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Proposed Rule2022-13449

Medicare Program; End-Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury, End-Stage Renal Disease Quality Incentive Program, and End-Stage Renal Disease Treatment Choices Model

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Published

June 28, 2022

Issuing agencies

Health and Human Services DepartmentCenters for Medicare & Medicaid Services

Abstract

This proposed rule would update and revise the End-Stage Renal Disease (ESRD) Prospective Payment System for calendar year 2023. This proposed rule also proposes to update the payment rate for renal dialysis services furnished by an ESRD facility to individuals with acute kidney injury. This rule also includes requests for information regarding potential payment adjustments for certain new renal dialysis drugs and biological products as well as health equity issues under the ESRD PPS with a focus on pediatric dialysis payment. In addition, this proposed rule proposes to update requirements for the ESRD Quality Incentive Program. Finally, this proposed rule would make updates to the ESRD Treatment Choices Model.

Full Text

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[Federal Register Volume 87, Number 123 (Tuesday, June 28, 2022)]
[Proposed Rules]
[Pages 38464-38586]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-13449]

[[Page 38463]]

Vol. 87

Tuesday,

No. 123

June 28, 2022

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 413 and 512

Medicare Program; End-Stage Renal Disease Prospective Payment System,
Payment for Renal Dialysis Services Furnished to Individuals With Acute
Kidney Injury, End-Stage Renal Disease Quality Incentive Program, and
End-Stage Renal Disease Treatment Choices Model; Proposed Rule

Federal Register / Vol. 87 , No. 123 / Tuesday, June 28, 2022 /
Proposed Rules

[[Page 38464]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413 and 512

[CMS-1768-P]
RIN 0938-AU79

Medicare Program; End-Stage Renal Disease Prospective Payment
System, Payment for Renal Dialysis Services Furnished to Individuals
With Acute Kidney Injury, End-Stage Renal Disease Quality Incentive
Program, and End-Stage Renal Disease Treatment Choices Model

AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of
Health and Human Services (HHS).

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update and revise the End-Stage Renal
Disease (ESRD) Prospective Payment System for calendar year 2023. This
proposed rule also proposes to update the payment rate for renal
dialysis services furnished by an ESRD facility to individuals with
acute kidney injury. This rule also includes requests for information
regarding potential payment adjustments for certain new renal dialysis
drugs and biological products as well as health equity issues under the
ESRD PPS with a focus on pediatric dialysis payment. In addition, this
proposed rule proposes to update requirements for the ESRD Quality
Incentive Program. Finally, this proposed rule would make updates to
the ESRD Treatment Choices Model.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, by August 22, 2022.

ADDRESSES: In commenting, please refer to file code CMS-1768-P.
Comments, including mass comment submissions, must be submitted in
one of the following three ways (please choose only one of the ways
listed):
1. Electronically. You may submit electronic comments on this
regulation to <a href="http://www.regulations.gov">http://www.regulations.gov</a>. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-1768-P, P.O. Box 8010,
Baltimore, MD 21244-8010.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-1768-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:
<a href="/cdn-cgi/l/email-protection#e6a3b5b4a2b6879f8b838892a6858b95c88e8e95c8818990">[email&#160;protected]</a>, for issues related to the ESRD PPS and
coverage and payment for renal dialysis services furnished to
individuals with AKI.
<a href="/cdn-cgi/l/email-protection#46031514020736362a2f2527322f29283506252b35682e2e3568212930">[email&#160;protected]</a>, for issues related to applications
for the Transitional Add-On Payment Adjustment for New and Innovative
Equipment and Supplies (TPNIES) or the Transitional Drug Add-on Payment
Adjustment (TDAPA).
Delia Houseal, (410) 786-2724, for issues related to the ESRD QIP.
<a href="/cdn-cgi/l/email-protection#d1948592fc929c9c9891b2bca2ffb9b9a2ffb6bea7">[email&#160;protected]</a>, for issues related to the ESRD Treatment
Choices (ETC) Model.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following
website as soon as possible after they have been received: <a href="http://www.regulations.gov">http://www.regulations.gov</a>. Follow the search instructions on that website to
view public comments. CMS will not post on <a href="http://Regulations.gov">Regulations.gov</a> public
comments that make threats to individuals or institutions or suggest
that the individual will take actions to harm the individual. CMS
continues to encourage individuals not to submit duplicative comments.
We will post acceptable comments from multiple unique commenters even
if the content is identical or nearly identical to other comments.
Current Procedural Terminology (CPT) Copyright Notice: Throughout
this proposed rule, we use CPT[supreg] codes and descriptions to refer
to a variety of services. We note that CPT[supreg] codes and
descriptions are copyright 2020 American Medical Association (AMA). All
Rights Reserved. CPT[supreg] is a registered trademark of the AMA.
Applicable Federal Acquisition Regulations (FAR) and Defense Federal
Acquisition Regulations (DFAR) apply.

Table of Contents

To assist readers in referencing sections contained in this
preamble, we are providing a Table of Contents.

I. Executive Summary
A. Purpose
B. Summary of the Major Provisions
C. Summary of Cost and Benefits
II. Calendar Year (CY) 2023 End-Stage Renal Disease (ESRD)
Prospective Payment System (PPS)
A. Background
B. Provisions for the CY 2023 ESRD PPS Update
C. Proposed Transitional Add-On Payment Adjustment for New and
Innovative Equipment and Supplies (TPNIES) for CY 2023 Payment
D. Request for Information About Addressing Issues of Payment
for New Drugs After Transitional Drug Add-On Payment Adjustment
(TDAPA) Period Ends
E. Requests for Information on Health Equity Issues Within ESRD
PPS With a Focus on the Pediatric Payment
III. Calendar Year (CY) 2023 Payment for Renal Dialysis Services
Furnished to Individuals With Acute Kidney Injury (AKI)
A. Background
B. Proposed Annual Payment Rate Update for CY 2023
IV. End-Stage Renal Disease Quality Incentive Program (ESRD QIP)
A. Background
B. Extraordinary Circumstances Exception (ECE) Previously
Granted for the ESRD QIP Including Notification of ECE Due to ESRD
Quality Reporting System Issues
C. Updates for the PY 2025 ESRD QIP
V. End-Stage Renal Disease Treatment Choices (ETC) Model
A. Background
B. Proposed Updates to the ETC Model
VI. Collection of Information Requirements
A. Legislative Requirement for Solicitation of Comments
B. Requirements in Regulation Text
C. Additional Information Collection Requirements
VII. Regulatory Impact Analysis
A. Statement of Need
B. Overall Impact
C. Impact Analysis
D. Detailed Economic Analysis
E. Accounting Statement
F. Regulatory Flexibility Act Analysis (RFA)
G. Unfunded Mandates Reform Act Analysis (UMRA)
H. Federalism
VIII. Response to Comments
IX. Files Available to the Public via the Internet
Regulations Text

I. Executive Summary

A. Purpose

This rule proposes changes related to the End-Stage Renal Disease
(ESRD) Prospective Payment System (PPS), payment for renal dialysis
services furnished to individuals with acute

[[Page 38465]]

kidney injury (AKI), the ESRD Quality Incentive Program (QIP), and the
ESRD Treatment Choices (ETC) Model.
1. End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)
On January 1, 2011, we implemented the ESRD PPS, a case-mix
adjusted, bundled PPS for renal dialysis services furnished by ESRD
facilities as required by section 1881(b)(14) of the Social Security
Act (the Act), as added by section 153(b) of the Medicare Improvements
for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275).
Section 1881(b)(14)(F) of the Act, as added by section 153(b) of MIPPA,
and amended by section 3401(h) of the Patient Protection and Affordable
Care Act (the Affordable Care Act) (Pub. L. 111-148), established that
beginning calendar year (CY) 2012, and each subsequent year, the
Secretary of the Department of Health and Human Services (the
Secretary) shall annually increase payment amounts by an ESRD market
basket increase factor, reduced by the productivity adjustment
described in section 1886(b)(3)(B)(xi)(II) of the Act. This proposed
rule would update the ESRD PPS for CY 2023.
2. Coverage and Payment for Renal Dialysis Services Furnished to
Individuals With Acute Kidney Injury (AKI)
On June 29, 2015, the President signed the Trade Preferences
Extension Act of 2015 (TPEA) (Pub. L. 114-27). Section 808(a) of the
TPEA amended section 1861(s)(2)(F) of the Act to provide coverage for
renal dialysis services furnished on or after January 1, 2017, by a
renal dialysis facility or a provider of services paid under section
1881(b)(14) of the Act to an individual with AKI. Section 808(b) of the
TPEA amended section 1834 of the Act by adding a new subsection (r)
that provides for payment for renal dialysis services furnished by
renal dialysis facilities or providers of services paid under section
1881(b)(14) of the Act to individuals with AKI at the ESRD PPS base
rate beginning January 1, 2017. This proposed rule would update the AKI
payment rate for CY 2023.
3. End-Stage Renal Disease Quality Incentive Program (ESRD QIP)
The End-Stage Renal Disease Quality Incentive Program (ESRD QIP) is
authorized by section 1881(h) of the Act. The Program fosters improved
patient outcomes by establishing incentives for facilities to meet or
exceed performance standards established by the Centers for Medicare &
Medicaid Services (CMS). This proposed rule proposes several updates
for Payment Year (PY) 2023, including the suppression of individual
ESRD QIP measures for PY 2023 under the measure suppression policy
previously finalized for the duration of the COVID-19 public health
emergency (PHE), as well as updates for PY 2024 and PY 2025. At this
time, no new requirements are being proposed beginning with the PY 2026
ESRD QIP.
4. End-Stage Renal Disease Treatment Choices (ETC) Model
The ETC Model is a mandatory Medicare payment model tested under
section 1115A of the Act. The ETC Model is operated by the Center for
Medicare and Medicaid Innovation (Innovation Center), and tests the use
of payment adjustments to encourage greater utilization of home
dialysis and kidney transplants, to preserve or enhance the quality of
care furnished to Medicare beneficiaries while reducing Medicare
expenditures. The ETC Model was finalized as part of a final rule
published in the Federal Register on September 29, 2020, titled,
``Medicare Program: Specialty Care Models to Improve Quality of Care
and Reduce Expenditures'' (85 FR 61114), referred to herein as the
``Specialty Care Models final rule.'' This proposed rule would make
certain changes to the ETC Model, including adding a parameter to the
Performance Payment Adjustment (PPA) achievement scoring methodology
and adding an additional protection related to flexibilities for
furnishing and billing kidney disease patient education services by ETC
Participants. This proposed rule also discusses our intent to
disseminate participant-level model performance information to the
public.

B. Summary of the Major Provisions

1. ESRD PPS
<bullet> Rebasing and revision of the End-Stage Renal Disease
Bundled (ESRDB) market basket for CY 2023: We are proposing to rebase
and revise the ESRDB market basket to a 2020 base year, reflecting the
most recent and complete set of Medicare Cost Report data as well as
other publicly available data. In addition, we are proposing to update
the labor-related share of the ESRD PPS base rate to reflect the
proposed 2020 labor-related cost share weights designated in the ESRDB
market basket.
<bullet> Update to the ESRD PPS base rate for CY 2023: The proposed
CY 2023 ESRD PPS base rate is $264.09. This proposed amount reflects
the application of the wage index budget-neutrality adjustment factor
(0.999997) and a proposed productivity-adjusted market basket increase
of 2.4 percent as required by section 1881(b)(14)(F)(i)(I) of the Act,
equaling $264.09 (($257.90 x 0.999997) x 1.024 = $264.09).
<bullet> Annual update to the wage index: We adjust wage indices on
an annual basis using the most current hospital wage data and the
latest core-based statistical area (CBSA) delineations to account for
differing wage levels in areas in which ESRD facilities are located.
For CY 2023, we are proposing to update the wage index values based on
the latest available data.
<bullet> Permanent cap on wage index decreases: For CY 2023 and
subsequent years, we are proposing to apply a permanent 5-percent cap
on any ESRD facility's wage index decrease from its wage index in the
prior year, regardless of the circumstances causing the decline.
<bullet> Wage index floor: We are proposing to raise the wage index
floor, for areas with wage index values below the floor, from 0.5000 to
0.6000.
<bullet> Outlier policy refinement: The ESRD PPS has an outlier
policy that targets 1.0 percent of total Medicare ESRD PPS expenditures
in outlier payments for ESRD beneficiaries who require a high level of
renal dialysis services. We are proposing to modify the methodology for
calculating the fixed-dollar loss (FDL) amounts for adult patients.
<bullet> Annual update to the outlier policy: We are proposing to
update the outlier policy based on the most current data and our
proposed refinement to the outlier policy. Accordingly, we propose to
update the Medicare allowable payment (MAP) amounts for adult and
pediatric patients for CY 2023 using the latest available CY 2021
claims data. We propose to update the ESRD outlier services FDL amount
for pediatric patients using the latest available CY 2021 claims data,
and we propose to use the latest available claims data from CY 2019, CY
2020, and CY 2021 to calculate the FDL amount for adults, in accordance
with the proposed methodology discussed in section II.B.1.c.(4) of this
proposed rule. For pediatric beneficiaries, the proposed FDL amount
would decrease from $26.02 to $21.51, and the proposed MAP amount would
decrease from $27.15 to $25.62, as compared to CY 2022 values. For
adult beneficiaries, the proposed FDL amount would decrease from $75.39
to $40.75, and the proposed MAP amount would decrease from $42.75 to
$36.85. The 1.0 percent target for outlier payments was not achieved in
CY 2021. Outlier payments represented approximately 0.4 percent

[[Page 38466]]

of total payments rather than 1.0 percent.
<bullet> Definition of oral-only drugs: We are proposing that,
beginning January 1, 2025, we would include the word functional in the
definition of oral-only drug at Sec. 413.234(a). Specifically, under
the proposed definition, an oral-only drug would be a drug or
biological product with no injectable functional equivalent or other
form of administration other than an oral form.
<bullet> Update to the offset amount for the transitional add-on
payment adjustment for new and innovative equipment and supplies
(TPNIES) for CY 2023: The proposed CY 2023 average per treatment offset
amount for the TPNIES for capital-related assets that are home dialysis
machines is $9.73. This proposed offset amount reflects the application
of the productivity-adjusted market basket increase of 2.4 percent
($9.50 x 1.024 = $9.73).
<bullet> TPNIES applications received for CY 2023: This proposed
rule presents a summary of the three CY 2023 TPNIES applications that
we received by the February 1, 2022 deadline and our preliminary
analysis of the applicants' claims related to substantial clinical
improvement and other eligibility criteria for the TPNIES.
2. Payment for Renal Dialysis Services Furnished to Individuals With
AKI
We are proposing to update the AKI payment rate for CY 2023. The
proposed CY 2023 payment rate is $264.09, which is the same as the base
rate proposed under the ESRD PPS for CY 2023.
3. ESRD QIP
We are proposing to suppress the Standardized Hospitalization Ratio
(SHR) clinical measure, the Standardized Readmission Ratio (SRR)
clinical measure, the In-Center Hemodialysis Consumer Assessment of
Healthcare Providers and Systems (ICH CAHPS) clinical measure, the
Long-Term Catheter Rate clinical measure, the Percentage of Prevalent
Patients Waitlisted (PPPW) clinical measure, and the Kt/V Dialysis
Adequacy Comprehensive clinical measure for PY 2023 under our
previously finalized measure suppression policy because we have
determined that circumstances caused by the public health emergency
(PHE) due to COVID-19 have significantly affected the measures and
resulting performance scores. We are also proposing to use CY 2019 data
to calculate performance standards for the PY 2023 ESRD QIP. We are
also updating the technical specifications of the SHR clinical measure
and SRR clinical measure so that the measure results are expressed as
rates instead of ratios beginning with the PY 2024 ESRD QIP. Beginning
with the PY 2025 ESRD QIP, we are proposing to add the COVID-19
Vaccination Coverage among Healthcare Personnel (HCP) measure to the
ESRD QIP measure set. We are also proposing to convert the Standardized
Transfusion Ratio (STrR) reporting measure to a clinical measure
beginning with PY 2025, and are further proposing to express the
measure as a rate to align with the technical updates to express the
SHR and SRR clinical measure results as rates. In addition, we are
proposing to convert the Hypercalcemia clinical measure to a reporting
measure, beginning with PY 2025. Furthermore, we are proposing to
create a new Reporting Measure domain and to re-weight current measure
domains beginning with PY 2025.
This proposed rule also includes requests for information on
several important topics, including potential quality measures for home
dialysis, the expansion of our quality reporting programs to allow us
to provide more actionable and comprehensive information on health care
disparities across multiple variables and new care settings, and on the
possible future inclusion of two potential social drivers of health
screening measures.
4. ETC Model
We are proposing to update the PPA achievement scoring methodology
beginning in the fifth Measurement Year (MY5) of the ETC Model, which
begins January 1, 2023. We are also proposing to clarify the
requirements for qualified staff to furnish and bill kidney disease
patient education services under the ETC Model's Medicare program
waivers. In addition, we discuss our intent to disseminate participant-
level model performance information to the public.

C. Summary of Costs and Benefits

In section VII.D.5 of this proposed rule, we set forth a detailed
analysis of the impacts that the proposed changes would have on
affected entities and beneficiaries. The impacts include the following:
1. Impacts of the Proposed ESRD PPS
The impact table in section VII.D.5.a of this proposed rule
displays the estimated change in payments to ESRD facilities in CY 2023
compared to estimated payments in CY 2022. The overall impact of the CY
2023 changes is projected to be a 3.1 percent increase in payments.
Hospital-based ESRD facilities have an estimated 3.7 percent increase
in payments compared with freestanding facilities with an estimated 3.1
percent increase. We estimate that the aggregate ESRD PPS expenditures
would increase by approximately $320 million in CY 2023 compared to CY
2022. This reflects a $250 million increase from the proposed payment
rate update, a $70 million increase due to the proposed updates to the
outlier threshold amounts, and approximately $2.5 million in estimated
TPNIES amounts. Because of the projected 3.1 percent overall payment
increase, we estimate there would be an increase in beneficiary
coinsurance payments of 3.1 percent in CY 2023, which translates to
approximately $60 million.
2. Impacts of the Proposed Payment for Renal Dialysis Services
Furnished to Individuals With AKI
The impact table in section VII.D.5.b of this proposed rule
displays the estimated change in payments to ESRD facilities in CY 2023
compared to estimated payments in CY 2022. The overall impact of the CY
2023 changes is projected to be a 2.4 percent increase in payments for
individuals with AKI. Hospital-based ESRD facilities have an estimated
2.1 percent increase in payments compared with freestanding ESRD
facilities with an estimated 2.4 percent increase. The overall impact
reflects the effects of the proposed update to the labor-related share,
proposed CY 2023 wage index, proposed permanent cap on wage index
decreases, and the proposed payment rate update. We estimate that the
aggregate payments made to ESRD facilities for renal dialysis services
furnished to patients with AKI, at the proposed CY 2023 ESRD PPS base
rate, would increase by $2 million in CY 2023 compared to CY 2022.
3. Impacts of the Proposed ESRD QIP
Our proposals to suppress measures for the PY 2023 ESRD QIP
necessitate a modification to our previously estimated overall economic
impact of the PY 2023 ESRD QIP (85 FR 71400). In the CY 2021 ESRD PPS
final rule, we estimated that the overall economic impact of the PY
2023 ESRD QIP would be approximately $224 million as a result of the
policies we had finalized at that time. The $224 million figure for PY
2023 included costs associated with the collection of information
requirements, which we estimated would be approximately $208 million,
and $16 million in estimated payment reductions across all facilities.
However, as a result of the proposals impacting the PY 2023 ESRD QIP
that we are making in this proposed rule, we are modifying our previous
estimate. We now estimate that the overall economic

[[Page 38467]]

impact of the PY 2023 ESRD QIP would be approximately $218 million. The
$218 million figure for PY 2023 includes costs associated with the
collection of information requirements and recalculated estimated
payment reductions based on the six measures we are proposing to
suppress for PY 2023. Although we are updating the way we express the
SHR clinical measure and the SRR clinical measure results beginning
with PY 2024, these technical updates would not impact our previously
estimated economic impact for the PY 2024 ESRD QIP. We estimate that
the overall economic impact of the PY 2025 ESRD QIP would be
approximately $252 million as a result of the policies we have
previously finalized and the proposals in this proposed rule. The $252
million figure for PY 2025 includes costs associated with the
collection of information requirements, which we estimate would be
approximately $215 million, and $37 million in estimated payment
reductions across all facilities. We also estimate that the overall
economic impact of the PY 2026 ESRD QIP would be approximately $252
million as a result of the policies we have previously finalized. The
$252 million figure for PY 2026 includes costs associated with the
collection of information requirements, which we estimate would be
approximately $215 million, and $37 million in estimated payment
reductions across all facilities.
4. Impacts of the Proposed Changes to the ETC Model
The impact estimate in section VII.D.5.d of this proposed rule
describes the estimated change in anticipated Medicare program savings
arising from the ETC Model over the duration of the ETC Model as a
result of the proposed changes. We estimate that the ETC Model would
result in $28 million in net savings over the 6.5 year duration of the
ETC Model. We also estimate that the changes proposed in this proposed
rule would produce no change in net savings for the ETC Model.

II. CY 2023 ESRD PPS

A. Background

1. Statutory Background
On January 1, 2011, CMS implemented the ESRD PPS, a case-mix
adjusted bundled PPS for renal dialysis services furnished by ESRD
facilities, as required by section 1881(b)(14) of the Act, as added by
section 153(b) of the Medicare Improvements for Patients and Providers
Act of 2008 (MIPPA). Section 1881(b)(14)(F) of the Act, as added by
section 153(b) of MIPPA and amended by section 3401(h) of the Patient
Protection and Affordable Care Act (the Affordable Care Act),
established that beginning with CY 2012, and each subsequent year, the
Secretary shall annually increase payment amounts by an ESRD market
basket increase factor reduced by the productivity adjustment described
in section 1886(b)(3)(B)(xi)(II) of the Act.
Section 632 of the American Taxpayer Relief Act of 2012 (ATRA)
(Pub. L. 112-240) included several provisions that apply to the ESRD
PPS. Section 632(a) of ATRA added section 1881(b)(14)(I) to the Act,
which required the Secretary, by comparing per patient utilization data
from 2007 with such data from 2012, to reduce the single payment for
renal dialysis services furnished on or after January 1, 2014, to
reflect the Secretary's estimate of the change in the utilization of
ESRD-related drugs and biologicals (excluding oral-only ESRD-related
drugs). Consistent with this requirement, in the CY 2014 ESRD PPS final
rule, we finalized $29.93 as the total drug utilization reduction and
finalized a policy to implement the amount over a 3- to 4-year
transition period (78 FR 72161 through 72170).
Section 632(b) of ATRA prohibited the Secretary from paying for
oral-only ESRD-related drugs and biologicals under the ESRD PPS prior
to January 1, 2016. Section 632(c) of ATRA required the Secretary, by
no later than January 1, 2016, to analyze the case-mix payment
adjustments under section 1881(b)(14)(D)(i) of the Act and make
appropriate revisions to those adjustments.
On April 1, 2014, the Protecting Access to Medicare Act of 2014
(PAMA) (Pub. L. 113-93) was enacted. Section 217 of PAMA included
several provisions that apply to the ESRD PPS. Specifically, sections
217(b)(1) and (2) of PAMA amended sections 1881(b)(14)(F) and (I) of
the Act and replaced the drug utilization adjustment that was finalized
in the CY 2014 ESRD PPS final rule (78 FR 72161 through 72170) with
specific provisions that dictated the market basket update for CY 2015
(0.0 percent) and how the market basket should be reduced in CY 2016
through CY 2018.
Section 217(a)(1) of PAMA amended section 632(b)(1) of ATRA to
provide that the Secretary may not pay for oral-only ESRD-related drugs
under the ESRD PPS prior to January 1, 2024. Section 217(a)(2) of PAMA
further amended section 632(b)(1) of ATRA by requiring that in
establishing payment for oral-only drugs under the ESRD PPS, the
Secretary must use data from the most recent year available. Section
217(c) of PAMA provided that as part of the CY 2016 ESRD PPS
rulemaking, the Secretary shall establish a process for-- (1)
determining when a product is no longer an oral-only drug; and (2)
including new injectable and intravenous products into the ESRD PPS
bundled payment.
Finally, on December 19, 2014, the President signed the Stephen
Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE) (Pub.
L. 113-295). Section 204 of ABLE amended section 632(b)(1) of ATRA, as
amended by section 217(a)(1) of PAMA, to provide that payment for oral-
only renal dialysis services cannot be made under the ESRD PPS bundled
payment prior to January 1, 2025.
2. System for Payment of Renal Dialysis Services
Under the ESRD PPS, a single per-treatment payment is made to an
ESRD facility for all the renal dialysis services defined in section
1881(b)(14)(B) of the Act and furnished to individuals for the
treatment of ESRD in the ESRD facility or in a patient's home. We have
codified our definition of renal dialysis services at Sec. 413.171,
which is in 42 CFR part 413, subpart H, along with other ESRD PPS
payment policies. The ESRD PPS base rate is adjusted for
characteristics of both adult and pediatric patients and accounts for
patient case-mix variability. The adult case-mix adjusters include five
categories of age, body surface area, low body mass index, onset of
dialysis, and four comorbidity categories (that is, pericarditis,
gastrointestinal tract bleeding, hereditary hemolytic or sickle cell
anemia, myelodysplastic syndrome). A different set of case-mix
adjusters are applied for the pediatric population. Pediatric patient-
level adjusters include two age categories (under age 22, or age 22 to
26) and two dialysis modalities (that is, peritoneal or hemodialysis)
(Sec. 413.235(a) and (b)).
The ESRD PPS provides for three facility-level adjustments. The
first payment adjustment accounts for ESRD facilities furnishing a low
volume of dialysis treatments (Sec. 413.232). The second payment
adjustment reflects differences in area wage levels developed from
core-based statistical areas (CBSAs) (Sec. 413.231). The third payment
adjustment accounts for ESRD facilities furnishing renal dialysis
services in a rural area (Sec. 413.233).
There are four additional payment adjustments under the ESRD PPS.
The ESRD PPS provides adjustments, when applicable, for: (1) a training
add-on for home and self-dialysis modalities (Sec. 413.235(c)); (2) an
additional payment

[[Page 38468]]

for high cost outliers due to unusual variations in the type or amount
of medically necessary care (Sec. 413.237); (3) a TDAPA for certain
new renal dialysis drugs and biological products (Sec. 413.234(c));
and (4) a TPNIES for certain qualifying, new and innovative renal
dialysis equipment and supplies (Sec. 413.236(d)).
3. Updates to the ESRD PPS
Policy changes to the ESRD PPS are proposed and finalized annually
in the Federal Register. The CY 2011 ESRD PPS final rule was published
on August 12, 2010 in the Federal Register (75 FR 49030 through 49214).
That rule implemented the ESRD PPS beginning on January 1, 2011 in
accordance with section 1881(b)(14) of the Act, as added by section
153(b) of MIPPA, over a 4-year transition period. Since the
implementation of the ESRD PPS, we have published annual rules to make
routine updates, policy changes, and clarifications.
We published a final rule, which appeared in the November 8, 2021
issue of the Federal Register, titled ``Medicare Program; End-Stage
Renal Disease Prospective Payment System, Payment for Renal Dialysis
Services Furnished to Individuals With Acute Kidney Injury, and End-
Stage Renal Disease Quality Incentive Program, and End-Stage Renal
Disease Treatment Choices Model,'' referred to herein as the ``CY 2022
ESRD PPS final rule.'' In that rule, we updated the ESRD PPS base rate,
wage index, and outlier policy for CY 2022. We also updated the average
per treatment offset amount for the TPNIES for CY 2022. In addition, we
announced our approval of one application for the TPNIES for CY 2022
payment. For further detailed information regarding these updates, see
86 FR 61874.

B. Provisions of the Proposed Rule

1. Proposed CY 2023 ESRD PPS Update
a. Proposed CY 2023 ESRD Bundled (ESRDB) Market Basket Rebasing and
Revision; Market Basket Increase Factor; Productivity Adjustment; and
Labor-Related Share
(1) Proposed Rebasing and Revising of the ESRDB Market Basket
(a) Background
In accordance with section 1881(b)(14)(F)(i) of the Act, as added
by section 153(b) of MIPPA and amended by section 3401(h) of the
Affordable Care Act, beginning in 2012, the ESRD PPS payment amounts
are required to be annually increased by an ESRD market basket increase
factor and reduced by the productivity adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act. The application of the productivity
adjustment may result in the increase factor being less than 0.0 for a
year and may result in payment rates for a year being less than the
payment rates for the preceding year. Section 1881(b)(14)(F)(i) of the
Act also provides that the market basket increase factor should reflect
the changes over time in the prices of an appropriate mix of goods and
services included in renal dialysis services.
As required under section 1881(b)(14)(F)(i) of the Act, CMS
developed an all-inclusive ESRD Bundled (ESRDB) input price index using
CY 2008 as the base year (75 FR 49151 through 49162). We subsequently
revised and rebased the ESRDB input price index to a base year of CY
2012 in the CY 2015 ESRD PPS final rule (79 FR 66129 through 66136). In
the CY 2019 ESRD PPS final rule (83 FR 56951 through 56964), we
finalized a rebased ESRDB input price index to reflect a CY 2016 base
year. Effective for CY 2023, we are proposing to rebase and revise the
ESRDB market basket to a base year of CY 2020.
Although ``market basket'' technically describes the mix of goods
and services used for ESRD treatment, 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 a market
basket. Accordingly, the term ``ESRDB market basket,'' as used in this
document, refers to the ESRDB input price index.
The ESRDB market basket is a fixed-weight, Laspeyres-type price
index. A Laspeyres-type price index measures the change in price, over
time, of the same mix of goods and services purchased in the base
period. Any changes in the quantity or mix of goods and services (that
is, intensity) purchased over time are not measured.
The index is constructed in three steps. First, a base period is
selected where total base period expenditures are estimated for a set
of mutually exclusive and exhaustive spending categories, with the
proportion of total costs that each category represents being
calculated. These proportions are called ``cost weights'' or
``expenditure weights.'' Second, each expenditure category is matched
to an appropriate price or wage variable, referred to as a ``price
proxy.'' In almost every instance, these price proxies are derived from
publicly available statistical series that are published on a
consistent schedule (preferably at least on a quarterly basis).
Finally, the expenditure weight for each cost category is multiplied by
the level of its respective price proxy. The sum of these products
(that is, the expenditure weights multiplied by their price index
levels) for all cost categories yields the composite index level of the
market basket in a given period. Repeating this step for other periods
produces a series of market basket levels over time. Dividing an index
level for a given period by an index level for an earlier period
produces a rate of growth in the input price index over that timeframe.
As noted previously, the market basket is described as a fixed-
weight index because it represents the change in price over time of a
constant mix (quantity and intensity) of goods and services purchased
to provide renal dialysis services. The effects on total expenditures
resulting from changes in the mix of goods and services purchased
subsequent to the base period are not measured. For example, an ESRD
facility hiring more nurses to accommodate the needs of patients would
increase the volume of goods and services purchased by the ESRD
facility, but would not be factored into the price change measured by a
fixed-weight ESRD market basket. Only when the index is rebased would
changes in the quantity and intensity be captured, with those changes
being reflected in the cost weights. Therefore, we rebase the market
basket periodically so that the cost weights reflect changes between
base periods in the mix of goods and services that ESRD facilities
purchase to furnish ESRD treatment.
We last rebased the ESRDB market basket cost weights effective for
CY 2019 (83 FR 56951 through 56964), with 2016 data used as the base
period for the construction of the market basket cost weights. We are
proposing to use 2020 as the base year for the proposed rebased ESRDB
market basket cost weights. The cost weights for this proposed ESRDB
market basket are based on the cost report data for independent ESRD
facilities. We refer to the proposed market basket as a CY market
basket because the base period for all price proxies and weights are
set to CY 2020 (that is, the average index level for CY 2020 is equal
to 100). The major source data for the proposed ESRDB market basket is
the 2020 Medicare cost reports (MCRs) (Form CMS-265-11, OMB NO. 0938-
0236), supplemented with 2012 data from the United States (U.S.) Census
Bureau's Services Annual Survey (SAS) inflated to 2020 levels. The 2012
SAS data is the most recent year of detailed expense data published by
the Census Bureau for North American International Classification
System (NAICS) Code 621492: Kidney Dialysis Centers. We also are
proposing to use May 2020

[[Page 38469]]

Occupational Employment Statistics data from the U.S. Department of
Labor's Bureau of Labor Statistics (BLS) to estimate the weights for
the Wages and Salaries and Employee Benefits occupational blends. We
provide more detail on our proposed methodology in section
II.B.1.a.(1)(b) of this proposed rule.
The terms ``rebasing'' and ``revising,'' while often used
interchangeably, actually denote different activities. The term
``rebasing'' means moving the base year for the structure of costs of
an input price index (that is, in this exercise, we are proposing to
move the base year cost structure from 2016 to 2020) without making any
other major changes to the methodology. The term ``revising'' means
changing data sources, cost categories, and/or price proxies used in
the input price index. For CY 2023, we are proposing to rebase the
ESRDB market basket to reflect the 2020 cost structure of ESRD
facilities and to revise the index, that is, make changes to cost
categories or price proxies used in the index.
We are proposing CY 2020 as the new base year because 2020 is the
most recent year for which relatively complete MCR data are available.
We analyzed the cost weights for the years 2017 through 2020 and found
that the expenses reported in the ESRD facility MCRs for 2020 were
consistent with those in the prior years. Additionally, given the
nature of renal dialysis services, any impacts on utilization due to
the COVID-19 PHE were minimal as dialysis is not an optional treatment
and must continue even during the PHE. In developing the proposed
market basket, we reviewed ESRD expenditure data from ESRD MCRs (CMS
Form 265-11, OMB NO. 0938-0236) for 2020 for each freestanding ESRD
facility that reported expenses and payments. The 2020 MCRs are for
those ESRD facilities whose cost reporting period began on or after
October 1, 2019, and before October 1, 2020. Of the 2020 MCRs,
approximately 91 percent of freestanding ESRD facilities had a begin
date on January 1, 2020, approximately 5 percent had a begin date prior
to January 1, 2020, and approximately 4 percent had a begin date after
January 1, 2020. Using this methodology allowed our sample to include
ESRD facilities with varying cost report years including, but not
limited to, the federal fiscal year (FY) or CY.
We are proposing to maintain our policy of using data from
freestanding ESRD facilities (which account for over 90 percent of
total ESRD facilities in CY 2020) because freestanding ESRD facility
data reflect the actual cost structure faced by the ESRD facility
itself. In contrast, expense data for hospital-based ESRD facilities
reflect the allocation of overhead from the entire institution.
We developed cost category weights for the proposed 2020-based
ESRDB market basket in two stages. First, we derived base year cost
weights for ten major categories (Wages and Salaries, Employee
Benefits, Pharmaceuticals, Supplies, Laboratory Services, Housekeeping,
Operations & Maintenance, Administrative & General, Capital-Related
Building and Fixtures, and Capital-Related Moveable Equipment) from the
ESRD MCRs. Second, we are proposing to divide the Administrative &
General cost category into further detail using 2012 SAS data for the
industry Kidney Dialysis Centers NAICS 621492 inflated to 2020 levels.
We apply the estimated 2020 distributions from the SAS data to the 2020
Administrative & General cost weight to yield the more detailed 2020
cost weights in the proposed market basket. This is the same
methodology we used in the CY 2019 ESRD PPS rulemaking to break the
Administrative & General costs into more detail for the 2016-based
ESRDB market basket (83 FR 56951 through 56964).
We are proposing to include a total of 21 detailed cost categories
for the proposed 2020-based ESRDB market basket, whereas the 2016-based
ESRDB market basket had 20 detailed cost categories. A detailed
discussion of the proposals is provided in section II.B.1.a.(1)(b) of
this proposed rule.
(b) Cost Category Weights
Using Worksheets A and B from the 2020 MCRs, we first computed cost
shares for ten major expenditure categories: Wages and Salaries,
Employee Benefits, Pharmaceuticals, Supplies, Laboratory Services,
Housekeeping, Operations & Maintenance, Administrative and General,
Capital-Related Building and Fixtures, and Capital-Related Moveable
Equipment. Edits were applied to include only cost reports that had
total costs greater than zero. Total costs as reported on the MCR
include those costs reimbursable under the ESRD PPS. For example, we
excluded expenses related to vaccine costs from total expenditures
since these are not paid for under the ESRD PPS.
In order to reduce potential distortions from outliers in the
calculation of the individual cost weights for the major expenditure
categories for each cost category, values less than the 5th percentile
or greater than the 95th percentile were excluded from the major cost
weight computations. The proposed data set, after removing cost reports
with total costs equal to or less than zero and excluding outliers,
included information from approximately 6,625 independent ESRD
facilities' cost reports from an available pool of 7,413 cost reports.
Table 1 presents the proposed 2020-based ESRDB and 2016-based ESRDB
market basket major cost weights as derived directly from the MCR data.

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We are proposing to disaggregate the Administrative & General major
cost category developed from the MCR into more detail to more
accurately reflect ESRD facility costs. Those categories include:
Benefits, Professional Fees, Telephone, Utilities, and All Other Goods
and Services. We describe below how the initially computed categories
and weights from the cost reports were modified to yield the proposed
2020 ESRDB market basket expenditure categories and weights presented
in this proposed rule.
Wages and Salaries
The proposed Wages and Salaries cost weight is comprised of direct
patient care wages and salaries and non-direct patient care wages and
salaries. Direct patient care wages and salaries for 2020 was derived
from Worksheet B, column 5, lines 8 through 17 of the MCR. Non-direct
patient care wages and salaries includes all other wages and salaries
costs for non-health workers and physicians, which we are proposing to
derive using the following steps:
Step 1: To capture the salary costs associated with non-direct
patient care cost centers, we calculated salary percentages for non-
direct patient care from Worksheet A of the MCR. The estimated ratios
were calculated as the ratio of salary costs (Worksheet A, columns 1
and 2) to total costs (Worksheet A, column 4). The salary percentages
were calculated for seven distinct cost centers: `Operations and
Maintenance of Plant' combined with `Capital Related Costs-Renal
Dialysis Equipment' (line 3 and 6), Housekeeping (line 4), Employee
Health and Wellness (EH&W) Benefits for Direct Patient Care (line 8),
Supplies (line 9), Laboratory (line 10), Administrative & General (line
11), and Pharmaceuticals (line 12).
Step 2: We then multiplied the salary percentages computed in step
1 by the total costs for each corresponding reimbursable cost center
totals as reported on Worksheet B. The Worksheet B totals were based on
the sum of reimbursable costs reported on lines 8 through 17. For
example, the salary percentage for Supplies (as measured by line 9 on
Worksheet A) was applied to the total expenses for the Supplies cost
center (the sum of costs reported on Worksheet B, column 7, lines 8
through 17). This provided us with an estimate of Non-Direct Patient
Care Wages and Salaries.
Step 3: The estimated Wages and Salaries for each of the cost
centers on Worksheet B derived in step 2 were subsequently summed and
added to the direct patient care wages and salaries costs.
Step 4: The estimated non-direct patient care wages and salaries
(see step 2) were then subtracted from their respective cost categories
to avoid double-counting their values in the total costs.
Using this methodology, we derive a proposed Wages and Salaries
cost weight of 34.5 percent, reflecting an estimated direct patient
care wages and salaries cost weight of 25.7 percent and non-direct
patient care wages and salaries cost weight of 8.9 percent, as seen in
Table 2.
The final adjustment made to this category is to include Contract
Labor costs. These costs appear on the MCR; however, they are embedded
in the Other Costs from the trial balance reported on Worksheet A,
Column 3 and cannot be disentangled using the MCRs. To avoid double
counting of these expenses we are proposing to move the estimated cost
weight for the contract labor costs from the Administrative and General
category (where we believe the majority of the contract labor costs
would be reported) to the Wages and Salaries category. We are proposing
to use data from the SAS (2012 data inflated to 2020), which reported
2.4 percent of total expenses were spent on contract labor costs. We
allocated 80 percent of that contract labor cost weight to the Wages
and Salaries category. At the same time, we subtracted that same amount
from the Administrative and General category, where the majority of
contract labor expenses would likely be reported on the MCR. The 80
percent figure that was used was determined by taking salaries as a
percentage of total compensation (excluding contract labor) from the
2020 MCR data. This is the same method that was used to allocate
contract labor costs to the Wages and Salaries cost category

[[Page 38471]]

for the 2016-based ESRDB market basket.
The resulting proposed cost weight for Wages and Salaries increases
to 36.5 percent when contract labor wages are added. The calculation of
the proposed Wages and Salaries cost weight for the 2020-based ESRDB
market basket is shown in Table 2 along with the similar calculation
for the 2016-based ESRDB market basket.
[GRAPHIC] [TIFF OMITTED] TP28JN22.003

Employee Benefits
The proposed Employee Benefits cost weight was derived from the MCR
data for direct patient care and supplemented with data from the SAS
(2012 data inflated to 2020) to account for non-direct patient care
Employee Benefits. The MCR data only reflects Employee Benefit costs
associated with health and wellness; that is, it does not reflect
retirement benefits.
In order to reflect the benefits related to non-direct patient care
for employee health and wellness, we estimated the impact on the
benefit weight using SAS. Unlike the MCR, the SAS collects detailed
expenses for employee benefits including expenses related to the
retirement and pension benefits. Incorporating the SAS data produced an
Employee Benefits (both direct patient care and non-direct patient
care) weight that was 1.3 percentage points higher (9.0 vs. 7.7) than
the Employee Benefits weight for direct patient care calculated
directly from the MCR. To avoid double-counting and to ensure all of
the market basket weights still totaled 100 percent, we removed this
additional 1.3 percentage points for Non-Direct Patient Care Employee
Benefits from the Administrative and General cost category.
The final adjustment made to this category is to include contract
labor benefit costs. Once again, these costs appear on the MCR;
however, they are embedded in the Other Costs from the trial balance
reported on Worksheet A, Column 3 and cannot be disentangled using the
MCR data. Identical to our methodology previously for allocating
Contract Labor Costs to Wages and Benefits, we applied 20 percent of
total Contract Labor Costs, as estimated using the SAS, to the Benefits
cost weight calculated from the cost reports. The 20 percent figure was
determined by taking benefits as a percentage of total compensation
(excluding contract labor) from the 2020 MCR data. The resulting cost
weight for Employee Benefits increases to 9.5 percent when contract
labor benefits are added. This is the same method that was used to
allocate contract labor costs to the Benefits cost category for the
2016-based ESRDB market basket.
Table 3 compares the 2016-based Benefits cost share derivation as
detailed in the CY 2019 ESRD PPS final rule (83 FR 56954) to the
proposed 2020-based Benefits cost share derivation.
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[[Page 38472]]

Pharmaceuticals
The proposed 2020-based ESRDB market basket includes expenditures
for all drugs, including formerly separately billable drugs and all
other ESRD-related drugs that were covered under Medicare Part D before
the ESRD PPS was implemented. We calculated a Pharmaceuticals cost
weight from the following cost centers on Worksheet B, the sum of lines
8 through 17, for the following columns: column 11, ``Drugs Included in
Composite Rate,'' column 12, ``Erythropoiesis stimulating agents
(ESAs)''; and column 13, ``ESRD-Related and AKI -Related Drugs.'' We
did not include the drug expenses for Non-ESRD Related Drugs, Supplies,
and Labs as reported on line 5, column 10 or the AKI Non-Renal Related
Drugs, Supplies, & Lab as reported on line 5.01 column 10 as these
expenses are not included in the ESRD PPS bundled payment amount.
Section 1842(o)(1)(A)(iv) of the Act requires that influenza,
pneumococcal, COVID-19, and hepatitis B vaccines described in paragraph
(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
vaccines are not paid for under the ESRD PPS, we did not include
expenses reported on worksheet B, column 9 line 7 in the proposed 2020-
based ESRDB market basket.
Finally, to avoid double-counting, the weight for the
Pharmaceuticals category was reduced to exclude the estimated share of
Non-Direct Patient Care Wages and Salaries associated with the
applicable pharmaceutical cost centers referenced previously. This
resulted in a proposed ESRDB market basket weight for Pharmaceuticals
of 10.1 percent. ESA expenditures accounted for 6.0 percentage points
of the proposed Pharmaceuticals cost weight, and All Other Drugs
accounted for the remaining 4.1 percentage points.
The Pharmaceuticals cost weight decreased 2.3 percentage points
from the 2016-based ESRDB market basket to the proposed 2020-based
ESRDB market basket (12.4 percent to 10.1 percent). Most ESRD
facilities experienced a decrease in their Pharmaceuticals cost weight
since 2016.
Supplies
We calculated the proposed Supplies cost weight using the costs
reported in the Supplies cost center (Worksheet B, line 5 and the sum
of lines 8 through 17, column 7) of the MCR. To avoid double-counting,
the Supplies costs were reduced to exclude the estimated share of Non-
Direct patient care Wages and Salaries associated with this cost
center. The resulting proposed 2020-based ESRDB market basket weight
for Supplies is 11.0 percent, approximately 0.6 percentage point higher
than the weight for the 2016-based ESRDB market basket.
Laboratory Services
We calculated the proposed Laboratory Services cost weight using
the costs reported in the Laboratory cost center (Worksheet B, line 5
and the sum of line 8 through 17, column 8) of the MCR. To avoid
double-counting, the Laboratory Services costs were reduced to exclude
the estimated share of Non-Direct Patient Care Wages and Salaries
associated with this cost center. The proposed 2020-based ESRDB market
basket weight for Laboratory Services is estimated at 1.3 percent,
which is a 0.9 percentage point decrease from the 2016-based ESRDB
market basket.
Housekeeping
We calculated the proposed Housekeeping cost weight using the costs
reported on Worksheet A, line 4, column 8, of the MCR. To avoid double-
counting, the weight for the Housekeeping category was reduced to
exclude the estimated share of Non-Direct Patient Care Wages and
Salaries associated with this cost center. These costs were divided by
total costs to derive a proposed 2020-based ESRDB market basket weight
for Housekeeping of 0.5 percent. For the 2016-based ESRDB market basket
the cost category weight for both Housekeeping and Operations costs
were combined into a single cost weight. The Housekeeping cost weight
in the 2016-based ESRDB market basket would have been 0.5 percent if it
had been broken out separately.
Operations & Maintenance
We are proposing a new Operations & Maintenance cost category that
includes the direct expenses incurred in the operation and maintenance
of the plant and equipment such as heat, light, water (excluding water
treatment for dialysis purposes), air conditioning, and air treatment;
the maintenance and repair of building, parking facilities, and
equipment; painting; elevator maintenance; performance of minor
renovation of buildings and equipment; and protecting employees,
visitors, and facility property. As previously discussed, these costs
had formerly been combined with the Housekeeping expenses in a single
cost category for Housekeeping and Operations. The proposed 2020-based
ESRDB market basket Operations & Maintenance cost category reflects the
expenses for Operations & Maintenance, which also includes the costs
for Water and Sewerage that was a stand alone cost category in the
2016-based ESRDB market basket. We calculated the Operations &
Maintenance cost weight using the costs reported on Worksheet A, line
3, column 8, of the MCR. To avoid double-counting, the weight for the
Operations & Maintenance category was reduced to exclude the estimated
share of Non-Direct Patient Care Wages and Salaries associated with
this cost center. The resulting proposed 2020-based ESRDB market basket
weight for Operations & Maintenance is 3.7 percent.
Capital
We developed a proposed market basket weight for the Capital
category using data from Worksheet B of the MCRs. Capital-related costs
include depreciation and lease expenses for buildings, fixtures and
movable equipment, property taxes, insurance costs, the costs of
capital improvements, and maintenance expense for buildings, fixtures,
and machinery. The MCR captures Capital-related Costs including: (1)
Capital-Related- Building and Fixtures (2) Capital-Related Costs--
Moveable Equipment and (3) Housekeeping, and Operations & Maintenance
costs in Worksheet B, column 2. Since we developed separate expenditure
categories for Housekeeping, and Operations & Maintenance, as detailed
previously, we excluded these costs from the Capital cost weights. To
calculate the Capital-related Buildings and Fixtures cost weight we sum
expenses reported in Worksheet B lines 8 through 17, column 2 less
Housekeeping, Operations & Maintenance (as derived from expenses
reported on Worksheet A, as described previously), and less Capital-
related Moveable equipment costs (calculated as Worksheet A, column 8,
line 2 divided by the sum of Worksheet A, column 8, lines 1 and 2). The
Capital-related moveable equipment cost weight is equal to Capital-
related Renal Dialysis Equipment costs (Worksheet B, the sum of lines 8
through 17, column 4 plus Capital-Related Moveable Equipment (as
described in the prior sentence)). We reasoned this delineation 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 continue to believe that two capital-related cost categories are
appropriate. The resulting proposed 2020-based ESRDB market basket
weights for Capital-related

[[Page 38473]]

Buildings and Fixtures and Capital-related Moveable Equipment are 9.4
and 4.4 percent, respectively.
Administrative & General
We computed the proportion of total Administrative & General
expenditures using the Administrative and General cost center data from
Worksheet B, the sum of lines 8 through 17, (column 9) of the MCRs.
Additionally, we removed contract labor from this cost category and
apportioned these costs to the Wages and Salaries and Employee Benefits
cost weights. Similar to other expenditure category adjustments, we
then reduced the computed weight to exclude Wages and Salaries and
Benefits associated with the Administrative and General cost center for
Non-direct Patient Care as estimated from the SAS data. The resulting
Administrative and General cost weight is 13.7 percent.
We are proposing to further disaggregate the Administrative and
General cost weight to derive detailed cost weights for Electricity,
Natural Gas, Telephone, Professional Fees, and All Other Goods and
Services. These detailed cost weights were derived by inflating the
detailed 2012 SAS data forward to 2020 by applying the annual price
changes from the respective price proxies to the appropriate market
basket cost categories that are obtained from the 2012 SAS data. We
repeated this practice for each year to 2020. We then calculated the
cost shares that each cost category represents of the 2012 data
inflated to 2020. These resulting 2020 cost shares were applied to the
Administrative and General cost weight derived from the MCR (net of
contract labor and additional benefits) to obtain the detailed cost
weights for the proposed 2020-based ESRDB market basket. This method is
similar to the method used for the 2016-based ESRDB market basket.
Table 4 lists all of the cost categories and cost weights in the
proposed 2020-based ESRDB market basket compared to the 2016-based
ESRDB market basket.
BILLING CODE 4120-01-P
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[[Page 38474]]

BILLING CODE 4120-01-C
(c) Proposed Price Proxies for the 2020-Based ESRDB Market Basket
After developing the cost weights for the proposed 2020-based ESRDB
market basket, we are proposing to select the most appropriate wage and
price proxies currently available to represent the rate of price change
for each expenditure category. We based the proposed price proxies on
BLS data and group them into one of the following BLS categories:
<bullet> Employment Cost Indexes. Employment Cost Indexes (ECIs)
measure the rate of change in employment wage rates and employer costs
for employee benefits per hour worked. These indexes are fixed-weight
indexes and strictly measure the change in wage rates and employee
benefits per hour. ECIs are superior to Average Hourly Earnings (AHE)
as price proxies for input price indexes because they are not affected
by shifts in occupation or industry mix, and because they measure pure
price change and are available by both occupational group and by
industry. The industry ECIs are based on the NAICS and the occupational
ECIs are based on the Standard Occupational Classification System
(SOC).
<bullet> Producer Price Indexes. Producer Price Indexes (PPIs)
measure price changes for goods sold in other than retail markets. PPIs
are used when the purchases of goods or services are made at the
wholesale level.
<bullet> Consumer Price Indexes. Consumer Price Indexes (CPIs)
measure change in the prices of final goods and services bought by
consumers. CPIs are only used when the purchases are similar to those
of retail consumers rather than purchases at the wholesale level, or if
no appropriate PPIs are available.
We evaluated the price proxies using the criteria of reliability,
timeliness, availability, and relevance:
Reliability. Reliability indicates that the index is based on valid
statistical methods and has low sampling variability. Widely accepted
statistical methods ensure that the data were collected and aggregated
in a way that can be replicated. Low sampling variability is desirable
because it indicates that the sample reflects the typical members of
the population. (Sampling variability is variation that occurs by
chance because only a sample was surveyed rather than the entire
population.)
Timeliness. Timeliness implies that the proxy is published
regularly, preferably at least once a quarter. The market baskets are
updated quarterly, and therefore, it is important for the underlying
price proxies to be up-to-date, reflecting the most recent data
available. We believe that using proxies that are published regularly
(at least quarterly, whenever possible) helps to ensure that we are
using the most recent data available to update the market basket. We
strive to use publications that are disseminated frequently, because we
believe that this is an optimal way to stay abreast of the most current
data available.
Availability. Availability means that the proxy is publicly
available. We prefer that our proxies are publicly available because
this helps to ensure that our market basket increase factors are as
transparent to the public as possible. In addition, this enables the
public to be able to obtain the price proxy data on a regular basis.
Relevance. Relevance means that the proxy is applicable and
representative of the cost category weight to which it is applied. The
CPIs, PPIs, and ECIs that we have selected to propose in this proposed
rule meet these criteria. Therefore, we believe that they continue to
be the best measure of price changes for the cost categories to which
they would be applied.
Table 7 lists all proposed price proxies for the proposed 2020-
based ESRDB market basket. We note that we are proposing to use the
same proxies as those used in the 2016-based ESRDB market basket,
except for the price proxy for the Other Drugs (except ESAs) cost
category. Below is a detailed explanation of the proposed price proxies
used for each cost category.
Wages and Salaries
We are proposing to continue using a blend of ECIs to proxy the
Wages and Salaries cost weight in the proposed 2020-based ESRDB market
basket, and to continue using four occupational categories and
associated ECIs based on full-time equivalents (FTE) data from ESRD
MCRs and ECIs from BLS. We calculated occupation weights for the
blended Wages and Salaries price proxy using 2020 FTE data from the MCR
data multiplied by the associated 2020 Average Mean Wage data from the
Bureau of Labor Statistics' Occupational Employment Statistics. This is
similar to the methodology used in the 2016-based ESRDB market basket
to derive these occupational wages and salaries categories.
Health Related Wages and Salaries
We are proposing to continue using the ECI for Wages and Salaries
for All Civilian Workers in Hospitals (BLS series code
#CIU1026220000000I) as the price proxy for health-related occupations.
Of the two health-related ECIs that we considered (``Hospitals'' and
``Health Care and Social Assistance''), the wage distribution within
the Hospital NAICS sector (622) is more closely related to the wage
distribution of ESRD facilities than it is to the wage distribution of
the Health Care and Social Assistance NAICS sector (62).
The Wages and Salaries--Health Related subcategory weight within
the Wages and Salaries cost category accounts for 79.4 percent of total
Wages and Salaries in 2020. The ESRD MCR FTE categories used to define
the Wages and Salaries--Health Related subcategory include
``Physicians,'' ``Registered Nurses,'' ``Licensed Practical Nurses,''
``Nurses' Aides,'' ``Technicians,'' and ``Dieticians''.
Management Wages and Salaries
We are proposing to continue using the ECI for Wages and Salaries
for Private Industry Workers in Management, Business, and Financial
(BLS series code #CIU2020000110000I). We believe this ECI is the most
appropriate price proxy to measure the wages and salaries price growth
of management personnel at ESRD facilities.
The Wages and Salaries--Management subcategory weight within the
Wages and Salaries cost category is 9.0 percent in 2020. The ESRD MCR
FTE category used to define the Wages and Salaries--Management
subcategory is ``Management.''
Administrative Wages and Salaries
We are proposing to continue using the ECI for Wages and Salaries
for Private Industry Workers in Office and Administrative Support (BLS
series code #CIU2020000220000I). We believe this ECI is the most
appropriate price proxy to measure the wages and salaries price growth
of administrative support personnel at ESRD facilities.
The Wages and Salaries--Administrative subcategory weight within
the Wages and Salaries cost category is 5.3 percent in 2020. The ESRD
MCR FTE category used to define the Wages and Salaries--Administrative
subcategory is ``Administrative.''
Services Wages and Salaries
We are proposing to continue using the ECI for Wages and Salaries
for Private Industry Workers in Service Occupations (BLS series code
#CIU2020000300000I). We believe this ECI is the most appropriate price
proxy to measure the wages and salaries price growth of all other non-
health related, non-management, and non-

[[Page 38475]]

administrative service support personnel at ESRD facilities.
The Services subcategory weight within the Wages and Salaries cost
category is 6.3 percent in 2020. The ESRD MCR FTE categories used to
define the Wages and Salaries--Services subcategory are ``Social
Workers'' and ``Other.''
Table 5 lists the four ECI series and the corresponding weights
used to construct the proposed ECI blend for Wages and Salaries
compared to the 2016-based weights for the subcategories. We believe
this proposed ECI blend is the most appropriate price proxy to measure
the growth of wages and salaries faced by ESRD facilities.
[GRAPHIC] [TIFF OMITTED] TP28JN22.006

Employee Benefits
We are proposing to continue using an ECI blend for Employee
Benefits in the proposed 2020-based ESRDB market basket where the
components match those of the proposed Wage and Salaries ECI blend. The
proposed occupation weights for the blended Benefits price proxy (Table
6) are the same as those proposed for the wages and salaries price
proxy blend as shown in Table 5. BLS does not publish ECI for Benefits
price proxies for each Wage and Salary ECI; however, where these series
are not published, they can be derived by using the ECI for Total
Compensation and the relative importance of wages and salaries with
total compensation as published by BLS for each detailed ECI
occupational index.
Health Related Benefits
We are proposing to continue using the ECI for Benefits for All
Civilian Workers in Hospitals to measure price growth of this
subcategory. This is calculated using the ECI for Total Compensation
for All Civilian Workers in Hospitals (BLS series code
#CIU1016220000000I) and the relative importance of Wages and Salaries
within Total Compensation as published by BLS. We believe this
constructed ECI series is technically appropriate for the reason stated
in the Wages and Salaries price proxy section.
Management Benefits
We are proposing to continue using the ECI for Benefits for Private
Industry Workers in Management, Business, and Financial to measure
price growth of this subcategory. This ECI is calculated using the ECI
for Total Compensation for Private Industry Workers in Management,
Business, and Financial (BLS series code #CIU2010000110000I) and the
relative importance of wages and salaries within total compensation. We
believe this constructed ECI series is technically appropriate for the
reason stated in the Wages and Salaries price proxy section.
Administrative Benefits
We are proposing to continue using the ECI for Benefits for Private
Industry Workers in Office and Administrative Support to measure price
growth of this subcategory. This ECI is calculated using the ECI for
Total Compensation for Private Industry Workers in Office and
Administrative Support (BLS series code #CIU2010000220000I) and the
relative importance of Wages and Salaries within Total Compensation. We
believe this constructed ECI series is technically appropriate for the
reason stated in the wages and salaries price proxy section.
Services Benefits
We are proposing to continue using the ECI for Total Benefits for
Private Industry Workers in Service Occupations (BLS series code
#CIU2030000300000I) to measure price growth of this subcategory. We
believe this ECI series is technically appropriate for the reason
stated in the Wages and Salaries price proxy section. We believe the
proposed benefits ECI blend continues to be the most appropriate price
proxy to measure the growth of benefits prices faced by ESRD
facilities. Table 6 lists the four ECI series and the corresponding
weights used to construct the proposed benefits ECI blend.

[[Page 38476]]

[GRAPHIC] [TIFF OMITTED] TP28JN22.007

Electricity
We are proposing to continue using the PPI Commodity for Commercial
Electric Power (BLS series code #WPU0542) to measure the price growth
of this cost category.
Natural Gas
We are proposing to continue using the PPI Commodity for Commercial
Natural Gas (BLS series code #WPU0552) to measure the price growth of
this cost category.
Pharmaceuticals
ESAs: We are proposing to continue using the PPI Commodity for
Biological Products, Excluding Diagnostic, for Human Use (which we will
abbreviate as PPI-BPHU) (BLS series code #WPU063719) as the price proxy
for the ESA drugs in the market basket. The PPI-BPHU measures the price
change of prescription biologics, and ESAs would be captured within
this index, if they are included in the PPI sample. Since the PPI
relies on confidentiality with respect to the companies and drugs/
biologicals included in the sample, we do not know if these drugs are
indeed reflected in this price index. However, we believe the PPI-BPHU
is an appropriate proxy to use because although ESAs may be a small
part of the fuller category of biological products, we can examine
whether the price increases for the ESA drugs are similar to the drugs
included in the PPI-BPHU. We did this by comparing the historical price
changes in the PPI-BPHU and the average sales price (ASP) for ESAs and
found the cumulative growth to be consistent over the past 4 years. We
would continue to monitor the trends in the prices for ESA drugs as
measured by other price data sources to ensure that the PPI-BPHU is
still an appropriate price proxy.
Other Drugs (except ESA): For all other drugs included in the ESRD
PPS bundled payment other than ESAs, we are proposing to use a blend of
50 percent of the PPI Commodity for Vitamin, Nutrient, and Hematinic
Preparations (which we will abbreviate as PPI-VNHP) (BLS series code
#WPU063807), and 50 percent of the PPI Commodity for Pharmaceuticals
for human use, prescription (which we will abbreviate as PPI-
Pharmaceuticals) (BLS series code #WPUSI07003). We continue to believe
that the PPI-VNHP is an appropriate price proxy for the iron
supplements commonly used in the treatment of ESRD, and an analysis of
claims data indicate that iron supplement costs account for about half
of the All Other ESRD-related Drugs costs. For the remaining drugs
represented in the non-ESA drug category (such as calcimimetics and
Vitamin D analogs) we believe a different price proxy would be more
appropriate and we are proposing to use the PPI Commodity for
Pharmaceuticals for human use, prescription, which captures the
inflationary price pressures for all types of prescription drugs rather
than a single therapeutic category of drugs. Though this PPI measure
includes a wide variety of prescription drugs, we believe it is
technically appropriate to use a broad indicator of prescription drug
price trends for three key reasons: (1) the more detailed PPI measure
where we believe these types of non-ESA drugs would be captured would
more likely reflect price trends not faced by ESRD facilities, such as
cancer drugs, (2) there have been notable changes to the types and mix
of drugs paid for under the ESRD PPS bundled payment since 2016, such
as the inclusion of formerly oral-only calcimimetics and the addition
of AKI-related drugs, and (3) the potential for future changes to the
types and mix of drugs that may be paid for under the ESRD PPS bundled
payment, such as when other drugs that are currently oral-only drugs
are included in the ESRD PPS beginning for CY 2025. For these reasons,
we believe that a broader drug index representing a larger mix of
prescription drugs is a technical improvement to the proposed price
proxy for this cost category. We will continue to monitor the relative
share of expenses for iron supplements and other types of drugs for
this cost category to determine if the proposed 50/50 PPI blend
warrants an adjustment, and if so, we would propose such an adjustment
in future rulemaking.
Supplies
We are proposing to continue using the PPI Commodity for Surgical
and Medical Instruments (BLS series code #WPU1562) to measure the price
growth of this cost category.
Laboratory Services
We are proposing to continue using the PPI Industry for Medical
Laboratories (BLS series code #PCU621511621511) to measure the price
growth of this cost category.
Telephone Service
We are proposing to continue using the CPI U.S. city average for
Telephone Services (BLS series code #CUUR0000SEED) to measure the price
growth of this cost category.
Housekeeping
We are proposing to continue using the PPI Commodity for Cleaning
and Building Maintenance Services (BLS series code #WPU49) to measure
the price growth of this cost category.
Operations & Maintenance
For the Operations & Maintenance cost category, we are proposing to
use the ECI for Total compensation for All Civilian workers in
Installation, maintenance, and repair (BLS series code
#CIU1010000430000I) to measure the price growth of this cost category.

[[Page 38477]]

This price proxy accounts for the compensation expenses related to
maintenance and repair workers. We believe the majority of expenses for
maintenance and repair to be labor-related costs and therefore, believe
that this ECI is the most technically appropriate price proxy for this
cost category.
Professional Fees
We are proposing to continue using the ECI for Total Compensation
for Private Industry Workers in Professional and Related (BLS series
code #CIU2010000120000I) to measure the price growth of this cost
category.
All Other Goods and Services
We are proposing to continue using the PPI Commodity for Final
demand--Finished Goods Less Foods and Energy (BLS series code
#WPUFD4131) to measure the price growth of this cost category.
Capital-Related Building and Fixtures
We are proposing to continue using the PPI Industry for Lessors of
Nonresidential Buildings (BLS series code #PCU531120531120) to measure
the price growth of this cost category.
Capital-Related Moveable Equipment
We are proposing to continue using the PPI Commodity for Electrical
Machinery and Equipment (BLS series code #WPU117) to measure the price
growth of this cost category.
Table 7 shows all the proposed price proxies and cost weights for
the proposed 2020-based ESRDB Market Basket.
BILLING CODE 4120-01-P

[[Page 38478]]

[GRAPHIC] [TIFF OMITTED] TP28JN22.008

[[Page 38479]]

(d) Proposed Rebasing Results
A comparison of the yearly differences of increase factors from CY
2019 to CY 2023 for the 2016-based ESRDB market basket and the proposed
2020-based ESRDB market basket is shown in Table 8. The CY 2023 ESRDB
market basket increase factor would be 0.2 percentage point lower if we
continued to use the 2016-based ESRDB market basket. For the years
prior to CY 2023 the annual market basket increase factors were the
same, except for CY 2021 where the proposed 2020-based market basket
was 0.1 percentage point lower.
[GRAPHIC] [TIFF OMITTED] TP28JN22.009

(2) Proposed Labor-Related Share for ESRD PPS
We define the labor-related share (LRS) as those expenses that are
labor-intensive and vary with, or are influenced by, the local labor
market. 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.
We are proposing to use the proposed 2020-based ESRDB market basket
cost weights to determine the proposed labor-related share for ESRD
facilities. Therefore, effective for CY 2023, we are proposing a labor-
related share of 55.2 percent, compared to the current 52.3 percent
that was based on the 2016-based ESRDB market basket, as shown in Table
9. These figures represent the sum of Wages and Salaries, Benefits,
Housekeeping, Operations & Maintenance, 87 percent of the weight for
Professional Fees (details discussed later in this subsection), and 46
percent of the weight for Capital-related Building and Fixtures
expenses (details discussed later in this subsection). We used the same
methodology for the 2016-based ESRDB market basket.
[GRAPHIC] [TIFF OMITTED] TP28JN22.010

BILLING CODE 4120-01-C
The proposed labor-related share for Professional Fees reflects the
proportion of ESRD facilities' professional fees expenses that we
believe vary with local labor market (87 percent). We conducted a
survey of ESRD facilities in 2008 to better understand the proportion
of contracted professional

[[Page 38480]]

services that ESRD facilities typically purchase outside of their local
labor market. These purchased professional services include functions
such as accounting and auditing, management consulting, engineering,
and legal services. Based on the survey results, we determined that, on
average, 87 percent of professional services are purchased from local
firms and 13 percent are purchased from businesses located outside of
the ESRD's local labor market. Thus, we are proposing to include 87
percent of the cost weight for Professional Fees in the labor-related
share (87 percent is the same percentage as used in prior years).
The proposed labor-related share for capital-related expenses
reflects the proportion of ESRD facilities' capital-related expenses
that we believe varies with local labor market wages (46 percent of
ESRD facilities' Capital-related Building and Fixtures expenses).
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).
(3) Proposed CY 2023 ESRD Market Basket Increase Factor, Adjusted for
Productivity
Under section 1881(b)(14)(F)(i) of the Act, beginning in CY 2012,
the ESRD PPS payment amounts are required to be annually increased by
an ESRD market basket percentage increase factor and reduced by the
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of
the Act. We are proposing to use the 2020-based ESRDB market basket as
described in section II.B.1 of this proposed rule to compute the CY
2023 ESRDB market basket increase factor and labor-related share based
on the best available data. Consistent with historical practice, we
propose to estimate the ESRDB market basket increase factor based on
IHS Global Inc.'s (IGI) forecast using the most recently available
data. IGI is a nationally recognized economic and financial forecasting
firm with which CMS contracts to forecast the components of the market
baskets.
(a) Proposed CY 2023 Market Basket Increase Factor
Using this methodology and the IGI forecast available in the first
quarter of 2022 of the proposed 2020-based ESRDB market basket (with
historical data through the fourth quarter of 2021), and consistent
with our historical practice of estimating market basket increases
based on the best available data, the proposed CY 2023 ESRDB market
basket increase factor is 2.8 percent.
(b) Proposed Productivity Adjustment
Under section 1881(b)(14)(F)(i) of the Act, as amended by section
3401(h) of the Affordable Care Act, for CY 2012 and each subsequent
year, the ESRD market basket percentage increase factor shall be
reduced by the productivity adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act. The statute defines the productivity
adjustment to be equal to the 10-year moving average of changes in
annual economy-wide, private nonfarm business multifactor productivity
(MFP) (as projected by the Secretary for the 10-year period ending with
the applicable FY, year, cost reporting period, or other annual period)
(the ``productivity adjustment''). MFP is derived by subtracting the
contribution of labor and capital input growth from output growth. The
detailed methodology for deriving the MFP projection was finalized in
the CY 2012 ESRD PPS final rule (76 FR 70232 through 70235).
BLS publishes the official measures of productivity for the U.S.
economy. We note that previously the productivity measure referenced in
section 1886(b)(3)(B)(xi)(II) of the Act was published by BLS as
private nonfarm business MFP. Beginning with the November 18, 2021
release of productivity data, BLS replaced the term ``multifactor
productivity'' with ``total factor productivity'' (TFP). BLS noted that
this is a change in terminology only and will not affect the data or
methodology.\1\ As a result of the BLS name change, the productivity
measure referenced in section 1886(b)(3)(B)(xi)(II) of the Act is now
published by BLS as private nonfarm business TFP; however, as mentioned
previously, the data and methods are unchanged. We refer readers to
<a href="https://www.bls.gov/productivity/">https://www.bls.gov/productivity/</a> for the BLS historical published TFP
data. A complete description of IGI's TFP projection methodology is
available on the CMS website at <a href="https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch">https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch</a>. In addition, in the CY
2022 ESRD PPS final rule (86 FR 61879), we noted that effective for CY
2022 and future years, CMS would be changing the name of this
adjustment to refer to it as the productivity adjustment rather than
the MFP adjustment. We stated this was not a change in policy, as we
will continue to use the same methodology for deriving the adjustment
and rely on the same underlying data.
---------------------------------------------------------------------------

\1\ Total Factor Productivity in Major Industries--2020.
Available at: <a href="https://www.bls.gov/news.release/prod5.nr0.htm">https://www.bls.gov/news.release/prod5.nr0.htm</a>.
---------------------------------------------------------------------------

Using this methodology and IGI's first quarter 2022 forecast, the
proposed productivity adjustment for CY 2023 (the 10-year moving
average of TFP for the period ending CY 2023) is projected to be 0.4
percentage point.
(c) Proposed CY 2023 Market Basket Increase Factor Adjusted for
Productivity
As a result of these provisions, the proposed CY 2023 ESRD market
basket increase factor reduced by the productivity adjustment is 2.4
percent. This proposed market basket increase factor is calculated by
starting with the proposed 2020-based ESRDB market basket percentage
increase factor of 2.8 percent for CY 2023, and reducing it by the
proposed productivity adjustment (the 10-year moving average of TFP for
the period ending CY 2023) of 0.4 percentage point. As is our general
practice, we are also proposing that if more recent data are
subsequently available (for example, a more recent estimate of the
market basket increase factor or productivity adjustment), we would use
such data to determine the market basket increase factor and
productivity adjustment in the CY 2023 ESRD PPS final rule.
b. Proposed CY 2023 ESRD PPS Wage Indices
(1) Background
Section 1881(b)(14)(D)(iv)(II) of the Act provides that the ESRD
PPS may include a geographic wage index payment adjustment, such as the
index referred to in section 1881(b)(12)(D) of the Act, as the
Secretary determines to be appropriate. In the CY 2011 ESRD PPS final
rule (75 FR 49200), we finalized an adjustment for wages at Sec.
413.231. Specifically, 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, which reflects the relative level of
hospital wages and wage-related costs in the geographic area in which
the ESRD facility is located. We use OMB's CBSA-based

[[Page 38481]]

geographic area designations to define urban and rural areas and their
corresponding wage index values (75 FR 49117). OMB publishes bulletins
regarding CBSA changes, including changes to CBSA numbers and titles.
The bulletins are available online at <a href="https://www.whitehouse.gov/omb/information-for-agencies/bulletins/">https://www.whitehouse.gov/omb/information-for-agencies/bulletins/</a>.
For CY 2023, we are proposing to update the wage indices to account
for updated wage levels in areas in which ESRD facilities are located
using our existing methodology. We use the most recent pre-floor, pre-
reclassified hospital wage data collected annually under the inpatient
PPS. The ESRD PPS wage index values are calculated without regard to
geographic reclassifications authorized under sections 1886(d)(8) and
(d)(10) of the Act and utilize prefloor hospital data that are
unadjusted for occupational mix. For CY 2023, the updated wage data are
for hospital cost reporting periods beginning on or after October 1,
2018, and before October 1, 2019 (FY 2019 cost report data).
We have also adopted methodologies for calculating wage index
values for ESRD facilities that are located in urban and rural areas
where there is no hospital data. For a full discussion, see the CY 2011
and CY 2012 ESRD PPS final rules at 75 FR 49116 through 49117 and 76 FR
70239 through 70241, respectively. For urban areas with no hospital
data, we compute the average wage index value of all urban areas within
the state to serve as a reasonable proxy for the wage index of that
urban CBSA, that is, we use that value as the wage index. For rural
areas with no hospital data, we compute the wage index using the
average wage index values from all contiguous CBSAs to represent a
reasonable proxy for that rural area. We apply the statewide urban
average based on the average of all urban areas within the state to
Hinesville-Fort Stewart, Georgia (78 FR 72173), and we apply the wage
index for Guam to American Samoa and the Northern Mariana Islands (78
FR 72172).
A wage index floor value (0.5000) is applied under the ESRD PPS as
a substitute wage index for areas with very low wage index values.
Currently, all areas with wage index values that fall below the floor
are located in Puerto Rico. However, the wage index floor value is
applicable for any area that may fall below the floor. A description of
the history of the wage index floor under the ESRD PPS can be found in
the CY 2019 ESRD PPS final rule (83 FR 56964 through 56967).
An ESRD facility's wage index is applied to the labor-related share
of the ESRD PPS base rate. In the CY 2019 ESRD PPS final rule (83 FR
56963), we finalized a labor-related share of 52.3 percent, which was
based on the 2016-based ESRDB market basket. In the CY 2021 ESRD PPS
final rule (85 FR 71436), we updated the OMB delineations as described
in the September 14, 2018 OMB Bulletin No. 18-04, beginning with the CY
2021 ESRD PPS wage index. In addition, we finalized the application of
a 5 percent cap on any decrease in an ESRD facility's wage index from
the ESRD facility's wage index from the prior CY. We finalized that the
transition would be phased in over 2 years, such that the reduction in
an ESRD facility's wage index would be capped at 5 percent in CY 2021,
and no cap would be applied to the reduction in the wage index for the
second year, CY 2022. For CY 2023, as discussed in section II.B.1.a (2)
of this proposed rule, the proposed labor-related share to which the
wage index would be applied is 55.2 percent, based on the proposed
2020-based ESRDB market basket.
For CY 2023, we are proposing to update the ESRD PPS wage index to
use the most recent hospital wage data. The proposed CY 2023 ESRD PPS
wage index is set forth in Addendum A and is available on the CMS
website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/End-Stage-Renal-Disease-ESRD-Payment-Regulations-and-Notices">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/End-Stage-Renal-Disease-ESRD-Payment-Regulations-and-Notices</a>. Addendum A provides a crosswalk between the CY 2022 wage
index and the proposed CY 2023 wage index. Addendum B provides an ESRD
facility level impact analysis. Addendum B is available on the CMS
website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/End-Stage-Renal-Disease-ESRD-Payment-Regulations-and-Notices">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/End-Stage-Renal-Disease-ESRD-Payment-Regulations-and-Notices</a>.
(2) Proposed Permanent Cap on Wage Index Decreases
As discussed in section II.B.1.b(1) of this proposed rule and in
previous ESRD PPS rules, under the authority of section
1881(b)(14)(D)(iv)(II) of the Act, we have proposed and finalized
temporary, budget-neutral transition policies in the past to help
mitigate negative impacts on ESRD facilities following the adoption of
certain ESRD PPS wage index changes. In the CY 2015 ESRD PPS final rule
(79 FR 66142), we implemented revised OMB area delineations using a 2-
year transition, with a 50/50 blended wage index for all ESRD
facilities in CY 2015 \2\ and 100 percent of the wage index based on
the new OMB delineations in CY 2016. In the CY 2021 ESRD PPS proposed
rule (85 FR 42160 through 42161), we proposed a transition policy to
help mitigate any negative impacts that ESRD facilities may experience
due to our proposal to adopt the 2018 OMB delineations under the ESRD
PPS. We noted that because the overall amount of ESRD PPS payments
would increase slightly due to the 2018 OMB delineations, the effect of
the wage index budget neutrality factor would be to reduce the ESRD PPS
per treatment base rate for all ESRD facilities paid under the ESRD
PPS, despite the fact that the majority of ESRD facilities would be
unaffected by the 2018 OMB delineations. Thus, we explained that we
believed it would be appropriate to provide for a transition period to
mitigate the resulting short-term instability of a lower ESRD PPS base
rate as well as consequential negative impacts to ESRD facilities that
experience reduced payments. We proposed to apply a 5-percent cap on
any decrease in an ESRD facility's wage index from its final wage index
from the prior calendar year, that is, CY 2020. We explained that we
believed the 5-percent cap would provide greater transparency and would
be administratively less complex than the prior methodology of applying
a 50/50 blended wage index (85 FR 71478). We proposed that no cap would
be applied to the reduction in the wage index for the second year, that
is, CY 2022 (85 FR 42161).
---------------------------------------------------------------------------

\2\ ESRD facilities received 50 percent of their CY 2015 wage
index value based on the OMB delineations for CY 2014 and 50 percent
of their CY 2015 wage index value based on the newer OMB
delineations. 79 FR 66142.
---------------------------------------------------------------------------

Several commenters to the CY 2021 ESRD PPS proposed rule supported
the wage index transition policy that we proposed for CY 2021; however,
as discussed in the CY 2021 ESRD PPS final rule (86 FR 71434 through
71436), some commenters expressed concerns about the large negative
effects of the new labor market area delineations on certain areas. A
patient organization suggested that the 5 percent cap may not provide
an adequate transition for labor market areas that would experience a
decrease in their wage index of greater than 10 percent. Similarly, a
national non-profit dialysis organization recommended that CMS provide
an extended transition period, beyond the proposed 5 percent limit for
2021, for at least 3 years. Some commenters, including MedPAC,
suggested

[[Page 38482]]

alternatives to the methodology. MedPAC suggested that the 5 percent
cap limit should apply to both increases and decreases in the wage
index.
We stated in the CY 2021 ESRD PPS final rule that we believed a 5
percent cap on the overall decrease in an ESRD facility's wage index
value would be an appropriate transition, as it would effectively
mitigate any significant decreases in an ESRD facility's wage index for
CY 2021. With respect to extending the transition period for at least 3
years, we stated that we believed this would undermine the goal of the
wage index policy, which is to improve the accuracy of payments under
the ESRD PPS, and would serve to further delay improving the accuracy
of the ESRD PPS by continuing to pay certain ESRD facilities more than
their wage data suggest is appropriate. We also stated that the
transition policies are not intended to curtail the positive impacts of
certain wage index changes, so it would not be appropriate to also
apply the 5 percent cap on wage index increases. We acknowledged that a
transition policy was necessary to help mitigate initial significant
negative impacts from revised OMB delineations, but expressed that this
mitigation must be balanced against the importance of ensuring accurate
payments. We finalized the transition policy for CY 2021 as proposed.
We did not propose to extend the transition policy for CY 2022 or
future years, however, as we discussed in the CY 2022 ESRD PPS final
rule (86 FR 61881), we received comments acknowledging and supporting
the final phase-in of the updated OMB delineations for CY 2022.
Based on our past wage index transition policies and public
comments, we recognize that certain changes to our wage index policy
may significantly affect Medicare payments to ESRD facilities.
Commenters have raised concerns about scenarios in which changes to
wage index policy may have significant negative impacts on ESRD
facilities. Therefore, we considered for this CY 2023 ESRD PPS proposed
rule how best to address those scenarios.
In the past, we have established transition policies of limited
duration to phase in significant changes to labor market areas, such as
revised OMB delineations. In taking this approach in the past, we
sought to mitigate short-term instability and fluctuations that can
negatively impact ESRD facilities due to wage index changes. In
accordance with the ESRD PPS wage index regulations at Sec.
413.231(a), we adjust the labor-related portion of the base rate to
account for geographic differences in the area wage levels using an
appropriate wage index that is established by CMS, and which reflects
the relative level of hospital wages and wage-related costs in the
geographic area in which the ESRD facility is located. Our policy is
generally to use the most current hospital wage data and analysis
available in order to ensure the accuracy of the ESRD PPS wage index,
in accordance with Sec. 413.196(d)(2). As discussed earlier in this
section of the proposed rule, we believe that past wage index
transition policies have helped mitigate initial significant negative
impacts from changes such as revised OMB delineations. However, we
recognize that changes to the wage index have the potential to create
instability and significant negative impacts on certain ESRD facilities
even when labor market areas do not change as a result of revised OMB
delineations. In addition, year-to-year fluctuations in an area's wage
index can occur due to external factors beyond an ESRD facility's
control, such as the COVID-19 PHE, and for an individual ESRD facility,
these fluctuations can be difficult to predict. While we have
maintained that temporary transition policies provide sufficient time
for facilities to make operational changes for future CYs and have
noted separate agency actions to address certain external factors, such
as the issuance of waivers and flexibilities during the COVID-19 PHE
(85 FR 71435), we also recognize that predictability in Medicare
payments is important to enable ESRD facilities to budget and plan
their operations.
In light of these considerations, we are proposing a permanent
mitigation policy to smooth the impact of year-to-year changes in ESRD
PPS payments related to decreases in the ESRD PPS wage index. We are
proposing a policy that we believe would increase the predictability of
ESRD PPS payments for ESRD facilities; mitigate instability and
significant negative impacts to ESRD facilities resulting from changes
to the wage index; and use the most current data to maintain the
accuracy of the ESRD PPS wage index.
As previously discussed, we believe our transition policy that
applied a 5-percent cap on wage index decreases for CY 2021 provided
greater transparency and was administratively less complex than prior
transition methodologies. In addition, we believe this methodology
mitigated short-term instability and fluctuations that can negatively
impact ESRD facilities due to wage index changes. Lastly, we believe
the 5-percent cap we applied to all wage index decreases for CY 2021
provided an adequate safeguard against significant and unpredictable
payment reductions in that year, related to the adoption of the revised
OMB delineations. However, as discussed earlier in this section of the
proposed rule, we recognize there are circumstances that a 2-year
transition policy, like the one adopted for CY 2021, would not
effectively address for future years in which ESRD facilities continue
to be negatively affected by significant wage index decreases. We
believe our proposed permanent policy would eliminate the need for
temporary and potentially uncertain transition adjustments to the wage
index in the future due to specific policy changes or circumstances
outside ESRD facilities' control (for example, public health or other
emergencies, or the adoption of future OMB revisions to the CBSA
delineations through rulemaking).
Typical year-to-year variation in the ESRD PPS wage index has
historically been within 5 percent, and we expect this will continue to
be the case in future years. Because ESRD facilities are usually
experienced with this level of wage index fluctuation, we believe
applying a 5-percent cap on all wage index decreases each year,
regardless of the reason for the decrease, would effectively mitigate
instability in ESRD PPS payments due to any significant wage index
decreases that may affect ESRD facilities in a year. Therefore, we
believe this approach would address concerns about instability that
commenters raised in response to the CY 2021 ESRD PPS proposed rule. In
addition, we believe that applying a 5-percent cap on all wage index
decreases would support increased predictability about ESRD PPS
payments for ESRD facilities, enabling them to more effectively budget
and plan their operations. Lastly, because applying a 5-percent cap on
all wage index decreases would represent a small overall impact on the
labor market area wage index system, we believe it would still ensure
the wage index is a relative measure of the value of labor in
prescribed labor market areas. With a permanent cap, we would be able
to continue to update the wage index with the most current hospital
wage data as required under Sec. 413.196(d)(2) in order to more
accurately align the use of labor resources with ESRD PPS payment while
mitigating the instability in payments to individual ESRD facilities
that such updates may otherwise cause. As discussed in section
II.B.1.d(2) of this proposed rule, we compute a wage index budget-
neutrality adjustment factor that is applied to the ESRD PPS

[[Page 38483]]

base rate. As discussed in further detail in that section, we estimate
that applying a 5-percent cap on all wage index decreases would have a
very small effect on the wage index budget neutrality factor for CY
2023, and therefore would have a small effect on the ESRD PPS base
rate. This small effect on budget neutrality also demonstrates that
this policy would have a minimal impact on the ESRD PPS wage index
overall. The wage index \3\ is a measure of the value of labor (wage
and wage-related costs) in a prescribed labor market area relative to
the national average. Therefore, we anticipate that in the absence of
any proposed wage index policy changes such as changes to OMB
delineations, most ESRD facilities would not experience year-to-year
wage index declines greater than 5 percent in any given year.
Therefore, we anticipate that the impact to the wage index budget
neutrality factor in future years would continue to be minimal. We also
believe that when the 5-percent cap would be applied under this
proposed policy, it likely would be applied similarly to all ESRD
facilities in the same labor market area, as the hospital average
hourly wage data in the CBSA (and any relative decreases compared to
the national average hourly wage) would be similar. While this proposed
policy may result in ESRD facilities in a CBSA receiving a higher wage
index than others in the same area (such as in situations when OMB
delineations change), we believe the impact would be temporary, as the
average hourly wage of facilities in a labor market would tend to
converge to the mean average hourly wage of the CBSA.
---------------------------------------------------------------------------

\3\ https://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/AcuteInpatientPPS/
wageindex#:~:text=A%20labor%20market%20area's%20wage,portion%20of%20t
he%20standardized%20amounts.
---------------------------------------------------------------------------

As noted previously in this section of the proposed rule, section
1881(b)(14)(D)(iv)(II) of the Act provides that the ESRD PPS may
include a geographic wage index payment adjustment, such as the index
referred to in section 1881(b)(12)(D) of the Act, as the Secretary
determines to be appropriate. Under our regulations at Sec.
413.231(a), we must use an appropriate wage index to adjust the labor-
related portion of the base rate to account for geographic differences
in the area wage levels. For the reasons discussed in this section of
the proposed rule, we believe a 5-percent cap on wage index decreases
would be appropriate for the ESRD PPS. Therefore, for CY 2023 and
subsequent years, we are proposing to apply a 5-percent cap on any
decrease to an ESRD facility's wage index from its wage index in the
prior year, regardless of the circumstances causing the decline. That
is, we are proposing that an ESRD facility's wage index for CY 2023
would not be less than 95 percent of its final wage index for CY 2022,
regardless of whether the ESRD facility is part of an updated CBSA, and
that for subsequent years, an ESRD facility's wage index would not be
less than 95 percent of its wage index calculated in the prior CY. This
also would mean that if an ESRD facility's prior CY wage index is
calculated with the application of the 5-percent cap, the following
year's wage index would not be less than 95 percent of the ESRD
facility's capped wage index in the prior CY. For example, if an ESRD
facility's wage index for CY 2023 is calculated with the application of
the 5-percent cap, then its wage index for CY 2024 would not be less
than 95 percent of its capped wage index in CY 2023. Lastly, we are
proposing that a newly opened or newly certified ESRD facility would be
paid the wage index for the area in which it is geographically located
for its first full or partial CY with no cap applied, because a new
ESRD facility would not have a wage index in the prior CY. We would
reflect the proposed permanent cap on wage index decreases in our
regulations at Sec. 413.231(c).
As previously discussed in this proposed rule, we believe this
proposed mitigation policy would maintain the ESRD PPS wage index as a
relative measure of the value of labor in prescribed labor market
areas, increase predictability of ESRD PPS payments for ESRD
facilities, and mitigate instability and significant negative impacts
to ESRD facilities resulting from significant changes to the wage
index. In section VII.D.5 of this proposed rule, we estimate the impact
to payments for ESRD facilities in CY 2023 based on this proposed
policy. We also note that we would examine the effects of this proposed
policy, if finalized, on an ongoing basis in the future in order to
assess its continued appropriateness.
(3) Proposed Update to ESRD PPS Wage Index Floor
(a) Background
A wage index floor value is applied under the ESRD PPS as a
substitute wage index for areas with very low wage index values.
Currently, all areas with wage index values that fall below the floor
are located in Puerto Rico; however, the wage index floor value is
applicable for any area that may fall below the floor.
In the CY 2011 ESRD PPS final rule (75 FR 49116 through 49117), we
finalized a policy to reduce the wage index floor by 0.05 for each of
the remaining years of the ESRD PPS transition, that is, until CY 2014.
We applied a 0.05 reduction to the wage index floor for CYs 2012 and
2013, resulting in a wage index floor of 0.5500 and 0.5000,
respectively (CY 2012 ESRD PPS final rule, 76 FR 70241). We continued
to apply and reduce the wage index floor by 0.05 in CY 2013 (77 FR
67459 through 67461). Although we only intended to provide a wage index
floor during the 4-year transition in the CY 2014 ESRD PPS final rule
(78 FR 72173), we decided to continue to apply the wage index floor and
reduce it by 0.05 per year for CY 2014 and for CY 2015, resulting in a
wage index floor of 0.4500 and 0.4000, respectively.
In the CY 2016 ESRD PPS final rule (80 FR 69006 through 69008),
however, we decided to maintain a wage index floor of 0.4000, rather
than further reduce the floor by 0.05. We stated that we needed more
time to study the wage indices that are reported for Puerto Rico to
assess the appropriateness of discontinuing the wage index floor (80 FR
69006).
In the CY 2017 ESRD PPS proposed rule (81 FR 42817), we presented
the findings from analyses of ESRD facility cost report and claims data
submitted by facilities located in Puerto Rico and mainland facilities.
We solicited public comments on the wage index for CBSAs in Puerto Rico
as part of our continuing effort to determine an appropriate policy. We
did not propose to change the wage index floor for CBSAs in Puerto
Rico, but we requested public comments in which interested parties
could provide useful input for consideration in future decision making.
Specifically, we solicited comment on the suggestions that were
submitted in the CY 2016 ESRD PPS final rule (80 FR 69007). After
considering the public comments we received regarding the wage index
floor, in the CY 2017 ESRD PPS final rule, we finalized a wage index
floor of 0.4000 (81 FR 77858).
In the CY 2018 ESRD PPS final rule (82 FR 50747), we finalized a
policy to permanently maintain the wage index floor of 0.4000, because
we believed it was set at an appropriate level to provide additional
payment support to the lowest wage areas. This policy also obviated the
need for an additional budget-neutrality adjustment that would reduce
the ESRD PPS base rate, beyond the adjustment needed to reflect updated
hospital wage data, in order to

[[Page 38484]]

maintain budget neutrality for wage index updates.
In the CY 2019 ESRD PPS proposed rule (83 FR 34328 through 34330),
we proposed to increase the wage index floor from 0.4000 to 0.5000. We
conducted various analyses to support our proposal to increase the wage
index floor from 0.4000 to 0.5000. We calculated alternative wage
indexes for Puerto Rico that combined labor quantities, that is FTEs,
from cost reports with BLS wage information to create two regular
Laspeyres price indexes \4\ (ranging between 0.510 and 0.550). We
discuss this analysis in detail in the following paragraphs, however,
the complete discussion can be found in the CY 2019 ESRD PPS proposed
rule at 83 FR 34328 through 34330.
---------------------------------------------------------------------------

\4\ A Laspeyres index is an index formula used in price
statistics for measuring price development of the basket of goods
and services consumed in the base period (https://ec.europa.eu/
eurostat/statistics-explained/
index.php?title=Glossary:Laspeyres_price_index#:~:text=The%20Laspeyre
s%20price%20index%20is,cost%20in%20the%20current%20period.)
---------------------------------------------------------------------------

In response to the CY 2019 wage index floor proposal, we received
several comments. One commenter opposed the proposal and expressed
concern over the data sources used to develop the wage indexes in
general. This commenter requested additional documentation of our
analysis to determine the two alternative wage indices for Puerto Rico.
Several commenters expressed support for the proposal to increase the
wage index from 0.40 in 2018 to 0.50 for CY 2019 and subsequent years,
because they believed it would assist ESRD facilities in providing
access to high-quality care particularly in rural areas where access
challenges may be present. Some commenters expressed support for CMS's
position that the then-current wage index floor was too low; however,
they recommended CMS set the wage index floor higher than 0.5000
(specifically, at 0.5936, which was identified as the lower boundary of
CMS's statistical outlier analysis as discussed further in this section
of the proposed rule).
In response to these comments, in the CY 2019 ESRD PPS final rule
(83 FR 56967), we stated that we continued to believe that a wage index
floor of 0.5000 struck an appropriate balance between providing
additional payments to areas that fell below the wage floor while
minimizing the impact on the ESRD PPS base rate. We noted that the
purpose of the wage index adjustment is to recognize differences in
ESRD facility resource use for wages specific to the geographic area in
which facilities are located. While a wage index floor of 0.5000
continued to be the lowest wage index nationwide, we noted that the
areas subject to the floor continued to have the lowest wages compared
to mainland facilities. We noted that the increase to the wage index
floor to 0.5000 was a 25 percent increase over the then-current floor
and would provide a higher wage index for all facilities in Puerto Rico
where wage indexes, based on hospital reported data, range from .3300
to .4400. For these reasons, we stated that we believed a wage index
floor of 0.5000 was appropriate and would support labor costs in low
wage areas.
Therefore, in the CY 2019 ESRD PPS final rule (83 FR 56964 through
56967), we finalized an increase to the wage index floor from 0.4000 to
0.5000 for CY 2019 and subsequent years. We explained that we revisited
our evaluation of payments to ESRD facilities located in the lowest
wage areas to be responsive to comments from interested parties and to
ensure payments under the ESRD PPS are appropriate. We provided
statistical analyses that supported a higher wage index floor and
finalized an increase from 0.4000 to 0.5000 to safeguard access to care
in affected areas.
As noted previously in this proposed rule, currently, all areas
with wage index values that fall below the floor are located in Puerto
Rico; however, the wage index floor value is applicable for any area
that may fall below the floor. The wage index floor of 0.5000 has been
in effect since January 1, 2019.
We did not include any wage index floor proposals in the CY 2022
ESRD PPS proposed rule, however, we received several public comments
regarding the wage index floor. As discussed in the CY 2022 ESRD PPS
final rule (86 FR 61881), three commenters, including a large dialysis
organization, a non-profit health insurance organization in Puerto
Rico, and a healthcare group in Puerto Rico, commented on the wage
index for ESRD facilities located in Puerto Rico. These commenters
recommended that CMS increase the wage index floor from 0.5000 to
0.5500, noting that in the CY 2019 ESRD PPS proposed rule, CMS reported
that its own analysis indicated that Puerto Rico's wage index likely
lies between 0.5100 and 0.5500. They noted that CMS further stated that
any wage index values less than 0.5936 are considered outlier values.
They also pointed out that CMS still finalized a floor at 0.5000 and
that we characterized it as a balance between providing additional
payments to affected areas while minimizing the impact on the ESRD PPS
base rate. Another commenter recommended that CMS evaluate policy
inequities between the ESRD PPS wage index for ESRD facilities located
in Puerto Rico compared to other states and territories, taking into
consideration the unique circumstances that affect Puerto Rico,
including its shortage of healthcare specialists and labor work force,
remote geography, transportation and freighting costs, drug pricing,
and lack of transitional care services.
In response to these comments, we stated in the CY 2022 ESRD PPS
final rule that we would not finalize any changes to those policies
since we did not propose any changes to the wage index floor or wage
index methodology for CY 2022, but would take these suggestions into
account when considering future rulemaking.
(b) Wage Index Floor Proposal
Section 1881(b)(14)(D)(iv)(II) of the Act provides that the ESRD
PPS may include a geographic wage index adjustment, such as the index
referred to in section 1881(b)(12)(D) of the Act, as the Secretary
determines to be appropriate. Based on this authority, we believe a
proposal to increase the wage index floor would be in accordance with
the Secretary's efforts to account for geographic differences in an
area's wage levels using an appropriate wage index which reflects the
relative level of hospital wages and wage-related costs in the
geographic area in which the ESRD facility is located.
For CY 2023 and subsequent years, we are proposing to increase the
wage index floor to 0.6000. We believe that this wage floor increase
would be responsive to comments from interested parties, safeguard
access to care in areas at the lowest end of the current wage index
distribution, and be supported by data and analyses that support a
higher wage index floor, as discussed in the following subsections.
(i) Analysis of Puerto Rico Cost Reports for the CY 2019 ESRD PPS
Rulemaking
For the CY 2019 ESRD PPS proposed rule (83 FR 34329 through 34330),
we performed an analysis using ESRD facility cost reports and wage
information specific to Puerto Rico from the BLS (<a href="https://www.bls.gov/oes/2015/may/oes_pr.htm">https://www.bls.gov/oes/2015/may/oes_pr.htm</a>). The analysis utilized data from cost reports
for freestanding facilities and for hospital-based facilities in Puerto
Rico for CYs 2013 through 2015.
Using these data, we calculated alternative wage indexes for Puerto
Rico that combined labor quantities, that is FTEs, from cost reports
with BLS wage

[[Page 38485]]

information to create two regular Laspeyres price indexes. In the
context of this analysis, a Laspeyres price index can be viewed as a
relative, weighted average wage of labor in each geographical area.
This average combines the wages of various labor categories according
to certain weights. The two indexes we considered used the same BLS-
derived wages but different weights. The first index used quantity
weights derived from the overall U.S. use of labor inputs. The second
index used quantity weights derived from the Puerto Rico use of labor
inputs. The alternative wage indexes derived from the analysis
indicated that Puerto Rico's wage index likely lies between 0.5100 and
0.5500. As noted earlier in this section of this proposed rule and
discussed in the CY 2019 ESRD PPS final rule (83 FR 56967), commenters
have noted that both of these values are above the current wage index
floor and suggest that the current 0.5000 wage index floor may be too
low. Commenters pointed out CMS's analysis shows that Puerto Rico's
wage index likely lies between 0.51 and 0.55, while additional analyses
note that any wage index values less than 0.5936 are considered outlier
values, with 0.5936 therefore as the lower wage index boundary. They
expressed concern that in the CY 2019 ESRD PPS proposed rule CMS
proposed a new floor of only 0.5000 even though the present methodology
applied to Puerto Rico has created the only outlier in the U.S. As we
stated in the CY 2019 ESRD PPS final rule (83 FR 56967), at that time,
we believed that a wage index floor of 0.5000 struck an appropriate
balance between providing additional payments to areas that fall below
the wage floor while minimizing the impact on the ESRD PPS base rate.
At the time, we conducted analyses to gauge the appropriateness of the
then-current wage index floor of 0.4000 and determine whether it was
too low. We did not propose to use these analyses to determine the
exact value for a new wage index floor.
Specifically, as we explained in the CY 2019 ESRD PPS final rule,
CMS performed a statistical outlier analysis to identify the upper and
lower boundaries of the distribution of the current wage index values
and remove outlier values at the edges of the distribution. In the
general sense, an outlier is an observation that lies outside a defined
range from other values in a population. In this case, the population
of values is the various wage indexes within the CY 2019 wage index.
The lower and upper quartiles (the 25th and 75th percentiles) are also
used. The lower quartile is Q1 and the upper quartile is Q3. The
difference (Q3-Q1) is called the interquartile range (IQR). The IQR is
used in calculating the inner and outer fences of a data set. The inner
fences are needed for identifying mild outlier values in the edges of
the distribution of a data set. Any values in the data set that are
outside of the inner fences are identified as an outlier. The standard
multiplying value for identifying the inner fences is 1.5. First, we
identified the Q1 and Q3 quartiles of the CY 2018 wage index, which are
as follows: Q1 = 0.8303 and Q3 = 0.9881. Next, we identified the IQR:
IQR = 0.9881-0.8303 = 0.1578. Finally, we identified the inner fence
values as shown below. Lower inner fence: Q1-1.5*IQR = 0.8303-(1.5 x
0.1578) = 0.5936. This statistical outlier analysis demonstrated that
any wage index values less than 0.5936 are considered outlier values,
and 0.5936 as the lower boundary also suggested that the current wage
index floor could be appropriately reset at a higher level.
Based on these analyses, we finalized a wage index floor of 0.5000
in the CY 2019 ESRD PPS final rule. We continued to apply the wage
index floor of 0.5000 per year through CY 2022. Although we did not
propose specific policies relating to the wage index floor in the CY
2022 ESRD PPS proposed rule, commenters on that rule noted that past
hurricanes and the COVID-19 PHE have created infrastructure challenges
that lead to high costs of dialysis care. These commenters requested
CMS increase the wage index floor. In response to comments and our
continued concern regarding access, in this proposed rule, we are
revisiting the CY 2019 analysis, and believe that the statistical
analysis of the CY 2019 data indicated that a wage index floor as high
as 0.5936 would be appropriate.
(ii) Analysis of the CY 2023 ESRD PPS Proposed Rule Analytic File
We performed an analysis to compare the impact of three options to
adjust the wage index floor upward using the CY 2023 ESRD PPS proposed
rule analytic file. The analytic file includes qualifying data for
beneficiaries for whom a 72x claim for renal dialysis services was
submitted in the outpatient file setting during CY 2021. We analyzed
the impact of three options for adjustment for the wage index floor:
(1) wage index floor of 0.5000 (that is, no change), (2) wage index
floor of 0.5500, and (3) wage index floor of 0.6000. Specifically, we
examined how these three options would potentially impact the base
rate, outlier thresholds, and average payment rates for all ESRD
facilities.
Among the three options, we considered the wage index floor of
0.5000 as the baseline or starting point used for comparisons. We then
compared the impact on various aspects of the ESRD PPS under the
alternative options using the 0.5500 and 0.6000 wage index floor.
First, we examined the potential impact on the base rate. Under the
baseline (wage index value of 0.5000), the proposed base rate for CY
2023 would be $264.14. The remaining two options (0.5500 floor and
0.6000 floor) would result in a base rate of $264.11 and $264.09,
respectively. These options would decrease the proposed ESRD PPS base
rate due to the application of the budget neutrality factor for each
option, however as discussed in the following paragraph, the overall
impact to ESRD PPS payments would be negligible.
Next, we examined the potential impact to the outlier thresholds.
Relative to the baseline (wage index floor value of 0.5000), all
options would have little or no impact on either the outlier MAP or the
FDL. Lastly, we examined the potential impact to overall ESRD facility
payments. After accounting for all payment adjustments under the ESRD
PPS and applying the required budget neutrality factor for each option,
all options would be associated with a 3.00 percent increase in
projected payments for CY 2023 due to the proposed market basket update
and proposed outlier FDL and MAP amounts. We estimate that the change
in overall payments attributable to increasing the wage index floor
would be less than 0.01 percentage point. However, we estimate that
there would be a significant increase in payments to ESRD facilities
located in Puerto Rico. Under the 0.5500 wage index floor option, we
estimate that payments to ESRD facilities in Puerto Rico would increase
by approximately 3.8 percent relative to the 0.5000 wage index floor
option. Under the 0.6000 wage index floor option, we estimate that
payments to Puerto Rico facilities would increase by approximately 7.6
percent relative to the 0.5000 floor. In other words, increasing the
wage index floor to 0.6000 would maximize the positive impacts for ESRD
facilities located in Puerto Rico while continuing to minimize the
impact to overall ESRD PPS payments.
As noted previously in this section of the proposed rule, the
statistical analysis presented in the CY 2019 ESRD PPS rulemaking
resulted in values for the lower and upper fences for

[[Page 38486]]

appropriate wage index values (lower = 0.5936, upper = 0.7514). Any
values in the data set that are outside of the fences are identified as
an outlier. Therefore, the analysis indicated that a wage index floor
of 0.5936 would be appropriate, because any wage index values less than
0.5936 or greater than 0.7514 would be considered outlier values, and a
wage index value within the fences could be appropriate. For greater
simplicity and public understanding, we propose to round the lower
fence of 0.5936 to the nearest 0.05, to align with the increment of
change that we previously adopted in the CY 2011 ESRD PPS final rule
(75 FR 49116 through 49117) for historical reductions to the ESRD PPS
wage index floor. As a result, after rounding to the nearest 0.05, a
wage index floor of 0.6000 would be in line with the data.
We strive for a wage index floor value that maintains the accuracy
of payments under the ESRD PPS, that is, has minimal impact on the base
rate, outlier thresholds, and average payment rates for all ESRD
facilities. Based on our analysis of several options using the most
recent analytic file for this proposed rule, a value near the lower
fence of 0.5936 as described in the prior paragraph would maximize the
positive impacts for ESRD facilities with wage indexes below the floor
while continuing to minimize the impact to overall ESRD PPS payments.
(iii) Wage Index Floor Proposed Action
Based on our re-evaluation the CY 2019 analysis and subsequent
analysis of several options using the most recent analytic file for
this proposed rule, we are proposing to increase the wage index floor
to 0.6000. We believe our analyses support that wage index floor value
and would strike the right balance between providing increased payment
to areas to areas for which labor costs are higher than the current
wage index for the relevant CBSAs indicate, while maintaining the
accuracy of payments under the ESRD PPS and minimizing the overall
impact to all ESRD facilities. In addition, we are proposing to amend
Sec. 413.231 by adding new paragraph (d) to reflect this change and to
codify the wage index floor policy. We believe this proposed increase
from the current 0.5000 wage index floor value would minimize the
impact to the base rate while providing increased payment to areas that
need it.
Currently, only rural Puerto Rico and 8 urban CBSAs in Puerto Rico
receive the wage index floor of 0.5000. The next lowest wage index is
the Virgin Islands CBSA with a value of 0.6004. Under this proposal,
all CBSAs in Puerto Rico would be subject to the wage index floor of
0.6000. Though the proposed wage index floor value currently would only
affect areas in Puerto Rico, we note that, consistent with our
established policy, the proposed wage index floor value of 6.000 that
would be applicable for any area that may fall below the floor.
We solicit comment on the proposal to increase the wage index floor
from 0.5000 to 0.6000.
c. Proposed CY 2023 Update to the Outlier Policy
(1) Background
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
variability in the amount of ESAs necessary for anemia management. Some
examples of the patient conditions that may be reflective of higher
facility costs when furnishing dialysis care would be frailty and
obesity. A patient's specific medical condition, such as secondary
hyperparathyroidism, may result in higher per treatment costs. The ESRD
PPS recognizes high cost patients, and we have codified the outlier
policy and our methodology for calculating outlier payments at Sec.
413.237.
Section 413.237(a)(1) enumerates the following items and services
that are eligible for outlier payments as ESRD outlier services. (i)
Renal dialysis drugs and biological products that were or would have
been, prior to January 1, 2011, separately billable under Medicare Part
B; (ii) Renal dialysis laboratory tests that were or would have been,
prior to January 1, 2011, separately billable under Medicare Part B;
(iii) Renal dialysis medical/surgical supplies, including syringes,
used to administer renal dialysis drugs and biological products that
were or would have been, prior to January 1, 2011, separately billable
under Medicare Part B; (iv) Renal dialysis drugs and biological
products that were or would have been, prior to January 1, 2011,
covered under Medicare Part D, including renal dialysis oral-only drugs
effective January 1, 2025; and (v) renal dialysis equipment and
supplies, except for capital-related assets that are home dialysis
machines (as defined in Sec. 413.236(a)(2)), that receive the
transitional add-on payment adjustment as specified in Sec. 413.236
after the payment period has ended.\5\
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\5\ Under Sec. 413.237(a)(1)(vi), as of January 1, 2012, the
laboratory tests that comprise the Automated Multi-Channel Chemistry
panel are excluded from the definition of outlier services.
---------------------------------------------------------------------------

In the CY 2011 ESRD PPS final rule (75 FR 49142), CMS stated 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 by
line item (that is, date of service) on the monthly claim. Renal
dialysis drugs, laboratory tests, and medical/surgical supplies that
are recognized as ESRD outlier services were specified in Transmittal
2134, dated January 14, 2011.\6\ We use administrative issuances and
guidance to continually update the renal dialysis service items
available for outlier payment via our quarterly update CMS Change
Requests, when applicable. For example, we use these issuances to
identify renal dialysis oral drugs that were or would have been covered
under Part D prior to 2011 in order to provide unit prices for
determining the imputed MAP amounts. In addition, we use these
issuances to update the list of ESRD outlier services by adding or
removing items and services that we determined, based our monitoring
efforts, are either incorrectly included or missing from the list.
---------------------------------------------------------------------------

\6\ Transmittal 2033 issued August 20, 2010, was rescinded and
replaced by Transmittal 2094, dated November 17, 2010. Transmittal
2094 identified additional drugs and laboratory tests that may also
be eligible for ESRD outlier payment. Transmittal 2094 was rescinded
and replaced by Transmittal 2134, dated January 14, 2011, which
included one technical correction. <a href="https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/downloads/R2134CP.pdf">https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/downloads/R2134CP.pdf</a>.
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Under Sec. 413.237, an ESRD facility is eligible for an outlier
payment if its imputed (that is, calculated) MAP amount per treatment
for ESRD outlier services exceeds a threshold. The MAP amount
represents the average estimated expenditure per treatment for services
that were or would have been considered separately billable services
prior to January 1, 2011. The threshold is equal to the ESRD facility's
predicted MAP amount per treatment plus the FDL amount. As described in
the following paragraphs, the facility's predicted MAP amount is the
national adjusted average ESRD outlier services MAP amount per
treatment, further adjusted for case-mix and facility characteristics
applicable to the claim. We use the term ``national adjusted average''
in this section of this proposed rule in order to more clearly
distinguish the calculation of the average ESRD outlier services MAP
amount per treatment from the calculation of the predicted MAP amount
for a claim. The average ESRD outlier services MAP amount per treatment
is based on

[[Page 38487]]

utilization from all ESRD facilities, whereas the calculation of the
predicted MAP amount for a claim is based on the individual ESRD
facility and patient characteristics of the monthly claim. In
accordance with Sec. 413.237(c), ESRD facilities are paid 80 percent
of the per treatment amount by which the imputed MAP amount for outlier
services (that is, the actual incurred amount) exceeds this threshold.
ESRD facilities are eligible to receive outlier payments for treating
both adult and pediatric dialysis patients.
In the CY 2011 ESRD PPS final rule and codified in Sec.
413.220(b)(4), using 2007 data, we established the outlier percentage,
which is used to reduce the per treatment base rate to account for the
proportion of the estimated total payments under the ESRD PPS that are
outlier payments, at 1.0 percent of total payments (75 FR 49142 through
49143). We also established the FDL amounts that are added to the
predicted outlier services MAP amounts. The outlier services MAP
amounts and FDL amounts are different for adult and pediatric patients
due to differences in the utilization of separately billable services
among adult and pediatric patients (75 FR 49140). As we explained in
the CY 2011 ESRD PPS final rule (75 FR 49138 through 49139), the
predicted outlier services MAP amounts for a patient are determined by
multiplying the adjusted average outlier services MAP amount by the
product of the patient-specific case-mix adjusters applicable using the
outlier services payment multipliers developed from the regression
analysis used to compute the payment adjustments. We discuss the
details of our current methodology for calculating the MAP and FDL
amounts in the following section.
(2) Overview of Current Outlier Methodology
We update the national adjusted average MAP amounts and FDL amounts
each year using the latest available data in the annual regulatory
updates to the ESRD PPS, in accordance with our longstanding policy (75
FR 49174). As noted earlier in this section of the proposed rule, based
on our longstanding policy finalized in the CY 2011 ESRD PPS final rule
(75 FR 49139 through 49140), the national adjusted average MAP amounts
represent the national average estimated expenditure per treatment for
ESRD outlier services, adjusted by a standardization factor. As
detailed in the following paragraph, when evaluating outlier
eligibility for a particular patient treated in a particular facility
for a particular month, this national adjusted average is further
adjusted to reflect the patient-specific case-mix severity and facility
characteristics. We refer to this further adjusted MAP amount as the
predicted MAP amount. Unlike the national average outlier MAP amount
per treatment, the predicted MAP amount varies across patients (and
even across patient-months). The national adjusted average MAP amounts
and FDL amounts are different for adult and pediatric patients due to
differences in the utilization of separately billable services among
adult and pediatric patients (75 FR 49140).
Under the methodology finalized in the CY 2011 ESRD PPS final rule
(75 FR 49174), each year, using the latest available ESRD PPS data, we
compute the national average MAP amount, and establish the FDL amount
at a level that results in projected outlier payments that equal 1.0
percent of total payments under the ESRD PPS. When setting the outlier
thresholds for the ESRD PPS rule, we first identify all ESRD outlier
services for all beneficiaries using the most recently complete 72x
claims data, which is claims from two years prior. For example, for the
CY 2022 ESRD PPS rulemaking (86 FR 61882), we used 2020 claims. For
items billed using HCPCS codes, we include injectable drugs as eligible
ESRD outlier services if they belong to one of the ESRD PPS functional
categories but are not in one of the composite rate drug categories
(both are described in Chapter 11, Section 20.3 of the Medicare Benefit
Policy Manual).\7\ We do not include composite rate items because they
are not eligible for outlier payments, in accordance with our
longstanding ESRD PPS policy of including only formerly separately
billable items and services as eligible ESRD outlier services (75 FR
49138). For items billed using National Drug Codes (NDCs), we include
all oral drugs included on the ESRD outlier services list, which
includes oral calcimimetics (starting January 1, 2021), and oral
vitamin D analogs. We also include laboratory services that are on the
list of eligible ESRD outlier services published by CMS.\8\ Two supply
HCPCS codes are eligible for outlier payments (A4657 syringe and A4913
miscellaneous supplies).
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\7\ <a href="https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/bp102c11.pdf">https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/bp102c11.pdf</a>.
\8\ <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/Outlier_Services">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/Outlier_Services</a>.
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(a) Methodology for Calculating Imputed MAP Amounts and Predicted MAP
Amounts
As we explained in the CY 2011 ESRD PPS final rule (75 FR 49142),
the ESRD facility must identify all ESRD outlier services furnished to
the patient by line item on the monthly claim that it submits to
Medicare in order to receive the outlier payment adjustment. We
estimate the imputed MAP amount for these services by applying the
established pricing methodologies described in the following paragraph
of this proposed rule. The imputed MAP amounts for each of these
services are summed and divided by the corresponding number of
treatments identified on the claim to yield the imputed ESRD outlier
services MAP amount per treatment.
We multiply the utilization (that is, units of ESRD outlier
services reported on the 72X claim) with prices to obtain the outlier-
eligible amount. We obtain the utilization only from claim lines that
are fully covered by Medicare (that is, claim lines that do not include
any non-covered charge amount) containing ESRD outlier services.
Separately billable services that are performed in the ESRD facility
during dialysis that are not related to the treatment of ESRD are not
included in the outlier-eligible amount. In the CY 2011 ESRD PPS final
rule (75 FR 49142), we finalized the basis for estimating imputed MAP
amounts as follows. For pricing of ESRD outlier services that are Part
B renal dialysis drugs reported with HCPCS codes, we use the latest
Average Sales Price (ASP) data, which is updated quarterly. ESRD
outlier services that are renal dialysis drugs formerly covered under
Part D and reported with NDCs are priced based on the national average
pricing data retrieved from the Medicare Prescription Drug Plan Finder,
which reflect pharmacy dispensing and administration fees. For ESRD
outlier services that are laboratory tests billed using HCPCS codes, we
use the latest payment rates from the Clinical Laboratory Fee Schedule.
For renal dialysis supplies used to administer ESRD outlier services
Part B drugs (for example, syringes), we estimate MAP amounts based on
the predetermined fees that apply to these items, that is, we pay $0.50
for each syringe identified on an ESRD facility's claims form. For
other medical/surgical supplies such as intravenous sets and gloves,
the Medicare Claims Processing Manual currently allows Medicare
contractors to elect among various options to price these supplies,
such as the Drug Topics Red Book, Med-Span, or First Data Bank

[[Page 38488]]

(CMS Pub. 100-04, Chapter 8, Sec. 60.2.1). We sum up the outlier-
eligible amounts for drugs, laboratory tests, and supplies separately.
Next, we inflate the outlier-eligible amounts calculated for drugs,
laboratory tests, and supplies from the latest available prices to
forecasted prices for the rule year.\9\ For example, in the CY 2022
ESRD PPS rulemaking (86 FR 61882), we used 2021 prices inflated to the
forecasted prices for CY 2022. Then, we add the inflated drug,
laboratory test, and supply amounts and multiply the total amount by
0.98, in accordance with the budget neutrality requirement under
section 153(b) of MIPPA. Lastly, we divide the amount by the number of
treatments reported on the claim in order to obtain imputed MAP amount
per treatment.
---------------------------------------------------------------------------

\9\ We use a blended 4-quarter moving average of the ESRDB
market basket price proxies for pharmaceuticals to inflate drug
prices to the rule year. We inflate laboratory test prices to the
rule year based on the estimated change in payment rates under the
Clinical Laboratory Fee Schedule, using a CPI forecast to estimate
changes for years in which a new survey will be implemented. For
supplies, we apply a 0 percent inflation factor, because these
prices are based on predetermined fees or prices established by the
Medicare contractor.
---------------------------------------------------------------------------

After calculating the imputed MAP amount per treatment, we then
compute the predicted MAP amount for the claim. As we explained in the
CY 2011 ESRD PPS final rule (75 FR 49138 through 49139), the patient-
specific predicted MAP amount is equal to the national adjusted average
MAP amount multiplied by the patient-specific case-mix adjusters. The
national average MAP amount is adjusted by applying a standardization
factor that reflects the national average of patients' outlier services
case-mix severity. We apply this standardization factor in order to
avoid systematically biasing the national average MAP amount
calculation, which would result in setting the FDL amounts at a level
that is too low. By applying the standardization factor to the national
average MAP amount when calculating the patient-specific predicted MAP
amount, we ensure that total imputed MAP dollars equal total predicted
MAP dollars. The methodology for calculating this standardization
factor is discussed in detail in the following section.
(b) Methodology for Calculating Case-Mix Standardization Factor and
National Adjusted Average MAP Amount
We publish the national adjusted average MAP amount each year in
the ESRD PPS proposed and final rule along with the adjustment factor.
We currently use the ESRD outlier services multipliers that are the
separately billable (SB) multipliers developed from the regression
analysis used in the CY 2016 ESRD PPS refinement (80 FR 68993 and 80 FR
69002). As discussed in the CY 2016 ESRD PPS final rule (80 FR 68970),
in accordance with section 632(c) of ATRA, we analyzed the case-mix
payment adjustments under the ESRD PPS using more recent data. We
revised the adjustments by changing the adjustment payment amounts
based on our updated regression analysis using CYs 2012 and 2013 ESRD
claims and cost report data. There was no change in the ESRD PPS
outlier methodology for CY 2016, however, we updated the ESRD outlier
services multipliers (80 FR 69008). The current ESRD outlier services
multipliers are presented in Tables 10 and 11 in this section. A more
detailed description of the steps is provided in the following
paragraphs.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP28JN22.011

[[Page 38489]]

[GRAPHIC] [TIFF OMITTED] TP28JN22.012

BILLING CODE 4120-01-C
As discussed in the CY 2011 ESRD PPS final rule (75 FR 49138
through 49140), in order to calculate the predicted MAP amount per
treatment, we first compute the weighted mean of the imputed MAP
amounts per treatment, separately for adult and pediatric patients, at
the national level. Then, for each claim, we identify the patient's
case-mix adjustments that are applicable for the month based on
conditions recorded on the 72x claims, and multiply all applicable ESRD
outlier services multipliers together to obtain the combined ESRD
outlier services multiplier. For pediatric patients, the ESRD outlier
services multipliers are the age and modality adjusters; for adults,
the ESRD outlier services multipliers include all case-mix and
facility-level adjusters. We then calculate the national per-treatment
weighted mean of the combined outlier services multipliers for adult
and pediatric patients separately. We calculate one standardization
factor for adult patients and one for pediatric patients. Each
standardization factor is calculated as follows:

1/(weighted mean of the combined outlier services multipliers).

We calculate the adjusted national average outlier MAP amount per
treatment by multiplying the per-treatment weighted mean of the imputed
outlier MAP amount per treatment by the standardization factor,
separately for adults and pediatric patients.
In order to calculate the predicted outlier MAP amount per
treatment for each claim, we multiply the national adjusted average MAP
amount per treatment, separate for adults and pediatrics, by all
applicable outlier services multipliers for that claim.
(c) Methodology for Calculating FDL Amounts
In accordance with our longstanding methodology, FDL amounts are
calculated separately for adult and pediatric patients so that
projected outlier payments equal 1.0 percent of total ESRD PPS payments
(75 FR 49142 through 49144). For the FDL amounts, we begin by computing
total payments for the particular rule year separately for adults and
pediatric patients. We include all anticipated updates such as the wage
index, market basket update, and productivity adjustment. For each
claim, we compute:

Outlier payment per Treatment =
Outlier loss share amount * (Imputed MAP amount per Treatment-
(Threshold per Treatment)) =
0.8 * (Imputed MAP amount per Treatment-(Predicted MAP amount per
Treatment + FDL))

A claim is eligible for an outlier payment if the imputed MAP
amount per treatment-(Threshold per Treatment) >0.
We simulate total outlier payments, separately for adult and
pediatric patients, starting with the prior rule year's FDL amounts. If
the sum of projected outlier payments for the particular rule year is
higher than 1.0 percent of total payments, we increase the FDL amounts
in order to decrease the amount of outlier payments. In contrast, if
projected outlier payments are lower than 1.0 percent of total
payments, we decrease the FDL amounts in order to increase the amount
of outlier payments. We determine the separate adult and pediatric FDL
amounts that bring projected adult and pediatric outlier payments to
1.0 percent of total payments for each patient population. We announce
the proposed and final MAP amounts and FDL amounts in the annual ESRD
PPS proposed and final rules, respectively.
(d) Example of Outlier Calculation
The following is an example of the calculation of the outlier
payment. John, a 68-year-old male Medicare beneficiary, is 187.96 cm.
in height and weighs 95 kg. John receives hemodialysis 3 times weekly.
In January 2022, he was hospitalized for 4 days for a compound ankle
fracture. During the hospitalization John did not undergo any dialysis
treatments. After discharge John resumed his dialysis treatments, but
required additional laboratory testing and above-average doses of
several injectable drugs, particularly EPO, to return his hemoglobin
levels to the normal range. During January 2022, John received 9
hemodialysis treatments at his usual ESRD facility. The facility
submitted a claim for eligible ESRD outlier services including drugs
and biological products, laboratory tests, and supplies totaling
$3,000.00.
We begin by computing the predicted MAP amount per treatment based
on the ESRD outlier services case-mix adjustment factors applicable to
John. These factors are age and BSA. John's BSA is 2.2161. Applying the
ESRD outlier services multiplier set forth in Table 10 of this proposed
rule for BSA, John's ESRD outlier services payment multiplier (PM) for
BSA is computed as follows:

1.000(2.2161-1.9)/0.1 = 1.0003.16135 = 1.000

Using this calculated PM for BSA and the PM for age from Table 10,
John's outlier services PM is calculated as:

1.005 * 1.000 = 1.005

For CY 2022, the national average MAP amount per treatment for
adult patients is $42.75. Therefore, the predicted MAP amount per
treatment for John is: $42.75 * 1.005 = $42.96.
Next, we determine the imputed MAP amount per treatment which
reflects the estimated expenditure for ESRD outlier services incurred
by the ESRD facility. John's imputed MAP amount per treatment is equal
to the total amount of

[[Page 38490]]

drugs and biological products, laboratory tests, and supplies submitted
on the claim, divided by the number of treatments. We calculate this
as:

$3000.00/9 = $333.33.

Next, we must determine if John's ESRD facility is entitled to
outlier payments for John's January claim by comparing the predicted
MAP amount to the threshold per treatment. We calculate the threshold
per treatment by adding the CY 2022 FDL amount to the predicted MAP
amount for John.
The threshold amount for John is calculated to reflect the case-mix
adjustments for age and BSA.

Threshold = Predicted MAP amount ($42.96) + FDL ($75.39) = $118.35

Because John's imputed MAP amount per treatment was $333.33, which
exceeds the sum of the predicted MAP amount and FDL amount ($118.35),
John's ESRD facility is eligible for outlier payments.
The outlier payments for John's 9 treatments are calculated as the
amount by which the imputed MAP amount exceeds the threshold, then
multiplied by the 80 percent loss-sharing ratio.

Imputed MAP amount minus Threshold: $333.33-$118.35 = $214.98
Outlier payments per treatment: $214.98 * .80 = $171.98
Total outlier payments: $171.98 * 9 = $1,547.82
(3) Current Issue and Concerns From Interested Parties
For several years, outlier payments have consistently landed below
the target of 1.0 percent of total ESRD PPS payments. Commenters have
raised concerns that the methodology we currently use to calculate the
outlier payment adjustment results in underpayment to ESRD facilities,
as money was removed from the base rate to balance the outlier payment
(85 FR 71409, 71438 through 71439; 84 FR 60705 through 60706; 83 FR
56969). Therefore, they have urged us to adopt an alternative modeling
approach that accounts for declining trends in spending for eligible
ESRD outlier services over time.
MedPAC echoed these concerns in a comment in response to the CY
2021 ESRD PPS proposed rule (85 71438 through 71440), and also
suggested that the introduction of calcimimetics as an eligible ESRD
outlier service could perpetuate this issue. MedPAC predicted that if
calcimimetic use decreases between 2019 (when the products were paid
under the ESRD PPS using the TDAPA) and 2021 (when the products would
be paid as part of the ESRD PPS base rate), the outlier threshold would
be set too high, and outlier payments would be lower than the target of
1.0 percent of total CY 2021 payments.
In response to the concerns raised by MedPAC and others, CMS has
been conducting research in conjunction with its contractor, including
holding three technical expert panels (TEPs), to investigate possible
improvements to the ESRD PPS payment methodologies. As discussed in the
CY 2022 ESRD PPS proposed rule (86 FR 36401 through 36402), during the
second and third TEP meetings convened by the CMS contractor in 2019
and 2020, panelists discussed their specific concerns regarding the
current outlier policy and alternative methodologies to achieve the 1.0
percent outlier target. Some TEP panelists and interested parties have
strongly advocated that we establish a new outlier methodology using
alternative modeling approaches that account for trends in formerly
separately billable spending over time. Other interested parties
advocated for changing the outlier percentage. Overall, panelists
expressed support for any change to outlier calculations that result in
total outlier payments being closer to the target.
In the CY 2022 ESRD PPS proposed rule (86 FR 36402), we stated that
we were considering potential revisions to the calculation of the
outlier threshold to address concerns from interested parties. In that
rule, we presented the information that was previously provided to the
TEP in order to solicit comments from interested parties in the
dialysis community and the public (86 FR 36402). We published an RFI to
solicit comments on the approaches noted in the previous paragraph and
any information that would better inform future modifications to the
methodology (86 FR 36402). In addition to generally seeking input
regarding calculating the outlier payment adjustment, we specifically
requested responses to the following questions:
<bullet> An alternative approach could be to estimate the
retrospective FDL trend by using historical utilization data. How many
years of data should be included in calculation of this trend to best
capture changes in treatment patterns?
<bullet> The simulation of the FDL can be improved by better
anticipating changes in utilization of ESRD outlier services. What are
the factors that affect the use of ESRD outlier services over time, and
to what extent should CMS try to forecast the effect of these factors?
<bullet> As ESRD beneficiaries can now choose to enroll in Medicare
Advantage (MA), please describe any anticipated effects of this
enrollment change on the use of ESRD outlier services in the ESRD PPS.
<bullet> Adoption of the suggested methodology may account for
systematic changes in the use of high cost outlier items. However,
inherently unpredictable changes may still push the outlier payment off
the 1.0 percent target. Please comment on the acceptability of the
following payment adjustment methods: Payment reconciliation in the
form of an add-on payment adjustment or a payment reduction might be
necessary to bring payments in line with the 1 percent target. An add-
on payment adjustment would be distributed after sufficient data reveal
the magnitude of the deviation (1 year after the end of the payment
year). The distribution of these monies could be done via a lump sum or
via a per-treatment payment add-on effective for 1 year. This add-on
payment adjustment would be paid irrespective of the outlier claim
status in that year. A payment reduction could take the form of a
reduction in the base rate, also to be applied 1 year after the end of
the payment year.
As discussed in the CY 2022 ESRD PPS final rule (86 FR 61996), we
received numerous public comments in response to our RFI on payment
reform under the ESRD PPS. As discussed in a more detailed comment
summary on the CMS website,\10\ we received comments from major
national patient and provider organizations and MedPAC on the RFI
regarding the outlier policy. Commenters reiterated their concerns that
outlier payments under the ESRD PPS have not achieved the 1.0 percent
target since the system was implemented. Commenters focused on three
main suggestions for the outlier policy: (1) reducing the target
outlier percentage to 0.5 or 0.6 percent, which commenters argued would
more closely align with the historical percentage that has been paid
under the ESRD PPS; (2) changing the methodology used to calculate the
FDL and MAP amounts in order to better account for not only historical
trends in utilization but also changes in prices and utilization of new
and innovative products; and (3) re-allocating money from the ESRD PPS
that is not paid out for outliers--either by allowing unspent funds to
apply to a subsequent year's withhold amount or establishing a payment
mechanism to support ESRD facilities' activities aimed at reducing
health disparities.
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\10\ <a href="https://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/ESRDpayment/Educational_Resources">https://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/ESRDpayment/Educational_Resources</a>.

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[[Page 38491]]

(4) Proposed Changes to the Outlier Methodology for CY 2023
In response to significant public comments received over many
years, we are proposing changes to the outlier policy for CY 2023 and
subsequent years. In developing these proposed changes, we considered
the three main suggestions that commenters raised in response to the CY
2022 RFI.
First, we considered the recommendation from commenters that CMS
reduce the outlier percentage from 1.0 percent to 0.5 percent or 0.6
percent. Although this approach would allow us to potentially increase
payment under the ESRD PPS base rate for treatment of those patients
who do not qualify for outlier payments, we are chiefly concerned that
this approach would not directly address the root cause of outlier
payments totaling less than 1 percent of overall ESRD PPS payments in
prior years. Although reducing the target outlier percentage would
reduce the size of outlier payments relative to total ESRD PPS
payments, we are concerned that if we do not change the methodology
that we use to prospectively determine the outlier threshold, we may
continue to not meet even the lower target outlier percentage.
Additionally, as discussed in the CY 2011 ESRD PPS final rule (75
FR 49134), we established the 1.0 percent outlier percentage because it
struck an appropriate balance between our objective of paying an
adequate amount for the most costly, resource-intensive patients while
providing an appropriate level of payment for those patients who do not
qualify for outlier payments. We are concerned that a reduced outlier
percentage may not provide the appropriate level of payment for outlier
cases, and may not protect access for beneficiaries whose care is
unusually costly. This is because if we were to decrease the target
outlier percentage, we would need to significantly increase the FDL
amounts, which would make it more difficult for ESRD facilities to
receive outlier payment based on their claims. Therefore, after careful
consideration, we are not proposing to reduce the outlier percentage.
Next, we considered the recommendation to re-allocate money from
the ESRD PPS that is not paid out for outliers. As explained earlier in
this section of the proposed rule, we solicited comments in the CY 2022
ESRD PPS proposed rule (86 FR 36402) about a potential payment
reconciliation in the form of an add-on payment adjustment or a payment
reduction, which might be necessary to bring outlier payments in line
with the 1.0 percent target. As we described in the detailed RFI
comment summary document on the CMS website,\11\ several commenters
supported this idea, and recommended that CMS allow unspent outlier
funds from the prior year to reduce the amount set aside for outliers
in the next year. Other commenters suggested that unspent outlier funds
could be used to fund initiatives that support health equity. One
national dialysis organization pointed out that lags in the claims
process and refiling of claims, often over different calendar years,
would present challenges to such an approach. This organization noted
that these challenges could make it difficult to accurately calculate
the amount of the add-on payment adjustment or ``clawback'' payment
amount for each year. We agree with the concerns this organization
raised, and believe that these challenges would make it difficult to
accurately operationalize commenters' recommendations that we allow
unspent funds to apply to a subsequent year's withhold amount or
establish a payment mechanism to support ESRD facilities' activities
aimed at reducing health disparities. Therefore, after careful
consideration, we are not proposing to establish a payment
reconciliation methodology for the ESRD PPS outlier policy.
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\11\ <a href="https://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/ESRDpayment/Educational_Resources">https://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/ESRDpayment/Educational_Resources</a>.
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Lastly, we considered the feedback from interested parties and
commenters in the past ESRD PPS TEPs and in comments to the RFI in the
CY 2022 ESRD PPS proposed rule regarding the methodology used to
calculate the FDL amounts. As commenters have previously noted, the
current methodology that we use to prospectively calculate the FDL
amounts has not been able to effectively account for declining use of
eligible ESRD outlier services (that is, separately billable items and
services prior to 2011) each year since the implementation of the ESRD
PPS. For example, the CY 2021 FDL amounts ($48.33 for adult and $41.04
pediatric patients) were added to the predicted MAP amounts to
determine the outlier thresholds using 2019 data. The outlier MAP
amount continued to fall from 2019 to 2021. Consequently, in 2021
claims, outlier payments comprised approximately 0.4 percent of total
ESRD PPS payments, demonstrating that the use of 2019 data resulted in
thresholds too high to achieve the targeted 1.0 percent outlier
payment.
Several organizations that commented in response to the RFI \12\ in
the CY 2022 ESRD PPS proposed rule expressed that using a retrospective
FDL trend based on historical utilization data would provide a better
calculation of the appropriate prospective FDL amounts. These
organizations also cautioned that such a methodology would remain
sensitive to changes in utilization or price increases for new and
innovative products. Commenters suggested that such a methodology would
likely not succeed in estimating the appropriate FDL amounts in years
when there are significant changes to the ESRD PPS, such as in years
that immediately follow the end of a period during which CMS has paid
for a product using the TDAPA or TPNIES payment adjustments under the
ESRD PPS. MedPAC suggested that CMS consider modeling alternative
approaches to establishing the outlier threshold and use an approach
that reflects the trend over time in spending for items in the ESRD PPS
bundled payment that were separately billable prior to 2011.
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\12\ <a href="https://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/ESRDpayment/Educational_Resources">https://www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/ESRDpayment/Educational_Resources</a>.
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In the CY 2022 ESRD PPS proposed rule (86 FR 36402), we also
solicited comments on any anticipated effects enrollment changes in MA
plans might have on the use of ESRD outlier services. National provider
organizations pointed out that to the extent that MA plans are not
permitted to systematically include healthier ESRD beneficiaries and
exclude costly beneficiaries, there would seem to be little impact on
the outlier pool. They expressed concern about the decision \13\ to
eliminate network adequacy standards that apply to ESRD facilities.

[[Page 38492]]

They predicted these decisions would discourage many ESRD patients from
enrolling in MA plans, especially those needing specialized treatment
or requiring additional medications. To the extent this scenario were
to occur, commenters argued that it could result in ``outlier''
patients, specifically, those sicker, costlier patients, remaining in
traditional Medicare and the healthier, less costly patients enrolling
in MA plans.
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\13\ We believe the commenters were referring to a CMS decision
to remove outpatient dialysis from the list of facility types
subject to network adequacy standards and require that MA
organizations submit an attestation that it has as an adequate
network that provides the required access and availability to
dialysis services, including outpatient facilities. CMS indicated in
the Medicare Program; Contract Year 2021 Policy and Technical
Changes to the Medicare Advantage Program, Medicare Prescription
Drug Benefit Program, and Medicare Cost Plan Program (CMS-4190-F)
final rule that we believe there is more than one way to access
medically necessary dialysis care and that we wanted plans to
exercise all of their options to best meet a beneficiary's health
care needs. (85 FR 33796, 33852 through 33866). Further, regardless
of whether a facility or provider specialty type is subject to
network adequacy standards, MA organizations are required in Sec.
422.112(a)(3) to arrange for health care services outside of the
plan provider network when network providers are unavailable or
inadequate to meet an enrollee's medical needs. Section
422.112(a)(10) requires MA plans to ensure access and availability
to covered services consistent with the prevailing community pattern
of health care delivery in the areas served by the network. (85 FR
33858 through 33860).
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Based on these comments, we are proposing an approach that would
account for the historical trend in spending for formerly separately
billable items and services and would also effectively account for the
introduction of new and innovative products under the ESRD PPS. We
believe that our proposed methodology would also adapt to changes in
the ESRD PPS patient population, such as the potential scenario that
commenters raised in which costlier ``outlier'' patients might remain
in traditional Medicare while healthier, less costly patients enroll in
MA plans.
As we discussed earlier in this section of the proposed rule, our
current methodology prospectively calculates the adult and pediatric
FDL and MAP amounts based on simulated outlier payments. The
utilization of outlier services for these simulated outlier payments
comes from a single year of ESRD PPS claims, and the prices come from
the pricing methodology described earlier in this section of the
proposed rule using latest available prices inflated to forecasted
prices for the rule year. Under the current methodology, we
prospectively set the adult and pediatric FDL amounts so that simulated
outlier payments for the rule year are estimated to equal 1.0 percent.
For CY 2023 and subsequent years, we are proposing to continue to
calculate the adult and pediatric MAP amounts for the rule year (CY
2023) following our established methodology, but we are proposing to
prospectively calculate the adult FDL amounts based on the historical
trend in FDL amounts that would have achieved the 1.0 percent outlier
target in the 3 most recent available data years. We are also proposing
to adjust the calculation of the historical FDL trend for years that
immediately follow the end of a period during which CMS has paid for a
product using the TDAPA or TPNIES payment adjustments under the ESRD
PPS. We note that we are not proposing to apply this method to
pediatric FDL amount calculations, as the pediatric population is too
small to reliably use this method.
We are proposing the following steps for prospectively calculating
the adult FDL amounts:
<bullet> Step 1: Use ESRD PPS claims from the 3 most recent
available data years, relative to the rule year. For CY 2023, this
would include data from CY 2019, CY 2020, and CY 2021. Using these
claims, the projected base rate for the rule year, and the latest
available prices of ESRD outlier services, we would use our established
methodology to calculate the FDL amounts that would have achieved the
1.0 percent outlier target for each year. In the following steps, we
refer to these calculated FDL amounts as the ``retrospective'' FDL
amounts.
<bullet> Step 2: If any items or services that were previously paid
for using the TDAPA or TPNIES in any of the 3 most recent available
data years would be ESRD outlier services for the rule year, then we
would also calculate an alternative series of retrospective FDL
amounts. This alternative series would account for any new ESRD outlier
services, that is, any ESRD outlier services for the rule year that
were previously paid for using the TDAPA or TPNIES in any of the 3 most
recent available data years. In the following steps, we refer to this
alternative series of retrospective FDL amounts as the ``adjusted''
retrospective FDLs. Specifically, we would calculate the adjusted
retrospective FDL amounts as follows:
++ If a new ESRD outlier service was paid for using the TDAPA or
TPNIES in the most recent available data year, as in the case of
calcimimetics in the CY 2020 data used for the CY 2022 ESRD PPS
rulemaking, then we would calculate the first retrospective FDL amount
for that year using the latest available prices and historical
utilization of ESRD outlier services that includes TDAPA or TPNIES
utilization for the new ESRD outlier service. We would also calculate a
second retrospective FDL amount for that year that excludes the new
ESRD outlier service. In order to calculate the adjusted retrospective
FDLs for the preceding 2 data years, we would take the difference
between the corresponding FDL amount with and without the new ESRD
outlier service for the most recent data year, and add this amount to
each retrospective FDL amount calculated in Step 1. For CY 2023, we
would add the difference calculated for CY 2021 to the retrospective
FDL amounts for CY 2020 and CY 2019.
++ If a new ESRD outlier service first became eligible in the most
recent available data year, as in the case of calcimimetics in the CY
2021 data used for this CY 2023 ESRD PPS proposed rule, then we would
calculate the first retrospective FDL amount for the most recent data
year using the latest available prices and historical utilization of
ESRD outlier services. We would also calculate a second retrospective
FDL amount for that year that excludes the new ESRD outlier service. In
order to calculate the adjusted retrospective FDL amounts for the
preceding 2 data years, we would take the difference between the
corresponding FDL amount with and without the new ESRD outlier service
for the most recent data year, and add this amount to each
retrospective FDL amount calculated in Step 1. For CY 2023, we would
add the difference calculated for CY 2021 to the retrospective FDL
amounts for CY 2020 and CY 2019.
++ If a new ESRD outlier service first became eligible in the
second most recent available data year, as in the case of calcimimetics
in the CY 2022 data that we would expect to use for the CY 2024
rulemaking, then we would calculate retrospective FDL amounts for the
most recent two data years using the latest available prices and
historical utilization of outlier services. For the earliest historical
year, in which the new ESRD outlier service was still being paid for
using the TDAPA or the TPNIES, we would also calculate a second
retrospective FDL amount for that year that excludes the new ESRD
outlier service. In order to calculate the adjusted retrospective FDL
amount for the earliest historical year, we would take the difference
between the corresponding FDL amount with and without the new ESRD
outlier service in the second most recent available data year, and add
this amount to the retrospective FDL amount calculated in Step 1. For
CY 2023, we would add the difference calculated for CY 2020 to the
retrospective FDL amount for CY 2019.
++ If a new ESRD outlier service first became outlier eligible
earlier than any of the 3 most recent available data years, we would
not calculate any adjusted retrospective FDL amounts for that item or
service. For example, for CY 2025, we would not calculate any adjusted
retrospective FDL amounts to account for calcimimetics in the CY 2021,
CY 2022, and CY 2023 claims. We would calculate only the series of
retrospective FDL amounts for these years in accordance with Step 1.
<bullet> Step 3: Using either the series of retrospective FDL
amounts or adjusted retrospective FDL amounts, as appropriate, for the
3 most recent available data years, we would use a

[[Page 38493]]

linear regression to calculate the historical trend in FDL amounts. We
would project this trend forward to determine the appropriate FDL
amount for the rule year.
For illustration purposes, Figure 1 presents an example of the
adult retrospective FDL amounts and adjusted retrospective FDL amounts
calculated for CY 2019, CY 2020, and CY 2021, as well as the projected
FDL trend through CY 2023, under our proposed methodology. The adjusted
retrospective FDL amounts shown in Figure 1 would account for the
difference in retrospective FDL amounts calculated with and without
calcimimetics, which became ESRD outlier services beginning January 1,
2021. Figure 1 illustrates how the proposed methodology would
incorporate data for new ESRD outlier services while continuing to
account for the downward historical trend in spending for formerly
separately billable items and services.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP28JN22.041

(5) Proposed CY 2023 Update to the Outlier Services MAP Amounts and FDL
Amounts
We recognize that the utilization of ESAs and other outlier
services have continued to decline under the ESRD PPS, and that we have
lowered the MAP amounts and FDL amounts every year under the ESRD PPS.
As discussed in the CY 2022 ESRD PPS final rule (86 FR 61883), CY 2020
claims data showed outlier payments represented approximately 0.6
percent of total payments. CY 2021 claims data show outlier payments
represent approximately 0.4 percent of total payments. Accordingly, as
discussed in section II.B.1.c.(4) of this proposed rule, we are
proposing to change our ESRD PPS outlier methodology to better target
1.0 percent of total payments. We are proposing that the outlier
services MAP amounts and pediatric FDL amounts for CY 2023 would be
derived from claims data from CY 2021, consistent with our policy to
base any adjustments made to the MAP amounts under the ESRD PPS upon
the most recent data year available. We are proposing that the adult
FDL amounts for CY 2023 would be derived from the projected FDL trend
calculated according to the proposed methodology described in section
II.B.1.c.(4) of this proposed rule.
The impact of this proposed update is shown in Table 12, which
compares the outlier services MAP amounts and FDL amounts used for the
outlier policy in CY 2022 with the updated proposed estimates for this
rule. The estimates for the proposed CY 2023 MAP amounts, which are
included in Column II of Table 12, were inflation adjusted to reflect
projected 2023 prices for ESRD outlier services.

[[Page 38494]]

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BILLING CODE 4120-01-C
As demonstrated in Table 12, the estimated FDL per treatment that
determines the CY 2023 outlier threshold amount for adults (Column II;
$40.75) is lower than that used for the CY 2022 outlier policy (Column
I; $75.39). The lower threshold is accompanied by a decrease in the
adjusted average MAP for outlier services from $42.75 to $36.85. For
pediatric patients, there is a decrease in the FDL from $26.02 to
$21.51. There is a corresponding decrease in the adjusted average MAP
for outlier services among pediatric patients, from $27.15 to $25.62.
We estimate that the percentage of patient months qualifying for
outlier payments in CY 2023 will be 11.54 percent for adult patients
and 13.58 percent for pediatric patients, based on the 2021 claims data
and proposed methodology described in section II.B.1.c.(4) of this
proposed rule. The outlier MAP and FDL amounts continue to be lower for
pediatric patients than adults due to the continued lower use of
outlier services (primarily reflecting lower use of ESAs and other
injectable drugs).
(6) Outlier Percentage
In the CY 2011 ESRD PPS final rule (75 FR 49081) and under Sec.
413.220(b)(4), we reduced the per treatment base rate by 1 percent to
account for the proportion of the estimated total payments under the
ESRD PPS that are outlier payments as described in Sec. 413.237. Based
on the 2021 claims, outlier payments represented approximately 0.4
percent of total payments, which is below the 1 percent target due to
declines in the use of outlier services. Recalibration of the
thresholds using 2021 data and the proposed methodology described in
section II.B.1.c.(4) of this proposed rule are expected to result in
aggregate outlier payments closer to the 1 percent target in CY 2022.
We believe the update to the outlier MAP and FDL amounts for CY 2023
would increase payments for ESRD beneficiaries requiring higher
resource utilization. This would move us closer to meeting our 1
percent outlier policy goal, because we are using more current data for
computing the MAP and FDL amounts, which is more in line with current
outlier services utilization rates. We also note that recalibration of
the FDL amounts would result in no change in payments to ESRD
facilities for beneficiaries with renal dialysis items and services
that are not eligible for outlier payments.
d. Proposed Impacts to the CY 2023 ESRD PPS Base Rate
(1) ESRD PPS Base Rate
In the CY 2011 ESRD PPS final rule (75 FR 49071 through 49083), CMS
established the methodology for calculating the ESRD PPS per-treatment
base rate, that is, the ESRD PPS base rate, and calculating the per
treatment payment amount, which are codified at Sec. 413.220 and Sec.
413.230. The CY 2011 ESRD PPS final rule also provides a detailed
discussion of the methodology used to calculate the ESRD PPS base rate
and the computation of factors used to adjust the ESRD PPS base rate
for projected outlier payments and budget neutrality in accordance with
sections 1881(b)(14)(D)(ii) and 1881(b)(14)(A)(ii) of the Act,
respectively. Specifically, the ESRD PPS base rate was developed from
CY 2007 claims (that is, the lowest per patient utilization year as
required by section 1881(b)(14)(A)(ii) of the Act), updated to CY 2011,
and represented the average per treatment MAP for composite rate and
separately billable services. In accordance with section 1881(b)(14)(D)
of the Act and our regulation at Sec. 413.230, the per-treatment
payment amount is the sum of the ESRD PPS base rate, adjusted for the
patient specific case-mix adjustments,

[[Page 38495]]

applicable facility adjustments, geographic differences in area wage
levels using an area wage index, and any applicable outlier payment,
training adjustment add-on, TDAPA, and TPNIES.
(2) Annual Payment Rate Update for CY 2023
We are proposing an ESRD PPS base rate for CY 2023 of $264.09. This
proposed update reflects several factors, described in more detail as
follows:
Wage Index Budget-Neutrality Adjustment Factor: We compute a wage
index budget-neutrality adjustment factor that is applied to the ESRD
PPS base rate. For CY 2023, we are not proposing any changes to the
methodology used to calculate this factor, which is described in detail
in the CY 2014 ESRD PPS final rule (78 FR 72174). We computed the
proposed CY 2023 wage index budget-neutrality adjustment factor using
treatment counts from the 2021 claims and facility-specific CY 2022
payment rates to estimate the total dollar amount that each ESRD
facility would have received in CY 2022. The total of these payments
became the target amount of expenditures for all ESRD facilities for CY
2023. Next, we computed the estimated dollar amount that would have
been paid for the same ESRD facilities using the proposed CY 2023 ESRD
PPS wage index and proposed labor-related share for CY 2023. As
discussed in section II.B.1.b of this proposed rule, the proposed ESRD
PPS wage index for CY 2023 includes an update to the most recent
hospital wage data and continued use of the 2018 OMB delineations.
Additionally, as discussed in section II.B.1.b(3)(b)(iii) of this
proposed rule, we are proposing to increase the ESRD PPS wage index
floor from 0.5000 to 0.6000 and to apply a permanent 5-percent cap on
any decrease to an ESRD facility's wage index from its wage index in
the prior year, regardless of the circumstances causing the decline.
The total of these payments becomes the new CY 2023 amount of wage-
adjusted expenditures for all ESRD facilities. The wage index budget-
neutrality factor is calculated as the target amount divided by the new
CY 2023 amount. When we multiplied the wage index budget neutrality
factor by the applicable CY 2023 estimated payments, aggregate payments
to ESRD facilities would remain budget neutral when compared to the
target amount of expenditures. That is, the wage index budget
neutrality adjustment factor ensures that wage index adjustments do not
increase or decrease aggregate Medicare payments with respect to
changes in wage index updates. The CY 2023 proposed wage index budget-
neutrality adjustment factor is 0.999997. This application would yield
a CY 2023 ESRD PPS proposed base rate of $257.90 prior to the
application of the market basket increase factor ($257.90 x 0.999997=
$257.90). This CY 2023 proposed wage index budget-neutrality adjustment
factor reflects the impact of all proposed wage index changes,
including the proposed CY 2023 ESRD PPS wage index and labor-related
share, proposed increase to the wage index floor, and proposed
permanent 5-percent cap on wage index decreases.
For purposes of illustration and analysis, we also calculated a
separate budget neutrality factor in order to estimate the impact that
the proposed permanent 5-percent cap on wage index decreases would have
on CY 2023 ESRD PPS payments. Following the steps described earlier in
this section of the proposed rule, we divided estimated payments
without the proposed 5-percent cap by estimated payments with the cap.
We calculated the resulting budget neutrality factor as 0.999910.
Applying this budget neutrality factor to the ESRD PPS base rate, we
estimate that the proposed permanent 5-percent cap would result in a
$0.02 decrease to the ESRD PPS base rate ($257.90 x 0.999910 =
$257.88). The overall CY 2023 proposed wage index budget-neutrality
adjustment factor is higher, because the effect on budget neutrality of
the proposed 5-percent cap is offset by the effect of the proposed
increase to the labor-related share.
Market Basket Increase: Section 1881(b)(14)(F)(i)(I) of the Act
provides that, beginning in 2012, the ESRD PPS payment amounts are
required to be annually increased by the ESRD market basket percentage
increase factor. The latest CY 2023 projection of the proposed ESRDB
market basket percentage increase factor is 2.8 percent. In CY 2023,
this amount must be reduced by the productivity adjustment described in
section 1886(b)(3)(B)(xi)(II) of the Act, as required by section
1881(b)(14)(F)(i)(II) of the Act. As discussed previously in section
II.B.1.a of this proposed rule, the proposed productivity adjustment
for CY 2023 is 0.4 percent, thus yielding a proposed update to the base
rate of 2.4 percent for CY 2023. Therefore, the proposed CY 2023 ESRD
PPS base rate is $264.09 ($257.90 x 1.024 = $264.09).
e. Update to the Average per Treatment Offset Amount for Home Dialysis
Machines
In the CY 2021 ESRD PPS final rule (85 FR 71427), we expanded
eligibility for the TPNIES under Sec. 413.236 to include certain
capital-related assets that are home dialysis machines when used in the
home for a single patient. To establish the TPNIES basis of payment for
these items, we finalized the additional steps that the Medicare
Administrative Contractors (MACs) must follow to calculate a pre-
adjusted per treatment amount, using the prices they establish under
Sec. 413.236(e) for a capital-related asset that is a home dialysis
machine, as well as the methodology that CMS uses to calculate the
average per treatment offset amount for home dialysis machines that is
used in the MACs' calculation, to account for the cost of the home
dialysis machine that is already in the ESRD PPS base rate. For
purposes of this proposed rule, we will refer to this as the ``TPNIES
offset amount.''
The methodology for calculating the TPNIES offset amount is set
forth in Sec. 413.236(f)(3). Section 413.236(f)(3)(v) states that
effective January 1, 2022, CMS annually updates the amount determined
in Sec. 413.236(f)(3)(iv) by the ESRD bundled market basket percentage
increase factor minus the productivity adjustment factor. The TPNIES
for capital-related assets that are home dialysis machines is based on
65 percent of the MAC-determined pre-adjusted per treatment amount,
reduced by the TPNIES offset amount, and is paid for 2 calendar years.
The proposed CY 2023 TPNIES offset amount for capital-related
assets that are home dialysis machines is $9.73. As discussed
previously in section II.B.1.a(3)(c) of this proposed rule, the
proposed CY 2023 ESRD bundled market basket increase factor minus the
productivity adjustment is 2.4 percent (2.8 percent minus 0.4
percentage point). Applying the proposed update factor of 1.024 to the
CY 2022 offset amount results in the proposed CY 2023 offset amount of
$9.73 ($9.50 x 1.024 = $9.73). We propose to update this calculation to
use the most recent data available in the CY 2023 ESRD PPS final rule.
f. Proposed Revision to the Oral-Only Drug Definition and Clarification
Regarding the ESRD PPS Functional Category Descriptions
(1) Background
Section 1881(b)(14)(A)(i) of the Act requires the Secretary to
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. Section 1881(b)(14)(B) of the
Act defines renal dialysis services,

[[Page 38496]]

and subclause (iii) of such section states that these services include
other drugs and biologicals \14\ that are furnished to individuals for
the treatment of ESRD and for which payment was made separately under
this title, and any oral equivalent form of such drug or biological.
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\14\ As discussed in the CY 2019 ESRD PPS final rule (83 FR
56922), we began using the term ``biological products'' instead of
``biologicals'' under the ESRD PPS to be consistent with FDA
nomenclature. We use the term ``biological products'' in this CY
2023 ESRD PPS proposed rule except where referencing specific
language in the Act or regulations.
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When we implemented the ESRD PPS in 2011 (75 FR 49030), we
interpreted this provision as including not only injectable drugs and
biological products used for the treatment of ESRD (other than ESAs and
any oral form of ESAs, which are included under clause (ii) of section
1881(b)(14)(B) of the Act), but also all oral drugs and biological
products used for the treatment of ESRD and furnished under title XVIII
of the Act. We also concluded that, to the extent oral-only drugs or
biological products used for the treatment of ESRD do not fall within
clause (iii) of section 1881(b)(14)(B) of the Act, such drugs or
biological products would fall under clause (iv) of such section, and
constitute other items and services used for the treatment of ESRD that
are not described in clause (i) of section 1881(b)(14)(B) of the Act.
We finalized and promulgated the payment policies for oral-only
renal dialysis service drugs or biological products in the CY 2011 ESRD
PPS final rule (75 FR 49038 through 49053). In that rule we defined
renal dialysis services at Sec. 413.171 as including other drugs and
biologicals that are furnished to individuals for the treatment of ESRD
and for which payment was made separately prior to January 1, 2011
under Title XVIII of the Act, including drugs and biologicals with only
an oral form. Although we included oral-only renal dialysis service
drugs and biologicals in the definition of renal dialysis services in
the CY 2011 ESRD PPS final rule (75 FR 49044), we also finalized a
policy to delay payment for these drugs under the ESRD PPS until
January 1, 2014. In the CY 2011 ESRD PPS proposed rule (74 FR 49929),
we noted that the only oral-only drugs that we identified were
phosphate binders and calcimimetics, specifically, cinacalcet
hydrochloride, lanthanum carbonate, calcium acetate, sevelamer
hydrochloride, and sevelamer carbonate. All of these drugs fall into
the ESRD PPS functional category for bone and mineral metabolism. In
the CY 2011 ESRD PPS final rule (75 FR 49043), we explained that there
were certain advantages to delaying the implementation of payment for
oral-only drugs and biological products under the ESRD PPS, including
allowing ESRD facilities additional time to make operational changes
and logistical arrangements in order to furnish oral-only renal
dialysis service drugs and biological products to their patients.
Accordingly, we codified the delay in payment for oral-only renal
dialysis service drugs and biological products at Sec. 413.174(f)(6),
and provided that payment to an ESRD facility for renal dialysis
service drugs and biological products with only an oral form would be
incorporated into the PPS payment rates effective January 1, 2014.
Since oral-only drugs are generally not a covered service under
Medicare Part B, this delay of payment under the ESRD PPS also allowed
coverage to continue under Medicare Part D.
On January 3, 2013, ATRA was enacted. Section 632(b) of ATRA
precluded the Secretary from implementing the policy under Sec.
413.174(f)(6) relating to oral-only ESRD-related drugs in the ESRD PPS
prior to January 1, 2016. Accordingly, in the CY 2014 ESRD PPS final
rule (78 FR 72185 through 72186), we delayed payment for oral-only
renal dialysis service drugs and biological products under the ESRD PPS
until January 1, 2016. We implemented this delay by revising the
effective date at Sec. 413.174(f)(6) for providing payment for oral-
only renal dialysis service drugs under the ESRD PPS from January 1,
2014 to January 1, 2016. In addition, we changed the date when oral-
only renal dialysis service drugs and biological products would be
eligible for outlier services under the outlier policy described in
Sec. 413.237(a)(1)(iv) from January 1, 2014 to January 1, 2016.
On April 1, 2014, PAMA was enacted. Section 217(a)(1) of PAMA
amended section 632(b)(1) of ATRA to preclude the Secretary from
implementing the policy under Sec. 413.174(f)(6) relating to oral-only
renal dialysis service drugs and biological products prior to January
1, 2024. We implemented this delay in the CY 2015 ESRD PPS final rule
(79 FR 66262) by modifying the effective date for providing payment for
oral-only renal dialysis service drugs and biological products under
the ESRD PPS at Sec. 413.174(f)(6) from January 1, 2016 to January 1,
2024. We also changed the date in Sec. 413.237(a)(1)(iv) regarding
outlier payments for oral-only renal dialysis service drugs made under
the ESRD PPS from January 1, 2016 to January 1, 2024. Section 217(a)(2)
of PAMA further amended section 632(b)(1) of ATRA by requiring that in
establishing payment for oral-only drugs under the ESRD PPS, the
Secretary must use data from the most recent year available.
On December 19, 2014, ABLE was enacted. Section 204 of ABLE amended
section 632(b)(1) of ATRA, as amended by section 217(a)(1) of PAMA, to
provide that payment for oral-only renal dialysis services cannot be
made under the ESRD PPS bundled payment prior to January 1, 2025.
Similar to the CY 2014 and CY 2015 ESRD PPS final rule changes, we
implemented this delay in the CY 2016 ESRD PPS final rule (80 FR
469028) by modifying the effective date for providing payment for oral-
only renal dialysis service drugs and biological products under the
ESRD PPS at Sec. 413.174(f)(6) from January 1, 2024, to January 1,
2025. We also changed the date in Sec. 413.237(a)(1)(iv) regarding
outlier payments for oral-only renal dialysis service drugs made under
the ESRD PPS from January 1, 2024 to January 1, 2025. We stated that we
continue to believe that oral-only renal dialysis service drugs and
biological products are an essential part of the ESRD PPS bundled
payment and should be paid for under the ESRD PPS.
Section 217(c)(1) of PAMA required us to adopt a process for
determining when oral-only drugs are no longer oral-only. In the CY
2016 ESRD PPS proposed rule (80 FR 37839), when considering a
definition for the term ``oral-only drug,'' we noted that in the CY
2011 ESRD PPS final rule (75 FR 49038 through 49039), we described
oral-only drugs as those that have no injectable equivalent or other
form of administration. In the CY 2016 ESRD PPS final rule (80 FR
69027), we finalized the definition of oral-only drug at Sec.
413.234(a) to provide that an oral-only drug is a drug or biological
with no injectable equivalent or other form of administration other
than an oral form. We also finalized our process at Sec. 413.234(d)
for determining that an oral only drug is no longer considered oral-
only when a non-oral version of the oral-only drug is approved by FDA.
We stated that we will undertake rulemaking to include the oral and any
non-oral version of the drug in the ESRD PPS bundled payment when it is
no longer considered an oral-only drug under this regulation. In
addition, we noted that we will pay for the existing oral-only drugs
(which were, at that time, only phosphate binders and calcimimetics)
using the TDAPA, as applicable. We stated that this will allow us to
collect data reflecting

[[Page 38497]]

current utilization of both the oral and injectable or intravenous
forms of the drugs, as well as payment patterns and beneficiary co-
pays, before we add these drugs to the ESRD PPS bundled payment. We
also stated that for future oral-only drugs for which a non-oral form
of administration comes on the market, we will apply our drug
designation process as we would for all other new drugs.
In the CY 2016 ESRD PPS final rule (80 FR 69017), we also codified
the term ESRD PPS functional category at Sec. 413.234(a) as a distinct
grouping of drugs and biologicals, as determined by CMS, whose end
action effect is the treatment or management of a condition or
conditions associated with ESRD. We explained that we codified this
definition in regulation text to formalize the approach we adopted in
CY 2011 because the drug designation process is dependent on the ESRD
PPS functional categories (80 FR 69015). We provided a detailed
discussion of how we accounted for renal dialysis drugs and biological
products in the ESRD PPS base rate since the implementation of the ESRD
PPS (80 FR 69013 through 69015). We discussed how we grouped renal
dialysis drugs and biological products into functional categories based
on their action (80 FR 37831). We explained that this was done for the
purpose of adding new drugs and biological products with the same
function into the functional categories and the ESRD PPS bundled
payment as expeditiously as possible after the drug becomes
commercially available to provide access for the ESRD Medicare
population (80 FR 69014). Our approach of considering drugs and
biological products as included in the ESRD PPS base rate if they fit
within one of our ESRD PPS functional categories is reflected in the
drug designation process set forth in our regulations at Sec. 413.234.
In 2017, FDA approved an injectable calcimimetic. In accordance
with the policy finalized in the CY 2016 ESRD PPS final rule (80 FR
69013 through 69027) described in the previous paragraphs, we issued a
change request to implement payment under the ESRD PPS for both the
oral and injectable forms of calcimimetics using the TDAPA.\15\ We paid
for calcimimetics using the TDAPA under the ESRD PPS for 3 years, CY
2018 through CY

[…truncated; see source link]

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Indexed from Federal Register on June 28, 2022.

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