‘‘(i) with respect to the composite rate compo-
nent of the basic case-mix adjusted system described 
in subparagraph (B)(i), by the ESRD market basket 
percentage increase (as defined in paragraph 
(14)(A) and including any additional factors that 
may increase costs described in paragraph (14)(B)) 
above such composite rate payment amounts for 
such services furnished on December 31 of the pre-
vious year; and 
‘‘(ii) with respect to the component of the basic 
case-mix adjusted system described in clause (ii) of 
subparagraph (B), by— 
‘‘(I) applying the estimated growth in ex-
penditures for drugs and biologicals (including 
erythropoietin) that are separately billable to 
such component; and 
‘‘(II) converting the amount determined in 
subclause (I) to an increase applicable to the 
basic case-mix adjusted payment amounts es-
tablished under such subparagraph.’’. 
(b) ESRD MARKET BASKET PERCENTAGE INCREASE 
DEFINED.—Section 1881(b) of the Social Security Act 
(42 U.S.C. 1395rr(b)), as amended by section 623(d) of 
the Medicare Prescription Drug, Improvement, and Mod-
ernization Act of 2003 (Public Law 108–173; 117 Stat.
2313) is amended by adding at the end the following new 
paragraph: 
‘‘(14)(A) For purposes of this title, the term ‘ESRD 
market basket percentage increase’ means, with respect to 
a calendar year, the percentage (estimated by the Sec-
retary before the beginning of such year) by which— 
‘‘(i) the cost of the mix of goods and services 
included in the provision of dialysis services (includ-
ing the costs described in subparagraph (D)) that is 
determined based on an index of appropriately 
weighted indicators of changes in wages and prices 
which are representative of the mix of goods and 
services included in such dialysis services for the cal-
endar year; exceeds 
‘‘(ii) the cost of such mix of goods and services 
for the preceding calendar year. 
‘‘(B) In addition to determining the percentage up-
date under subparagraph (A), the Secretary shall also take 
into account any change in the costs of furnishing the mix 
of goods and services described in such subparagraph re-
sulting from— 
‘‘(i) the adoption of scientific and technological 
innovations used to provide dialysis services; 
‘‘(ii) changes in the manner or method of deliv-
ering dialysis services;
‘‘(iii) productivity improvements in the provi-
sion of dialysis services; and 
‘‘(iv) any other relevant factor. 
‘‘(C) The Secretary shall annually review and update 
the items and services included in the mix of goods and 
services used to determine the percentage under subpara-
graph (A). 
‘‘(D) The costs described in this subparagraph in-
clude— 
‘‘(i) labor costs, including direct patient care 
costs and administrative labor costs, vacation and 
holiday pay, payroll taxes, and employee benefits; 
‘‘(ii) other direct costs, including drugs, sup-
plies, and laboratory fees; 
‘‘(iii) overhead costs, including medical director 
fees, temporary services, general and administrative 
costs, interest expenses, and bad debt; 
‘‘(iv) capital costs, including rent, real estate 
taxes, depreciation, utilities, repairs, and mainte-
nance; and 
‘‘(v) such other allowable costs as the Secretary 
may specify.’’.