Rule2024-25486
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
Primary source
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Published
November 12, 2024
Effective
January 1, 2025
Issuing agencies
Health and Human Services DepartmentCenters for Medicare & Medicaid Services
Abstract
This final rule updates and revises the End-Stage Renal Disease (ESRD) Prospective Payment System for calendar year 2025. This rule also updates the payment rate for renal dialysis services furnished by an ESRD facility to individuals with acute kidney injury. In addition, this rule updates requirements for the 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 218 (Tuesday, November 12, 2024)]
[Rules and Regulations]
[Pages 89084-89213]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-25486]
[[Page 89083]]
Vol. 89
Tuesday,
No. 218
November 12, 2024
Part II
Department of Health and Human Services
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Centers for Medicare & 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; Final Rule
Federal Register / Vol. 89 , No. 218 / Tuesday, November 12, 2024 /
Rules and Regulations
[[Page 89084]]
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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-F]
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: Final rule.
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SUMMARY: This final rule updates and revises the End-Stage Renal
Disease (ESRD) Prospective Payment System for calendar year 2025. This
rule also updates the payment rate for renal dialysis services
furnished by an ESRD facility to individuals with acute kidney injury.
In addition, this rule updates requirements for the Conditions for
Coverage for ESRD Facilities, ESRD Quality Incentive Program, and ESRD
Treatment Choices Model.
DATES: These regulations are effective on January 1, 2025.
FOR FURTHER INFORMATION CONTACT:
<a href="/cdn-cgi/l/email-protection#084d5b5a4c586971656d667c486b657b2660607b266f677e"><span class="__cf_email__" data-cfemail="8acfd9d8cedaebf3e7efe4fecae9e7f9a4e2e2f9a4ede5fc">[email protected]</span></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#6b2e38392f2a1b1b0702080a1f020405182b08061845030318450c041d"><span class="__cf_email__" data-cfemail="cb8e98998f8abbbba7a2a8aabfa2a4a5b88ba8a6b8e5a3a3b8e5aca4bd">[email protected]</span></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#94d1c7c6d0c5ddc4d4f7f9e7bafcfce7baf3fbe2"><span class="__cf_email__" data-cfemail="bdf8eeeff9ecf4edfdded0ce93d5d5ce93dad2cb">[email protected]</span></a>, for issues related to the ESRD Quality
Incentive Program (QIP).
<a href="/cdn-cgi/l/email-protection#084d5c4b254b454541486b657b2660607b266f677e"><span class="__cf_email__" data-cfemail="9cd9c8dfb1dfd1d1d5dcfff1efb2f4f4efb2fbf3ea">[email protected]</span></a>, for issues related to the ESRD Treatment
Choices (ETC) Model.
SUPPLEMENTARY INFORMATION:
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 final rule, we use CPT[supreg] codes and descriptions to refer to
a variety of services. We note that CPT[supreg] codes and descriptions
are copyright 2020 American Medical Association (AMA). All Rights
Reserved. CPT[supreg] is a registered trademark of the AMA. Applicable
Federal Acquisition Regulations (FAR) and Defense Federal Acquisition
Regulations (DFAR) apply.
Table of Contents
To assist readers in referencing sections contained in this
preamble, we are providing a Table of Contents.
I. Executive Summary
A. Purpose
B. Summary of the Major Provisions
C. Summary of Cost and Benefits
II. Calendar Year (CY) 2025 End-Stage Renal Disease (ESRD)
Prospective Payment System (PPS)
A. Background
B. Provisions of the Proposed Rule, Public Comments, and
Responses to the Comments on the CY 2025 ESRD PPS
C. Transitional Add-On Payment Adjustment for New and Innovative
Equipment and Supplies (TPNIES) Applications and Technical Changes
for CY 2025
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. Final CY 2025 Payment for Renal Dialysis Services Furnished to
Individuals With AKI
A. Background
B. Public Comments and Responses on the Proposal To Allow
Medicare Payment for Home Dialysis for Beneficiaries With AKI
C. Annual Payment Rate Update for CY 2025
D. AKI and the ESRD Facility Conditions for Coverage
IV. Updates to the End-Stage Renal Disease Quality Incentive Program
(ESRD QIP)
A. Background
B. 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. Regulatory Impact Analysis
A. Statement of Need
B. Overall Impact Analysis
C. Detailed Economic Analysis
D. Accounting Statement
E. Regulatory Flexibility Act (RFA)
F. Unfunded Mandates Reform Act (UMRA)
G. Federalism
H. Congressional Review Act
VIII. Files Available to the Public via the Internet
I. Executive Summary
A. Purpose
This rule finalizes changes related to the End-Stage Renal Disease
(ESRD) Prospective Payment System (PPS), payment for renal dialysis
services furnished to individuals with acute kidney injury (AKI), the
Conditions for Coverage for ESRD facilities, the ESRD Quality Incentive
Program (QIP), and the ESRD Treatment Choices (ETC) Model.
Additionally, this rule finalizes 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 finalizing the proposal to allow Medicare payment for home dialysis
for beneficiaries 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 these drugs 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
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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/Black, 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 final 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, racial and ethnic
minorities, and American Indians and Alaska Natives. 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 finalizes 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 final rule updates the AKI payment
rate for CY 2025. Additionally, this rule extends 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 finalizes our proposals 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 discusses feedback received in response to our requests for
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 final rule makes 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
also solicited input from the public 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> Update to the ESRD PPS base rate for CY 2025: The final CY
2025 ESRD PPS base rate is $273.82, an increase from the CY 2024 ESRD
PPS base rate of $271.02. This amount reflects the application of the
wage index budget-neutrality adjustment factor (0.988600), and a
productivity-adjusted market basket percentage increase of 2.2 percent
as required by section 1881(b)(14)(F)(i)(I) of the Act, equaling
$273.82 (($271.02 x 0.988600) x 1.022 = $273.82).
<bullet> Modification to the wage index methodology: We are
finalizing a new ESRD-specific wage index that will be used to adjust
ESRD PPS payment for geographic differences in area wages on an annual
basis. Beginning for CY 2025, we will change our methodology to use
mean hourly wage data from the Bureau of Labor Statistics (BLS)
Occupational 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 finalizing updates to 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> Annual update to the wage index: For CY 2025, we are
finalizing updates to the wage index using the new methodology based on
the latest available data. This is consistent with
[[Page 89086]]
our past approach to updating the ESRD PPS wage index on an annual
basis but uses the new wage index methodology based on data from BLS
and freestanding ESRD facility Medicare cost reports.
<bullet> Modifications to the outlier policy: We are finalizing
several proposed revisions to the outlier policy. For the outlier
payment methodology, we are finalizing the use of 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 finalizing the use of 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 finalizing our proposal 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 finalizing the
expansion of 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> Annual update to the outlier policy: We are updating the
outlier policy based on the most current data and the final methodology
changes previously discussed. Accordingly, we are updating the Medicare
allowable payment (MAP) amounts for adult and pediatric patients for CY
2025 using the latest available CY 2023 claims data. We are updating
the ESRD outlier services fixed dollar loss (FDL) amount for pediatric
patients using the latest available CY 2023 claims data and updating
the FDL amount for adult patients using the latest available claims
data from CY 2021, CY 2022, and CY 2023. For pediatric beneficiaries,
the final FDL amount will increase from $11.32 to $234.26, and the MAP
amount will increase from $23.36 to $59.60, as compared to CY 2024
values. For adult beneficiaries, the final FDL amount will decrease
from $71.76 to $45.41, and the MAP amount will decrease from $36.28 to
$31.02. We note that the inclusion of composite rate drugs and
biological products will cause a significant increase in the final 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 final 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> Update to the offset amount for the transitional add-on
payment adjustment for new and innovative equipment and supplies
(TPNIES) for CY 2025: The final CY 2025 average per treatment offset
amount for the TPNIES for capital-related assets that are home dialysis
machines is $10.22. This final offset amount reflects the application
of the final productivity-adjusted ESRDB market basket update of 2.2
percent ($10.00 x 1.022 = $10.22). There are no capital-related assets
set to receive the TPNIES in CY 2025 for which this offset would apply.
<bullet> 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 final post-TDAPA add-on payment
adjustment amount for Korsuva[supreg] is $0.4601 per treatment, which
will be included in the calculation of the total post-TDAPA add-on
payment adjustment for each quarter in CY 2025. The estimated post-
TDAPA add-on payment adjustment amount for Jesduvroq is $0.0096 per
treatment, which will be included in the calculation for only the
fourth quarter of CY 2025. We are finalizing our proposal 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 will be the case for
Jesduvroq.
<bullet> Update to the Low-Volume Payment Adjustment (LVPA): We are
finalizing our proposal 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 will receive a 28.9 percent upward
adjustment to the ESRD PPS base rate and ESRD facilities that furnished
3,000 to 3,999 treatments will receive an 18.3 percent adjustment. We
are also finalizing that the tier determination would be based on the
median treatment count over the past 3 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 final 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. After reviewing public comments, we are finalizing a $36.41
increase to the monthly TDAPA amount for claims which utilize phosphate
binders to account for operational costs related to ESRD facilities
providing phosphate binders that were not addressed when the ESRD PPS
base rate was developed for CY 2011.
2. Payment for Renal Dialysis Services Furnished to Individuals With
AKI
<bullet> Update to the payment rate for individuals with AKI: We
are finalizing an update the AKI payment rate for CY 2025. The final CY
2025 payment rate is $273.82, which reflects the final CY 2025 ESRD PPS
base rate of $273.82 reduced by the home and self-dialysis training
add-on payment budget-neutrality adjustment of $0.00 (as detailed in
section III.C.3 of this final rule).
<bullet> Payment for home dialysis for beneficiaries with AKI: We
are finalizing our proposal to allow Medicare payment for beneficiaries
with AKI to dialyze at home. Payment for home dialysis treatments
furnished to beneficiaries with AKI will be made at the same payment
rate as in-center dialysis treatments. We are finalizing our proposal
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 with a
$0.00 reduction to the AKI base rate. We are finalizing modifications
to the ESRD facility conditions for coverage (CfCs) to implement this
policy change.
3. ESRD QIP
Beginning with PY 2027, we are finalizing our proposal 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 finalizing our proposal to remove the National
Healthcare Safety Network (NHSN) Dialysis Event reporting measure from
the ESRD QIP measure set beginning with PY 2027. We are discussing
feedback received in response to our request for public comment on a
potential health equity payment adjustment and our request for public
comment on potential future updates to the data validation policy.
4. ETC Model
Beginning for CY 2025, we are finalizing the proposed modification
to
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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 refining the methodology we use to 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 finalized modification and
its rationale in section V.B of this final rule.
We also sought 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 VII.C.5 of this final rule, we set forth a detailed
analysis of the impacts that the final changes would have on affected
entities and beneficiaries. The impacts include the following:
1. Impacts of the Final ESRD PPS
The impact table in section VII.C.5.a of this final 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 2.7 percent
increase in Medicare payments. Hospital-based ESRD facilities will have
an estimated 4.5 percent increase in Medicare payments compared with
freestanding ESRD facilities with an estimated 2.6 percent increase. We
estimate that the aggregate ESRD PPS expenditures will increase by
approximately $220 million in CY 2025 compared to CY 2024 as a result
of the proposed payment policies in this rule. Because of the projected
2.7 percent overall payment increase, we estimate there will be an
increase in beneficiary coinsurance payments of 2.7 percent in CY 2025,
which translates to approximately $40 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 final 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 will be no
new TPNIES payments for CY 2025. As discussed in section II.E of this
final rule, the TDAPA payment periods for Jesduvroq and
DefenCath[supreg], will continue into CY 2025. As described in section
VII.C.5.b of this final rule, we estimate that the combined total TDAPA
payment amounts for Jesduvroq and DefenCath[supreg] in CY 2025 will be
approximately $25,633,599, of which, $5,126,719 will be attributed to
beneficiary coinsurance amounts.
2. Impacts of the Final Payment Rate for Renal Dialysis Services
Furnished to Individuals With AKI
The impact table in section VII.C.5.c of this final 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 2.3 percent increase
in Medicare payments for individuals with AKI. Hospital-based ESRD
facilities will have an estimated 3.4 percent increase in Medicare
payments compared with freestanding ESRD facilities that will have an
estimated 2.3 percent increase. The overall impact reflects the effects
of the final Medicare payment rate update and the final CY 2025 ESRD
PPS wage index, as well as the 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 finalizing our proposal
to extend the ESRD PPS home and self-dialysis training add-on payment
adjustment to AKI patients; however, that adjustment is required to be
implemented in a budget neutral manner for AKI payments, so it will 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 final CY
2025 ESRD PPS base rate, will increase by $1 million in CY 2025
compared to CY 2024.
3. Impacts of the PY 2027 ESRD QIP
We estimate that, as a result of previously finalized policies and
changes to the ESRD QIP that we are finalizing in this final rule, the
overall economic impact of the PY 2027 ESRD QIP will be approximately
$154 million. The $154 million estimate for PY 2027 includes $136.1
million in costs associated with the collection of information
requirements and approximately $17.9 million in payment reductions
across all facilities.
4. Impacts of the Proposed Changes to the ETC Model
The final 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-
[[Page 89088]]
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 final
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.
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 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. Provisions of the Proposed Rule, Public Comments, and Response to
the Comments on the CY 2025 ESRD PPS
The proposed rule, titled ``Medicare Program; End-Stage Renal
Disease Prospective Payment System, Payment for Renal Dialysis Services
Furnished to Individuals with Acute Kidney Injury, End-Stage Renal
Disease Quality Incentive Program, and End-Stage Renal Disease
Treatment Choices Model'' (89 FR 55760-55843), referred to as the ``CY
2025 ESRD PPS proposed rule,'' appeared in the July 5, 2024 issue of
the Federal Register, with a comment period that ended on August 26,
2024. In that proposed rule, we proposed to make a number of updates
and policy
[[Page 89089]]
changes for CY 2025, including annual updates to the ESRD PPS base
rate, a new ESRD PPS wage index methodology, changes to the list of
eligible ESRD outlier services, several methodological changes to the
outlier policy, changes to the LVPA structure, updates to the post-
TDAPA add-on payment adjustment amounts, and updates to the offset
amount for the TPNIES.
We received 212 public comments on our proposals, including
comments from kidney and dialysis organizations, such as large and
small dialysis organizations, for-profit and non-profit ESRD
facilities, ESRD networks, and dialysis coalitions. We also received
comments from patients; healthcare providers for adult and pediatric
ESRD beneficiaries; home dialysis services and advocacy organizations;
provider and legal advocacy organizations; administrators and insurance
groups; a non-profit dialysis association; a professional association;
alliances for kidney care and home dialysis stakeholders; drug and
device manufacturers; health care systems; a health solutions company;
and the Medicare Payment Advisory Commission (MedPAC). Of these 212
public comments, approximately 70 were unique and approximately 130
were either duplicative submissions or were solely a form letter. We
received approximately 110 comments from unique submitters, which
reflected a form letter expressing support for a piece of ESRD-related
draft legislation which would delay the inclusion of oral-only drugs
into the ESRD PPS. We note that we do not comment on draft legislation
in this rule will not be directly responding to the support for this
draft legislation in this rule, but we are interpreting these letters
as expressing support for a delay to the inclusion of phosphate binders
into the ESRD PPS bundled payment and have responded to comments which
express this sentiment in section II.B.7 of this final rule.
Additionally, we note that many of the form letters we received appear
to be duplicative submissions based on many names and contact
information repeating, so we wish to encourage organizers of these and
future campaigns in the future to avoid such duplication as it creates
additional operational considerations when reviewing comments.
We received numerous comments on policies for which we did not make
any proposals, including mandatory charity care requirements in
dialysis clinics, care for undocumented patients, staff assistance for
home dialysis, addressing disparities in the kidney transplant process,
elevating and integrating patient and caregiver perspectives through a
needs navigation model, dialysis commercials for ESRD and AKI, the
continuation of TPEAPA, removing the budget neutrality requirement for
TPEAPA, both replacing and preventing the replacement of nephrology
nurses with other health professionals for prolonged care, including
physician assistants or physician associates within the minimum
requirement for a dialysis facility's interdisciplinary team,
addressing the need for emergency planning for dialysis services in the
event of power outages or extreme weather conditions, removing the
prospective payment system for home dialysis patients, increasing
Medicare Advantage (MA) program payments to beneficiaries in certain
geographic areas, restructuring the functional categories for renal
dialysis drugs and biological products, aligning CMMI voluntary model
benchmarks with the ESRD PPS and its respective add-on payment
adjustments, recognizing the mandatory network fee in cost-reports for
independent dialysis facilities, removing or mitigating outdated
barriers to the use of digital health technology solutions in the ESRD
PPS, changing how ESRD patients pay copays, eliminating copays for home
dialysis, adding codes for dialysis training onto the telehealth list,
and the general need for statutory and regulatory refinements to the
ESRD PPS bundled payment. While we are not providing detailed responses
to these comments in this final rule because they are out of scope of
the proposed rule, we thank the commenters for their input and will
potentially consider the recommendations for future rulemaking.
We received several comments related to the requirement at Sec.
413.198(b)(5)(i) to report ``time on machine'' data effective January
1, 2025. These comments generally requested that CMS amend or eliminate
the requirement. Some commenters reiterated their concern that this
requirement would be burdensome and potentially hazardous. Commenters
also requested that CMS identify a consensus definition for time on
machine, define time on machine based on ``clock time,'' exclude home
dialysis claims from reporting requirements, and designate a claims-
based code for an inability to report time on machine data. We did not
include any proposals in the CY 2025 ESRD PPS proposed rule to modify
the time on machine reporting requirement, and therefore we are not
addressing these comments in this rule. We refer commenters to the CY
2024 ESRD PPS final rule (88 FR 76344 through 76507), and the
additional guidance CMS posted on November 22, 2023.\6\ However, we
will consider these comments for potential future refinements to the
requirement for reporting of ``time on machine'' data.
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\6\ <a href="https://www.cms.gov/files/document/mm13445-esrd-acute-kidney-injury-dialysis-cy-2024-updates.pdf">https://www.cms.gov/files/document/mm13445-esrd-acute-kidney-injury-dialysis-cy-2024-updates.pdf</a>.
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We received several comments not related to policies we proposed
regarding the TDAPA, TPNIES, TPNIES for capital-related assets that are
home dialysis machines, the post-TDAPA add-on payment adjustment, or
other potential areas where commenters thought similar policies could
be beneficial. Several commenters expressed concern that the ESRD PPS
does not sufficiently incentivize innovation in dialysis care or
reimburse for innovative technologies. Commenters' suggestions included
extending the TDAPA and TPNIES payment periods from 2 years to 3 years,
extending the duration of the post-TDAPA add-on payment adjustment to
make it permanent, refining base rate-setting exercises based on TDAPA
utilization and price data, and adjusting the base rate at the end of
the TPNIES payment period. Commenters also suggested revisions to
existing TPNIES policies such as expanding the TPNIES for capital
related assets beyond home dialysis machines to include in-center
dialysis machines or other equipment and supplies that are capital
related assets. Commenters suggested that CMS further clarify the
TPNIES substantial clinical improvement criteria, clarify whether
software can be eligible for the TPNIES, and urged CMS to incentivize
more manufacturers to apply for TPNIES. Several commenters suggested
that CMS create a pathway for new clinical laboratory tests related to
the treatment of ESRD either through an expansion of TPNIES or adoption
of a parallel Transitional Laboratory Add-on Payment Adjustment, which
the commenters called TLAPA. Commenters suggested changes to the ESRD
facility cost reports and billing procedures that would allow for line-
item reporting of TDAPA, post-TDAPA, and TPNIES related costs. We
received several comments stating that the MA and ESRD PPS regulatory
processes should be coordinated to ensure that beneficiaries with ESRD
that are enrolled in MA can access items approved for the TDAPA and the
TPNIES under the ESRD PPS. Finally, we received several comments on
Medicare coverage for certain Humanitarian Use Devices.
[[Page 89090]]
We are not providing detailed responses to these comments in this final
rule because they are not related to the policy proposals of the CY
2025 ESRD PPS proposed rule. We thank the commenters for their input
and will potentially consider the recommendations for future
rulemaking.
Lastly, a commenter suggested that CMS had not allowed for a 60-day
comment period for the proposed rule because the beginning of the
comment period was calculated from the date the proposed rule was made
available for public inspection on the Federal Register website rather
than the date that it appeared in a print issue of the Federal
Register. The commenter stated that the public comment deadline should
have been September 4, 2024. We disagree with the commenter's assertion
that we did not allow for the appropriate comment period for this rule.
Section 1871(b) of the Act requires that we provide for notice of the
proposed regulation in the Federal Register and a period of not less
than 60 days for public comment thereon. The proposed rule was
available for public inspection on <a href="http://federalregister.gov">federalregister.gov</a> (the website for
the Office of Federal Register) on June 27, 2024. We believe that
beginning the comment period for the proposed rule on the date it
became available for public inspection at the Office of the Federal
Register fully complied with the statute and provided the required
notice to the public and a meaningful opportunity for interested
parties to provide input on the provisions of the proposed rule.
1. 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. CY 2025 ESRD Market Basket Update
We proposed 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 CY 2025 ESRDB market basket percentage increase based on
the best available data. Consistent with historical practice, we
proposed 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 final rule, we are calculating the final market basket update
for CY 2025 based on the final market basket percentage increase and
the final productivity adjustment, following our longstanding
methodology.
(1) 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
was 2.3 percent. We also proposed that if more recent data became
available after the publication of the proposed rule and before the
publication of this final rule (for example, a more recent estimate of
the market basket percentage increase), we would use such data, if
appropriate, to determine the CY 2025 market basket percentage increase
in the final rule. Accordingly, based on IGI's third quarter 2024
forecast of the 2020-based ESRDB market basket, the final CY 2025 ESRDB
market basket percentage increase is 2.7 percent.
(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.\7\ As a result of the BLS name change,
the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of
the Act is now published by BLS as private nonfarm business TFP;
however, as mentioned previously, the data and methods are unchanged.
We refer readers to <a href="https://www.bls.gov/productivity/">https://www.bls.gov/productivity/</a> for the BLS
[[Page 89091]]
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 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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\7\ 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) was 0.5 percentage point. Furthermore,
we proposed that if more recent data became available after the
publication of the proposed rule and before the publication of this
final rule (for example, a more recent estimate of the productivity
adjustment), we would use such data, if appropriate, to determine the
CY 2025 productivity adjustment in the final rule. Accordingly, based
on IGI's third quarter 2024 forecast, the CY 2025 final productivity
adjustment remains unchanged at 0.5 percentage point.
(3) CY 2025 Market Basket Update
In accordance with section 1881(b)(14)(F)(i) of the Act, we
proposed to base the CY 2025 market basket percentage increase on IGI's
first quarter 2024 forecast of the 2020-based ESRDB market basket. We
proposed 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 CY 2025 ESRDB market
basket update was 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 proposed that if more
recent data became available after the publication of the proposed rule
and before the publication of this final rule (for example, a more
recent estimate of the market basket percentage increase 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. Accordingly, the final CY
2025 ESRDB market basket update is calculated using the final CY 2025
ESRDB market basket percentage increase, based on IGI's third quarter
2024 forecast of the 2020-based ESRDB market basket, and the final
productivity adjustment, based on IGI's third quarter 2024 forecast.
Therefore, the final CY 2025 ESRDB market basket update is equal to 2.2
percent (2.7 percent market basket percentage increase reduced by a 0.5
percentage point productivity adjustment).
(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 proposed, and are finalizing, 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).
(5) Public Comments on the ESRDB Market Basket Increase Factor,
Productivity Adjustment, Annual Update and Labor-Related Share
We invited public comment on our proposals related to the ESRDB
market basket update and labor-related share. Approximately 25 unique
commenters including large dialysis organizations (LDOs); small
dialysis organizations (SDOs), patient advocacy organizations;
nonprofit dialysis associations; two coalitions of dialysis
organizations; professional organizations; and MedPAC commented on the
proposed update. The following is a summary of the public comments
received on these proposals and our responses.
Comment: Commenters generally supported increasing the ESRD PPS
base rate and the utilization of the most recent data available (for
example, a more recent estimate of the market basket or productivity
adjustment) to determine the final CY 2025 ESRD PPS update. MedPAC
recommended that the ESRD PPS base rate increase for CY 2025 should be
updated by the amount determined under current law, and commented that
analysis reported in the March 2024 Report to the Congress: Medicare
Payment Policy concluded that this increase is warranted based on its
analysis of payment adequacy (which includes an assessment of
beneficiary access, supply and capacity of facilities, facilities'
access to capital, quality, and financial indicators for the sector).
Most other commenters, however, expressed concerns regarding the
proposed productivity-adjusted ESRDB market basket update, the proposed
ESRD PPS base rate and payment adequacy under the ESRD PPS.
Response: We appreciate commenters' support for an increase to the
ESRD PPS base rate and MedPAC's support of the proposed update amount.
We acknowledge that many commenters expressed numerous concerns related
to the proposed payment rates and payment adequacy within the ESRD PPS.
We agree with MedPAC that increasing the payment rate according to the
established ESRD PPS methodology is the most appropriate course of
action. We have summarized and addressed commenters' specific concerns
regarding the payment rate and payment adequacy below.
Comment: Numerous commenters expressed concerns regarding payment
rates within the ESRD PPS and the CY 2025 ESRDB market basket update.
The general opinion of commenters was that the current ESRD PPS payment
rate was not adequate. Many of these comments specifically indicated a
belief that the proposed CY 2025 ESRDB market basket update was not a
sufficient increase given inflation, specifically pointing to rising
costs including labor costs. Many of these concerns were presented in
concert with a request for a ``forecast error adjustment,'' which we
discuss later in this section of the preamble. Some commenters included
comparisons between the ESRD PPS payment rates or ESRDB market basket
increases, and other figures not directly related to the furnishing of
renal dialysis services such as other Medicare payment systems, overall
healthcare costs and overall inflation. Most of these comments
requested that CMS take some action to alleviate the perceived concern
regarding payment rates. Commenters often cited certain costs which
have contributed to the rising costs faced by ESRD facilities including
costs related to labor and wages, costs related to training nurses and
technicians, supply costs often resulting from limited competition for
supplies or limited purchasing power for supplies, supply costs
associated with receiving goods in geographically isolated areas, and
costs of home dialysis supplies and equipment. Some commenters detailed
the potential implications of inadequate ESRD PPS payments including
worsened health outcomes, health equity concerns, access to care issues
often resulting from ESRD facility closures or reduction of shifts, and
inability for ESRD facilities to recruit and retain high quality staff.
Several comments quoted MedPAC's estimated 2024 Medicare margins for
ESRD facilities which were 0.0 percent as
[[Page 89092]]
published in the March 2024 Report to Congress.\8\
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\8\ <a href="https://www.medpac.gov/wp-content/uploads/2024/03/Mar24_MedPAC_Report_To_Congress_SEC-2.pdf">https://www.medpac.gov/wp-content/uploads/2024/03/Mar24_MedPAC_Report_To_Congress_SEC-2.pdf</a>.
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Response: We thank commenters for their insight into the payment
adequacy of the ESRD PPS and the costs faced by ESRD facilities. We
recognize that the input prices that ESRD facilities face have
increased in recent years at a rate higher than the ESRDB market basket
forecasts have predicted. We address commenters' related requests for a
``forecast error adjustment'' later in this section of the preamble.
Payment rates under the ESRD PPS are established based on a methodology
dictated by statute, which means the CY 2025 ESRD PPS base rate
reflects the CY 2011 ESRD PPS base rate updated by each year's ESRDB
market basket update. The ESRD PPS base rate has also been routinely
adjusted by certain budget-neutrality factors, for example, budget
neutrality adjustment factors related to the annual update to the wage
index or related to various payment adjustments like the case mix
adjustments or the LVPA. However, we note that the construction of
these budget-neutrality factors is calculated to offset the effect of
certain other updates and adjustments on total spending under the ESRD
PPS and thereby maintain the level of overall payments, so we do not
believe that the budget-neutrality factors have had a negative impact
on the total payments under the ESRD PPS. Since CY 2011, the only time
the ESRD PPS base rate was increased other than as part of a routine
update or adjustment was in the CY 2021 ESRD PPS final rule, when we
first incorporated calcimimetics into the bundled payment and increased
the base rate by $9.93 (85 FR 71410). In summary, the ESRD PPS base
rate is based on a longstanding, data driven method provided for by
statute. We did not propose, and are not finalizing, any changes to the
ESRD PPS payment update methodology.
We agree with commenters that payment adequacy is important as it
has a wide variety of impacts both on ESRD facilities and ESRD
patients, many of which have been described by commenters. We intend to
continue monitoring the performance of the ESRD PPS, and any changes to
the ESRD PPS payment rate or ESRDB market basket would be made through
notice and comment rulemaking.
We recognize that MedPAC has found that the Medicare FFS margins
for ESRD facilities are projected to be 0.0 percent for 2024. We wish
to add that MedPAC found that Medicare marginal profit for ESRD
facilities was approximately 18 percent for 2022.\9\ We understand that
the Medicare FFS margin is lower than many interested parties may
believe would be appropriate; however, we believe that payments are
sufficiently high relative to marginal costs to support the profitable
operation of ESRD facilities generally. While we believe MedPAC margin
estimates are generally a reasonable metric, we note that the ESRD PPS
payment rate is based on the change in prices of a fixed bundle of
goods and services, not based on continuously re-aligning payment with
costs directly.
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\9\ <a href="https://www.medpac.gov/wp-content/uploads/2024/03/Mar24_MedPAC_Report_To_Congress_SEC-2.pdf">https://www.medpac.gov/wp-content/uploads/2024/03/Mar24_MedPAC_Report_To_Congress_SEC-2.pdf</a>.
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Comment: Several commenters discussed the current difficulties of
recruiting and retaining healthcare workers. Commenters often
characterized this as a healthcare labor shortage and stated that the
accompanying increase in wage inflation was a major source of increased
costs for ESRD facilities. Many commenters indicated a belief that the
proposed CY 2025 ESRDB market basket update or the proposed CY 2025
ESRD PPS base rate were insufficient given this increase in labor
costs. One analysis cited by commenters found that labor costs for ESRD
facilities rose by 23.7 percent between 2017 and 2023 whereas the ESRD
PPS base rate rose by only 14.7 percent during that same period.
Response: We appreciate the commenters' evaluation of labor costs
for ESRD facilities. We acknowledge that many ESRD facilities are
having increased difficulty in hiring due to overall trends present in
the healthcare industry. We note that the ESRDB market basket includes
several price proxies for the various cost categories of the ESRDB
market basket, including labor. We agree with commenters that labor
costs are a significant driver of overall rising costs for ESRD
facilities; however, they are not the only costs faced by ESRD
facilities and, therefore, are not the only component of the ESRDB
market basket. As labor is a substantial driver of the overall input
price increase, generally the other input prices faced by ESRD
facilities are increasing less than labor prices, so the overall ESRDB
market basket increase for a given year is less than the amount by
which labor prices have increased. Our analysis of the ESRDB market
basket increases from 2017 to 2023 has found that the ESRDB market
basket forecasted compensation prices increased by a cumulative 20.9
percent over this time period. The actual ESRDB market basket
compensation price growth (based on historical data) over this time
period is 23.7 percent. This suggests the ESRDB market basket price
proxies are projecting the increased price of labor faced by ESRD
facilities with reasonable accuracy, and we believe that the data
presented by the commenters supports this belief.
Comment: Several commenters, representing numerous industry
interests, stated they believe that the ESRDB market basket is
systemically flawed, because the market basket fails to accurately
capture the changes over time in the prices in the goods and services
included in renal dialysis services. The commenters believed the flaws
are due to problems with the weights and price proxies used to assess
the changes in costs year-over-year.
The commenters cited analysis from a contractor that suggests
possible flaws in the market basket cost weights and price proxies.
First, the commenters noted that the cost weights for capital costs are
significantly higher in the ESRDB market basket compared to other CMS
market baskets. They suggested that while 31 percent of the overall
capital costs are determined to be labor-related, the price proxy for
capital costs does not use a labor-related price proxy. The commenters
suggested that the price proxy for capital costs should be a blended
proxy that also includes a price proxy for labor. Another area of
concern was that the weight for the ``All Other Goods and Services''
cost category is much larger than in other CMS market baskets--a weight
of 11.1 percent is assigned to this category in the ESRDB market
basket--and that similar categories under the inpatient prospective
payment system (IPPS) and skilled nursing facility (SNF) PPS have
weights of 1.2 percent and 0.3 percent, respectively. The commenters
stated that further refining the category's definition under the ESRD
PPS could reduce the weight and result in a more accurate update factor
reflective of ESRD-specific costs.
Response: We appreciate the commenters' suggestions for areas that
could benefit from technical improvements in the design and methodology
for the ESRDB market basket cost weights and price proxies. We did not
propose to rebase or revise the ESRDB market basket in the CY 2025 ESRD
PPS proposed rule and further note that we finalized the 2020-based
ESRDB market basket in the CY 2023 ESRD PPS final rule (87 FR 67141).
At the time of the CY 2023 rulemaking cycle, the 2020 Medicare cost
report data was the most recent, fully complete
[[Page 89093]]
cost data available and reflected cost data as submitted by
freestanding ESRD facilities.
The share of capital costs referenced by the commenter are related
to the allocation of a portion of the capital cost weight to the labor-
related share since fixed capital costs (for example, construction or
improvements to a building) would include costs associated with labor
to perform the construction in the initial price, and that price is
financed over time or incorporated with the lease contract. This
methodology of allocating a portion of the market basket capital cost
weight to the labor-related share is consistent across the other CMS
PPSs such as those for SNFs, inpatient rehabilitation facilities
(IRFs), inpatient psychiatric facilities (IPFs), and long-term care
hospitals. For the CY 2023 ESRD PPS final rule (87 FR 67141 through
67154), we finalized the continued use of the Producer Price Index
(PPI) Industry for Lessors of Nonresidential Buildings (BLS series code
#PCU531120531120), to measure the price growth of the Capital-Related
Building and Fixtures cost category. This PPI reflects the prices of
leases for nonresidential buildings (including professional and office
buildings). The North American Industrial Classification System (NAICS)
definition for this industry comprises establishments primarily engaged
in acting as lessors of buildings (except mini-warehouses and self-
storage units) that are not used as residences or dwellings. Included
in this industry are: (1) owner-lessors of nonresidential buildings;
(2) establishments renting real estate and then acting as lessors in
subleasing it to others; and (3) establishments providing full service
office space, whether on a lease or service contract basis. The
establishments in this industry may manage the property themselves or
have another establishment manage it for them. We continue to believe
that this is an appropriate price proxy, as it reflects the lease or
replacement value of nonresidential buildings that would be influenced
by both labor prices, such as those associated with construction costs,
as well as other nonlabor factors, such as building supplies and
interest rates.
In response to the concerns related to the ESRDB market basket cost
weight for All Other Goods and Services, as stated in the CY 2023 ESRD
PPS final rule (87 FR 67145), the All Other Goods and Services cost
weight was derived by disaggregating the Administrative and General
cost weight (calculated using the freestanding ESRD Medicare Cost
Report data) using the 2012 Service Annual Survey data, which was the
most recent year of detailed expense data (inflated to 2020 levels)
published by the Census Bureau for NAICS Code 621492: Kidney Dialysis
Centers. Though the resulting weight for this category may differ from
the weight calculated for other indices, it appropriately reflects the
cost distributions associated with providing ESRD services, as
prescribed by law.
We note that changing the composition of the ESRDB market basket or
changing the price proxies used for the ESRDB market basket would
likely not have had a significant impact on the past forecast errors of
the ESRDB market basket, since those forecast errors were calculated by
comparing the forecasted ESRDB market basket update available at the
time of rulemaking to the ``actual'' ESRDB market basket update based
on that same index. Any change to the weights or price proxies in the
ESRDB market basket would not by itself mitigate a forecast error. The
forecast error would only be different or mitigated if the forecasts of
alternative price proxies were more accurate than those for the current
price proxies used in the ESRDB market basket.
CMS is open to hearing from the commenters and discussing any data
or analysis the industry may provide regarding ways to ensure the
Medicare payments are appropriate and that the market basket price
proxies and weights are accurate. We welcome any publicly available and
representative input cost data that reflects total and category-
specific costs for the ESRD industry the commenters could provide. We
will consider the commenters' suggestions when we propose to rebase and
revise the ESRDB market basket in the future and note that any such
proposal would occur through notice and comment rulemaking. We rebase
and revise the CMS market baskets approximately every 4 to 5 years so
that the cost weights reflect recent changes in the mix of goods and
services that ESRD facilities purchase to furnish renal dialysis
services between base periods. We last rebased in the CY 2023 ESRD PPS
final rule (87 FR 67141 through 67153).
Comment: Several commenters expressed concern that the ESRDB market
basket updates are disproportionately lower than for all other Medicare
providers reimbursed under a PPS. The commenters stated they understand
that different cost structures influence this outcome; however, they
noted it is important to note these discrepancies given that all these
healthcare sectors draw from the same labor pools, and lower ESRD PPS
updates erode ESRD facilities' ability to attract caregivers in the
current labor market. One commenter noted that the price proxy for
buildings utilized by IPPS and SNF is the ``BEA--Chained Price Index
for Private Fixed Investment in Structures, Nonresidential, Hospitals
and Special Care--vintage weighted 27 years'' which the commenter
stated is growing at a faster rate than the price proxy ``PPI Industry
for Lessors of Nonresidential Buildings'' which is used by the ESRD
PPS.
Response: The 2020-based ESRDB market basket percentage increase is
equal to the weighted price change of the individual price proxies
based on their respective cost weights. The cost weights are primarily
derived using data from the freestanding ESRD facility Medicare cost
reports and reflect relative shares of input costs needed to provide
renal dialysis services to ESRD beneficiaries. Similarly, the other CMS
PPS market baskets, such as the 2022-based SNF market basket and 2018-
based IPPS market basket, reflect the relative share of input costs
needed to provide skilled nursing and hospital care to Medicare
beneficiaries based on the data reported on the respective provider
cost reports.
While we understand that commenters may compare the annual updates
in the ESRDB market basket to other Medicare payment system market
baskets, the ESRDB market basket is developed in accordance with
section 1881(b)(14)(F)(i) of the Act requiring that the index reflect
the composition of costs associated with providing renal dialysis
services. These costs (and the subsequent cost distributions) are
reported by ESRD facilities on the Medicare cost reports and may differ
(appropriately) from the relative distribution of costs of other
medical care providers, such as inpatient hospitals or skilled nursing
facilities. Additionally, the price proxies used in the ESRDB market
basket are intended to reflect the price pressures faced by ESRD
facilities. While some price proxies may be similar to those used
across other CMS market baskets, in most cases they are appropriately
different because they reflect the price pressures faced by ESRD
facilities. For example, the rate of increase in the ESRDB market
basket compensation category reflects the weighted average of the price
increase for occupations employed by ESRD facilities.
At the time of the CY 2025 ESRD PPS proposed rule, based on the
IGI's first quarter 2024 forecast with historical data through the
fourth quarter of 2023,
[[Page 89094]]
the 2020-based ESRDB market basket increase was forecasted to be 2.3
percent for CY 2025, reflecting forecasted compensation price growth of
3.6 percent. In the CY 2025 ESRD PPS proposed rule, we proposed that if
more recent data became available, we would use such data, if
appropriate, to derive the final CY 2025 ESRDB market basket update for
the final rule. For this final rule, we now have an updated forecast of
the price proxies underlying the market basket that incorporates more
recent historical data and reflects a revised outlook regarding the
U.S. economy and expected price inflation for CY 2025. Based on IGI's
third quarter 2024 forecast with historical data through the second
quarter of 2024, we are projecting a CY 2025 ESRDB market basket
increase of 2.7 percent (reflecting forecasted compensation price
growth of 3.8 percent). Therefore, for CY 2025 a final ESRDB
productivity-adjusted market basket update of 2.2 percent (2.7 percent
less 0.5 percentage point for the productivity adjustment) will be
applicable, compared to the 1.8 percent productivity-adjusted market
basket update that was proposed.
Comment: Several commenters raised concerns about the labor-related
share of the ESRD PPS. These commenters suggested that adjusting the
labor-related share could better recognize changes in labor costs and
result in a higher overall market basket update for the ESRD PPS. Some
commenters noted that the ESRD PPS labor-related share for CY 2025 is
55.2 percent while the labor-related share for SNF PPS is 70.1 percent
and 67.6 or 62 percent for IPPS.
Response: The purpose of the labor-related share is to reflect the
proportion of the national ESRD PPS base payment rate that is adjusted
by the wage index. CMS adjusts the labor-related portion of the base
rate to account for geographic differences in the area wage levels
using an appropriate wage index, which reflects the relative level of
wages and wage-related costs in the geographic area in which the ESRD
facility is located. The purpose of the labor-related share is to
allocate ESRD payment between a labor-related portion and non-labor-
related portion for purposes of geographic adjustment and the labor-
related share does not directly impact the market basket update.
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 costs that are related to,
influenced by, or vary with the local labor market. In the CY 2023 ESRD
PPS final rule (87 FR 67153 through 67154), we detailed the use of the
2020-based ESRDB market basket cost weights to determine the labor-
related share for ESRD facilities. Specifically, effective for CY 2023,
a labor-related share of 55.2 percent was determined based on the sum
of Wages and Salaries, Benefits, Housekeeping, Operations &
Maintenance, 87 percent of the weight for Professional Fees, and 46
percent of the weight for Capital-related Building and Fixtures
expenses, which, with the exception of the Professional Fees (0.7
percent) cost weight, were derived from the ESRD Medicare cost reports
(CMS Form 265-11, OMB NO. 0938-0236).
While the conceptual definition of the labor-related share used for
the ESRD PPS is similar to that used for SNF PPS and IPPS, the cost
structures for the various providers differ substantially. Thus, we
believe the ESRD labor-related share of 55.2 percent is appropriate,
and we are finalizing our proposal to continue to use this labor-
related share for CY 2025 ESRD PPS payments.
We note that the labor-related share, as previously discussed, is
used to determine the portion of the ESRD PPS base rate which is
related to labor for the purposes of applying the ESRD PPS wage index.
We believe some of the commenters who requested a higher labor-related
share may have believed that increasing the labor-related share would
change the proportion of the ESRDB market basket to which price proxies
related to labor are applied. As discussed in the CY 2023 ESRD PPS
final rule, the ESRDB market basket cost weights are derived from cost
report data and, therefore, are the most appropriate measures of the
proportion of the ESRDB to which we apply each pricy proxy. It would
not be appropriate to apply one of the labor price proxies to other
non-labor cost weights in the ESRDB market basket.
Comment: One commenter stated that while they understand CMS does
not have authority to waive the application of the productivity
adjustment, they were concerned that applying a one-size-fits-all
approach in an effort to incentivize efficiencies fails to recognize
the unique challenges facing ESRD facilities.
Response: Section 1881(b)(14)(F)(i) of the Act requires the
application of the productivity adjustment described in section
1886(b)(3)(xi)(II) of the Act. As required by statute, the CY 2025
productivity adjustment is derived based on the 10-year moving average
growth in economy-wide productivity for the period ending CY 2025. We
recognize the concerns of the commenters regarding the appropriateness
of the productivity adjustment; however, we are required pursuant to
section 1881(b)(14)(F)(i) of the Act to apply the specific productivity
adjustment described here and do not believe it can be removed from the
calculation of the market basket update. As such, we are not finalizing
any changes to the use of the productivity adjustment in the CY 2025
ESRDB market basket update.
As stated in the CY 2025 ESRD PPS proposed rule (89 FR 55765), the
United States Department of Labor's Bureau of Labor Statistics (BLS)
publishes the official measures of annual economy-wide, private nonfarm
business total factor productivity (previously referred to as annual
economy-wide, private nonfarm business multifactor productivity). IGI
forecasts total factor productivity consistent with BLS methodology by
forecasting the detailed components of TFP. A complete description of
IGI's TFP projection methodology is available on the CMS 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>. We believe our methodology for the productivity adjustment
is consistent with sections 1881(b)(14)(F)(i)(II) and
1886(b)(3)(B)(xi)(II) of the Act, the latter of which states the
productivity adjustment is equal to the 10-year moving average of
changes in annual economy-wide private nonfarm business multi-factor
productivity (as projected by the Secretary for the 10-year period
ending with the applicable fiscal year, year, cost reporting period, or
other annual period).
The CY 2025 proposed productivity adjustment of 0.5 percent was
based on IGI's forecast of the 10-year moving average of annual
economy-wide private nonfarm business TFP, reflecting historical data
through 2022 as published by BLS and forecasted TFP for 2023 through
2025. The final productivity adjustment for CY 2025 is also 0.5
percentage point for this final rule and is slightly higher than the
productivity adjustment for CY 2024 (0.3 percent). This higher
productivity adjustment is primarily a result of incorporating BLS
revised historical data through 2022, the preliminary historical growth
rate in TFP for 2023, and an updated forecast for TFP growth for 2024
reflecting higher expected growth in economic output.
Comment: Commenters reported that the IGI forecast continues to
significantly underestimate the increasing costs ESRD facilities incur
when providing services to Medicare
[[Page 89095]]
beneficiaries and that the market basket increases provided by CMS have
not kept up with the rising costs of doing business, particularly labor
costs. Commenters stated that while they recognize that updates to the
ESRDB market basket are set prospectively, and some degree of forecast
error is thus inevitable, they also believe that ESRD facilities should
not be financially disadvantaged as a result of CMS market basket
forecasting errors. Many commenters urged CMS to reconsider its
decision not to adopt a forecast error policy. They stated that a
forecast error adjustment for the ESRD PPS would be needed to ensure
the funding that the Congress intended ESRD facilities to receive would
be available to support patient care and help address health
inequities.
The commenters stated that the CMS contractor that determines
forecasted price growth for the bundled ESRD PPS market basket has
failed to provide an accurate update for the last 4 years resulting in
an approximately negative 7 percent forecast error since 2019. They
further stated that they believe that the existing methodology will
produce an inaccurate annual payment update for CY 2025. Furthermore,
they stated that the forecast errors in the ESRD PPS are
disproportionately worse than the forecast errors in the other Medicare
payment systems and continue to urge CMS to address what they describe
as the past underfunding of the payment system.
A few commenters stated that the failure to correct the known
forecast errors over the last several years is contrary to the
statutory requirement at section 1881(b)(14)(F)(i) of the Act to update
the ESRD PPS payment rate based on the change in prices of the ESRDB.
The commenters stated that the CMS response in the CY 2024 ESRD PPS
final rule was that its market basket update forecast ``misses'' for CY
2021 and CY 2022 were largely due to unanticipated inflationary and
labor market pressures as the economy emerged from the COVID-19 Public
Health Emergency (PHE) and that an analysis of the forecast error of
the ESRDB market basket over a longer period shows the forecast error
has been both positive and negative. The commenters highlighted our
past statement that the difference between the projected and actual
market basket increases can be both positive and negative. The
commenters claimed that this is not the reality of the current
situation, and that it would be unlikely that the forecast errors would
``miss'' to the same extent in the future. The commenters also noted
that it appears that the under-forecast of the ESRDB market basket
updates have continued into 2023, and they stated that preliminary
evidence shows even into 2024.
The commenters requested that CMS reconsider its decision not to
adopt a forecast error adjustment for the ESRD PPS to account for the
underestimates from CMS' forecasted market basket updates in prior
calendar years, and to eliminate the risk of further substantial
forecast errors going forward by adopting a forecast error adjustment
policy for future years modeled after the forecast error adjustment
policy in the SNF PPS. Some commenters supported CMS finalizing a
forecast error adjustment in this final rule effective for CY 2025,
whereas other commenters supported CMS proposing a forecast error
adjustment effective for CY 2026. The commenters further stated that
addressing these forecast errors is essential to fulfill CMS's
statutory obligation to ensure that the ESRD PPS market basket update
reflects actual changes over time in the prices of an appropriate mix
of goods and services included in renal dialysis services.
Several commenters noted that when CMS first introduced the
forecast error adjustment for SNFs, the agency explicitly determined
that this type of adjustment would not be providing a source of new
industry funding. Instead, the commenters noted that CMS stated that we
were correcting an under-forecast of pricing levels that resulted in
lower payments than we would otherwise have made if actual, instead of
forecast, data were used. One commenter further stated that on the
contrary in the CY 2024 ESRD PPS final rule, CMS justified not
implementing stakeholder calls for a forecast error adjustment for the
ESRD PPS by explaining that the cumulative under-forecast of the SNF
market basket increases was not due to a PHE, which was the case for
the ESRD PPS's under-forecast in recent years. However, the same
commenter noted that CMS finalized a forecast error adjustment for the
SNF payment system due to the rapid increase in the price of labor and
because CMS concluded that a forecast error adjustment was appropriate
for payment accuracy for SNFs. The commenter further rationalized that
while the forces driving the under-forecast of the ESRDB market basket
today may differ from those impacting the SNF market basket in 2003,
the outcomes for providers are presenting in the same manner.
Commenters stated that they believe implementation of a retroactive
cumulative forecast error adjustment and continued forecast error
adjustment in the future is within CMS's existing statutory authority
under section 1881(b)(14)(F)(i) of the Act. Commenters referenced
perceived similarities between this statutory language for the ESRD PPS
and the statutory language for the SNF PPS annual update at section
1395rr(b)(F)(i)(I) of the Act, which CMS utilized when finalizing the
SNF PPS forecast error adjustment.
Based on what the commenters characterized as the same statutory
obligation and an even larger and longer record of forecast errors, the
commenters requested CMS adopt the same retrospective forecast error
adjustment and future forecast error adjustment process for the ESRD
PPS. They provided further context for this request by referencing the
justification of the forecast error adjustment policy in the SNF PPS as
precedent.
Some commenters urged CMS to implement a one-time retrospective
adjustment to the ESRD PPS base rate in the amount of the current
cumulative forecast error calculated from the beginning of the ESRD
PPS, while others requested such an adjustment for the period of 2019
or 2020 through 2023. Additionally, most commenters also supported the
implementation of a forecast error correction policy for future years
that would be triggered when the absolute (positive or negative) error
is equal to or exceeds a 0.5 percentage point threshold. One commenter
also requested that CMS acknowledge that the current forecast
methodology has failed to produce accurate updates for 4 years and work
with IGI to minimize forecast misses in the future. One commenter
requested more transparency regarding the methodology for developing
the price forecasts that are used in the CMS market baskets.
Response: The ESRDB market basket updates are set prospectively,
which means that the update relies on a mix of both historical data for
part of the period for which the update is calculated and forecasted
data for the remainder. For instance, the CY 2025 market basket update
in this final rule reflects historical data through the second quarter
of CY 2024 and forecasted data through the fourth quarter of CY 2025.
While there is no precedent to adjust for market basket forecast error
in the ESRD PPS payment update, a forecast error can be calculated by
comparing the actual market basket increase for a given year to the
forecasted market basket increase. Due to the uncertainty regarding
future price trends, forecast errors can be both positive and negative,
as has occurred
[[Page 89096]]
since the implementation of the ESRD PPS in CY 2011. Over most of this
history the forecast errors were small in magnitude, with the largest
error (in absolute terms) prior to 2021 being an over-forecast (the
actual market basket increase was less than the forecasted market
basket increase) of 0.8 percentage point in 2017. More recently the
ESRDB market basket has been under-forecast, as noted by the
commenters, with larger errors occurring for 2021 through 2023. The
cumulative forecast error since ESRD PPS inception (CY 2012 to CY 2023)
is an under-forecast of 4.3 percent.\10\ These recent forecast errors
were largely a function of uncertainty in the overall economy and the
health sector specifically due to the nature of the COVID-19 PHE and
the unforeseen inflationary environment.
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\10\ This figure does not include a forecast error for CY 2015,
as section 1881(b)(14)(F)(i)(III) of the Act required a 0.0 percent
update for that year.
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We thank the commenters for their continued feedback on the ESRDB
market basket. In the CY 2024 ESRD PPS proposed rule we explained why
we did not believe a forecast error adjustment was appropriate at that
time. We did not propose a forecast error adjustment in the CY 2025
ESRD PPS proposed rule for these same reasons and are not finalizing a
forecast error adjustment at this time. Specifically, predictability in
Medicare payments is important to enable ESRD facilities to budget and
plan their operations, and forecast error calculations are
unpredictable (88 FR 76356 through 76358). Historically, the positive
differences between the actual and forecasted market basket increase
have offset negative differences over time. Although we acknowledge
that this has not been the case in recent years, we note that it may
take a longer period of time for forecast errors to balance out. For
example, in CY 2016 the cumulative forecast error for the ESRDB market
basket since CY 2012 was 0.4 percent, and in each year from CY 2012 to
CY 2016, the cumulative forecast error was positive, ranging from 0.2
percent to 0.5 percent. Then, beginning in CY 2017, the cumulative
forecast error was negative, which continued through CY 2020, ranging
from -0.4 percent to -0.6 percent. These examples illustrate that over
time positive and negative differences between the actual and
forecasted market basket increase have tended to balance out.
Therefore, in accordance with our longstanding ESRD PPS payment update
methodology, we are finalizing to update the CY 2025 ESRD PPS base rate
without the application of a forecast error adjustment to the ESRDB
market basket.
Given the concerns raised by the commenters, we intend to continue
to monitor the pattern of the ESRDB market basket forecast errors to
observe if the historical experience (where errors have balanced out)
continues. Any changes to the ESRD PPS payment update methodology,
including any forecast error adjustment policy, would be proposed
through notice and comment rulemaking. We acknowledge the commenter's
request for more transparency regarding the ESRDB market basket
forecast methodology and have shared details in prior and this year's
rules on these methods; however, we are limited in the amount of
information we can provide regarding the forecast methodology, which is
proprietary to IGI.
Comment: Some commenters expressed concern about whether CMS was
adhering to Social Security Act and the Administrative Procedure Act
requirements in declining to adopt a forecast error adjustment. One
commenter stated that, given the past forecast errors, they did not
believe our methodology fulfilled the requirement to update the payment
system based on the change in prices of the ESRDB market basket. This
commenter further stated a belief that because CMS had determined that
a forecast error adjustment was appropriate for the SNF PPS in 2004, we
would be in violation of the ESRD PPS's similarly worded statute unless
we were to implement a forecast error adjustment for the ESRD PPS, due
to the similarities between the circumstances of SNF PPS in 2004 and
the ESRD PPS presently.
Response: We strongly disagree with the commenter's assertion that
CMS's position regarding an ESRD PPS forecast error payment adjustment
conflicts with any of the statutory requirements for the ESRD PPS. As
we have discussed previously, we believe that the ESRDB market basket
forecast reflects the change in prices of an appropriate mix of goods
and services included in renal dialysis services, as required by
statute. We note that the circumstances of the ESRD PPS in the present
are not identical to the circumstances of the SNF PPS when we finalized
a forecast error adjustment. The cumulative under-forecast of the SNF
market basket increases in 2004 was based on a rapid increase in the
price of labor, not due to a PHE that rapidly increased the price of
most of the goods and services in the ESRDB market basket.
Additionally, the increase in the price of labor uniquely impacted the
SNF PPS at that time as the SNF PPS had only existed for a few years
and had numerous under-forecasts in that short timeframe. This is
unlike the current ESRD PPS environment, where the ESRD PPS had a
decade of reasonably accurate forecasts, followed by a PHE resulting in
multiple Medicare payment systems facing similar forecast errors. We
continue to believe these differences in circumstances are relevant in
evaluating the forecast errors in the ESRD PPS in recent years and
their implications for the future performance of the payment system. We
note that when CMS finalized a forecast error adjustment for the SNF
payment system, we concluded that a forecast error adjustment was
appropriate for payment accuracy for SNFs; not that it was required
under the statute (68 FR 46057). For these reasons, we disagree with
the commenter's stated belief that a forecast error adjustment would be
required to fulfill the ESRD PPS statutory requirements, and, at this
time, for the reasons discussed previously, we do not believe that a
forecast error payment adjustment would be appropriate for the ESRD
PPS. We also disagree with the commenter's assertion that by not
implementing a forecast error adjustment we are in violation of the
Administrative Procedure Act; as discussed previously, our established
ESRDB market basket methodology has been set and revised through notice
and comment rulemaking (75 FR 49151 through 49162, 79 FR 66129 through
66136, 83 FR 56951 through 56964, 87 FR 67141 through 67154). For the
CY 2025 ESRD PPS proposed rule we provided a 60-day comment period, and
we have considered and responded to all relevant comments in this final
rule explaining our reasoning for the policies we are finalizing.
Comment: One coalition of dialysis organizations disagreed with
CMS's evaluation that a forecast error adjustment would make ESRD PPS
payments less predictable. The commenter stated that under the current
payment system providers are uncertain whether the ESRDB market basket
forecast would be accurate for a given year.
Response: We appreciate this commenter's perspective on
predictability within the ESRD PPS as we work to improve the payment
system. Our current view on predictability is that it is important for
ESRD facilities to be able to plan for future years with the most
complete information possible, which we believe would likely not be the
case if the ESRD PPS base rate would be lowered in a given year due to
an over-forecast in the prior year. We will take this input into
consideration for future rulemaking.
[[Page 89097]]
Final Rule Action: We did not propose and are not finalizing any
changes to the ESRDB market basket methodology for CY 2025. Thus, the
final ESRDB market basket update for CY 2025 is 2.2 percent,
representing a ESRDB market basket percentage increase of 2.7 percent
reduced by a 0.5 percentage point productivity adjustment.
2. 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
final rule, the final 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. 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
suggested specific improvements for the 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 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,\11\
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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\11\ <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 has been 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
[[Page 89098]]
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.\12\ 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 \13\ 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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\12\ <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>.
\13\ 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. We note that we use a crosswalk between
counties and MSAs, non-MSAs and NECTAs to get county level wage
estimates.
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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 developed a new ESRD PPS wage
index methodology that we believe better reflects the ESRD facility
labor market, which we proposed in the CY 2025 ESRD PPS proposed rule
(89 FR 55766 through 55782). Similar to the methodology presented in
the December 2019 TEP, this 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 \14\ that
accompanies 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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\14\ 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 Data Sources Utilized in the Proposed Methodology
In the CY 2025 ESRD PPS proposed rule we discussed the data sources
which we utilized for the proposed new ESRD PPS wage index methodology.
We described the data sources in detail alongside explanations of the
ways in which we proposed to use the data, potential benefits and
weaknesses compared to the IPPS wage index data, and the lag associated
with the data.
(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 proposed to use publicly available mean hourly wage data at the MSA
level,\15\ 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 was presented in the CY 2025 ESRD PPS proposed
rule and was utilized for the proposed new wage index methodology
described in detail later in this section of this final rule reflect
these wage aging adjustments. Table 1 shows the
[[Page 89099]]
occupation codes based on the Standard Occupational Classification
(SOC) and the corresponding occupational title for each SOC, alongside
the common name that we use to refer to workers in specific occupations
throughout this final rule. The ESRD PPS common 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 we considered 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.'' In the proposed rule, we explained that 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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\15\ We use the territory-level data for Guam and Virgin
Islands, since the MSA and non-MSA level data is not available.
[GRAPHIC] [TIFF OMITTED] TR12NO24.000
The BLS OEWS data used for the analysis presented in the proposed
rule included 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 stated that
inpatient hospital data is appropriate to include in this analysis 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 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 believe 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.
In the proposed rule, we discussed that 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 believed, and we continue to 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. In the proposed rule, we noted that 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 anticipated that most
traveling nurses and technicians would be employed by a staffing
agency, and therefore would be included in the OEWS estimates; however,
as worksite location reporting is optional,\16\ 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 noted that we
would not anticipate that this would have an appreciable impact on the
OEWS estimates used for this methodology. Additionally, we noted that
the OEWS would only include the wages paid by the contract agency 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 could not 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 noted that all contract labor costs
represent approximately 5 percent of compensation costs in the 2020-
based ESRDB market basket (87 FR 67143). As discussed in the CY 2025
ESRD PPS proposed rule, our analysis of freestanding ESRD facility cost
report FTE data indicated that approximately 1.3 percent of RN hours
and 1.1 percent
[[Page 89100]]
of technician hours were contract labor in 2022. Additionally, our data
showed that the share of contract labor hours has been relatively
stable over time but has increased slightly over the past few years.
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\16\ <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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In the proposed rule, we discussed that 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.\17\ For reference, among the 25,808 unique county-occupation
combinations in the May 2022 BLS OEWS data used in the analysis in the
proposed rule, the wage information missing rate was 5.2 percent. To
impute the missing data for the methodology presented in the proposed
rule, we performed a regression using the most similar (by mean hourly
wage) occupation (of the occupations we proposed to include in the wage
index methodology, presented in Table 1) for which there was no missing
data. For dietitians we used RNs, for technicians we used LPNs and for
nurses' aides we used administrative staff. The regression included
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 wage index presented in the CY 2025 ESRD PPS
proposed rule, we only had to impute missing county-level data for
dietitians, technicians, and nurses' aides; however, for future years,
we noted that we may have to impute data for other occupations and will
be sure to note any imputations through notice and comment rulemaking.
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\17\ <a href="https://www.bls.gov/oes/oes_ques.htm">https://www.bls.gov/oes/oes_ques.htm</a>.
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In the proposed rule, we presented an analysis on historical BLS
OEWS data for the occupations presented in Table 1.\18\ We 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 stated that the BLS OEWS data are
reasonably stable and appropriately reflect general wage inflation
trends that ESRD facilities face.
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\18\ We note that the BLS OEWS wage data is not intended to be
used as a time-series analysis, but rather as cross-sectional
estimate of wages in a geographic area (<a href="https://www.bls.gov/oes/oes_ques.htm#other">https://www.bls.gov/oes/oes_ques.htm#other</a>). We reviewed and presented this data primarily
to demonstrate the stability of the methodology by evaluating the
robustness of the input data source.
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(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 methodology presented in the proposed rule, we proposed to
use FTEs to calculate the occupational mix for all freestanding ESRD
facilities. For the purposes of this proposal, we used 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 noted 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 proposal, we referred to
ESRD facilities that complete the hospital cost report (Form CMS 2552-
10, OMB No. 0938-0050) as ``ESRD facilities that are financially
integrated with a hospital,'' per the criteria at Sec. 413.174(c)(5).
The occupational mix data presented in the proposed rule represented
the average proportion of hours spent on the duties of that occupation
at all freestanding ESRD facilities nationally for CY 2022. 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. For the purposes of
comparison, Table 2 includes both the occupational mix we presented in
the CY 2025 ESRD PPS proposed rule, as well as an updated version of
this occupational mix with more complete CY 2022 cost report data. In
the proposed rule, we noted that CY 2022 would be the most recent
complete year of cost reporting data for both the proposed rule and for
this 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 the proposed rule. For the approximately 1.7 percent of
freestanding ESRD facilities without 2022 cost report data available at
the time of rulemaking for the proposed rule, 2021 cost report data was
used. At the time of proposed rulemaking, we anticipated that we would
have complete CY 2022 cost report data; however, this has proved not to
be the case. For this final rule, some CY 2022 cost report data was
still not available, so 2021 cost report data was used for 126 ESRD
facilities. 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.
[[Page 89101]]
[GRAPHIC] [TIFF OMITTED] TR12NO24.001
We note that the NEFOM is calculated as a part of the proposed wage
index methodology described in detail later in this section of this
final rule, from freestanding ESRD facilities cost reports, and that
the NEFOM is not an input in the wage index calculation. However, we
presented the NEFOM in the proposed rule to inform the calculation
process for any interested parties which wish to replicate the
calculation.
For this methodology, we proposed 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 was
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 proposed to exclude hospital-integrated cost
reports. We stated that 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.
As discussed in the proposed rule, 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 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 proposed 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 proposed wage
index methodology 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 final rule.
In the proposed rule, we emphasized 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 urged 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
As discussed in the proposed rule, the proposed new wage index
methodology used 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. For the purposes
of the proposed new wage index methodology, we referred to this older
wage index methodology as the ``ESRD PPS legacy wage index.'' The ESRD
PPS wage index values under the legacy methodology are calculated
without regard to geographic reclassifications authorized for acute
care hospitals under sections
[[Page 89102]]
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). Consistent with our established policy of updating
wage indices in the final rule, we stated in the CY 2025 ESRD PPS
proposed rule that 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 (89 FR 55771). We noted 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 would ensure 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 described in section II.B.2.b.(2)(b) of this final
rule.
(iv) Time Lag Associated With 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.\19\ In the
proposed rule, we noted 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 noted 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 discussed 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.
---------------------------------------------------------------------------
\19\ 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 proposed 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 A of the ESRD PPS
proposed rule, the BLS OEWS data represent wages as of May 2022 (based
on survey panels collected from November 2019 through May 2022), and
the cost report data generally covered cost reporting periods beginning
on or after January 1, 2022, and before December 31, 2022.\20\ The
publicly available BLS OEWS data is an average using data collected
over a 3-year period due to the large sample involved in the survey.
This pooled sampling improves stability and predictability of the OEWS
estimates over time. In the CY 2025 ESRD PPS proposed rule (89 FR
55772), we noted that, should the proposed methodology be finalized, we
would use the most recent update of BLS OEWS data for the ESRD PPS
final rule. Under this new proposed methodology, BLS OEWS estimates for
May 2023 would be utilized for the final CY 2025 ESRD PPS wage index.
---------------------------------------------------------------------------
\20\ In cases where 2022 freestanding cost report data were not
available at the time of the 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. In calculating the wage
indices for this final rule there were 126 ESRD facilities for which
2021 cost report data was used.
---------------------------------------------------------------------------
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. In the
proposed rule, we stated that 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 three years prior to the
CY for which we are setting rates (that is, for the 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 did not anticipate that the national occupational
mix would change much from year-to-year. Additionally, we noted 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 the proposed new wage index methodology likely would be the
BLS OEWS data, which, for the final rule, would be based on estimates
with a reference date of the May prior to the rulemaking year.
We noted that, at the time of the analysis conducted for the
proposed rule, the May 2023 BLS OEWS estimates were not yet available;
however, they were available at the time of the analysis conducted for
this final rule. As previously discussed, some ESRD
[[Page 89103]]
facilities' CY 2022 cost reports were not available for the proposed
rule but are available now for the final rule; however, we still do not
have complete CY 2022 data, so we must utilize some CY 2021 cost
reports for this final rule. In the proposed rule, we stated that
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 also proposed to use most recent cost report data
available for cost reporting periods beginning in CY 2022 and update
the NEFOM in Table 2 accordingly in the final rule (89 FR 55772). 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.
In the proposed rule, we noted 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 recognized 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 Wage Index Methodology Data Sources
and Hospital Wage Index 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.
In the proposed rule we presented Table 3 in the context of the
proposed new wage index methodology. 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 mean hourly wage data, which is then weighted by ESRD PPS
treatment count in the geographical area. 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),\21\
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.
---------------------------------------------------------------------------
\21\ 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>.
[GRAPHIC] [TIFF OMITTED] TR12NO24.002
In discussing this data in the proposed rule, we noted that the
hospital wage data (column F) 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
[[Page 89104]]
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 New ESRD PPS Wage Index
In the proposed rule, we presented these general steps, which we
stated we would use when constructing a wage index based on the
proposed new ESRD PPS wage index methodology; for a more detailed look
at the specific computational steps we execute in the code to calculate
the wage index according to the proposed methodology, including steps
related to data collection and cleaning, we provided the supplementary
document Addendum C of the proposed rule.
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
CBSA. This reasoning extends to each instance in which we weight values
by treatment counts. We use a crosswalk that relates counties to MSAs,
non-MSAs and NECTAs.
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.\22\ 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 new
wage index methodology would not increase total payments to ESRD
facilities even absent this step.
---------------------------------------------------------------------------
\22\ Treatment weighted averages 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.
---------------------------------------------------------------------------
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. In the proposed rule, we noted
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
proposed wage index value for a CBSA in Addendum A of the proposed
rule, 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> under the page for CMS-1805-P.
This was 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 proposed 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 the proposed new wage index methodology, we
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 noted 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 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
[[Page 89105]]
stated that we believed 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
proposed 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 noted that the SOC uses ``dialysis
technician'' as an illustrative example for code 29-2099.\23\ 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 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 had 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.''
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\23\ <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.
That is, 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 for ESRD facilities 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. In the proposed rule, we noted
that 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 were 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 did not propose this alternative because we believed
that the use of a single national occupational mix is the most
appropriate for this new ESRD facility wage index methodology.
We considered proposing a ``phase-in'' policy for this 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 believed 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 1,000
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 noted that we could
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. We noted that there were 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
[[Page 89106]]
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 which was presented in the CY 2025 ESRD PPS proposed
rule. 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.
[GRAPHIC] [TIFF OMITTED] TR12NO24.003
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 that we presented in the CY 2025 ESRD PPS
proposed rule is presented again 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.
[GRAPHIC] [TIFF OMITTED] TR12NO24.004
[[Page 89107]]
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 presented
in Table 6:
[GRAPHIC] [TIFF OMITTED] TR12NO24.005
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 Change to Wage Index Methodology
In the proposed rule, included a discussion on the estimated
impacts of the new wage index methodology (89 FR 55778 through 55780).
We discussed that this methodological change would be associated with
significant changes in wage index values, and therefore payment
amounts, for ESRD facilities. Full impacts for the final CY 2025 ESRD
PPS wage index, alongside the updated CBSA delineations and rural
transition policy discussed in section II.B.2.f of this final rule, are
presented in Table 19 in section VII.C.5.a of this final rule,
including application of the 5 percent cap on year-to-year wage index
decreases. In the proposed rule we presented a table which included the
impacts of this change with and without the 5 percent cap on wage index
decreases. This table demonstrated how the application of the 5 percent
cap mitigates negative changes for CY 2025 associated with the new wage
index methodology.
We noted 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 table in the proposed rule was 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 new methodology on wage index values.
In the proposed rule, we discussed our 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 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 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 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
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.
[[Page 89108]]
e. CY 2025 ESRD PPS Wage Index
For CY 2025, we are updating the wage indices to account for
updated wage levels in areas in which ESRD facilities are located. We
proposed to use the new wage index methodology described previously, in
subpart b of this section, according to the most recent available data.
We believe that the use of this new wage index 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 new wage
index methodology would better reflect the actual wage costs incurred
by ESRD facilities and 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.\24\ This new ESRD PPS
wage index methodology addresses these specific circumstances.
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\24\ 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.
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In the proposed rule, we recognized that there were several
methodological limitations to using a wage index based on publicly
available BLS OEWS data. Specifically, the BLS OEWS 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 stated that we believed that the benefits of using this 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 variation in wages
faced by ESRD facilities.
For CY 2025, we also proposed to use OMB's most recent CBSA
delineations as published in OMB Bulletin No. 23-01, which are 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 was
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 final 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
proposed 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 ``[t]he 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 proposed 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 the
proposed rule, the most recent BLS OEWS wage data available represented
May 2022. We proposed that if more recent data become available after
the development of this ESRD PPS 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 the
proposed rule), we would use such data, if appropriate, to determine
the CY 2025 ESRD PPS wage index in the ESRD PPS final rule.
(1) Alternative CY 2025 ESRD PPS Wage Index Using Established
Methodology
In the proposed rule, we presented a version of the current ESRD
PPS wage index constructed using our established methodology with the
most recent available data, which we referred to as the ESRD PPS legacy
wage index methodology. The purpose of presenting the legacy
methodology with modifications was to illustrate an alternative to the
new methodology described previously for consideration by interested
parties to facilitate comments on the proposed rule. The inclusion of a
CY 2025 version of the ESRD PPS legacy wage index methodology allowed
for interested parties to compare wage index values under the current
methodology and proposed new methodology. For the reasons previously
discussed, we believed and continue to believe that the proposed new
wage index methodology based on BLS OEWS data and ESRD Medicare cost
report data is the most appropriate for ESRD facilities; however, we
considered 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
this final rule.
In the CY 2025 ESRD PPS proposed rule we presented 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, as
an alternative wage index. Please see the proposed rule (89 FR 55781)
for a detailed description of this alternative wage index, which
followed our legacy methodology.
(2) Request for Comments on This Proposal
In the proposed rule, we explained our belief that our new ESRD PPS
wage index methodology more accurately estimates the geographic
variation in wages paid by ESRD facilities when compared to the current
ESRD PPS wage index based on the IPPS wage index. We acknowledged that
this new methodology 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 requested comments
on all aspects of the 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 steps used to calculate the wage index.
[[Page 89109]]
We welcomed 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 methodology to capture differences in ESRD facility
occupational mix across different geographic areas. In the proposed
rule we stated that we would consider modifying the methodological
steps used to calculate the wage index in the final rule, depending on
the comments we received. Additionally, we requested 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 also
requested 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 requested comments on our proposal to begin using our new
wage index methodology beginning on January 1, 2025.
We invited public comment on our proposal for our new ESRD PPS wage
index methodology and its use for CY 2025. Approximately 20 commenters
including LDOs, SDOs, provider advocacy organizations, coalitions of
dialysis organizations, a professional organization, several ESRD
facilities, and MedPAC commented on the proposed new ESRD PPS wage
index methodology. The following is a summary of the public comments
received on these proposals and our responses.
Comment: Most commenters who expressed an opinion on the new ESRD
PPS wage index methodology, including a coalition of kidney
organizations, several LDOs and MedPAC, stated that the use of the IPPS
wage index within the ESRD PPS was flawed. Some commenters specified
reasons why the IPPS methodology was not appropriate for the ESRD PPS
including data lag and the fact that it is based on hospital cost
report data. The majority of these commenters indicated that they
believed the new wage index methodology would be an improvement over
the IPPS wage index for the ESRD PPS. Many commenters supported the
wage index proposal and requested that CMS finalize the proposal for CY
2025.
Response: We thank commenters for their opinions on the proposed
new wage index methodology as well as their opinions on the ESRD PPS's
current use of the IPPS wage index. We agree that the ESRD PPS wage
index proposed for CY 2025 has advantages over use of the IPPS wage
index when applied to the ESRD PPS. We appreciate the support for the
new ESRD PPS wage index methodology, which we are finalizing in this
rule.
Comment: Many commenters expressed concerns over some of the
impacts of the proposed new ESRD PPS wage index methodology. Among
these comments, the most frequently mentioned impact was the wage index
budget neutrality adjustment factor. Multiple commenters requested that
we implement this new wage index methodology in a non-budget neutral
manner. Several commenters noted that there was no statutory
requirement for budget neutrality for the ESRD PPS wage index. Some
commenters expressed concerns about payment adequacy within the ESRD
PPS and stated a belief that the corresponding decrease to the ESRD PPS
base rate would lead to inadequate payments. One commenter attributed
the budget neutrality reduction to the occupational mix used in
calculating the new wage index methodology.
Response: We appreciate the thoughtful comments on the impacts of
the proposed new ESRD PPS wage index methodology. We acknowledge that
the new wage index methodology, implemented budget neutrally, would
decrease the ESRD PPS base rate for CY 2025 relative to use of the
legacy wage index methodology for CY 2025. However, as discussed in the
proposed rule, we note that this decrease to the CY 2025 ESRD PPS base
rate is predominantly due to the application of the 5 percent cap on
year-over-year wage index decreases under Sec. 413.231(c), which
raises the average ESRD PPS wage index. Although the ESRD PPS base rate
would be decreased for CY 2025, as this cap becomes less impactful
(that is, in future years, as fewer facilities would quality for the
application of the 5 percent cap as a result of the change in wage
index methodology), the ESRD PPS base rate would increase over time,
eventually attaining the level at which it would have been otherwise.
The occupational mix has minimal impact on the budget neutrality
adjustment factor, as the NEFOM serves as weights for the wage index,
which are applied equally to the individual CBSA wages and national
wages in the wage index calculation and, therefore, are essentially
cancel out concerns on their impact on the average wage index value.
Although there is no explicit statutory requirement to implement
the ESRD PPS wage index in a budget neutral manner, our longstanding
philosophy within the ESRD PPS is that when we adjust for relative
resource use and the costs for which we are adjusting are already
included in the ESRD PPS base rate, those adjustments should be
implemented budget neutrally. Under section 1881(b)(14)(A) of the Act
our payment system is based on total costs from ESRD facility cost
reports from 2007 and is increased annually based on the ESRDB market
basket reflecting the changes over time in the prices of an appropriate
mix of goods and services included in renal dialysis services. Labor-
related costs, including wages and benefits, were included in the cost
reports used in the initial analysis (75 FR 49071 through 49083);
therefore, we generally believe it is appropriate to implement any
adjustment factors which are based on the allocation of those costs in
a budget neutral manner.
We have received many comments regarding concerns about payment
adequacy in response to our proposed rule, many of which were combined
with calls to implement the new ESRD PPS wage index in a non-budget
neutral manner. While we acknowledge commenters' concerns about payment
adequacy and address them in section II.B.1.b and below in section
II.B.4 of this final rule, we note that the purpose of the ESRD PPS
wage index is to estimate geographic variation in wages. It would not
be appropriate to make changes to the ESRD PPS wage index methodology
to attempt to increase total payments to address the commenters'
perceived inadequacies. We note that the construction of the wage index
budget neutrality factor ensures that the change in the CY 2024 and CY
2025 wage indices does not result in an increase or decrease of
estimated aggregate payments. Although for CY 2025 the wage index
budget neutrality factor is lower than it has been in the past years,
resulting in a larger decrease to the ESRD PPS base rate, this does not
change the fact that aggregate payments are estimated to be unchanged
implementing the wage index methodology for CY 2025. As noted
previously, the main driver of the lower-than-typical budget neutrality
factor is the application of the 5 percent cap in wage index decreases,
which raises the average wage index value for CY 2025. Although each
year's wage index budget neutrality factors are independent, they are
derived using the prior year's wage index. The higher-than-typical
average wage index value of CY 2025 results in
[[Page 89110]]
a smaller budget-neutrality factor. The smaller budget-neutrality
factor results in a larger decrease to the ESRD PPS base rate.
Consequently, this would likely lead to a higher budget-neutrality
factor in future years where the average wage index value would be
lower than in CY 2025, as ESRD facilities that received the 5 percent
cap in CY 2025 would receive lower wage index values in CY 2026. This
will likely result in an increase to the ESRD PPS base rate in CY 2026
related to the wage index budget neutrality factor.
Comment: MedPAC reiterated support for their wage index
methodology, which was described in the June 2023 Report to Congress,
as discussed earlier.\25\ MedPAC noted that their recommended
methodology would include two features which our proposed new wage
index methodology lacked: a methodology to smooth wage index values
across adjacent CBSAs and a methodology to allow for variation in wage
index values within a single CBSA.
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\25\ <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>.
---------------------------------------------------------------------------
Response: We thank MedPAC for their recommendations. We did not
propose a smoothing methodology across CBSAs because we do not believe
it would serve the purpose of the ESRD PPS wage index, which is to
estimate geographic differences in area wages. Furthermore, a smoothing
methodology would increase the complexity of the methodology and likely
involve parameter choices that could be seen as arbitrary. The fact
that ESRD facilities which are near each other but located in different
CBSAs would have different wage index values is unavoidable and
persists within the ESRD PPS legacy wage index. Under the stated
rationalization for a smoothing methodology, ESRD facilities in
different CBSAs which are geographically near each other would compete
for labor. We agree with this evaluation of local labor markets, but we
note that should these ESRD facilities and other healthcare employers
in the area be competing for labor, their wages would likely reflect
that, which would in turn be reflected in the BLS OEWS data and used in
the new wage index methodology. As for the recommendation to allow
variation within a single CBSA, we acknowledge that such a fine level
of detail would have certain advantages if the precision of the wage
index could be maintained. However, we do not believe that there is any
way to allow such variation without using data sources which would be
lower quality, when applied to the ESRD PPS, than the BLS OEWS. In
addition, MedPAC recommends the use of American Community Survey (ACS)
data, which could allow for some information on average wages, but that
information would not be specific to the types of labor used in ESRD
facilities. We proposed this new wage index methodology to create a
wage index that is specific to ESRD facilities, so the use of such
nonspecific data, like the ACS data, would not align with our goals of
creating an ESRD-specific PPS wage index. Additionally, similar to the
smoothing methodology, utilizing ACS data to allow for further
variation of wage index values would increase the complexity of an
already complex methodology. We believe that our new ESRD PPS wage
index methodology as proposed, without either of these methodological
steps (that is, not incorporating either smoothing across CBSAs or
variation within CBSAs), strikes a balance between simplicity and
accuracy by estimating geographic wages at the CBSA level using the
highest quality, publicly-available data, without arbitrary model
parameters. We did not propose and, for the reasons stated previously,
we are not finalizing in this rule either of the commenter's
suggestions of smoothing across CBSAs or accounting for variation
within CBSAs.
Comment: Several commenters expressed support for the use of the
IPPS wage index for the ESRD PPS. Some commenters highlighted the lack
of hospital-based ESRD facility data used in constructing the NEFOM and
stated a belief that due to this lack of data the IPPS wage index would
be more appropriate for hospital-based ESRD facilities. One commenter
stated that this omission would unfairly penalize hospital-based ESRD
facilities, particularly pediatric hospital-based ESRD facilities. One
commenter requested we make changes to the methodology to utilize
hospital-based ESRD facilities' cost report data in the occupational
mix, as hospital-based ESRD facilities have hiring practices and
occupational mixes more similar to hospitals. One commenter stated that
the omission of hospital-based ESRD facility data would have
distributional implications due to varying ranges of hospital-based
ESRD facilities in different geographical areas.
Response: We appreciate commenters' insight into the extent to
which the ESRD PPS legacy wage index based on IPPS data is appropriate
for ESRD facilities. We note that we generally agree that the use of
the IPPS wage index for the ESRD PPS has historically been reasonably
appropriate for estimating geographic variation in wages for many of
the reasons the commenters stated, however, this does not change our
belief that the new ESRD PPS wage index is more appropriate for the
ESRD PPS moving forward compared to the legacy methodology based on the
IPPS wage index. Many of the objections these commenters raised to the
new methodology revolved around the fact that the NEFOM was based
solely on freestanding ESRD facility cost reports and, therefore, did
not include data from hospital-based ESRD facilities. While we agree
that including data from hospital-based ESRD facilities into the NEFOM
would be an improvement, we could not incorporate data from hospital-
based ESRD facility cost reports into the NEFOM in an appropriate way.
As we explained in the proposed rule (89 FR 55770), hospital-based ESRD
facilities lacked certain occupational categories which are present in
freestanding ESRD facility cost reports, and therefore, in the NEFOM.
The omission of these categories not only means that we do not have
data on those occupations for hospital-based ESRD facilities, but it
also makes it impossible to appropriately incorporate any data on
occupations present in the hospital-based ESRD facility cost reports,
since it would not be an appropriate comparison. We would have absolute
numbers on the clinical staff of the hospital-based ESRD facility,
which would be useful for other analyses, but without knowing the
proportion of labor costs spent on the omitted hospital cost report
categories, any attempt to incorporate the present data would rely on
an assumption that the data reported for the categories not present in
the cost report is comparable to that reported for those categories in
freestanding ESRD facility cost reports. We did not believe that such
an assumption was necessary as hospital-based ESRD facilities are a
significant minority of the total population of ESRD facilities (about
5 percent), meaning their inclusion in the NEFOM would not have a
substantial impact; furthermore, we believe freestanding ESRD
facilities are a good proxy for the average national occupational mix
for hospital-based ESRD facilities. Since the NEFOM only serves as
weights for the mean wages for the occupations, we believe that the
lack of hospital-based data would not unfairly disadvantage hospital-
based ESRD facilities, or hospital-based pediatric ESRD facilities,
since they would receive the same wage index as freestanding ESRD
facilities in the same
[[Page 89111]]
area. Furthermore, any shift to the NEFOM associated with the
hypothetical inclusion of hospital-based ESRD facility cost report
data, should it be possible, would not have any specific impact on
hospital-based ESRD facilities compared to other ESRD facilities, as
the NEFOM would be applied in the wage index calculation for all ESRD
facilities in the same way. Additionally, we note that our analysis
shows that hospital-based ESRD facilities would, on average, receive
increased payments under this proposed new methodology.
We disagree with the claim that the IPPS wage index would be more
appropriate for hospital-based ESRD facilities. Although hospital-based
ESRD facilities' cost report data could not be incorporated into the
NEFOM, we still believe that the freestanding ESRD facility cost report
data is a reasonable proxy for hospital-based ESRD facilities.
Furthermore, the new wage index methodology uses mean wage data from
the BLS OEWS for occupations related to the furnishing of renal
dialysis services, which we believe makes the new wage index
methodology more appropriate for hospital-based ESRD facilities when
compared to the IPPS wage index. While it is true that hospital-based
ESRD facility data would be included in the IPPS wage index there are
many other departments (including but not limited to the adults and
pediatric unit, intensive care unit and surgical intensive care unit)
included in the hospital cost reports which we would anticipate would
be less similar to hospital-based ESRD facilities than freestanding
ESRD facilities are. As we do not have comprehensive occupational mix
data from hospital-based ESRD facilities, we cannot directly evaluate
the claim about hospital-based ESRD facilities having more similar
occupational mixes to hospitals overall than freestanding ESRD
facilities, but we would not anticipate that this would be the case
because of the unique types of labor required in furnishing renal
dialysis services compared to other hospital services. Lastly, we would
not anticipate the omission of hospital-based ESRD facilities from the
NEFOM as having any geographic distributional implications, because the
NEFOM only serves as a set of weights in the new wage index
methodology, so any change to the NEFOM that could potentially arise
from including hospital-based cost reports (if that were operationally
feasible) would change the weights in the same way for all ESRD
facilities.
Comment: One commenter suggested allowing pediatric hospital-based
ESRD facilities to continue using the IPPS-based legacy wage index.
Response: We do not believe it would be appropriate for hospital-
based pediatric ESRD facilities to be allowed to receive a different
wage index value, as we believe that this new wage index methodology is
the most appropriate for all ESRD facilities, including pediatric and
hospital-based ESRD facilities, for the reasons discussed previously.
We do not believe that the IPPS wage index is more applicable for
hospital-based pediatric ESRD facilities. We believe these ESRD
facilities are likely more similar to freestanding ESRD facilities than
other divisions of hospitals because the provision of renal dialysis
services likely dictates the occupational mix more than the location of
the ESRD facility. That is, pediatric hospital-based ESRD facilities
utilize the occupations for which we have utilized BLS OEWS data, as
those are the occupations relevant in furnishing renal dialysis
services. Furthermore, as the ESRD PPS wage index is intended to
reflect the wages in the geographic area in which an ESRD facility is
located, it generally would not be appropriate for two ESRD facilities
in the same geographic areas to have different methodologies determine
their wage index values, as they would generally draw from the same
geographic labor market.
Comment: Several commenters expressed concerns with the BLS OEWS
data used in the construction of the new ESRD PPS wage index
methodology. An LDO and a coalition of dialysis organizations expressed
concerns with the BLS OEWS data centered around the lac
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