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Proposed Rule2024-14359

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

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Published

July 5, 2024

Issuing agencies

Health and Human Services DepartmentCenters for Medicare & Medicaid Services

Abstract

This proposed rule would update and revise the End-Stage Renal Disease (ESRD) Prospective Payment System for calendar year 2025. This rule also proposes to update the payment rate for renal dialysis services furnished by an ESRD facility to individuals with acute kidney injury. In addition, this proposed rule would update requirements for the Conditions for Coverage for ESRD Facilities, ESRD Quality Incentive Program, and ESRD Treatment Choices Model.

Full Text

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[Federal Register Volume 89, Number 129 (Friday, July 5, 2024)]
[Proposed Rules]
[Pages 55760-55843]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-14359]

[[Page 55759]]

Vol. 89

Friday,

No. 129

July 5, 2024

Part III

Department of Health and Human Services

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Centers for Medicare and Medicaid Services

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42 CFR Parts 410, 413, 494, et al.

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

Federal Register / Vol. 89 , No. 129 / Friday, July 5, 2024 /
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 413, 494, and 512

[CMS-1805-P]
RIN 0938-AV27

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

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update and revise the End-Stage Renal
Disease (ESRD) Prospective Payment System for calendar year 2025. This
rule also proposes to update the payment rate for renal dialysis
services furnished by an ESRD facility to individuals with acute kidney
injury. In addition, this proposed rule would update requirements for
the Conditions for Coverage for ESRD Facilities, ESRD Quality Incentive
Program, and ESRD Treatment Choices Model.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, by August 26, 2024.

ADDRESSES: In commenting, please refer to file code CMS-1805-P.
Comments, including mass comment submissions, must be submitted in
one of the following three ways (please choose only one of the ways
listed):
1. Electronically. You may submit electronic comments on this
regulation to <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-1805-P, P.O. Box 8010,
Baltimore, MD 21244-8010.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-1805-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:
<a href="/cdn-cgi/l/email-protection#7c392f2e382c1d05111912083c1f110f5214140f521b130a">[email&#160;protected]</a> or Nicolas Brock at (410) 786-5148, for
issues related to the ESRD Prospective Payment System (PPS) and
coverage and payment for renal dialysis services furnished to
individuals with acute kidney injury (AKI).
<a href="/cdn-cgi/l/email-protection#387d6b6a7c79484854515b594c5157564b785b554b1650504b165f574e">[email&#160;protected]</a>, for issues related to applications
for the Transitional Drug Add-on Payment Adjustment (TDAPA) or
Transitional Add-On Payment Adjustment for New and Innovative Equipment
and Supplies (TPNIES).
<a href="/cdn-cgi/l/email-protection#3c796f6e786d756c7c5f514f1254544f125b534a">[email&#160;protected]</a>, for issues related to the ESRD Quality
Incentive Program (QIP).
<a href="/cdn-cgi/l/email-protection#084d5c4b254b454541486b657b2660607b266f677e">[email&#160;protected]</a>, for issues related to the ESRD Treatment
Choices (ETC) Model.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following
website as soon as possible after they have been received: <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the search instructions on that website to
view public comments. CMS will not post on <a href="http://Regulations.gov">Regulations.gov</a> public
comments that make threats to individuals or institutions or suggest
that the commenter will take actions to harm an individual. CMS
continues to encourage individuals not to submit duplicative comments.
We will post acceptable comments from multiple unique commenters even
if the content is identical or nearly identical to other comments.
Plain Language Summary: In accordance with 5 U.S.C. 553(b)(4), a
plain language summary of this rule may be found at <a href="https://www.regulations.gov/">https://www.regulations.gov/</a>.
Current Procedural Terminology (CPT) Copyright Notice: Throughout
this proposed rule, we use CPT[supreg] codes and descriptions to refer
to a variety of services. We note that CPT[supreg] codes and
descriptions are copyright 2020 American Medical Association (AMA). All
Rights Reserved. CPT[supreg] is a registered trademark of the AMA.
Applicable Federal Acquisition Regulations (FAR) and Defense Federal
Acquisition Regulations (DFAR) apply.

Table of Contents

To assist readers in referencing sections contained in this
preamble, we are providing a Table of Contents.
I. Executive Summary
A. Purpose
B. Summary of the Major Provisions
C. Summary of Cost and Benefits
II. Calendar Year (CY) 2025 End-Stage Renal Disease (ESRD)
Prospective Payment System (PPS)
A. Background
B. Proposed Provisions of the CY 2025 ESRD PPS
C. Transitional Add-On Payment Adjustment for New and Innovative
Equipment and Supplies (TPNIES) Applications and Proposed Technical
Change for CY 2025 Payment
D. Continuation of Approved Transitional Add-On Payment
Adjustments for New and Innovative Equipment and Supplies for CY
2025
E. Continuation of Approved Transitional Drug Add-On Payment
Adjustments for CY 2025
III. Proposed CY 2025 Payment for Renal Dialysis Services Furnished
to Individuals With AKI
A. Background
B. Proposal to Allow Medicare Payment for Home Dialysis for
Beneficiaries With AKI
C. Proposed Annual Payment Rate Update for CY 2025
D. AKI and the ESRD Facility Conditions for Coverage
IV. Proposed Updates to the End-Stage Renal Disease Quality
Incentive Program (ESRD QIP)
A. Background
B. Proposed Updates to Requirements Beginning With the PY 2027
ESRD QIP
C. Requests for Information (RFIs) on Topics Relevant to ESRD
QIP
V. End-Stage Renal Disease Treatment Choices (ETC) Model
A. Background
B. Provisions of the Proposed Rule
C. Request for Information
VI. Collection of Information Requirements
VII. Response to Comments
VIII. 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
IX. Files Available to the Public via the Internet

I. Executive Summary

A. Purpose

This rule proposes changes related to the End-Stage Renal Disease
(ESRD) Prospective Payment System (PPS),

[[Page 55761]]

payment for renal dialysis services furnished to individuals with acute
kidney injury (AKI), the Conditions for Coverage for ESRD facilities,
the ESRD Quality Incentive Program (QIP), and the ESRD Treatment
Choices (ETC) Model. Additionally, this rule proposes and discusses
policies that reflect our commitment to achieving equity in health care
for our beneficiaries by supporting our ability to assess whether, and
to what extent, our programs and policies perpetuate or exacerbate
systemic barriers to opportunities and benefits for underserved
communities. For example, we are proposing to expand access to home
dialysis for patients with acute kidney injury, which would assist this
vulnerable population with transportation and scheduling issues and
allow them to have flexibility in their dialysis treatment modality.
Additionally, we discuss the incorporation of oral-only drugs into the
ESRD PPS bundled payment beginning January 1, 2025, which will expand
access to the 21 percent of the ESRD PPS population who do not have
Part D coverage. Our internal data show that a significant portion of
ESRD beneficiaries who lack Part D coverage are African American/Black
patients with ESRD. Our policy objectives include a commitment to
advancing health equity, which stands as the first pillar of the
Centers for Medicare & Medicaid Services (CMS) Strategic Plan,\1\ and
reflect the goals of the Administration, as stated in the President's
Executive Order 13985.\2\ We define health equity as the attainment of
the highest level of health for all people, where everyone has a fair
and just opportunity to attain their optimal health regardless of race,
ethnicity, disability, sexual orientation, gender identity,
socioeconomic status, geography, preferred language, or other factors
that affect access to care and health outcomes.'' \3\ In the calendar
year (CY) 2023 ESRD PPS final rule, we noted that, when compared with
all Medicare fee-for-service (FFS) beneficiaries, Medicare FFS
beneficiaries receiving dialysis are disproportionately young, male,
African American, have disabilities and low income as measured by
eligibility for both Medicare and Medicaid (dual eligible status), and
reside in an urban setting (87 FR 67183). In this proposed rule, we
continue to address health equity for beneficiaries with ESRD who are
members of underserved communities, including but not limited to those
living in rural communities, those who have disabilities, and racial,
and ethnic minorities and sovereign American Indian and Alaska Native
tribes. The term `underserved communities' refers to populations
sharing a particular characteristic, including geographic communities,
that have been systematically denied a full opportunity to participate
in aspects of economic, social, and civic life.\4\
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\1\ Centers for Medicare & Medicaid Services (2022). Health
Equity. Available at: <a href="https://www.cms.gov/pillar/health-equity">https://www.cms.gov/pillar/health-equity</a>.
\2\ 86 FR 7009 (January 25, 2021). <a href="https://www.federalregister.gov/documents/2021/01/25/2021-01753/advancing-racial-equity-and-support-for-underserved-communities-through-the-federal-government">https://www.federalregister.gov/documents/2021/01/25/2021-01753/advancing-racial-equity-and-support-for-underserved-communities-through-the-federal-government</a>.
\3\ Centers for Medicare & Medicaid Services (2022). Health
Equity. Available at: <a href="https://www.cms.gov/pillar/health-equity">https://www.cms.gov/pillar/health-equity</a>.
\4\ 86 FR 7009 (January 25, 2021). <a href="https://www.federalregister.gov/documents/2021/01/25/2021-01753/advancing-racial-equity-and-support-for-underserved-communities-through-the-federal-government">https://www.federalregister.gov/documents/2021/01/25/2021-01753/advancing-racial-equity-and-support-for-underserved-communities-through-the-federal-government</a>.
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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 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 percentage increase,
reduced by the productivity adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act. This rule proposes updates to the
ESRD PPS for CY 2025.
2. Coverage and Payment for Renal Dialysis Services Furnished to
Individuals With Acute Kidney Injury (AKI)
On June 29, 2015, the President signed the Trade Preferences
Extension Act of 2015 (TPEA) (Pub. L. 114-27). Section 808(a) of the
TPEA amended section 1861(s)(2)(F) of the Act to provide coverage for
renal dialysis services furnished on or after January 1, 2017, by a
renal dialysis facility or a provider of services paid under section
1881(b)(14) of the Act to an individual with AKI. Section 808(b) of the
TPEA amended section 1834 of the Act by adding a new subsection (r)
that provides for payment for renal dialysis services furnished by
renal dialysis facilities or providers of services paid under section
1881(b)(14) of the Act to individuals with AKI at the ESRD PPS base
rate beginning January 1, 2017. This proposed rule would update the AKI
payment rate for CY 2025. Additionally, this rule proposes to extend
payment for home dialysis and the payment adjustment for home and self-
dialysis training to renal dialysis services provided to beneficiaries
with AKI.
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 establishes
incentives for facilities to achieve high quality performance on
measures with the goal of improving outcomes for ESRD beneficiaries.
This rule proposes to replace the Kt/V Dialysis Adequacy Comprehensive
clinical measure with a Kt/V Dialysis Adequacy measure topic and to
remove National Healthcare Safety Network (NHSN) Dialysis Event
reporting measure beginning with Payment Year (PY) 2027. This rule also
requests public comment on two topics relevant to the ESRD QIP.
4. End-Stage Renal Disease Treatment Choices (ETC) Model
The ETC Model is a mandatory Medicare payment model tested under
section 1115A of the Act. The ETC Model is operated by the Center for
Medicare and Medicaid Innovation (Innovation Center). The ETC Model
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.'' Subsequently, the ETC Model has
been updated three times in the annual ESRD PPS final rules for
calendar year (CY) 2022 (86 FR 61874), CY 2023 (87 FR 67136), and CY
2024 (88 FR 76344).
This proposed rule would make certain changes to the methodology
CMS uses to identify transplant failure for the purposes of defining an
ESRD beneficiary and attributing an ESRD beneficiary to the ETC Model.
We are also soliciting input from the public

[[Page 55762]]

through a Request for Information (RFI) on topics pertaining to
increasing equitable access to home dialysis and kidney
transplantation. Feedback we receive from the public will be used to
inform CMS' thinking regarding opportunities and barriers the
Innovation Center may address in potential successor models to the ETC
Model.

B. Summary of the Major Provisions

1. ESRD PPS
<bullet> Proposed update to the ESRD PPS base rate for CY 2025: The
proposed CY 2025 ESRD PPS base rate is $273.20, an increase from the CY
2024 ESRD PPS base rate of $271.02. This proposed amount reflects the
application of the wage index budget-neutrality adjustment factor
(0.990228) and a productivity-adjusted market basket percentage
increase of 1.8 percent as required by section 1881(b)(14)(F)(i)(I) of
the Act, equaling $273.20 (($271.02 x 0.990228) x 1.018 = $273.20).
<bullet> Proposed modification to the wage index methodology: We
are proposing a new ESRD-specific wage index that would be used to
adjust ESRD PPS payment for geographic differences in area wages on an
annual basis. For CY 2025, we are proposing to change our methodology
to use mean hourly wage data from the Bureau of Labor Statistics (BLS)
Occupation Employment and Wage Statistics (OEWS) program and full time
equivalent (FTE) labor and treatment volume data from freestanding ESRD
facility Medicare cost reports to produce an ESRD-specific wage index
for use, instead of using the hospital wage index values for each
geographic area, which are derived from hospital cost report data.
Additionally, we are proposing to update the wage index to reflect the
latest core-based statistical area (CBSA) delineations determined by
the Office of Management and Budget (OMB) to better account for
differing wage levels in areas in which ESRD facilities are located.
<bullet> Proposed annual update to the wage index: For CY 2025, we
are proposing to update the wage index using the proposed new
methodology previously discussed based on the latest available data.
This is consistent with our past approach to updating the ESRD PPS wage
index but would use the proposed new wage index methodology based on
data from BLS and freestanding ESRD facility Medicare cost reports.
<bullet> Proposed modification to the outlier policy: We are
proposing to revise the outlier policy in several ways. For the outlier
payment methodology, we are proposing to use a drug inflation factor
based on actual spending on drugs and biological products rather than
the growth in the price proxy for drugs used in the ESRD Bundled
(ESRDB) market basket. We are also proposing to use the growth in the
ESRDB market basket price proxies for laboratory tests and supplies to
estimate CY 2025 outlier spending for these items. Additionally, we are
proposing to account for the post-TDAPA add-on payment adjustment
amount for outlier-eligible drugs and biological products during the
post-TDAPA period. Lastly, we are proposing to expand the list of
eligible ESRD outlier services to include drugs and biological products
that were or would have been included in the composite rate prior to
establishment of the ESRD PPS.
<bullet> Proposed annual update to the outlier policy: We are
proposing to update the outlier policy based on the most current data
and the proposed methodology changes previously discussed. Accordingly,
we are proposing to update the Medicare allowable payment (MAP) amounts
for adult and pediatric patients for CY 2025 using the latest available
CY 2023 claims data. We are proposing to update the ESRD outlier
services fixed dollar loss (FDL) amount for pediatric patients using
the latest available CY 2023 claims data and update the FDL amount for
adult patients using the latest available claims data from CY 2021, CY
2022, and CY 2023. For pediatric beneficiaries, the proposed FDL amount
would increase from $11.32 to $223.44, and the MAP amount would
increase from $23.36 to $58.39, as compared to CY 2024 values. For
adult beneficiaries, the proposed FDL amount would decrease from $71.76
to $49.46, and the MAP amount would decrease from $36.28 to $33.57. We
note that the proposed inclusion of composite rate drugs and biological
products would cause a significant increase in the proposed FDL and MAP
amounts for pediatric patients due to high-cost composite rate drugs
furnished to pediatric beneficiaries; this is discussed in further
detail in section II.B.3.e of this proposed rule. The 1.0 percent
target for outlier payments was achieved in CY 2023, as outlier
payments represented approximately 1.0 percent of total Medicare
payments.
<bullet> Proposed update to the offset amount for the transitional
add-on payment adjustment for new and innovative equipment and supplies
(TPNIES) for CY 2025: The proposed CY 2025 average per treatment offset
amount for the TPNIES for capital-related assets that are home dialysis
machines is $10.18. This proposed offset amount reflects the
application of the proposed ESRDB productivity-adjusted market basket
update of 1.8 percent ($10.00 x 1.018 = $10.18). There are no capital-
related assets set to receive the TPNIES in CY 2025 for which this
offset would apply.
<bullet> Proposed update to the Post-TDAPA Add-on Payment
Adjustment amounts: We calculate the post-TDAPA add-on payment
adjustment in accordance with Sec. 413.234(g). The proposed post-TDAPA
add-on payment amount for Korsuva[supreg] is $0.4047 per treatment,
which would be included in the calculation of the total post-TDAPA add-
on payment adjustment for each quarter in CY 2025. The proposed post-
TDAPA add-on payment adjustment amount for Jesduvroq is $0.0019 per
treatment, which would be included in the calculation for only the
fourth quarter of CY 2025. We are proposing to update these post-TDAPA
add-on payment adjustment amounts according to the most recent data for
the final rule. We are proposing to publish the final post-TDAPA add-on
payment adjustment amount for drugs and biological products that do not
have a full year of utilization data at the time of rulemaking after
the publication of the final rule through a Change Request (CR). For CY
2025, this would be the case for Jesduvroq.
<bullet> Proposed update to the Low-Volume Payment Adjustment
(LVPA): We are proposing to modify the LVPA policy to create a two-
tiered LVPA whereby ESRD facilities that furnished fewer than 3,000
treatments per cost reporting year would receive a 28.3 percent upward
adjustment to the ESRD PPS base rate and ESRD facilities that furnished
3,000 to 3,999 treatments would receive an 18.0 percent adjustment. We
are also proposing that the tier determination would be based on the
median treatment count over the past three cost reporting years.
<bullet> Inclusion of oral-only drugs in the ESRD PPS bundled
payment: Under 42 CFR 413.174(f)(6), payment to an ESRD facility for
oral-only renal dialysis service drugs and biological products is
included in the ESRD PPS bundled payment effective January 1, 2025. In
this proposed rule, we are providing information about how we will
operationalize the inclusion of oral-only drugs into the ESRD PPS as
well as budgetary estimates of the effects of this inclusion for public
awareness.

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2. Payment for Renal Dialysis Services Furnished to Individuals With
AKI
<bullet> Proposed update to the payment rate for individuals with
AKI: We are proposing to update the AKI payment rate for CY 2025. The
proposed CY 2025 payment rate is $273.20, which is the same as the base
rate proposed for the ESRD PPS for CY 2025.
<bullet> Proposed payment for home dialysis for beneficiaries with
AKI: We are proposing to allow Medicare payment for beneficiaries with
AKI to dialyze at home. Payment for home dialysis treatments furnished
to beneficiaries with AKI would be made at the same payment rate as in-
center dialysis treatments. We are proposing to permit ESRD facilities
to bill Medicare for the home and self-dialysis training add-on payment
adjustment for beneficiaries with AKI, and to implement this adjustment
in a budget neutral manner. We are proposing changes to the ESRD
facility conditions for coverage (CfCs) to implement this policy
change.
3. ESRD QIP
Beginning with PY 2027, we are proposing to replace the Kt/V
Dialysis Adequacy Comprehensive clinical measure, on which facility
performance is scored on a single measure based on one set of
performance standards, with a Kt/V Dialysis Adequacy measure topic,
which would be comprised of four individual Kt/V measures and scored
based on a separate set of performance standards for each of those
measures. We are also proposing to remove the National Healthcare
Safety Network (NHSN) Dialysis Event reporting measure from the ESRD
QIP measure set beginning with PY 2027. We are requesting public
comment on a potential health equity payment adjustment and are also
requesting public comment on potential future updates to the data
validation policy.
4. ETC Model
We are proposing a modification to the methodology used to
attribute ESRD Beneficiaries to the ETC Model, specifically, to the
definition of an ESRD Beneficiary at 42 CFR 512.310. Under the ETC
Model, CMS attributes ESRD beneficiaries to the ETC Model that meet
several criteria including having a kidney transplant failure less than
12 months after the transplant date. We are proposing to refine the
methodology we use identify ESRD Beneficiaries with a kidney transplant
failure to reduce the likelihood that CMS is overestimating the true
number of transplant failures for the purposes of the model. We provide
more detail on the proposal and its rationale in section V.B of this
proposed rule.
We are also seeking input from the public through a RFI on the
future of the ETC Model, potential successor Models and other
approaches CMS may consider to support beneficiary access to patient-
centered modalities for treatment of ESRD.

C. Summary of Costs and Benefits

In section VIII.D.5 of this proposed rule, we set forth a detailed
analysis of the impacts that the proposed changes would have on
affected entities and beneficiaries. The impacts include the following:
1. Impacts of the Proposed ESRD PPS
The impact table in section VIII.D.5.a of this proposed rule
displays the estimated change in Medicare payments to ESRD facilities
in CY 2025 compared to estimated Medicare payments in CY 2024. The
overall impact of the CY 2025 payment changes is projected to be a 2.2
percent increase in Medicare payments. Hospital-based ESRD facilities
have an estimated 3.9 percent increase in Medicare payments compared
with freestanding ESRD facilities with an estimated 2.1 percent
increase. We estimate that the aggregate ESRD PPS expenditures would
increase by approximately $170 million in CY 2025 compared to CY 2024
as a result of the proposed payment policies in this rule. Because of
the projected 2.2 percent overall payment increase, we estimate there
would be an increase in beneficiary coinsurance payments of 2.2 percent
in CY 2025, which translates to approximately $30 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 certain new and innovative equipment and supplies. The
TDAPA and the TPNIES are not budget neutral.
As discussed in section II.D of this proposed rule, since no new
items were approved for the TPNIES for CY 2024 (88 FR 76431) there are
no continuing TPNIES payments for CY 2025. In addition, since we did
not receive any applications for the TPNIES for CY 2025, there would be
no new TPNIES payments for CY 2025. As discussed in section II.E of
this proposed rule, the TDAPA payment periods for Jesduvroq and
DefenCath[supreg], would continue into CY 2025. As described in section
VIII.D.5.b of this proposed rule, we estimate that the TDAPA payment
amounts in CY 2025 would be approximately $207,675, of which, $41,535
would be attributed to beneficiary coinsurance amounts.
2. Impacts of the Proposed Payment Rate for Renal Dialysis Services
Furnished to Individuals With AKI
The impact table in section VIII.D.5.c of this proposed rule
displays the estimated change in Medicare payments to ESRD facilities
for renal dialysis services furnished to individuals with AKI compared
to estimated Medicare payments for such services in CY 2024. The
overall impact of the CY 2025 changes is projected to be a 1.9 percent
increase in Medicare payments for individuals with AKI. Hospital-based
ESRD facilities would have an estimated 2.6 percent increase in
Medicare payments compared with freestanding ESRD facilities that would
have an estimated 1.9 percent increase. The overall impact reflects the
effects of the proposed Medicare payment rate update and the proposed
CY 2025 ESRD PPS wage index, as well as the proposed policy to extend
payment for AKI dialysis at home, which is not expected to have any
impact on payment rates. As discussed in section III.C.3, we are
proposing to extend the ESRD PPS home and self-dialysis training add-on
adjustment to AKI patients; however, that adjustment is required to be
implemented in a budget neutral manner for AKI payments, so it would
not have any impact on the overall payment amounts for AKI renal
dialysis services and therefore is not included in these estimates. We
estimate that the aggregate Medicare payments made to ESRD facilities
for renal dialysis services furnished to individuals with AKI, at the
proposed CY 2025 ESRD PPS base rate, would increase by $1 million in CY
2025 compared to CY 2024.
3. Impacts of the PY 2027 ESRD QIP as Proposed
We estimate that, as a result of previously finalized policies and
changes to the ESRD QIP that we are proposing in this proposed rule,
the overall economic impact of the PY 2027 ESRD QIP will be
approximately $145.1 million. The $145.1 million estimate for PY 2027
includes $130.5 million in costs associated with the collection of
information requirements and approximately $14.6 million in payment
reductions across all facilities.

[[Page 55764]]

4. Impacts of the Proposed Changes to the ETC Model
The proposed change to the definition of an ESRD Beneficiary for
the purposes of attribution in the ETC Model is not expected to have a
net effect on the model's projected economic impact.

II. Calendar Year (CY) 2025 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) (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 (Affordable Care Act)
(Pub. L. 111-148), established that beginning with CY 2012, and each
subsequent year, the Secretary shall annually increase payment amounts
by an ESRD market basket percentage increase 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 \5\ (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).
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\5\ As discussed in the CY 2019 ESRD PPS final rule (83 FR
56922), we began using the term ``biological products'' instead of
``biologicals'' under the ESRD PPS to be consistent with FDA
nomenclature. We use the term ``biological products'' in this
proposed rule except where referencing specific language in the Act
or regulations.
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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 percentage increase 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.
Section 204 of the Stephen Beck, Jr., Achieving a Better Life
Experience Act of 2014 (ABLE) (Pub. L. 113-295) amended section
632(b)(1) of ATRA, as amended by section 217(a)(1) of PAMA, to provide
that payment for oral-only renal dialysis drugs and biological products
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 an individual for the
treatment of ESRD in the ESRD facility or in a patient's home. We have
codified our definition of renal dialysis services at Sec. 413.171,
which is in 42 CFR part 413, subpart H, along with other ESRD PPS
payment policies. The ESRD PPS base rate is adjusted for
characteristics of both adult and pediatric patients and accounts for
patient case-mix variability. The adult case-mix adjusters include five
categories of age, body surface area, low body mass index, onset of
dialysis, and four comorbidity categories (that is, pericarditis,
gastrointestinal tract bleeding, hereditary hemolytic or sickle cell
anemia, myelodysplastic syndrome). A different set of case-mix
adjusters are applied for the pediatric population. Pediatric patient-
level adjusters include two age categories (under age 13, or age 13 to
17) and two dialysis modalities (that is, peritoneal or hemodialysis)
(Sec. 413.235(a) and (b)(1)).
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 six 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)); (4) a TPNIES for certain new and innovative renal
dialysis equipment and supplies (Sec. 413.236(d)); (5) a transitional
pediatric ESRD add-on payment adjustment (TPEAPA) of 30 percent of the
per-treatment payment amount for renal dialysis services furnished to
pediatric ESRD patients (Sec. 413.235(b)(2)); and (6) a post-TDAPA
add-on payment adjustment for certain new renal dialysis drugs and
biological products after the end of the TDAPA period (Sec.
413.234(g)).
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 appeared in
the August 12, 2010, issue of 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.

[[Page 55765]]

Most recently, we published a final rule, which appeared in the
November 6, 2023, 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 2024 ESRD PPS final rule.'' In that rule, we updated the ESRD
PPS base rate, wage index, and outlier policy for CY 2024. We also
finalized a post-TDAPA add-on payment adjustment; a TPEAPA for
pediatric ESRD patients for CYs 2024, 2025, and 2026, administrative
changes to the LVPA eligibility requirements to allow additional
flexibilities for ESRD facilities impacted by a disaster or other
emergency, clarifications on our TPNIES eligibility requirements, and,
effective January 1, 2025, requirements for ESRD facilities to report
time on machine for in-center hemodialysis treatments, and to report
discarded amounts of renal dialysis drugs and biological products from
single-dose containers or single-use packages. For further detailed
information regarding these updates and policy changes, see 88 FR
76344.

B. Proposed Provisions of the CY 2025 ESRD PPS

1. Proposed CY 2025 ESRD Bundled (ESRDB) Market Basket Percentage
Increase; Productivity Adjustment; and Labor-Related Share
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
percentage increase 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 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. In the CY 2023
ESRD PPS final rule (87 FR 67141 through 67154), we finalized a revised
and rebased ESRDB input price index to reflect a CY 2020 base year.
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.
b. Proposed CY 2025 ESRD Market Basket Update
We propose to use the 2020-based ESRDB market basket as finalized
in the CY 2023 ESRD PPS final rule (87 FR 67141 through 67154) to
compute the proposed CY 2025 ESRDB market basket percentage increase
based on the best available data. Consistent with historical practice,
we propose to estimate the ESRDB market basket percentage increase
based on IHS Global Inc.'s (IGI) forecast using the most recently
available data at the time of rulemaking. IGI is a nationally
recognized economic and financial forecasting firm with which CMS
contracts to forecast the components of the market baskets. As
discussed in section II.B.1.b.(3) of this proposed rule, we are
proposing to calculate the market basket update for CY 2025 based on
the proposed market basket percentage increase and the proposed
productivity adjustment, following our longstanding methodology.
(1) Proposed CY 2025 Market Basket Percentage Increase
Based on IGI's first quarter 2024 forecast of the 2020-based ESRDB
market basket, the proposed CY 2025 market basket percentage increase
is 2.3 percent. We are also proposing that if more recent data become
available after the publication of this proposed rule and before the
publication of the final rule (for example, a more recent estimate of
the market basket percentage increase), we would use such data, if
appropriate, to determine the CY 2025 market basket percentage increase
in the final rule.
(2) 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 ESRDB market basket percentage increase 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
fiscal year (FY), year, cost reporting period, or other annual period)
(the ``productivity adjustment'').
The Bureau of Labor Statistics (BLS) publishes the official
measures of productivity for the United States economy. As we noted in
the CY 2023 ESRD PPS final rule (87 FR 67155), 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 would not
affect the data or methodology.\6\ 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 CMS's website at <a href="https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information">https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information</a>. In
addition, in the CY 2022 ESRD PPS final rule (86 FR 61879), we noted
that effective for CY 2022 and future years, we would be changing the
name of this adjustment to refer to it as the productivity adjustment
rather than

[[Page 55766]]

the MFP adjustment. We stated this was not a change in policy, as we
would continue to use the same methodology for deriving the adjustment
and rely on the same underlying data.
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\6\ 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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Based on IGI's first quarter 2024 forecast, the proposed
productivity adjustment for CY 2025 (the 10-year moving average of TFP
for the period ending CY 2025) is 0.5 percentage point. Furthermore, we
are proposing that if more recent data become available after the
publication of this proposed rule and before the publication of the
final rule (for example, a more recent estimate of the productivity
adjustment), we would use such data, if appropriate, to determine the
CY 2025 productivity adjustment in the final rule.
(3) CY 2025 Market Basket Update
In accordance with section 1881(b)(14)(F)(i) of the Act, we propose
to base the CY 2025 market basket percentage increase on IGI's first
quarter 2024 forecast of the 2020-based ESRDB market basket. We propose
to then reduce the market basket percentage increase by the estimated
productivity adjustment for CY 2025 based on IGI's first quarter 2024
forecast. Therefore, the proposed productivity-adjusted CY 2025 ESRDB
market basket update is equal to 1.8 percent (2.3 percent market basket
percentage increase reduced by a 0.5 percentage point productivity
adjustment). Furthermore, as noted previously, we are proposing that if
more recent data become available after the publication of this
proposed rule and before the publication of the final rule (for
example, a more recent estimate of the market basket percentage
increase and/or productivity adjustment), we would use such data, if
appropriate, to determine the CY 2025 market basket percentage increase
and productivity adjustment in the final rule.
(4) Labor-Related Share
We define the labor-related share 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. For the CY 2025
ESRD PPS payment update, we are proposing to continue using a labor-
related share of 55.2 percent, which was finalized in the CY 2023 ESRD
PPS final rule (87 FR 67153 through 67154).
2. Proposed CY 2025 ESRD PPS Wage Indices
a. 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, we established a policy to adjust the labor-
related portion of the ESRD PPS 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.
Under current policy, we use the Office of Management and Budget's
(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>.
We have also adopted methodologies for calculating wage index
values for ESRD facilities that are located in urban and rural areas
where there are 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 have computed the average wage index value of all
hospitals in urban areas within the State to serve as a reasonable
proxy for the wage index of that urban CBSA. For rural areas with no
hospital data, we have computed the wage index using the average
hospital 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).
Under Sec. 413.231(d), a wage index floor value of 0.6000 is
applied under the ESRD PPS as a substitute wage index for areas with
very low wage index values, as finalized in the CY 2023 ESRD PPS final
rule (87 FR 67161). Currently, all areas with wage index values that
fall below the floor are located in Puerto Rico and the US Virgin
Islands. However, the wage index floor value is applicable for any area
that may fall below the floor. A further 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) and the CY 2023 ESRD
PPS final rule (87 FR 67161).
An ESRD facility's wage index is applied to the labor-related share
of the ESRD PPS base rate. In the CY 2023 ESRD PPS final rule (87 FR
67153), we finalized the use of a labor-related share of 55.2 percent.
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 that same
rule, 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. In the CY
2023 ESRD PPS final rule (87 FR 67161), we finalized a permanent policy
under Sec. 413.231(c) to apply 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. For CY 2025, as discussed in section II.B.1.b.(4) of this
proposed rule, the proposed labor-related share to which the wage index
would be applied is 55.2 percent.
In the CY 2011 ESRD PPS final rule (75 FR 49116) and the CY 2011
final rule on Payment Policies Under the Physician Fee Schedule (PFS)
and Other Revisions to Part B (75 FR 73486) we established an ESRD PPS
wage index methodology to use the most recent pre-floor, pre-
reclassified hospital wage data collected annually under the hospital
inpatient prospective payment system (IPPS). The ESRD PPS wage index
values have historically been calculated without regard to geographic
reclassifications authorized for acute care hospitals under sections
1886(d)(8) and (d)(10) of the Act and utilize pre-floor hospital data
that are unadjusted for occupational mix.
b. Proposed Methodology Changes for the CY 2025 ESRD PPS Wage Index
CMS has received feedback on our longstanding ESRD PPS wage index
methodology from interested parties through comments on routine wage
index updates in the annual ESRD PPS proposed rules. Commenters often
suggest specific improvements for the

[[Page 55767]]

ESRD PPS wage index. In the CY 2024 ESRD PPS final rule (88 FR 76359
through 76361), we discussed the comments on the routine wage index
proposals from the CY 2024 ESRD PPS proposed rule (88 FR 42436);
commenters, including the Medicare Payment Advisory Commission
(MedPAC), suggested that we 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. MedPAC specifically suggested that CMS implement
the recommendations discussed in its June 2023 report to Congress,\7\
which recommended moving away from the current IPPS wage index
methodology in favor of a methodology based on all employer wage data
for all Medicare PPSs with industry specific occupational weights.
Additionally, MedPAC suggested that the new methodology reflect local
area level differences in wages between and within metropolitan
statistical areas and statewide rural areas and smooth wage index
differences across adjacent local areas. MedPAC stated that, compared
to the current IPPS wage index methodology, a methodology based on all
employer wage data with industry-specific occupational weights would
improve the accuracy and equity of payments for provider types other
than inpatient acute care hospitals, such as ESRD facilities.
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\7\ <a href="https://www.medpac.gov/wp-content/uploads/2023/06/Jun23_MedPAC_Report_To_Congress_SEC.pdf">https://www.medpac.gov/wp-content/uploads/2023/06/Jun23_MedPAC_Report_To_Congress_SEC.pdf</a>.
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In past years some interested parties have contended that the
methodology used to construct the current ESRD PPS wage index does not
accurately reflect the ESRD facility labor market. These interested
parties have noted that the ESRD PPS wage index is based on the IPPS
wage index, which uses hospital data, which commenters have stated may
not be applicable for ESRD facilities. More specifically, commenters
have suggested that the types of labor used in ESRD facilities differ
significantly from the types of labor used by hospitals, which may
result in the use of relative wage values across the United States that
do not accurately match the actual relative wages paid by ESRD
facilities. For example, if ESRD facilities have a different proportion
of registered nurses (RNs), technicians and administrative staff
compared to hospitals, and if wages for each of those labor categories
vary differentially across the country, it is possible that relative
wages for ESRD facilities, given their occupational mix, would vary
differently from relative wages for hospitals across CBSAs. Because of
this, some commenters have specifically requested that CMS develop an
ESRD PPS wage index based only on data from ESRD facilities.
Additionally, some commenters have criticized the time lag associated
with using the IPPS wage index, which is generally based on data from
four FYs prior to the rulemaking year (see, for example, 88 FR 58961).
(1) December 2019 Technical Expert Panel (TEP)
In response to feedback from interested parties on the ESRD PPS
wage index, CMS's data contractor hosted a Technical Expert Panel (TEP)
in December of 2019.\8\ During this TEP, the contractor presented a
potential alternative approach to the wage index, which utilized BLS
data to address the concerns of commenters, to initiate a discussion on
the ramifications of a potential new ESRD PPS wage index that would
combine two sources of existing data to more closely reflect the
occupational mix in ESRD facilities. The methodology presented at this
TEP utilized publicly available wage data for selected occupations from
the BLS OEWS survey and occupational and fulltime equivalency (FTE)
data from freestanding ESRD facility cost reports (Form CMS 265-11, OMB
No. 0938-0236). Specifically, this approach used the freestanding ESRD
facility cost reports to determine the national average occupational
mix and relative weights for ESRD facilities. Next, the contractor
applied the estimated county-level wages based on BLS OEWS \9\ to
obtain occupation-specific wages in each county. The BLS OEWS data is
updated annually using sample data collected in six semiannual survey
panels over the prior 3-year period, which allows for the inclusion of
more recent data than the hospital cost-report data that is utilized by
the IPPS wage index. Therefore, as noted during the TEP, this new
methodology would allow CMS to adjust wage index values to reflect
relative changes in wage conditions in a timelier fashion compared to
the current ESRD PPS wage index methodology. Additionally, as noted
during the TEP, by utilizing FTE data reported on the freestanding ESRD
facility cost reports, this methodology is likely more reflective of
the occupational mix employed by ESRD facilities than the hospital wage
index.
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\8\ <a href="https://www.cms.gov/files/document/end-stage-renal-disease-prospective-payment-system-technical-expert-panel-summary-report-may-2020.pdf">https://www.cms.gov/files/document/end-stage-renal-disease-prospective-payment-system-technical-expert-panel-summary-report-may-2020.pdf</a>.
\9\ The OEWS program produces estimates of employment and wages
by occupation based on a survey of business establishments. OEWS
data are released annually with a May reference date. Each set of
OEWS estimates is based on data from six semiannual survey panels
collected over a 3-year period. For example, the May 2022 OEWS wage
estimates are based on six semiannual survey panels from November
2019 through May 2022.
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Panelists at this TEP generally indicated their preference for the
presented alternative wage index methodology, because it utilized more
recent wage data from the BLS OEWS program. Panelists also favored how
the alternative methodology was more targeted to ESRD facilities by
utilizing FTE data from ESRD facility cost reports in determining the
occupational mix. Some panelists voiced concerns about using publicly
available BLS geographic area data, as the data do not disaggregate
wages by health care sector, and therefore wages from acute care
hospitals are not differentiated from outpatient care centers and other
non-hospital health care settings. Some panelists noted that this would
result in a wage index based on the publicly available BLS OEWS data
having some of the same limitations for which the use of the IPPS wage
index has been criticized--mainly that it includes wage data from
hospitals.
(2) Proposed New Methodology for Using BLS Data To Calculate the ESRD
PPS Wage Index
Based on feedback we received in response to past ESRD PPS proposed
rules and from the December 2019 TEP, we have developed a new ESRD PPS
wage index methodology that we believe better reflects the ESRD
facility labor market. Similar to the methodology presented in the
December 2019 TEP, this proposed new methodology utilizes two data
sources: one for occupational mix and one for geographic wages. First,
we determine a national ESRD facility occupational mix (NEFOM) based on
cost report data from freestanding ESRD facilities. Second, we extract
and use data from the publicly available BLS OEWS survey on the average
wages in each CBSA for each labor category present in the NEFOM. We
note that because the publicly available BLS data are available at the
Metropolitan Statistical Area (MSA), non-MSA and New England City and
Town Area (NECTA) levels, and the wage index is designated at the CBSA
level (which uses MSAs and other area designations that differ from
non-MSAs and NECTAs), we use the area definition dataset \10\ that
accompanies

[[Page 55768]]

the BLS data to assign wages at the county level, and map counties to
CBSAs using a crosswalk. This crosswalk is included in Addendum B,
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>.
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\10\ For more information on MSAs and non-MSAs please see:
<a href="https://www.bls.gov/oes/current/msa_def.htm">https://www.bls.gov/oes/current/msa_def.htm</a>. For more information on
the most recent CBSA delineations (as discussed later in this
section) please see: <a href="https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf">https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf</a>.
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(a) Description of Proposed Data Sources
(i) Data From the BLS OEWS Metropolitan and Nonmetropolitan Area
Occupational Employment and Wage Estimates
The BLS OEWS program publishes annual estimates of employment and
wages by occupation. Each set of OEWS estimates is based on data from
six semiannual survey panels collected over a 3-year period. For
example, the May 2022 OEWS wage estimates, published in April 2023, are
based on six semiannual survey panels from November 2019 to May 2022.
We are proposing to use publicly available mean hourly wage data at the
MSA level,\11\ which is available online at <a href="https://www.bls.gov/oes/">https://www.bls.gov/oes/</a>.
OEWS wage data collected in earlier survey panels are ``aged'' or
updated to the reference date of the estimates based on adjustment
factors derived from the OEWS survey data using a regression model. The
BLS OEWS mean hourly wage data that are presented in this proposed
rule, and are utilized for the new wage index methodology described in
detail later in this section of this proposed rule, reflect this
updated data. Table 1 shows the occupation codes based on the Standard
Occupational Classification (SOC) and the corresponding SOC
occupational title for each SOC, alongside the colloquial name that we
use to refer to workers in specific occupations throughout this
proposed rule. The ESRD PPS colloquial names match the FTE categories
captured on Worksheet S-1, lines 23 through 30 of the freestanding ESRD
facility cost report form. The SOC System is a United States government
system for classifying occupations. It is used by Federal Government
agencies collecting occupational data, enabling comparison of
occupations across data sets. When considering the use of BLS data we
had to determine which occupation code was appropriate for each
occupation in the NEFOM. For many of these occupations, the
corresponding BLS code was straightforward. For example, BLS code 29-
1141 is for ``Registered Nurses'' which matches the category on the
cost reports from which the NEFOM is derived exactly. For the
occupations that were not necessarily specific to the healthcare field,
for example administrative staff, we used BLS codes that were specific
for healthcare, such as code 43-6013 for ``Medical Secretaries and
Administrative Assistants.'' We believe that these are the most
appropriate codes, as a more general code may not capture the specifics
of the healthcare labor market.
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\11\ We use the territory-level data for Guam and Virgin
Islands, since the MSA and non-MSA level data is not available.
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[[Page 55769]]

BILLING CODE 4120-01-C
The BLS OEWS data used for this analysis includes mean wages by
occupation for all industries combined located in a MSA (or non-MSA
area or NECTA), including the hospital industry. While interested
parties have criticized the current ESRD PPS wage index methodology's
sole reliance on hospital data, we believe that inpatient hospital data
is appropriate to include here for several reasons. Principally, as
explained later in this section, the wage data is being weighted based
on an occupational mix that is specific to ESRD facilities, which makes
this proposed methodology more accurate to the wage environment of ESRD
facilities regardless of the source of the wage data. Additionally,
ESRD facility data is included in the BLS data, while ESRD facilities
generally are not included in the hospital cost report data used in the
IPPS wage index (with the exception of hospital-based ESRD facilities).
Lastly, hospitals are a major contributor to labor markets, and it is
reasonable to think that ESRD facilities compete with hospitals (as
well as other healthcare facilities) when it comes to hiring labor; as
such, the inclusion of hospital data would provide additional insight
into the labor markets of these areas.
A limitation of the publicly available BLS OEWS data is that the
survey only includes information on the wages that employers paid to
their employees. Therefore, the OEWS does not include self-employed
contract labor wages or benefits paid to employees, which are reflected
in the IPPS wage index. Nevertheless, we believe that this data source
would be an improvement over the use of the IPPS wage index for the
ESRD PPS, as its purpose is to identify geographic differences in
wages. Assuming wages spent on self-employed contract labor wages and
employee benefits vary similarly to employee wages; we would not expect
any significant difference arising from this limitation of the BLS
data. We anticipate that most traveling nurses and technicians would be
employed by an agency, and therefore would be included in the OEWS
estimates; however as worksite location reporting is optional,\12\ we
note it is possible that some of the wages for these traveling nurses
and technicians could be included in the MSA in which their employing
agency is located, rather than the MSA in which they worked. However,
we would not anticipate that this would have an appreciable impact on
the OEWS estimates used for this methodology. Additionally, we note
that the OEWS would only include the wages paid to these contract
workers, so the OEWS estimates would likely not include the full cost
of the contract labor paid by the ESRD facilities to the contracting
agency. We cannot separately estimate the prevalence of self-employed
contract labor at ESRD facilities from the rest of contract labor,
which we believe would still provide some insight into the potential
limitation of the exclusion of self-employed contract labor wages from
the BLS OEWS. We note that all contract labor costs represent
approximately 5 percent of compensation costs in the 2020-based ESRDB
market basket (87 FR 67143). Our analysis of freestanding ESRD facility
cost report FTE data indicates that approximately 1.3 percent of RN
hours and 1.1 percent of technician hours were contract labor in 2022.
Additionally, our data show that the share of contract labor hours has
been relatively stable over time but has increased slightly when
compared to the prior few years.
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\12\ <a href="https://www.bls.gov/respondents/oes/instructions.htm#online">https://www.bls.gov/respondents/oes/instructions.htm#online</a>.
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One potential concern about use of the BLS OEWS data is that in
some cases, the BLS OEWS may not have usable data for a county for an
occupation, which is used in the construction of the new ESRD PPS wage
index according to the methodology presented later in this section.
This occurs when BLS is unable to publish a wage estimate for a
specific occupation and area because the estimate does not meet BLS
quality or confidentiality standards.\13\ For reference, among the
25,808 unique county-occupation combinations, the wage information
missing rate is 5.2 percent. To impute the missing data, we perform a
regression using the most similar (by mean hourly wage) occupation (of
the occupations we are proposing to include in the wage index
methodology, presented in table 1) for which there is no missing data.
For dietitians we use RNs, for technicians we use LPNs and for nurses'
aides we use administrative staff. The regression includes controls for
whether the county is rural, the census region in which the county is
located, and the natural logarithm of the treatment count of the
county. For the CY 2025 ESRD PPS wage index we only had to impute
missing county-level data for dietitians, technicians, and nurses'
aides; however, for future years, we may have to impute data for other
occupations.
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\13\ <a href="https://www.bls.gov/oes/oes_ques.htm">https://www.bls.gov/oes/oes_ques.htm</a>.
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We have conducted an analysis on historical BLS OEWS data for the
occupations presented in table 1. We have found that mean hourly wages
for these categories are increasing over time, consistent with what we
would expect given the ESRD PPS market basket increases. Given this
analysis, we believe that the BLS OEWS data are reasonably stable and
appropriately reflect general wage inflation trends that ESRD
facilities face. Therefore, the mean hourly wage estimates for a given
year are appropriately reflective of wages which ESRD facilities face.
(ii) Data From Freestanding ESRD Facility Cost Reports
Under Sec. 413.198(b)(1), all ESRD facilities must submit the
appropriate CMS-approved cost report in accordance with Sec. Sec.
413.20 and 413.24, which provide rules on financial data and reports,
and adequate cost data and cost finding, respectively. Generally, these
cost reports have a time range of January 1 to December 31 of a given
year, but they can represent any 12-month period. Included in these
cost reports is information on the number of full-time equivalent (FTE)
positions employed by the ESRD facility. FTEs are stratified by
occupation type, such as RNs, LPNs, technicians, and administrative
staff. For the purpose of these cost reports, an FTE represents a 40-
hour work week averaged across the year. Specifically, the cost reports
define FTEs as the sum of all hours for which employees were paid
during the year divided by 2080 hours. The cost reports also state
personnel involved in more than one activity must have their time
prorated among those activities. For example, an RN who provided
professional services and administrative services is counted in both
the RN line and the administrative line according to the number of
hours spent in each activity.
For the proposed methodology presented in this section, we are
proposing to use FTEs to calculate the occupational mix for all
freestanding ESRD facilities. For the purposes of this section, we use
the term ``freestanding ESRD facilities'' to mean ESRD facilities that
complete the independent renal dialysis facility cost report (Form CMS
265-11, OMB No. 0938-0050). We note that these ESRD facilities are a
subset of ``independent'' facilities as defined at Sec. 413.174(b), as
cost-reporting is only one of 5 criteria used in the determination of
whether an ESRD facility is independent or hospital-based as listed at
Sec. 413.174(c). For the purposes of this section, we refer to ESRD
facilities that complete the hospital cost report (Form CMS 2552-10,
OMB No. 0938-0050) as ``ESRD facilities that are financially integrated

[[Page 55770]]

with a hospital,'' per the criteria at Sec. 413.174(c)(5). This
occupational mix represents the average proportion of hours spent on
the duties of that occupation at all freestanding ESRD facilities
nationally. This national mix includes FTE data on both staff and
contract labor from freestanding ESRD facility cost reports for each
occupational category. Table 2 presents the NEFOM calculated from the
freestanding ESRD facility cost report data from cost reporting periods
beginning on or after January 1, 2022, and before December 31, 2022
(2022 cost report data), with four decimal places of precision. We note
that this is the most recent complete year of cost reporting data for
both this proposed rule and for the CY 2025 ESRD PPS final rule, as the
latest 2022 cost reports could have begun in December 2022 and ended in
December 2023, although some 2022 cost reports were not yet available
at the time of the analysis for this proposed rule. For the
approximately 1.7 percent of freestanding ESRD facilities without 2022
cost report data available at the time of rulemaking for this proposed
rule, 2021 cost report data was used. The occupational mix weights used
in the proposed new wage index methodology are presented in terms of
the number of FTEs per 1000 treatments, although we note that the
specific denominator does not impact the calculation, as these are
relative weights. Table 2 also includes percentages that represent the
percent of FTEs for each occupation in the NEFOM. For example, RNs
represent approximately 30 percent of the NEFOM, which means that
across the nation, 30 percent of all hours worked by employees at
freestanding ESRD facilities are worked by RNs. We note that we did not
include FTEs that were reported as ``other'' occupations in the cost
reports in this occupational mix, because we could not determine what
occupation(s) this represented and, therefore, could not get
appropriate wage estimates. ``Other'' occupations would have accounted
for 3.8 percent of the NEFOM if included.
[GRAPHIC] [TIFF OMITTED] TP05JY24.009

We note that the NEFOM is calculated as a part of the proposed wage
index methodology described in detail below from freestanding ESRD
facilities cost reports, and that the NEFOM is not an input in the wage
index calculation. However, we are presenting the NEFOM here to inform
the calculation process for any interested parties which wish to
replicate the calculation.
For this proposed methodology, we are proposing to only utilize
data from freestanding ESRD facilities, which comprise the vast
majority of ESRD facilities. ESRD facilities that are financially
integrated with a hospital represent approximately 4.5 percent of ESRD
facilities. It is necessary to make this distinction, as ESRD
facilities that are financially integrated with a hospital complete a
different cost report form (Form CMS 2552-10, OMB No. 0938-0050), which
does not include all the occupational categories included on the
freestanding facility cost report (Form CMS 265-11, OMB No. 0938-0050).
Specifically, ESRD facilities that are financially integrated with a
hospital do not include administrative and management staff hours in
their cost reports. FTE data for administrative and management staff
are necessary for this analysis, so we are proposing to exclude
hospital-integrated cost reports. We believe that the occupational mix
for freestanding ESRD facilities is likely similar to the mix for ESRD
facilities that are financially integrated with a hospital (which, as
noted earlier, make up a small proportion of all ESRD facilities), such
that we would not expect significantly different results if we were
able to include ESRD facilities that are financially integrated with a
hospital in this analysis.

[[Page 55771]]

We conducted additional analyses to ensure that this occupational
mix data would be appropriate for the construction of an ESRD facility
wage index. First, we reviewed the occupational mix for ESRD facilities
on a regional level to determine if the use of a single national
occupational mix was appropriate. While we found some variation across
regions, the variation was generally relatively small between regions,
with the weight values for each occupation being within a few
percentage points. The main exceptions to this were in the United
States territories, which had higher variation in occupational mix,
likely due in large part to the relatively few ESRD facilities in those
regions. Additionally, we found that lower volume ESRD facilities
tended to have slightly different occupational mixes, requiring
relatively more administrative and management staff FTEs, likely due to
the lack of economies of scale for these occupations at lower treatment
volume levels. Second, we conducted an analysis on the change in the
national occupational mix over the past 5 years and found little
variation over this time period. Both of these analyses indicate that
the use of a single national occupational mix is appropriate for
constructing an ESRD facility wage index as the occupational mix is
reasonably similar to most region's occupational mixes and relatively
stable over time.
Additionally, we are proposing to use treatment volume data from
freestanding ESRD facilities as reported on freestanding ESRD facility
cost reports. This treatment volume data is used in the wage index
calculation as a weight on the county level wages when calculating the
wages for a CBSA. The calculation is described in further detail in
section II.B.2.b.(2)(b) of this proposed rule.
We emphasize the importance of accurate cost report data for this
proposed policy as well as other current and potential policies under
the ESRD PPS, such as facility-level or case-mix adjustment refinement.
We strongly urge ESRD facilities to carefully review cost report data
to ensure continued accuracy so that future refinements to the ESRD PPS
are based on the best data possible.
(iii) IPPS Hospital Wage Index
The new proposed wage index methodology uses the established ESRD
PPS wage index methodology, which is based on the IPPS hospital wage
index, for the purposes of standardizing the new wage index (step 6 in
the methodology described in section II.B.2.b.(2).(b)). Consistent with
our established ESRD PPS methodology, we use the most recent pre-floor,
pre-reclassified hospital wage data collected annually under the IPPS.
The ESRD PPS wage index values under the established methodology are
calculated without regard to geographic reclassifications authorized
for acute care hospitals 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 2025, the updated wage data are generally for
hospital cost reporting periods beginning on or after October 1, 2020,
and before October 1, 2021 (FY 2021 cost report data). Under Sec.
413.231(d), a wage index floor value of 0.6000 is applied under the
ESRD PPS as a substitute wage index for areas with very low wage index
values, as finalized in the CY 2023 ESRD PPS final rule (87 FR 67161).
For the purposes of the proposed new wage index methodology, we are
referring to this older wage index methodology as the ``ESRD PPS legacy
wage index.'' Consistent with our established policy of updating wage
indices in the final rule, we intend to use the most recent IPPS wage
index for the construction of the CY 2025 ESRD PPS legacy wage index
for the final rule. We note that the purpose of calculating the ESRD
PPS legacy wage index is solely for standardizing the new ESRD PPS wage
index, ensuring that the treatment weighted average of the new ESRD PPS
wage index is the same as it would have been under the established
methodology. This ensures that the changes associated with the proposed
new wage index methodology are contained to the wage index, whereas
changes associated with shifts in utilization would be reflected in the
wage index budget neutrality factor. For example, if the new
methodology resulted in a significant increase in the number of high-
wage index facilities, the standardization factor would decrease wage
index values across the board to keep the treatment-weighted average of
the legacy and new wage index methodologies the same; in contrast, if
utilization trends resulted in a significant increase in the number of
treatments furnished by ESRD facilities in high-wage index areas, the
treatment weighted average of both the legacy and new wage index
methodologies would increase which would need to be accounted-for by
the wage index budget neutrality adjustment factor. This is described
in more detail in step 6 of the proposed new wage index methodology in
section II.B.2.b.(2)(b) of this proposed rule.
(iv) Time Lag Associated With Proposed New Data Sources
One concern expressed by interested parties about the current ESRD
PPS wage index methodology is that the IPPS wage index, used as its
basis, uses data from approximately 4 fiscal years prior. Interested
parties have opined that this delay makes the ESRD PPS wage index less
responsive to certain changes in wages, such as inflation.\14\ We note
that the purpose of the wage index is to reflect geographic difference
in the area wage levels, and that national trends in wages, including
wage inflation, are accounted for by the ESRDB market basket percentage
increase. We note that the IPPS wage index is generally responsive to
geographic variation in wages, including variation stemming from local
or regional inflation. However, as interested parties have raised
concerns about the time lag associated with our use of the IPPS wage
data, we discuss the difference between the time lag associated with
our use of the IPPS wage index for the ESRD PPS and the proposed new
ESRD PPS wage index methodology discussed later in this section of the
preamble.
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\14\ We note that in accordance with section 1886(d)(14)(E)(1)
of the Act, the IPPS wage index is required to employ data based on
``a survey conducted by the Secretary (and updated as appropriate)
of the wages and wage-related costs of subsection (d) hospitals in
the United States.'' The IPPS is based on the most current audited
hospital wage data from Worksheet S-3, Parts II, III and IV of the
Medicare cost report, CMS Form 2552-10 (OMB Control Number 0938-0050
with an expiration date of September 30, 2025) (see, for example, 88
FR 58961).
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As previously discussed in this section, the new ESRD PPS wage
index methodology that we are proposing would use data from BLS OEWS
and freestanding ESRD facility cost reports. BLS publishes OEWS data
annually with a May reference date, with estimates typically released
in late March or early April of the following year. Each set of OEWS
estimates is based on six semi-annual survey samples spanning the prior
3 years. Wages collected in earlier survey panels are updated to the
reference date of the estimates based on wage adjustment factors
derived from the OEWS survey data using a regression model. The
freestanding ESRD facility cost report data that can be analyzed at the
time of rulemaking are generally from 2 CYs prior. Specifically, for
the proposed wage index presented in Addendum B of this ESRD PPS
proposed rule, the BLS OEWS data is derived from surveys conducted from
November 2019 through May 2022, and the cost report data generally
covers cost reporting periods

[[Page 55772]]

beginning on or after January 1, 2022, and before December 31,
2022.\15\ The publicly available BLS OEWS data is an average using data
collected over a 3-year period which improves stability and
predictability of the OEWS estimates over time. We note that, should
this methodology be finalized as proposed in the CY 2025 ESRD PPS final
rule, the most recent update of BLS OEWS data for a given year would be
available early enough to be included in the ESRD PPS final rule, but
not in the proposed rule. Under this proposed new methodology, BLS OEWS
data collected as recently as May 2023 would be utilized for the final
CY 2025 ESRD PPS wage index.
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\15\ In cases where 2022 freestanding cost report data are not
available at the time of this proposed rule, 2021 data was used.
This was the case for 131 ESRD facilities, approximately 1.7 percent
of the ESRD facilities in this analysis. We expect that in
calculating the wage indices in the final rule only 2022 cost report
data would be used.
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Both the ESRD facility cost report data and the BLS OEWS data are
more recent than the data used for the IPPS wage index. Additionally,
the purpose of using the freestanding ESRD facility cost report data in
this proposed methodology would be to establish a national occupational
mix for ESRD facilities, which we are calling the NEFOM. We intend to
present the NEFOM annually to reflect the latest complete year of cost
report data at the time of rulemaking to inform the public of the
relative weights assigned to each occupation. Given that freestanding
facility cost reports are submitted on a rolling basis, the most recent
data would generally be obtained from cost reports beginning in the CY
3 years prior to the CY for which we are setting rates (that is, for
this CY 2025 proposed rule, the latest complete year of cost report
data are from cost reports beginning in CY 2022). Based on our analysis
of prior years' cost report data, we do not anticipate that the
national occupational mix would change much from year-to-year.
Additionally, we note that the use of a single national occupational
mix for all ESRD facilities would limit the impact of changes in
employment patterns on the wage index, as all ESRD facilities would be
similarly impacted by a change in the NEFOM. As the wage index is a
relative value, the main way that a change in the NEFOM would impact an
ESRD facility's wage index would be if the CBSA in which that ESRD
facility is located has relatively high or low wages for an occupation
that experiences growth or shrinkage in the NEFOM. Thus, the main
driver in changes from year-to-year under this proposed new wage index
methodology likely would be the BLS OEWS data, which, for the final
rule, would include survey data as recent as May of the year prior to
the rulemaking year.
We note that, at the time of the analysis conducted for this
proposed rule, the May 2023 BLS OEWS update was not yet available. As
previously discussed, some ESRD facilities' CY 2022 cost reports were
not available. Should the proposed new wage index methodology be
finalized, we would update the wage index values based on the most
recent BLS OEWS data available. We are also proposing to use most
recent cost report data available for cost reporting periods beginning
in CY 2022 and update the NEFOM accordingly in the final rule. Using
the most recent 2022 data available for the calculation of the new ESRD
PPS wage index methodology in the final rule would be consistent with
our established ESRD PPS wage index methodology of updating ESRD
facility wage indices between the proposed and final rules.
We note that our proposed new wage index methodology does use the
IPPS wage index to create the ESRD PPS legacy wage index, which is used
to standardize the results of the new ESRD PPS wage index methodology.
We recognize the concerns we have heard regarding the data lag
associated with our use of the IPPS wage index for the ESRD PPS.
However, as the ESRD PPS legacy wage index would only be used to
calculate a treatment-weighted average of the legacy wage index to
standardize the wage index values derived under the proposed new
methodology, the proposed new ESRD PPS wage index would continue to
reflect the relative differences in area wages based on the more recent
BLS OEWS data. Therefore, any effect of any data lag of the ESRD PPS
legacy wage index on the proposed new ESRD PPS wage index would be
minimal.
(v) Comparison Between Proposed New Methodology Data Sources and
Hospital Data
The other main concern that interested parties have raised about
our current ESRD PPS wage index methodology is that the IPPS wage index
is based on hospital cost report data. As previously discussed,
interested parties have stated that hospital cost report data is not
necessarily the most appropriate source for estimating geographic
differences in wages paid by ESRD facilities. These interested parties
predominantly point to the different occupational mix employed by ESRD
facilities as the main differentiator between inpatient hospitals and
ESRD facilities; however, there may also be differences in wages paid
for the same occupational labor category in the two settings.
Differences in wages within the same occupation could arise from any
number of factors, including differences in duties, hours, required
experience, or desirability of the position.
Table 3 compares the national average occupational mix and
corresponding wages for occupations employed by freestanding ESRD
facilities to that of hospitals from IPPS data. The source of average
wages used here for ESRD facilities is the BLS OEWS and average IPPS
wages are derived from the IPPS occupational survey (Form CMS-10079) as
presented in the fiscal year (FY) 2024 IPPS Public Use File (PUF),\16\
representing data from 2019. The mean hourly wage data from BLS is from
the May 2022 OEWS estimates, which are based on six panels of survey
data from November 2019 through May 2022.
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\16\ Files related to the FY 2024 IPPS final rule are available
online at <a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/fy-2024-ipps-final-rule-home-page">https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/fy-2024-ipps-final-rule-home-page</a>.
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[GRAPHIC] [TIFF OMITTED] TP05JY24.010

BILLING CODE 4120-01-C
We note that the hospital wage data (column F) presented in table 3
presents the wages paid by hospitals to employees, as derived from the
IPPS occupational survey data, for the purposes of comparing to the BLS
data. This data is used to adjust the hospital average hourly wage,
calculated using hospital cost report data, based on the provider-
specific occupational mix. This differs from the hospital cost report
data used for the IPPS wage index, as that does not break down all
wages and related costs by occupation.
Compared to hospitals, ESRD facilities generally use slightly
higher proportions of RNs and LPNs and significantly fewer nurse aides
and medical aides (column B). Additionally, the freestanding ESRD
facility cost reports include additional occupational categories to
reflect the labor mix employed by ESRD facilities.
(b) Construction of the Proposed New ESRD PPS Wage Index
Under our proposal, once we have the calculated wages for each
relevant labor category by county (using a crosswalk between MSA, non-
MSA and NECTA and counties) and the NEFOM, we would construct the new
ESRD PPS wage index using the following steps. These are the general
steps which we use when constructing the proposed new ESRD PPS wage
index; for a more detailed look at the specific computational steps we
execute in the code to calculate the proposed wage index, including
steps related to data collection and cleaning, see the supplementary
document in Addendum C.
1. We calculate the treatment count-weighted mean hourly wage for
each occupation for each CBSA by multiplying the mean hourly wage data
from the BLS OEWS by the treatment count for each county within that
CBSA and dividing by the total treatment count of all counties within
the CBSA. We weight mean hourly wage by treatment count to ensure that
the mean hourly wage for the CBSA is proportional with the actual wages
paid by ESRD facilities in the CBSA. This avoids a situation where a
particularly high or low wage county within a CBSA has no ESRD
facilities but still has a large impact on the wage index for that

[[Page 55774]]

CBSA. This reasoning extends to each instance in which we weight values
by treatment counts.
2. We calculate the ESRD facility mean hourly wage in each CBSA by
multiplying the treatment count-weighted mean hourly wage (from step 1)
for each occupation for a given CBSA with the corresponding weight of
the NEFOM for each occupation and then sum each category's amount to
get the total.
3. We calculate the treatment count-weighted mean hourly wage for
each occupation at the national level by multiplying the mean hourly
wage for the occupation in each CBSA by the treatment count of that
CBSA and dividing by the aggregated treatment count nationally.
4. We calculate the national ESRD facility mean hourly wage by
multiplying the national mean hourly wage (from step 3) for each
occupation by the corresponding weight of the NEFOM for each occupation
and then sum each category's amount to get the total.
5. We divide the ESRD facility mean hourly wage for each CBSA by
the national ESRD facility mean hourly wage to create a raw wage index
level (that is, a wage index that has not been normalized as described
in step 6).
6. We multiply the raw wage index level for each CBSA by a
treatment weighted average of the CY 2025 ESRD PPS legacy wage index
constructed using the established ESRD PPS methodology based on IPPS
Medicare cost report data and divide the product by the treatment
weighted average of raw wage indices, which equals 1 by
construction.\17\ This is to ensure that the treatment-weighted average
of new BLS-based wage indices is the same as the weighted average of
the current wage indices. By ensuring the weighted average of the new
wage index is the same as the weighted average of the pre-floor pre-
reclassification IPPS wage index we have normalized the new wage index
such that it is more comparable to the former ESRD PPS wage index
methodology. This prevents the possibility that the treatment-weighted
average of the new wage index is significantly different than the
treatment-weighted average of the established methodology. We include
this step because our goal in establishing the proposed new wage index
methodology is not to alter the significance of the wage index in
determining each ESRD facility's payment, but rather to ensure that the
wage index values better reflect relative labor costs that affect ESRD
facilities specifically. We note that because we apply a wage index
budget neutrality adjuster (discussed in section II.B.4.b), the
proposed new wage index methodology would not increase total payments
to ESRD facilities even absent this step.
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\17\ Treatment weighted average of wage indices are calculated
by multiplying the wage index value for each CBSA by the treatment
count in the CBSA, and dividing by the aggregate national treatment
count.
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7. We apply the 0.6000 floor to the wage index by replacing any
wage index values that fall below 0.6000 with a value of 0.6000, which
is the wage index floor for the ESRD PPS as established in the CY 2023
ESRD PPS final rule (87 FR 67166).
After following these steps, we would obtain the wage index values
for each CBSA (based on the new OMB delineations as discussed later in
this section of the preamble) according to the proposed ESRD PPS wage
index methodology described previously. We note that the 5 percent cap
in year-over-year decreases in wage index values would be applied for
each ESRD facility after the new wage index is calculated based on the
proposed methodology for the CBSA in which the ESRD facility is located
and, therefore, is not reflected in the wage index value for a CBSA in
Addendum A, 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>. This is necessary as this
cap protects ESRD facilities in the rare circumstances when changes in
policy related to the wage index methodology or CBSA delineations cause
an ESRD facility to be in a significantly lower wage index area in a
given year when compared to the previous year (87 FR 67161). As
discussed later in this section, for CY 2025 we are proposing to adopt
new OMB delineations of CBSAs relative to those used in the CY 2024
ESRD PPS wage index. As this 5 percent cap applies to an ESRD facility,
and not to a CBSA, it would protect any ESRD facility that is
delineated into a much lower wage-index CBSA for CY 2025.
(c) Methodological Alternatives Considered
While developing this new wage index methodology, we have
considered several different alternatives regarding both data sources
used for the new wage index methodology and construction of the wage
index itself. We considered the feasibility of requesting the use of
confidential BLS OEWS data. This was one suggestion from the December
2019 TEP. Confidential data would have some benefits over public data,
primarily that it would provide greater disaggregation of wages by
employer type, such as wages paid by ESRD facilities. Additionally,
confidential BLS data could have a timeframe other than the 3-year
pooled sample used in the public data, for example using only the most
recent year's data. However, we note that the OEWS survey sample is
designed to be statistically representative only when all 3 years of
the sample are combined, so the use of an alternative or shorter
timeframe may not be appropriate. We have determined that the publicly
available BLS data would be the most appropriate for our wage index, as
it still provides precise estimates of wages and would allow for far
better transparency. Additionally, we believe that the inclusion of
data from other employers (meaning employers that are not ESRD
facilities) would improve the robustness of the methodology, as ESRD
facilities compete for labor against these other employers.
When considering the use of BLS data we had to determine which
occupation code was appropriate for each occupation in the NEFOM. As
discussed previously, for many of these occupations, the corresponding
BLS code was straightforward as many of the occupations present in the
freestanding ESRD facility cost reports matched a single BLS code.
However, for technicians employed by ESRD facilities we gave further
consideration to two different BLS codes. As presented in table 1, we
are proposing to use code 29-2099 for ``Health Technologists and
Technicians, All Other'' for the construction of the methodology to
account for the labor costs of technicians. This is the most
appropriate category, as ``technicians'' in the freestanding ESRD
facility cost reports generally refers to dialysis technicians, which
do not fall into any of the other BLS codes for health technologists
and technicians. Additionally, we note that the SOC uses ``dialysis
technician'' as an illustrative example for code 29-2099.\18\ However,
we had some concerns about using this category, as it does not
specifically represent dialysis technicians, but rather all health
technicians that do not fit in the other categories. Because the
category is non-specific, also known as a ``residual'' category, we
were concerned with the impact of the inclusion of other, non-dialysis
technicians in this category. To avoid any issues arising from the use
of a

[[Page 55775]]

residual category, we considered using code 29-2010 for ``Clinical
Laboratory Technologists and Technicians.'' Although this category does
not fit dialysis technicians as well, it has the benefit of not being a
residual category, and it had fewer counties with missing data.
However, we determined that it was most appropriate to use the most
similar category for dialysis technicians, being the category in which
data for dialysis technicians would be included, which is code 29-2099
``Health Technologists and Technicians, All Others.''
---------------------------------------------------------------------------

\18\ <a href="https://www.bls.gov/soc/2018/major_groups.htm">https://www.bls.gov/soc/2018/major_groups.htm</a>.
---------------------------------------------------------------------------

As an alternative to using a single national occupational mix for
ESRD facilities we considered using regional or state-level
occupational mixes. The considered alternative would use a similar
methodology to the construction of the NEFOM, but with a different
occupational mix for each census region or state and would apply the
occupational mix in the same way in the construction of the wage index.
This is to say, the BLS data for a CBSA would be weighted by the
occupational mix for the region or state in which that CBSA is located.
This alternative was considered, in part, because of a suggestion from
a panelist at the December 2019 TEP who pointed out that different
states have different laws regarding staffing requirements for ESRD
facilities, which was not reflected in the methodology presented at the
TEP. We conducted an analysis comparing a state-level occupational mix
wage index to the national occupational mix wage index methodology
presented previously. This analysis found some notable differences,
including higher wage index values in the pacific census region, but
many regions experienced little change. We decided against the use of
state-level or regional occupational mixes for three main reasons. The
first is that the use of different occupational mixes for different
ESRD facilities made the methodology significantly more complicated and
difficult to understand. The second is that this methodology made it so
that one ESRD facility could be in an area with higher wages for all
occupations compared to another ESRD facility but receive a lower wage
index value due to having an occupational mix which favored lower-
paying occupations. This could be perceived as being inconsistent with
the intent of the wage index to recognize differences in ESRD facility
resource use for wages specific to the geographic area in which
facilities are located (83 FR 56967). Lastly, we are concerned about
the possibility that, should we use anything other than a national
occupational mix, the state-level or regional occupational mix could be
manipulated. This would be especially relevant for states or regions
with few ESRD facilities and, therefore, individual ESRD facilities
would have an outsized impact on the occupational mix for that state or
region. Accordingly, we believe that the use of a single national
occupational mix is the most appropriate for this proposed new ESRD
facility wage index methodology.
We considered proposing a ``phase-in'' policy for this proposed
wage index methodology change, which could be implemented in addition
to the 5 percent cap on wage index decreases. One potential example of
a phase-in policy could be a 50/50 blended methodology, where an ESRD
facility would receive the average of their wage indices from the
proposed new and legacy methodologies for the first year of
implementation. However, we decided that such a phase-in policy was
unnecessary in light of the 5 percent cap on year-to-year wage index
decreases for ESRD facilities. We believe that an additional, or
alternative, phase-in policy would further complicate this change.
Additionally, a phase-in policy could hurt ESRD facilities that would
receive a higher wage-index under the new methodology, which we do not
believe would be appropriate, as we believe the new methodology based
on BLS data is the best approximation of the labor costs those ESRD
facilities face.
We considered setting the NEFOM through rulemaking separately from
the routine wage index update. Under this alternative, we would
periodically update the NEFOM, for example every 2 years, with
potentially more years of freestanding ESRD facility cost report data.
This would mean that the NEFOM would be a rounded input in the wage
index methodology, rather than a figure precisely calculated as an
intermediary step in the methodology. This would slightly simplify the
calculation steps and would allow for complete transparency on the
NEFOM. However, we have decided to instead derive the FTEs per 1000
treatments for each occupation as the weights as a part of the wage
index calculation as that would increase the precision of this
calculation. Additionally, given the transparency of the FTE data
derived from publicly available cost reports, we can still publish the
NEFOM for the coming year in rulemaking alongside the updated wage
index; however, we note that the NEFOM we publish would have a lower
precision so replications using the published NEFOM as an input may be
slightly off. Furthermore, compared to setting the NEFOM through
rulemaking less frequently than annually, the proposed methodology to
calculate the NEFOM as a part of the wage index methodology annually
would be more responsive to national trends in occupational mix for
ESRD facilities.
Finally, we considered whether it was most appropriate to use
something other than the mean hourly wage for the BLS OEWS data for the
construction of the wage index. There are always concerns when using
the mean of a data set that the figure could be unduly influenced by
outliers. One potential alternative would be to use the median hourly
wage data instead. The median hourly wage is available by occupation in
publicly available BLS data, and the median is not as influenced by
outliers as the mean. We also considered using the geometric mean,
instead of arithmetic mean, as that is also less influenced by
outliers; however the geometric mean is not provided in publicly
available BLS data. Ultimately, we determined that the mean hourly wage
is the most appropriate for this new wage index methodology, as any
outliers are relevant data points insofar as some ESRD facilities may
pay wages significantly higher than the average.
c. Example Calculation Using the Proposed New Wage Index Methodology
Table 4 is an example of a calculation of the wage index for a
hypothetical ESRD facility in a hypothetical CBSA under the proposed
new methodology. This CBSA contains three counties, each with a
different mean hourly wage and treatment count. Table 4 presents the
mean hourly wage and treatment count used in the calculation.

[[Page 55776]]

[GRAPHIC] [TIFF OMITTED] TP05JY24.011

Step 1. Calculate the treatment count-weighted mean hourly wage for
each occupation for each CBSA by multiplying the mean hourly wage data
from the BLS OEWS by the treatment count for each county within that
CBSA and dividing by the total treatment count of all counties within
the CBSA.

RN wage = [(200 * $45) + (300 * $40) + (500 * $50)]/1000 = $46.0
LPN wage = [(200 * $30) + (300 * $30) + (500 * $35)]/1000 = $32.5
Nurse aide wage = [(200 * $15) + (300 * $20) + (500 * $10)]/1000 =
$14.0
Technicians wage = [(200 * $30) + (300 * $35) + (500 * $25)]/1000 =
$29.0
Social worker wage = [(200 * $30) + (300 * $25) + (500 * $35)]/1000
= $31.0
Administration wage = [(200 * $20) + (300 * $25) + (500 * $20)]/1000
= $21.5
Dietitian wage = [(200 * $35) + (300 * $30) + (500 * $30)]/1000 =
$31.0
Management wage = [(200 * $60) + (300 * $65) + (500 * $50)]/1000 =
$56.5

Step 2. Calculate the ESRD facility mean hourly wage in the CBSA by
multiplying the treatment count-weighted mean hourly wage (from step 1)
for each occupation for the CBSA with the corresponding weight of the
NEFOM for each occupation and sum each category's amount to get the
total. The NEFOM for CY 2025 is presented in table 5. For the purposes
of ensuring the calculation in this section is as easy to understand as
possible we are using the percentage values from the NEFOM rounded to
the nearest tenth of a percent. This makes the wage values calculated
in this step and step 4 more intuitive as they would represent a
weighted average of the wages in the CBSA. We note that in the actual
calculation of the wage index, as described in Addendum C, we calculate
the number of FTEs per 1000 treatments for each occupation and use
those as the weights, so that the weights have a higher level of
precision.

[[Page 55777]]

[GRAPHIC] [TIFF OMITTED] TP05JY24.012

ESRD facility mean hourly wage for this CBSA = (0.300 * $46.0) + (0.040
* $32.5) + (0.024 * $14.0) + (0.381* $29.0) + (0.047 * $31.0) + (0.107
* $21.5) + (0.045 * $31.0) + (0.055 * $56.5) = $34.75

Step 3. Calculate the treatment count-weighted mean hourly wage for
each occupation at the national level by multiplying the mean hourly
wage for the occupation in each CBSA by the treatment count of that
CBSA and dividing by the aggregated treatment count nationally.
To simplify this calculation, assume there are 3 CBSAs as follows:
[GRAPHIC] [TIFF OMITTED] TP05JY24.013

[[Page 55778]]

Step 4. Calculate the national ESRD facility mean hourly wage by
multiplying the national mean hourly wage (from step 3) for each
occupation by the corresponding weight of the NEFOM for each occupation
and sum each category's amount to get the total. Similarly to step 2,
we are using the percentages from the NEFOM as weights for the purposes
of this example calculation.

National average ESRD facility wage = (0.300 * $46.90) + (0.040 *
$32.58) + (0.024 * $18.67) + (0.381 * $32.28) + (0.047 * $32.61) +
(0.107 * $19.52) + (0.045 * $31.49) + (0.055 * $56.64) = $36.27

Step 5. Divide the ESRD facility mean hourly wage for each CBSA by
the national ESRD facility mean hourly wage to create a raw wage index
level.

Raw wage index value = $34.75/$36.27 = 0.95809

Step 6. Multiply the raw wage index for each CBSA by a treatment
weighted average of the CY 2025 ESRD PPS legacy wage index constructed
using the established ESRD PPS methodology based on IPPS data and
divide the product by the treatment weighted average of raw wage
indices (which equals 1 by construction). This is to ensure that the
treatment-weighted average of new BLS-based wage indices is the same as
the weighted average of the current wage indices (for the purpose of
this hypothetical calculation we have used a value of 1.00679).

Pre-floor wage index value = 0.95809 * 1.00679/1 = 0.9646

Step 7. Apply the 0.6000 floor to the wage index by replacing any
wage index values which fall below 0.6000 with 0.6000.

Final wage index value = 0.9646
d. Estimated Impacts of Proposed Change to Wage Index Methodology
The proposed new wage index methodology described previously would
be a substantial change from the current approach used by the ESRD PPS
to evaluate variations in wages across geographic areas. Compared to
the current methodology based on hospital cost report data, this new
methodology would use survey data on wages for occupations relevant to
furnishing renal dialysis services, which includes data from ESRD
facilities and other similar outpatient settings and is weighted
according to the average occupational mix of freestanding ESRD
facilities. This proposed methodological change, if finalized, would be
associated with significant changes in wage index values, and therefore
payment amounts, for ESRD facilities. Full impacts for the proposed CY
2025 ESRD PPS wage index, alongside the updated CBSA delineations and
rural transition policy discussed in section II.B.2.f of this proposed
rule, are presented in table 18 in section VIII.D.5.a of this proposed
rule, including application of the 5 percent cap on year-to-year wage
index decreases. The 5 percent cap policy would mitigate the impact of
the proposed changes to the wage index methodology for CY 2025. Column
3 of table 6 presents the payment impacts associated with only the
proposed new wage index methodology without the 5 percent cap on
decreased wage indices (with an appropriate wage index budget
neutrality adjustment following the established methodology discussed
at section II.B.4.b) for the purpose of demonstrating its potential
long-term ramifications. For comparison, column 4 of table 6 presents
the same payment impacts with the 5 percent cap applied. The figures in
these columns represent the expected payment change associated from the
move from the CY 2025 ESRD PPS legacy wage index to the proposed new
wage index methodology. As an example, this table shows that rural ESRD
facilities would see a payment increase of 1.014 (or an increase of 1.4
percent) without the 5 percent cap but only 1.007 (or 0.7 percent) with
the 5 percent cap. One major driver of this discrepancy is the fact
that changes to the ESRD PPS wage index are budget neutral, so by
limiting the negative impact of the change on some facilities through
the 5 percent cap, we reduce payments to ESRD facilities not impacted
by the cap. Because the 5 percent cap would impact fewer ESRD
facilities in each subsequent year by design, column 4 is not a
reasonable proxy for long term payment impacts associated with this
policy, but rather it represents the expected change in payment to ESRD
facilities for CY 2025 as a result of only the proposed wage index
methodology change.
BILLING CODE 4120-01-P

[[Page 55779]]

[GRAPHIC] [TIFF OMITTED] TP05JY24.014

BILLING CODE 4120-01-C
Column 3 of table 6 shows the effect that this proposed new wage
index methodology would have on ESRD facilities, stratified by facility
type,

[[Page 55780]]

location, and size, without application of the 5 percent cap on any
decrease in wage index values. These impacts still include the 0.600
wage index floor because, unlike the 5 percent cap on decreased wages,
the wage index floor could affect an ESRD facility for every future
year. The 5 percent cap, however, would likely only affect an ESRD
facility for a limited number of years until its wage index value lines
up with the wage index value for the CBSA in which it is located. We
note that the ESRD PPS does not have a cap on wage index increases, so
ESRD facilities located in CBSAs that receive a substantial increase in
wage index value associated with this proposed new methodology would
not have the impact of that change mitigated and, therefore, that
change is reflected in the full impacts in section VIII.D.5.a of this
proposed rule. However, without the 5 percent cap on wage index
decreases the budget-neutrality factor applied to the ESRD PPS in the
hypothetical model from which column 3 was derived is larger (the
application of which would result in a smaller decrease to the ESRD PPS
base rate), such that ESRD facilities that had a positive change in
wage index would experience an even greater positive change.
For comparison, column 4 represents the impacts for CY 2025 with
the 5 percent cap applied. As discussed previously, this is not a
reasonable proxy for long term payment impacts because (assuming no
other changes) the 5 percent cap on wage index decreases would apply to
a lower number of ESRD facilities each year until ESRD facilities
receive the wage index for the CBSA in which they are located. However,
this column does show the impact of applying the 5 percent cap for CY
2025, both for ESRD facilities for which the cap would apply and other
ESRD facilities that would receive lower payments due to budget
neutrality.
Based on column 3 (as a proxy for long-term impacts), the use of
the proposed new wage index methodology would result in a notable
increase in payments to rural ESRD facilities and ESRD facilities
located in the East South Central census region. Use of the proposed
new wage index methodology would result in a notable decrease in
payments to the Pacific census region and the United States Pacific
Territories (that is, Guam, American Samoa, and the Northern Marianas
Islands, which are the only Unites States Pacific Territories with an
ESRD facility). Generally, we include the United States Pacific
territories together with the Pacific census region, as that is the
census region in which these territories are located according to the
United States Census Bureau. However, for this analysis examining the
effects of CMS' proposed wage index methodology we have opted to
separate the territories from the Pacific census region, because we
believe that it is important to evaluate the impact on these
territories carefully due to their remote geographic location and
resulting unique economic situation. Column 4 of table 6 shows how the
application of the 5 percent cap mitigates these changes for CY 2025,
as ESRD facilities in the United States Pacific territories would have
a decrease in payment by a factor of only 0.964 rather than 0.930.
We note that the 5 percent cap on wage index decreases would apply
to ESRD facilities that are located in a CBSA (based on CY 2025 CBSA
delineations) with a wage index value 5 percent lower than the CY 2024
wage index value for their CBSA (based on CY 2024 CBSA delineations).
The impacts detailed in column 3 are presented for the sole purpose of
illustrating the potential long-term ramifications of the proposed new
wage index methodology once sufficient time has passed such that the 5
percent cap on year-over-year decreases would no longer constrain the
overall effect of this proposed new methodology on wage index values.
We have conducted an analysis comparing the hypothetical results of
applying this new wage index methodology in past years to the actual
ESRD PPS wage index methodology based on the IPPS wage index for those
years. We have found that the application of the new wage index
methodology consistently yields mean and median wage index values
slightly higher than the actual mean and median wage index values used
for those years, implying that the wage index resulting from this new
methodology is relatively stable. Additionally, we have found that the
payment impacts based on facility type did not change much when using
data from claim years 2019 through 2022, with most facility types that
are projected to receive a payment increase for CY 2025 associated with
the proposed new wage index methodology seeing a payment increase in
past years. Similarly, most facility types that are projected to
receive a payment decrease in CY 2025 associated with the proposed new
wage index methodology were found to have received payment decreases in
our hypothetical analysis of past years. Therefore, we have determined
that this new wage index methodology is relatively stable when
analyzing the differences between the new proposed wage index and the
ESRD PPS legacy wage index.
e. Proposed CY 2025 ESRD PPS Wage Index
For CY 2025, we propose to update the wage indices to account for
updated wage levels in areas in which ESRD facilities are located using
the proposed new methodology described previously, in subpart b of this
section, according to the most recent available data. We believe that
the use of this proposed new methodology is appropriate and responds to
the feedback we have received from interested parties regarding the
limitations of the current wage index. Specifically, the use of BLS
OEWS data would allow for this new wage index methodology to be more
responsive to differences in ESRD facility wage levels across the
country. Additionally, by using occupational mix data from the
freestanding ESRD facility cost reports, this proposed methodology
would better reflect the actual wage costs incurred by ESRD facilities.
We believe that this proposed new methodology would be most appropriate
to use for the ESRD PPS due to several reasons specific to ESRD
facilities. First, freestanding ESRD facility cost reports contain
detailed occupational FTE data, which allows CMS to create a wage index
that is tailored to the wage costs faced by ESRD facilities based on
their unique staffing needs. Dissimilarities between hospital
occupation mix and ESRD facility occupational mix make the use of the
IPPS data less appropriate for ESRD facilities. In addition, the ESRD
PPS has a lower labor-related share than most other Medicare payment
systems.\19\ This proposed new ESRD PPS wage index methodology
addresses these specific circumstances.
---------------------------------------------------------------------------

\19\ For example, under section 1886(d)(3)(E) of the Act, the
IPPS applies a labor related share of 62 percent for each hospital
unless this would result in lower payments to the hospital than
would otherwise be made.
---------------------------------------------------------------------------

We recognize that there are several methodological limitations to
using a wage index based on publicly available BLS OEWS data.
Specifically, this data source lacks information on employee benefits
and the full cost of contract labor and includes information from
hospitals and other healthcare providers. However, we believe that the
benefits of using this proposed new wage index methodology would
outweigh these limitations, as the use of BLS OEWS wage data weighted
by an occupational mix derived from freestanding ESRD facility cost
report data would allow for a wage index that is more representative of
the geographic

[[Page 55781]]

variation in wages faced by ESRD facilities.
For CY 2025, we are also proposing to use OMB's most recent CBSA
delineations as published in OMB Bulletin No. 23-01, which is based on
the data from the 2020 decennial census, for the purposes of the CY
2025 ESRD PPS wage index and rural facility adjustment. This is
consistent with our historical practice of updating the CBSA
delineations periodically according to the most recent OMB
delineations, most recently in the CY 2021 ESRD PPS final rule (85 FR
71430 through 71434). We discuss this policy in greater detail in
section II.B.2.f of this proposed rule. For more information on the OMB
delineations we refer readers to the OMB Bulletin No. 23-01: <a href="https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf">https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf</a>.
To implement the proposed change in wage index methodology, we are
proposing to amend the regulations at 42 CFR 413.196(d)(2) and
413.231(a). Effective January 1, 2025, the amended Sec. 413.196(d)(2)
would state that CMS updates on an annual basis ``The wage index using
the most current wage data for occupations related to the furnishing of
renal dialysis services from the Bureau of Labor Statistics and
occupational mix data from the most recent complete calendar year of
Medicare cost reports submitted in accordance with Sec. 413.198(b).''
The amended Sec. 413.231(a) would state that ``CMS adjusts the labor-
related portion of the base rate to account for geographic differences
in the area wage levels using an appropriate wage index (established by
CMS) which reflects the relative level of wages relevant to the
furnishing of renal dialysis services in the geographic area in which
the ESRD facility is located.''
For CY 2025, we propose to update the ESRD PPS wage index to use
the most recent BLS OEWS wage data and the most recent CY 2022
freestanding ESRD facility cost report occupational mix and treatment
volume data available. At the time the analysis was conducted for this
proposed rule, the most recent BLS OEWS wage data available represented
May 2022. We propose that if more recent data become available after
the development of this ESRD PPS proposed rule and before the
publication of the ESRD PPS final rule (for example, the April 2024
release of May 2023 OEWS data, which was published after the analysis
performed for this proposed rule), we would use such data, if
appropriate, to determine the CY 2025 ESRD PPS wage index in the ESRD
PPS final rule. The proposed CY 2025 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 2024 wage index and the proposed CY
2025 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>.
(1) Alternative CY 2025 ESRD PPS Wage Index Using Established
Methodology
We are presenting a version of the current ESRD PPS wage index
constructed using our established methodology with the most recent
available data, which we are referring to as the ESRD PPS legacy wage
index methodology. The purpose of presenting the legacy methodology
with modifications is to illustrate an alternative to the proposed new
methodology described previously for consideration by interested
parties to facilitate comments on this proposed rule. The inclusion of
a CY 2025 version of the ESRD PPS legacy wage index methodology allows
for interested parties to compare wage index values under the current
methodology and proposed new methodology. For the reasons previously
discussed, we believe that the proposed new wage index methodology
based on BLS data is the most appropriate for ESRD facilities; however,
we intend to consider commenters' input on this proposal and the
alternative wage index based on the established methodology (updated
with the most recent data) when making a determination about the best
approach in the final rule.
For this alternative wage index, we would use the ESRD PPS legacy
wage index, which is based on the most recent pre-floor, pre-
reclassified hospital wage data collected annually under the IPPS. The
ESRD PPS legacy wage index values are calculated without regard to
geographic reclassifications authorized for acute care hospitals 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 2025,
the updated wage data are generally for hospital cost reporting periods
beginning on or after October 1, 2020, and before October 1, 2021 (FY
2021 cost report data). This CY 2025 version of the legacy wage index
methodology includes the updates to OMB's CBSA delineations, as the
proposal to update those delineations is separate from the proposal to
use the new wage index methodology. Under this possible alternative
wage index using the legacy ESRD PPS methodology, we would still use
the most recent available OMB CBSA delineations.
Under this alternative methodology, we would update the ESRD PPS
legacy wage index to use the most recent hospital wage data. We would
update those data if more recent data become available after the
publication of this proposed rule and before the publication of the
final rule (for example, using a more recent estimate of the IPPS
hospital wage data), and we would use such data, if appropriate, to
determine the CY 2025 ESRD PPS alternative wage index in the final
rule. The alternative CY 2025 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 2024 wage index and the alternative CY 2025
wage index. Addendum B provides an ESRD facility level impact analysis.
Addendum B is available on the CMS website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/End-Stage-Renal-Disease-ESRD-Payment-Regulations-and-Notices">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/End-Stage-Renal-Disease-ESRD-Payment-Regulations-and-Notices</a>.
(2) Request for Comments on This Proposal
We believe that our proposed new ESRD PPS wage index methodology
would more accurately estimate the geographic variation in wages paid
by ESRD facilities when compared to the current ESRD PPS wage index
based on the IPPS wage index. However, we acknowledge that this
proposed new methodology, if finalized, would represent a significant
change to the established ESRD PPS wage index methodology, both by
changing the data sources and the calculations for the wage index. We
are requesting comments on all aspects of the proposed new methodology,
including the use of BLS OEWS data for CBSA-level wage estimates, the
use of mean hourly wage (rather than median hourly wage), the use of
freestanding ESRD facility cost reports for deriving occupational mix
weights based on FTEs for each occupation per 1000 treatments as
presented in the NEFOM, the use of the ESRD PPS legacy wage index for
standardization, and the computational

[[Page 55782]]

steps used to calculate the wage index. We welcome any insights into
potential methodological improvements, particularly related to some of
the limitations of the new data sources discussed previously, including
the absence of the cost of employee benefits and the full cost of
contract labor in the BLS data, and the inability of this proposed
methodology to capture differences in ESRD facility occupational mix
across different geographic areas. Based on the comments we receive, we
may modify the methodological steps used to calculate the wage index in
the final rule. Additionally, we are requesting comments on the
proposed use of the new wage index methodology compared to the
established wage index methodology based on the IPPS wage index which
was used to create the alternative ESRD PPS legacy wage index. We are
also requesting comments on the distributional implications of this
wage index proposal, with specific consideration to rural areas and
remote or isolated areas such as the United States territories in the
Pacific. Lastly, we are requesting comments on our proposal to begin
using our new wage index methodology beginning on January 1, 2025.
f. Proposed Implementation of New OMB Labor Market Delineations
(1) Background
As previously discussed in this proposed rule, the wage index used
for the ESRD PPS is historically calculated using the most recent pre-
floor, pre-reclassified hospital wage data collected annually under the
IPPS and is assigned to an ESRD facility based on the labor market area
in which the ESRD facility is geographically located. We are proposing
a new wage index methodology that would similarly be based on the labor
market in which an ESRD facility is located. ESRD facility labor market
areas are delineated based on the CBSAs established by OMB. In
accordance with our established methodology, we have historically
adopted through rulemaking CBSA changes that are published in the
latest OMB bulletin. Generally, OMB issues major revisions to
statistical areas every 10 years, based on the results of the decennial
census. However, OMB occasionally issues minor updates and revisions to
statistical areas in the years between the decennial censuses.
In the CY 2015 ESRD PPS final rule (79 FR 66137 through 66142), we
finalized changes to the ESRD PPS wage index based on the newest OMB
delineations, as described in OMB Bulletin No. 13-01 \20\ issued on
February 28, 2013. We implemented these changes with a 2-year
transition period (79 FR 66142). OMB Bulletin No. 13-01 established
revised delineations for United States Metropolitan Statistical Areas,
Micropolitan Statistical Areas, and Combined Statistical Areas based on
the 2010 Census. OMB Bulletin No. 13-01 also provided guidance on the
use of the delineations of these statistical areas using standards
published on June 28, 2010, in the Federal Register (75 FR 37246
through 37252).
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\20\ <a href="https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/bulletins/2013/b13-01.pdf">https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/bulletins/2013/b13-01.pdf</a>.
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On July 15, 2015, OMB issued OMB Bulletin No. 15-01,\21\ which
updated and superseded OMB Bulletin No. 13-01 issued on February 28,
2013. These updates were based on the application of the 2010 Standards
for Delineating Metropolitan and Micropolitan Statistical Areas to the
United States Census Bureau population estimates for July 1, 2012, and
July 1, 2013.
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\21\ <a href="https://www.bls.gov/bls/omb-bulletin-15-01-revised-delineations-of-metropolitan-statistical-areas.pdf">https://www.bls.gov/bls/omb-bulletin-15-01-revised-delineations-of-metropolitan-statistical-areas.pdf</a>.
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On August 15, 2017, OMB issued OMB Bulletin No. 17-01,\22\ which
updated and superseded OMB Bulletin No. 15-01 issued on July 15, 2015.
These updates were based on the application of the 2010 Standards for
Delineating Metropolitan and Micropolitan Statistical Areas to the
United States Census Bureau population estimates for July 1, 2014, and
July 1, 2015. In OMB Bulletin No. 17-01, OMB announced a new urban
CBSA, Twin Falls, Idaho (CBSA 46300).
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\22\ <a href="https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/bulletins/2017/b-17-01.pdf">https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/bulletins/2017/b-17-01.pdf</a>.
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On April 10, 2018, OMB issued OMB Bulletin No. 18-03 \23\ which
updated and superseded OMB Bulletin No. 17-01 issued on August 15,
2017. On September 14, 2018, OMB issued OMB Bulletin No. 18-04,\24\
which updated and superseded OMB Bulletin No. 18-03 issued on April 10,
2018. OMB Bulletin Numbers 18-03 and 18-04 established revised
delineations for Metropolitan Statistical Areas, Micropolitan
Statistical Areas, and Combined Statistical Areas, and provided
guidance on the use of the delineations of these statistical areas.
These updates were based on the application of the 2010 Standards for
Delineating Metropolitan and Micropolitan Statistical Areas to the
United States Census Bureau population estimates for July 1, 2015, and
July 1, 2016. In the CY 2021 ESRD PPS final rule (85 FR 71430 through
71434), we finalized changes to the ESRD PPS wage index based on the
most recent OMB delineations from OMB Bulletin No 18-04. This was the
most recent time we have updated the labor market delineations used for
the ESRD PPS and, as such, reflects the labor market delineations we
used for CY 2024 (88 FR 76360).
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\23\ <a href="https://www.whitehouse.gov/wp-content/uploads/2018/04/OMB-BULLETIN-NO.-18-03-Final.pdf">https://www.whitehouse.gov/wp-content/uploads/2018/04/OMB-BULLETIN-NO.-18-03-Final.pdf</a>.
\24\ <a href="https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf">https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf</a>.
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In the July 16, 2021, Federal Register (86 FR 37777), OMB finalized
a schedule for future updates based on results of the decennial Census
updates to commuting patterns from the American Community Survey, an
ongoing survey conducted by the Census Bureau. In accordance with that
schedule, on July 21, 2023, OMB released Bulletin No. 23-01. A copy of
OMB Bulletin No. 23-01 may be obtained at <a href="https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf">https://www.whitehouse.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf</a>. According to OMB,
the delineations reflect the 2020 Standards for Delineating Core Based
Statistical Areas (``the 2020 Standards''), which appeared in the
Federal Register on July 16, 2021 (86 FR 37770 through 37778), and the
application of those standards to Census Bureau population and journey-
to-work data (that is, 2020 Decennial Census, American Community
Survey, and Census Population Estimates Program data).
We believe it is important for the ESRD PPS to use, as soon as
reasonably possible, the latest available labor market area
delineations to maintain a more accurate and up-to-date payment system
that reflects the reality of population shifts and labor market
conditions. We believe that using the most current OMB delineations
would increase the integrity of the ESRD PPS wage index system by
creating a more accurate representation of geographic variations in
wage levels, especially given the proposed new wage index methodology
discussed previously. We have carefully analyzed the impacts of
adopting the new OMB delineations and find no compelling reason to
delay implementation. Therefore, we are proposing to adopt the updates
to the OMB delineations announced in OMB Bulletin No. 23-01 effective
for CY 2025 under the ESRD PPS for use in determining both the wage
index and the rural adjustment for ESRD facilities. This would be
implemented along with the new ESRD PPS wage index methodology, if
finalized, or along with the alternative ESRD PPS legacy wage

[[Page 55783]]

index based on IPPS data, should the proposed new wage index
methodology not be finalized.
As previously discussed, we finalized a 5 percent permanent cap on
any decrease to a provider's wage index from its wage index in the
prior year in the CY 2023 ESRD PPS final rule (87 FR 67161). We are not
proposing any additional transition policy for the CY 2025 wage index
as we believe the 5 percent cap effectively mitigates the negative
impact of large wage index decreases for an ESRD facility in a single
year. In addition, we are proposing to phase out the rural adjustment
for ESRD facilities that are transitioning from rural to urban based on
these CBSA revisions, as discussed in section II.B.2.f.(2) of this
proposed rule. For a further discussion of changes to OMB's CBSA
delineations, including a list of changes to specific CBSAs, see the FY
2025 IPPS proposed rule (89 FR 36139).
(2) Proposal To Phase Out the Rural Facility Adjustment for Facilities
Affected by Changes to CBSAs
In the CY 2016 ESRD PPS final rule (80 FR 69001), we established a
policy to provide a 0.8 percent payment adjustment to the base rate for
ESRD facilities located in a rural area. This adjustment was based on a
regression analysis, which indicated that the per diem cost of
providing renal dialysis services for rural facilities was 0.8 percent
higher than that of urban facilities after accounting for the influence
of the other variables included in the regression. This 0.8 percent
adjustment has been part of the ESRD PPS each year since it was
finalized beginning for CY 2016, and its inclusion in the ESRD PPS is
codified at Sec. 413.233.
As previously discussed in this proposed rule, we are proposing a
methodological change to the ESRD PPS wage index methodology as well as
changes to the CBSA delineations. In the CY 2023 ESRD PPS final rule,
we finalized a policy to cap year-to-year decreases in the wage index
for any ESRD facility at 5 percent (87 FR 67161). The primary purpose
of this change was to mitigate the negative effect associated with an
ESRD facility being reclassified into a lower wage index CBSA as a
result of changes in OMB's most recent CBSA delineations. We anticipate
that the proposed change to the CBSA delineations and the changes to
the wage index methodology, if finalized, would lead to numerous ESRD
facilities having a significant decrease in wage index value in CY 2025
compared to CY 2024. As previously discussed, the adoption of OMB
Bulletin No. 23-01 would determine whether an ESRD facility is
classified as urban or rural for purposes of the rural facility
adjustment in the ESRD PPS. Although the rural facility adjustment is
not directly related to the wage index, the application of both is
determined by the CBSA in which an ESRD facility is located and,
therefore, is potentially subject to significant changes associated
with the new CBSA delineations. It is reasonable to conclude that these
proposed shifts in the CBSA delineations, in combination with the wage
index methodological changes proposed in this proposed rule, could lead
to a year-over-year decrease in payment greater than what a 5 percent
decrease to the wage index would cause even if the decrease in the wage
index value alone would be less than 5 percent. To mitigate the scope
of changes that would impact ESRD facilities in any single year, we are
proposing to implement a 3-year phase out of the rural facility
adjustment for ESRD facilities that are located in a CBSA that was
categorized as rural in CY 2024 and is recategorized as urban in CY
2025, as a result of the updates to the CBSA delineations associated
with the proposed adoption of OMB Bulletin No. 23-01.
Overall, we believe implementing updated OMB delineations would
result in the rural facility adjustment being applied where it is
appropriate to adjust for higher costs incurred by ESRD facilities in
rural locations. However, we recognize that implementing these proposed
changes, if finalized, would have different effects among ESRD
facilities and that the loss of the rural facility adjustment could
lead to some hardship for ESRD facilities that had anticipated
receiving the rural facility adjustment in CY 2025. Therefore, we
believe it would be appropriate to consider whether a transition period
should be used to implement these proposed changes.
For ESRD facilities located in a county that transitioned from
rural to urban in OMB Bulletin 23-01, we considered whether it would be
appropriate to phase out the rural facility adjustment for affected
ESRD facilities. Adoption of the updated CBSAs in OMB Bulletin 23-01,
if finalized as proposed, would change the status of 44 ESRD facilities
currently designated as ``rural'' to ``urban'' for CY 2025 and
subsequent CYs. As such, these 44 newly urban ESRD facilities would no
longer receive the 0.8 percent rural facility adjustment. Consistent
with the rural transition policy proposed for Inpatient Psychiatric
Facilities (IPFs) and Inpatient Rehabilitation Facilities (IRFs) for FY
2025 (89 FR 23188, 89 FR 22267 through 22268) we are proposing a 3-
year, budget neutral phase-out of the rural facility adjustment for
ESRD facilities located in the 54 rural counties that would become
urban under the new OMB delineations, given the potentially significant
payment impacts for these ESRD facilities. We believe that a phase-out
of the rural facility adjustment transition period for these 44 ESRD
facilities would be appropriate, because we expect these ESRD
facilities would experience a steeper and more abrupt reduction in
their payments compared to other ESRD facilities. We are proposing to
adopt these new CBSA delineations in a year in which we are also
proposing substantial methodological changes to our wage index. While
these proposed changes, if finalized, would increase payment accuracy
across the ESRD PPS, we also recognize that some ESRD facilities could
lose the rural facility adjustment and receive a significantly lower
wage index value in the same year. We believe that it is appropriate
for this proposed transition policy to be budget-neutral compared to
ending the rural adjustment for these facilities in CY 2025 because it
is an extension of the rural facility adjustment, which is implemented
budget-neutrally, and a result of the change in CBSA delineations,
which is proposed to be implemented budget-neutrally alongside the wage
index changes. The reasoning behind this proposal is similar to the
reasoning behind the 5 percent cap on year-to-year decreases in wage
index values which was finalized in the CY 2023 ESRD PPS final rule (87
FR 67161), as it would ameliorate unexpected negative impacts to
certain ESRD facilities. This rural phase-out in combination with the 5
percent cap policy would best reduce the negative effects on any single
ESRD facility resulting from changes to the CBSA delineations.
Therefore, we are proposing to phase out the rural facility adjustment
for these facilities to reduce the impact of the loss of the CY 2024
rural facility adjustment of 0.8 percent over CYs 2025, 2026, and 2027,
consistent with the similar IPF and IRF proposals previously discussed.
This policy would allow ESRD facilities that are classified as rural in
CY 2024 and would be classified as urban in CY 2025 to receive two-
thirds of the rural facility adjustment for CY 2025, or a 0.53 percent
adjustment. For CY 2026, these ESRD facilities would receive one-third
of the rural facility adjustment, or a 0.27

[[Page 55784]]

percent adjustment. For CY 2027, these ESRD facilities would not
receive a rural facility adjustment. We believe a 3-year budget-neutral
phase-out of the rural facility adjustment for ESRD facilities that
transition from rural to urban status under the new CBSA delineations
would best accomplish the goals of mitigating the loss of the rural
facility adjustment for existing CY 2024 rural ESRD facilities. The
purpose of the gradual phase-out of the rural facility adjustment for
these ESRD facilities is to mitigate payment reductions and promote
stability and predictability in payments for existing rural ESRD
facilities that may need time to adjust to the loss of their CY 2024
rural payment adjustment or that experience a reduction in payments
solely because of this re-designation. This policy would be
specifically for ESRD facilities that are rural in CY 2024 that become
urban in CY 2025. We are not proposing a transition policy for urban
ESRD facilities that become rural in CY 2025 because these ESRD
facilities would receive the full rural facility adjustment of 0.8
percent beginning January 1, 2025, and they would not experience the
same adverse effects as an ESRD facility that unexpectedly loses a
payment adjustment. We understand that compared to rural payment
adjustments in other Medicare payment systems, the ESRD PPS rural
facility adjustment is not large in magnitude (for example, the rural
adjustments for IPFs and IRFs are 17 percent and 14.9 percent,
respectively), but it is important for ESRD facilities to be able to
reasonably predict what their payments from the ESRD PPS would be in
the next year. We solicit comments on this proposed policy.
3. Proposed CY 2025 Update to the Outlier Policy
a. 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 erythropoiesis stimulating agents (ESAs)
necessary for anemia management. Some examples of the patient
conditions that may be reflective of higher facility costs when
furnishing dialysis care are frailty and obesity. A patient's specific
medical condition, such as secondary hyperparathyroidism, may result in
higher per treatment costs. The ESRD PPS recognizes that some patients
require high cost care, 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.\25\
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\25\ 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.
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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 ESRD 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.\26\ 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.
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\26\ Transmittal 2033 issued August 20, 2010, was rescinded and
replaced by Transmittal 2094, dated November 17, 2010. Transmittal
2094 identified additional drugs and laboratory tests that may also
be eligible for ESRD outlier payment. Transmittal 2094 was rescinded
and replaced by Transmittal 2134, dated January 14, 2011, which
included one technical correction. <a href="https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/downloads/R2134CP.pdf">https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/downloads/R2134CP.pdf</a>.
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Under Sec. 413.237, an ESRD facility is eligible for an outlier
payment if its imputed (that is, calculated) MAP amount per treatment
for ESRD outlier services exceeds a threshold. In past years, the MAP
amount has reflected 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 per treatment plus the fixed dollar
loss (FDL) amount. As described in the following paragraphs, the ESRD
facility's predicted MAP amount is the national adjusted average ESRD
outlier services MAP amount per treatment, further adjusted for case-
mix and facility characteristics applicable to the claim. We use the
term ``national adjusted average'' in this section of this proposed
rule 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 ESRD PPS base rate to account
for the proportion of the estimated total Medicare 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

[[Page 55785]]

patients (75 FR 49140). As we explained in the CY 2011 ESRD PPS final
rule (75 FR 49138 through 49139), the predicted outlier services MAP
amounts for a patient are determined by multiplying the adjusted
average outlier services MAP amount by the product of the patient-
specific case-mix adjusters applicable using the outlier services
payment multipliers developed from the regression analysis used to
compute the payment adjustments.
Lastly, in the CY 2023 ESRD PPS final rule, we finalized an update
to the outlier methodology to better target 1.0 percent of total
Medicare payments (87 FR 67170 through 67177). We explained that for
several years, outlier payments had consistently landed below the
target of 1.0 percent of total ESRD PPS payments (87 FR 67169).
Commenters raised concerns that the methodology we used to calculate
the outlier payment adjustment since CY 2011 results in underpayment to
ESRD facilities, as the base rate has been reduced by 1.0 percent since
the establishment of the ESRD PPS to balance the outlier payment (85 FR
71409, 71438 through 71439; 84 FR 60705 through 60706; 83 FR 56969). In
response to these concerns, beginning with CY 2023, we began
calculating the adult FDL amounts based on the historical trend in FDL
amounts that would have achieved the 1.0 percent outlier target in the
3 most recent available data years. We stated in the CY 2023 ESRD PPS
final rule that we would continue to calculate the adult and pediatric
MAP amounts for CY 2023 and subsequent years following our established
methodology. In that same CY 2023 ESRD PPS final rule, we provided a
detailed discussion of the methodology we use to calculate the MAP
amounts and FDL amounts (87 FR 67167 through 67169).
For CY 2025, we are proposing several methodological and policy
changes to the ESRD PPS outlier policy to address a number of concerns
that interested parties have raised in recent years. Although we note
that the 1.0 percent outlier target was achieved in CY 2023, it was not
achieved in the majority of the years since the establishment of the
ESRD PPS in 2011. We expect that each of the proposed changes would
support the ability of the ESRD PPS to continue targeting outlier
payments at 1.0 percent in CY 2025 and subsequent years. We discuss
each of these proposed changes in detail in the following sections.
b. Proposed Expansion of ESRD Outlier Services
(1) Background and Current Issues
In the CY 2011 ESRD PPS final rule we finalized a policy that only
renal dialysis services that were or would have been separately
billable prior to the inception of the ESRD PPS would be eligible for
the outlier payment. In the CY 2011 ESRD PPS proposed rule we explained
that we believed that any unusual variation in the cost of the renal
dialysis services comprising the base rate under the ESRD PPS would
likely to be due to variation in the items and services that were, at
that time, separately billable under Part B or renal dialysis service
drugs and biological products that were then covered under Part D (74
FR 49988). We received some comments at that time that requested CMS
consider alternative ways to determine outlier eligibility, including
expanding eligibility to all renal dialysis services. However, we noted
that we did not have adequate data at that time to include all
Composite Rate Services (that is, renal dialysis services included in
the composite payment system established under section 1881(b)(7) of
the Act and the basic case-mix adjusted composite payment system
established under section 1881(b)(12) of the Act, as defined in
regulation at Sec. 413.171) in the outlier calculation (74 FR 49989,
75 FR 49135).
In the CY 2019 ESRD PPS proposed rule we issued a comment
solicitation on the potential expansion of outlier payments to
composite rate supplies, drugs, and biological products (83 FR 34332).
In this RFI, we detailed that such a change could promote appropriate
payment for composite rate drugs once the TDAPA period has ended.
Commenters' responses to this comment solicitation were mixed (83 FR
56969 through 56970). One commenter expressed that such a change would
promote and incentivize the development of innovative new therapies and
devices to treat the highly vulnerable ESRD adult and pediatric patient
populations. Some commenters responded specifically regarding the TDAPA
that extending availability of outlier payments would be particularly
important when no additional money is being added to the base rate for
the drug, as is the case with most drugs and biological products
receiving the TDAPA. However, some commenters, including MedPAC, did
not agree that such an expansion of the outlier eligible services would
improve care, generally indicating that expanding the list of ESRD
outlier services would hamper the outlier payment's functionality. One
commenter stated that the purpose of the outlier adjustment was to pay
for unusually costly patients, not new drugs and biological products,
which the commenter felt the outlier payment was unable to do
adequately. MedPAC commented that an outlier policy should act as a
stop-loss insurance for medically necessary care, and outlier payments
are needed when the ESRD PPS' payment adjustments do not capture all of
the factors affecting providers' costs of delivering care. To that end,
MedPAC stated that to develop an effective outlier policy, CMS must
first develop accurate patient-level and facility-level payment
adjustments. MedPAC further cautioned that should CMS expand the list
of eligible ESRD outlier services, we should be clear as to what would
qualify for the outlier payment.
In subsequent years, we took steps to expand the outlier policy to
include certain potentially costly renal dialysis services that would
have been included in the composite rate prior to the ESRD PPS. In the
CY 2020 ESRD PPS final rule we finalized that any new and innovative
renal dialysis equipment or supply would be eligible for the outlier
adjustment after the end of the TPNIES period, regardless of whether it
would have been separately billable prior to 2011 (84 FR 60697). In
that rule, we explained that we believed allowing these items to be
outlier eligible after the end of the TPNIES period would allow for
these new and innovative supplies to be competitive with the other
equipment and supplies also accounted for in the ESRD PPS base rate by
establishing a level playing field where products could gain market
share by offering the best practicable combination of price and quality
(84 FR 60693). In the CY 2021 ESRD PPS final rule, we finalized that
capital-related assets that are home dialysis machines will not become
ESRD outlier services at the end of the TPNIES payment period (85 FR
71399). We explained that as assets, capital-related home dialysis
machines are distinct from operating expenses such as the disposable
supplies and leased equipment with no conveyed ownership rights. Unlike
assets, these latter items are generally accounted for on a per patient
basis and therefore, when used in excess of the average, constitute
outlier use, which makes them eligible for outlier payments (85 FR
71424).
The definition of ESRD outlier services is codified at Sec.
413.237(1)(a). Currently, drugs and biological products that were or
would have been paid under the composite rate are not considered ESRD
outlier services, and

[[Page 55786]]

costs for these drugs are not included in the calculation for outlier
payments on ESRD PPS claims. Current regulations at Sec. 413.171
define Composite Rate Services as: ``Items and services used in the
provision of outpatient maintenance dialysis for the treatment of ESRD
and included in the composite payment system established under section
1881(b)(7) and the basic case-mix adjusted composite payment system
established under section 1881(b)(12) of the Act.'' Under our
longstanding policy, drugs and biological products that are substitutes
for composite rate drugs and biological products are considered to be
included in the composite rate portion of the ESRD PPS. In the CY 2011
ESRD PPS final rule (75 FR 49048), we cited to existing guidance in the
Medicare Benefit Policy Manual, Pub. 100-02, chapter 11, section
30.4.1, which explicitly stated, ``drugs used in the dialysis procedure
are covered under the facility's composite rate and may not be billed
separately. Drugs that are used as a substitute for any of these items,
or are used to accomplish the same effect, are also covered under the
composite rate.'' This guidance remains in effect and was subsequently
re-designated to section 20.3.F of the same chapter.
In the CY 2024 ESRD PPS final rule (88 FR 76391), we finalized a
policy to pay, beginning for CY 2024, a post-TDAPA add-on payment
adjustment for any new renal dialysis drug or biological product that
is considered included in the ESRD PPS base rate that has previously
been paid for using the TDAPA under Sec. 413.234(c)(1). This post-
TDAPA add-on payment adjustment generally will be applied for a period
of 3 years following the end of the TDAPA period for those products. We
finalized that the post-TDAPA add-on payment adjustment amount will be
calculated based on the most recent available 12 months of claims data
and the latest available full calendar quarter of average sales price
(ASP) data (88 FR 76396). We explained that we divide the total
expenditure of the new renal dialysis drug or biological product by the
total number of ESRD PPS treatments furnished during the same 12-month
period. In addition, we finalized that we adjust the post-TDAPA add-on
payment adjustment amount paid on claims by the patient-level case-mix
adjustment factors; accordingly, we apply a reduction factor to the
post-TDAPA add-on payment adjustment amount to account for the
application of the patient-level case-mix adjustment factors. We
codified these policies by revising Sec. 413.234(c)(1)(i) and adding
regulations at Sec. 413.234(b)(1)(iii), (c)(1)(ii), (c)(3), and (g)
that describe the post-TDAPA add-on payment adjustment and the
calculation we use to determine the post-TDAPA add-on payment
adjustment amount. In addition, we amended Sec. 413.230 by adding
reference to the post-TDAPA add-on payment adjustment in the
calculation of the ESRD PPS per treatment payment amount.
In the same CY 2024 ESRD PPS final rule, we summarized comments
regarding the outlier policy as it pertains to the post-TDAPA add-on
payment adjustment (88 FR 76396). One commenter pointed out that the CY
2024 ESRD PPS proposed rule did not indicate whether the ESRD PPS
outlier adjustment would apply to products for which a post-TDAPA add-
on payment adjustment is calculated. In response, CMS stated that under
current policy, after the end of the TDAPA period, a drug or biological
product is considered an eligible outlier service only if it meets the
requirements of Sec. 413.237(a)(1). We clarified that any renal
dialysis drug or biological product included in the calculation of the
post-TDAPA add-on payment adjustment would be considered an eligible
ESRD outlier service only if it meets the requirements of Sec.
413.237(a)(1). However, we further clarified that under current policy,
Korsuva[supreg], the only renal dialysis drug with a TDAPA period
ending in CY 2024, would not be considered an eligible ESRD outlier
service after the end of its TDAPA period, because it is a substitute
for diphenhydramine hydrochloride, which was included in the composite
rate prior to 2011, and therefore does not meet the requirements of
Sec. 413.237(a)(1) (that is, it would not have been, prior to January
1, 2011, separately billable under Medicare Part B).
Most recently, we have heard concerns from interested parties that
excluding drugs and biological products that are substitutes for--or
are used to achieve the same effect as--composite rate drugs and
biological products from the definition of ESRD outlier services could
limit the ability of the ESRD PPS outlier adjustment to appropriately
recognize the drivers of cost for renal dialysis services. We
considered these concerns, as well as the comments we received in
response to prior rulemaking, to develop proposed changes to the
definition of ESRD outlier services.
(2) Proposed Definition of ESRD Outlier Services
We are proposing to change the definition of ESRD outlier services
at Sec. 413.237(a)(1) to include drugs and biological products that
were or would have been included in the composite rate prior to the
establishment of the ESRD PPS. We note that this proposal would expand
outlier eligibility to longstanding drugs and biological products that
were historically included in the composite rate, as well as newer
drugs and biological products that are currently included in the
calculation of the post-TDAPA add-on payment adjustment. As discussed
in section II.B.3.c of this proposed rule, we are proposing technical
changes to the calculation of outlier payments that would appropriately
account for the post-TDAPA add-on payment adjustment for ESRD outlier
services that are drugs and biological products.
First, we considered the original intent behind the policy to limit
outlier payments to drugs that were or would have been separately
billable prior to 2011, which was that these drugs were likely the main
drivers of the variation in the costs of treatment (74 FR 49988). We
continue to believe that an important aspect of the outlier adjustment
should be its ability to target ESRD cases that are unusually costly.
If the outlier adjustment methodology failed to recognize the main
drivers of variation in the costs of ESRD treatment, then it could
result in cases that are not unusually costly qualifying for the
outlier adjustment, which would mean the impact of the outlier
adjustment would be diluted. As we noted earlier in this proposed rule,
many of the responses to the comment solicitation in the CY 2019 ESRD
PPS proposed rule expressed concerns that expanding the scope of ESRD
outlier services would potentially dilute the impact of the outlier
adjustment. We considered the potential impact of expanding the
definition of ESRD outlier services to include additional drugs and
biological products not currently included. We agree with the
commenters who noted that the purpose of the outlier payment is not to
pay for new drugs and biological products (83 FR 56969). Rather, as we
discussed in the CY 2011 ESRD PPS final rule (75 FR 49134), CMS
established the current outlier policy, including the 1.0 percent
outlier target, because it struck an appropriate balance between our
objective of paying an adequate amount for the most costly, resource-
intensive patients while providing an appropriate level of payment for
those patients who do not qualify for outlier payments. Under our
current policy, new renal dialysis drugs and biological products that
are paid for using the TDAPA are not considered

[[Page 55787]]

ESRD outlier services. As we explained in the CY 2016 ESRD PPS final
rule (80 FR 69023), this is because during the TDAPA period we make a
payment adjustment for the specific drug in addition to the base rate,
whereas outlier services have been incorporated into the base rate. In
contrast, the post-TDAPA add-on payment adjustment is paid on all
claims, and drugs that are included in the post-TDAPA add-on payment
adjustment amount are considered included in the ESRD PPS base rate. As
a result, the amount paid under the post-TDAPA add-on payment
adjustment does not correspond to the amount of a drug or biological
product used on a claim, which would not be accounted for in any
existing payment adjustment other than the outlier adjustment. For
example, our analysis shows that patients using Korsuva[supreg] have
costs of approximately $150 per treatment; however, because this drug
is not recognized as an ESRD outlier service, these costs are not
accounted for in determining the payment amount for the claim.
Beginning April 1, 2024, the CY 2024 post-TDAPA add-on payment
adjustment for Korsuva[supreg] increases the payment amount per
treatment by approximately $0.25, which is adjusted by the patient-
level case-mix adjusters applicable to the claim. In aggregate, the
post-TDAPA add-on payment adjustment accounts for 65 percent of the
cost of furnishing Korsuva[supreg]; however, this payment is spread
across all ESRD PPS treatments.
We are not proposing to expand outlier eligibility to drugs and
biological products that are paid for using the TDAPA during the TDAPA
payment period, as the TDAPA amount is based on the full price (100
percent of ASP) for the amount of such drugs that is utilized and
billed on the claim.
We considered only expanding the definition of ESRD outlier
services to include drugs and biological products that were previously
paid for using the TDAPA. As commenters have noted, new renal dialysis
drugs and biological products are likely to be drivers of cost, because
these drugs are typically more expensive. We recognized the importance
of supporting access to new renal dialysis drugs and biological
products under the ESRD PPS through the establishment of the post-TDAPA
add-on payment adjustment beginning in CY 2024 (88 FR 76391). We
explained in the CY 2024 ESRD PPS final rule that we agreed with
commenters who expressed concerns that the ESRD PPS' current mechanisms
may not fully account for the costs of these new drugs (88 FR 76388).
We noted that several commenters stated that the outlier adjustment and
the ESRDB market basket updates cannot adequately account for these
costs, and several organizations noted that if additional renal
dialysis drugs and biological products with significant costs were
incorporated into the outlier payment calculation, the threshold to
qualify for outlier payments would increase dramatically, thus
adversely affecting access to products traditionally eligible for the
outlier payment adjustment. We described comments which expressed that
this increase in the outlier threshold may also raise health equity
concerns because, as we noted in the CY 2023 ESRD PPS final rule (87 FR
67170 through 67171), the outlier adjustment protects access for
beneficiaries whose care is unusually costly. We recognized that if the
outlier threshold were to increase significantly due to significant use
of a new renal dialysis drug or biological product after the end of the
TDAPA period, then ESRD facilities might be incentivized to avoid
treating costlier beneficiaries.
We believe it would be appropriate for the definition of ESRD
outlier services to include all drugs and biological products that
previously were paid for using the TDAPA. The inclusion of these drugs
and biological products would help ensure appropriate payment when a
patient's treatment is exceptionally expensive due to an ESRD facility
furnishing such drugs or biological products to the patient whose
treatment requires them. In the CY 2011 ESRD PPS proposed rule, we
explained that significant variations in formerly separately billable
items and services could impair access to appropriate care, as an ESRD
facility may have a disincentive to provide adequate treatment to those
ESRD patients likely to have significantly higher than average costs
(74 FR 49988). We believe ESRD facilities may face similar
disincentives for furnishing drugs and biological products that
previously received payment under the TDAPA. We believe that this
change would also align with the statutory authority for the outlier
adjustment under section 1881(b)(14)(D)(ii) of the Act by protecting
patients' access to medically necessary care through a payment
adjustment that more fully recognizes unusual variations in the type or
amount of such care. Specifically, we believe this change would
encourage ESRD facilities to take on ESRD patients who would
potentially require expensive new drugs and biological products,
promoting health equity for these patients who require costlier care.
Additionally, the technical changes we are proposing in section
II.B.3.c of this proposed rule would limit the impact of such drugs and
biological products on the outlier threshold calculation, thereby
enabling the ESRD PPS outlier adjustment to continue to protect access
for beneficiaries whose care is unusually costly.
In light of the past comments described earlier in this section, we
further considered whether expanding eligibility to all renal dialysis
drugs and biological products that are Composite Rate Services, as
defined at Sec. 413.171, would be appropriate. As we have previously
stated, the purpose of the outlier adjustment is to protect access for
beneficiaries whose care is unusually costly. Although we continue to
expect that the main drivers of cost would be drugs and biological
products that were previously separately billable under Part B or Part
D, or were previously paid for using the TDAPA, we nevertheless
recognize that some patients could require higher utilization of
composite rate drugs and biological products, which may result in the
overall cost of their renal dialysis care being unusually high. For
example, as noted in section II.B.3.e of this proposed rule, our
analysis has identified that certain composite rate drugs are
significant drivers of cost for pediatric patients, and therefore the
proposed inclusion of those drugs as ESRD outlier services would
improve the ability of the ESRD PPS outlier adjustment to target
payment for pediatric patients whose care is exceptionally costly.
Including composite rate drugs and biological products in the
calculation of the outlier adjustment could appropriately support care
for such ESRD patients, because payments under the outlier adjustment
would better align with resource use.
We also considered the comments from MedPAC in response to the CY
2019 ESRD PPS proposed rule. Specifically, MedPAC stated that to
develop an effective outlier policy, CMS must first develop accurate
patient-level and facility-level payment adjustments. As we stated in
the CY 2024 ESRD PPS final rule, interested parties have encouraged CMS
to develop a patient cost model that is based on a single patient-level
cost variable that accounts for all composite rate and formerly
separately billable services (88 FR 76399). We finalized the collection
of time on machine data, beginning for CY 2025, which we stated would
allow for a higher proportion of composite rate costs to be allocated
to patients with longer renal dialysis treatment times, and ultimately
inform CMS refinements to existing patient-level adjusters,

[[Page 55788]]

including age and comorbidities (88 FR 76400). We believe that
expanding the definition of ESRD outlier services could further support
our understanding of the costs of Composite Rate Services, because it
would encourage more comprehensive reporting of renal dialysis drugs
and biological products that were formerly included in the composite
rate for the purposes of calculating outlier payments. This increased
reporting would in turn support future revisions to patient-level
adjustment factors that consider more complete information about costs
at the patient level.
We do not agree that the proposed inclusion of composite rate drugs
and biological products would dilute the impact of the outlier
adjustment, as some commenters in response to the CY 2019 ESRD PPS
proposed rule suggested. Rather, our analysis indicates that the
inclusion of these drugs and biological products would appropriately
recognize the situations when the provision of these services is
unusually costly, which we estimate would increase the amount of
outlier payment per outlier-eligible claim, thereby more effectively
protecting access for beneficiaries whose care is exceptionally costly.
As discussed in section II.B.3.e. of this proposed rule, if we made no
changes to our outlier methodology or the definition of ESRD outlier
services for CY 2025, the average outlier payment for outlier-eligible
cases among pediatric patients would be $25.02, and the average outlier
payment for adult patients would be $53.45. Under the proposed changes
to outlier eligibility, the average outlier payment for pediatric and
adult patients would increase to $73.24 and $57.16, respectively.
Furthermore, as discussed later in section II.B.3.e of this proposed
rule, the inclusion of composite rate drugs and biological products
would increase the pediatric MAP amount by a large amount, reflecting
the utilization of certain high-cost composite rate drugs. Although the
proposed CY 2025 adult MAP amount is lower than the final CY 2024 adult
MAP amount, we note that the proposed adult MAP amount for CY 2025 is
approximately $0.79 higher than it would be absent the proposed policy
changes in this rule, which demonstrates that the inclusion of
composite rate drugs and biological products would result in a higher
MAP amount for adults.
In summary, the inclusion of composite rate drugs and biological
products as ESRD outlier services would include more costs in the
calculation of the ESRD PPS outlier adjustment for each case. As a
result, fewer claims would qualify for outlier payments, but the amount
of outlier payment per claim would be higher. Therefore, rather than
diluting the impact of the outlier adjustment, these proposed changes
would increase the impact of the outlier adjustment.
We are proposing to amend the language at 42 CFR 413.237 by adding
a new paragraph (a)(1)(vii), which would add to the list of renal
dialysis services defined as ESRD outlier services the following:
``Renal dialysis drugs and biological products that are Composite Rate
Services as defined in Sec. 413.171.''
c. Proposed Changes to Predicted MAP Calculation for Outlier
Eligibility
As we discussed in the CY 2023 ESRD PPS final rule (87 FR 67169), a
claim is eligible for outlier payment when its imputed MAP amount
exceeds the sum of the predicted MAP amount and the fixed dollar loss
threshold. The predicted MAP amount for a claim is based on the
national average MAP amount, adjusted by the case-mix adjustment
factors that apply for that claim's patient-level and facility-level
characteristics. As a result, when a claim's adjustment factors
increase the payment amount per treatment, the claim's predicted MAP is
also increased. This is because we expect that more complex patients
would require a higher amount of spending for outlier services.
However, this higher expected cost is recognized through a higher per
treatment payment amount. In other words, a more complex patient must
have even higher costs than are already accounted for in the adjustment
factors compared to a less complex patient to be considered unusually
costly. By increasing the predicted MAP based on the case-mix
adjustment factors, the ESRD PPS outlier policy ensures that only cases
that are unusually costly are considered for outlier payment.
As previously discussed in this proposed rule, we finalized a post-
TDAPA add-on payment adjustment in the CY 2024 ESRD PPS final rule. The
post-TDAPA add-on payment adjustment for certain new renal dialysis
drugs and biological products is generally applied for 3 years after
the end of the TDAPA period (88 FR 76388 through 76397). The amount of
this post-TDAPA add-on payment adjustment that is applied to an ESRD
PPS claim is adjusted by any applicable patient-level case-mix
adjustments under Sec. 413.235, and this adjusted amount is added to
the payment amount for each ESRD PPS treatment billed. We explained in
the CY 2024 ESRD PPS final rule that during this 3-year post-TDAPA add-
on payment period, a drug or biological product would be eligible for
the outlier add-on payment if it met all of the other criteria for the
outlier payment (88 FR 76396). The only drug or biological product
which was set to end its TDAPA period in CY 2024 (and therefore would
receive the post-TDAPA add-on payment adjustment that year) was
Korsuva[supreg], which is a substitute for a composite rate drug and,
therefore, not outlier eligible under existing Sec. 413.237(a)(1) (88
FR 76396). Therefore, we did not propose any changes to the ESRD PPS
outlier methodology to account for the post-TDAPA add-on payment
adjustment in the CY 2024 ESRD PPS proposed rule as that would not have
affected payments for CY 2024.
As noted previously, we are proposing to expand outlier eligibility
to include renal dialysis drugs and biological products that are
Composite Rate Services as defined in Sec. 413.171. This would mean
that new drugs and biological products that are included in the
calculation of the post-TDAPA add-on payment adjustment amount would
become outlier eligible after the end of the TDAPA period, regardless
of whether they are substitutes for composite rate drugs or biological
products.
We are also proposing changes to the ESRD PPS outlier methodology
to account for any future drugs and biological products which are
outlier eligible during the post-TDAPA period. We propose to add the
case-mix adjusted post-TDAPA add-on payment adjustment amount to the
predicted MAP for a patient. This is appropriate because the post-TDAPA
add-on payment adjustment amount represents average utilization of a
drug or biological product, and is added to the payment amount,
adjusted by the case-mix adjusters for the patient. This would prevent
duplicate payment for these drugs and biological products by accounting
for the portion of the cost for these drugs or biological products
which is included in the ESRD PPS bundled payment. We note that this
proposed change would not affect the calculation of the imputed MAP for
a claim, because a claim's imputed MAP would include the actual
utilization of the drug or biological product that is included in the
calculation of the post-TDAPA add-on payment adjustment, if that drug
or biological product is billed on the claim.
We considered proposing to modify the average MAP amount to account
for outlier eligible drugs and biological products that are already
included in the calculation of the post-TDAPA add-

[[Page 55789]]

on payment adjustment amount, rather than proposing to modify the
predicted MAP amount for each claim. However, we note two main
limitations with taking such an approach. First, the average MAP is set
annually for an entire year and does not change from quarter to
quarter; in contrast, the post-TDAPA add-on payment adjustment amount
can change from quarter to quarter depending on when a drug or
biological product's TDAPA period ends and the number of drugs and
biological products included in the calculation. Second, our
longstanding methodology for calculating the predicted MAP for outlier
payments applies the outlier services multipliers to the average MAP.
However, when we calculate the post-TDAPA add-on payment adjustment
amount for a claim, we apply the ESRD PPS case-mix adjusters, which are
different from the outlier services multipliers. We believe it would be
most appropriate to continue to apply the ESRD PPS case-mix adjusters
to the post-TDAPA add-on payment adjustment amount for the purposes of
outlier calculation, so that the estimate of a claim's expected
spending would align with the calculation used for the post-TDAPA add-
on payment adjustment. For these reasons, we believe that it is more
appropriate and more operationally feasible to apply the case-mix
adjusted post-TDAPA add-on payment adjustment amount to the predicted
MAP for claims during the quarters in which the drug or biological
product is receiving the post-TDAPA add-on payment adjustment, rather
than publishing different average MAPs for different quarters of a
single year.
For CY 2025, the impact of this technical modification would be a
small increase to the pediatric and adult FDL amounts, due to the small
post-TDAPA add-on payment adjustment amount calculated for each quarter
of CY 2025, as discussed in section II.B.6 of this proposed rule.
Without this proposed methodological change, the pediatric FDL amount
would increase by $0.68. Likewise, the adult FDL amount would increase
by $0.89. This proposed methodological change would avoid those
increases, resulting in the proposed CY 2025 adult and pediatric MAP
and FDL amounts shown in table 7 of this proposed rule. Although the
effect would be small for CY 2025, we note that the proposed increase
would be larger in potential future situations when utilization of a
drug or biological product during the post-TDAPA payment period could
be higher.
d. Proposed Technical Modifications to the Inflation Factors Used for
the Outlier Calculations
(1) Background
In the CY 2011 ESRD PPS final rule we finalized our ESRD PPS
outlier methodology, which included our methodology for updating data
from past years to the CY for which CMS is establishing payment rates
(75 FR 49134). In the CY 2023 ESRD PPS final rule, we finalized an
update to the outlier methodology to better target 1.0 percent of total
Medicare payments (87 FR 67170 through 67177) by prospectively
calculating the adult FDL amounts based on the historical trend in FDL
amounts that would have achieved the 1.0 percent outlier target in the
3 most recent available data years. In that final rule we also
clarified our longstanding methodology for updating data from prior
years for the purposes of the outlier calculations (87 FR 67167). For
drugs and biological products, we use a blended 4-quarter moving
average of the ESRDB market basket price proxies for pharmaceuticals to
inflate drug prices to the CY for which CMS is establishing payment
rates. For laboratory tests, we inflate laboratory test prices to the
CY for which CMS is establishing payment rates using a CPI forecast to
estimate changes for years in which a new data reporting period will
take place for the purpose of setting Clinical Laboratory Fee Schedule
(CLFS) rates.\27\ For supplies, we apply a 0 percent inflation factor,
because these prices are based on predetermined fees or prices
established by the Medicare contractor.
---------------------------------------------------------------------------

\27\ Since 2018, there has been no updated reporting for most
clinical diagnostic laboratory tests; therefore, the forecast
estimate used since CY 2018 for the ESRD PPS outlier methodology has
been 0.
---------------------------------------------------------------------------

In the CY 2023 ESRD PPS final rule (87 FR 67173), we noted that
MedPAC supported the proposed revisions to the FDL methodology, but
also urged CMS to refine its approach for applying the pricing data
that the agency uses to project future spending for outlier services,
particularly for drugs. Specifically, MedPAC suggested CMS use a drug
price inflation factor based on ASP values and noted that the ASP data
that CMS uses to determine facilities' actual outlier payments might be
a more accurate data source on drug prices than the ESRDB market basket
pharmaceutical price proxies that are currently used.
As discussed in the following sections, we have undertaken analysis
of prices for ESRD outlier services and are proposing several technical
changes to the inflation factors.
(2) Proposed Changes to the Inflation Factor for Outlier Eligible Drugs
and Biological Products
As described earlier, we use a blended 4-quarter moving average of
the ESRDB market basket price proxy for Pharmaceuticals to inflate drug
prices to the upcoming CY for the purpose of estimating spending for
outlier drugs and biological products in that CY. Historically, this 4-
quarter moving average is a positive factor, meaning that our
longstanding methodology for modeling outlier spending amounts assumes
that prices for ESRD outlier drugs and biological product will
increase. For example, the current projection of the CY 2025 price
growth for ESRD outlier drugs and biological products, based on the
ESRDB market basket price proxy for Pharmaceuticals for CY 2025, is 1.9
percent, based on the IGI 1st quarter 2024 forecast with historical
data through the 4th quarter of 2023.
To compare the actual changes in prices for ESRD outlier drugs and
biological products against the assumed rate of change derived from the
ESRDB market basket price proxies, we constructed an index of prices
for ESRD outlier drugs and biological products. As previously discussed
in section II.B.3.b of this proposed rule, we are proposing to expand
the definition of ESRD outlier services to include renal dialysis drugs
and biological products that were or would have been included in the
composite rate prior to the establishment of the ESRD PPS. Accordingly,
our constructed drug price index included these drugs and biological
products as well as drugs and biological products that have
historically been included in the definition of ESRD outlier services.
Because the list of ESRD outlier drugs and biological products
changes over time, we are proposing to derive a chained Laspeyres price
index of the drugs and biological products included in the definition
of the ESRD outlier services. A chained Laspeyres price index does not
require a fixed basket of drugs and biological products during the
observation window. We constructed and then trended forward the year-
over-year change in price index levels for this outlier drug index to
calculate a projected inflation factor for ESRD outlier drugs and
biological products for CY 2025, using the following steps:
Step 1: We obtained the annual list of ESRD outlier service drugs
and biological products that appear in ESRD

[[Page 55790]]

PPS claims during the CYs 2017 through 2023. These include both
composite rate and formerly separately billable drugs and biological
products.
Step 2: We obtained quarterly ASP for each drug and biological
product during the same period 2017 through 2023, substituting annual
ASP when quarterly information was not available.
Step 3: We obtained quarterly utilization data for each drug and
biological product for the period 2017 through 2023.
Step 4: For each quarter, we established the base period as the
prior quarter and held utilization fixed at the base period. We then
constructed a Laspeyres price index based on all drugs and biological
products that had price information in that quarter and the prior
quarter.
Step 5: We chained together the quarterly indices starting from the
1st quarter 2017 through the 4th quarter 2023 to express price changes
in the 4th quarter 2017 relative to the 1st quarter 2017. This step was
repeated for all prior quarters, keeping the starting period fixed at
the 1st quarter 2017.
Step 6: We calculated the percentage change between the current and
prior 4th quarter chained price index for each year for CY 2021, 2022,
and 2023, which we used as the annual drug price inflation factor for
each year.
Step 7: Using the chained price indexes for the three most recent
CYs (2021, 2022, and 2023), we used a linear regression to project
forward these three historical inflation factors to determine the CY
2025 inflation factor.
Using this methodology, we calculated a projected inflation factor
of -0.7 percent, meaning that prices for ESRD outlier drugs and
biological products are projected to be 0.7 percent lower in CY 2025
relative to the prices of the ESRD outlier drugs and biological
products in than in CY 2024. We note that our analysis of year-over
year changes in prices for ESRD outlier drugs and biological products
shows a consistent, downward trend in prices, which stands in contrast
to the positive inflation factors we have historically used to model
outlier payments. As a result, our modeling of outlier spending in
prior years has assumed that outlier prices would increase, when the
ASP data shows that overall the prices have decreased.
Based on the results of our analysis, we believe that applying an
inflation factor based on the actual change in prices for ESRD outlier
drugs and biological products would enable the ESRD PPS outlier
adjustment to better target 1.0 percent of outlier payments in CY 2025,
because such an inflation factor would better reflect the observed
historical trend in spending and utilization for such drugs and
biological products. Although we have historically used the ESRDB
market basket price proxy for Pharmaceuticals as the basis of our
inflation assumptions for outlier modeling, and we believe that market
basket price proxies would continue to be a reasonable and technically
appropriate source for such assumptions, we note that the market basket
price proxies serve a distinctly different purpose than the inflation
factors. As we explained in the CY 2023 ESRD PPS final rule (87 FR
67147), we select the most appropriate wage and price proxies currently
available to represent the rate of price change for each expenditure
category. In contrast, the purpose of the inflation factors used in our
outlier modeling is to represent the expected rate of change in price
and utilization, so that we can prospectively set accurate FDL and MAP
amounts that will result in outlier payments that equal 1.0 percent of
total ESRD PPS payments. Decreasing our estimates of future outlier
spending, as we are proposing to do, would result in lower FDL and MAP
amounts, thereby increasing the number of claims that could be eligible
for the outlier payment adjustment and the amount of outlier payments
that would be paid on each claim. Revising our assumptions about future
spending for ESRD outlier drugs and biological products would improve
the ability of the ESRD outlier adjustment to pay for the costliest
ESRD PPS claims. Therefore, we are proposing to use the projected
inflation factor for ESRD outlier services that are drugs and
biological products derived from the historical trend in prices and
utilization for ESRD outlier drugs, as descri

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Indexed from Federal Register on July 5, 2024.

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