished for non-ESRDrelated conditions. 

We received numerous comments 

regarding the proposed inclusion of 

laboratory tests in the ESRD PPS 

bundled payment which are set forth 

below. 

Comment: Many commenters 

expressed concern that it is common for 

a patient’s nephrologist to act as their 

primary care physician (PCP) and 

monitor all of the patient’s medical 

conditions. The commenters expressed 

concern that there would be unintended 

consequences if the non-ESRD-related 

laboratory tests ordered by the 

nephrologists are included in the ESRD 

PPS bundle. Commenters were 

concerned that patients would be 

referred to medical specialists which 

would fragment care and require 

additional travel for medical 

appointments. Commenters were also 

concerned that patients would require 

more needle sticks if non-ESRD-related 

laboratory tests were included in the 

ESRD PPS bundle. 

Some commenters indicated that it is 

common for physicians other than the 


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nephrologist to order laboratory tests 

from the ESRD facility. The commenters 

explained that the ESRD facility draws 

the specimen and then either furnishes 

the testing, if they are qualified to do so, 

or sends the specimen to a laboratory. 

The commenters believed that it is 

helpful for the patient and their 

continuity of care, if other physicians 

have this type of service (courtesy 

draws) available to them. Several 

patients requested that CMS continue to 

allow courtesy draws because it protects 

patients’ vascular access site and saves 

patients from making multiple trips. 

Response: As we discussed in a 

previous response, ESRD facilities will 

be able to identify laboratory tests, 

drugs, biologicals, and other items that 

are not ESRD-related by utilizing a 

modifier on claims. Therefore, in this 

final rule, we are finalizing a 

consolidated billing approach that gives 

the ESRD facilities and laboratories the 

ability to identify non-ESRD-related 

laboratory tests, by using a modifier, 

which allows for separate payment. 

With regard to the commenters who 

indicated that providers other than the 

patient’s nephrologist may order nonESRD-related laboratory tests in order to 

preserve patient’s vascular access and to 

mitigate multiple medical visits, 

physicians or other practitioners that 

directly submit orders to the ESRD 

facility to furnish a laboratory test or 

draw a specimen to send to an 

independent laboratory will be able to 

continue to do so. However, we remind 

ESRD facilities that they would still be 

subject to the following rules: (1) ESRD 

facilities are expected to furnish such 

services in accordance with the 

conditions that all laboratories must 

meet to be certified to perform testing 

on human specimens under the Clinical 

Laboratory Improvement Amendments 

of 1988 provided at § 493; and (2) 

physicians are required to order the 

diagnostic tests in accordance with the 

conditions provided at § 410.32. 

Comment: We received numerous 

comments requesting that we 

implement a specific listing of routine 

ESRD-related laboratory tests that are 

included in the ESRD PPS bundle. 

Many commenters identified laboratory 

tests they believed belong in the listing. 

Some of the commenters referred to the 

laboratory tests that are currently paid 

under the composite payment system, 

while other commenters referred to a 

list that State and Federal surveyors use 

as guidance while conducting audits of 

the ESRD facilities. Two LDOs and two 

other dialysis advocacy associations 

provided a listing of approximately 50 

laboratory tests. Another commenter 

suggested that we use a listing of 

laboratory tests that were developed 

through the Kidney Disease Outcomes 

Quality Initiative. We also received 

requests to omit diagnostic tests used for 

kidney transplants, bacteriology tests, 

and tests furnished specifically for 

travelling patients. 

Response: We agree with the 

commenters that there should be a 

specific list indentifying laboratory tests 

that are furnished for ESRD patients. We 

believe that a listing of laboratory tests 

can be used as part of a consolidated 

billings strategy to mitigate duplicate 

payment. We also believe that ESRD 

facilities can use this list in developing 

contractual relationships with 

laboratories. However, in developing a 

listing of laboratory tests that are 

considered to be ESRD-related, we 

found that there are some laboratory 

tests that are specifically necessary for 

monitoring a patient’s ESRD condition. 

We also found that there are numerous 

laboratory tests that are used by 

physicians not only for ESRD-related 

conditions, but also for other reasons. 

Therefore, a clinical review of the 

laboratory tests suggested by the 

commenters was performed by CMS 

physicians and other medical 

professionals. 

As a result of this review, we have 

compiled a listing of laboratory tests 

that are used to diagnosis or monitor 

ESRD-related conditions which is 

presented in Table F of the Appendix. 

The laboratory tests listed, if furnished 

to ESRD patients by the ESRD facility 

directly or under arrangement, will be 

considered renal dialysis services 

(unless otherwise specified as being 

performed for non-ESRD-related 

conditions) and will be covered under 

the ESRD PPS bundled payment. If a 

laboratory test is furnished by the ESRD 

facility or by an independent laboratory 

for reasons that are not ESRD-related, 

then that laboratory tests can be billed 

with a modifier which would allow for 

separate payment. We acknowledge that 

the list of ESRD-related laboratory tests 

displayed in Table E of the Appendix is 

not an all-inclusive list and we 

recognize that there are other laboratory 

tests that may be ESRD-related. We will 

monitor claims to see if additional 

laboratory tests should be added. 

Comment: Commenters expressed 

concern that there are many ESRD 

facilities that do not own their own 

laboratories and those ESRD facilities 

would experience high costs 

implementing new billing systems. The 

commenters further explained that the 

laboratories will need to bill the ESRD 

facilities making the ESRD facilities 

responsible for additional 

documentation and claims processing. 

One commenter argued that the 

proposed effective date of January 1, 

2011, does not allow time to implement 

the contract changes that will be 

required. 

Response: We do not understand the 

commenters’ concerns. Currently, ESRD 

facilities that do not own their own 

laboratories must have contracting 

arrangements with a laboratory for the 

laboratory tests included in the current 

basic case-mix adjusted composite 

payment system. Section 494.130 

provides that, ‘‘ESRD facilities must 

provide, or make available, laboratory 

services (other than pathology and 

histocompatibility) to meet the needs of 

the ESRD patients. Any laboratory 

services, including tissue pathology and 

histocompatibility must be furnished by 

or obtained from, a facility that meets 

the requirements for laboratory services 

specified in part 493 of this chapter.’’ 

Therefore, we do not see the 

implementation of the ESRD PPS as 

requiring any changes from existing 

practices, with the exception of the 

inclusion of additional laboratory tests 

under the ESRD PPS. 

ii. Drugs and Biologicals 

As we discussed in the proposed rule, 

section 1881(b)(14)(B) of the Act defines 

renal dialysis services to include, among 

other things, certain drugs and 

biologicals, including drugs and 

biologicals that were separately payable 

under Part B and Part D. Under the 

current ESRD basic case-mix adjusted 

composite payment system, ESRD 

facilities generally do not furnish oral 

drugs to their ESRD patients. ESRD 

patients currently acquire these drugs 

and biologicals either through Medicare 

Part D, private insurance, or 

independently. 

We proposed to include renal dialysis 

service drugs formerly covered under 

Part D under the ESRD PPS. We further 

proposed that ESRD facilities furnish 

these and any other self-administered 

ESRD-related drugs to beneficiaries 

either directly or under arrangement. 

We explained that regardless of the 

mechanism by which these drugs would 

be furnished (directly or under 

arrangement), we believed that some of 

the Part D provisions set forth in the 42 

CFR Part 423, would become relevant 

for ESRD facilities. We requested public 

comments on the extent to which Part 

D requirements should apply to ESRDrelated oral drugs (74 FR 50006). 

We also stated in the proposed rule 

that we expected ESRD facilities to 

update their grievance processes to 

account for all self-administered ESRDrelated drugs (74 FR 50006). Patients 

would continue to have access to both 


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internal and external grievance 

processes including the ESRD Network 

and the State survey agency. 

We indicated in the proposed rule 

that in the case of any ESRD facility that 

would seek to furnish drugs directly, 

those facilities would have to comply 

with state pharmacy licensure 

requirements. We noted that, as an 

alternative, many ESRD facilities would 

forego the process of becoming licensed 

as a pharmacy and instead, furnish renal 

dialysis service drugs formerly covered 

under Part D under arrangement with a 

licensed pharmacy. We indicated that 

the ESRD facility would provide their 

patients with a listing of pharmacies 

with which it would have arrangements 

with to dispense the renal dialysis 

service drugs (74 FR 50006). 

As indicated in proposed § 413.241, 

we further expected that the ESRD 

facilities would establish arrangements 

with pharmacies in a manner that 

would facilitate beneficiary access to 

renal dialysis service drugs. That is to 

say, at a minimum, we expected that the 

arrangement would take into account 

variables like the terrain, whether the 

patient’s home is located in an urban or 

rural area, the availability of 

transportation, the usual distances 

traveled by patients in the area to obtain 

health care services, and the pharmacy’s 

capability to provide all classes of renal 

dialysis service drugs to patients in a 

timely manner. In addition, we expected 

that ESRD facilities would coordinate 

the provision of renal dialysis service 

drugs on behalf of traveling patients to 

facilitate ongoing compliance with the 

plan of care during periods of travel (74 

FR 50006–50007). 

To prevent duplicate payment under 

both Part D and Part B for bundled 

drugs and biologicals formerly covered 

under Part D, we indicated in the 

proposed rule that we were considering 

the incorporation of an ESRD indicator 

on the Part D eligibility information that 

would prevent Part D drug payments for 

bundled ESRD drugs and biologicals at 

the pharmacy. We proposed that the 

pharmacy would bill the ESRD facility 

for all renal dialysis service drugs and 

biologicals included in the proposed 

ESRD PPS that were dispensed, but 

would not be permitted to bill the 

patient for the usual Part B co-insurance 

amount, nor treat these drugs in 

accordance with the Part D rules. The 

ESRD facility would collect applicable 

beneficiary co-insurance based on the 

ESRD PPS per treatment payment 

amount (74 FR 50007). 

In the proposed rule, we noted that 

the cost of the drugs and biologicals 

currently separately payable under Part 

D that we proposed to be designated as 

Part B renal dialysis services for 

purposes of the proposed ESRD PPS, 

would be reflected in the ESRD PPS 

portion of the blended payment (74 FR 

50007). 

The comments we received on these 

proposals and our responses are set 

forth below. 

Comment: Many commenters 

requested that oral medications not be 

bundled but rather, should continue to 

be obtained through Part D. The 

commenters believed that bundling the 

oral drugs into the ESRD PPS would 

eliminate patient protections that are 

currently in place under Medicare Part 

D such as drug utilization review, 

medication therapy management, 

beneficiary choice in drugs within each 

drug class, geographic access standards 

and reduced co-insurance levels for 

low-income subsidy eligible patients. 

To the extent oral medications are 

bundled, some commenters believed 

that we should implement similar Part 

D protections into the ESRD PPS. Other 

commenters asserted that bundling oral 

medications into the ESRD PPS would 

result in a duplication of the Medicare 

Part D system, questioning CMS for 

considering the imposition of a system 

similar to Part D asserted that doing so 

would increase inefficiencies and cost. 

Response: We appreciate the 

commenters interest in maintaining 

patient protections that ensure access to 

drugs. As discussed in section II.A.3. of 

this final rule, although ESRD-related 

oral drugs and biologicals are included 

in the ESRD PPS bundle as of January 

1, 2011, we are delaying payment under 

the ESRD PPS of ESRD-related oral-only 

medications until January 1, 2014. 

Therefore, because the majority of the 

oral drugs currently paid under Part D 

are oral-only drugs and payment under 

the ESRD PPS for oral-only drugs has 

been delayed until January 1, 2014, we 

intend to further evaluate beneficiary 

protections under the ESRD PPS related 

to oral drugs. We note that we are 

developing monitoring procedures that 

we will discuss in the future. 

We acknowledge that as discussed in 

section II.A.3. of this final rule, there are 

a limited number of ESRD-related oral 

drugs and biologicals with other forms 

of administration which will be 

implemented January 1, 2011 and 

therefore, ESRD facilities will be 

required to ensure that patients have 

access to these drugs. Consequently, 

ESRD facilities will need to address 

their concerns in order to be able to 

furnish ESRD-related oral drugs and 

biologicals with other forms of 

administration, prior to January 1, 2011. 

With regard to the oral drugs that are 

being bundled in 2011, we believe these 

concerns can be alleviated and/or 

gradually addressed because such drugs 

have some other forms of 

administration. 

Comment: Many commenters opposed 

the bundling of oral medications citing 

logistical and operational concerns 

associated with furnishing drugs either 

directly or under arrangement. The 

commenters believed that activities 

associated with furnishing these drugs 

directly would necessitate infrastructure 

and staffing changes that would drive 

up costs. These commenters stated that 

developing expertise in meeting 

pharmacy requirements and in hiring 

additional personnel, adopting 

technology and creating space for the 

storage and distribution of self 

administered drugs would require a 

great deal of effort and resources. The 

commenters stated that pharmacists 

would need to be hired to comply with 

dispensing requirements under State 

and Federal law. Other commenters 

believed that nursing and social work 

staff would be expected to distribute the 

self-administered drugs and that this 

task would detract from their nursing 

and social work duties. 

Other commenters believed that 

clinical care staff such as registered 

nurses and personal care attendants 

would be cut to fund the additional cost 

of bringing pharmacy staff on board. 

Several commenters indicated that 

ESRD facilities currently in operation 

will be constrained in their ability to 

create in-house pharmacies or to store 

additional bundled drugs in instances 

where they have already maximized 

their square footage. 

Similarly, commenters were also 

concerned about the additional burden 

ESRD facilities that elect to furnish 

these drugs under arrangement would 

experience such as establishing and 

maintaining pharmacy contracts. 

Commenters identified pros and cons of 

contracting with a large number of 

pharmacies versus contracting with a 

few pharmacies. The commenters 

believe that large numbers of contracts 

would promote convenient patient 

access but ESRD facilities’ 

administrative costs would increase 

proportionally according to the number 

of pharmacies with which they contract. 

Overall, commenters asserted that 

payment under the ESRD PPS would 

not cover the additional costs of 

administrative burdens and increased 

staffing needs that will result from the 

bundling of oral drugs. 

One commenter supported the option 

to allow facilities to choose between 

furnishing oral drugs directly or under 

arrangement. This commenter further 

noted that by allowing this choice, CMS 


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did not directly impose a requirement 

that a facility become a licensed 

pharmacy or have a pharmacist on staff. 

This commenter believed that 

beneficiary access to drugs would be 

preserved through facility arrangements 

with contracted pharmacies much like 

facilities currently contract with clinical 

laboratories. 

Response: As we discussed in detail 

in section II.A.3.a. of this final rule, we 

are delaying payment for oral-only 

drugs under the ESRD PPS until after 

the ESRD PPS transition. We agree with 

the comment that ESRD facilities will 

have choices regarding whether and 

how to furnish ESRD-related oral drugs 

and biologicals that have other forms of 

administration. For example, an ESRD 

facility may continue to furnish the 

injectable and other forms of iron or 

may elect to furnish the oral forms of 

these drugs (and biologicals), as 

determined by the patients’ plans of 

care. ESRD facilities will need to 

determine how they will obtain and 

furnish these drugs and biologicals (for 

example under arrangement or mail 

order). We note that ESRD facilities 

currently furnish drugs and biologicals 

to patients and, therefore, would have 

experience and arrangements under the 

current basic case-mix adjusted 

composite payment system. We 

acknowledge that these experiences and 

arrangements may only address the 

injectable drugs and biologicals and, 

that given the inclusion of the other 

ESRD-related drugs and biologicals 

under the ESRD PPS beginning January 

1, 2011, additional arrangements may be 

needed. 

Comment: One commenter was 

concerned that the bundling of oral 

drugs would result in an automatic shift 

of patients’ drug coverage to Medicare. 

The commenter believed that patients 

who currently rely on drug coverage 

from private retiree or employer health 

plans with little or no cost sharing will 

be disadvantaged under the ESRD PPS. 

Another commenter believed that the 

ESRD PPS may benefit uninsured 

patients who currently either cannot 

receive these drugs or have difficulty 

getting to a pharmacy. 

Response: We do not agree with the 

commenter that bundling oral drugs will 

shift patients’ drug coverage to 

Medicare. Under the ESRD PPS, 

Medicare coverage for some ESRDrelated drugs and biologicals will shift 

from Medicare Part D to Part B and, 

therefore, would be included in the 

ESRD PPS. The statute does not govern 

private insurance or require that drug 

coverage shift from private insurance to 

Medicare Part B. Furthermore, the 

statute does not change private 

insurance or incorporate coverage of 

services paid for by private insurers. 

We do not believe that the ESRD PPS 

will have any effect with regard to 

benefiting patients who are currently 

having difficulty getting to a pharmacy. 

Under the ESRD PPS, patients may still 

need access to a pharmacy for their 

ESRD-related oral drugs and biologicals 

if the ESRD facility provides drugs and 

biologicals under arrangement. 

With regard to the comment that 

uninsured patients will benefit under 

the ESRD PPS, we agree that patients 

who currently do not have drug 

coverage (either privately or through 

Part D) will benefit from the inclusion 

of ESRD-related oral drugs and 

biologicals under the ESRD PPS. 

However, as these drugs and biologicals 

have been included in the ESRD PPS 

base rate, patients will have a coinsurance liability. 

Comment: Several commenters stated 

that bundling of oral drugs provides an 

unfair advantage to LDOs which the 

commenters believed control the market 

for certain ESRD-related drugs. 

Commenters also believed that LDOs 

have a further advantage because they 

have developed in-house pharmacies. 

Other commenters stated that small 

ESRD facilities would not have the 

resources to develop in-house 

pharmacies and would need to contract 

for oral medications. One commenter 

asserted that SDOs that opt to furnish 

drugs under arrangement would not 

reach the volume necessary to contract 

with pharmacy benefit managers (PBMs) 

and would need to contract with smaller 

pharmacies at less favorable rates. 

Another commenter asserted that small 

and rural facilities and their local 

pharmacy partners will be 

disadvantaged because they are less 

capable of aggressively negotiating drug 

prices. 

Several commenters urged CMS to 

propose a standard national method for 

dialysis facilities to establish 

prospective contracts with multiple 

traditional and mail-order pharmacies 

for the furnishing of dialysis-related 

drugs, regardless of the size of the 

dialysis provider. Other commenters 

suggested that CMS negotiate with 

pharmaceutical manufacturers on behalf 

of ESRD facilities to establish prices for 

ESRD-related drugs. Another 

commenter suggested that as an 

alternative to furnishing medications 

directly, ESRD facilities could rely on a 

third party Competitive Acquisition 

Program (CAP) vendor to purchase and 

distribute Part B renal dialysis service 

drugs to ESRD patients. 

Response: We thank the commenters 

for expressing their concerns about the 

advantages and disadvantages that they 

believe exist between large and small 

dialysis organizations and for providing 

suggestions for ways in which ESRD 

facilities could obtain ESRD-related 

drugs and biologicals. However, we are 

not specifying in this rule how ESRD 

facilities are to obtain ESRD-related 

drugs and biologicals. 

Thus, we are not adopting a national 

method for establishing contracts with 

pharmacies, nor will we negotiate with 

drug manufacturers on behalf of ESRD 

facilities to establish ESRD-related drug 

prices. We note that CAP participation 

is limited to Medicare physicians who 

administer drugs in their offices. 

However, we will take these suggestions 

into consideration when we implement 

ESRD-related oral-only drugs under the 

ESRD PPS. In the meantime, we 

encourage ESRD facilities to pursue 

group purchasing arrangements with 

similarly situated organizations to 

secure the most favorable drug prices 

possible. 

Comment: One commenter stated that 

organizations with demonstrated 

pharmacy capabilities can help ESRD 

facilities minimize potential operational 

and administrative burdens of managing 

pharmacy care. The commenter further 

stated that mail order pharmacies 

provide ESRD patients with consistency 

of care and ease of access to their 

necessary medications while also saving 

payers and patients money. 

Response: We appreciate the 

commenter’s input and believe that 

ESRD facilities that elect to furnish 

drugs under arrangement will seek 

contracts with pharmacies on the basis 

of competitive pricing and on the value 

that contracted pharmacies can offer to 

the ESRD facilities’ patients in terms of 

convenient access. 

Comment: Several commenters 

requested clarification as to whether the 

ESRD facility will be required to hire a 

pharmacist or if the nurses will be 

required to dispense the oral drugs. An 

ESRD facility nurse expressed concern 

that she would be forced to act as a 

pharmacist, performing duties that 

would be beyond the scope of nursing 

practice. 

Response: We do not require that 

ESRD facilities hire a pharmacist nor do 

we require that ESRD facilites dispense 

oral drugs. Rather, under the ESRD PPS, 

ESRD facilities will be required to 

provide ESRD-related drugs and 

biologicals (including ESRD-related 

drugs and biologicals with other forms 

of administration). ESRD facilities will 

need to determine how they will obtain 

and dispense drugs and biologicals (that 

is, directly or under arrangements). 

However, ESRD facilities and the 


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professional staff associated with these 

facilities will continue to be required to 

comply with State and Federal laws 

pertaining to dispensing of prescription 

drugs and biologicals. 

Comment: One commenter requested 

clarification as to how oral medications 

would be dispensed and charted; on a 

per treatment, weekly or monthly basis. 

Several commenters believed that oral 

drugs covered under the ESRD PPS 

(such as phosphate binders), would only 

be provided on the days that the patient 

is in the facility and during the dialysis 

treatment itself. Other commenters 

stated that phosphate binders should be 

given with meals and that administering 

phosphate binders during dialysis could 

result in patients experiencing nausea, 

vomiting, choking or altered blood 

pressure. 

Several commenters expressed 

concern that ESRD facilities may have 

difficulty recouping the full payment 

amount for oral medications that are 

taken outside the ESRD facility, 

particularly in instances where multiple 

days, weeks or months-worth of 

medications are prescribed. The 

commenter provided an example in 

which an ESRD facility provided a 

patient with a month’s supply of a drug 

but, as a result of missed treatments, the 

facility would only receive payment for 

a partial month worth of treatments and 

would not recoup the full cost of the 

medication furnished. 

Other commenters were concerned 

that patients may encounter additional 

burden if ESRD facilities do not approve 

30 day supplies of drugs. The 

commenters stated that smaller 

prescribed quantities of drugs would 

increase the number of trips that 

patients would need to make to the 

pharmacy, which would be particularly 

burdensome for patients with limited 

transportation. 

Response: ESRD facilities will be 

required to record the quantity of oral 

medications provided for the monthly 

billing period. In addition, ESRD 

facilities would submit claims for oral 

drugs only after having received an 

invoice of payment. We will address 

recording of drugs on an ESRD claim in 

future guidance. 

We appreciate the commenter’s 

concern that ESRD facilities believe they 

will be at risk for drug costs incurred 

but for which payment may not be 

recouped as a result of missed 

treatments. Under the ESRD PPS, 

payments are made on a treatment basis. 

However, some ESRD-related oral drugs 

and biologicals may be required to be 

taken on days that do not correspond 

with a treatment. We will be providing 

instruction on how these medications 

are to be entered on the ESRD claim. We 

believe that ESRD facilities will need to 

ensure, to the best of their ability, that 

patients do not miss treatments. ESRD 

facilities will need to determine the 

most appropriate way to furnish drugs 

and biologicals that ensures that 

patients receive their required 

medications, while mitigating the 

facilities’ risk for drug costs. 

Comment: One commenter stated that 

hospital-based ESRD facilities meet 

their patients’ medication needs through 

the use of intravenous medications 

prepared by the hospital’s on-site 

pharmacy. One commenter indicated 

that state pharmacy licensure 

requirements do not permit the hospital 

pharmacy to dispense outpatient 

medications. The commenter further 

noted that hospital-based ESRD 

facilities would need to establish a 

contract with an outside pharmacy to 

furnish the necessary oral medications. 

Response: We want to clarify that in 

bundling ESRD-related injectable and 

oral drugs and biologicals with other 

forms of administration, we are not 

mandating that ESRD facilities change 

from intravenous to oral or other forms 

of these drugs. As indicated in the 

proposed rule, we would expect that 

any ESRD facility that provides 

outpatient maintenance renal dialysis 

items and services, would either 

establish their own licensed pharmacies 

or contract with licensed pharmacies. 

Comment: Several commenters 

asserted that bundling oral medications 

into the ESRD PPS would create 

confusion between Part B and Part D for 

patients, ESRD facilities, pharmacies 

and Part D sponsors. One commenter 

supported our proposal to create an 

ESRD indicator as a way of preventing 

duplicate payment of drugs under Part 

B and Part D. Other commenters stated 

that Part D plans would bear much of 

the burden of ensuring that ESRD 

patients do not receive drugs under Part 

D coverage that have been bundled into 

the ESRD PPS as ESRD-related services. 

The commenter stated that because Part 

D already has effective cost control 

mechanisms in place, it is not necessary 

to bundle Part D drugs into the ESRD 

PPS for purposes of controlling costs. 

Another commenter believed that where 

an ESRD-related drug is indicated for 

non-ESRD-related indications, the ESRD 

indicator would not provide all the 

information necessary to prevent 

duplicate payment. 

Response: We intend to implement an 

ESRD indicator that will store a 

beneficiary’s ESRD status in Part D 

systems. Part D sponsors would be 

expected to share the information with 

their claims processing contractors for 

purposes of claims adjudication. This 

indicator will allow contracted 

pharmacies to correctly bill ESRDrelated drugs to the ESRD facility and 

non-ESRD-related drugs to Part D. 

We do not agree with the commenter 

that it is not necessary to bundle Part D 

drugs in the ESRD bundle because Part 

D has mechanisms to control costs. We 

discuss the interpretation of the 

definition for renal dialysis services and 

the inclusion of Part D drugs in the 

ESRD bundle in section II.A.3. of this 

final rule. 

With regard to the commenter’s 

concern that an ESRD indicator would 

not provide necessary information to 

prevent duplicate payment, when a drug 

is indicated for non-ESRD-related 

conditions, as we discuss later in this 

section, ESRD facilities will be able to 

identify drugs and biologicals used to 

treat non-ESRD conditions with a 

modifier and will be paid separately for 

these items. 

Comment: One commenter expressed 

concern about potential administrative 

complexities that may be associated 

with furnishing drugs that are on the 

Drug Enforcement Agency’s (DEA) list 

of controlled substances. This 

commenter further specified that the 

process of securing and renewing a DEA 

license would add to the administrative 

complexity of implementing the ESRD 

PPS. 

Response: We expect that ESRD 

facilities are currently complying with 

any applicable requirements associated 

with controlled substance 

administration if they provide 

controlled substances to their patients. 

While there is no requirement under the 

ESRD PPS for ESRD facilities to 

administer controlled substances, if an 

ESRD elects to provide them, they 

would be required to comply with State 

and Federal requirements. 

Comment: One commenter requested 

clarification as to how antitrust laws 

would be applied in the context of 

ESRD facilities that may seek to contract 

with one or more pharmacies for the 

provision of oral drugs. The commenter 

suggested that to the extent an ESRD 

facility were to contract with one 

pharmacy but not another, this may 

violate antitrust laws. 

Response: Antitrust laws are beyond 

the scope of this final rule. However, to 

the extent an ESRD facility opts to 

furnish drugs under arrangement, we 

would expect that the facility would 

conduct an independent compliance 

review of antitrust and any other 

applicable Federal or State laws. 

Comment: One commenter stated that 

OIG, MedPAC, or the Institute of 

Medicine should conduct studies two 


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years after implementation of the ESRD 

PPS to ensure proper implementation of 

oral-only drugs into the ESRD PPS 

bundle has occurred and that Medicare 

beneficiaries have not been adversely 

impacted. 

Response: We thank the commenter 

for this recommendation and note that 

to the extent these entites were to 

conduct such studies we would support 

those efforts. As discussed in this final 

rule, oral-only drugs PPS will not be 

paid under the ESRD PPS until January 

1, 2014. We note that section 10335 of 

the Affordable Care Act requires the 

GAO to conduct a study and submit a 

report to Congress on Medicare 

beneficiary access to high quality 

dialysis services, including specific oral 

drugs (oral-only). 

As a result of the public comments 

and for the reasons discussed above, we 

are revising § 413.241. The revised 

§ 413.241 will read as follows: ‘‘Effective 

January 1, 2011, an ESRD facility that 

enters into an arrangement with a 

pharmacy to furnish renal dialysis 

service drugs and biologicals must 

ensure that the pharmacy has the 

capability to provide all classes of renal 

dialysis drugs and biologicals to 

patients in a timely manner.’’ 

iii. Home Dialysis 

In the proposed rule, we discussed 

that section 1881(b)(14)(A)(i) of the Act 

requires the costs of home dialysis 

supplies and services furnished under 

Method I and Method II, regardless of 

home treatment modality, be included 

in the ESRD PPS bundle. We proposed 

that the Method II home dialysis 

approach in its present form would no 

longer exist under the ESRD PPS 

effective January 1, 2011, but our 

proposal did not eliminate Method I in 

its present form (74 FR 50006). 

Therefore, a supplier could only 

furnish, under an arrangement with the 

ESRD facility, home dialysis equipment 

and supplies to a Medicare home 

dialysis patient and the supplier would 

have to go to the ESRD facility for 

payment. As discussed in section II.A.4. 

of this final rule, under the ESRD PPS, 

all home dialysis items and services are 

covered under the ESRD PPS payment 

and no separate payment will be made. 

In the event supplies or equipment are 

used for non-ESRD-related purposes, 

those supplies or equipment could be 

billed separately by utilizing a modifier 

which indicates that the supply or 

equipment is not ESRD-related. 

The comments we received regarding 

Method II can be found in section II.A.7. 

of this final rule. 

b. Expansion of the Data Elements 

Reported on Claims 

In the proposed rule, we explained 

that currently the services that are billed 

on the ESRD claim do not provide any 

detail of the composite rate items and 

services that are furnished to the patient 

beyond the treatment itself (74 FR 

50006). We did not propose additional 

reporting requirements in regards to 

collecting data for composite rate items 

and services, but we noted that 

collecting additional data at the patientlevel is necessary for refinements to the 

case-mix adjustments of the ESRD PPS’s 

payment model. We provided examples 

of items and services, such as time on 

machine, nutritional services, social 

work services, and nursing services 

included in the current basic case-mix 

adjusted composite payment system, but 

are not captured on the claim. We 

requested public comment on possible 

data elements and other claim-based 

information that would identify patients 

who are high cost (74 FR 50006). 

We received comments regarding the 

expansion of the data elements reported 

on claims as described below. The 

comments and our responses are set 

forth below. 

Comment: All commenters agreed that 

it is important to expand the data 

elements required on ESRD claims in 

order to effectively make refinements to 

the ESRD PPS payment model in the 

future. Some commenters agreed with 

the examples of services in the proposed 

rule. Two commenters stated that 

therapeutic nutritional services are 

critical for ESRD patients who cannot 

swallow or digest and absorb adequate 

nutrition from traditional nutrient 

formulas. One of the commenters 

suggested that we specifically collect 

data from ESRD facilities to assess the 

frequency and duration of nutrition 

services. Another commenter suggested 

that we collect drug data with 

applicable laboratory results that 

examine physiological responses to each 

drug. 

Response: We thank the commenters 

for their suggestions and will consider 

them when we initiate changes to the 

data elements required on claims. 

Further direction will be provided in 

the future. 

3. Miscellaneous Comments 

We also received general comments 

related to the ESRD PPS, which are 

included below. The comments and our 

responses are set forth below. 

Comment: Several commenters 

requested that there be a payment 

adjustment for nursing home staff 

providing care to beneficiaries with 

ESRD. 

Response: The ESRD PPS will provide 

a bundled payment for renal dialysis 

services provided by a Medicarecertified ESRD facility. The case-mix 

payment adjustments are provided to 

account for the additional costs 

associated with separately billable items 

and services, of providing dialysis 

related services for patients with certain 

characteristics. The facility payment 

adjustments, including the outlier 

payment, are provided to account for 

the additional composite costs of 

providing dialysis related services. A 

payment adjustment for nursing home 

staff services would not be available 

under the ESRD PPS because payment 

for nursing home staff is covered 

separately outside of the ESRD PPS and, 

such services do not meet the definition 

of renal dialysis services for which 

ESRD facilities are paid a single rate. 

Comment: One commenter was 

concerned that the proposed ESRD PPS 

would violate State and Federal antikickback and physician self-referral 

laws. The commenter believed that 

under the proposed ESRD PPS, an ESRD 

facility would be required to bill 

directly for laboratory tests that 

currently, are billed by the laboratory. 

The commenter believed that in cases 

where ESRD facilities have physician 

ownership, this arrangement would 

result in the ESRD facility sharing in 

profits of self-ordered laboratory tests. 

The commenter was concerned that 

physician-owned ESRD facilities, may 

be in violation of physician self-referral 

rules, and that these facilities would not 

be permitted to submit bills for 

laboratory charges. The commenter 

concluded that under the ESRD PPS, 

laboratories, as the provider of 

laboratory services, should continue to 

bill Medicare to avoid potential antikickback or Stark violations. Another 

commenter expressed concern that to 

the extent the ESRD facility would omit 

laboratory services from the ESRD 

facility claim in an attempt to adhere to 

physician self-referral rules, the services 

would not count towards the outlier 

eligibility calculation rendering the 

ESRD facility ineligible for potential 

outlier payment for laboratory services. 

Another commenter stated that to the 

extent that hospital-based ESRD 

facilities choose to enter into 

arrangements with community 

pharmacies for self-administered ESRD 

drugs, the facility would have to initiate 

a Stark law compliance review in the 

event that the community pharmacy has 

physician owners. 

Response: Because all renal dialysis 

services, including ESRD-related 

laboratory services and drugs (with the 

exception of oral-only drugs), will be 


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paid under the ESRD PPS beginning 

January 1, 2011, these services as 

described 42 CFR § 411.351, would not 

be considered designated health 

services subject to physician self-referral 

requirements. If ESRD facilities have 

arrangements that they believe may be 

subject to the Federal anti-kickback 

statute, these facilities should contact 

the OIG. (Information about the Federal 

anti-kickback statute is available on the 

OIG’s Web site at http://oig.hhs.gov.) 

Comment: One commenter indicated 

the importance of monitoring fluid 

status and the need to develop strategies 

and practices for effective and safe fluid 

removal. 

Response: We agree that fluid 

management is important; however, 

methods for monitoring fluid status are 

beyond the scope of this final rule. 

Comment: Several commenters 

offered suggestions for additional 

collection of data and analyses which 

they believed would be helpful in 

connection with improving and refining 

the ESRD PPS. Suggestions were wideranging and included additional 

analyses showing beneficiary out-of 

pocket expenses under the PPS, 

collection of data to determine how 

dialysis practice patterns change under 

the new system, analyses for additional 

performance measures that could be 

integrated into the QIP, analysis on 

changes in the utilization of drugs 

subsequent to PPS implementation, 

refinement of data sources to evaluate 

race as a potential case-mix adjuster, 

collection of data on home dialysis 

training services and analysis of the 

effect on home dialysis, and collection 

of data and analysis to incorporate new 

drugs, technologies, and advances in 

clinical protocols into the ESRD PPS. 

Response: We appreciate all of the 

commenters’ suggestions on the 

collection of data and recommendations 

for subsequent analyses we could 

undertake to monitor and refine the 

ESRD PPS. As we gain experience with 

the new system, certain policy issues 

may emerge requiring more immediate 

attention for data collection and 

analysis. We recognize that we must 

balance the need for additional data and 

the potential for improvements and 

revisions to the ESRD PPS with the 

administrative burden that may be 

created. We will take all of these 

suggestions and recommendations 

under advisement for consideration of 

future refinements to the ESRD PPS. 

Comment: Commenters expressed 

concern that we did not include 

information on how we intend to 

identify ESRD-related items and 

services after 2011. The commenters 

requested that we establish a periodic 

review process to add or remove items 

and services in the ESRD PPS bundle 

such as laboratory tests and drugs as 

well as update the reimbursement 

allocated to those services as market 

conditions change. Other commenters 

pointed out that we made policy 

determinations related to a number of 

specific items and services under the 

ESRD PPS based upon the current 

clinical practice for ESRD. The 

commenters requested that we specify 

an appropriate process for updating 

policies under the ESRD PPS as clinical 

treatments evolve and new technologies 

emerge. 

Other commenters expressed concern 

that there will be little incentive for 

innovation from the medical products 

industry for new therapies and that 

CMS should encourage investment and 

innovation to improve patient 

outcomes. One commenter stated they 

believed we have the flexibility to 

provide for a separate payment for new 

and innovative drugs and technologies 

for a defined period of time while 

determining the appropriate costs of the 

new therapies for inclusion in the ESRD 

PPS bundle. 

Response: We do not agree that the 

ESRD PPS will inhibit the development 

of new technologies or treatment. The 

ESRD PPS does not dictate, limit or 

prescribe any treatment or technologies 

used for ESRD patients. Rather, the 

ESRD PPS provides a payment for the 

average patient as well as adjustments to 

that payment rate to account for 

increased resource utilization. We have 

determined that several aspects of the 

ESRD PPS will need to be updated 

annually to keep current with new renal 

dialysis services. As we discussed in 

section II.A.3 of this final rule, we have 

not specified drugs and biologicals that 

would be renal dialysis services, but 

rather we specified categories by mode 

of action to provide for any new drugs 

or biologicals that may be developed or 

used in the future. For example, for 

anemia management, new drugs that 

constitute renal dialysis services that are 

approved for the treatment of anemia 

and are furnished by an ESRD facility, 

would be reported on the ESRD facility 

claims and paid under the ESRD PPS. 

We will use this information to update 

the list of ESRD-related drugs and 

biologicals, including the drug 

categories each January 1 for purposes 

of the outlier policy (see section II.H. of 

this final rule). 

In a similar manner to drugs, we will 

need to keep the list of ESRD-related 

laboratory tests up-to-date for purposes 

of the outlier policy. The clinical 

laboratory fee schedule is updated 

annually to reflect updates in Medicare 

payment as well as to reflect new tests. 

We will be reviewing on an annual basis 

the new tests that are being added to the 

clinical laboratory fee schedule so that 

we can determine whether any of them 

are ESRD-related so they can be 

recognized under the outlier policy. 

With regard to new technology, the 

payment structure under the ESRD PPS 

does not specify the type of modality 

(and therefore, the type of technology) 

that should be used for dialysis. Rather, 

the per-treatment payment provides for 

ESRD facilities to use the modality they 

believe is best, as determined by the 

individual plan of care. We believe that 

under the ESRD PPS, ESRD facilities 

will have the opportunity to utilize any 

new technology that arises. 

We believe that these mechanisms of 

updating ESRD-related drugs and 

biologicals and laboratory tests, will 

address any changes that may arise in 

the future. However, should the 

technologies and treatments for ESRD 

change significantly at some point in the 

future, we could consider whether other 

mechanisms may need to be 

incorporated through future rulemaking 

to ensure that Medicare ESRD patients 

continue to have access to important 

advances in care. 

Comment: One commenter suggested 

that we update the ESRD PPS base rate, 

patient-specific adjusters, co-morbidity 

case-mix adjusters and facility-level 

adjusters no later than CY 2013 because 

by that time we should have adequate 

data. The commenter expressed concern 

that if the ESRD PPS is not updated 

annually, the adjusters could remain 

unchanged over an extended period of 

time and would not reflect changes in 

the costs of provided ESRD care. 

Response: We plan to implement 

payment for oral-only ESRD-related 

drugs under the ESRD PPS base rate 

after the ESRD PPS transition in 2014. 

In order to do so, we anticipate that the 

rulemaking to implement oral-only 

drugs under the ESRD PPS in 2014 

would take place during 2013. 

After that refinement, we expect to 

update periodically the regression 

analysis using the most recent claims 

and cost report data to determine if 

changes to the type and amount of 

payment adjustments are warranted. In 

addition, we will update the ESRD PPS 

annually to reflect the latest market 

basket forecast with adjustments for 

productivity, geographical variations in 

wages to reflect the most current 

hospital wage data and CBSA 

definitions, and appropriate changes to 

the fixed-dollar loss threshold amounts 

to maintain the 1 percent outlier policy. 

As we proposed, we have codified 

these annual updates in § 413.196 


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(Notification of changes in rate-setting 

methodologies and payment rates). 

However, we have revised the language 

to reflect that the market basket update 

could result in a negative update. 

Therefore, we replaced reference to the 

market basket percentage increase with 

the market basket update factors. 

Comment: Some commenters 

expressed concern about the role of the 

ESRD Networks. The commenters stated 

that there is a need to implement an 

ESRD Network Program that will 

effectively protect and support patients. 

The commenter suggested that the 

Network Program include mandatory 

best practice quality standards for all 

Networks to ensure that the quality of 

ESRD care is being judged consistently 

throughout the country. Other 

commenters expressed concern that the 

ESRD Networks are not accessible or 

attentive to patient concerns. Another 

commenter stated that the ESRD 

Networks should be tasked with 

monitoring and reporting involuntary 

discharges. Several commenters asked 

what role the ESRD Networks will have 

in implementing the ESRD PPS. 

Response: We promote high value 

quality healthcare for beneficiaries and 

utilizes a variety of approaches to meet 

this goal. Examples of these approaches 

include contemporary quality 

improvement, coverage and payment 

policy, public reporting, and regulatory 

enforcement. The 18 ESRD Networks are 

contracted by us to oversee and 

facilitate high quality ESRD care, 

promote quality improvement, evaluate 

and resolve patient grievances, and 

assist ESRD facilities in meeting 

Network goals. The Networks monitor 

and report information related to 

complaints and grievances and 

involuntary discharges. We are 

currently assessing the role of the ESRD 

Network Program as it relates to the 

ESRD PPS and the QIP and how to 

optimize the expertise of the Networks 

to accelerate improvements in dialysis 

care. 

Comment: Several commenters 

suggested a patient representative panel 

to monitor how the ESRD PPS will 

affect dialysis treatment and patient 

care. One commenter stated that there is 

little mentioned in the proposed rule 

with regards to patient satisfaction and 

that patient satisfaction is an important 

qualifier for future refinements to the 

system. Other commenters suggested 

that we establish a review process for 

evaluating the impact of the new PPS on 

patients and providers to ensure that the 

changes in payment do not result in 

clinical practice changes that adversely 

affect patients. 

Response: We are concerned about 

how the ESRD PPS affects beneficiaries 

and has aimed to identify and mitigate 

potential negative effects. The way 

beneficiaries experience dialysis care is 

important to us. The QIP provides a 

method to ensure quality dialysis care 

and refers to patient satisfaction 

(information regarding the QIP is found 

in section II.M. of this final rule). 

Because the statute indicates that the 

quality measures should include patient 

satisfaction measures to the extent 

feasible, we are assessing the dialysis 

facility Consumer Assessment of 

Healthcare Providers and Systems 

(CAHPS tool), to determine the 

feasibility and readiness of use within 

the QIP in future years. In addition, as 

an integral part of the QIP, a program 

monitoring plan is in development to 

identify indicators useful in 

determining adverse effects on 

vulnerable (high risk) populations. 

Patient input is an important 

component of our monitoring plan 

development activities. 

Comment: Some commenters 

expressed concern about non-compliant 

patients and gave suggestions for 

initiatives for incentivizing them to 

comply with their care plans. One 

example provided by the commenters 

was a ‘‘pay less for performance’’ 

incentive under which patients would 

be rewarded with a deduction in 

premiums if they follow their care plan. 

The commenters indicated that noncompliant behavior is very expensive in 

terms of furnishing healthcare. 

Response: We encourage a patientcentered care approach in which the 

patient is included as a 

multidisciplinary team member (see 

§ 494.80 of the ESRD Conditions for 

Coverage). We also encourage sharing of 

best practices among ESRD facilities 

including best practices regarding 

patients compliance with their care 

plans. While we recognize the role a 

dialysis patient plays into the success of 

their own care, Medicare is paying 

dialysis facilities to provide dialysis 

services and as such, the dialysis facility 

is ultimately responsible for ensuring 

that patients participate in their plan of 

care. We note that we do not have the 

authority to reduce patient premiums 

(Part B premium or co-insurance 

liability) to reflect patient compliance 

with their care plans. 

Comment: One commenter noted that 

the proposed ESRD PPS did not inform 

patients adequately about effects on 

their costs and indicated that patients 

need to be informed in a clearly 

understood manner about how the 

ESRD PPS will affect their costs. 

Response: We appreciate the 

commenter’s concern about informing 

patients about the changes of the new 

ESRD PPS. We plan to outreach and 

educate facilities, providers and 

beneficiaries after this final rule is 

released. 

Comment: One commenter supported 

including drugs in the bundle and 

believed that having drugs covered by 

ESRD facilities will be helpful for many 

patients. This commenter noted that her 

drug use decreased since going on home 

hemodialysis and she was able to stop 

some medications which helped lower 

her copayments for drugs. 

Response: We thank the commenter 

for supporting our proposal to include 

drugs in the bundle. 

Comment: We received several 

comments regarding the need for 

updating the Medicare cost report for 

ESRD facilities. Commenters stated that 

in order to accurately determine how 

facilities will fare over time under the 

new payment system and in order to 

evaluate cost trends, cost report reform 

is required. The commenters further 

explained that all of the changes that 

will occur under the ESRD PPS will not 

be properly captured in the cost report 

in its current form. Some commenters 

argued that Medicare cost reports for 

ESRD facilities do not offer a resource 

for an accurate estimation of costs 

associated with home hemodialysis or 

other home modalities. One commenter 

stated that if payment adequacy and 

other benchmarking of costs associated 

with current and new ESRD modalities 

are to be possible, cost report 

instructions at the modality level will 

need substantial revision. 

Response: We agree that changes to 

the cost report are necessary to reflect 

the ESRD PPS and to improve the 

accounting of ESRD facility costs. Any 

changes in cost reporting will be 

addressed in the future. 

Comment: Commenters indicated that 

the proposed ESRD PPS will give 

dialysis facilities an incentive not to 

support their dialysis patients’ efforts to 

travel. These commenters indicated that 

dialysis providers often require 

transient patients to submit Hepatitis B, 

Surface Antigen and Surface Antibody 

results which are more recent than 

required by the Centers for Disease 

Control and Prevention (CDC) 

guidelines. Under current practice, the 

patient is generally responsible for the 

cost of the testing; the proposed rule 

will shift the cost to the home dialysis 

facility. 

Response: Hepatitis B testing is 

included in the basic case-mix adjusted 

composite payment rate, and therefore, 

payments for these tests were included 


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in the ESRD PPS base rate. As a result, 

we expect that ESRD facilities will 

require Hepatitis B testing only when 

appropriate to meet CDC guidelines. 

The patient will have a 20 percent coinsurance liability on the ESRD PPS per 

treatment payment amount and does not 

have a financial liability specifically for 

Hepatitis B testing. As a result, we do 

not believe that the treatment of 

Hepatitis B under the ESRD PPS will 

affect or prohibit patients from 

traveling. 

Comment: Commenters indicated that 

patients who travel represent an 

administrative burden and economic 

loss to the patient’s home facility and 

bundling will make traveling patients 

less attractive. A few commenters had 

concerns about how payment will be 

made for the administration of 

medications to traveling dialysis 

patients. Commenters believed that 

dialysis facilities will be cautious of 

arranging transient treatment if there is 

no established means of reimbursement 

between the patient’s home facility and 

the transient facility. One commenter 

indicated that transient facilities will 

have no incentive to administer 

injectable medications or higher dosages 

of ESAs to traveling patients. The 

commenter also questioned which 

dialysis facility would be responsible 

for administering necessary medications 

to the traveling patient under the 

bundled ESRD PPS. Other commenters 

indicated that laboratory tests required 

by traveling patients should be 

specifically excluded from the bundled 

ESRD PPS. If the laboratory testing 

required by a destination unit are not 

separately billable, it will complicate 

and perhaps, compromise the ability of 

beneficiaries to travel for work, family 

and pleasure. 

Response: ESRD facilities that accept 

responsibility for a transient ESRD 

patient must furnish all necessary 

ESRD-related care. We expect the home 

dialysis facility and the transient 

dialysis facility to work together and 

exchange patient information regarding 

co-morbid medical conditions and drug 

dosing to accommodate dialysis patients 

who travel because of work, family or 

for pleasure. Given that beginning 

January 1, 2011, the bundled ESRD PPS 

base rate and adjustments include 

payments for laboratory tests, ESAs and 

other ESRD-related drugs and 

biologicals (other than oral-only ESRDrelated drugs), dialysis facilities 

furnishing these services to the traveling 

patients will receive payment for these 

services through their bundled ESRD 

PPS payment. 

Comment: Several commenters 

offered views regarding the imprudence 

of not having an ESRD PPS 

demonstration project or pilot testing of 

the proposed ESRD payment approach 

before going forward with national 

implementation. 

Response: The MMA included a 

provision for a demonstration project to 

test the ESRD PPS prior to full 

implementation. However, that 

provision was repealed. 

4. Comments Regarding Monitoring 

We received many comments, 

primarily from patients and health care 

practitioners expressing concerns about 

monitoring the effects of the ESRD PPS. 

Comments that pertain to the QIP are 

addressed in section II.M. of this final 

rule. Other comments and our responses 

are discussed below. 

Comment: Many commenters 

expressed concern about the need to 

monitor the impact of bundling ESRD 

drugs based on patient outcomes. Others 

questioned if there will be tracking 

mechanisms to see how payment 

changes will affect patient health. Some 

commenters cited particular areas of 

concern such as an increase in the 

number of parathyroidectomies being 

performed; iron use; bone mineral 

metabolism; hospitalization and 

vascular access. 

Response: We understand the 

concerns raised and have indicated 

throughout this final rule that we will 

be monitoring the outcomes and effects 

of the ESRD PPS. While virtually all 

commenters expressed concerns about 

the potential negative effects of the PPS, 

we believe that the ESRD PPS provides 

opportunities for positive outcomes as 

well. Therefore, we plan to look at 

positive effects as well as areas of 

vulnerabilities. We are in the process of 

identifying those areas including those 

expressed by commenters. For example, 

as we discussed in section II.A.3. of this 

final rule, we have identified ESRDrelated categories of drugs rather than 

specific drugs that will allow us to 

identify trends or changes in the drugs 

utilized by outcome such as anemia 

management. Also, as discussed earlier 

in this section, ESRD facilities will be 

required to indicate ESRD-related drugs 

and biologicals with other forms of 

administration on their claims. Because 

we have information on Part B on the 

ESRD claims and Part D separately 

payable drugs and biologicals, we will 

have a baseline from which to compare 

future drug usage and can monitor for 

changes in drug substitutions and 

dosing. We are also able to monitor for 

changes in inpatient hospital 

admissions and outpatient services for 

ESRD patients to determine if there are 

increases in ESRD-related procedures 

such as parathyroidectomies. 

Comment: Some commenters 

questioned how changes from the ESRD 

PPS will be monitored for errors or 

fraud attempts. 

Response: We have identified a 

number of measures in this final rule 

that address potential errors or fraud 

attempts. For example, in section 

II.K.2.a. of this final rule, we have 

described how ESRD facilities and 

MCPs will be required to utilize a 

modifier to identify items and services 

that they attest are not renal dialysis 

services. In the low-volume facility 

discussion in section II.F.4. of this final 

rule, we identified criteria that ESRD 

facilities will be required to meet in 

order to be eligible for the low-volume 

payment adjustment. In section II.A.3. 

of this final rule, we indicated that 

specific criteria will be required to be 

documented for the co-morbidity 

categories eligible for a payment 

adjustment. These can be monitored or 

verified. In addition, as discussed in the 

previous response to comments, we are 

in the process of identifying areas of 

concern (for example, drug utilization). 

We will be issuing specific instructions 

and corresponding manual changes in 

the future. 

Comment: Some commenters 

indicated that oversight is needed to 

prevent ESRD facilities from ‘‘cherry 

picking’’ patients. One commenter 

expressed concern that the ESRD facility 

conditions for coverage allows patients 

to be involuntarily discharged for nonpayment. 

Response: We appreciate the concerns 

expressed that there may be ESRD 

facilities that will select patients based 

on higher payments. We will require 

information on the ESRD claims that 

will allow us to identify patient 

characteristics that result in eligibility 

for payment adjustments. For example, 

in the discussion under the onset of 

dialysis found in section II.F.3. of this 

final rule, we indicated that we would 

be looking at the number of 

beneficiaries who become eligible for 

Medicare due to a shortened 

coordination of benefit period. We will 

monitor very closely, potential access 

concerns and could make adjustments 

to the PPS in future years. We expect 

that ESRD facilities and providers will 

not ‘‘cherry Pick’’ patients. 

We appreciate the commenters’ 

concerns about patients being 

involuntarily discharged from an ESRD 

facility and note that, we intend to 

monitor for changes in the number and 

characteristics of patients who have 

been involuntarily discharged from their 

ESRD facility. 


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Comment: Several commenters 

indicated that there could be an increase 

in negative outcomes because the ESRD 

PPS does not apply limits on payment 

for preventable errors or outcomes. One 

commenter recommended that ESRD 

facilities not receive payment for 

preventable negative outcomes. 

Response: We agree that other than 

the QIP discussed in section II.M. of this 

final rule, there is no payment reduction 

for negative outcomes. However, as we 

discuss in section II.F.3. of this final 

rule, we did not include certain comorbidities, such as septicemia, as 

being eligible for a payment adjustment 

because we believe that it could be an 

incentive for poor outcomes. By not 

providing an opportunity to receive 

additional payment, we believe that we 

have mitigated payment incentives for 

poor outcomes. 

Comment: A few commenters 

expressed concern that CMS should be 

able to determine if patients are not 

receiving adequate amounts of Epogen®. 

One commenter recommended that 

CMS also monitor blood transfusions 

administered to beneficiaries with 

ESRD. 

Response: The commenters are correct 

that we collect hemoglobin information 

on ESRD claims. As we noted earlier, 

we will require ESRD facilities to 

indicate all renal dialysis-related drugs 

such as Epogen®, including dosages on 

the ESRD claim. We will explain this in 

more detail in the future. We are also 

planning to monitor blood transfusions 

for ESRD patients in our monitoring 

plans. We note, as discussed in section 

II.M. of this final rule, hemoglobin is a 

measure under the QIP. 

Comment: One commenter 

recommended the establishment of an 

independent panel of stakeholders and 

experts to evaluate tracking of drugs. 

Another commenter suggested 

establishing an external oversight board 

comprised of dialysis community 

stakeholders including patients, 

physicians, nurses and providers to 

review monitoring reports to ensure 

transparency of data. The commenter 

believes the oversight board should 

have the authority to influence CMS 

policy to remediate any negative 

changes in availability or quality of 

patient care. 

Response: We thank the commenters 

for these suggestions and will take them 

into consideration as we develop our 

monitoring plan for the ESRD PPS. 

Comment: One commenter believed 

that it is extremely important to set up 

a monitoring system that ensures that 

under the ESRD PPS, patients and 

physicians maintain access to a wide 

range of available drugs. The commenter 

also stated that a process to monitor 

medication use in real-time using 

clearly delineated metrics more 

inclusive than quality measures, to 

‘‘ensure that no adverse effects of the 

bundle on patient care and outcomes.’’ 

Response: We have discussed that we 

are requiring ESRD facilities to identify 

on the ESRD claims, renal dialysis 

related drugs. We discussed in section 

II.A.3. of this final rule that we 

identified categories of renal dialysis 

related drugs using claims data for drugs 

which received separate payment. We 

expect that ESRD facilities will, 

therefore, ensure that their patients 

receive the drugs (and biologicals) that 

they require. At the current time, we are 

unable to monitor medication use in 

real time as we are dependent on 

information on ESRD claims submitted 

by the ESRD facilities. 

Comment: A few commenters were in 

favor of retaining the ESA Claims 

Monitoring Policy. These commenters 

suggested that similar monitoring 

policies be created for dosage 

administration and physiological 

response, for other drug classes (such as 

antibiotics, thrombolytics, vitamins and 

minerals). 

Response: We thank the commenters 

and will take the suggestions into 

consideration as we develop our 

monitoring policies. 

5. Comments Beyond the Scope of This 

Final Rule 

We also received many comments that 

were beyond the scope of the ESRD PPS 

final rule, including comments the 

following topics: Educating patients on 

the importance of compliance with their 

prescribed treatment plan and 

expanding funding for educating people 

on strategies for the prevention of 

kidney disease; end of life care for 

dialysis patients; cost containment or 

price ceilings on pharmaceuticals and 

equipment; the need for financial 

planning for death and financial 

assistance to bereaved families in need, 

to deal with outstanding funeral and 

medical bills; consideration for studying 

the potential future of stem cell 

treatments; the need to be more 

progressive in offering cutting-edge 

options to beneficiaries; the need to 

establish criteria such as morbidity, 

prognosis, age and family support to 

determine a beneficiary’s 

appropriateness for dialysis; 

consideration for a payment adjustment 

for beneficiaries with ESRD who are 

employed or attending school; concern 

that the surveyors from the Department 

of Health are not encouraging best 

practices and no longer pursue the goal 

of identifying ways to improve care for 

patients; and the need for disaster 

planning for the provision of dialysis 

treatments. 

Other commenters raised issues 

related to post-transplant coverage of 

immunosuppressive drugs, stating that 

coverage of post-transplant 

immunosuppressive drugs should be 

extended for the life of the transplant 

because oftentimes patients have 

difficulty affording these medications 

when Medicare coverage runs out. One 

commenter requested that Medicare 

preserve access to brand name posttransplant medications. A patient 

commenter requested help paying for a 

transplant and for post-transplant 

medical care. Another patient 

commenter wanted to know whether 

they could get a kidney. One commenter 

stated that it is unfortunate that 

nephrologists spend minimal time in 

training on home dialysis modalities. 

Another commenter stated that greater 

emphasis should be placed on long-term 

rehabilitation such that ESRD patients 

can enjoy active lifestyles, employment 

and community involvement. Another 

commenter believed that CMS should 

develop a plan to encourage and track 

employment status among patients with 

ESRD. 

Because the above issues are beyond 

the scope of this final rule, we have not 

addressed them in this final rule. 

L. Evaluation of Existing ESRD Policies 

and Other Issues 

In the proposed rule, we reviewed 

existing ESRD policies to determine 

their applicability to the ESRD PPS. We 

proposed to eliminate the exceptions for 

isolated essential facilities, self dialysis 

training costs, atypical service intensity 

(patient mix) and pediatric facilities that 

exist under the basic case-mix adjusted 

composite payment system (74 FR 

50007). We proposed to evaluate the 

current ESA monitoring policy (EMP) 

and the operational issues for 

circumstances in which Medicare is the 

secondary payer (MSP). We also 

proposed to maintain the bad debt 

policy and the 50-cent per treatment 

deduction to fund the ESRD Networks 

(74 FR 50007). We also proposed to set 

forth in § 413.195 the limitation on 

review with regard to the ESRD PPS (74 

FR 50007). In addition, we explained 

that we were considering the extent to 

which the laboratory services 50 percent 

rule would continue to apply under the 

ESRD PPS (74 FR 50008). 

1. Exceptions Under the Case-Mix 

Adjusted Composite Payment System 

Section 1881(b)(7) of the Act and 

§ 413.182 generally address exceptions 

to the composite payment rates. Section 


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422(a)(2) of BIPA prohibited the 

granting of new exceptions to the 

composite payment rates after December 

31, 2000. Section 623(b) of the MMA 

amended section 422(a)(2) of BIPA to 

restore composite rate exceptions for 

pediatric facilities that did not have an 

exception rate in effect as of October 1, 

2002. Section 422(a)(2)(D) of BIPA 

defined a pediatric facility as a renal 

dialysis facility at least 50 percent of 

whose patients are under 18 years of 

age. 

In the proposed rule (74 FR 50007), 

we noted that in the CY 2005 PFS 

proposed rule (69 FR 47535), we 

explained that section 422(a)(2)(C) of 

BIPA provided that any ESRD 

composite rate exception in effect on 

December 31, 2000, would continue as 

long as the exception rate exceeds the 

applicable composite payment rate. We 

further explained the methodology that 

would be employed to compute the 

exception amount, and that we were 

proposing to allow each dialysis facility 

the option of continuing to be paid at its 

exception rate or at the basic case-mix 

adjusted composite rate. On April 1, 

2004, we opened the exception window 

for pediatric facilities and noted that the 

window would close in September 27, 

2004. We further explained that in the 

CY 2005 PFS final rule with comment 

period (69 FR 66332), we stated that the 

exception process was opened each time 

there is a legislative change in the 

composite payment rate or when we 

open the exception window, including 

our intent to open the pediatric 

exception windows on an annual basis. 

We also noted that we would provide 

for the continuation of the home 

training exception, to allow for facilities 

with home training exceptions to retain 

their current training exception rates as 

well as take advantage of the case-mix 

adjusted rates for non-training dialysis 

(74 FR 50007). 

In the proposed rule, we indicated 

that while section 153 of MIPPA does 

not directly address exceptions, section 

1881(b)(14) of the Act creates an ESRD 

bundled prospective payment in lieu of 

payment under previous ESRD payment 

systems, and given that the ESRD PPS 

no longer directly addresses changes in 

the ESRD composite rate, we believe 

that the exceptions currently in place 

would no longer apply (74 FR 50007). 

We also noted we addressed the higher 

costs relating to case-mix through the 

patient characteristic adjustments and 

outlier payments (74 FR 49949 and 

49987). We proposed the elimination of 

the isolated essential facility, self 

dialysis training costs, atypical service 

intensity (patient mix) and pediatric 

facility exceptions, effective for ESRD 

renal dialysis services furnished on or 

after January 1, 2014 (at the conclusion 

of the phase-in). In other words, any 

existing exceptions would terminate 

effective for ESRD treatment on or after 

January 1, 2014. Additionally, no 

further exception windows would be 

open effective for ESRD treatment 

furnished on or after January 1, 2011, 

the effective date of the ESRD PPS. In 

the event that an ESRD facility elected 

to receive full payment under the ESRD 

PPS for renal dialysis services on or 

after January 1, 2011, any existing 

exceptions would no longer be 

recognized. In the event that an ESRD 

facility elected to receive payment 

under the transition period, any existing 

exceptions would be recognized for 

purposes of the basic case-mix adjusted 

composite payment system portion of 

the blended payment through the 

transition. We proposed to include the 

periods of exceptions and the 

elimination of the exceptions to the 

composite payment rates in § 413.180 of 

the regulations. With respect to appeals 

under § 413.194(b), we pointed out that 

such appeals apply only to exceptions 

to the composite rate granted before 

January 1, 2011 (74 FR 50007). 

We received comments from three 

children’s hospitals and one from the 

American Academy of Pediatrics 

concerning pediatric exceptions and 

these comments are described below. 

We did not receive any comments on 

our proposal to eliminate the isolated 

essential facility, self-dialysis training 

costs, and atypical service intensity 

(patient mix) exceptions. 

Comment: One commenter indicated 

that the proposed pediatric case-mix 

adjusters and elimination of the 

pediatric facility exceptions would 

reduce the costs adjustments needed by 

many pediatric facilities to remain 

operational. The commenter believed 

that the proposed pediatric case-mix 

adjusters and the elimination of the 

pediatric exceptions would result in 

children and adolescents with ESRD not 

having access to specialized dialysis 

care. Other commenters believed that 

these proposals fail to recognize the 

uniqueness of pediatric facilities that 

have State mandated higher staff ratios, 

additional staff required such as 

teachers and child life specialists, and 

higher supply costs associated with 

treating pediatric ESRD patients. 

Response: We believe that the changes 

we have made in this final rule with 

regard to the pediatric model address 

the specific needs of pediatric patients 

and the care that they require. We 

discuss these changes in detail in 

section II.G. of this final rule. With 

regard to the pediatric exceptions, as we 

discuss in greater detail below, we 

believe that our proposal to eliminate 

such exceptions is appropriate and 

warranted under the statute. 

Comment: One commenter indicated 

that the MIPPA legislation did not 

specifically eliminate the existing 

pediatric exceptions to the composite 

rate and believes that our interpretation 

of the MIPPA ‘‘is a stretch.’’ 

Response: We do not agree with the 

commenter with regard to our 

interpretation of the MIPPA legislation 

and section 1881 of the Act. As we 

discussed in the proposed rule, we 

continue to believe that the ESRD PPS 

under section 1881(b)(14) of the Act 

creates an ESRD prospective payment 

system in lieu of payments under 

previous ESRD payment systems. Given 

that these exceptions pertain to the prior 

composite rate payment systems under 

section 1881(b) of the Act, we do not 

believe that such exceptions would 

carry forward or be appropriate under 

the ESRD PPS. After the ESRD PPS 

transition, no portion of the ESRD PPS 

payments will be based on the 

composite rate. As a result, we do not 

believe it would be appropriate to 

continue composite rate exception 

payments after January 1, 2014. We also 

believe that we have addressed the 

higher costs of pediatric patients in the 

final pediatric model discussed in detail 

in section II.G. of this final rule. 

We are finalizing the elimination of 

the isolated essential facility, selfdialysis training costs, atypical service 

intensity (patient mix)and pediatric 

facility exceptions effective for ESRD 

renal dialysis services furnished on or 

after January 1, 2014 (at the conclusion 

of the phase-in). We are also finalizing 

our proposal that no further exception 

windows would be open after January 1, 

2011, the effective date of the ESRD 

PPS. In the event that an ESRD facility 

elects to receive full payment under the 

ESRD PPS for renal dialysis services 

furnished on or after January 1, 2011, 

existing exceptions would no longer be 

recognized. In the event that an ESRD 

facility elects to receive payment under 

the transition existing exceptions would 

be recognized for the purpose of the 

basic case-mix adjusted composite 

payment system portion of the blended 

payment. We are finalizing the 

inclusion of the periods of exception 

and the elimination of the exceptions to 

the composite payment rates in 

§ 413.180 of the regulations. We note 

that appeals under § 413.194(b) apply 

only to exceptions to the composite rate 

granted before January 1, 2011. 


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2. Erythropoiesis Stimulating Agent 

(ESA) Claims Monitoring Policy 

In the proposed rule, we discussed 

the historic development of the ESA 

Claims Monitoring Policy. We noted 

that we were evaluating the extent to 

which we could continue the ESA 

Claims Monitoring Policy for renal 

dialysis services furnished on or after 

January 1, 2011. Specifically, at that 

time it was not known how the 

reduction in payment that is currently 

applied to the separately billed ESAs 

would be applied under the proposed 

ESRD PPS (74 FR 50008). 

In the proposed rule, we noted that 

we would continue to evaluate how to 

establish eligibility for outlier payments 

in instances where the ESA Claims 

Monitoring Policy is implicated. CMS is 

adopting the EMP under the ESRD PPS 

in computing basic case-mix adjusted 

composite payments amounts during 

the transition and it will be taken into 

account when determining eligibility for 

outlier payments. We have included the 

comments and responses pertaining to 

this policy in section II.H. of this final 

rule. 

3. ESRD Facility Network Deduction 

In the proposed rule, we indicated 

that pursuant to section 1881(b)(7) of 

the Act, to fund the ESRD Networks, 50 

cents is deducted from the amount of 

each payment for each treatment 

(subject to such adjustments as may be 

required to reflect modes of dialysis 

other than hemodialysis). The reduction 

amount applies to all treatment 

modalities. We sited the Medicare 

Claims Processing Manual, Public Law 

100–04, Ch. 8, section 110 for 

information on the methodology for 

calculating the reduction. 

We proposed to continue this 

deduction under the ESRD PPS with a 

50-cent reduction per treatment from 

the payment made to ESRD facilities 

under the ESRD PPS for facilities that 

elect to receive payment under the 

ESRD PPS. For facilities that elect the 

ESRD PPS transition, we would apply 

the 50-cent reduction the blended 

payment amount (74 FR 50008). 

We did not receive any comments 

opposing the continuation of the ESRD 

network deduction. Therefore, we are 

finalizing that we will continue the 50- 

cent deduction under the ESRD PPS. 

4. Bad Debt 

In the proposed rule, we explained 

that § 413.89 and Chapter 3 of the 

Provider Reimbursement Manual, Part 1 

(PRM)(CMS Pub. 15–1) set forth the 

general requirements and policies for 

payment of bad debts attributable to 

unpaid Medicare deductibles and 

coinsurance amounts. Additional 

requirements for ESRD facilities are set 

forth at § 413.178. We further explained 

that under the basic case-mix adjusted 

composite payment system Medicare 

pays ESRD facilities 80 percent of a 

prospectively set composite rate for 

outpatient dialysis services. The 

Medicare beneficiary is responsible for 

the remaining 20 percent as coinsurance, as well as any applicable 

deductible amounts as set forth in 

§ 413.176 of the regulations. If the ESRD 

facility makes reasonable collection 

efforts, as described in section 310 of 

the PRM, but is unable to collect the 

deductible or coinsurance amounts for 

items or services associated with the 

composite rate, we consider the 

uncollected amount to be a ‘‘bad debt’’, 

if the facility meets the requirements at 

proposed § 413.178 and proposed 

§ 413.89 of the regulations. We also 

explained that at the end of the ESRD 

facility cost reporting period, Medicare 

recognizes a facility’s Medicare bad 

debts. However, § 413.178(a) requires 

CMS to reimburse ESRD facilities for its 

allowable bad debt up to the facility’s 

costs as determined under Medicare 

principles (74 FR 50008). 

We explained in the proposed rule 

that in developing the proposed changes 

to the ESRD payment system, section 

153(a)(4) of MIPPA states, as a Rule of 

Construction, that, ‘‘nothing in this 

subsection or the amendments made by 

this subsection shall be construed as 

authorizing or requiring the Secretary of 

Health and Human Services to make 

payments under the payment system 

implemented under paragraph (14)(A)(i) 

of section 1881(b) of the Social Security 

Act (42 U.S.C. 1395rr(b)), as added by 

paragraph (1), for any unrecovered 

amount for any bad debt attributable to 

deductible and coinsurance on items 

and services not included in the basic 

case-mix adjusted composite rate under 

paragraph (12) of such section as in 

effect before the date of the enactment 

of this Act.’’ Therefore, we stated that 

bad debt payments would continue to 

be made for the unpaid Medicare 

deductibles and coinsurance amounts 

for only those items and services 

associated with the basic case-mix 

adjusted composite rate. However, since 

the proposed single ESRD payment rate 

is for items and services included in the 

composite rate and for drugs and 

laboratory tests, we proposed to use 

only the composite rate portion of the 

proposed single ESRD payment rate to 

determine bad debt payments. We also 

proposed that bad debt payments for 

ESRD facilities would continue to be 

capped as required under § 413.178(a). 

We also indicated that the Medicare cost 

report and instructions in the PRM, Part 

2 (CMS Pub. 15–2) might be revised to 

report the case mix adjusted composite 

rate payment and associated cost data 

necessary to compute the ESRD facility 

bad debt payments. 

In addition, we proposed to make a 

conforming change to regulation text at 

§ 413.178(d) regarding ESRD bad debt 

payment under the proposed ESRD 

payment system and include a crossreference to § 413.178 in § 413.89(h) and 

(i). 

We received several comments on bad 

debt. The comments and our responses 

are set forth below. 

Comment: One commenter questioned 

how dialysis-related bad debts would be 

determined under the ESRD PPS. The 

commenter also questioned if 

unreimbursed co-payments for 

laboratory services and Part D drugs 

would be reimbursed. The same 

commenter believes that if these 

services are in the bundle, then they 

should be included in the bad debt 

reimbursement and if they are not, then 

this would result in a financial burden 

for providers. 

Response: As we discussed above, 

section 153(a)(4) of MIPPA states, as a 

Rule of Construction, that, ‘‘nothing in 

this subsection or the amendments 

made by this subsection shall be 

construed as authorizing or requiring 

the Secretary of Health and Human 

Services to make payments under the 

payment system implemented under 

paragraph (14)(A)(i) of section 1881(b) 

of the Social Security Act (42 U.S.C. 

1395rr(b)), as added by paragraph (1), 

for any unrecovered amount for any bad 

debt attributable to deductible and coinsurance on items and services not 

included in the basic case-mix adjusted 

composite rate under paragraph (12) of 

such section as in effect before the date 

of the enactment of this Act.’’ Therefore, 

we stated that bad debt payments would 

continue to be made for the unpaid 

Medicare deductibles and co-insurance 

amounts for only those items and 

services associated with the basic casemix adjusted composite rate. However, 

since the single ESRD payment rate is 

for items and services included in the 

composite rate and for drugs and 

laboratory tests, we would use only the 

composite rate portion of the single 

ESRD payment rate to determine bad 

debt payments. As oral drugs were not 

included in basic case-mix adjusted 

composite rate, they would not be 

subject to bad debt reimbursement. 

In order to determine bad debt 

amounts for only the basic case-mix 

adjusted composite rate portion of the 


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bundled ESRD PPS payment, we will 

utilize data from the Medicare ESRD 

cost report to determine the percentage 

of basic composite rate costs to total 

costs on a facility-specific basis. The 

current ESRD cost report Form CMS 

265–94 for freestanding facilities and 

Form CMS 2552–96 for hospital-based 

facilities, contain data that can be used 

to compute a facility’s percentage of 

composite costs to total costs. We will 

apply that facility-specific composite 

rate percentage to the facility’s total bad 

debt amount associated with the 

bundled ESRD PPS payment. The 

resulting bad debt amount will be used 

to determine the allowable Medicare 

bad debt payment in accordance with 

§ 413.89 and § 413.178. During the 

transition period, a facility will apply 

the facility-specific composite cost 

percentage to the bad debt amounts 

associated with only the transition 

composite rate portion of the bundled 

ESRD PPS payment. The resulting bad 

debt amount will be added to the bad 

debt amount associated with the 

transition portion of the facility’s ESRD 

reasonable costs to determine the total 

allowable Medicare bad debt payment 

in accordance with § 413.89 and 

§ 413.178. 

Comment: One commenter believed 

that section 153(a)(4) of MIPPA is silent 

with regard to bad debt reimbursement 

for ESRD services and that the statute 

does not imply that bad debts for noncomposite rate related services should 

or should not be covered. The 

commenter further believed that under 

the ESRD PPS, ESRD bad debts should 

be reported in the same manner as bad 

debts for other outpatient PPS services. 

Response: We believe that the Rule of 

Construction included in section 

153(a)(4) of MIPPA, as stated above, 

would allow for the payment of bad 

debt amounts that are only associated 

with the basic case-mix adjusted 

composite rate. Thus, any bad debt 

amounts associated with drug and 

laboratory tests or with any noncomposite rate amounts will not be 

allowed. We also note that under 

§ 413.89(i) and § 413.178(d), bad debts 

arising from covered services paid 

under a reasonable charge-based 

methodology, or a fee schedule are not 

reimbursable under Medicare. Thus, if a 

Medicare PPS or a portion of a Medicare 

PPS has its basis in reasonable charges 

or a fee schedule then, any associated 

bad debt amounts are not reimbursable. 

Comment: One commenter believed 

that certain proposals, specifically the 

inclusion of laboratory services in the 

co-insurance calculation, contravenes 

the MIPPA statute which, prohibits 

opening the bad debt issue and 

increases bad debt costs for ESRD 

facilities. The commenter further 

suggested that until oral drugs are 

accurately accounted for, they should 

not be in the bundle, to ensure that 

additional bad debt is not imposed on 

facilities. The commenter recommended 

that CMS use caution until meaningful 

tracking and compliance tools for States, 

secondary insurers, and beneficiaries be 

in place. The commenter also 

recommended that ESRD facilities not 

be left with additional bad debt 

resulting from a new payment system. 

Response: We believe that the method 

described above of applying a facilityspecific composite rate percentage to the 

bad debt amounts associated with the 

ESRD PPS allows us to compute a 

facility’s allowable bad debt payments 

in accordance with the Rule of 

Construction included in section 

153(a)(4) of MIPPA. 

Comment: One commenter noted that 

it was burdensome to require hospitals 

to calculate bad debt under a composite 

rate definition that will no longer exist. 

The commenter urged CMS to have this 

policy modified to relate bad debt 

payments to the new payment system. 

Response: We believe that utilizing 

data that are already reported on the 

facility’s current Medicare cost report to 

compute the allowable bad debt 

payment under the ESRD PPS, will 

mitigate the reporting burden to the 

provider. ESRD facilities will be 

required to continue to complete the 

appropriate cost report worksheets with 

the data necessary to compute the 

composite cost percentage and compute 

the allowable bad debt payment under 

the ESRD PPS. 

Based on the comments received, we 

are finalizing that bad debt payments 

will continue to be made for the unpaid 

Medicare deductibles and coinsurance 

amounts for only those items and 

services associated with the basic casemix adjusted composite rate. However, 

since the single ESRD payment rate is 

for items and services included in the 

composite rate and for drugs and 

laboratory tests, we will use only the 

bad debt amounts associated with the 

composite rate portion of the single 

ESRD payment rate to determine a 

facility’s allowable bad debt payments. 

We will use the methodology described 

above to apply a facility-specific 

composite cost percentage to the total 

bad debt amount associated with the 

bundled ESRD PPS payment to compute 

the bad debt amount for only the basic 

case-mix adjusted composite rate. Bad 

debt payments for ESRD facilities will 

continue to be made in accordance with 

§ 413.89 and § 413.178 of the 

regulations, including the requirement 

to cap ESRD bad debt payments under 

§ 413.178(a). We will revise and publish 

the appropriate cost reporting 

worksheets and instructions in the PRM, 

Part 2 (CMS Pub. 15–2) along with any 

other necessary administrative 

issuances, to implement the 

computation of Medicare ESRD bad debt 

payments through to the cost report, as 

described above, for services rendered 

on or after January 1, 2011. 

In addition, we are finalizing the 

conforming change to regulation text at 

§ 413.178(d) regarding ESRD bad debt 

payment made under the ESRD payment 

system described in this final rule. We 

are also including a cross-reference to 

§ 413.178 in § 413.89(h). In the proposed 

rule, we erroneously indicated that we 

were proposing to add a cross-reference 

in § 413.89(i). However, we did not 

make any proposed revisions to 

§ 413.89(i). Therefore, for this final rule, 

we are not revising § 413.89(i). 

5. Limitation on Review 

As discussed in the proposed rule, 

section 153(b) of MIPPA amends section 

1881(b) of the Act to provide for a 

limitation on review. Specifically, 

section 1881(b)(14)(G) of the Act 

provides the following: ‘‘There shall be 

no administrative or judicial review 

under section 1869 of the Act, section 

1878 of the Act or otherwise of the 

determination of payment amounts 

under [section 1881(b)(14)(A)], the 

establishment of an appropriate unit of 

payment under [section 1881(b)(14)(C)], 

the identification of renal dialysis 

services included in the bundled 

payment, the adjustments under 

[section 1881(B)(14)(D)], the application 

of the phase-in under [section 

1881(b)(14)(E)], and the establishment of 

the market basket percentage increase 

factors under [section 1881(b)(14)(F)].’’ 

We proposed to codify this limitation on 

review in § 413.195 of the regulations 

(74 FR 50008). 

We received several comments 

concerning the limitation on review. 

The comments and responses are set 

forth below. 

Comment: Given the limitation of 

review clause, one commenter was 

concerned that it would impose a limit 

on payment for dialysis services of three 

treatments per week. The commenter 

believed that payment should be given 

for any treatments beyond the three 

treatments per week without requiring 

medical justification. 

Response: The limitation of review 

clause would prohibit review of our 

determination of the number of 

treatments that would be eligible for 

payment. We explain how the number 

of ESRD treatments eligible for Medicare 


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payment (that is, three treatments per 

week), was derived in section II.E. of 

this final rule. We do not agree that we 

should abolish the medical justification 

requirement for treatments that exceed 

the threshold because this process 

provides a mechanism to allow 

additional payment beyond the 

established treatment threshold. 

Comment: Several commenters 

requested we issue an ESRD PPS 

interim final rule to allow for additional 

comments or to challenge payments for 

Part D drugs, because the limitation on 

review would not allow for 

administrative or judicial review of the 

final rule. 

Response: Given that we have issued 

a proposed rule containing a detailed 

proposal for an ESRD PPS, allowed for 

an extended 90-day public comment 

period, and carefully considered the 

comments received, we believe that a 

final rule is appropriate. The ESRD PPS 

bundle is discussed in section II.A. of 

this final rule and we note that oral-only 

drugs currently covered under Part D 

will not be paid under the ESRD PPS 

until January 1, 2014. 

As we proposed, we are codifying the 

limitation on review in § 413.195 of the 

regulations. However, we have revised 

the language to reflect that the market 

basket update could result in a negative 

update. Therefore, we replaced 

reference to the market basket 

percentage increase with the market 

basket update factors. 

6. 50 Percent Rule Utilized in 

Laboratory Payments 

In the proposed rule (74 FR 50008), 

we discussed that as specified in CMS 

Pub 100–04, Chapter 16, Sect. 40.6, for 

a particular date of service to a 

beneficiary, if 50 percent or more of the 

covered laboratory tests within an 

Automated Multi-Channel Chemistry 

(AMCC) test are included under the 

composite rate payment, then all 

submitted tests are included within the 

composite payment and no separate 

payment is made for any of the AMCC 

tests. If less than 50 percent of the 

covered laboratory tests within the 

AMCC are composite rate tests, then all 

AMCC tests submitted are separately 

payable. We also described how ESRD 

facilities were to identify each test that 

is included in the composite rate and 

each test that is not included. We 

further explained that during the 

transition period, the 50 percent rule 

would continue to apply to the basic 

case mix adjusted composite payment 

system portion of the blended payment. 

We also stated that under the proposed 

consolidated billing provisions, the 

ESRD facility would assume the 

responsibility for all of the renal dialysis 

services that its patients receive, 

including laboratory tests. As a result, 

the ESRD facilities would apply the 50 

percent rule billing procedures 

including application of the relevant 

modifiers. Medicare would not make 

separate payment for laboratory tests, 

rendering the 50 percent rule irrelevant 

for payment purposes. The 50 percent 

rule’s relevance would be limited to its 

use in determining eligibility for outlier 

payment (74 FR 50008). 

In the proposed rule, we noted that 

preliminary analyses revealed a small 

impact upon removing from eligibility 

for outlier services the AMCC tests to 

which the 50 percent rule applies. As a 

result, we considered excluding AAMC 

tests from the definition of outlier 

services, thus negating the need to apply 

the 50 percent rule under the proposed 

ESRD PPS (74 FR 50009). We also noted 

that we planned to continue to evaluate 

the impact of this approach and include 

further discussion in the final rule. We 

requested public comments on whether 

or not to include the AMCC tests in the 

definition of outlier services and retain 

the 50 percent rule under the proposed 

ESRD PPS. 

Because we are finalizing the use of 

the 50 percent rule with regard to 

determining eligibility for outlier 

payments, we have included our 

discussion of this issue, along with the 

comments and responses that we 

received pertaining to the 50 percent 

rule, in section II.H. of this final rule. 

7. Medicare as a Secondary Payer 

In the proposed rule, we stated that 

Medicare may be a secondary payer 

(MSP) when the primary payer is a 

group health plan for ESRD items and 

services furnished to Medicare 

beneficiaries during the 30-month 

Medicare coordination of benefit period 

(74 FR 50009). We further stated that at 

that time, we were unable to identify the 

systems operations and billing 

procedures impact of this relationship 

under the current basic case-mix 

adjusted composite payment system, 

and we were exploring how it would be 

utilized and managed under the 

proposed ESRD PPS. We stated that we 

believed that while there may need to be 

system changes in order to process MSP 

claims under the proposed ESRD PPS, 

there should be no impact on ESRD 

providers and on primary payers. We 

stated our intent to issue through 

administrative issuance, any changes in 

the manner of reporting information, 

should that be required. We solicited 

public comments on the operational 

issues of MSP under the proposed ESRD 

PPS. 

We received a few comments on MSP. 

The comments and our responses are set 

forth below. 

Comment: One commenter questioned 

what would prevent his secondary 

payer from dropping him or increasing 

his premiums. Another commenter 

suggested changing the MSP period for 

employed, child-rearing, in-school, or 

under 25 years of age dialysis patients 

from 30 months to a continuous period. 

Response: Questions concerning 

premiums or other issues pertaining to 

secondary insurers are beyond the scope 

of this final rule. In addition, 

recommendations concerning changes 

to the coordination of benefits period 

are beyond the scope of this final rule. 

We believe that the implementation of 

the ESRD PPS will have no effect on 

MSP rules. We will continue to evaluate 

the need for changes to MSP systems, 

operations and billing procedures under 

the ESRD PPS and we will issue through 

administrative issuance any changes in 

the manner of reporting information 

should that be required. 

8. Conforming Regulation Changes 

We proposed to amend 42 CFR 

Chapter IV. Specifically, we proposed 

conforming changes to existing 

regulations to reflect the current basic 

case-mix adjusted composite payment 

system and the ESRD PPS. We did not 

receive any public comment on these 

changes. Therefore, we are finalizing 

these conforming changes, along with 

the technical changes noted in the final 

rule, as follows: 

• Section 413.170(a)—setting forth 

the principles and authorities under 

which CMS is authorized to establish a 

prospective payment system; 

• Section 413.170(b)—providing 

procedures and criteria under which a 

facility may receive a pediatric 

exception; 

• Section 413.171—defining base 

rate, composite payment system, basic 

case-mix adjusted composite payment 

system, ESRD facility; 

• Section 413.172(a)—setting forth 

that payment for renal dialysis services 

and home dialysis services are based on 

prospective payment rates: 

• Section 413.172(b)—requiring that 

all prospective payments to approved 

ESRD facilities as payment in full and 

defines approved ESRD facility; 

• Section 413.174(a)—establishing 

prospective payment rates for hospitalbased and independent ESRD facilities 

prior to January 1, 2009; 

• Section 413.174(f)—establishing 

payment for separately billable ESRDrelated drugs and biological prior to 

January 1, 2011; 


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• Section 413.176(a) and (b)— 

establishing the beneficiary deductable; 

• Section 413.178(d)—establishing 

bad debt under reasonable charge-based 

methodology or fee schedule are not 

reimbursable; 

• Section 413.180(1),(2), and (3)— 

establishing the periods of exceptions to 

payment rates; 

• Section 413.231(a)—establishing 

the adjusted labor portion of the base 

rate to account for geographic 

differences in area wage levels; 

• Section 413.231(b)—defining urban 

and rural areas; 

• Section 414.330(a)(2)—establishing 

exception for equipment and supplies 

furnished prior to January 1, 2011; 

• Section 414.330(b)(2)—establishing 

exception for home support services 

furnished prior to January 1, 2011; 

• Section 414.330(c)—establishing 

payment limits for support services, 

equipment and supplies furnished prior 

to January 1, 2011; and 

• Section 414.335(a)—establishing 

payment home EPO use prior to January 

1, 2011. 

M. Anemia Management and Dialysis 

Adequacy Measures 

In the September 29, 2009 proposed 

rule (74 FR 50009), we proposed to 

adopt three measures by which the 

quality of dialysis services furnished by 

ESRD providers participating in 

Medicare would be measured. 

Section 1881(h)(2)(A) of the Act 

requires that the measures specified for 

the Quality Incentive Program (QIP) 

include measures on anemia 

management that reflect the labeling 

approved by the Food and Drug 

Administration (FDA) for such 

management, measures on dialysis 

adequacy, and such other measures the 

Secretary specifies. To implement this 

section, we proposed (74 FR 50011) that 

for the first QIP performance period we 

would adopt the two anemia 

management measures and one 

hemodialysis adequacy measure that are 

currently used for Dialysis Facility 

Compare (DFC). Data needed to 

calculate these measures can be 

collected from Medicare claims 

submitted by ESRD providers/facilities 

on a patient-specific basis. 

The anemia management measures 

used for DFC assess the percentage of 

patients at a facility whose anemia was 

not controlled at both the high and low 

ends of the FDA-recommended 

hemoglobin levels. Specifically, these 

measures are: (1) The percentage of 

patients treated at a provider/facility 

with a Hemoglobin Less Than 10 g/dL 

and treated with erythropoiesis 

stimulating agents (ESAs), and (2) the 

percentage of patients at a provider/ 

facility with a Hemoglobin Greater Than 

12 g/dL and treated with erythropoiesis 

stimulating agents (ESAs). 

The current FDA labeling guideline 

released November 8, 2007 for the 

administration of ESAs to patients with 

chronic kidney disease, including ESRD 

patients, states, ‘‘The dosing 

recommendations for anemic patients 

with chronic renal failure have been 

revised to recommend maintaining 

hemoglobin levels within 10 g/dL to 12 

g/dL.’’ 

As we stated in the proposed rule (74 

FR 50011), we believe that the proposed 

anemia management measures reflect 

the approved FDA labeling for anemia 

management because they assess the 

number of patients whose hemoglobin 

levels are at the low and high end of the 

FDA label recommendation. In addition, 

we believe that it is more appropriate to 

adopt two measures which together 

assess the high and low ends of the FDA 

recommended hemoglobin level range, 

rather than a single measure that reflects 

the percentage of patients who have 

hemoglobin levels within the 10 

through 12 g/dL range, because two 

measures will provide a richer picture 

of provider/facility performance. 

Additionally, the low and high ends for 

anemia management have been of 

particular concern for the treatment of 

vulnerable patients and these measures 

will allow for monitoring for this 

potential outcome. These data will also 

allow us to calculate the percentage of 

patients who have hemoglobin levels 

within the 10 through 12 g/dL range. 

Therefore, we proposed to adopt these 

two anemia management measures for 

the QIP (74 FR 50011). 

Anemia data have been reported on 

DFC since January 2001. As we noted 

above, we updated the reporting of 

anemia data for DFC in November of 

2008 to be consistent with the new FDA 

labeling guideline released in November 

2007; however, the methodology for 

calculating the provider/facility, State, 

and national averages for anemia 

measures has not changed since the 

initial release of DFC. We proposed to 

use the same methodology we use to 

calculate the anemia management 

measures for purposes of DFC to 

calculate the measures for purposes of 

the QIP because the methodology is 

consistent with how we have calculated 

that data since 2001 (74 FR 50011). 

Under this methodology, we will 

calculate the measures using 

hemoglobin data for Medicare patients 

who have been diagnosed with ESRD for 

at least 90 days and whose Medicare 

claims submitted by providers/facilities 

indicated the use of an ESA during that 

90-day period. Data from patients whose 

first ESRD maintenance dialysis starts 

before day 90 or who have hemoglobin 

values of less than 5 g/dL or greater than 

20 g/dL will be excluded from the 

measure calculation. In addition, there 

must be for the same patient at least 4 

claims meeting this criteria for that data 

to be included in the data for a specific 

provider or facility. 

Technical details on the methodology 

used to calculate the anemia measures 

are available on the Arbor Research 

Collaborative for Health and University 

of Michigan Kidney Epidemiology and 

Cost Center Web site: http:// 

www.dialysisreports.org/ 

Methodology.aspx. 

The Hemodialysis Adequacy Measure 

(urea reduction ratio (URR)) that we 

proposed to adopt (74 FR 50011) is also 

used for DFC and assesses the 

percentage of patients at a provider or 

facility that get their blood cleaned 

adequately (blood urea is removed 

during in-center hemodialysis). 

Specifically, this measure assesses the 

percentage of in-center hemodialysis 

patients at a provider or facility whose 

urea reduction ratio (URR) is 65 percent 

or greater, a standard based on the 

National Kidney Foundation’s Kidney 

Disease Quality Initiative Clinical 

Practice Guidelines (NKF–KDOQI). 

These guidelines are widely used and 

generally accepted throughout the ESRD 

community. More information on the 

calculation of the URR is available at 

http://www.dialysisreports.org/ 

Methodology.aspx. 

The methodology for calculating the 

provider/facility, State, and national 

averages for the in-center hemodialysis 

measure has been used since January 

2001 with the initial release of DFC; we 

proposed to use the same methodology 

to calculate the measure for purposes of 

the QIP to be consistent with how that 

data has been calculated since 2001 (74 

FR 50012). Under this methodology, we 

will calculate URR data only for 

Medicare patients who have been 

diagnosed with ESRD and received incenter maintenance hemodialysis for at 

least 183 days from the date that they 

received their first maintenance dialysis 

treatment, and whose Medicare claims 

submitted by providers/facilities 

included a value for the URR. In 

addition, there must be for the same 

patient at least four claims meeting the 

criteria above for that data to be 

included in the data for a specific 

provider or facility. Technical details 

about the methodology we proposed to 

use to calculate the hemodialysis 

adequacy measure are available on the 

University of Michigan Kidney 

Epidemiology and Cost Center Web site 


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at: http://www.dialysisreports.org/ 

Methodology.aspx. We note that the 

data we need to calculate the proposed 

anemia management and hemodialysis 

adequacy measures described above can 

be collected through ESRD claims, 

which is the only complete provider/ 

facility level data set available to CMS 

at this time. For this reason in the 

September 29, 2009 proposed rule 

published in the Federal Register (74 

FR 50012), we proposed to adopt only 

the two anemia management measures 

and one dialysis adequacy measure 

described above. 

Although we recognize that section 

1881(h)(2)(A)(i)(ii) states that the 

measures shall include ‘‘measures on 

dialysis adequacy,’’ only one dialysis 

adequacy measure is collected 

nationally and available to determine 

provider/facility-specific values. For 

this reason, we proposed to adopt only 

one dialysis adequacy measure. We also 

note that section 1881(h)(2)(A)(iii) of the 

Act states that the measures shall 

include, to the extent feasible, other 

measures as the Secretary specifies, 

including measures on iron 

management, bone mineral metabolism, 

and vascular access (intended to 

maximize the placement of arterial 

venous fistula). CMS did not propose in 

the September 29, 2009 proposed rule, 

to adopt any measures in these 

categories for the QIP payment 

consequence year 2012 since we are not 

currently collecting data in a manner 

that would allow determination of 

provider/facility-specific performance 

with respect to these categories of 

measures (74 FR 50012). We are 

working to identify appropriate sources 

from which we can adequately capture 

data to support the future adoption of 

additional measures. Finally, as we 

stated in the ESRD PPS proposed rule 

(74 FR 50012), it is not feasible to 

propose a patient satisfaction measure at 

this time because the data collection 

tool has not been fully validated for the 

collection of relevant and industry 

accepted patient satisfaction data. 

Therefore, we believe it is not feasible 

to propose more than the 

aforementioned measures for the QIP 

payment consequence year 2012 

because of the lack of complete and 

accurate data. We will address other 

measures in future rulemaking. 

In the September 29, 2009 proposed 

rule (74 FR 50012 through 50016), we 

also outlined a conceptual model 

describing various components of the 

QIP under consideration, such as the 

weighting of measures and scoring 

methodology for determining payment 

reductions. The purpose of the 

conceptual model was to notify the 

public regarding what we believe to be 

essential components of the QIP and 

obtain detailed comments on those 

components for purposes of future 

rulemaking. Our previous discussion of 

the measures and the conceptual model 

may be found in the ESRD PPS 

proposed rule (74 FR 50009). 

We received approximately 194 

comments on the proposed measures. 

Many commenters agreed that we 

should adopt the three proposed 

measures, although many also suggested 

that additional measures be included in 

the ESRD QIP to ensure a robust 

measurement of the quality of services 

furnished by dialysis providers/ 

facilities. Commenters also noted the 

importance of including measures for 

pediatric, peritoneal and home 

hemodialysis patients to assure that 

quality care is provided to these 

populations. 

In response to public comments 

received about the inclusion of younger 

patients, we have decided that patients 

< 18 years of age will not be included 

in the final calculation of the anemia 

measures because at this time there is 

no consensus on the appropriate 

hemoglobin range for this age group. 

Further, using this exception makes 

these measures more consistent with the 

target age used in the clinical 

performance measures (CPMs) which 

have been used by providers/facilities 

for several years. Therefore, we will use 

the same methodology for data 

collection and analysis as used for 

calculation of the anemia measures 

reported to the DFC with the exception 

of not including patients < 18 years of 

age in the final calculation of provider/ 

facility performance on the measures. 

In response to a number of public 

comments received on these measures 

and in recognition of a number of 

concerns related to the exclusion of 

home hemodialysis patient data from 

the Hemodialysis Adequacy measure, 

we are clarifying that home 

hemodialysis patient data will be 

included in the calculation of the 

anemia management measures. Home 

hemodialysis patients have been 

included in the anemia management 

measures currently reported; however, 

there are different frequencies of 

treatment for the Home Hemodialysis 

population that makes the currently 

accepted measure of Hemodialysis 

Adequacy of a URR Greater than 65 

percent invalid at this time. CMS is 

currently working with stakeholders to 

establish a measurement of the 

adequacy of a hemodialysis treatment 

that is accurate for this population. This 

is CMS’ basis for excluding this 

population from the initial year of the 

QIP. Below we provide a brief summary 

of each measure proposed, a summary 

of the public comments received, and 

our responses to the comments. 

We also received comments on the 

weighting and scoring of measures and 

the setting of the national performance 

standard described in the conceptual 

model. Comments received on 

components of the conceptual model 

not related to these measures will not be 

addressed in this rule. As stated in the 

proposed rule, we intend to use these 

comments to inform future rulemaking. 

1. Anemia Management Measures: 

Hemoglobin Less Than 10 g/dL and 

Hemoglobin Greater Than 12 g/dL 

As stated above, we proposed to use 

the anemia management measures as 

used in the current DFC database since 

January 2001 and as required by section 

1881(h)(2)(A)(i) of the Act. The anemia 

management measures proposed for the 

QIP include two measures on anemia 

management that reflect the labeling 

approved by the FDA for such 

management (74 FR 50011). Data for 

these measures can be collected from 

Medicare claims currently submitted by 

ESRD providers/facilities as required in 

the initial year. The anemia measures 

that were proposed are as follows: 

• Percentage of Medicare patients at a 

provider/facility who have an average 

hemoglobin value less than 10.0 g/dL 

(referred to in this final rule as the 

‘‘Hemoglobin Less Than 10 g/dL’’). 

• Percentage of Medicare patients at a 

provider/facility who have an average 

hemoglobin value greater than 12.0 g/dL 

(referred to in this final rule as the 

‘‘Hemoglobin Greater Than 12 g/dL’’). 

We proposed to calculate these 

measures using hemoglobin data for 

Medicare patients who have been 

diagnosed with ESRD for at least 90 

days and whose Medicare claims 

submitted by providers/facilities 

indicated the use of an ESA during that 

90-day period. Data from patients whose 

first ESRD maintenance dialysis starts 

before day 90 or who have hemoglobin 

values of less than 5 g/dL or greater than 

20 g/dL will be excluded from the 

measure calculation. In addition, there 

must be, for the same patient, at least 4 

claims meeting this criteria for that data 

to be included in the data for a specific 

provider or facility. However, as 

described, ESRD patients less than 18 

years of age will not be included in the 

measure calculation. (Technical details 

on the methodology we proposed to use 

to calculate the anemia measures are 

available on the Arbor Research 

Collaborative for Health and University 

of Michigan Kidney Epidemiology and 

Cost Center Web site: http:// 


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49184 Federal Register / Vol. 75, No. 155 / Thursday, August 12, 2010 / Rules and Regulations 

www.dialysisreports.org/ 

Methodology.aspx.) 

Comment: A few commenters voiced 

concern about the lack of measures 

specific to home hemodialysis. Because 

this modality is being advanced within 

the ESRD community and Medicare, 

commenters wished to ensure that 

measures for this patient population are 

incorporated in the QIP. 

Response: We agree that inclusion of 

home dialysis modalities (that is, home 

hemodialysis and peritoneal dialysis) 

data is important to ensure providers/ 

facilities are incentivized to include 

these populations in quality 

improvement efforts. To that end, home 

hemodialysis patient data will be used 

to calculate provider/facility scores on 

the anemia management measures in the 

QIP payment consequence year 2012. 

However, due to the varying frequencies 

of treatments for the home hemodialysis 

population the use of the currently 

accepted measure of Hemodialysis 

Adequacy of a URR greater than 65 

percent is invalid at this time. For this 

reason we will not include home 

hemodialysis patient data in the 

calculation of the Hemodialysis 

Adequacy measure at this time. We are 

currently working with stakeholders to 

establish a measurement of the 

adequacy of a hemodialysis treatment 

that is accurate for this population. 

Beyond anemia management and 

dialysis adequacy, we are continuing to 

work with the ESRD stakeholders to 

develop new quality measures for use in 

future years of the QIP that are 

applicable, relevant, and provide a 

means to assess the quality of care that 

is being delivered to the home 

hemodialysis population. 

Comment: Some commenters 

questioned the value of the Hemoglobin 

Greater Than 12 g/dL measure because 

they believe that the bundled payment 

should reduce the incidence of 

overutilization of erythropoiesis 

stimulating agents (ESAs). The 

commenters also stated that the 

percentage of patients with hemoglobin 

in the range of >10 g/dL and <12 g/dL 

would be a more effective measure for 

the QIP. 

Response: Hemoglobin values at 

either end of the spectrum have adverse 

consequences for the ESRD patient 

population. We believe that focusing on 

the population that falls within the 

range of 10–12 g/dL will not provide the 

necessary information to evaluate the 

percentage of patients whose anemia is 

either inadequately treated or 

overtreated. 

A Hemoglobin Less Than 10 g/dL may 

be the result of inadequate 

administration of ESAs, inadequate iron 

stores, blood loss (gastrointestinal 

bleeding), an infectious process, or other 

clinically significant causes. 

Hemoglobin Less Than 10 g/dL can 

result in poor oxygenation, decreased 

activity, increased hospitalizations, 

need for blood transfusions, and death. 

We believe that the threat of such 

adverse consequences should prompt 

ESRD facilities to take steps to increase 

patients’ average Hemoglobin to greater 

than 10 g/dL. 

On the other hand, a Hemoglobin 

Greater Than 12 g/dL may result from 

the overtreatment of anemia with ESAs. 

A Hemoglobin Greater Than 12 g/dL 

while a patient is being treated with 

ESAs has been associated with an 

increased incidence of death in the 

ESRD population. 

By focusing solely on the percentage 

of patients that fall between 10–12 g/dL, 

we believe that important clinical 

indicators of inadequate or 

overaggressive treatment of anemia 

would be lost. A summary of evidence 

regarding the importance of these 

measures may be accessed at: http:// 

www.cms.gov/CPMProject/Downloads/ 

ESRDAnemiaSummary05212008.pdf. 

Comment: Two commenters noted 

that patients who are active or younger 

may have higher average hemoglobin 

levels because higher hemoglobin 

supports their energy levels. Using the 

Hemoglobin Less Than 10 g/dL and 

Hemoglobin Greater Than 12 g/dL for 

the first QIP performance period, 

according to the commenters, will force 

dialysis centers to prescribe less 

erythropoietin and maintain these 

patients’ average hemoglobin levels 

closer to 10 g/dL, thereby reducing these 

patients’ ability to continue working 

and greatly affecting their quality of life. 

Another commenter stated that patients 

who live at high altitudes may have 

higher average hemoglobin levels which 

should be accounted for in the QIP. 

Response: Section 1881(h)(2)(A)(i) of 

the Act requires that the measures on 

anemia management specified for the 

QIP reflect the labeling approved by the 

Food and Drug Administration (FDA) 

for such management. The current FDA 

guidance may be found at: http:// 

www.fda.gov/Drugs/DrugSafety/ 

PostmarketDrugSafetyInformationfor

PatientsandProviders/ucm126481.htm. 

We also note that due to the lack of 

scientific evidence indicating that 

anemia management for the pediatric 

population should be the same as the 

adult population, we do not believe it is 

appropriate to include the ESRD 

population under the age of 18 years in 

the final calculation of the two anemia 

management measures (Hemoglobin 

Less Than 10 g/dL and Hemoglobin 

More Than 12 g/dL) that we are 

finalizing for the QIP payment 

consequence year 2012. However, the 

data collection and measure calculation 

will remain consistent with that used 

for the DFC since 2001 as described in 

the current methodology at: http:// 

www.dialysisreports.org/ 

Methodology.aspx. 

Lastly, guidelines for the 

administration of ESAs, along with dose 

adjustments are included along with the 

ESA packaging that is approved by the 

FDA. Dose adjustments are made at the 

discretion of the clinician, based on the 

needs of the individual patient in order 

to achieve the desired hemoglobin. This 

rationale is equally applicable to the 

population that lives at higher altitudes 

mentioned by the other commenter and 

is reported in Brookhard M.A., et al. 

Journal of American Society of 

Nephrology 19(7): 1389. 2008. In 

considering the commenters concerns 

for patients living in high altitude areas, 

we have determined, based on clinical 

studies, that while patients living at 

high altitudes may require less or lower 

doses of ESA to maintain hemoglobin 

levels at the appropriate level, they 

should not be excluded from the 

measure. 

Comment: One commenter 

recommended that patients not on ESAs 

be excluded from the Hemoglobin 

Greater Than 12 g/dL. 

Response: Patients who are not 

receiving ESAs are excluded from the 

Hemoglobin Greater Than 12 g/dL 

measure. The purpose of this measure is 

to monitor high hemoglobin that may be 

directly attributed to the use (possible 

overutilization) of ESAs and not 

attributed to other causes. Therefore, 

patients not receiving ESAs are 

excluded from Hemoglobin Greater 

Than 12 g/dL. Specifications for this 

measure may be found at: http:// 

www.dialysisreports.org/ 

Methodology.aspx. 

Comment: Two commenters had a 

concern about the specifications for the 

anemia management measures, 

particularly the time window for 

measurement. One of the commenters 

had concerns about the proposal to use 

the DFC specifications for the 

Hemoglobin Less Than 10 g/dL because, 

under those specifications, we calculate 

a yearly average for the hemoglobin 

level. The commenter recommended 

that CMS calculate a 3-month average 

and then average these 3-month 

averages over a 12-month period (for 

example, create a 12-month average 

using 4 averaged patient quarters). The 

other commenter believed that the use 

of 12-month averaging to calculate the 

anemia management measures would 


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Federal Register / Vol. 75, No. 155 / Thursday, August 12, 2010 / Rules and Regulations 49185 

decrease the public’s ability to separate 

good performers from poor performers. 

According to this commenter, when 12- 

month averages are used, clinical 

performance in most providers/facilities 

approximates the national average for 

performance on the anemia management 

measures. The commenter 

recommended that for purposes of the 

QIP, we calculate a 3-month average 

based on a monthly assessment of lab 

results. 

Response: We proposed to calculate 

the proposed anemia management 

measures using the same specifications 

that we currently use for DFC because 

the methodology is consistent with how 

we have calculated those measures 

since 2001. Details and an explanation 

for the use of and planned continued 

use of the existing calculation used for 

the calculation of the anemia 

percentages are available on the 

following Web site: http:// 

www.dialysisreports.org/ 

Methodology.aspx. 

We believe that using the 

specifications currently in use for these 

measures will create minimal data 

collection disruptions for providers/ 

facilities because they are already 

submitting data in accordance with 

these specifications. However, as we 

review the data from the initial year of 

the ESRD QIP, we will use findings from 

this data review to determine whether 

or not specifications for this measure 

should be changed. We believe we have 

the authority to update specifications of 

quality measures in appropriate cases, 

such as when selected specifications do 

not result in useful or accurate 

information in comparing ESRD 

providers/facilities. However, we will 

use the rulemaking process to adopt any 

changes to measures or new measures 

into the QIP. 

After consideration of the comments 

received on the Anemia Management 

Measures and for the reasons stated 

above, we are finalizing the two anemia 

measures (Hemoglobin Less Than 10 g/ 

dL and Hemoglobin More Than 12 g/dL) 

as proposed for the QIP payment 

consequence year 2012 with one change 

to these measures. As noted above, 

patients < 18 years of age will not be 

included in the final measure 

calculation of the two anemia measures 

because of lack of scientific evidence to 

support the appropriate hemoglobin 

range for this population and concerns 

voiced through public comment. 

Further, excluding the population less 

than 18 years of age is consistent with 

the target age for the Anemia 

Management CPMs in current use. 

However, we are finalizing the data 

collection process and calculation of the 

facility level measures consistent with 

what has been used for the DFC since 

2001. Once testing of data collection for 

additional measures is completed and 

such measures prove to be feasible and 

reliable measures, we will consider 

adding those measures in future years of 

the QIP. 

2. Hemodialysis Adequacy Measure: 

Urea Reduction Ratio (URR) 

The Hemodialysis Adequacy 

Measure—Urea Reduction Ratio 

(URR)—is a nationally reported measure 

used in the DFC database since January 

2001 and can be calculated from claims 

data currently submitted by ESRD 

providers/facilities. The hemodialysis 

adequacy measure that we proposed to 

adopt (74 FR 50011) is the percent of 

hemodialysis patients with URR ≥ 65 

percent (referred to in this final rule as 

the ‘‘Hemodialysis Adequacy Measure’’). 

We proposed to calculate URR data only 

for Medicare patients who have been 

diagnosed with ESRD and received 

maintenance dialysis for at least 183 

days from the date that they received 

their first maintenance dialysis 

treatment, and whose Medicare claims 

submitted by providers/facilities 

included a value for the URR. In 

addition, there must be for the same 

patient at least 4 claims meeting the 

criteria above for that data to be 

included in the data for a specific 

provider or facility. In the proposed rule 

(74 FR 50013), we proposed that this 

measure would only apply to facilitybased hemodialysis and patients > 18 

years of age. As we explain in detail 

below, peritoneal and home 

hemodialysis patients will not be 

included in this measure because, based 

on the clinical evidence, we have 

determined that the existing 

Hemodialysis Adequacy Measure of 

(URR) > 65 percent is not applicable to 

these patients. 

Comment: Several commenters stated 

that the Hemodialysis Adequacy 

Measure is not an accurate measure of 

dialysis adequacy and that the measure 

Kt/V is the more accurate and better 

measure. Additionally, one commenter 

stated that URR specifications should be 

adjusted for patients receiving short, 

daily dialysis (that is, dialysis received 

5 or more times per week for 2 to 3.5 

hours as required to ensure adequate 

dialysis). 

Response: We currently use ESRD 

claims for quality data and the URR is 

one of the measures on the claims. 

However, the collected URR is only 

reported for patients receiving in-center 

hemodialysis and those above the age of 

18 years (approximately 96 percent of 

hemodialysis patients). Accordingly, we 

believe it is appropriate to use this 

measure initially for the QIP. The use of 

URR ≥ 65 percent for the measurement 

of adequacy with peritoneal dialysis, 

home hemodialysis, and pediatric 

dialysis is not a valid measurement of 

dialysis adequacy because of the unique 

variations that exist with each different 

type of dialytic modality and patient 

population (that is, pediatric patients or 

adults). Starting July 2010, however, 

providers are required to submit both 

URR (in-center hemodialysis patients) 

and Kt/V (all modalities) on all ESRD 

claims as reported through CMS Change 

Request (CR 6782). Given that Kt/V will 

soon be submitted on claims and that it 

has become a more widely accepted 

measurement of the adequacy of dialysis 

and the National Quality Forum has 

endorsed quality measures using Kt/V 

for hemodialysis and peritoneal 

dialysis, we anticipate that the URR may 

be replaced by Kt/V in future program 

years. 

Comment: One commenter expressed 

concern about the Hemodialysis 

Adequacy Measure proposed for the QIP 

payment consequence year 2012 as a 

valid measure of quality. The claims 

data used for this measure reports the 

Hemodialysis Adequacy Measure as a 

range and does not require the number 

of treatment sessions. The commenter 

recommended that CMS require that 

providers/facilities report the specific 

URR value and the number of 

treatments to ensure that the measure 

captures only those patients receiving 

three treatments per week. Additionally, 

a commenter recommended that we 

calculate the measure using patient 

quarters rather than a 12-month average. 

Response: ESRD providers/facilities 

are required to submit the number of 

treatments and the specific URR value 

on each claim submitted for payment. 

The measure is currently calculated for 

purposes of DFC using data from 

patients that have three treatment 

sessions per week. Patients included in 

the measures are those receiving incenter hemodialysis. As noted 

previously, peritoneal and home 

hemodialysis patients are excluded as 

well as pediatrics because clinical 

evidence demonstrates that this is not a 

valid measure for these patients; 

however it is an accepted measure for 

in-center hemodialysis patients. Patients 

included in this measure must be 

greater than 18 years of age, have at least 

4 claims and have been on dialysis for 

at least 183 days. Full details and 

technical specifications for this measure 

can be accessed at: http:// 

www.dialysisreports.org/ 

Methodology.aspx. It is important to 

note that initially for the QIP all 


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measures will be claims-based since that 

is the only complete facility level source 

of data available for this population. 

URR is being used in the QIP payment 

consequence year 2012 because it is a 

standard measure used in ESRD practice 

for in-center hemodialysis and has been 

publicly reported in the DFC since 

January 2001. We believe this will avoid 

confusion in the data collection process. 

We have analyzed the existing claims 

data to see if there was a significant 

variance in calculating the URR based 

on patient quarters rather than a 12- 

month average and found that there is 

no difference that would warrant a 

change in the current methodology that 

uses a 12-month average. 

Comment: A few commenters agreed 

that the proposed Hemodialysis 

Adequacy Measure should continue to 

exclude patients on peritoneal dialysis 

or home hemodialysis because this 

measure is not an accurate reflection of 

the effectiveness of these two 

modalities. Additionally, some of the 

commenters recommended that Kt/V be 

implemented to include peritoneal 

dialysis and home hemodialysis. Other 

commenters expressed concerns about 

the timing of laboratory testing for 

dialysis adequacy. Another commenter 

recommended that both the number of 

treatments prior to measurement of URR 

and when tests should be taken should 

be made clear. Lastly, there was concern 

among the commenters about the impact 

of residual renal function, which 

contributes to overall renal clearance 

and thus, would increase the measure 

score. 

Response: We agree with the 

commenters that the existing 

Hemodialysis Adequacy Measure of 

URR >65 percent should be excluded for 

home hemodialysis, pediatric dialysis 

and peritoneal dialysis patients, since it 

is not a valid measurement of the 

adequacy of treatment for those 

modalities based on treatment 

characteristics. We are in the process of 

working with the stakeholder 

community to develop consensus based 

measurements of adequacy for these 

modalities. 

With regard to the URR measure and 

number of treatments per week, the 

specifications state that the measure is 

based on thrice-weekly hemodialysis 

treatments. Those receiving more than 

three treatments per week are excluded 

from the current measure. Measure 

specifications may be accessed at: 

http://www.dialysisreports.org/ 

Methodology.aspx. Additionally, we 

anticipate dialysis providers/facilities to 

use recommended KDOQI guidelines for 

laboratory testing for the calculation of 

Dialysis Adequacy. Guidelines can be 

accessed at: http://www.kidney.org/ 

professionals/kdoqi/pdf/12–50– 

0210_JAG_DCP_GuidelinesHD_Oct06_SectionA_ofC.pdf. 

In terms of patients with residual 

renal function, residual renal function 

usually drops off after about 6 months 

on hemodialysis therefore, dialysis 

adequacy (URR) for patients are 

excluded until patients have been on 

hemodialysis for 6 months. As we 

indicated, starting July 2010, providers/ 

facilities are required to submit both 

URR (hemodialysis patients) and Kt/V 

(all modalities) on all ESRD claims. 

Given that Kt/V will be submitted on all 

ESRD claims, and that Kt/V has become 

a more widely accepted measurement of 

the adequacy of dialysis and the 

National Quality Forum has endorsed 

quality measures using Kt/V for 

hemodialysis and peritoneal dialysis, 

we anticipate that the URR may be 

replaced by Kt/V in future program 

years which will allow for inclusion of 

these modalities as well as pediatric 

patients. 

Comment: One commenter noted that 

the use of 12-month averaging for the 

Hemodialysis Adequacy Measure 

diminishes the public’s ability to 

discern performance differences 

between providers/facilities because, 

when 12-month averages are used, 

clinical performance in most providers/ 

facilities approximates the average. The 

commenter recommended that we 

calculate the measure by using a threemonth average based on a monthly 

assessment of lab results. 

Response: We appreciate the 

comment. To avoid any confusion in 

data collection, in the initial year of the 

QIP we will use the technical 

specifications used for the DFC. To date, 

the current specifications and data 

publicly reported on DFC have been 

viewed as accurate. However, if data in 

the initial year of the QIP demonstrate 

that specifications should be changed, 

we will take this recommendation under 

consideration. 

After consideration of the comments 

received on the Hemodialysis Adequacy 

measure (URR) and for the reasons 

discussed above, we are finalizing the 

Hemodialysis Adequacy measure for the 

QIP payment consequence year 2012. 

Once testing of data collection for Kt/V 

is completed and if Kt/V proves to be a 

feasible and reliable measure, we will 

consider replacing the URR measure 

with Kt/V in the future. 

3. Additional Comments 

In the September 29, 2009 proposed 

rule (74 FR 50009), we did not propose 

to include any additional measures 

beyond the two anemia management 

measures (Hemoglobin Less Than 10 

g/dL and Hemoglobin More Than 12 

g/dL) and the Hemodialysis Adequacy 

Measure (URR) both of which will 

exclude ESRD patients less than 18 

years of age for the QIP payment 

consequence year 2012. Section 

1881(h)(2)(A)(iii)of the Act states that 

the measures shall include, to the extent 

feasible, such other measures as the 

Secretary specifies, including measures 

on iron management, bone mineral 

metabolism, vascular access (intended 

to maximize the placement of arterial 

venous fistula) and patient satisfaction 

measures. CMS did not propose to adopt 

any measures in these categories since 

we are not currently collecting data that 

would allow determination of provider/ 

facility-specific performance with 

respect to these categories of measures. 

We are working to identify appropriate 

sources from which we can adequately 

capture data to support the future 

adoption of additional measures. We 

anticipate that measures such as Kt/V, 

vascular access and vascular access 

infections will be included in future 

program years when data sources prove 

valid. Finally, we believe it is not 

feasible to include a patient satisfaction 

measure at this time because there is no 

fully validated data collection tool 

available to collect relevant and 

industry accepted patient satisfaction 

measure data. Additional measures will 

be addressed in future rulemaking. 

Comment: A significant number of 

commenters expressed concern about 

the lack of mineral metabolism 

measures in the list of measures 

proposed for 2012, with particular 

concern for the monitoring of 

parathyroid hormone levels (PTH), 

Phosphate (PO4) and calcium levels. 

Commenters noted that the inclusion of 

calcimimetics and phosphate binders in 

the bundled payment could result in the 

underutilization of these effective 

medications, and some commenters 

were also concerned about the potential 

for overutilization of 

parathyroidectomies as a less expensive 

option to the medications. 

Response: On April 15, 2008, we 

published in the Federal Register the 

Medicare Conditions for Coverage (CfC) 

for End-Stage Renal Disease Facilities 

final rule (73 FR 20370). These 

Medicare CfCs are enforced by periodic 

site visits by state survey agencies and 

specifically require the development 

and execution of Patient Plans of Care 

to ‘‘provide the necessary care to manage 

mineral metabolism and prevent or treat 

renal bone disease.’’ (See 42 CFR 

§ 494.90(a)(3).) In addition, 

§ 494.110(a)(2)(iii) requires dialysis 

facilities to include bone and mineral 


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metabolism outcomes as part of their 

ongoing Quality Assessment and 

Performance Improvement Programs. 

We consider the mineral metabolism 

and renal bone disease measure as 

measures that will be considered for 

future years of the QIP; however, for the 

reasons we discussed above, these 

measures will not be included for 2012. 

Comment: We received several 

comments stating that the three 

performance measures we proposed for 

the QIP payment consequence year 2012 

were not adequate for evaluating the 

quality of care offered by ESRD 

providers/facilities. Several commenters 

recommended that we also adopt 

outcome measures for the QIP 

specifically dealing with 

hospitalizations, infections, vascular 

access and iron management. A few 

commenters also suggested that 

measures on transfusion and transplant 

rates be included. 

Response: We agree that the measure 

topics suggested by these commenters 

would allow us to more fully assess the 

quality of care provided to Medicare 

ESRD beneficiaries. As stated above, we 

are in the process of developing 

additional quality measures that we will 

consider for use in future years of the 

QIP. At this time, ESRD Medicare 

claims are the only complete provider/ 

facility-level data set available to us. 

The three measures that we are 

finalizing for the first year of the QIP— 

two anemia management measures 

(Hemoglobin less than 10 g/dL and 

Hemoglobin more than 12 g/dL) and one 

Hemodialysis Adequacy Measure 

(URR)—focus on core aspects of the 

medical management of ESRD Medicare 

beneficiaries and have significant 

implications for their quality of life, 

morbidity and mortality. Further, 

observational studies and practice 

pattern analyses have shown that 

providers/facilities that perform well on 

these three measures also experience 

better patient outcomes in terms of 

reduced hospitalizations and reduced 

risk of heart attack, stroke and other 

adverse events. 

Comment: Recognizing that CMS is 

not proposing at this time to include 

other measures in the QIP such as iron 

management, bone mineral metabolism, 

and vascular access and that CMS has 

concluded that it is not feasible to 

propose a patient satisfaction measure at 

this time, one commenter requested a 

detailed plan for incorporating these 

measures into the ESRD QIP. 

Additionally, the commenter 

emphasized the importance of 

establishing a tracking system to ensure 

baseline values for bone and mineral 

metabolism markers because these may 

be significantly impacted by the 

incorporation of oral medications in the 

bundled payment. 

Response: We are dedicated to the 

ongoing process of developing 

additional quality measures, refining 

existing quality measures and 

identifying complete and accurate data 

sources for use in future years of QIP 

including measures addressing the 

commenter’s concerns regarding bone 

mineral metabolism and the potential 

impact with bundled payment. 

Currently, ESRD claims provide the 

only complete set of facility level 

quality data to support the existing 

measures. We will be monitoring the 

data to ensure that the ESRD QIP is 

achieving the desired quality clinical 

outcomes. We plan to use the 

rulemaking process as the way to 

propose the incorporation of new 

measures currently under development 

such as hospitalizations, mineral 

metabolism, vascular access infections, 

iron management and fluid volume 

weight management as well as pediatric 

measures. In addition, we will have a 

comprehensive monitoring plan in place 

when the new PPS begins that ensures 

access and quality care are furnished to 

ESRD beneficiaries. 

Comment: Several commenters 

expressed support for inclusion of 

patient-centered measures in the QIP, 

such as patient quality of life, ability to 

return to work or whether patients are 

in rehabilitation. One commenter 

supported the implementation of a 

measure of patient awareness of ESRD 

treatment options (such as transplant 

and different dialysis modalities). The 

commenter also noted that for patients, 

these types of measures may often be 

more useful to patients in their decision 

making than clinical measures. 

Response: We agree that patientcentered measures, such as awareness of 

treatment options, are important for the 

ESRD population in making decisions 

such as where they wish to seek care. 

We appreciate the recommendation to 

incorporate measures evaluating patient 

outcomes from a patient’s perspective, 

including patient awareness of 

treatment options, percentage of 

patients working or in rehabilitation, 

and quality of life surveys into the QIP. 

The NQF has endorsed measures of this 

type, and we are actively seeking a data 

source for such data as well as 

developing a means to collect these 

data. We intend to use such measures in 

future payment years and will do 

subsequent rulemaking on these 

additional measures. 

Comment: One commenter 

recommended the inclusion of a 

Practice-related Risk Score (PRS) and a 

patient-level all Clinical Performance 

Measure (CPM) index as QIP measures, 

stating that these types of measures may 

be better for establishing a facility or 

provider’s quality of care. Composite 

measures are made up of discrete 

quality measures that, when calculated 

together, provide a score that assesses 

more than one aspect of patient care. 

According to the commenter, the 

recommended PRS would be a 

composite, facility-level index of four 

key dialysis quality measures, including 

the percent of patients with: (1) Kt/V 

>1.2; (2) Hemoglobin >11g/dL; (3) 

Albumin >4.0g/dL; and (4) A central 

venous catheter for dialysis access. The 

commenter noted that the score for the 

PRS may be a good predictor of 

mortality. The commenter also 

recommended a patient-level CPM 

index that would be similar to the PRS 

and would be composed of dialysis 

adequacy (single-pooled Kt/V urea of 

>1.2); Anemia (Hemoglobin >11g/dL); 

albumin (>40g/L with bromcresol green 

or >37g/L with bromcresol purple); and 

access (that is, use of an arteriovenous 

fistula). The commenter noted that 

patient risk for hospitalization and/or 

death increases, according to their 

studies, with each unmet target 

(component) of the CPM index. 

Response: We appreciate this 

recommendation. Measures 

development is already underway in the 

areas the commenter recommends such 

as vascular access measures. Technical 

Expert Panels (TEP) were convened in 

Spring 2010 to begin development of 

these additional measures, and 

subsequent to these initial TEPs, more 

work on measures development will 

take place. As stated above, we intend 

to fully test all measures before 

proposing to adopt them for the QIP in 

order to assure that they are reliable 

indicators of the quality of care and 

feasible for data collection. Because 

measures we are adopting at this time 

are limited to data available on ESRD 

claims, we would not have the 

specificity needed to calculate the 

composite measures presented by the 

commenter. However, we will continue 

to consider and evaluate component 

measures such as those suggested by the 

commenter as more data resources 

become available. 

Comment: One commenter wrote that 

CMS must understand and create a 

category for mortality rates within long 

term care hospital (LTCH) settings 

separate from outpatient clinics and 

other home dialysis settings. 

Commenters stated that a facility may 

have greater than 50 percent of its 

patients with an end of life care option, 

such as hospice, when such patients can 


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no longer care for themselves and are 

thus compromised on many levels. 

Commenters stated that the other 50 

percent of patients may be in LTCH 

rehabilitation settings and are admitted 

only a short time, but come to the 

facility after a lengthy hospitalization in 

a compromised condition that in many 

cases includes life threatening 

morbidity. 

Response: We appreciate the 

recommendation. For the initial year of 

the QIP, we have decided to limit the 

measures to the Anemia Management 

and the Dialysis Adequacy Measures 

because they go to the core of ESRD 

patient care, are feasible to collect, and 

reliably reflect the quality of patient 

care. However, as we evaluate and 

refine the mortality measures currently 

used for the DFC, these issues will be 

considered. 

Comment: Two commenters 

recommended that there should be 

measures of fluid balance (overload) in 

the measure set. 

Response: Appropriate and effective 

fluid management reduces the risk of 

congestive heart failure, hospitalizations 

and premature death, and therefore we 

believe that measures of fluid 

management are important for 

evaluating another aspect of ESRD 

patient care. We are in the process of 

developing additional quality measures 

for possible use in future years of the 

QIP and will be researching the 

feasibility of including fluid balance as 

a measure. 

Comment: One commenter 

recommended that the QIP should 

include measures of treatments, 

laboratory testing, medications and 

other clinical care services included in 

the new bundled payment to evaluate 

potential impact on patient care (for 

example, phosphate binders for mineral 

metabolism). 

Response: The selection of the anemia 

management measures (Hemoglobin 

Less Than 10 g/dL and Hemoglobin 

More Than 12 g/dL) and the 

Hemodialysis Adequacy Measure (URR) 

was driven by what is required in 

section 153(c) of MIPPA, as well as the 

limitations of complete facility-level 

data currently available to us. Patient 

outcomes are a key focus of the ESRD 

QIP. Therefore, we are developing or 

identifying performance measures that 

will assess the quality of care delivered 

to the ESRD patients under the bundled 

payment. For example, we are currently 

developing measures of bone mineral 

metabolism, an important clinical issue 

with ESRD patients. Implementation of 

the ESRD bundled payment system may 

have the impact of providers/facilities 

decreasing use of medications used to 

treat clinical conditions associated with 

the appropriate management of bone 

mineral metabolism therefore measures 

to address these issues are important. 

Comment: One commenter 

recommended an approach to 

monitoring quality by analyzing the 

drug utilization data that providers/ 

facilities report on Part B claims 

submitted for Medicare payment. It was 

further recommended that CMS 

continue to collect information on the 

volume and use of drugs and other 

services included in the broader 

bundled ESRD payment. 

Response: We will monitor drug 

utilization data to the extent that 

reliable data is available. However, we 

note that the linkage between drug 

utilization patterns and patient quality 

outcomes needs further exploration. 

Therefore, we are in the process of 

identifying possible quality measures 

related to drug utilization and 

identifying pertinent drug utilization 

data sources for potential use in future 

years of the QIP. 

Comment: One commenter suggested 

that CMS develop quality measures that 

use a real-time system for reporting rates 

of hospitalization, emergency 

department use, and mortality for the 

dialysis population. The commenter 

further suggested that such information 

could help CMS and researchers 

monitor unintended effects of the new 

bundled payment method. 

Response: We agree that real-time 

data would be beneficial for tracking in 

a timely manner, clinical outcomes and 

the quality of care being delivered, and 

that more timely access to data would 

further advance the goals of the QIP to 

improve the quality of care delivered to 

ESRD patients. While this type of data 

source is not currently available, we 

plan to have a comprehensive 

monitoring strategy in place that will 

provide the necessary information to 

evaluate the quality of care being 

delivered to Medicare patients with 

ESRD as the bundled payment system is 

implemented. Along with the 

development of additional measures, we 

are seeking data sources that will allow 

for more timely assessment and 

reporting of the data. 

Comment: Two commenters requested 

that CMS add venous access flow 

surveillance to the measure set. One of 

the commenters offered that, in addition 

to the three measures proposed in the 

ESRD QIP conceptual model, vascular 

access surveillance metrics be added to 

include metrics for: (1) Assessment of 

patient condition; (2) treatment 

interventions; and (3) thrombotic 

events. Commenters recommended use 

of electronic surveillance devices for 

venous access flow monitoring. 

Response: We appreciate the 

comment and agree that the 

development of venous access 

monitoring strategies and the 

development of measures are important 

for optimizing outcomes within the 

ESRD population because decreased 

venous access flow has implications for 

hospitalizations, potential stroke and 

other adverse patient outcomes. We are 

dedicated to the ongoing process of 

developing additional quality measures, 

refining existing quality measures and 

identifying complete and accurate data 

sources for use in future years of QIP. 

Comment: One commenter 

recommended the development and use 

of a list of ‘‘Never Events’’ in the ESRD 

QIP. 

Response: We appreciate the 

recommendation because these types of 

events are ones that are avoidable. We 

will consider the potential development 

and use of sentinel events (never 

events)—in future years of the ESRD 

QIP. 

Comment: A commenter requested 

that CMS act with all due speed to 

ensure that quality of care for vulnerable 

patients may be measured and facilities 

may be held accountable. 

Response: We agree that monitoring 

the quality of care for vulnerable 

populations under the QIP is critical. A 

program monitoring and evaluation 

program is being developed to track 

impact on vulnerable populations and 

will be addressed in future rulemaking. 

The current measures, to the extent that 

relevant data are available (for example, 

socio-demographics), will be evaluated 

for potential disparities in future years. 

Data on the socio-demographics of the 

ESRD population might be collected 

from patient, facility/provider 

enrollment forms; however, we would 

need to ensure that data analysis 

methodologies in use would be able to 

accurately identify these populations 

and monitor effectively. 

Comment: One commenter urged 

CMS to verify that all quality data 

aggregated through the ESRD Clinical 

Performance Measurement Project and 

used to calculate the QIP performance 

measures is case-mix and severity 

adjusted; further, the commenter asked 

that special consideration be given for 

hospital-based units. 

Response: We acknowledge that some 

patients may present additional 

challenges for the treatment of anemia 

and achieving adequate dialysis because 

of existing co-morbid conditions, but we 

do not believe that the anemia 

management or dialysis adequacy 

measures should be risk-adjusted for the 


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ESRD population. The specifications for 

these measures may be found in the 

Dialysis Facility Report instructions and 

descriptions. Patients with hemoglobin 

<5 g/dL and >20 g/dL are excluded from 

the measured population as are patients 

who are less than 18 years of age. 

Further, to be included in the 

measurement population (for both 

anemia management and dialysis 

adequacy) patients must have received 

dialysis for at least 90 days and have 

had four claims submitted. 

Additionally, these claims must indicate 

the use of erythropoiesis-stimulating 

agents (ESAs) for at least 90 days. These 

exclusions and inclusions from the 

measurement population act to adjust 

the measures for certain patient aspects. 

However, regardless of the type of unit 

or patient acuity, all patients should 

receive the appropriate level of care. 

Comment: One commenter noted that, 

because nursing home patients have a 

higher patient acuity, the national 

standards may not be achievable by 

these facilities, resulting in unfair 

payment reductions. 

Response: We agree that this patient 

population may have multiple comorbid conditions that make achieving 

the national standard difficult. 

However, given the practice guidelines 

recommended for all ESRD patients, we 

would expect a majority of ESRD 

patients in nursing homes to meet or 

exceed the national average. 

Comment: One commenter noted that 

by using Kt/V in the CPM program and 

URR in the QIP, Medicare is targeting 

the mortality rates from a model that 

was developed over thirty years ago that 

has also proven no more predictive of 

morbidity and mortality than patient 

self-reported physical and mental 

functioning scores. The commenter 

recommended that CMS consider mix 

adjusted physical and mental 

functioning scores from patient selfreport data and expect dialysis 

providers to improve the scores that 

indicate higher risk of hospitalization or 

death. 

Response: We will consider this 

comment as we develop new measures 

for use in the QIP in the future. We 

agree that there are challenges related to 

different levels of patient acuity within 

the ESRD population that may have an 

impact on morbidity and mortality 

beyond URR. Even though these 

measures are not risk-adjusted, the 

specifications for the three measures we 

are finalizing provide exclusions that 

act as a level of risk-adjustment. 

Exclusions remove from the 

denominator a population with a higher 

than normal severity of illness or have 

conditions that prevent them for 

receiving ‘‘normal’’ treatment and 

therefore, may unfairly impact on 

performance measurement scores. 

Comment: One commenter noted that 

the quality baseline year should be 

aligned with the payment baseline year 

for calculating the payment rate. The 

commenter recommended that to 

prevent ‘‘gaming’’ the agency should 

provide clear and unambiguous 

requirements surrounding the manner 

and timing of laboratory measurements 

(that is, when during the dialysis 

process laboratory samples are collected 

for analysis). 

Response: The baseline year for 

performance measurement the 

commenter referred to is the 

performance period for the QIP payment 

consequence year 2012 which is being 

proposed in the QIP proposed rule 

published on August 12, 2010 in the 

Federal Register. Currently, ESRD 

claims provide the only complete set of 

facility level quality data to support the 

existing measures. With regard to the 

timing of laboratory testing (time of 

specimen collection on day of patient 

visit), KDOQI provides guidelines for 

the timing of laboratory testing. The 

guidelines may be accessed at: http://

www.kidney.org/professionals/kdoqi/

pdf/12-50-0210_JAG_DCP_GuidelinesHD_Oct06_SectionA_ofC.pdf. We 

support the KDOQI guidelines and 

measure specifications which provide 

the parameters for the timing of testing. 

Additionally, there will be monitoring 

and evaluation of the QIP to track and, 

where, necessary, take action to prevent 

‘‘gaming’’ of data. 

Comment: One commenter voiced 

concern that the three proposed 

measures may not be an accurate 

reflection of the quality of care. The 

commenter further stated that the 

proper goal for the anemia management 

measures (Hemoglobin Less Than 10 g/ 

dL and Hemoglobin Greater Than 12 g/ 

dL) and the Dialysis Adequacy Measure 

(URR) may change over time, and that 

having the measures written in 

regulations may make it difficult to 

update to new standards. The 

commenter also offered that the skill of 

dialysis staff (measured through 

turnover rates) may be a better measure 

of quality of care and that measures of 

importance to patients (for example, 

dialysis-induced hypotension) should 

be used rather than measures such as 

urea kinetics. 

Response: The selection of the 

proposed measures was driven by what 

is required in section 153(c) of MIPPA 

2008 as well as the limitations of the 

complete facility-level data currently 

available to us. In addition, appropriate 

anemia management and providing 

adequate dialysis are important to the 

assessment of care provided to the ESRD 

population because these measures 

evaluate the core clinical issues for 

ESRD patients especially those on incenter hemodialysis. However, we are in 

the process of developing additional 

quality measures and identifying data 

sources for use in future years of QIP. 

Lastly, we acknowledge that the skill of 

a facility’s staff can have an impact on 

the quality of care provided to dialysis 

patients and look forward to gathering 

more evidenced-based information that 

we can use to develop appropriate and 

valid measures in this area. 

Comment: One commenter 

recommended that, for measures related 

to immunization and vascular access, a 

one-month, end-of-year value should be 

considered since these facility outcomes 

are cumulative. 

Response: We are in the process of 

considering additional quality measures 

and potentially including measures of 

immunization and vascular access. We 

will consider the validity of using a onemonth, end of the year value as these 

measures are developed and tested. 

Comment: One commenter voiced 

concern that the two-year lag between 

data collection for the performance 

measures and measure reporting will 

not allow for facilities to be measured 

on improvements that may occur during 

that lag time. The commenter 

recommended that the QIP measures 

use Elab data as a source of more 

current data. 

Response: We are seeking data 

sources that will allow for more timely 

assessment and reporting of the data in 

future years of QIP. We are working 

towards the timely assessment and 

reporting of data sources that will close 

the two-year lag in the data. However, 

we will use the data collection 

methodology used by the DFC since 

2001 for the first year of the QIP. 

Comment: One commenter suggested 

that facilities and providers be rewarded 

for proactive, real-time monitoring of 

plasma water volume, vascular 

compartment refilling and use of 

techniques that assure optimal fluid 

volume management. 

Response: MIPPA section 153(c) does 

not grant us the authority to reward 

providers/facilities on their 

performance. At most, the statute allows 

us to provide full ESRD payments to 

providers/facilities that satisfy the QIP. 

We view quality as the standard of care 

that all provider/facilities should strive 

for and not as an extra that needs to be 

rewarded. The ESRD QIP will provide 

those providers/facilities that meet or 

exceed the performance standard full 

ESRD payment. With regard to the 


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commenter’s suggestion to measure 

plasma water volume, vascular 

compartment refilling and use of 

techniques assuming optimal fluid 

volume management, this is an area that 

experts in the renal community are 

currently evaluating in the ESRD 

population because of poor fluid 

management’s implications for 

hospitalizations, development of 

congestive heart failure and other 

avoidable adverse events. 

Comment: One commenter requested 

a detailed outline of the process for 

measure development. 

Response: We use a standardized 

process for developing measures which 

can be found at: http://www.cms.hhs.

gov/QualityInitiativesGenInfo/

downloads/

QualityMeasuresDevelopmentOverview.

pdf. Tested measures are then submitted 

to the NQF for endorsement. 

After careful consideration of the 

comments, we have decided that for the 

QIP payment consequence year 2012, 

we are finalizing the three proposed 

measures; the two anemia management 

measures (Hemoglobin Less Than 10 g/ 

dL and Hemoglobin More Than 12 g/dL) 

and the Dialysis Adequacy Measure 

(Urea Reduction Rate (URR) ≥65 

percent) as proposed with one change. 

As described above, we will not include 

ESRD patients less than 18 years of age 

in the measure calculation of the two 

anemia management measures 

(Hemoglobin Less Than 10 g/dL and 

Hemoglobin More Than 12 g/dL). 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 30- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We solicited public comment on each 

of these issues for the following sections 

of this document that contain 

information collection requirements 

(ICRs): 

A. ICRs Regarding a Low-volume 

adjustment. (§ 413.232(f)) 

As discussed in section VIII.A.2.b. of 

the proposed rule (74 FR 49975), to 

receive the low-volume adjustment, we 

proposed that an ESRD facility must 

provide an attestation to the Medicare 

administrative contractor or fiscal 

intermediary that it has met the criteria 

to qualify as a low-volume facility. The 

Medicare administrative contractor or 

fiscal intermediary would verify the 

ESRD facility’s attestation of their lowvolume status using the ESRD facility’s 

final-settled cost reports. 

In the proposed rule, we indicated 

that the burden associated with the 

requirement would be the time and 

effort necessary for an ESRD facility 

attesting as a low-volume facility to 

develop an attestation and submit it to 

the Medicare administrative contractor 

or fiscal intermediary (74 FR 50016). In 

the 2006 data analysis conducted by our 

contractor, UM–KECC, 489 ESRD 

facilities were identified as below the 

low-volume threshold of 3,000 

treatments per year. Of these 488 

facilities, 166 met the additional lowvolume criteria as specified in § 413.232 

of this proposed rule. We estimated that 

it would require an administrative staff 

member from each low-volume facility 

5 minutes to develop the attestation and 

a negligible amount of time to submit it 

to the Medicare administrative 

contractor or fiscal intermediary (74 FR 

50016). We further estimated several 

dozen additional ESRD facilities may 

meet the criteria of a low-volume 

facility prior to implementation of the 

ESRD PPS and therefore, we rounded 

the total number of estimated lowvolume facilities to 200 (74 FR 50016). 

Therefore, we estimated that the total 

initial ESRD facility burden would be 

16.6 hours (74 FR 50017). 

We did not receive any public 

comments related to this information 

collection. However, as discussed in 

section II.F.4. of this final rule, we are 

finalizing a threshold of 4,000 instead of 

3,000 treatments. Therefore, we 

identified 857 ESRD facilities as below 

the updated low-volume threshold of 

4,000 treatments per year. Of these 857 

facilities, 351 meet the low-volume 

criteria specified in § 413.232 of this 

final rule. We continue to believe that 

the estimated administrative staff time 

burden of 5 minutes to develop the 

attestation and a negligible amount of 

time to submit it to the FI/MAC is 

appropriate. Therefore, we are finalizing 

our estimated administrative staff time 

burden of 5 minutes per facility. We 

estimate several dozen additional ESRD 

facilities may meet the criteria of a lowvolume facility based on the 4,000 

treatment threshold prior to 

implementation of the ESRD PPS and 

therefore, we rounded the total number 

of estimated low-volume facilities to 

400. Therefore, we are finalizing the 

total initial ESRD facility burden to be 

33.2 hours. 

B. ICRs Regarding Transition Period 

(§ 413.239) 

As discussed in section XIII.A. of the 

proposed rule, prior to January 1, 2011, 

an ESRD facility may make a one-time 

election to be excluded from the fouryear transition to the ESRD PPS (74 FR 

50003). That is, a facility may elect to 

be paid entirely based on the proposed 

ESRD PPS beginning January 1, 2011. 

Under proposed § 413.239(b), an ESRD 

facility may make a one-time election to 

be paid for items and services provided 

during transition based on 100 percent 

of the payment amount determined 

under § 413.215 of this part, rather than 

based on the payment amount 

determined under paragraph (a) of this 

section. The section specified that such 

election must be submitted to the 

facility’s FI/MAC no later than 

November 1, 2010. 

We estimated in the proposed rule 

that it would require an accountant or 

financial management staff member 

from each of the 4,921 ESRD facilities 1 

hour to simulate average aggregate 

payments under the proposed ESRD 

PPS and compare them to average 

aggregate payments under the current 

basic case-mix adjusted composite 

payment system, for a total of 4,921 

hours (74 FR 50016). In addition, for 

those facilities electing to be excluded 

from the four-year transition, we 

estimated that the burden associated 

with the requirement in proposed 

§ 413.239(b) would be the time and 

effort necessary to develop an election 

and submit it to the FI/MAC (74 FR 

50016). We estimated that it would 

require an administrative staff member 

from each facility 15 minutes to develop 

the notice and a negligible amount of 

time to submit it. We estimated that 36 

percent of the estimated 4,921 ESRD 

facilities, or 1,794 ESRD facilities, 

would make the election no later than 

November 1, 2010. Therefore, we 

estimated that the total one-time ESRD 

facility burden would be 448.5 hours 

(74 FR 50017). 

The comments pertaining to this 

information collection, the updated 

facility data included in the impact 

analysis and our responses are set forth 

below. 


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Comment: One commenter pointed 

out that we projected that it would take 

one hour per patient, per month for 

billing costs related to the proposed 

ESRD PPS. The commenter indicated 

that facilities should be compensated for 

the administrative costs associated with 

implementing the new payment system 

including the additional billing related 

ESRD PPS costs. The commenter further 

believed that one hour was an 

insufficient amount of time for this task. 

Response: The one-hour timeframe to 

which the commenter referred pertained 

to the time that would be spent by ESRD 

facilities in making a determination to 

opt out of the 4-year ESRD PPS 

transition. Specifically, we estimated 

that each ESRD facility would spend 

one hour simulating average aggregate 

payments under the proposed ESRD 

PPS as compared to the average 

aggregate payments under the current 

basic case-mix adjusted composite 

payment system. With regard to the 

comment that ESRD facilities should be 

compensated for billing costs associated 

with the ESRD PPS and that the 

projected one-hour timeframe is 

insufficient to account for their per 

patient per month billing costs, we note 

that we computed the ESRD PPS base 

rate using ESRD facility 2007 costs 

updated to 2011 which include billing 

costs. As discussed in more detail in 

section II.K.2. of this final rule, we have 

not made significant changes to the 

current billing requirements. Under the 

ESRD PPS, facilities will continue to 

identify the renal dialysis items and 

services they furnish as well as other 

non-renal related services for each day 

of service. The only new additional 

reporting is related to the use of oral 

equivalents of injectable drugs. Thus, 

we believe that the ESRD PPS base rate 

adequately accounts for providers’ 

billing costs. 

Comment: One commenter indicated 

that they have exceeded the estimated 1- 

hour timeframe for deciding whether to 

opt out of the transition and stated that 

they have spent hundreds of hours 

attempting to assess the bundle’s impact 

on their 14 facilities. 

Response: We believe that the impact 

of the final ESRD PPS will be easier for 

ESRD facilities to assess than the 

proposed system because we are not 

implementing oral-only ESRD drugs 

effective January 1, 2011 and the final 

ESRD PPS has fewer adjustments. 

However, we disagree that the analysis 

will take ESRD facilities hundreds of 

hours to complete. We believe that 

ESRD facilities have been aware of and 

planning for the ESRD PPS for several 

years and have gained insight as to the 

factors that will go into their decisions 

regarding the transition. However, based 

on the public comments, we believe it 

is more appropriate to estimate two 

hours for an ESRD facility to complete 

an analysis of the significant changes 

made to the ESRD PPS in this final rule 

and determine whether to opt out of the 

ESRD PPS transition. 

As reflected in section IV.B. of this 

final rule, there are 4,951 ESRD 

facilities. We have increased the number 

of hours necessary to simulate average 

aggregate payments under the current 

basic case-mix adjusted composite 

payment system from one hour to two 

hours, for a total of 9,902 hours. We are 

finalizing the estimated administrative 

staff member burden at 15 minutes per 

facility to develop and submit the 

election notice to elect to be excluded 

from the transition. We are finalizing 

that 43 percent of the estimated 4,951 

ESRD facilities (or 2,120 ESRD 

facilities), will make the election no 

later than November 1, 2010. Therefore, 

we are finalizing the total one-time 

ESRD facility burden to be 530 hours. 

The final collection of information 

burden hours are indicated below in 

Table 34. 

We have submitted a copy of this final 

rule to OMB for its review and approval 

of the aforementioned information 

collection requirements. 

IV. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), the 

Regulatory Flexibility Act (RFA) 

(September 19, 1980, Pub. L. 96–354), 

section 1102(b) of the Social Security 

Act, section 202 of the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), Executive Order 13132 on 

Federalism (August 4, 1999), and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Order 12866 directs 

agencies to assess all costs and benefits 

of available regulatory alternatives and, 

if regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). This final rule is an 

economically significant rule because 

we estimate that the requirement under 

section 1881(b)(14)(A)(ii) of the Act— 

that the estimated total payments for 

renal dialysis services in CY 2011 equal 

98 percent of the estimated total 

payments that would have been made if 

the ESRD PPS were not implemented— 

equates to an approximate $200 million 

decrease in payments to ESRD facilities 

in CY 2011. In addition, given this 

estimated impact, this final rule also is 

a major rule under the Congressional 

Review Act. Accordingly, we have 

prepared a RIA that to the best of our 

ability presents the costs and benefits of 

the final rule. We requested comments 

on the economic analysis. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses if a rule has a significant 

impact on a substantial number of small 

entities. For purposes of the RFA, 

approximately 22 percent of ESRD 

dialysis facilities are considered small 

entities according to the Small Business 

Administration’s size standards, which 

considers small businesses those 

dialysis facilities having total Medicare 


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revenues of $34.5 million or less in any 

1 year, and 19 percent of dialysis 

facilities are nonprofit organizations. 

For more information on SBA’s size 

standards, see the Small Business 

Administration’s Web site at http:// 

sba.gov/idc/groups/public/documents/ 

sba_homepage/serv_sstd_tablepdf.pdf 

(Kidney Dialysis Centers are listed as 

621492 with a size standard of $34.5 

million). For purposes of the RFA, we 

estimate that approximately 22 percent 

of ESRD facilities are small entities as 

that term is used in the RFA (which 

includes small businesses, nonprofit 

organizations, and small governmental 

jurisdictions). This amount is based on 

the number of ESRD facilities shown in 

the ownership category in the impact 

Table 35. Using the definitions in this 

ownership category, we consider the 

614 facilities that are independent and 

the 470 facilities that are shown as 

hospital-based to be small entities. The 

ESRD facilities that are owned and 

operated by large dialysis organizations 

(LDOs) and regional chains would have 

total revenues more than $34.5 million 

in any year when the total revenues for 

all locations are combined for each 

business (individual LDO or regional 

chain). Overall, a hospital based ESRD 

facility (as defined by ownership type) 

is estimated to receive a 1.7 percent 

increase in payments under the new 

ESRD PPS for 2011. An independent 

facility (as defined by ownership type) 

is estimated to receive a ¥0.3 percent 

decrease in payments under the ESRD 

PPS for 2011. Therefore, the Secretary 

has determined that this final rule will 

not have a significant economic impact 

on a substantial number of small 

entities. 

The claims data we use to estimate 

payments to ESRD facilities in this RFA 

and RIA does not identify which 

dialysis facilities are part of an LDO, 

regional chain, or other type of 

ownership. As each individual dialysis 

facility has its own provider number 

and bills Medicare using this number. 

Therefore, in previous RFAs and RIAs 

presented in proposed and final rules 

that updated to the basic case-mix 

adjusted composite payment system, we 

considered each ESRD to be a small 

entity for purposes of the RFA. 

However, we conducted a special 

analysis for this final rule that enabled 

us to identify the ESRD facilities that are 

part of an LDO or regional chain. The 

results of this analysis are presented in 

the type of ownership category of 

impact Table 35. 

We do not believe ESRD facilities are 

operated by small government entities 

such as counties or towns with 

populations 50,000 or less and 

therefore, they are not enumerated or 

included in this final RFA. Individuals 

and States are not included in the 

definition of a small entity. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. Any such regulatory impact 

analysis must conform to the provisions 

of section 604 of the RFA. For purposes 

of section 1102(b) of the Act, we define 

a small rural hospital as a hospital that 

is located outside of a metropolitan 

statistical area and has fewer than 100 

beds. We do not believe this final rule 

has a significant impact on operations of 

a substantial number of small rural 

hospitals because most dialysis facilities 

are freestanding. While there are 187 

rural hospital-based dialysis facilities, 

we do not know how many of them are 

based at hospitals with fewer than 100 

beds. However, overall, the 187 rural 

hospital-based dialysis facilities will 

experience an estimated 4.4 percent 

increase in payments. As a result, this 

rule will not have a significant impact 

on small rural hospitals. Therefore, the 

Secretary has determined that this final 

rule will not have a significant impact 

on the operations of a substantial 

number of small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year $100 

million in 1995 dollars, updated 

annually for inflation. In 2010, that 

threshold is approximately $135 

million. While dialysis facilities will be 

paid approximately $200 million less, 

we do not believe that this rule includes 

any mandates that would impose 

spending costs on State, local, or tribal 

governments in the aggregate, or by the 

private sector, of $133 million. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule and subsequent final rule 

that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

We do not believe this final rule will 

have a substantial direct effect on State 

or local governments, preempt State 

law, or otherwise have Federalism 

implications. 

Payment for ESRD Bad Debt 

The changes to the ESRD bad debt 

payment in this final rule are not 

changes to the existing ESRD bad debt 

payment methodology and, therefore, 

there is no impact on ESRD payments 

from implementing the Rule of 

Construction described in Section 

153(a)(4) of MIPPA and described 

elsewhere in this final rule. 

B. Anticipated Effects 

1. Effects on ESRD Facilities 

To understand the impact of the 

changes affecting payments to different 

categories of ESRD facilities, it is 

necessary to compare estimated 

payments in CY 2011 under the current 

basic case-mix adjusted composite 

payment system (current payments) to 

estimated payments in CY 2011 under 

the final ESRD PPS, including payments 

to ESRD facilities paid a blended rate 

under the transition (new payments). To 

estimate the impact among various 

classes of ESRD facilities, it is 

imperative that the estimates of current 

payments and new payments contain 

similar inputs. Therefore, we simulated 

payments only for those ESRD facilities 

that we are able to calculate both 

current payments and new payments. 

ESRD providers were grouped into the 

categories based on characteristics 

provided in the Online Survey and 

Certification and Reporting (OSCAR) 

file and the most recent cost report data 

from the Healthcare Cost Report 

Information System (HCRIS). We also 

used the June 2008 update of CY 2007 

National Claims History file as a basis 

for Medicare dialysis treatments and 

separately billable drugs and 

biologicals. 

Table 35 shows the impact of the 

ESRD PPS compared to current 

payments to ESRD facilities under the 

basic case-mix composite payment 

system, including all separately billable 

items. Column A of impact Table 35 

indicates the number of ESRD facilities 

for each impact category and column B 

indicates the number of dialysis 

treatments (in millions). 


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Section 1881(b)(14)(E)(ii) of the Act 

provides all ESRD facilities with the 

option to make a one-time election to be 

excluded from the transition from the 

current payment system to the ESRD 

PPS. Electing to be excluded from the 4- 

year transition means that the ESRD 

facility receives payments for renal 

dialysis services provided on or after 

January 1, 2011, based on 100 percent 

of the payment rate under the final 

ESRD PPS, rather than a blended rate 

based in part on the payment rate under 

the current payment system and in part 

on the payment rate under the ESRD 

PPS. 

In order to estimate which ESRD 

facilities would and would not elect to 

opt out of the transition and receive 

payment based on 100 percent of the 

payment amount under the ESRD PPS, 

we estimated both the aggregate 

payments for each ESRD facility under 

the ESRD PPS (based on 100 percent of 

the payment amount under ESRD PPS) 

and payments in the first year of the 

transition (based on a blend of 25 

percent of payments under the ESRD 

PPS and 75 percent of payments under 

the current basic case-mix adjusted 

composite payment system). We then 

assume that facilities that would receive 

higher aggregate payments under the 

ESRD PPS would elect to be paid based 

on 100 percent of the payment amount 

under the ESRD PPS, and facilities that 

would receive higher aggregate 

payments under the first year of the 

transition (based on a blend of 25 

percent of payments under the ESRD 

PPS and 75 percent of payments under 

the current basic case-mix adjusted 

composite payment system) will elect to 

be paid under the transition. Based on 

these assumptions, we are estimating 

that 43 percent of ESRD facilities would 

choose to be excluded from the 

transition and we estimate that 57 

percent of ESRD facilities would choose 

to be paid the blended rate under the 

transition. 

Additionally, in accordance with 

section 1881(b)(14)(E)(iii) of the Act and 

as described in section VII.E of this final 

rule, we intend to apply a transition 

budget-neutrality adjustment factor to 

all payments. The purpose of this factor 

is to make the estimated total payments 

under the ESRD PPS equal the estimated 

total payments that would have been 

made if there had been no transition. 

We estimate this factor to be 0.969. 

Since the same factor would be applied 

to all payments, including the blended 

payment rates under the transition, the 

effect of the transition budget neutrality 

adjustment factor is the same for all 

impact categories. 

The overall effect of the final ESRD 

PPS, in the first year of the transition, 

is shown in column C. This effect is 

determined by comparing total 

estimated payments under the ESRD 

PPS, which includes blended payments 

and payments that are computed using 

our assumption that 43 percent of ESRD 

facilities would elect to be paid 100 

percent ESRD PPS and 57 percent of 

ESRD facilities would elect to go 

through the transition. These payments 

have also been adjusted to reflect the 

transition budget neutrality adjustment 

factor. Total payments are then 

compared to payments that would have 

been made to facilities for renal dialysis 

services provided during CY 2011 under 

the basic case-mix adjusted composite 

payment system plus items and services 

separately billable under Title XVIII, 

including ESRD-related Part D drugs. 

In column C, the aggregate impact on 

all facilities is a 2.0 percent reduction in 

payments, which reflects the statutory 

98 percent budget neutrality provision. 

Hospital-based ESRD providers of 

services show a 1.8 percent increase 

because as a group they receive higher 

payments under the ESRD PPS than 

they would receive under the current 

system. We believe that the model used 

to create the ESRD PPS adjustment 

factors more accurately predicts costs 

for this provider category. Facilities 

with less than 4,000 treatments show a 

5.4 percent increase in payments under 

the ESRD PPS because many of these 

facilities are eligible to receive the lowvolume adjustment, which is a 18.9 

percent adjustment per treatment. As 

with hospital-based ESRD providers of 

services, we believe that the model more 

accurately predicts costs for this 

category. Facilities that chose to retain 

a composite rate exception in the 

current system will have an 11.3 percent 

increase in payments under the ESRD 

PPS. This may be explained by the fact 

that the current basic case-mix adjusted 

composite payment system does not 

completely account for their higher 

costs and that the ESRD PPS more 

accurately accounts for the higher costs 

of these facilities as a group. The largest 

decrease in payments under the ESRD 

PPS is for facilities in the South Atlantic 

census region which will experience a 

4.1 percent decrease. We believe this 

decrease is a result of the current over 

usage of separately billable drugs. 

Column D shows the effect if all ESRD 

facilities were paid 100 percent of the 

ESRD PPS. In this column, we are 

showing a hypothetical effect, as the 

statute provides for a 4-year transition to 

a fully implemented ESRD PPS. We 

show this column as a comparison to 

column C, in order to show how each 

impact category would have been 

effected if the ESRD PPS had been fully 

implemented in 2011. In column D, the 

overall effect for all facilities in 

aggregate is a 2.0 percent reduction, 

which reflects the statutory 98 percent 

budget neutrality provision. As with 

column C, we see the same categories of 

ESRD facilities most impacted by the 

ESRD PPS. However, in column D the 

changes are generally more pronounced 

as those providers do not have the 

mitigating effect of the transition. Since 

column D shows the hypothetical effect 

if all ESRD facilities were to be paid 100 

percent of the ESRD PPS in the first year 

of the transition, there would be no 

need for a transition budget neutrality 

adjustment to account for the cost of the 

ESRD PPS transition. Therefore, we did 

not apply the transition budget 

neutrality factor to column D. 

We believe that the comparison of 

columns C and D shows that the 

statutory option to transition does 


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provide a more gradual affect for 

provider categories that receive lower 

payments under the ESRD PPS, as well 

as the effect of the transition budget 

neutrality factor. Generally, providers 

that do well under the ESRD PPS show 

larger increases in column D compared 

to column C because column D does not 

reflect the transition budget neutrality 

adjustment. However, many provider 

categories include a combination of 

providers that are estimated to receive 

higher payments under the ESRD PPS 

and providers that are estimated to 

receive lower payments under the ESRD 

PPS. We believe the comparison of 

columns C and D also shows that 

application of the transition budget 

neutrality factor to all payments does 

not penalize any one group, but rather 

it evenly distributes the effect of this 

transition budget neutrality factor 

among all provider types. 

2. Effects on Other Providers 

Under the expanded bundle in the 

ESRD PPS, other provider types such as 

laboratories, DME suppliers, and 

pharmacies would have to seek payment 

from ESRD facilities rather than 

Medicare. This is because under the 

ESRD PPS, Medicare is paying ESRD 

facilities one combined payment for 

services that may have been separately 

paid by Medicare in the past. We noted 

that other provider types noted above 

may continue to provide certain ESRDrelated serves; however, beginning 

January 1, 2011, they may no longer bill 

Medicare directly and instead must seek 

payment from ESRD facilities. 

3. Effects on the Medicare and Medicaid 

Programs 

We estimate that Medicare spending 

(total Medicare program payments) for 

ESRD facilities in 2011 will be 

approximately $8.0 billion. This 

estimate is based on various price 

update factors discussed in section 

II.E.2. of this final rule. In addition, we 

estimate that there will be an increase 

in fee-for-service Medicare beneficiary 

enrollment of 3.6 percent in CY 2011. 

Consistent with the requirement for 98 

percent budget neutrality in the initial 

year of implementation, we intend for 

estimated aggregate payments under the 

ESRD PPS to equal 98 percent of the 

estimated aggregate payments that 

would have been made if the ESRD PPS 

were not implemented. Our 

methodology for estimating payment for 

purposes of the budget neutrality 

calculation uses the best available data. 

4. Effects on Medicare Beneficiaries 

The principal effect of the ESRD PPS 

on beneficiaries is that implementation 

of the system will change beneficiary 

financial liability for co-insurance. 

Under the current basic case-mix 

adjusted composite payment system, 

beneficiaries pay 20 percent of the basic 

case-mix adjusted payment amount plus 

20 percent of ESRD-related separately 

billable drugs; however they do not pay 

co-insurance on separately billable 

laboratory tests. Under the ESRD PPS, 

beneficiaries will be responsible for 

paying 20 percent of the ESRD PPS 

payment amount or blended payment 

amount for patients treated in facilities 

that choose the ESRD PPS transition. As 

the beneficiary will be responsible for 

the co-insurance on the laboratory tests, 

we estimate they will have a 1.2 percent 

increase in their payments. Additional 

information regarding beneficiary coinsurance is in section II.K.1.b. of this 

final rule. 

C. Alternatives Considered 

In developing this final rule, we 

considered a number of alternatives. We 

considered other adjustments, including 

race, modality, and site of service. We 

considered alternative adjustments to 

explain variation in cost and resource 

usage among patients and ESRD 

facilities. For example, we considered 

alternatives in the outlier policy, such 

as outlier percentages of 1.5, 2, 2.5, to 

3 percent, rather than the 1 percentage 

policy. We also considered a monthly 

payment, but instead are finalizing a per 

treatment payment. 

The statute requires a low-volume 

adjustment of at least 10 percent and an 

outlier policy. However, the statute did 

provide the Secretary with discretion in 

defining low-volume facilities and 

establishing the details of the outlier 

policy. Throughout this final rule, we 

discuss our rationale for the policy 

decisions we have made for each 

adjustment that we are finalizing. 

Although we have discretion on some of 

the adjustments we are finalizing, there 

is no impact on the aggregate amount of 

spending in the first year of the ESRD 

PPS (CY 2011) because we have 

standardized the base rate. The base rate 

is standardized to account for the 

overall positive effect of the case-mix 

and other adjustments. 

D. Accounting Statement and Table 

Whenever a rule is considered a 

significant rule under Executive Order 

12866, we are required to develop an 

Accounting Statement showing the 

classification of the expenditures 

associated with the provisions of this 

final rule. 

Table 36, below provides our best 

estimate of the decrease in CY 2011 

Medicare payments under the ESRD 

PPS as a result of the changes presented 

in this final rule based on the best 

available data. The expenditures are 

classified as a transfer to the Federal 

Government of $230 million dollars (or 

as a savings to the Medicare Program) 

and as a transfer to provider from the 

beneficiaries of $30 million. 

We received the following comments 

regarding the impact of the proposed 

rule on small dialysis organizations and 

independent dialysis facilities. 

Comment: One commenter stated that 

CMS should include within the RFA, an 

analysis of the impact of the compliance 

requirements of the proposed rule on 

SDOs and an analysis of options for 


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regulatory relief. Other commenters 

expressed concern about the increase in 

administrative costs that will occur due 

to implementing the infrastructure to 

collect information to support the casemix adjusters, specifically the comorbidity adjustments. 

Response: As discussed throughout 

this preamble, we have made numerous 

changes to the proposed ESRD PPS in 

response to public comments and 

further analysis. The principle change 

we have made that reduces the burden 

on ESRD facilities is to delay 

implementation of oral-only ESRDrelated drugs currently paid under Part 

D. The inclusion of ESRD-related oral 

drugs is limited and should have 

minimal impact. We believe that many 

ESRD facilities already have contractual 

arrangements with a pharmacy to obtain 

Part B injectable drugs. Thus, we believe 

the inclusion of a limited number of oral 

drugs will not pose a significant burden 

on any ESRD facilities. 

Many of the other adjustments reflect 

the adjustments in the current basic 

case-mix adjusted composite payment 

system (that is, age, BSA, and BMI) and 

therefore, should not pose new burden 

on ESRD facilities. In addition, we have 

not made significant changes in the 

information that ESRD facilities will be 

required to report on claims in order to 

be eligible for payment adjustments. 

The only new billing requirement is that 

facilities will be required to line item 

report ESRD-related oral drugs currently 

covered under Part D. Consistent with 

the policy under the current basic casemix adjusted composite payment 

system, ESRD facilities will have to 

report non-ESRD-related services (that 

is, services that are not renal dialysis 

services) and the appropriate modifier 

on their claims in order to receive 

payment for these services outside the 

ESRD PPS payment. We have reduced 

the number of co-morbidity adjustment 

factors and limited the number of acute 

co-morbidity diagnostic categories 

which will minimize the effort needed 

to track and report co-morbid medical 

conditions that would be eligible for an 

adjustment. 

Comment: Several commenters did 

not agree with the impacts provided in 

the proposed rule. One commenter 

conducted an independent analysis and 

asserted that LDOs were more likely 

than other dialysis providers to serve 

patients disadvantaged by poverty. 

While the commenter believes this 

finding would support a case-mix 

adjuster to better compensate LDOs for 

disproportionately servicing areas of 

high poverty, the commenter urged CMS 

to avoid implementing a case mix 

adjuster that is based on facility type. 

Other commenters indicated that CMS 

lacks the authority to adjust payments to 

facilities based on whether they are 

owned by a dialysis organization of a 

particular size. The commenters 

indicated that distinguishing facilities 

based on ownership status would be an 

unprecedented extension of CMS’ 

authority to determine Medicare 

payments. One commenter stated that 

creating a tiered reimbursement on the 

basis of facility size or ownership type 

would create incentives for centers to 

pursue or retain a certain ownership 

status to receive higher reimbursement. 

Other commenters advocated for an 

adjustment that would apply to small 

independent and hospital-based 

facilities, asserting that these providers 

have higher costs and lower margins 

than LDOs. One commenter disputed a 

finding by MedPAC that the spread in 

Medicare margin for LDOs compared to 

small dialysis organizations (SDOs) is 

about 6 percent and stated that SDOs are 

incurring even further losses from 

Medicare, maybe 3 percent more per 

treatment. 

One commenter suggested that we 

revise the facility-level adjustments or 

develop a new case-mix adjustment to 

account for the administrative and 

financial burden for SDOs. Other 

commenters stated that the SDOs do not 

have the economies of scale and 

resources to implement the ESRD PPS 

and, therefore, will be forced to provide 

substandard care or close. The 

commenters expressed concern that 

competition allows patient choice and 

access to care and that we should 

support small businesses and work to 

‘‘level the playing field for providers of 

all sizes.’’ 

Response: We have not provided a 

facility-level adjustment to reflect the 

size of the chain of dialysis facilities 

with which an ESRD facility is affiliated 

because our analysis does not indicate 

that such adjustments are warranted. In 

the final impact table (Table 35), 

facilities that are part of LDOs are 

projected to experience a ¥3.0 percent 

decrease in payment under the PPS 

compared to what they would have 

received in the absence of the PPS; 

medium-sized dialysis organizations 

(which are captured under the heading 

regional chains) are projected to 

experience a ¥0.9 percent decrease; 

SDOs are projected to experience a ¥0.3 

percent decrease; and hospital-based 

facilities are projected to experience a 

1.7 percent increase. Given that the 

impact percentages include the ¥2.0 

percent decrease mandated by section 

1881(b)(14)(A)(ii) of the Act, we do not 

believe these projected impacts indicate 

a need for adjustments based on the size 

of the facility or chain organization. 

In addition, although there may 

currently be differences in the spread in 

Medicare margin for LDOs compared to 

small dialysis organizations (SDOs), the 

estimate indicated by the commenter is 

based upon the current basic case-mix 

adjusted composite payment system. As 

stated above, our analysis based on the 

payment adjustments in this final rule 

indicate that SDOs are projected do 

better under the ESRD PPS than larger 

organizations. We will be monitoring 

the effects of the ESRD PPS and will 

consider the commenters’ suggestions as 

we refine the ESRD PPS. 

With regard to the need for an 

adjustment for SDOs due to the 

administrative and financial burden of 

the ESRD PPS, we believe the decision 

to delay the implementation of oral-only 

Part D drugs under the ESRD PPS until 

after the transition as discussed in 

section II.A.3. of this final rule and the 

reduction in the number of co-morbidity 

adjustments described in section II.F.3. 

of this final rule will reduce 

substantially the administrative and 

financial burden on all ESRD facilities, 

including SDOs. 

Comment: Many commenters stated 

that SDOs provide essential services to 

ESRD beneficiaries and requested that 

we take steps to ensure the survival of 

small ESRD facilities, thus preserving 

beneficiary choice. Commenters 

identified additional services such as 

dressing changes, staple removal and 

other basic nursing related tasks that 

small and independent ESRD facilities 

provide to patients who reside in remote 

areas to alleviate some of the burden 

associated with traveling to multiple 

healthcare providers for the provision of 

basic services. Commenters asserted that 

the calculations and adjusting of the 

base rate have reduced it to a value that 

will not allow SDOs and independents 

to survive. The commenters believed 

that the closure of these facilities would 

compromise beneficiary access to life 

sustaining dialysis and other basic 

services. The commenters stated that a 

higher base rate and fewer adjusters 

would be more beneficial to the SDOs 

and MDOs. 

Response: We agree that ESRD 

facilities located in remote areas provide 

essential services to their patients and 

are interested in preserving beneficiary 

choice and access in these areas. As 

discussed further in sections II.F.3. and 

4. of this final rule, we are finalizing a 

more targeted set of payment 

adjustments and reducing the 

standardization factor that is applied to 

the base rate. As a result, as discussed 

in section II.E.3. of this final rule, the 


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adjusted base rate has increased from 

$198.64 in the proposed rule to $229.63. 

Comment: One commenter believed 

that section 150(d)(iv) of MIPPA 

provides CMS with the authority to 

make an annual update to account for 

the cost differential of ESRD facilities 

that do not qualify for the low-volume 

adjustment. This commenter further 

stated that such an adjustment would 

balance the incentives for efficiency and 

budget neutrality with the needs of 

patient care and a more competitive 

marketplace. 

Response: We believe the commenter 

is referring to section 1881(b)(14)(D)(iv) 

of the Act which provides authority for 

other payment adjustments. Although 

we have the authority to establish other 

payment adjustments, we do not believe 

creating adjustments to create a more 

competitive marketplace is an 

appropriate use of this authority. 

Comment: Several commenters did 

not believe that the market basket 

update would address the low margins 

for SDOs especially in the context of a 

two percent reduction in payments 

under the bundle. The commenters 

believed that at baseline, the SDO 

payments would be reduced while 

many of the cost inputs would continue 

to increase from inflation resulting in 

further reduction in SDOs’ margins. The 

commenters asserted that SDOs have 

less room than other facilities to adjust 

under the PPS. These commenters 

concluded that even with new systems 

and processes in place, the adjustments 

that the SDOs will receive under the 

proposed ESRD PPS may not be 

sufficient to cover the additional costs 

and burdens of the ESRD PPS. 

Response: As we indicated 

previously, the final impact analysis 

does not indicate that an adjustment for 

SDOs is warranted. In addition, to the 

extent facilities affiliated with SDOs 

expect to receive financial benefits from 

the ESRD PPS transition, that option is 

available to them. 

Comment: Several commenters stated 

that they did not believe that the 

proposed facility adjustments and 

outlier policy adequately addresses the 

many needs of isolated essential 

facilities. 

Response: We disagree with these 

commenters as the final impact analysis 

shows that all rural facilities (including 

those facilities that received IEF 

exceptions) would see only a slight 

decrease under the ESRD PPS in 2011 

(¥2.1 percent decrease). The impact on 

those few facilities that received a 

composite rate exception as isolated 

essential facilities is expected to be 

positive as those facilities are projected 

to receive an increase in payment over 

the current composite payment system. 

Comment: One commenter stated that 

certain drugs used in the treatment of 

ESRD, particularly ESAs, have no 

competition within their drug class 

because they represent a manufacturer’s 

monopoly. Because of the lack of 

competitive bidding, the commenter 

maintained that rural ESRD facilities 

would not be able to compete in price 

due to their smaller buying power 

compared to the larger chains. The 

commenter recommended an 

adjustment factor for small rural 

facilities to address this disadvantage. 

Response: We do not believe that we 

should provide a special subsidy to 

facilities based on size or ownership 

because of a perceived disadvantage in 

buying power. We point out that 

facilities that believe that they are at a 

competitive disadvantage in purchasing 

required drugs or supplies due to size or 

location have the option of forming 

purchasing consortia in order to 

leverage their ability to buy products at 

discounted rates. In addition, in this 

final rule we have provided for a lowvolume adjustment for qualifying ESRD 

facilities that furnish a small number of 

treatments and meet other requirements 

in order to preserve access to dialysis 

care, where operational costs due to 

economies of scale might otherwise 

jeopardize that access. Finally, we note 

that the impact analysis does not show 

that small or rural ESRD facilities are 

particularly disadvantaged under the 

new system. 

E. Conclusion 

The impact analysis shows an overall 

decrease in payments to all ESRD 

facilities for renal dialysis services of 

2.0 percent. This is because of the 

statutory requirement that payments 

under the ESRD PPS in 2011 equal 98 

percent of what ESRD facilities would 

have received were the ESRD PPS not 

implemented (or 98 percent of payments 

to ESRD facilities under the current 

payment system). 

The analysis above, together with the 

remainder of this preamble, provides an 

initial Regulatory Flexibility Analysis. 

The analysis above, together with the 

remainder of this preamble, provides a 

Regulatory Impact Analysis. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects 

42 CFR Part 410 

Health facilities, Health professions, 

Kidney diseases, Laboratories, 

Medicare, Reporting and recordkeeping 

requirements, Rural areas, X-rays. 

42 CFR Part 413 

Health facilities, Kidney diseases, 

Medicare, Reporting and recordkeeping 

requirements. 

42 CFR Part 414 

Administrative practice and 

procedure, Health facilities, Health 

professions, Kidney diseases, Medicare, 

Reporting and recordkeeping 

requirements. 

■ For reasons stated in the preamble of 

this document, the Centers for Medicare 

& Medicaid Services amends 42 CFR 

Chapter IV as follows: 

PART 410—SUPPLEMENTARY 

MEDICAL INSURANCE (SMI) 

BENEFITS 

Subpart B—Medical and Other Health 

Services 

■ 1. The authority citation for part 410 

is revised to read as follows: 

Authority: Secs. 1102, 1834, 1871, 1881, 

and 1893 of the Social Security Act (42 

U.S.C. 1302. 1395m, 1395hh, and 1395ddd. 

■ 2. Section 410.50 is amended by 

revising paragraph (a) to read as follows: 

§ 410.50 Institutional dialysis services and 

supplies: Scope and conditions. 

* * * * * 

(a) All services, items, supplies, and 

equipment necessary to perform dialysis 

and drugs medically necessary and the 

treatment of the patient for ESRD and, 

as of January 1, 2011, renal dialysis 

services as defined in § 413.171 of this 

chapter. 

* * * * * 

PART 413—PRINCIPLES OF 

REASONABLE COST 

REIMBURSEMENT; PAYMENT FOR 

END-STAGE RENAL DISEASE 

SERVICES; OPTIONAL 

PROSPECTIVELY DETERMINED 

PAYMENT RATES FOR SKILLED 

NURSING FACILITIES 

■ 3. The authority citation for part 413 

continues to read as follows: 

Authority: Secs. 1102, 1812(d), 1814(b), 

1815, 1833(a), (i), and (n), 1861(v), 1871, 

1881, 1883, and 1886 of the Social Security 

Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 

1395(g), 1395I(a), (i), and (n), 1395x(v), 

1395hh, 1395rr, 1395tt, and 1395ww); and 

sec. 124 of Public Law 106–113 (133 stat. 

1501A–332) 


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Subpart F—Specific Categories of 

Costs 

■ 4. Section 413.89 is amended by 

adding a new paragraph (h)(3) to read as 

follows: 

§ 413.89 Bad debts, charity, and courtesy 

allowances. 

* * * * * 

(h) * * * 

(3) ESRD facilities— 

(i) Limitation on bad debt. The 

amount of ESRD facility bad debts 

otherwise treated as allowable costs 

described in § 413.178. 

(ii) Exception. Bad debts arising from 

covered services paid under a 

reasonable charge-based methodology or 

a fee schedule are not reimbursable 

under the program. Additional 

exceptions for ESRD bad debt payments 

are described in § 413.178(d). 

Subpart H—Payment for End-Stage 

Renal Disease (ESRD) Services and 

Organ Procurement Costs 

■ 5. Section 413.170 is amended by 

revising the introductory text, paragraph 

(a) and paragraph (b) to read as follows: 

§ 413.170 Scope. 

This subpart implements sections 

1881(b)(2), (b)(4), (b)(7), and (b)(12) 

through (b)(14) of the Act by— 

(a) Setting forth the principles and 

authorities under which CMS is 

authorized to establish a prospective 

payment system for outpatient 

maintenance dialysis services in or 

under the supervision of an ESRD 

facility that meets the conditions of 

coverage in part 494 of this chapter and 

as defined in § 413.171(c). 

(b) Providing procedures and criteria 

under which a pediatric ESRD facility 

(an ESRD facility with at least a 50 

percent pediatric patient mix as 

specified in § 413.184 of this subpart) 

may receive an exception to its 

prospective payment rate prior to 

January 1, 2011; and 

* * * * * 

■ 6. Section 413.171 is added to read as 

follows: 

§ 413.171 Definitions. 

For purposes of this subpart, the 

following definitions apply: 

Base rate. The average payment 

amount per-treatment, standardized to 

remove the effects of case-mix and area 

wage levels and further reduced for 

budget neutrality and the outlier 

percentage. The base rate is the amount 

to which the patient-specific case-mix 

adjustments and any ESRD facility 

adjustments, if applicable, are applied. 

Composite Rate Services. Items and 

services used in the provision of 

outpatient maintenance dialysis for the 

treatment of ESRD and included in the 

composite payment system established 

under section 1881(b)(7) and the basic 

case-mix adjusted composite payment 

system established under section 

1881(b)(12) of the Act. 

ESRD facility. An ESRD facility is an 

independent facility or a hospital-based 

provider of services (as described in 

§ 413.174(b) and (c) of this chapter), 

including facilities that have a self-care 

dialysis unit that furnish only selfdialysis services as defined in § 494.10 

of this chapter and meets the 

supervision requirements described in 

part 494 of this chapter, and that 

furnishes institutional dialysis services 

and supplies under § 410.50 and 

§ 410.52 of this chapter. 

New ESRD facility. A new ESRD 

facility is an ESRD facility (as defined 

above) that is certified for Medicare 

participation on or after January 1, 2011. 

Pediatric ESRD Patient. A pediatric 

ESRD patient is defined as an individual 

less than 18 years of age who is 

receiving renal dialysis services. 

Renal dialysis services. Effective 

January 1, 2011, the following items and 

services are considered ‘‘renal dialysis 

services,’’ and paid under the ESRD 

prospective payment system under 

section 1881(b)(14) of the Act: 

(1) Items and services included in the 

composite rate for renal dialysis services 

as of December 31, 2010; 

(2) Erythropoiesis stimulating agents 

and any oral form of such agents that are 

furnished to individuals for the 

treatment of ESRD; 

(3) Other drugs and biologicals that 

are furnished to individuals for the 

treatment of ESRD and for which 

payment was (prior to January 1, 2011) 

made separately under Title XVIII of the 

Act (including drugs and biologicals 

with only an oral form), 

(4) Diagnostic laboratory tests and 

other items and services not described 

in paragraph (1) of this definition that 

are furnished to individuals for the 

treatment of ESRD. 

(5) Renal dialysis services do not 

include those services that are not 

essential for the delivery of maintenance 

dialysis. 

Separately billable items and services. 

Items and services used in the provision 

of outpatient maintenance dialysis for 

the treatment of individuals with ESRD 

that were or would have been, prior to 

January 1, 2011, separately payable 

under Title XVIII of the Act and not 

included in the payment systems 

established under section 1881(b)(7) and 

section 1881(b)(12) of the Act. 

■ 7. Section 413.172 is amended by 

revising paragraph (a), paragraph (b), 

and paragraph (b)(1) to read as follows: 

§ 413.172 Principles of prospective 

payment. 

(a) Payment for renal dialysis services 

as defined in § 413.171 and home 

dialysis services as defined in § 413.217 

of this chapter are based on payment 

rates set prospectively by CMS. 

(b) All approved ESRD facilities must 

accept the prospective payment rates 

established by CMS as payment in full 

for covered renal dialysis services as 

defined in § 413.171 or home dialysis 

services. Approved ESRD facility 

means— 

(1) Any independent ESRD facility or 

hospital-based provider of services (as 

defined in § 413.174(b) and § 413.174(c) 

of this part) that has been approved by 

CMS to participate in Medicare as an 

ESRD supplier; or 

* * * * * 

■ 8. Section 413.174 is amended as 

follows: 

■ a. By revising paragraph (a). 

■ b. By revising paragraphs (f) 

introductory text, (f)(3), and (f)(4). 

■ c. By adding a new paragraphs (f)(5) 

and (f)(6). The revisions and additions 

read as follows: 

§ 413.174 Prospective rates for hospitalbased and independent ESRD facilities. 

(a) Establishment of rates. CMS 

establishes prospective payment rates 

for ESRD facilities using a methodology 

that— 

(1) Differentiates between hospitalbased providers of services and 

independent ESRD facilities for items 

and services furnished prior to January 

1, 2009; 

(2) Does not differentiate between 

hospital-based providers of services and 

independent ESRD facilities for items 

and services furnished on or after 

January 1, 2009; and 

(3) Requires the labor share be based 

on the labor share otherwise applied to 

independent ESRD facilities when 

applying the geographic index to 

hospital-based ESRD providers of 

services, on or after January 1, 2009. 

* * * * * 

(f) Additional payment for separately 

billable drugs and biologicals. Prior to 

January 1, 2011, CMS makes additional 

payment directly to an ESRD facility for 

certain ESRD-related drugs and 

biologicals furnished to ESRD patients. 

* * * * * 

(3) For drugs furnished prior to 

January 1, 2006, payment is made to 

hospital-based ESRD providers of 

services on a reasonable cost basis. 


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Effective January 1, 2006, and prior to 

January 1, 2011, payment for drugs 

furnished by a hospital-based ESRD 

provider of service is based on the 

methodology specified in § 414.904 of 

this chapter. 

(4) For drugs furnished prior to 

January 1, 2006, payment is made to 

independent ESRD facilities based on 

the methodology specified in § 405.517 

of this chapter. Effective January 1, 

2006, and prior to January 1, 2011, 

payment for drugs and biological 

furnished by independent ESRD 

facilities is based on the methodology 

specified in § 414.904 of this chapter. 

(5) Effective January 1, 2011, except as 

provided below, payment to an ESRD 

facility for renal dialysis service drugs 

and biologicals as defined in § 413.171, 

furnished to ESRD patients on or after 

January 1, 2011 is incorporated within 

the prospective payment system rates 

established by CMS in § 413.230 and 

separate payment will no longer be 

provided. 

(6) Effective January 1, 2014, payment 

to an ESRD facility for renal dialysis 

service drugs and biologicals with only 

an oral form furnished to ESRD patients 

is incorporated within the prospective 

payment system rates established by 

CMS in § 413.230 and separate payment 

will no longer be provided. 

■ 9. Section 413.176 is revised to read 

as follows: 

§ 413.176 Amount of payments. 

For items and services, for which 

payment is made under section 

1881(b)(7), section 1881(b)(12), and 

section 1881(b)(14) of the Act: 

(a) If the beneficiary has incurred the 

full deductible applicable under Part B 

of Medicare before the dialysis 

treatment, Medicare pays the ESRD 

facility 80 percent of its prospective 

rate. 

(b) If the beneficiary has not incurred 

the full deductible applicable under Part 

B of Medicare before the dialysis 

treatment, CMS subtracts the amount 

applicable to the deductible from the 

ESRD facility’s prospective rate and 

pays the facility 80 percent of the 

remainder, if any. 

■ 10. Section 413.178 is amended by 

revising paragraph (d) to read as 

follows: 

§ 413.178 Bad debts. 

* * * * * 

(d) Exceptions. (1) Bad debts arising 

from covered ESRD services paid under 

a reasonable charge-based methodology 

or a fee schedule are not reimbursable 

under the program. 

(2) For services furnished on or after 

January 1, 2011, bad debts arising from 

covered ESRD items or services that, 

prior to January 1, 2011 were paid under 

a reasonable charge-based methodology 

or a fee schedule, including but not 

limited to drugs, laboratory tests, and 

supplies are not reimbursable under the 

program. 

■ 11. Section 413.180 is amended by 

adding a new paragraph (l) to read as 

follows. 

§ 413.180 Procedures for requesting 

exceptions to payment rates. 

* * * * * 

(l) Periods of exceptions. (1) Prior to 

December 31, 2000, an ESRD facility 

may receive an exception to its 

composite payment rate for isolated 

essential facilities, self dialysis training 

costs, atypical service intensity (patient 

mix) and pediatric facilities. 

(2) Effective December 31, 2000, an 

ESRD facility not subject to paragraph 

(l)(3), is no longer granted any new 

exception to the composite payment rate 

as defined in § 413.180(1). 

(3) Effective April 1, 2004 through 

September 27, 2004, and on an annual 

basis, an ESRD facility with at least 50 

percent pediatric patient mix as 

specified in § 413.184 of this part, that 

did not have an exception rate in effect 

as of October 1, 2002, may apply for an 

exception to its composite payment rate. 

(4) For ESRD facilities that are paid a 

blended rate for renal dialysis services 

provided during the transition described 

in § 413.239 of this part, any existing 

exceptions for isolated essential 

facilities, self dialysis training costs, 

atypical service intensity (patient mix) 

and pediatric facilities are used as the 

payment amount in place of the 

composite rate, and will be terminated 

for ESRD services furnished on or after 

January 1, 2014. 

(5) For ESRD facilities that, in 

accordance with § 413.239(b) of this 

part, elect to be paid for renal dialysis 

services provided during the transition 

based on 100 percent of the payment 

amount determined under § 413.220, 

any existing exceptions for isolated 

essential facilities, self dialysis training 

costs, atypical service intensity (patient 

mix) and pediatric facilities are 

terminated for ESRD services furnished 

on or after January 1, 2011. 

■ 12. Section 413.195 is added to read 

as follows: 

§ 413.195 Limitation on Review. 

Administrative or judicial review 

under section 1869 of the Act, section 

1878 of the Act, or otherwise of the 

following is prohibited: The 

determination of payment amounts 

under section 1881(b)(14)(A) of the Act, 

the establishment of an appropriate unit 

of payment under section 1881(b)(14)(C) 

of the Act, the identification of renal 

dialysis services included in the 

bundled payment, the adjustments 

under section 1881(b)(14)(D) of the Act, 

the application of the phase-in under 

section 1881(b)(14)(E) of the Act, and 

the establishment of the market basket 

percentage increase factors under 

section 1881(b)(14)(F) of the Act. 

■ 13. Section 413.196 is amended by 

adding new paragraphs (c) and (d) to 

read as follows: 

§ 413.196 Notification of changes in ratesetting methodologies and payment rates. 

* * * * * 

(c) Effective for items and services 

furnished on or after January 1, 2011 

and before January 1, 2012, CMS adjusts 

the composite rate portion of the basic 

case-mix adjusted composite payment 

system described in § 413.220 by the 

ESRD bundled market basket percentage 

increase factor. 

(d) Effective for items and services 

furnished on or after January 1, 2012, 

CMS updates on an annual basis the 

following: 

(1) The per-treatment base rate and 

the composite rate portion of the basic 

case-mix adjusted composite payment 

system described in § 413.220 by the 

ESRD bundled market basket percentage 

increase factor minus a productivity 

adjustment factor. 

(2) The wage index using the most 

current hospital wage data. 

(3) The fixed dollar loss amount as 

defined in § 413.237 of this part to 

ensure that outlier payments continue to 

be 1.0 percent of total payments to 

ESRD facilities. 

■ 14. Section 413.210 is added to 

subpart H to read as follows: 

§ 413.210 Conditions for payment under 

the end-stage renal disease (ESRD) 

prospective payment system. 

Except as noted in § 413.174(f), items 

and services furnished on or after 

January 1, 2011, under section 

1881(b)(14)(A) of the Act and as 

identified in § 413.217 of this part, are 

paid under the ESRD prospective 

payment system described in § 413.215 

through § 413.235 of this part. 

(a) Qualifications for payment. To 

qualify for payment, ESRD facilities 

must meet the conditions for coverage 

in part 494 of this chapter. 

(b) Payment for items and services. 

CMS will not pay any entity or supplier 

other than the ESRD facility for covered 

items and services furnished to a 

Medicare beneficiary. The ESRD facility 

must furnish all covered items and 


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services defined in § 413.217 of this part 

either directly or under arrangements. 

■ 15. Section 413.215 is added to 

subpart H to read as follows: 

§ 413.215 Basis of payment. 

(a) Except as otherwise provided 

under § 413.235 or § 413.174(f) of this 

part, effective January 1, 2011, ESRD 

facilities receive a predetermined per 

treatment payment amount described in 

§ 413.230 of this part, for renal dialysis 

services, specified under section 

1881(b)(14) of the Act and as defined in 

§ 413.217 of this part, furnished to 

Medicare Part B fee-for-service 

beneficiaries. 

(b) In addition to the per-treatment 

payment amount, as described in 

§ 413.215(a) of this part, the ESRD 

facility may receive payment for bad 

debts of Medicare beneficiaries as 

specified in § 413.178 of this part. 

■ 16. Section 413.217 is added to 

subpart H to read as follows: 

§ 413.217 Items and services included in 

the ESRD prospective payment system. 

The following items and services are 

included in the ESRD prospective 

payment system effective January 1, 

2011: 

(a) Renal dialysis services as defined 

in § 413.171; and 

(b) Home dialysis services, support, 

and equipment as identified in § 410.52 

of this chapter. 

■ 17. Section 413.220 is added to 

subpart H to read as follows: 

§ 413.220 Methodology for calculating the 

per-treatment base rate under the ESRD 

prospective payment system effective 

January 1, 2011. 

(a) Data sources. The methodology for 

determining the per treatment base rate 

under the ESRD prospective payment 

system utilized: 

(1) Medicare data available to estimate 

the average cost and payments for renal 

dialysis services. 

(2) ESRD facility cost report data 

capturing the average cost per treatment. 

(3) The lowest per patient utilization 

calendar year as identified from 

Medicare claims is calendar year 2007. 

(4) Wage index values used to adjust 

for geographic wage levels described in 

§ 413.231 of this part. 

(5) An adjustment factor to account 

for the most recent estimate of increases 

in the prices of an appropriate market 

basket of goods and services provided 

by ESRD facilities. 

(b) Determining the per treatment 

base rate for calendar year 2011. Except 

as noted in § 413.174(f), the ESRD 

prospective payment system combines 

payments for the composite rate items 

and services as defined in § 413.171 of 

this part and the items and services that, 

prior to January 1, 2011, were separately 

billable items and services, as defined in 

§ 413.171 of this part, into a single per 

treatment base rate developed from 2007 

claims data. The steps to calculating the 

per-treatment base rate for 2011 are as 

follows: 

(1) Per patient utilization in CY 2007, 

2008, or 2009. CMS removes the effects 

of enrollment and price growth from 

total expenditures for 2007, 2008 or 

2009 to determine the year with the 

lowest per patient utilization. 

(2) Update of per treatment base rate 

to 2011. CMS updates the per-treatment 

base rate under the ESRD prospective 

payment system in order to reflect 

estimated per treatment costs in 2011. 

(3) Standardization. CMS applies a 

reduction factor to the per treatment 

base rate to reflect estimated increases 

resulting from the facility-level and 

patient-level adjustments applicable to 

the case as described in § 413.231 

through § 413.235 of this part. 

(4) Outlier percentage. CMS reduces 

the per treatment base rate by 1 percent 

to account for the proportion of the 

estimated total payments under the 

ESRD prospective payment system that 

are outlier payments as described in 

§ 413.237 of this part. 

(5) Budget neutrality. CMS adjusts the 

per treatment base rate so that the 

aggregate payments in 2011 are 

estimated to be 98 percent of the 

amount that would have been made 

under title XVIII of the Social Security 

Act if the ESRD prospective payment 

system described in section 1881(b)(14) 

of the Act were not implemented. 

(6) First 4 Years of the ESRD 

prospective payment system. During the 

first 4 years of ESRD prospective 

payment system (January 1, 2011 to 

December 31, 2013), CMS adjusts the 

per-treatment base rate in accordance 

with § 413.239(d). 

■ 18. Section 413.230 is added to 

subpart H to read as follows: 

§ 413.230 Determining the per treatment 

payment amount. 

The per-treatment payment amount is 

the sum of: 

(a) The per treatment base rate 

established in § 413.220, adjusted for 

wages as described in § 413.231, and 

adjusted for facility-level and patientlevel characteristics described in 

§ 413.232 and § 413.235 of this part; 

(b) Any outlier payment under 

§ 413.237; and 

(c) Any training adjustment add-on 

under § 414.335(b). 

■ 19. Section 413.231 is added to 

subpart H to read as follows: 

§ 413.231 Adjustment for wages. 

(a) CMS adjusts the labor-related 

portion of the base rate to account for 

geographic differences in the area wage 

levels using an appropriate wage index 

(established by CMS) which reflects the 

relative level of hospital wages and 

wage-related costs in the geographic 

area in which the ESRD facility is 

located. 

(b) The application of the wage index 

is made on the basis of the location of 

the ESRD facility in an urban or rural 

area as defined in this paragraph (b). 

(1) Urban area means a Metropolitan 

Statistical Area or a Metropolitan 

division (in the case where a 

Metropolitan Statistical Area is divided 

into Metropolitan Divisions), as defined 

by OMB. 

(2) Rural area means any area outside 

an urban area. 

■ 20. Section 413.232 is added to 

subpart H to read as follows: 

§ 413.232 Low-volume adjustment. 

(a) CMS adjusts the base rate for lowvolume ESRD facilities, as defined in 

paragraph (b) of this section. 

(b) Definition of low-volume facility. 

A low-volume facility is an ESRD 

facility that: 

(1) Furnished less than 4,000 

treatments in each of the 3 years 

preceding the payment year; and 

(2) Has not opened, closed, or had a 

change in ownership in the 3 years 

preceding the payment year. 

(c) For the purpose of determining the 

number of treatments under paragraph 

(b)(1) of this section, the number of 

treatments considered furnished by the 

ESRD facility shall equal the aggregate 

number of treatments furnished by the 

ESRD facility and the number of 

treatments furnished by other ESRD 

facilities that are both: 

(1) Under common ownership with, 

and 

(2) 25 miles or less from the ESRD 

facility in question. 

(d) The determination under 

paragraph (c) of this section does not 

apply to an ESRD facility that was in 

existence and certified for Medicare 

participation prior January 1, 2011. 

(e) Common ownership means the 

same individual, individuals, entity, or 

entities, directly, or indirectly, own 5 

percent or more of each ESRD facility. 

(f) To receive the low-volume 

adjustment, an ESRD facility must 

provide an attestation statement to their 

Medicare administrative contractor that 

the facility has met all the criteria as 

established in paragraphs (a), (b), (c), 

and (d) of this section. 


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(g) The low-volume adjustment 

applies only for dialysis treatments 

provided to adults (18 years or older). 

■ 21. Section 413.235 is added to 

subpart H to read as follows: 

§ 413.235 Patient-level adjustments. 

Adjustments to the per-treatment base 

rate may be made to account for 

variation in case-mix. These 

adjustments reflect patient 

characteristics that result in higher costs 

for ESRD facilities. 

(a) CMS adjusts the per treatment base 

rate for adults to account for patient age, 

body surface area, low body mass index, 

onset of dialysis (new patient), and comorbidities, as specified by CMS. 

(b) CMS adjusts the per treatment base 

rate for pediatric patients in accordance 

with section 1881(b)(14) (D)(iv)(I) of the 

Act, to account for patient age and 

treatment modality. 

(c) CMS provides a wage-adjusted 

add-on per treatment adjustment for 

home and self-dialysis training. 

■ 22. Section 413.237 is added to 

subpart H to read as follows: 

§ 413.237 Outliers. 

(a) The following definitions apply to 

this section. 

(1) ESRD outlier services are the 

following items and services 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 laboratory tests that 

were or would have been, prior to 

January 1, 2011, separately billable 

under Medicare Part B; 

(iii) Medical/surgical supplies, 

including syringes, used to administer 

ESRD-related drugs that were or would 

have been, prior to January 1, 2011, 

separately billable under Medicare Part 

B; and 

(iv) Renal dialysis service drugs that 

were or would have been, prior to 

January 1, 2011, covered under 

Medicare Part D, excluding ESRDrelated oral-only drugs effective January 

1, 2014. 

(2) Adult predicted ESRD outlier 

services Medicare allowable payment 

(MAP) amount means the predicted pertreatment case-mix adjusted amount for 

ESRD outlier services furnished to an 

adult beneficiary by an ESRD facility. 

(3) Pediatric predicted ESRD outlier 

services Medicare allowable payment 

(MAP) amount means the predicted pertreatment case-mix adjusted amount for 

ESRD outlier services furnished to a 

pediatric beneficiary by an ESRD 

facility. 

(4) Adult fixed dollar loss amount is 

the amount by which an ESRD facility’s 

imputed per-treatment MAP amount for 

furnishing ESRD outlier services to an 

adult beneficiary must exceed the adult 

predicted ESRD outlier services MAP 

amount to be eligible for an outlier 

payment. 

(5) Pediatric fixed dollar loss amount 

is the amount by which an ESRD 

facility’s imputed per-treatment MAP 

amount for furnishing ESRD outlier 

services to a pediatric beneficiary must 

exceed the pediatric predicted ESRD 

outlier services MAP amount to be 

eligible for an outlier payment. 

(6) Outlier Percentage: This term has 

the meaning set forth in § 413.220(b)(4). 

(b) Eligibility for outlier payments. 

(1) Adult beneficiaries. An ESRD 

facility will receive an outlier payment 

for a treatment furnished to an adult 

beneficiary if the ESRD facility’s pertreatment imputed MAP amount for 

ESRD outlier services exceeds the adult 

predicted ESRD outlier services MAP 

amount plus the adult fixed dollar loss 

amount. To calculate the ESRD facility’s 

per-treatment imputed MAP amount for 

an adult beneficiary, CMS divides the 

ESRD facility’s monthly imputed MAP 

amount of providing ESRD outlier 

services to the adult beneficiary by the 

number of dialysis treatments furnished 

to the adult beneficiary in the relevant 

month. A beneficiary is considered an 

adult beneficiary if the beneficiary is 18 

years old or older. 

(2) Pediatric beneficiaries. An ESRD 

facility will receive an outlier payment 

for a treatment furnished to a pediatric 

beneficiary if the ESRD facility’s pertreatment imputed MAP amount for 

ESRD outlier services exceeds the 

pediatric predicted ESRD outlier 

services MAP amount plus the pediatric 

fixed dollar loss amount. To calculate 

the ESRD facility’s per-treatment 

imputed MAP amount for a pediatric 

beneficiary, CMS divides the ESRD 

facility’s monthly imputed MAP amount 

of providing ESRD outlier services to 

the pediatric beneficiary by the number 

of dialysis treatments furnished to the 

pediatric beneficiary in the relevant 

month. A beneficiary is considered a 

pediatric beneficiary if the beneficiary is 

under 18 years old. 

(c) Outlier payment amount: CMS 

pays 80 percent of the difference 

between: 

(1) The ESRD facility’s per-treatment 

imputed MAP amount for the ESRD 

outlier services, and 

(2) The adult or pediatric predicted 

ESRD outlier services MAP amount plus 

the adult or pediatric fixed dollar loss 

amount, as applicable. 

■ 23. Section 413.239 is added to 

subpart H to read as follows: 

§ 413.239 Transition period. 

(a) Duration of transition period and 

composition of the blended transition 

payment. ESRD facilities not electing 

under paragraph (b) of this section to be 

paid based on the payment amount 

determined under § 413.230 of this part, 

will be paid a per-treatment payment 

amount for renal dialysis services (as 

defined in § 413.171 of this part) and 

home dialysis, provided during the 

transition as follows— 

(1) For services provided on and after 

January 1, 2011 through December 31, 

2011, a blended rate equal to the sum 

of: 

(i) 75 percent of the payment amount 

determined under the ESRD payment 

methodology in effect prior to January 1, 

2011 in accordance with section 

1881(b)(12) of the Act and items and 

services separately paid under Part B; 

and 

(ii) 25 percent of the payment amount 

determined in accordance with section 

1881(b)(14) of the Act; 

(2) For services provided on and after 

January 1, 2012 through December 31, 

2012, a blended rate equal to the sum 

of: 

(i) 50 percent of the payment amount 

determined under the ESRD payment 

methodology in effect prior to January 1, 

2011 in accordance with section 

1881(b)(12) of the Act and items and 

services separately paid under Part B; 

and 

(ii) 50 percent of the payment rate 

determined in accordance with section 

1881(b)(14) of the Act; 

(3) For services provided on and after 

January 1, 2013 through December 31, 

2013, a blended rate equal to the sum 

of: 

(i) 25 percent of the payment amount 

determined under the ESRD payment 

methodology in effect prior to January 1, 

2011 in accordance with section 1881(b) 

(12) of the Act and items and services 

separately paid under Part B; and 

(ii) 75 percent of the payment amount 

determined in accordance with section 

1881(b)(14) of the Act; 

(4) For services provided on and after 

January 1, 2014, 100 percent of the 

payment amount determined in 

accordance with section 1881(b)(14) of 

the Act. 

(b) One-time election. Except as 

provided in paragraph (b)(2) of this 

section, ESRD facilities may make a onetime election to be paid for renal 

dialysis services provided during the 

transition based on 100 percent of the 

payment amount determined under 

§ 413.215 of this part, rather than based 


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on the payment amount determined 

under paragraph (a) of this section. 

(1) Except as provided in paragraph 

(b)(3) of this section, the election must 

be received by each ESRD facility’s 

Medicare administrative contractor 

(MAC) by November 1, 2010. Requests 

received by the MAC after November 1, 

2010, will not be accepted regardless of 

postmarks, or delivered dates. MACs 

will establish the manner in which an 

ESRD facility will indicate their 

intention to be excluded from the 

transition and paid entirely based on 

payment under the ESRD PPS. Once the 

election is made, it may not be 

rescinded. 

(2) If the ESRD facility fails to submit 

an election, or the ESRD facility’s 

election is not received by their MAC by 

November 1, 2010, payments to the 

ESRD facility for items and services 

provided during the transition will be 

based on the payment amounts 

determined under paragraph (a) of this 

section. 

(3) ESRD facilities that become 

certified for Medicare participation and 

begin to provide renal dialysis services, 

as defined in § 413.171 of this part, 

between November 1, 2010 and 

December 31, 2010, must notify their 

designated MAC of their election choice 

at the time of enrollment. 

(c) Treatment of new ESRD facilities. 

For renal dialysis services as defined in 

§ 413.171, furnished during the 

transition period, new ESRD facilities as 

defined in § 413.171, are paid based on 

the per-treatment payment amount 

determined under § 413.215 of this part. 

(d) Transition budget-neutrality 

adjustment. During the transition, CMS 

adjusts all payments, including 

payments under this section, under the 

ESRD prospective payment system so 

that the estimated total amount of 

payment equals the estimated total 

amount of payments that would 

otherwise occur without such a 

transition. 

■ 24. Section 413.241 is added to 

subpart H to read as follows: 

§ 413.241 Pharmacy arrangements. 

Effective January 1, 2011, an ESRD 

facility that enters into an arrangement 

with a pharmacy to furnish renal 

dialysis service drugs and biologicals 

must ensure that the pharmacy has the 

capability to provide all classes of renal 

dialysis service drugs and biologicals to 

patients in a timely manner. 

PART 414—PAYMENT FOR PART B 

MEDICAL AND OTHER HEALTH 

SERVICES 

■ 25. The authority citation for part 414 

continues to read as follows: 

Authority: Secs. 1102, 1871, and 1881(b)(l) 

of the Social Security Act (42 U.S.C. 1302, 

1395hh, and 1395rr(b)(l)) 

Subpart E—Determination of 

Reasonable Charges Under the ESRD 

Program 

■ 26. Section 414.330 is amended by— 

■ A. Removing ‘‘§ 413.170’’ and adding 

in its place ‘‘§ 413.210’’ in paragraph 

(a)(1) and paragraph (b)(1). 

■ B. Revising the heading of paragraph 

(a)(2). 

■ C. Revising the heading of paragraph 

(b)(2). 

■ D. Removing the paragraph heading 

and adding in its place new 

introductory text in paragraph (c). 

§ 414.330 Payment for home dialysis 

equipment, supplies, and support services. 

(a) * * * 

(2) Exception for equipment and 

supplies furnished prior to January 1, 

2011. * * * 

* * * * * 

(b) * * * 

(2) Exception for home support 

services furnished prior to January 1, 

2011. * * * 

* * * * * 

(c) Payment limits for support 

services, equipment and supplies, and 

notification of changes to the payment 

limits apply prior to January 1, 2011 as 

follows: 

* * * * * 

■ 27. Revise § 414.335 to read as 

follows: 

§ 414.335 Payment for EPO furnished to a 

home dialysis patient for use in the home. 

(a) Prior to January 1, 2011, payment 

for EPO used at home by a home 

dialysis patient is made only to either a 

Medicare approved ESRD facility or a 

supplier of home dialysis equipment 

and supplies. Effective January 1, 2011, 

payment for EPO used at home by a 

home dialysis patient is made only to a 

Medicare-approved ESRD facility in 

accordance with the per treatment 

payment as defined in § 413.230. 

(b) After January 1, 2011, a home and 

self training amount is added to the per 

treatment base rate for adult and 

pediatric patients as defined in 

§ 413.230 

(Catalog of Federal Domestic Assistance 

Program No. 93.773, Medicare—Hospital 

Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Dated: July 15, 2010. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: July 22, 2010. 

Kathleen Sebelius, 

Secretary. 

Note: The following tables will not appear 

in the Code of Federal Regulations. 

BILLING CODE P 


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[FR Doc. 2010–18466 Filed 7–26–10; 4:15 pm] 

BILLING CODE C 


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