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Rule2022-23778

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

November 7, 2022

Effective

January 1, 2023

Issuing agencies

Health and Human Services DepartmentCenters for Medicare & Medicaid Services

Abstract

This final rule updates and revises the End-Stage Renal Disease (ESRD) Prospective Payment System for calendar year 2023. This rule also updates the payment rate for renal dialysis services furnished by an ESRD facility to individuals with acute kidney injury. In addition, this rule updates requirements for the ESRD Quality Incentive Program and finalizes changes to the ESRD Treatment Choices Model.

Full Text

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<title>Federal Register, Volume 87 Issue 214 (Monday, November 7, 2022)</title>
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[Federal Register Volume 87, Number 214 (Monday, November 7, 2022)]
[Rules and Regulations]
[Pages 67136-67303]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-23778]

[[Page 67135]]

Vol. 87

Monday,

No. 214

November 7, 2022

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Part 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; Final Rule

Federal Register / Vol. 87 , No. 214 / Monday, November 7, 2022 /
Rules and Regulations

[[Page 67136]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413 and 512

[CMS-1768-F]
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: Final rule.

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SUMMARY: This final rule updates and revises the End-Stage Renal
Disease (ESRD) Prospective Payment System for calendar year 2023. This
rule also updates the payment rate for renal dialysis services
furnished by an ESRD facility to individuals with acute kidney injury.
In addition, this rule updates requirements for the ESRD Quality
Incentive Program and finalizes changes to the ESRD Treatment Choices
Model.

DATES: This final rule is effective on January 1, 2023, except for the
amendment to 42 CFR 413.234 in instruction number 4, which is effective
January 1, 2025.

FOR FURTHER INFORMATION CONTACT: <a href="/cdn-cgi/l/email-protection#a9ecfafbedf9c8d0c4ccc7dde9cac4da87c1c1da87cec6df">[email&#160;protected]</a>, for issues
related to the ESRD PPS and coverage and payment for renal dialysis
services furnished to individuals with acute kidney injury (AKI).
<a href="/cdn-cgi/l/email-protection#c78294958386b7b7abaea4a6b3aea8a9b487a4aab4e9afafb4e9a0a8b1">[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
Quality Incentive Program (QIP).
<a href="/cdn-cgi/l/email-protection#95d0c1d6b8d6d8d8dcd5f6f8e6bbfdfde6bbf2fae3">[email&#160;protected]</a>, for issues related to the ESRD Treatment
Choices (ETC) Model.

SUPPLEMENTARY INFORMATION:
Current Procedural Terminology (CPT) Copyright Notice: Throughout
this final 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 of the Proposed Rule, Public Comments, and
Responses to the Comments on the CY 2023 ESRD PPS
C. Transitional Add-On Payment Adjustment for New and Innovative
Equipment and Supplies (TPNIES) for CY 2023 Payment
D. Continuation of Approved Transitional Add-On Payment
Adjustments for New and Innovative Equipment and Supplies for CY
2023
E. Continuation of Approved Transitional Drug Add-On Payment
Adjustments for New Renal Dialysis Drugs or Biological Products for
CY 2023
F. Summary of Request for Information About Addressing Issues of
Payment for New Renal Dialysis Drugs and Biological Products After
Transitional Drug Add-on Payment Adjustment (TDAPA) Period Ends
G. Summary of Requests for Information on Health Equity Issues
Within ESRD PPS With a Focus on Pediatric Payment
III. Calendar Year (CY) 2023 Payment for Renal Dialysis Services
Furnished to Individuals With Acute Kidney Injury (AKI)
A. Background
B. Summary of the Proposed Provisions, Public Comments, and
Responses to Comments on the CY 2023 Payment for Renal Dialysis
Services Furnished to Individuals With AKI
C. Annual Payment Rate Update for CY 2023
IV. End-Stage Renal Disease Quality Incentive Program (ESRD QIP)
A. Background
B. Flexibilities for the ESRD QIP in Response to the Public
Health Emergency (PHE) Due to COVID-19
C. Updates to the Performance Standards Applicable to the PY
2023 Clinical Measures
D. Technical Updates to the SRR and SHR Clinical Measures
Beginning With the PY 2024 ESRD QIP
E. Updates to Requirements Beginning With the PY 2025 ESRD QIP
F. Updates for the PY 2026 ESRD QIP
G. Requests for Information (RFI) on Topics Relevant to ESRD QIP
V. End-Stage Renal Disease Treatment Choices (ETC) Model
A. Background
B. Summary of the Proposed Provisions, Public Comments, and
Responses to Comments on the ETC Model
VI. Collection of Information 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
I. Congressional Review Act
VIII. Files Available to the Public via the Internet Regulations
Text

I. Executive Summary

A. Purpose

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

[[Page 67137]]

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 rule updates 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 final rule finalizes 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, PY 2025, and PY 2026.
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.'' In this rule, we finalize 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 final 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 updating the ESRDB
market basket to a 2020 base year, reflecting the most recent and
complete set of Medicare Cost Report (MCR) data as well as other
publicly available data. In addition, we are updating the labor-related
share of the ESRD PPS base rate to reflect the 2020 labor-related cost
share weights designated in the ESRDB market basket.
<bullet> Update to the ESRD PPS base rate for CY 2023: The final CY
2023 ESRD PPS base rate is $265.57. This amount reflects the
application of the wage index budget-neutrality adjustment factor
(0.999730) and a productivity-adjusted market basket increase of 3.0
percent as required by section 1881(b)(14)(F)(i)(I) of the Act,
equaling $265.57 (($257.90 x 0.999730) x 1.030 = $265.57).
<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 updating 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 establishing a permanent policy to apply a 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 raising 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 modifying the methodology for
calculating the fixed-dollar loss (FDL) amounts for adult patients.
<bullet> Annual update to the outlier policy: We are updating the
outlier policy based on the most current data and our refinement to the
outlier policy. Accordingly, we are updating the Medicare allowable
payment (MAP) amounts for adult and pediatric patients for CY 2023
using the latest available CY 2021 claims data. We are updating the
ESRD outlier services FDL amount for pediatric patients using the
latest available CY 2021 claims data, and calculating the FDL amount
for adult patients using the latest available claims data from CY 2019,
CY 2020, and CY 2021, in accordance with the methodology discussed in
section II.B.1.c.(4) of this final rule. For pediatric beneficiaries,
the final FDL amount will decrease from $26.02 to $23.29, and the final
MAP amount will decrease from $27.15 to $25.59, as compared to CY 2022
values. For adult beneficiaries, the final FDL amount will decrease
from $75.39 to $73.19, and the final MAP amount will decrease from
$42.75 to $39.62. The 1.0 percent target for outlier payments was not
achieved in CY 2021. Outlier payments represented approximately 0.5
percent of total payments rather than 1.0 percent.
<bullet> Definition of an oral-only drug: Beginning January 1,
2025, we will include the word functional in the definition of oral-
only drug at 42 CFR 413.234(a). Specifically, under the final
definition, an oral-only drug will 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 final CY 2023 average per treatment offset
amount for the TPNIES for capital-related assets that are home dialysis
machines is $9.79. This offset amount reflects the application of the
productivity-adjusted market basket increase of 3.0 percent ($9.50 x
1.030 = $9.79).
<bullet> TPNIES applications received for CY 2023: In this final
rule, we announce our determinations on the three TPNIES applications
under consideration for the TPNIES for CY 2023 payment.
2. Payment for Renal Dialysis Services Furnished to Individuals With
AKI
We are updating the AKI payment rate for CY 2023. The final CY 2023
payment rate is $265.57, which is the same as the base rate finalized
under the ESRD PPS for CY 2023.
3. ESRD QIP
We are finalizing our proposals to suppress the Standardized
Hospitalization Ratio (SHR) clinical measure, Standardized Readmission
Ratio (SRR) clinical measure, In-Center Hemodialysis Consumer
Assessment of Healthcare Providers and Systems (ICH CAHPS) clinical
measure, Long-Term Catheter Rate clinical measure, Percentage of
Prevalent Patients Waitlisted (PPPW) clinical measure, and

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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 suppressing the Standardized
Fistula Rate clinical measure for PY 2023 under our previously
finalized measure suppression policy because we have determined that
the circumstances caused by the COVID-19 PHE have also significantly
affected the Standardized Fistula Rate clinical measure and resulting
performance score. Additionally, we are finalizing that we will
calculate the minimum Total Performance Score (mTPS) for PY 2023 based
on the seven measures that are not suppressed. We are also finalizing
our proposal 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. We are finalizing our proposal to add the COVID-
19 Vaccination Coverage among Healthcare Personnel (HCP) measure to the
ESRD QIP measure set beginning with the PY 2025 ESRD QIP. We are also
finalizing our proposal to convert the Standardized Transfusion Ratio
(STrR) reporting measure to a clinical measure beginning with PY 2025,
and are further finalizing our proposal to express this measure as a
rate to align with the technical updates to also express the SHR and
SRR clinical measure results as rates. In addition, we are finalizing
our proposal to convert the Hypercalcemia clinical measure to a
reporting measure, beginning with PY 2025. Furthermore, we are
finalizing our proposal to create a new Reporting Measure domain and to
re-weight remaining measure domains beginning with PY 2025.
This final rule also includes a summary of public comments received
in response to requests for information that appeared in the CY 2023
ESRD PPS proposed rule. In those requests for information, we solicited
feedback 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 in the ESRD QIP.
4. ETC Model
In this final rule, we are updating the PPA achievement scoring
methodology beginning in the fifth Measurement Year (MY5) of the ETC
Model, which begins January 1, 2023. We are also clarifying 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 final rule, we set forth a detailed
analysis of the impacts that the finalized changes will have on
affected entities and beneficiaries. The impacts include the following:
1. Impacts of the Final ESRD PPS
The impact table in section VII.D.5.a of this final 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 3.1 percent increase
in payments compared with freestanding facilities with an estimated 3.0
percent increase. We estimate that the aggregate ESRD PPS expenditures
will increase by approximately $300 million in CY 2023 compared to CY
2022. This reflects a $300 million increase from the payment rate
update, approximately $2.5 million in estimated TPNIES payment amounts
and approximately $2.3 million in estimated TDAPA payment amounts, as
further described in the next paragraph. Because of the projected 3.1
percent overall payment increase, we estimate there will be an increase
in beneficiary coinsurance payments of 3.1 percent in CY 2023, which
translates to approximately $60 million.
Section 1881(b)(14)(D)(iv) of the Act provides that the ESRD PPS
may include such other payment adjustments as the Secretary determines
appropriate. Under this authority, CMS implemented Sec. 413.234 to
establish the TDAPA, a transitional drug add-on payment adjustment for
certain new renal dialysis drugs and biological products and Sec.
413.236 to establish the TPNIES, a transitional add-on payment
adjustment for new and innovative equipment and supplies, which are not
budget neutral.
As discussed in section II.D. of this final rule, the TPNIES
payment period for the Tablo[supreg] System will continue in CY 2023.
We estimate that the TPNIES payment amounts for the Tablo[supreg]
System in CY 2023 would be approximately $2.5 million, of which,
approximately $490,000 would be attributed to beneficiary coinsurance
amounts. As discussed in section II.E. of this final rule, the TDAPA
payment period for KORSUVATM (difelikefalin) will continue
in CY 2023. We estimate that the overall TDAPA payment amounts in CY
2023 would be approximately $2.3 million, of which, approximately
$468,000 would be attributed to beneficiary coinsurance amounts.
2. Impacts of the Final Payment for Renal Dialysis Services Furnished
to Individuals With AKI
The impact table in section VII.D.5.b of this final 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 2.9 percent increase in payments for
individuals with AKI. Hospital-based ESRD facilities have an estimated
2.8 percent increase in payments compared with freestanding ESRD
facilities with an estimated 2.9 percent increase. The overall impact
reflects the effects of the final update to the labor-related share,
final CY 2023 wage index, final permanent cap on wage index decreases,
final increase to the wage index floor, and the final payment rate
update. We estimate that the aggregate payments made to ESRD facilities
for renal dialysis services furnished to patients with AKI, at the
final CY 2023 ESRD PPS base rate, will increase by $2 million in CY
2023 compared to CY 2022.
3. Impacts of the ESRD QIP
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 (85
FR 71400). 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. In the CY 2023 ESRD
PPS proposed rule, we estimated that the overall economic impact of the
PY 2023 ESRD QIP would be approximately $218 million (87 FR 38467). In
that proposed rule, we estimated that the $218 million figure for PY
2023 included costs associated with the collection of

[[Page 67139]]

information requirements and recalculated estimated payment reductions
based on the six measures we proposed to suppress for PY 2023. However,
as a result of the policies impacting the PY 2023 ESRD QIP that we are
finalizing in this final rule, including the additional suppression of
the Standardized Fistula Rate clinical measure, we are modifying our
previous estimate. We now estimate that the overall economic impact of
the PY 2023 ESRD QIP will be approximately $213.5 million. The $213.5
million figure for PY 2023 includes costs associated with the
collection of information requirements, which we estimate will be
approximately $208 million, and recalculated estimated payment
reductions of approximately $5.5 million across all facilities based on
the seven measures we are finalizing for suppression 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 will not impact our previously estimated economic
impact for the PY 2024 ESRD QIP.
In the CY 2023 ESRD PPS proposed rule, we estimated 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 the proposed rule (87 FR 38467). The $252 million
figure for PY 2025 included costs associated with the collection of
information requirements, which we estimated would be approximately
$215 million, and $37 million in estimated payment reductions across
all facilities. In this final rule, we continue to estimate that the
overall economic impact of the PY 2025 ESRD QIP will be approximately
$252 million as a result of the policies we have previously finalized
and the proposals we are finalizing in this final rule. However, we
have updated our estimated costs associated with collection of
information requirements and payment reductions across all facilities.
The $252 million figure for PY 2025 includes costs associated with the
collection of information requirements, which we estimate would be
approximately $220 million, and $32 million in estimated payment
reductions across all facilities. We are also updating our 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 $220 million, and $32 million in
estimated payment reductions across all facilities.
4. Impacts of the Final Changes to the ETC Model
The impact estimate in section VII.D.5.d of this final 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 changes in this final rule. We estimate that the ETC
Model will result in $28 million in net savings over the 6.5 year
duration of the ETC Model. We also estimate that the changes in this
final rule will produce no change in net savings for the ETC Model.

II. Calendar Year (CY) 2023 End Stage Renal Disease (ESRD) Prospective
Payment System (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, under 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 provides 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

[[Page 67140]]

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 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, Public Comments, and Responses to
the Comments on the CY 2023 ESRD PPS

The proposed rule, titled ``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'' (87 FR 38464 through 38586), referred to as
the ``CY 2023 ESRD PPS proposed rule,'' appeared in the June 28, 2022
version of the Federal Register, with a comment period that ended on
August 22, 2022. In that proposed rule, we proposed to make a number of
annual updates for CY 2023, including updates to the ESRD PPS base
rate, wage index, outlier policy, and the TPNIES offset amount. We also
proposed several policy changes, including increasing the wage index
floor, establishing a permanent cap on wage index decreases, modifying
the outlier methodology, changing the definition of oral-only drug, and
revising the descriptions of several ESRD PPS functional categories.
The proposed rule included 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. In
addition, the rule included a request 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.
We received 291 public comments on our proposals, including
comments from kidney and dialysis organizations, such as large dialysis
organizations (LDOs), small dialysis organizations, for-profit and non-
profit ESRD facilities, ESRD networks, and a dialysis coalition. We
also received comments from patients; healthcare providers for adult
and pediatric ESRD beneficiaries; home dialysis services and advocacy
organizations; provider and legal advocacy organizations;
administrators and insurance groups; a non-profit dialysis association,
a professional association, and alliances for kidney care and home
dialysis stakeholders; drug and device manufacturers; health care
systems; a health solutions company; and the Medicare Payment Advisory
Commission (MedPAC).
We received several comments related to issues that we either did
not discuss in the CY 2023 ESRD PPS proposed rule or that we discussed
for the purpose of background or context, but for which we did not
propose changes. These include, for example, concerns about infections,
comments on comorbidities that should or should not be considered for
payment adjustments, suggestions for changes to payments for drugs and
biological products, and suggestions for additional screenings for
Medicare beneficiaries to detect kidney disease earlier. In addition,
we received several comments regarding the TDAPA and TPNIES payment
adjustments and length of the payment period. We also received comments
regarding the TPNIES application process, implementation challenges
from the CY 2022 TPNIES approval for the Tablo[supreg] System, and
requests to amend the ESRD facility cost report and align Medicare
Advantage plans with the ESRD PPS. While we are not providing detailed
responses to those comments in this final rule because they are either
out of scope of the proposed rule or concern topics for which we did
not propose changes, we thank the commenters for their input and will
potentially consider the recommendations in future rulemaking.
We received various comments requesting changes to Medicare
payments for home dialysis. Some of these suggestions were to increase
payments for home dialysis training, to increase the number of training
sessions for home dialysis, to increase payments for home dialysis
treatments, and to allow clinics to bill for telemedicine related to
home dialysis. We thank the commenters for their recommendations
regarding home dialysis; however, these comments are out of scope given
that we did not propose to make any changes to the Medicare payment for
home dialysis. Nevertheless, we will review and assess the feasibility
of the commenters' recommendations and, if warranted, consider
proposing changes to our policies in future rulemaking.
In this final rule, we provide a summary of each proposed
provision, a summary of the public comments received and our responses
to them, and

[[Page 67141]]

the policies we are finalizing for the CY 2023 ESRD PPS.
1. CY 2023 ESRD PPS Update
a. CY 2023 ESRD Bundled (ESRDB) Market Basket Rebasing and Revision;
Market Basket Increase Factor; Productivity Adjustment; and Labor-
Related Share
(1) 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 proposed 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. In the
CY 2023 ESRD PPS proposed rule (87 FR 38468 through 38480), we proposed
to use 2020 as the base year for the rebased ESRDB market basket cost
weights. The cost weights for this ESRDB market basket are based on the
cost report data for independent ESRD facilities. We refer to the
market basket as a CY market basket because the base period for all
price proxies and weights are set to CY 2020 (that is, the average
index level for CY 2020 is equal to 100). The major source data for the
ESRDB market basket is the 2020 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 proposed
to use May 2020 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 methodology in section
II.B.1.a.(1)(b) of this final 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 the CY 2023 ESRD PPS proposed rule,
we proposed 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 proposed 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 proposed to use CY 2020 as the new base year because 2020 is the
most recent year for which relatively complete MCR data were 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 Public Health Emergency (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

[[Page 67142]]

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. We explained that 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 proposed 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 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 divided 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
applied 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 included a total of 21 detailed cost categories for the 2020-
based ESRDB market basket, whereas the 2016-based ESRDB market basket
had 20 detailed cost categories. A detailed discussion of the
provisions is provided in section II.B.1.a.(1)(b) of this final 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 payable 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.
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 2020-based ESRDB and 2016-based ESRDB market
basket major cost weights as derived directly from the MCR data.
[GRAPHIC] [TIFF OMITTED] TR07NO22.000

We proposed 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

[[Page 67143]]

categories and weights presented in the CY 2023 ESRD PPS proposed rule.
Wages and Salaries
The 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 derived 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 derived 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 was 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 proposed to move the estimated cost
weight for the contract labor costs from the Administrative and General
category (where we believed the majority of the contract labor costs
would be reported) to the Wages and Salaries category. We used 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 for the 2016-based ESRDB
market basket.
The resulting cost weight for Wages and Salaries increased to 36.5
percent when contract labor wages were added. The calculation of the
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] TR07NO22.001

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.
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

[[Page 67144]]

Administrative and General cost category.
The final adjustment made to this category was to include contract
labor benefit costs. Once again, we noted, 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 discussed
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 increased to 9.5
percent when contract labor benefits were 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.
[GRAPHIC] [TIFF OMITTED] TR07NO22.002

Pharmaceuticals
The proposed 2020-based ESRDB market basket included 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 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 an ESRDB market basket weight for Pharmaceuticals of 10.1
percent. ESA expenditures accounted for 6.0 percentage points of the
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 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 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 was 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 2020-based ESRDB market basket
weight for Laboratory Services was 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 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

[[Page 67145]]

would have been 0.5 percent if it had been broken out separately.
Operations & Maintenance
We proposed 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 was 3.7 percent.
Capital
We developed a 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 propose Capital cost
weights. To calculate the Capital-related Buildings and Fixtures cost
weight we summed 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 stated that we continue to believe that two capital-related cost
categories are appropriate. The resulting proposed 2020-based ESRDB
market basket weights for Capital-related Buildings and Fixtures and
Capital-related Moveable Equipment were 9.4 and 4.4 percent,
respectively.
Administrative & General
We proposed to compute 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 proposed Administrative and General cost weight was 13.7
percent.
We proposed 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 were 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.
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BILLING CODE 4120-01-C
We received several comments regarding the proposed methodology for
deriving the detailed cost weights of the 2020-based ESRDB market
basket. The comments and our responses are set forth below.
Comment: Many commenters, including LDOs, a coalition of dialysis
organizations, and a professional association supported the proposal to
rebase and revise the ESRDB market basket base year to 2020. These
commenters agreed that the data from 2016 no longer reflect the current
mix of goods and services for providing ESRD care, and some also
expressed agreement with the proposed major cost categories and weights
as well as the disaggregation of the Administrative & General cost
category. While many commenters supported the proposed rebased market
basket, several commenters stated that the 2020 revised cost weights do
not adequately capture the trends in the health care labor market that
have continued into 2022, and that the proposed 2020 cost weights,
particularly for labor and related costs, are likely underrepresented
as a portion of the market basket. These commenters requested that CMS
continue to monitor the effects of the COVID-19 PHE on freestanding
ESRD facilities' costs moving forward and consider rebasing the ESRDB
market basket more frequently (than every four years) if these trends
change and the cost category weights no longer accurately represent
freestanding ESRD facilities' costs.
Response: We appreciate the commenters' support for rebasing and
revising the ESRDB market basket to a 2020 base year. We also
understand the commenters' concerns that the data from 2020 do not
necessarily reflect the current relative cost share weights that ESRD
facilities may be experiencing in 2022. However, the 2020 data reflect
the latest available data available to estimate the ESRDB market basket
cost share weights at the time of the CY 2023 ESRD PPS proposed rule.
We will continue to monitor the cost share weights for potential
effects of the COVID-19 PHE on freestanding ESRD facilities' costs and,
if technically appropriate, consider rebasing the ESRDB market basket
more frequently than usual should the cost weights change
significantly.
Comment: MedPAC requested that CMS's rebasing of the ESRDB market
basket should reflect the findings from the agency's most recent audit
of

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freestanding ESRD facilities, which found that cost reports have
included costs that are not allowable under Medicare.
Response: We understand MedPAC's concerns regarding the 2018
audited cost report data; \1\ however, we do not agree that the results
of the audited data can be directly utilized for determining the ESRDB
market basket cost weights in the 2020 cost report data. Although the
audited cost report data identified potential areas where cost levels
were misreported by some facilities, we do not believe that slightly
different cost levels will result in substantial variation to the
relative cost share weights derived from the unaudited data, since the
cost weights are based on relative shares of the total. Additionally,
the weights are derived from all facilities and, therefore, for an
audited report to impact the overall market basket cost shares, the
misreporting will have to be prevalent across a significant percentage
of facilities. Finally, the audit was performed on a sample of cost
reports for 2018 and we proposed to use data from 2020 cost reports;
any inaccuracies in the 2018 data do not necessarily mean that 2020
data will be impacted in the same way.
---------------------------------------------------------------------------

\1\ Details on the audit process and findings, as well as
adjustments for unallowable costs based on its findings, can be
found in the CY 2022 ESRD PPS proposed rule (86 FR 36322).
---------------------------------------------------------------------------

Final Rule Action: After consideration of the public comments we
received, we are finalizing the methodology for deriving the detailed
cost weights of the 2020-based ESRDB market basket as proposed without
modification.
(c) Price Proxies for the 2020-Based ESRDB Market Basket
After developing the cost weights for the 2020-based ESRDB market
basket, we proposed 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 price proxies on BLS data and
grouped 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, as stated in the CY 2023 ESRD PPS proposed rule,
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. As stated in the CY 2023 ESRD PPS proposed rule, 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 meet these criteria.
Therefore, as stated in the CY 2023 ESRD PPS proposed rule, we believe
that they continue to be the best measure of price changes for the cost
categories to which they will be applied.
Table 7 lists all proposed price proxies for the 2020-based ESRDB
market basket. We note that we proposed 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 proposed to continue using a blend of ECIs to proxy the Wages
and Salaries cost weight in the 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 proposed 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 proposed to continue using the ECI for Wages and Salaries for
Private

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Industry Workers in Management, Business, and Financial (BLS series
code #CIU2020000110000I). As we stated in the CY 2023 ESRD PPS proposed
rule, 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 proposed to continue using the ECI for Wages and Salaries for
Private Industry Workers in Office and Administrative Support (BLS
series code #CIU2020000220000I). As we stated in the CY 2023 ESRD PPS
proposed rule, 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 proposed to continue using the ECI for Wages and Salaries for
Private Industry Workers in Service Occupations (BLS series code
#CIU2020000300000I). As we stated in the CY 2023 ESRD PPS proposed
rule, 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-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. As we stated
in the CY 2023 ESRD PPS proposed rule, we believe this ECI blend is the
most appropriate price proxy to measure the growth of wages and
salaries faced by ESRD facilities.
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Employee Benefits
We proposed to continue using an ECI blend for Employee Benefits in
the 2020-based ESRDB market basket where the components match those of
the Wage and Salaries ECI blend. The occupation weights for the blended
Benefits price proxy (Table 6) are the same as those 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 proposed 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. As we stated in the CY 2023 ESRD PPS proposed rule,
we believe this constructed ECI series is technically appropriate for
the reason stated in the Wages and Salaries price proxy section.
Management Benefits
We proposed 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. As
we stated in the CY 2023 ESRD PPS proposed rule, we believe this
constructed ECI series is technically appropriate for the reason stated
in the Wages and Salaries price proxy section.
Administrative Benefits
We proposed 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. As
we stated in the CY 2023 ESRD PPS proposed rule, we believe this
constructed ECI series is technically appropriate for the reason stated
in the wages and salaries price proxy section.
Services Benefits
We proposed 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. As we
stated in the CY 2023 ESRD PPS proposed rule, we believe this ECI
series is

[[Page 67149]]

technically appropriate for the reason stated in the Wages and Salaries
price proxy section. We also stated 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.
[GRAPHIC] [TIFF OMITTED] TR07NO22.005

Electricity
We proposed 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 proposed 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 proposed 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 will 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 explained that we do not know if these drugs
are indeed reflected in this price index. However, as we stated in the
CY 2023 ESRD PPS proposed rule, 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 stated
that we will 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 proposed 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). As we stated in the CY
2023 ESRD PPS proposed rule, 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 indicated 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 believed
a different price proxy would be more appropriate and we proposed 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 noted that 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 will be captured will 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, as we stated in the CY 2023
ESRD PPS proposed rule, 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
stated that 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 50/50 PPI blend warrants an adjustment, and if so, we
will propose such an adjustment in future rulemaking.
Supplies
We proposed to continue using the PPI Commodity for Surgical and
Medical Instruments (BLS series code #WPU1562) to measure the price
growth of this cost category.

[[Page 67150]]

Laboratory Services
We proposed 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 proposed 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 proposed 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 proposed 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.
This price proxy accounts for the compensation expenses related to
maintenance and repair workers. As we stated in the CY 2023 ESRD PPS
proposed rule, 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 proposed 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 proposed 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 proposed 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 proposed 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 2020-based ESRDB Market Basket.
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BILLING CODE 4120-01-C
We received several comments regarding the proposed price proxies
in the 2020-based ESRDB market basket. The comments and our responses
are set forth below.
Comment: Several commenters, including a coalition of dialysis
organizations, supported the proposal to adopt the PPI Commodity for
Pharmaceuticals for human use, prescription (BLS series code
#WPUSI07003) within the blended price proxy for Non-ESA drugs in the
ESRDB market basket. They stated that they believe the majority of the
non-ESA drugs in the ESRD PPS bundled payment align with this proxy and
not the PPI Commodity data for Chemicals and allied products-Vitamin,
nutrient, and hematinic preparations. The commenters requested for CMS
to monitor the impact of this change and adjust the weight of the
blended proxy in future years, if appropriate, and for CMS to
potentially consider breaking out the weight for the non-ESA blend
formally into two separate market basket categories in the future.
Response: We appreciate the commenters' support for the proposed
50/50 blended price proxy for the Non-ESA drug cost category. We will
continue to monitor the mix of the expenses for the non-ESA drugs
accounted for in this category and consider if it may be appropriate to
propose to adjust the cost weights of this blended price proxy through
future notice and comment rulemaking.
Comment: One LDO expressed that they believe the process and
indices used by CMS to capture year over year growth in the ESRDB
market basket have worked relatively well since the ESRD PPS was
implemented in 2011. The commenter stated that they do not object to
CMS's use of the ECI for Wages and Salaries for All Civilian Workers in
Hospitals as the price proxy for the ESRDB market basket's health-
related occupations; however, they have concerns that the ECI is not
designed to accurately capture rapid changes in inflation and market
dynamics of the type seen as a result of the COVID-19 PHE.
Specifically, the commenter stated that ESRD facilities have
experienced dramatic increases in overtime pay, dramatic increases in
hiring bonuses, increases in travel costs, and a higher dependency on
travel nurses and staffing agencies, which demand hourly rates that far
exceed the average. One LDO and a non-profit dialysis association cited
a study by Altarum that showed that between July 2021 and June 2022,
healthcare wages grew by an average of 6.9 percent, compared to 5.1
percent for all private sector jobs. The same study showed that average
hourly earnings in healthcare grew 7.4 percent, compared to 5.2 percent
across all private sector jobs. The study also showed that the quantity
of healthcare workers has decreased relative to the levels from before
the COVID-19 PHE, reporting 78,000 fewer workers in July 2022 compared
to February 2020. The nonprofit dialysis association noted that while
other industries outside of healthcare may be able to fund the rising
costs of labor by increasing their prices or improving efficiency, ESRD
facilities are unable to do so because the majority of ESRD patients
are Medicare beneficiaries, and therefore the majority of ESRD
facilities' revenue is determined by the Federal government. The
nonprofit dialysis association further noted that ESRD facilities have
specialized requirements--many of which are codified in Federal
regulations--for dialysis nurses, home

[[Page 67153]]

dialysis nurse specialists, and dialysis patient care technicians, that
require additional education, training, experience, and certification
beyond what is often required of clinical staff in other healthcare
settings. As a result, the commenter stated, ESRD facilities can be
easily outbid for clinical workers by better financed hospitals, health
plans, clinical practices, and other healthcare settings that may also
have fewer clinical requirements.
Response: The ESRDB market basket reflects changes over time in the
price of providing renal dialysis services and will not reflect
increases in costs associated with changes in the volume or intensity
of input goods and services. To measure price growth for ESRD facility
wages and salaries costs, the ESRDB market basket relies on a blend of
ECIs reflecting the occupational skill mix of FTEs as reported on the
2020 Medicare cost report forms. The majority of the weight for
compensation costs is for health-related occupations, and accounts for
approximately 80 percent of the ESRD facility compensation costs. The
health-related workers' Wages and Salaries, and Benefits, cost
categories use the ECI for wages and salaries and the ECI for benefits
for civilian hospital workers, respectively. We believe that these ECIs
are the best available price proxies to account for the health-related
workers' occupational skill mix within ESRDs. The BLS Occupational
Employment and Wage Statistics (OEWS) data are one of the primary data
sources used to derive the weights for the ECI. In 2020, which we
proposed as the base year of the ESRDB market basket, a little over 56
percent of total employment for NAICS 622100 was attributed to Health
Professional and Technical occupations, and approximately 13 percent
was attributed to Health Service occupations. Therefore, in the absence
of ESRD-specific data, we believe that the highly skilled hospital
workforce captured by the ECI for hospital workers (inclusive of
therapists, nurses, and other clinicians) is a reasonable proxy for the
compensation component of the ESRDB market basket. Additionally, we
believe that by utilizing the relative distribution of workers based on
the FTE data reported on the ESRD cost report, the occupational
distribution of the compensation costs weights is technically
appropriate.
Comment: One LDO encouraged CMS to provide more transparency
regarding the ESRDB market basket price proxies forecasting models'
methodologies and underlying assumptions, and stated that greater
transparency could better inform stakeholder feedback and help identify
opportunities to improve the models' capacity to capture economic
anomalies that facilities have encountered in recent years.
Response: We appreciate the commenter's feedback on improving the
forecasting model capacity of the price proxies used in the ESRDB
market basket. CMS uses independent forecasts of the price proxies for
the CMS market baskets from IHS Global Inc. (IGI), a nationally
recognized economic and financial forecasting firm. The rationale for
using an independent forecaster is to ensure neutrality in the annual
ESRDB market basket increase and productivity adjustment while
reflecting comprehensive economic and health sector forecasting model
capabilities that extend beyond CMS' expertise. As the forecasting
models are proprietary in nature, we are not licensed to share
information related to the detailed models. More information on the IGI
economic forecasts can be found at the following website, <a href="https://ihsmarkit.com/products/US-economic-modeling-forecasting-services.html">https://ihsmarkit.com/products/US-economic-modeling-forecasting-services.html</a>.
Final Rule Action: After consideration of the public comments we
received, we are finalizing the 2020-based ESRDB market basket price
proxies as proposed.
(d) Rebasing Results
As discussed in the CY 2023 ESRD PPS proposed rule (87 FR 38479), a
comparison of the yearly differences of increase factors from CY 2019
to CY 2023 for the 2016-based ESRDB market basket and the 2020-based
ESRDB market basket showed that 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 2020-based market basket was 0.1 percentage point lower.
We did not receive any comments related to the comparison of the ESRDB
market basket updates comparing the 2016-based and 2020-based ESRDB
market baskets.
(2) Labor-Related Share for the 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 proposed to use the 2020-based ESRDB market basket cost weights
to determine the proposed labor-related share for ESRD facilities.
Specifically, effective for CY 2023, we proposed 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 8. 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.

[[Page 67154]]

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As discussed in the CY 2023 ESRD PPS proposed rule, 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 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 included 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).
As discussed in the CY 2023 ESRD PPS proposed rule, 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
noted that 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).
We received several comments regarding our calculation of the
proposed labor-related share based on the 2020-based ESRDB market
basket. The comments and our responses are set forth below.
Comment: Several commenters, including a coalition of dialysis
organizations, a nonprofit dialysis association, and a provider
advocacy organization, supported the proposed increase of the labor
share from 52.3 percent to 55.2 percent, and stated that their
experience is that the costs of labor are rising exponentially. The
commenters further stated that they do not believe that shifting the
market basket percentage alone will address the labor shortage's impact
on payments and costs.
Response: We appreciate the commenters' support of the proposed
labor-related share. This increase in the ESRD PPS labor-related share
reflects the relative increase in labor-related costs compared to non-
labor-related costs that ESRD facilities have experienced since 2016
and through 2020. We will continue to monitor the ESRD cost report data
for significant changes to the ESRD cost share weights.
Final Rule Action: After consideration of the public comments we
received, we are finalizing the 2020-based labor-related share of 55.2
percent effective for CY 2023, as proposed.
(3) 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 proposed to use the 2020-based ESRDB market basket as
described in section II.B.1 of this final 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
proposed to estimate the ESRDB market basket increase factor based on
IGI's 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) CY 2023 Market Basket Increase Factor
Based on IGI's first quarter 2022 forecast, the proposed 2020-based
ESRDB market basket increase factor for CY 2023 was projected to be 2.8
percent. We also proposed that if more recent data became available
after the publication of the proposed rule and before the publication
of the final rule (for example, a more recent estimate of the market
basket update or productivity adjustment), we would use such data, if
appropriate, to determine the CY 2023 market basket update in this
final rule. Based on the more recent data available for this CY 2023
ESRD PPS final rule (that is, IGI's third quarter 2022 forecast of the
2020-based ESRDB market basket with historical data through the second
quarter of 2022), we

[[Page 67155]]

estimate that the ESRD PPS CY 2023 market basket update is 3.1 percent.
(b) 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. As we noted in the CY 2023 ESRD PPS proposed rule, the
productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the
Act previously 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.\2\ 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 referred 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 will 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.
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\2\ 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>.
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As discussed in the CY 2023 ESRD PPS proposed rule, based on IGI's
first quarter 2022 forecast with historical data through the fourth
quarter of 2021, the proposed productivity adjustment for CY 2023 (the
10-year moving average of TFP for the period ending CY 2023) was
projected to be 0.4 percentage point. Furthermore, we proposed that if
more recent data became available after the publication of the proposed
rule and before the publication of this final rule (for example, a more
recent estimate of the market basket and/or productivity adjustment),
we would use such data, if appropriate, to determine the CY 2023 market
basket update and productivity adjustment in this final rule. Based on
the more recent data available from IGI's third quarter 2022 forecast,
the current estimate of the productivity adjustment for CY 2023 is 0.1
percentage point.
(c) CY 2023 Market Basket Increase Factor Adjusted for Productivity
In accordance with section 1881(b)(14)(F)(i) of the Act, we
proposed to base the CY 2023 market basket update, which is used to
determine the applicable percentage increase for the ESRD PPS payments,
on IGI's first quarter 2022 forecast of the 2020-based ESRDB market
basket. We proposed to then reduce this percentage increase by the
estimated productivity adjustment for CY 2023 of 0.4 percentage point
(the 10-year moving average growth of TFP for the period ending CY 2023
based on IGI's first quarter 2022 forecast). Therefore, the proposed CY
2023 ESRDB update was equal to 2.4 percent (2.8 percent market basket
update reduced by the 0.4 percentage point productivity adjustment).
Furthermore, as noted previously, we proposed that if more recent data
became available after the publication of the proposed rule and before
the publication of this final rule (for example, a more recent estimate
of the market basket and/or productivity adjustment), we would use such
data, if appropriate, to determine the CY 2023 market basket update and
productivity adjustment in this final rule.
We invited public comment on our proposals for the CY 2023 market
basket update and productivity adjustment. The following is a summary
of the public comments received on the proposed CY 2023 market basket
update and productivity adjustment and our responses:
Comment: Many commenters, including an LDO, a provider advocacy
organization, a nonprofit dialysis association, a coalition of dialysis
organizations, a network of dialysis organizations, and a professional
organization, generally supported the utilization of the most recent
data available (for example, a more recent estimate of the market
basket and/or productivity adjustment) to determine the final CY 2023
ESRD PPS update. MedPAC recommended that the ESRD PPS base rate
increase for CY 2023 should be updated by the amount determined under
current law, and that analysis reported in the March 2022 Report to the
Congress: Medicare Payment Policy \3\ concluded that this increase is
warranted based on analysis of payment adequacy (which includes an
assessment of beneficiary access, supply and capacity of facilities,
facilities' access to capital, quality, and financial indicators for
the sector). At the same time, other commenters expressed their concern
that the CY 2023 ESRD PPS update insufficiently captures the rising
costs that ESRD facilities have experienced and continue to experience,
particularly the impact of the health-related compensation costs.
However, commenters expressed different views about the scope and
nature of the staffing challenges facing ESRD facilities. A provider
advocacy organization claimed that the ongoing COVID-19 PHE is creating
significant and lasting effects on staffing and supply costs. In
contrast, a patient-led dialysis organization maintained that the
current labor shortages are not a temporary phenomenon related to the
ongoing COVID-19 PHE, but the result of a demographic shift in labor
market conditions in the healthcare industry. This commenter stated
that the American workforce as a whole has shrunk, and mentioned a 2008
report from the Institute of Medicine that further described the
demographic shift the commenter identified.\4\ Many commenters
requested that CMS consider using its statutory authority to apply a
labor add-on payment adjustment to the ESRD PPS for CY 2023.
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\3\ <a href="https://www.medpac.gov/document/march-2022-report-to-the-congress-medicare-payment-policy/">https://www.medpac.gov/document/march-2022-report-to-the-congress-medicare-payment-policy/</a>.
\4\ <a href="https://pubmed.ncbi.nlm.nih.gov/25009893/">https://pubmed.ncbi.nlm.nih.gov/25009893/</a>.
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Many commenters, including LDOs, ESRD facilities, professional
associations, patients, provider advocacy organizations, and a
coalition of dialysis organizations, stated that a labor add-on payment
adjustment factor is needed because ESRD facilities have

[[Page 67156]]

had to contend with rising costs in labor, medical supplies, and rent.
They noted that the largest contributor to higher input costs is
accelerating labor costs, which have been exacerbated by the nation-
wide shortages in qualified clinical staff, and that they need to
increasingly rely on contract labor, which has led to a significant,
permanent increase in labor costs.
Response: We are required to update ESRD PPS bundled payments by
the market basket update adjusted for productivity under section
1881(b)(14)(F)(i) of the Act, which states that the Secretary shall
annually increase payment amounts by an ESRD market basket percentage
increase that reflects changes over time in the prices of an
appropriate mix of goods and services included in renal dialysis
services. We believe the 2020-based ESRDB market basket increase
adequately reflects the average change in the price of goods and
services ESRD facilities purchase to provide renal dialysis services,
and is technically appropriate to use as the ESRD PPS payment update
factor. The ESRDB market basket is a fixed-weight, Laspeyres-type index
that reflects changes over time in the price of providing renal
dialysis services and will not reflect increases in costs associated
with changes in the volume or intensity of input goods and services. As
such, the ESRDB market basket update will reflect the prospective price
pressures described by the commenters as increasing during a high
inflation period (such as faster wage growth or higher energy prices),
but inherently will not reflect other factors that might increase the
level of costs, such as the quantity of labor used. However, as we note
in section II.B.1.a.(2) of this CY 2023 ESRD PPS final rule, the 2020-
based ESRDB market basket reflects an increase to the cost category
weights for labor-related costs. Therefore, the final CY 2023 ESRDB
market basket update reflects the most recent available data regarding
both prices and the quantity of labor used to provide renal dialysis
services.
We agree with the commenters who stated that recent higher
inflationary trends have impacted the outlook for price growth over the
next several quarters. At the time of the CY 2023 ESRD PPS proposed
rule, based on the IGI first quarter 2022 forecast with historical data
through the fourth quarter of 2021, the 2020-based ESRDB market basket
update was forecasted to be 2.8 percent for CY 2023, reflecting
forecasted compensation prices of about 3.9 percent (by comparison,
compensation growth in the ESRDB market basket averaged 2.2 percent
from 2012 through 2021). In the CY 2023 ESRD PPS proposed rule, we
proposed that if more recent data became available, we would use such
data, if appropriate, to derive the final CY 2023 ESRDB market basket
update for the final rule. For this final rule, we now have an updated
forecast of the price proxies underlying the market basket that
incorporates more recent historical data and reflects a revised outlook
regarding the U.S. economy and expected price inflation for CY 2023 for
ESRD facilities. Based on the IGI third quarter 2022 forecast with
historical data through the second quarter of 2022, we are projecting a
CY 2023 ESRDB market basket update of 3.1 percent (reflecting
forecasted compensation growth of 4.5 percent) and productivity
adjustment of 0.1 percentage point. Therefore, for CY 2023, a final
productivity adjusted ESRDB market basket update of 3.0 percent (3.1
percent less 0.1 percentage point) will be applicable, compared to the
2.4 percent productivity adjusted ESRDB market basket update that was
proposed.
As for commenters' suggestions for alternatives to the
productivity-adjusted ESRDB market basket update for CY 2023, as noted
previously, we are required by statute to update ESRD PPS payments by
the market basket update adjusted for productivity. Any change to the
productivity adjusted-market basket update would require legislation to
amend the statute. While we acknowledge the commenters' suggestions
that we apply an add-on payment adjustment to the ESRD PPS for CY 2023
to account for increasing labor costs, we note that we did not propose
to establish an add-on payment adjustment for labor under section
1881(b)(14)(D)(iv) of the Act or to use other methods or data sources
to update ESRD PPS payment rates for CY 2023, and we are not finalizing
such an approach for this final rule. We proposed to update ESRD PPS
payments by the market basket update, which is consistent with the
statute and our longstanding policy for updating the ESRD PPS base
rate. We do not believe it would be appropriate to apply additional
adjustments to the ESRD PPS base rate to circumvent the statutorily-
required market basket update. Further, as discussed earlier in this
section of this final rule, we are finalizing our proposal to rebase
the ESRDB market basket to reflect more recent data on ESRD facility
cost structures, and we believe this rebased ESRDB market basket
appropriately reflects the prospective price pressures described by the
commenters as increasing during a high inflation period. Consistent
with our proposal, we have used more recent data to calculate a final
ESRDB productivity-adjusted market basket update of 3.0 percent for CY
2023.
Comment: Several commenters, including an LDO and a coalition of
dialysis organizations, recognized that CMS does not have the authority
to eliminate the productivity adjustment from the annual ESRD PPS
update calculation, but stated that they continue to be concerned by
the historically small and even negative Medicare margins, and that the
experience of ESRD facilities is contrary to the idea that productivity
can be improved year-over-year. The commenters also stated their view
that the current productivity adjustment does not capture factors
unique to ESRD facilities, such as required staffing structures or
operational changes required due to the impact of the COVID-19 PHE,
including establishing cohort clinics to minimize disruptions in care
that can impede improvements in productivity.
One LDO stated that CMS's current approach, which applies the same
adjustment across the board to other sectors subject to a reduction for
productivity, is a blunt instrument. This commenter recommended that
CMS work with the kidney care community and policymakers to revisit
this policy and devise a productivity adjustment that: (1) better
reflects factors over which ESRD facilities have control and that
affect opportunity for productivity gains, and (2) accounts for the
statutory reductions to the ESRD PPS already in place to account for
expected gains in efficiency.
Response: We acknowledge the commenters' concerns regarding
productivity growth at the economy-wide level and its application to
ESRD facilities; however, as the commenters acknowledge, section
1881(b)(14)(F)(i) of the Act requires the application of the
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of
the Act to the ESRD PPS market basket increase factor for 2012 and
subsequent years. As required by statute, the CY 2023 productivity
adjustment is derived based on the 10-year moving average growth in
economy-wide productivity for the period ending CY 2023. We will
continue to monitor the impact of the ESRD PPS updates, including the
effects of the productivity adjustment, on ESRD facility margins as
well as beneficiary access to care as reported by MedPAC in their
annual Report to the Congress.
Comment: Many commenters, including LDOs, ESRD facilities,

[[Page 67157]]

professional associations, patients, provider advocacy organizations,
and a coalition of dialysis organizations, requested that CMS apply a
forecast error payment adjustment to the ESRD PPS base rate to support
ESRD facilities during this inflationary period, particularly
accounting for what commenters state is an error in the forecasted
payment updates for CYs 2021 and 2022. The commenters stated that
forecasted payment updates that they view as incorrect, coupled with
the impact of the workforce shortage, have put them in financial
difficulty. The commenters suggested that CMS should apply the actual
percent increase in the market basket for the two CYs, 2021 and 2022,
where the forecast missed its mark. The commenters highlighted that CMS
has applied this type of an adjustment in other parts of the Medicare
program historically, such as for SNFs, and could do so for the ESRD
PPS on a temporary or even permanent basis. A couple of commenters
recommended that the forecast error correction could be designed and
implemented in a manner similar to the SNF market basket forecast error
correction, triggered by positive and negative forecast errors that
exceed 0.5 percentage points.
One provider advocacy organization stated that they understand that
this is not a customary practice for CMS, but these extraordinary times
call for extraordinary measures and CMS has discretion to implement a
forecast error adjustment based on section 1881(b)(14)(D)(iv) of the
Act, which states that the ESRD PPS may include such other payment
adjustments as the Secretary determines appropriate. This commenter
further stated that while they recognize that updates to the ESRD
market basket are set prospectively, and some degree of forecast error
is inevitable, ESRD facilities should not be financially disadvantaged
as a result of CMS market basket forecasting errors. This commenter,
along with one LDO, stated that they believe establishing a forecast
error payment adjustment in the ESRD PPS is within CMS' existing
statutory authority under section 1881(b)(F)(i)(I) of the Act.
Several commenters, including an LDO, a coalition of dialysis
organizations, and a nonprofit dialysis association, stated that
failure to correct for the missed IGI forecast error projections of the
market basket updates for CYs 2021 and 2022 will result in chronic
underfunding of the ESRD PPS going forward. These commenters stated
that each successive update to the ESRD PPS base rate will be building
on a previous rate that has never accounted for the large and rapid
inflationary trends in CY 2021 through CY 2023. One LDO and a coalition
of dialysis organizations further expressed that a forecast error
payment adjustment is imperative given the Medicare ESRD PPS's current
narrow margins and the fact that over 90 percent of the ESRD
beneficiaries rely on Medicare coverage.
Response: As discussed previously, the ESRDB market basket updates
are set prospectively, which means that the update relies on a mix of
both historical data for part of the period for which the update is
calculated, and forecasted data for the remainder. For instance, the CY
2023 market basket update in this final rule reflects historical data
through the second quarter of CY 2022 and forecasted data through the
fourth quarter of CY 2023. While there is no precedent to adjust for
market basket forecast error in the annual ESRD PPS update, the
forecast error for a market basket update is calculated as the actual
market basket increase for a given year less the forecasted market
basket increase.\5\ Due to the uncertainty regarding future price
trends, forecast errors can be both positive and negative. For example,
the CY 2017 ESRDB forecast error was -0.8 percentage point, while the
CY 2021 ESRDB forecast error was +1.2 percentage point; CY 2022
historical data is not yet available to calculate a forecast error for
CY 2022.
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\5\ FAQ--Market Basket Definitions and General Information.
Available at: <a href="https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/Downloads/info.pdf">https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/Downloads/info.pdf</a>.
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As discussed earlier in this section of this final rule, our
longstanding policy since the inception of the ESRD PPS has been to
update ESRD PPS payments based on an appropriate market basket in
accordance with section 1881(b)(14)(F)(i) of the Act. For this final
rule, we have incorporated more recent historical data and forecasts,
which utilize the most current projections of expected future price and
wage pressures likely to be faced by ESRD facilities to provide renal
dialysis services. We did not propose a forecast error payment
adjustment for CY 2023, and we are not finalizing such an adjustment
for this final rule. As we have discussed in past rulemaking (85 FR
71434; 80 FR 69031) and in section II.B.1.b.(2) of this final rule,
predictability in Medicare payments is important to enable ESRD
facilities to budget and plan their operations. As we noted earlier in
this section, forecast error calculations are unpredictable, and can be
both positive and negative. We note that over longer periods of time,
the positive differences between the actual and forecasted market
basket increase in prior years can offset negative differences;
therefore, we do not believe it is necessary to implement a forecast
error payment adjustment for the ESRD PPS based solely on a positive CY
2021 forecast error.
Final Rule Action: After consideration of the comments we received,
we are finalizing a CY 2023 ESRDB productivity-adjusted market basket
increase of 3.0 percent based on the most recent data available. As
noted previously, based on the more recent data available for this CY
2023 ESRD PPS final rule (that is, IGI's third quarter 2022 forecast of
the 2020-based ESRDB market basket with historical data through the
second quarter of 2022), the CY 2023 ESRDB market basket update is 3.1
percent. Based on the more recent data available from IGI's third
quarter 2022 forecast, the current estimate of the productivity
adjustment for CY 2023 is 0.1 percentage point. Therefore, the current
estimate of the CY 2023 ESRD productivity-adjusted market basket
increase factor is equal to 3.0 percent (3.1 percent market basket
update reduced by 0.1 percentage point productivity adjustment).
b. 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 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 proposed to update the wage indices to account for
updated wage levels in areas in which ESRD facilities are located using
our existing methodology. We proposed to use the most recent pre-floor,
pre-reclassified

[[Page 67158]]

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 pre-floor 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 applied 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 applied 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 final rule, the labor-related share to which the wage index
will be applied is 55.2 percent, based on the 2020-based ESRDB market
basket.
For CY 2023, we proposed to update the ESRD PPS wage index to use
the most recent hospital wage data. The 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 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>.
We received several comments on our proposal to update the ESRD PPS
wage index. The comments and our responses are set forth below.
Comment: Four commenters, including an ESRD facility, a physician,
and a dialysis administrator, expressed concerns that the ESRD PPS wage
index does not reflect the realities faced by dialysis clinics and
would lead to too low payments to hire and retain staff. These
commenters pointed to inflation and the COVID-19 PHE as main factors
driving the increase in healthcare wages. Several commenters
representing a network of rural ESRD facilities indicated that they
thought the wage index was too low for their area, not accurately
reflecting the cost of labor.
Response: We appreciate the concerns that commenters raised;
however, we did not propose to change the wage index methodology for CY
2023 and are not finalizing any changes to that methodology in this
final rule. The wage data used to construct the ESRD PPS wage index are
updated annually, based on the most current data available, and are
based on OMB's CBSA delineations when applying the rural definitions
and corresponding wage index values. As discussed in CY 2011 ESRD PPS
final rule (75 FR 49200), the wage index reflects the relative level of
hospital wages and wage-related costs in the geographic area in which
the ESRD facility is located. Because the wage index is scaled relative
to the national average, it does not reflect changes over time to the
cost of labor. Rather, it is the market basket increase which accounts
for national trends, including inflation. As discussed in the CY 2023
ESRD PPS proposed rule (87 FR 38480), we proposed to increase the ESRD
PPS base rate for CY 2023 by the market basket increase factor in
accordance with section 1881(b)(14)(F)(i) of the Act, which provides
that the market basket increase factor should reflect the changes over
time in the prices of an appropriate mix of goods and services that
reflect the costs of furnishing renal dialysis services. As discussed
in section II.B.1.a.(3) of this CY 2023 ESRD PPS final rule, the final
productivity-adjusted market basket update for CY 2023 is 3.0 percent
based on the latest available data. We note that this final update is
0.6 percentage point higher than the proposed update and reflects a
revised outlook regarding the U.S. economy and expected price inflation
for CY 2023 for ESRD facilities. We believe the final productivity
adjusted market basket update will address some of the commenters'
concerns regarding rising wages due to inflation.
Comment: Several commenters suggested changes to the wage index
methodology. One professional association and one non-profit dialysis
facility suggested CMS use a wage index methodology for the ESRD PPS
that is consistent with the inpatient payment wage index policies,
including using a different labor-related share for ESRD facilities
with a low wage index. A non-profit health insurance organization in
Puerto Rico suggested CMS implement a payment adjustment for clinics
with wage index values in the lowest quartile, similar to the system
used by IPPS. A non-profit health insurance organization in Puerto Rico
and a healthcare group in Puerto Rico expressed a desire for CMS to
create a new wage index based only on data from ESRD facilities. These
commenters claimed that the current wage index based on hospital data
is inadequate given the differences in staffing needs between ESRD
facilities and hospitals.
Response: We appreciate the commenters' suggestions for modifying
the methodology for the ESRD PPS wage index. We did not propose changes
to the ESRD PPS wage index methodology for CY 2023, and therefore we
are not finalizing any changes to that methodology in this final rule.
As discussed in section II.B.1.b.(2) of this final rule, we are
finalizing a permanent 5-percent cap on any decrease to an ESRD
facility's wage index from its

[[Page 67159]]

wage index in the prior year, and as discussed in section II.B.1.b.(3)
of this final rule, we are finalizing an increase to the wage index
floor from 0.5000 to 0.6000. We believe that these final policies will
address some of the underlying concerns of the commenters by assisting
in the higher labor costs affecting low wage index areas, maintaining
the ESRD PPS wage index as a relative measure of the value of labor in
prescribed labor market areas, increasing predictability of ESRD PPS
payments for ESRD facilities, and mitigating instability and
significant negative impacts to ESRD facilities resulting from
significant changes to the wage index. We did not propose and are not
finalizing other methodological changes that commenters suggested;
however, we will take these comments into consideration to potentially
inform future rulemaking.
Final Rule Action: We are finalizing our proposal to update the
ESRD PPS wage index for CY 2023 to use the most recent hospital wage
data, as proposed.
(2) Permanent Cap on Wage Index Decreases
As discussed in section II.B.1.b.(1) of this final 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 \6\ 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).
---------------------------------------------------------------------------

\6\ 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 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.
In the CY 2023 ESRD PPS proposed rule (87 FR 38482), we noted that
based on our past wage index transition policies and public comments,
we recognized 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, in the CY 2023 ESRD PPS proposed rule, we considered how
best to address those scenarios.
We explained that 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 to ensure the accuracy of the ESRD PPS wage index, in
accordance with Sec. 413.196(d)(2). As discussed in the CY 2023 ESRD
PPS proposed rule (87 FR 38482) as well as earlier in this section of
the final 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 recognized 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.

[[Page 67160]]

In addition, we noted in the proposed rule that 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 recognized that
predictability in Medicare payments is important to enable ESRD
facilities to budget and plan their operations.
In light of these considerations, we proposed 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
proposed a policy that we believed 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.
In the CY 2023 ESRD PPS proposed rule, we stated that we believed
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 stated that we believed this methodology mitigated short-
term instability and fluctuations that can negatively impact ESRD
facilities due to wage index changes. We also stated that we believed
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, we recognized 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.
Therefore, we proposed a permanent policy that we believed 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).
As we noted in the CY 2023 ESRD PPS proposed rule (87 FR 38482),
typical year-to-year variation in the ESRD PPS wage index has
historically been within 5 percent, and we expected this would continue
to be the case in future years. We explained that, because ESRD
facilities are usually experienced with this level of wage index
fluctuation, we believed 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 stated, we believed this approach would address
concerns about instability that commenters raised in response to the CY
2021 ESRD PPS proposed rule. In addition, we stated that we believed
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 stated that we believed it would still ensure the wage
index is a relative measure of the value of labor in prescribed labor
market areas. We noted that 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) 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. We discussed that we would compute a wage index
budget-neutrality adjustment factor that is applied to the ESRD PPS
base rate. We estimated 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. We stated that 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 \7\ 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 anticipated 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 anticipated
that the impact to the wage index budget neutrality factor in future
years would continue to be minimal. We also stated that we believed
that when the 5-percent cap would be applied under this 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 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 stated that we
believed 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.
---------------------------------------------------------------------------

\7\ 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, 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. We stated in the CY
2023 ESRD PPS proposed rule that we believed a 5-percent cap on wage
index decreases would be appropriate for the ESRD PPS. Therefore, for
CY 2023 and subsequent years, we proposed 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, 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 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. We noted 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

[[Page 67161]]

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 stated 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 proposed to reflect the permanent cap on wage
index decreases in our regulations at Sec. 413.231(c).
We received several comments on our proposal to establish a
permanent cap on wage index decreases for the ESRD PPS. The comments
and our responses are set forth below.
Comment: Commenters broadly supported the proposed 5-percent cap on
wage index decreases. A coalition of dialysis organizations expressed
appreciation that CMS recognized the need for greater predictability to
avoid negative impacts on ESRD facilities, but noted that the wage
index continues to raise concern among many of its members and that a
conversation around the wage index and the implications of the budget
neutrality requirement should take place. One LDO encouraged CMS to
also engage with the kidney care community and use its statutory
authority to develop and apply an alternative to the hospital wage
index.
Response: We thank the commenters for their support. We also
appreciate the general concerns that commenters raised about the wage
index. We did not propose for CY 2023 any of the changes to the ESRD
PPS wage index that these commenters suggested, but we will take these
suggestions into consideration to potentially inform future rulemaking.
Comment: MedPAC supported the proposal to cap wage index decreases
at 5 percent, but suggested also applying a cap to wage index increases
of more than 5 percent.
Response: We appreciate MedPAC's suggestion that the cap on wage
index changes of more than 5 percent should also be applied to
increases in the wage index. However, as we discussed in the CY 2023
ESRD PPS proposed rule (87 FR 38482), one purpose of the proposed
policy is to help mitigate the significant negative impacts of certain
wage index changes. As we noted in the proposed rule, 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.
That is, we proposed to cap decreases because we believe that an ESRD
facility would be able to more effectively budget and plan when there
is predictability about its expected minimum level of ESRD PPS payments
in the upcoming CY. We did not propose to limit wage index increases
because we do not believe such a policy is needed to enable ESRD
facilities to more effectively budget and plan their operations. For
these reasons, we believe it is appropriate for ESRD facilities that
experience an increase in their wage index value to receive that wage
index value.
Comment: Several commenters, including a nonprofit dialysis
association, an LDO, and a couple of independent ESRD facilities
encouraged CMS to implement the proposed 5-percent cap in a way that
would protect facilities that experienced substantial reductions to
their wage index due to the adoption of the new CBSA delineations in CY
2021.
Response: As we noted earlier in this final rule, 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. We
indicated that no cap would be applied to the reduction in the second
year, CY 2022. 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. We have historically implemented transitions of limited duration,
such as in the CY 2015 ESRD PPS final rule (79 FR 66142), to address
CBSA changes due to substantial updates to OMB delineations. As
discussed in the CY 2023 ESRD PPS proposed rule (87 FR 38482) and
earlier in this final rule, our policy is generally to use the most
current hospital wage data and analysis available to ensure the
accuracy of the ESRD PPS wage index, in accordance with Sec.
413.196(d)(2). In accordance with this general policy, we proposed to
use the most recent pre-floor, pre-reclassified hospital wage data
collected annually under the inpatient PPS and the most recent prior-
year ESRD PPS wage index to determine the facilities to which the 5-
percent cap would apply in CY 2023. We proposed that the CY 2023 ESRD
PPS 5-percent cap wage index policy would be prospective to mitigate
any significant decreases beginning in CY 2023.
Final Rule Action: After consideration of the comments received,
for CY 2023 and subsequent years, we are finalizing as proposed a
permanent 5-percent cap on any decrease to an ESRD facility's wage
index from its wage index in the prior year, which we will apply in a
budget-neutral manner. This means that an ESRD facility's wage index
for CY 2023 will not be less than 95 percent of its final wage index
for CY 2022, and for subsequent years, an ESRD facility's wage index
will not be less than 95 percent of its wage index calculated in the
prior CY. Also, 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 will not be less than 95 percent of the ESRD facility's capped
wage index in the prior CY. We are also finalizing as proposed that a
newly opened or newly certified ESRD facility will 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 will reflect the
permanent cap on wage index decreases in our regulations at Sec.
413.231(c) by stating that beginning January 1, 2023, CMS applies a cap
on decreases to the wage index, such that the wage index applied to an
ESRD facility is not less than 95 percent of the wage index applied to
that ESRD facility in the prior calendar year.
As previously discussed in this final rule, we believe this
mitigation policy will 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 final rule, we estimate the impact to payments
for ESRD facilities in CY 2023 based on this policy. We also note that
we will examine the effects of this policy on an ongoing basis in the
future to assess its continued appropriateness.
(3) 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.

[[Page 67162]]

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 and feedback 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, to 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 \8\ (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.
---------------------------------------------------------------------------

\8\ 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 final 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 final 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

[[Page 67163]]

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) CY 2023 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, in the CY 2023
ESRD PPS proposed rule (87 FR 38483 through 38486), we proposed to
increase the wage index floor 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 proposed to increase the wage
index floor to 0.6000. We stated that we believed that this wage floor
increase is responsive to comments from interested parties, safeguards
access to care in areas at the lowest end of the current wage index
distribution, and is 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
We explained that 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 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 final rule
and discussed in the CY 2019 ESRD PPS final rule (83 FR 56967),
commenters have noted that both 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 the CY 2023 ESRD PPS proposed
rule, we stated that in response to comments and our continued concern
regarding access, we were revisiting the CY 2019 analysis, and believed
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 Final Rule Analytic File
As discussed in the CY 2023 ESRD PPS proposed rule (87 FR 38385
through 38486), we performed an analysis to compare the impact of three
options to adjust the wage index floor upward using the CY 2023 ESRD
PPS final rule analytic file. The analytic file included 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,

[[Page 67164]]

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 proposed base rate
for CY 2023 (87 FR 38485). 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
proposed base rate of $264.11 and $264.09, respectively. We noted that
these options would decrease the ESRD PPS base rate due to the
application of the budget neutrality factor for each option, however as
discussed in the following paragraph, we noted that the overall impact
to ESRD PPS payments would be negligible.
Next, we examined the potential impact to the proposed outlier
thresholds for CY 2023. Relative to the baseline (wage index floor
value of 0.5000), all options would have little or no impact on either
the proposed 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 proposed budget
neutrality factor for each option, we noted in the proposed rule that
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 estimated that the change
in overall payments attributable to increasing the wage index floor
would be less than 0.01 percentage point. However, we estimated 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
estimated 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 estimated
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, the statistical analysis presented in the CY
2019 ESRD PPS rulemaking resulted in values for the lower and upper
fences for 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, we stated, 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 proposed 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 noted that 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 final rule, we identified that 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 the
CY 2023 ESRD PPS proposed rule, we proposed to increase the wage index
floor to 0.6000. We stated that we believed our analyses supported that
wage index floor value and would strike the right balance between
providing increased payment 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 proposed to
amend Sec. 413.231 by adding new paragraph (d) to reflect this change
and to codify the wage index floor policy. We stated we believed this
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 0.6002. All CBSAs in Puerto
Rico would be subject to the wage index floor of 0.6000. Though the
wage index floor value currently would only affect areas in Puerto
Rico, we noted that, consistent with our established policy, the
proposed wage index floor value of 6.000 would be applicable for any
area that may fall below the floor.
We solicited comment on the proposal to increase the wage index
floor from 0.5000 to 0.6000. The comments and our responses are set
forth below.
Comment: MedPAC expressed opposition to the proposed wage index
floor increase and expressed that wage index floors and related
policies distort area wage indexes. MedPAC recommended that CMS
establish an ESRD PPS wage index for all ESRD facilities using wage
data that represents all employers and industry-specific occupational
weights, rather than the hospital wage data currently used. Several
commenters also agreed with MedPAC's recommendation to establish a wage
index specific to ESRD facilities.
Response: We appreciate MedPAC's comments, but we do not agree with
the suggestion that the proposed wage index floor would distort area
wage indexes under the ESRD PPS. As our analysis shows, wage indexes
below the lower fence of 0.5936 are statistical outliers, so the
application of the floor would serve to improve rather than distort the
accuracy of the ESRD PPS wage index overall. Further, our analysis of
the impact to the ESRD PPS base rate indicates that the proposed wage
index floor would strike the right balance between providing increased
payment 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.
We appreciate the feedback that we should use wage data that
represents all employers and industry-specific occupational weights for
the ESRD PPS wage index. We note that for our analysis to determine if
the wage index floor could be appropriately set at a higher value, we
used wage data from the BLS and FTEs by occupation reported on the cost
reports for independent ESRD facilities. Specifically, we calculated
labor weights by occupation for Puerto Rico and the greater U.S. as the
treatment weighted average of the FTEs reported on independent facility
cost reports. We did not include hospital-based cost

[[Page 67165]]

report data because the occupations for which the FTEs were reported
were not identical between independent and hospital-based cost reports.
Although an ESRD facility wage index that more specifically targets the
labor mix applicable to ESRD facilities could potentially identify more
granular cost differences between labor market areas, some commenters
expressed concern that it could increase the reporting burden on ESRD
facilities. We appreciate MedPAC's suggestions for establishing a new
wage index for the ESRD PPS and may consider these recommendations for
potential future rulemaking.
Comment: Several commenters, including a national dialysis
provider, an LDO, and an insurance organization, expressed support for
finalizing the wage index floor policy as proposed. The commenters who
supported our proposal stated that a wage index floor increase to
0.6000 would improve access and quality of care for Medicare ESRD
beneficiaries in Puerto Rico, given that all areas with wage index
values below the floor are in Puerto Rico. These commenters stated that
a wage index floor of 0.6000 would improve equality amongst all ESRD
facilities given that the next lowest wage index value outside of
Puerto Rico is the Virgin Islands, with a proposed wage index value of
0.6004. These commenters stated that health equity in the Medicare
program would be served by minimizing payment disparities between the
lowest and highest paid ESRD facilities.
Response: We thank the commenters for their support of the wage
index floor proposal. We are aiming to strike a balance between
providing increased payment to areas where actual labor costs are
higher than the current wage index indicates while minimizing the
overall impact to all ESRD facilities. We believe a wage index floor of
0.6000 is appropriate and will support labor costs in low wage areas.
Comment: While most commenters supported finalizing the wage index
floor policy as proposed, these same commenters also stated that CMS
should consider future refinements to the wage index floor policy.
Commenters claimed that the current analysis is based on the data from
cost reports from the years 2013 through 2015. Commenters explained
that since 2015, the economic situation in Puerto Rico has worsened due
to natural disasters, PHEs, post COVID-19 inflation, and new economic
measures imposed under the Puerto Rico Oversight, Management, and
Economic Stability Act. The commenters stated that CMS should conduct
new analysis of cost reports for free-standing and hospital-based ESRD
facilities in Puerto Rico and increase the wage index floor to 0.7000.
Response: As discussed in the CY 2023 ESRD PPS proposed rule (87 FR
38483 through 38486), we revisited our analysis using ESRD facility
cost reports and wage information specific to Puerto Rico from the BLS
utilizing data from cost reports for freestanding facilities and for
hospital-based facilities in Puerto Rico for CYs 2013 through 2015. We
used this data to determine if the wage index floor could be
appropriately set at a higher value. We did not propose to use these
analyses to determine the exact value for a new wage index floor.
Instead, we considered the cost report analyses, along with the
analysis of the CY 2023 ESRD PPS proposed rule analytic file, to
determine a higher wage index floor, which assists ESRD facilities in
areas with low wage index levels while maintaining the accuracy of
payments under the ESRD PPS. We appreciate these recommendations
regarding our wage index floor analysis and may consider these
suggestions for potential future rulemaking.
In our efforts to strike a balance between resource use and
payment, we also stated in the CY 2023 ESRD PPS proposed rule (87 FR
38484 through 38486) that our analysis of several options using the
most recent analytic file for the CY 2023 proposed rule showed that a
higher wage index floor will slightly decrease the ESRD PPS base rate
for all ESRD facilities due to the application of the budget neutrality
factor. Given that increasing the wage index floor results in
proportional decrease in the base rate for all facilities, we must
establish a value that that maintains the accuracy of payments under
the ESRD PPS. An increase to the wage index floor to 0.6000 is a 20
percent increase over the current wage index floor and will provide a
higher wage index for all facilities in areas that fall below the
floor, which are currently all located in Puerto Rico, and will assist
in the higher labor costs affecting low wage index areas. We continue
to believe that a wage index floor of 0.6000 strikes an appropriate
balance between providing additional payments to areas that fall below
the wage index floor while minimizing the impact on average payment
rates for all ESRD facilities.
Comment: Some commenters made additional comments regarding Puerto
Rico and the staffing difficulties ESRD facilities face there.
Commenters expressed their belief that failing economic factors have
led to a relocation of health care professionals from Puerto Rico to
the U.S. mainland. Commenters expressed their belief that ESRD
facilities have had to increase wages to retain qualified staff.
Commenters stated that under local regulation, Puerto Rico ESRD
facilities can only employ Registered Nurses (RNs) rather than
technicians for medical care. Commenters also stated that under local
regulation, RNs and other ESRD facility staff in Puerto Rico must be
bilingual. Commenters explained that for these reasons ESRD facility
staff are costlier in Puerto Rico.
Response: We thank commenters for the additional information
regarding ESRD facilities in Puerto Rico. We have codified the wage
index policy and our methodology at Sec. 413.231. As discussed
previously, we adjust the labor-related portion of the base rate to
account for geographic difference is area wage 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. To acquire such data to develop the wage index annually,
changes in labor costs are captured in the survey of wages and wage-
related costs derived from the MCRs, the Hospital Wage Index
Occupational Mix Survey, hospitals' payroll records, contracts, and
other wage-related documentation. This process is utilized by other
Medicare prospective payment systems. We appreciate the additional
information regarding the staffing costs in Puerto Rico; however, we
believe that Puerto Rico's labor costs should be captured in the wage-
related documentation used for the development of the annual wage
index.
Regarding concerns raised about the need to hire bilingual RNs, the
need for bilingual staff occurs in both inpatient and outpatient
settings and hospital cost reports should reflect those additional
costs. As stated in the CY 2019 ESRD PPS final rule (83 FR 56967), we
note that in every analysis we conducted, the average salary of RNs in
Puerto Rico was approximately half that of mainland facilities and none
of the analyses produced a 0.7000 wage index value.
Regarding the use of RNs in Puerto Rico facilities, we have
received conflicting information from Puerto Rico about the how local
scope of practice for RNs and other staff impact ESRD facility costs.
We are continuing to explore alternative methodologies for accounting
for the labor-related costs of all ESRD facilities and we may revisit
the use of a wage index floor under the ESRD PPS in that context in
future rulemaking. We note that any changes to the ESRD PPS wage index
floor would

[[Page 67166]]

be proposed through notice and comment rulemaking.
Comment: Commenters expressed their belief that health disparities
in the patient population in Puerto Rico justify a higher wage index
floor than proposed. Commenters stated that diabetes is rampant in
Puerto Rico and that its prevalence is higher in the Puerto Rican
population compared to the U.S. The commenters further stated that
diabetes is a primary cause of kidney failure, heart disease, and
cardiac chronic related conditions. Commenters stated that Puerto Rico
has prominent levels of disease burden resulting in higher complex care
needs and higher costs.
Response: The wage index payment adjustment is intended to
recognize geographic differences in wage levels in areas in which ESRD
facilities are located. We do not believe it would be appropriate to
raise the wage index floor to mitigate other issues such as non-labor
costs or costs associated with issues of disease burden disparities.
Final Rule Action: After considering the public comments we
received regarding the wage index floor, we are finalizing an increase
to the wage index floor from 0.5000 to 0.6000 for CY 2023 and
subsequent years as proposed. In addition, we are amending Sec.
413.231 by adding new paragraph (d) to reflect this change and to
codify the wage index floor policy. Section 413.231(d) will provide
that beginning January 1, 2023, CMS applies a floor of 0.6000 to the
wage index, such that the wage index applied to an ESRD facility is not
less than 0.6000.
c. 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.\9\
---------------------------------------------------------------------------

\9\ 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.\10\ 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 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.
---------------------------------------------------------------------------

\10\ 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>
---------------------------------------------------------------------------

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 final rule 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
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

[[Page 67167]]

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 final 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 2 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).\11\ 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 Ja

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