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Rule2025-20681

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

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Published

November 24, 2025

Effective

January 1, 2026

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 2026. This rule also includes updates to the payment rate for renal dialysis services furnished by an ESRD facility to individuals with acute kidney injury. In addition, this rule updates the requirements for the ESRD Quality Incentive Program and terminates and modifies requirements for the ESRD Treatment Choices Model.

Full Text

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<title>Federal Register, Volume 90 Issue 224 (Monday, November 24, 2025)</title>
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[Federal Register Volume 90, Number 224 (Monday, November 24, 2025)]
[Rules and Regulations]
[Pages 53068-53142]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-20681]

[[Page 53067]]

Vol. 90

Monday,

No. 224

November 24, 2025

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 413 and 512

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

Federal Register / Vol. 90 , No. 224 / Monday, November 24, 2025 /
Rules and Regulations

[[Page 53068]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413 and 512

[CMS-1830-F]
RIN 0938-AV52

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

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

ACTION: Final rule.

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SUMMARY: This final rule updates and revises the End-Stage Renal
Disease (ESRD) Prospective Payment System for calendar year 2026. This
rule also includes updates to the payment rate for renal dialysis
services furnished by an ESRD facility to individuals with acute kidney
injury. In addition, this rule updates the requirements for the ESRD
Quality Incentive Program and terminates and modifies requirements for
the ESRD Treatment Choices Model.

DATES: These regulations are effective on January 1, 2026.

FOR FURTHER INFORMATION CONTACT:
<a href="/cdn-cgi/l/email-protection#377264657367564e5a52594377545a44195f5f4419505841">[email&#160;protected]</a> or Abigail Ryan (410) 786-4343, 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#c98c9a9b8d88b9b9a5a0aaa8bda0a6a7ba89aaa4bae7a1a1bae7aea6bf">[email&#160;protected]</a>, for issues related to applications
for the Transitional Drug Add-on Payment Adjustment (TDAPA) or
Transitional Add-On Payment Adjustment for New and Innovative Equipment
and Supplies (TPNIES).
<a href="/cdn-cgi/l/email-protection#20716e6574737570706f72740d6573726460434d530e4848530e474f56">[email&#160;protected]</a>, for issues related to the ESRD
Quality Incentive Program (QIP).
<a href="/cdn-cgi/l/email-protection#672233244a242a2a2e27040a14490f0f1449000811">[email&#160;protected]</a>, for issues related to the ESRD Treatment
Choices (ETC) Model.

SUPPLEMENTARY INFORMATION:
Current Procedural Terminology (CPT) Copyright Notice: Throughout
this final rule, we use CPT[supreg] codes and descriptions to refer to
a variety of services. We note that CPT[supreg] codes and descriptions
are copyright 2020 American Medical Association (AMA). All Rights
Reserved. CPT[supreg] is a registered trademark of the AMA. Applicable
Federal Acquisition Regulations (FAR) and Defense Federal Acquisition
Regulations (DFAR) apply.

Table of Contents

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

I. Executive Summary
A. Purpose
B. Summary of the Major Provisions
C. Summary of Cost and Transfers
II. Calendar Year (CY) 2026 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 2026 ESRD PPS
C. Transitional Add-On Payment Adjustment for New and Innovative
Equipment and Supplies (TPNIES)
D. Continuation of Approved Transitional Add-On Payment
Adjustments for New and Innovative Equipment and Supplies for CY
2026
E. Continuation of Approved Transitional Drug Add-On Payment
Adjustments for CY 2026
III. Final CY 2026 Payment Rate for Renal Dialysis Services
Furnished to Individuals With AKI
A. Background
B. Update of AKI Dialysis Payment Rate
IV. Updates to the End-Stage Renal Disease Quality Incentive Program
(ESRD QIP)
A. Background
B. Updates to Requirements Beginning With the Payment Year (PY)
2027 ESRD QIP
C. Updates to Requirements Beginning With the PY 2028 ESRD QIP
D. Requests for Information (RFIs) on Topics Relevant to ESRD
QIP
V. End-Stage Renal Disease Treatment Choices (ETC) Model
A. Background
B. Summary of the Proposed Provisions, Public Comments, and
Responses to the Comments on the ETC Model
VI. Collection of Information Requirements
A. ESRD QIP--Wage Estimates
B. Estimated Burden Associated With the Data Validation
Requirements for PY 2028
C. Estimated EQRS Reporting Requirements for PY 2027 and PY 2028
D. Estimated ICH CAHPS Reporting Requirements for PY 2028
E. ESRD Treatment Choices Model
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. E.O. 14192, ``Unleashing Prosperity Through Deregulation''
I. Congressional Review Act
VIII. Files Available to the Public via the Internet
IX. Waiver of Delayed Effective Date

I. Executive Summary

A. Purpose

This rule finalizes changes related to the End-Stage Renal Disease
(ESRD) Prospective Payment System (PPS), payment for renal dialysis
services furnished to individuals with acute kidney injury (AKI), the
ESRD Quality Incentive Program (QIP), and the ESRD Treatment Choices
(ETC) Model.
1. End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)
On January 1, 2011, we implemented the ESRD PPS, a case-mix
adjusted, bundled PPS for renal dialysis services furnished by ESRD
facilities as required by section 1881(b)(14) of the Social Security
Act (the Act), as added by section 153(b) of the Medicare Improvements
for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275).
Section 1881(b)(14)(F) of the Act, as added by section 153(b) of MIPPA,
and amended by section 3401(h) of the Patient Protection and Affordable
Care Act (the Affordable Care Act) (Pub. L. 111-148), established that
beginning calendar year (CY) 2012, and each subsequent year, the
Secretary of the Department of Health and Human Services (the
Secretary) shall annually increase payment amounts by an ESRD market
basket percentage increase, reduced by the productivity adjustment
described in section 1886(b)(3)(B)(xi)(II) of the Act. This rule
includes updates to the ESRD PPS for CY 2026. This rule also modifies
the eligibility timeframe for the transitional drug add-on payment
adjustment (TDAPA) and establishes a new payment adjustment for ESRD
facilities in certain non-contiguous states and territories to promote
efficient allocation of payments.
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

[[Page 53069]]

under section 1881(b)(14) of the Act to individuals with AKI at the
ESRD PPS base rate beginning January 1, 2017. This rule updates the AKI
dialysis payment rate for CY 2026.
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.
Beginning with PY 2027, this rule removes the Facility Commitment to
Health Equity reporting measure, the Screening for Social Drivers of
Health reporting measure, and the Screen Positive Rate for Social
Drivers of Health reporting measure from the ESRD QIP measure set. In
addition, this rule updates the In-Center Hemodialysis Consumer
Assessment of Healthcare Providers and Systems (ICH CAHPS) clinical
measure beginning with PY 2028. This rule also discusses feedback
received in response to our requests for public comment on several
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 four times in the annual ESRD PPS final rules for CY 2022
(86 FR 61874), CY 2023 (87 FR 67136), CY 2024 (88 FR 76344), and CY
2025 (89 FR 89084).
Per model evaluation reports, ETC Model performance since 2021 has
continued to show that the model is not having a statistically
significant impact on the use of home dialysis modalities, transplant
waitlisting, and living donor transplantation. In this rule, we are
finalizing our proposals to terminate the ETC Model as of December 31,
2025, and to modify the duration during which CMS will apply payment
adjustments described in 42 CFR part 512, subpart C for a specific time
period.

B. Summary of the Major Provisions

1. ESRD PPS
<bullet> Update to the ESRD PPS base rate for CY 2026: The final CY
2026 ESRD PPS base rate is $281.71, an increase from the CY 2025 ESRD
PPS base rate of $273.82. This final amount reflects the application of
the wage index budget neutrality adjustment factor (1.00905), the
budget neutrality factor for the final non-contiguous areas payment
adjustment (NAPA) (0.99860) as discussed in section II.B.8. of this
final rule, and a final ESRD Bundled (ESRDB) market basket update of
2.1 percent as required by section 1881(b)(14)(F)(i)(I) of the Act,
equaling $281.71 (($273.82 x 1.00905 x 0.99860) x 1.021 = $281.71).
<bullet> Annual update to the wage index: We adjust the ESRD PPS
wage index on an annual basis using the most current mean hourly wage
data for occupations related to the furnishing of renal dialysis
services from the Bureau of Labor Statistics (BLS) Occupational
Employment and Wage Statistics (OEWS) program and occupational mix data
from the most recent full CY of freestanding ESRD facility Medicare
cost reports. This wage index uses the latest core-based statistical
area (CBSA) delineations to account for differing wage levels in areas
in which ESRD facilities are located. For CY 2026, we are updating the
wage index based on this methodology and the latest available data.
<bullet> Annual update to the outlier policy: We are updating the
outlier policy based on the most current data and established
methodology. Accordingly, we are updating the Medicare allowable
payment (MAP) amounts for adult and pediatric patients for CY 2026
using the latest available CY 2024 claims data. We are updating the
ESRD outlier services fixed dollar loss (FDL) amount for pediatric
patients using the latest available CY 2024 claims data and updating
the FDL amount for adult patients using the latest available claims
data from CY 2022, CY 2023, and CY 2024. For pediatric beneficiaries,
the FDL amount will decrease from $234.26 to $162.43, and the MAP
amount will decrease from $59.60 to $50.19, as compared to CY 2025
values. For adult beneficiaries, the FDL amount will decrease from
$45.41 to $14.80, and the MAP amount will decrease from $31.02 to
$23.68. The 1.0 percent target for outlier payments was not achieved in
CY 2024, as outlier payments represented approximately 0.8 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 2026: The final CY 2026 average per treatment offset
amount for the TPNIES for capital-related assets that are home dialysis
machines is $10.43. This final offset amount reflects the application
of the final ESRDB market basket update of 2.1 percent ($10.22 x 1.021
= $10.43). There are no capital-related assets set to receive the
TPNIES in CY 2026 for which this offset will apply.
<bullet> Update to the post-TDAPA add-on payment adjustment
amounts: We calculate the post-TDAPA add-on payment adjustment in
accordance with 42 CFR 413.234(g). The final post-TDAPA add-on payment
adjustment amount for Korsuva[supreg] is $0.1131 per treatment, which
will be included in the calculation of the total post-TDAPA add-on
payment adjustment for each quarter in CY 2026. The final post-TDAPA
add-on payment adjustment amount for DefenCath[supreg] is $2.3710 per
treatment, which will be included in the calculation for the third and
fourth quarters of CY 2026.
<bullet> Update to the timeframe for TDAPA eligibility: We are
modifying the timeframe for TDAPA eligibility to provide that a new
renal dialysis drug or biological product must have been approved by
the Food and Drug Administration (FDA) within the past 3 years at the
time of submission of the TDAPA application. This revised eligibility
timeframe will apply for all new drugs and biological products for
which a TDAPA application is submitted on or after January 1, 2028.
<bullet> Non-contiguous areas payment adjustment (NAPA): We are
finalizing a new payment adjustment, the NAPA, for ESRD facilities in
certain high-cost, non-contiguous states and territories to account for
certain non-labor costs which are not captured in the ESRD PPS wage
index. This payment adjustment will apply to ESRD PPS claims submitted
by ESRD facilities in Alaska, Hawaii, and the U.S. Pacific Territories
of Guam, American Samoa, and the Northern Mariana Islands. We are also
finalizing our proposal that the NAPA will be budget neutral and will
apply a corresponding budget neutrality factor of 0.99860 to the CY
2026 ESRD PPS base rate.
2. Payment for Renal Dialysis Services Furnished to Individuals With
AKI
<bullet> Update to the dialysis payment rate for individuals with
AKI: We are updating the AKI dialysis payment rate

[[Page 53070]]

for CY 2026. The final CY 2026 payment rate is $281.71, which is the
same as the final CY 2026 ESRD PPS base rate.
3. ESRD QIP
We are finalizing our proposal to remove the Facility Commitment to
Health Equity reporting measure beginning with PY 2027, the Screening
for Social Drivers of Health reporting measure beginning with PY 2027,
and the Screen Positive Rate for Social Drivers of Health reporting
measure beginning with PY 2027. Beginning with PY 2028, we are
finalizing our proposal to update the ICH CAHPS clinical measure. We
are reducing the length of the ICH CAHPS Survey by removing 23
questions which we have identified as appropriate for removal. This
final rule includes public comments received in response to requests
for information that appeared in the CY 2026 ESRD PPS proposed rule. In
those requests for information, we solicited public feedback on several
topics relevant to the ESRD QIP. We requested information on the
current state of health information technology (IT) use in dialysis
facilities, including electronic health records (EHRs), to further
ongoing CMS efforts to facilitate successful adoption and integration
of Fast Healthcare Interoperability Resources[supreg] (FHIR[supreg])
and FHIR-based technologies and standardized data for patient
assessment instruments. We also requested feedback on potential
measurement concepts that could be developed into ESRD QIP measures in
the future, such as measures of interoperability, well-being,
nutrition, and physical activity.
4. ETC Model
We are finalizing our proposal to terminate the ETC Model and
modify the duration during which CMS will apply the payment adjustments
described in 42 CFR part 512, subpart C to claims with claim service
dates beginning on or after January 1, 2021, and ending on or before
December 31, 2025. We discussed our reasons for terminating the model
and the changes to the regulation required to implement the
termination.

C. Summary of Costs and Transfers

In section VII.C.5. of this final rule, we set forth a detailed
analysis of the impacts that the final changes will have on affected
entities and beneficiaries. Table 1 summarizes the impacts of each
final change in the CY 2026 ESRD PPS final rule.

Table 1--Updated Estimated Total Costs/Transfers
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Final changes Estimated total costs/transfers
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Final CY 2026 ESRD PPS updates.... The overall economic impact of this
final rule is an estimated increase
of approximately $180 million in
aggregate payments to ESRD
facilities in CY 2026. This
includes estimated expenditures of
approximately $34 million
associated with the post-TDAPA add-
on payment adjustment.
Final CY 2026 AKI dialysis payment We estimate that the aggregate
rate update. Medicare payments made to ESRD
facilities for renal dialysis
services furnished to individuals
with AKI, at the final CY 2026 ESRD
PPS base rate, will increase by $1
million.
Finalized PY 2027 and PY 2028 QIP We estimate that, as a result of
updates. previously finalized policies and
changes to the ESRD QIP that we are
finalizing, the overall economic
impact of the PY 2027 ESRD QIP will
be approximately $146.6 million. We
estimate that, as a result of
previously finalized policies and
changes to the ESRD QIP that we are
finalizing, the overall economic
impact of the PY 2028 ESRD QIP will
be approximately $145.6 million.
Finalized ETC Model termination... We estimate that, as a result of the
termination of the ETC Model, as
finalized in this rule, the net
Federal impact will be
approximately $1 million in
savings.
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1. Impacts of the Updates to the 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 2026
compared to estimated Medicare payments in CY 2025. The overall impact
of the CY 2026 payment changes is projected to be a 2.2 percent
increase in Medicare payments. Hospital-based ESRD facilities will have
an estimated 1.5 percent increase in Medicare payments compared with
freestanding ESRD facilities with an estimated 2.2 percent increase. We
estimate that the aggregate Medicare payments under the ESRD PPS will
increase by approximately $180 million in CY 2026 compared to CY 2025
as a result of the final payment policies in this rule. Because of the
projected 2.2 percent overall payment increase, we estimate there will
be an increase in beneficiary coinsurance payments of 2.2 percent in CY
2026, which translates to approximately $40 million. For CY 2026, we
estimate total payments associated with the post-TDAPA add-on payment
adjustment will be $34 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; Sec. 413.236
to establish the TPNIES, a transitional add-on payment adjustment for
certain new and innovative equipment and supplies; and Sec. 413.234(g)
to establish the post-TDAPA add-on payment adjustment. The TDAPA, the
TPNIES, and the post-TDAPA add-on payment adjustment are not budget
neutral.
As discussed in section II.D. of this final rule, because we did
not receive any applications for the TPNIES in CY 2025, no new items
were approved for the TPNIES for CY 2025 (89 FR 89162). Therefore,
there are no continuing TPNIES payments for CY 2026. In addition, since
we did not receive any applications for the TPNIES for CY 2026, there
will be no new TPNIES payments for CY 2026. As discussed in section
II.E. of this final rule, the TDAPA payment periods for
DefenCath[supreg], Vafseo[supreg], and the oral-only phosphate binders
sevelamer carbonate, sevelamer hydrochloride, sucroferric oxyhydroxide,
lanthanum carbonate, ferric citrate, and calcium acetate will continue
into CY 2026. As described in section VII.C.5.b. of this final rule, we
estimate that the combined total TDAPA payment amounts for these drugs
in CY 2026 will be approximately $500 million, of which, $100 million
will be attributed to beneficiary coinsurance amounts.

[[Page 53071]]

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 2025. The overall
impact of the CY 2026 changes is projected to be a 2.0 percent increase
in Medicare payments for individuals with AKI. Hospital-based ESRD
facilities will have an estimated 1.8 percent increase in Medicare
payments compared with freestanding ESRD facilities that will have an
estimated 2.0 percent increase. The overall impact reflects the effects
of the final Medicare ESRD PPS payment rate update and the final CY
2026 ESRD PPS wage index. We estimate that the aggregate Medicare
payments made to ESRD facilities for renal dialysis services furnished
to individuals with AKI, at the final CY 2026 ESRD PPS base rate, will
increase by $1 million in CY 2026 compared to CY 2025.
3. Impacts of the PY 2027 and PY 2028 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
$146.6 million. The $146.6 million estimate for PY 2027 includes $125
million in costs associated with the collection of information
requirements and approximately $21.6 million in payment reductions
across all facilities. 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 2028 ESRD QIP
will be approximately $145.6 million. The $145.6 million estimate for
PY 2028 includes $125 million in costs associated with the collection
of information requirements and approximately $20.6 million in payment
reductions across all facilities.
4. Impacts of the Termination of the ETC Model
We estimate that, as a result of the termination of the ETC Model,
as finalized in this rule, the net Federal impact will be approximately
$1 million in savings during the final 18 months of the performance
period (January 1, 2026 through June 30, 2027).

II. Calendar Year (CY) 2026 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 \1\ (excluding oral-only ESRD-
related drugs). Consistent with this requirement, in the CY 2014 ESRD
PPS final rule, we finalized $29.93 as the total drug utilization
reduction and finalized a policy to implement the amount over a 3- to
4-year transition period (78 FR 72161 through 72170).
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\1\ 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 when referencing specific language in the Act or
regulations.
---------------------------------------------------------------------------

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. Effective January 1, 2025, all oral-only renal dialysis drugs and
biological products are paid for under the ESRD PPS.
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

[[Page 53072]]

bleeding, hereditary hemolytic or sickle cell anemia, and
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.\2\ The
first payment adjustment accounts for ESRD facilities furnishing a low
volume of dialysis treatments, with two tiers such that smaller low
volume facilities receive a higher payment adjustment (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).
---------------------------------------------------------------------------

\2\ As discussed in section II.B.8 of this final rule, beginning
for CY 2026, we are establishing a new facility-level payment
adjustment for ESRD facilities in certain non-contiguous areas of
the U.S.
---------------------------------------------------------------------------

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 for CYs 2024 through 2026 (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 12, 2024, 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 2025 ESRD PPS final rule.'' In that rule (89 FR 89084 through
89213), we updated the ESRD PPS base rate, wage index, and outlier
policy for CY 2025 and we updated the CBSA delineations used for the
wage index according to Office of Management and Budget (OMB) Bulletin
No. 23-01. We also finalized a new ESRD PPS wage index methodology, a
phase out of the rural adjustment for ESRD facilities that were re-
designated from a rural to an urban area as a result of the new CBSA
delineations, an expansion of the ESRD PPS outlier list to include all
drugs and biological products that were formerly part of the composite
rate, an updated methodology for calculating certain inflation factors
used when determining the adult fixed dollar loss (FDL) amount, and an
update to the low-volume payment adjustment (LVPA) to include two tiers
such that ESRD facilities with fewer than 3000 treatments in 2 of the 3
preceding years would receive a higher LVPA payment. Additionally, in
the CY 2025 ESRD PPS final rule, we discussed the inclusion of oral-
only drugs into the ESRD PPS bundled payment and finalized monthly
TDAPA amounts for claims which utilize phosphate binders. For further
detailed information regarding these updates and policy changes, see 89
FR 89084.

B. Provisions of the Proposed Rule, Public Comments, and Responses to
the Comments on the CY 2026 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'' (90 FR 29342-29391), referred to as the ``CY
2026 ESRD PPS proposed rule,'' appeared in the July 2, 2025 issue of
the Federal Register, with a comment period that ended on August 29,
2025. In that proposed rule, we proposed to make a number of annual
updates for CY 2026, including routine updates to the ESRD PPS base
rate, wage index, outlier policy, TPNIES offset amount, and post-TDAPA
add-on payment adjustment amounts. Additionally, we proposed to modify
the timeframe for TDAPA eligibility, beginning January 1, 2028, to
require a TDAPA application within 3 years of FDA approval, and we
proposed a new payment adjustment for ESRD PPS claims from ESRD
facilities in certain non-contiguous states and territories. We
received approximately 208 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 advocacy organizations; administrators and insurance groups; a
non-profit dialysis association; a professional association; alliances
for kidney care and home dialysis interested parties; drug and device
manufacturers; health care systems; and the Medicare Payment Advisory
Commission (MedPAC). Of these approximately 208 public comments,
approximately 108 were unique and approximately 98 were either
duplicative submissions or were solely form letters.
We received many comments about ESRD PPS policies for which we did
not propose any changes for CY 2026. These comments are briefly
summarized in the following paragraphs; however, we are not addressing
these comments in this final rule because they are out of scope for the
CY 2026 ESRD PPS final rule.
We received approximately 87 timely pieces of correspondence from
unique submitters which reflected a form letter advocating for the
removal of oral drugs which lower serum phosphate from the ESRD PPS
bundled payment. Additionally, we received 41 timely pieces of
correspondence from a wide range of commenters that raised concerns
about what commenters stated were the negative impacts of the inclusion
of oral-only drugs and biological products into the ESRD PPS.
We also received comments that offered suggestions broadly related
to improving quality of care for ESRD patients. These included comments
proposing the development of a patient bill of rights and
responsibilities; comments raising concerns about access to care,
particularly in rural areas and in nursing homes; comments raising
concerns about patients' current and future access to prescribed
medications; and comments that advocated for better

[[Page 53073]]

patient education about modality choice and vascular access options.
Several comments requested clarification or consideration of
changes to existing ESRD PPS policies such as the reporting requirement
for ``time on machine''; the ESRD PPS case-mix adjusters; the
eligibility criteria for the LVPA; and the scope of items and services
that are recognized as renal dialysis services paid under the ESRD PPS.
A number of commenters also requested clarification or consideration of
changes related to Medicare payment policies outside the ESRD PPS, such
as the Kidney Disease Education benefit; palliative care and the
hospice benefit; caregiver services in the nursing home setting;
payment for ultrafiltration for beneficiaries with congestive heart
failure; and policies for telehealth and remote monitoring for home
dialysis patients.
Some commenters urged CMS to address their concerns related to
Medicare Advantage (MA) plans. These included concerns about network
adequacy and payment, particularly in rural areas, as well as
recommendations to consider supply chain concerns that affect emergency
preparedness. Commenters also encouraged CMS to ensure that MA plans
adopt policies similar to the TPNIES and TDAPA, limit MA exclusivity
and narrow networks, ensure that MA benchmarks for ESRD reflect any
adjustments in FFS ESRD payments, and facilitate home dialysis uptake
in beneficiaries with a MA plan.
We received several comments not related to policies we proposed
regarding the TDAPA, TPNIES, and the post-TDAPA add-on payment
adjustment, which expressed concern that the ESRD PPS does not
sufficiently incentivize innovation in dialysis care or pay for
innovative technologies. Additionally, commenters requested that we
revise cost reports and billing procedures to make TDAPA, TPNIES, and
post-TDAPA costs easier to report and payment easier to identify. We
also received comments about extending the TDAPA and TPNIES payment
periods, expanding the TPNIES for capital related assets beyond home
dialysis machines, further clarifying the TPNIES eligibility criteria,
and creating a pathway for new clinical laboratory tests related to the
treatment of ESRD by establishing a Transitional Laboratory Add-on
Payment Adjustment, which the commenters called TLAPA.
We also received several comments regarding the inclusion of oral-
only drugs and biological products in the ESRD PPS bundled payment,
which was not the subject of a proposal in the CY 2026 ESRD PPS
proposed rule. Commenters requested that CMS provide payment for drugs
or biological products not consumed by beneficiaries, along with
requesting clarification on, or extension of, the increase to the TDAPA
amount for phosphate binders of $36.41 for operational costs.
Additionally, commenters requested that ESRD facilities provide oral
drugs and biological products in specific packaging for nursing homes
and include the cost of pharmacist and pharmacist technician salaries
in the ESRD PPS bundled payment. Some commenters requested additional
monitoring for any adverse effects of including oral-only drugs and
biological products in the ESRD PPS bundled payment. 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 2026
ESRD PPS proposed rule. However, we note that we did not propose to
change the additional $36.41 increase to the TDAPA amount for phosphate
binders, and we are not finalizing any such changes in this rule. As
such, the monthly TDAPA amount on any ESRD PPS claim that reports units
of phosphate binders in CY 2026 would include the increased $36.41 that
we finalized in the CY 2025 ESRD PPS final rule.
As we previously stated, we are not providing detailed responses to
these out of scope comments in this CY 2026 ESRD PPS final rule.
Nevertheless, we thank the commenters for their input and will consider
their recommendations to potentially inform future rulemaking.
1. CY 2026 ESRD Bundled (ESRDB) Market Basket Percentage Increase;
Productivity Adjustment; and Labor-Related Share (LRS)
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 ESRD bundled (ESRDB) input price index using
CY 2008 as the base year (75 FR 49151 through 49162). We subsequently
revised and rebased the ESRDB input price index to a base year of CY
2012 in the CY 2015 ESRD PPS final rule (79 FR 66129 through 66136). In
the CY 2019 ESRD PPS final rule (83 FR 56951 through 56964), we
finalized a rebased ESRDB input price index to reflect a CY 2016 base
year. 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 2026 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 2026 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 calculated the proposed ESRDB market basket
update for CY 2026 based on the proposed ESRDB market basket percentage
increase and the proposed productivity adjustment, following our
longstanding methodology.

[[Page 53074]]

(1) CY 2026 ESRDB Market Basket Percentage Increase
Based on IGI's first quarter 2025 forecast of the 2020-based ESRDB
market basket, the proposed CY 2026 ESRDB market basket percentage
increase was 2.7 percent. 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), we would use such data, if
appropriate, to determine the CY 2026 ESRDB market basket percentage
increase in the final rule. Accordingly, based on IGI's third quarter
2025 forecast of the 2020-based ESRDB market basket, the final CY 2026
ESRDB market basket percentage increase is 2.9 percent.
(2) CY 2026 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),
hereafter referred to as 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.\3\ As a result of the BLS name change,
the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of
the Act is now published by BLS as private nonfarm business TFP;
however, as mentioned previously, the data and methods are unchanged.
We refer readers to <a href="https://www.bls.gov/productivity/">https://www.bls.gov/productivity/</a> for the BLS
historical published TFP data. A complete description of IGI's TFP
projection methodology is available on 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.
---------------------------------------------------------------------------

\3\ 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>.
---------------------------------------------------------------------------

Based on IGI's first quarter 2025 forecast, the proposed
productivity adjustment for CY 2026 (the 10-year moving average growth
of TFP for the period ending CY 2026) was 0.8 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 2026 productivity adjustment in the final rule.
Accordingly, based on IGI's third quarter 2025 forecast, the CY 2026
final productivity adjustment is 0.8 percentage point.
(3) CY 2026 ESRDB Market Basket Update
In accordance with section 1881(b)(14)(F)(i) of the Act, we
proposed to base the CY 2026 ESRDB market basket percentage increase on
IGI's first quarter 2025 forecast of the 2020-based ESRDB market
basket. We proposed to then reduce the ESRDB market basket percentage
increase by the proposed productivity adjustment for CY 2026 based on
IGI's first quarter 2025 forecast. Therefore, the proposed CY 2026
ESRDB market basket update was equal to 1.9 percent (proposed 2.7
percent ESRDB market basket percentage increase reduced by a proposed
0.8 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 2026 ESRD market basket
percentage increase and productivity adjustment in the final rule.
Accordingly, the final CY 2026 ESRDB market basket update is calculated
using the final CY 2026 ESRDB market basket percentage increase, based
on IGI's third quarter 2025 forecast of the 2020-based ESRDB market
basket, and the final productivity adjustment, based on IGI's third
quarter 2025 forecast. Therefore, the final CY 2026 ESRDB market basket
update is equal to 2.1 percent (2.9 percent ESRDB market basket
percentage increase reduced by a 0.8 percentage point productivity
adjustment).
(4) ESRD Labor-Related Share (LRS)
We define the LRS as those expenses that are labor-intensive and
vary with, or are influenced by, the local labor market. The LRS 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 2026 ESRD PPS payment
update, we proposed to continue using a LRS 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 Percentage Increase,
Productivity Adjustment, Annual Update and Labor-Related Share (LRS)
We invited public comment on our proposals related to the ESRDB
market basket update and LRS. Several 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: Several commenters acknowledged the proposed ESRDB market
basket update of 1.9 percent; however, most expressed that this update
is insufficient to address the current inflationary environment and
workforce shortages. A few commenters pointed to their own experience
or broader trends in labor costs as an indication that the update is
insufficient. Some commenters underscored the importance of accurate
payments to providers, ensuring ESRD facilities can hire and retain
essential clinical staff, thus mitigating high rates of staff turnover
to higher-paying settings. They noted this has direct negative effects
on patient experience. Additionally, commenters raised concerns about
the impact of this proposal on independent and hospital-based dialysis
providers. Several commenters noted that labor, supply, and capital
expenses continue to rise, resulting in negative Medicare margins

[[Page 53075]]

for 2022 and 2023, measured by MedPAC at -1.1 percent and -0.2 percent,
respectively.
MedPAC, on the other hand, indicated in its March 2025 report to
Congress that for 2026 ESRD PPS payments should be updated according to
the amount determined under current law. This recommendation was based
on MedPAC's analysis of payment adequacy indicators.
Response: We believe that the CY 2026 ESRDB market basket update
accurately estimates the expected input price pressures that ESRD
facilities will likely face in 2026.
We acknowledge that labor costs are a significant factor for ESRD
facilities' finances (accounting for 46 percent of the 2020-based ESRDB
market basket). At the time of the CY 2026 ESRD proposed rule, based on
IGI's first quarter 2025 forecast with historical data through the
fourth quarter of 2024, the 2020-based ESRDB market basket percentage
increase was forecasted to be 2.7 percent for CY 2026. This reflected
forecasted compensation price growth of 3.3 percent, which corroborates
that labor prices are anticipated to grow at a relatively faster rate
than other prices in the ESRDB market basket. As discussed in the CY
2023 ESRD PPS final rule (87 FR 67141), the compensation price measure
in the ESRDB market basket reflects the worker skill mix specific to
ESRD facilities.
In the CY 2026 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 2026 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 2026. Based on IGI's third
quarter 2025 forecast with historical data through the second quarter
of 2025, we are projecting a CY 2026 ESRDB market basket percentage
increase of 2.9 percent (reflecting forecasted compensation price
growth of 3.4 percent). Therefore, for CY 2026 a final ESRDB market
basket update of 2.1 percent (2.9 percent less 0.8 percentage point for
the productivity adjustment) will be applicable, compared to the 1.9
percent ESRDB market basket update that was proposed.
Comment: Several commenters, representing numerous industry
interests, stated similar comments to those from recent rulemaking
cycles indicating concerns 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. Several commenters noted that the
ESRDB market basket updates are comparatively lower than those for
other Medicare providers and suppliers paid under a PPS. The commenters
acknowledged that varying cost structures contribute to this outcome;
however, they expressed it is important to highlight these differences
because all providers draw from the same labor pools. They stated that
lower ESRD PPS updates may impact ESRD facilities' ability to attract
caregivers in the current competitive labor market. Additionally, a
commenter requested CMS clarify past comments about why we believe
different facility types face different cost-pressures as the commenter
noted many of the costs, such as labor, were drawn from similar pools.
Commenters raised three main areas of concern with the ESRDB market
basket methodology. First, they expressed the capital cost share weight
is too high compared to other Medicare market baskets. They also
mentioned that capital costs would include costs that are labor-
related, yet the price proxy used does not consider labor-related
costs. A commenter requested clarification on what capital costs would
be considered labor-related.
Second, commenters suggested that the capital building price proxy
should match that in the Inpatient Prospective Payment System (IPPS)
and Skilled Nursing Facility (SNF) market baskets. The ESRD PPS uses
the ``PPI--Industry--Lessors of nonresidential buildings'' price proxy,
while the IPPS and SNF PPS use the ``BEA--Chained Price Index for
Private Fixed Investment in Structures, Nonresidential, Hospitals and
Special Care''. Commenters highlighted the faster growth rate of the
latter price proxy and noted that this difference in price trend
contributes to the lower overall ESRDB market basket updates generally.
Third, commenters noted that the weight for the proxy ``PPI--Final
demand--Finished goods less foods and energy'' in the ESRD PPS is
higher than in other Medicare market baskets, with a weight of 11.1
percent compared to 1.2 percent in the IPPS and 0.3 percent in the SNF
PPS. They suggested redefining the category in the ESRD PPS to
potentially reduce the weight and provide a more accurate update
factor.
A commenter requested that CMS implement these changes to the ESRD
PPS market basket for CY 2026 to better align it with other Medicare
payment systems.
Response: We appreciate the commenters' recommendations regarding
areas that could benefit from technical enhancements in the design and
methodology of the ESRDB market basket cost weights and price proxies.
We did not propose to rebase or revise the ESRDB market basket in the
CY 2026 ESRD PPS proposed rule. Additionally, we finalized the 2020-
based ESRDB market basket in the CY 2023 ESRD PPS final rule (87 FR
67141). During the CY 2023 rulemaking cycle, the 2020 Medicare cost
report data was the most recent fully complete cost data available,
reflecting the submitted cost data from ESRD facilities. The ESRDB
market basket is created according to section 1881(b)(14)(F)(i) of the
Act and must reflect the costs associated with providing ESRD care. The
2020-based ESRDB market basket percent change is calculated based on
the weighted price change of individual price proxies and their
respective cost weights. The cost weights are primarily derived from
the freestanding ESRD Medicare cost reports and represent the relative
shares of input costs needed to provide medical services to ESRD
beneficiaries. Similarly, other Medicare market baskets, such as the
2022-based SNF market basket and the 2023-based IPPS market basket,
reflect the relative share of input costs required to provide skilled
nursing and hospital care to Medicare beneficiaries based on data
reported in their respective provider Medicare cost reports. The price
proxies used in the ESRDB market basket are designed to reflect the
specific price pressures faced by ESRD facilities, which can vary from
those facing other medical care providers. Although many of the
individual costs faced by ESRD facilities are similar to certain
individual costs faced by other facility types, the different cost-
weights and price proxies result in the different market baskets
representing the different cost pressures for each facility type. For
instance, the rate of increase in the ESRDB market basket compensation
category reflects the price increase for occupations employed by ESRD
facilities, which may differ from those in nursing care facilities or
hospitals. We recognize that ESRD facilities compete for labor against
other facility types and we believe that the ESRDB market basket
reflects the realities of the types of labor employed by ESRD
facilities.
Regarding the first area of concern raised by the commenters about
capital costs, the ESRDB market basket capital cost weight represents
13.8 percent of

[[Page 53076]]

total costs as calculated using the ESRD Medicare cost report data. We
provided comprehensive details on how these weights were derived in the
CY 2023 ESRD PPS final rule (87 FR 67145). Consistent with section
1881(b)(14)(F) of the Act, the ESRDB market basket weight reflects the
reported costs of ESRD facilities in relation to total ESRD expenses,
and thus it is not relevant how the weight in the ESRDB market basket
compares to capital cost category weights in other Medicare market
baskets. Additionally, the ESRDB market basket capital-related price
proxy captures the anticipated price pressures encountered by
freestanding ESRD facilities, often leasing business office space, that
would include all factors influencing those costs, including labor
costs. We note that rent is an example of a capital cost which we
consider labor-related, as labor is a component in the price of rent.
In response to the second area of concern about the ESRD price
proxy for fixed capital differing from those used in other Medicare
market baskets, they are appropriately different because they reflect
the unique capital cost acquisition and financing for each provider
type. As described in the CY 2023 ESRD PPS final rule (87 FR 67141
through 67154), the ESRDB market basket uses the 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,
which we believe is the most technically appropriate price proxy for
ESRD fixed capital costs and was finalized in the CY 2015 ESRD PPS
proposed rule (79 FR 40223). We will consider alternative price proxies
for this and other cost categories during the next rebasing and
revising of the ESRDB market basket.
In addressing the third area of concern regarding the ESRDB market
basket weight for All Other Goods and Services, as noted in the CY 2023
ESRD PPS final rule (87 FR 67145), the cost weight for All Other Goods
and Services was derived by disaggregating the Administrative and
General cost weight based on the 2012 Service Annual Survey data, the
most recent year of detailed expense data available, which was adjusted
to 2020 levels. This data is published by the Census Bureau under North
American Industry Classification System (NAICS) Code 621492: Kidney
Dialysis Centers. We believe this method is appropriate because it
reflects data specific to ESRD facilities, and detailed BEA Benchmark
Input-Output data is not available at the six-digit detail level
corresponding to NAICS 621492, Kidney Dialysis Centers.
We reiterate, as we have in previous regulatory cycles, that CMS is
interested in hearing from commenters and discussing any data or
analysis the industry may wish to provide regarding ways to ensure
Medicare payments are appropriate and that 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, or suggestions for revisions to
the ESRD cost report that would provide specific detail for any
substantial category of expenses that are not separately reported,
which commenters can provide through rulemaking or by sending an email
to <a href="/cdn-cgi/l/email-protection#a9cdc7c1dae9cac4da87c1c1da87cec6df">[email&#160;protected]</a>. We will consider these suggestions for the next
rebasing and revising of the ESRDB market basket, noting that any
proposal to rebase the ESRDB market basket would occur through notice
and comment rulemaking.
Comment: Several commenters expressed their opinion that the LRS of
55.2 percent is insufficient. A commenter highlighted that staffing
costs for one of their members constitute approximately 70 percent of
operating expenses. The commenters also pointed out that the ESRD LRS
is lower compared to other CMS PPS's, such as the LRS for the SNF and
Inpatient hospital PPS. Another commenter expressed support for the
ESRD LRS of 55.2 percent but noted that, since this figure is based on
cost share weights from 2020, it is outdated and should be updated more
frequently than merely coinciding with each rebasing to reflect changes
in labor-related costs or price pressures between market basket
rebasing years. Several commenters expressed a belief that increasing
the labor related share would increase the annual market basket
increase.
Response: The objective of the LRS is to represent the proportion
of the national ESRD PPS base payment rate that is modified by the wage
index. CMS adjusts this portion of the base rate to account for
geographic variances in area wage levels, utilizing an appropriate wage
index which mirrors the relative wage levels and wage-related costs in
the geographic location of the ESRD facility.
We define the LRS as those expenses that are labor intensive and
vary with, or are influenced by, 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 LRS
for ESRD facilities. Specifically, effective for CY 2023, a LRS of 55.2
percent was based on the sum of the cost weights for: Wages and
Salaries, Employee 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. Nearly all
of the cost weights used to determine the LRS were derived from the
ESRD Medicare cost reports (CMS Form 265-11, OMB NO. 0938-0236). The
LRS used for the ESRD payment system is appropriately different than
those estimated for SNF and IPPS PPS because it reflects the cost
structure specific to ESRD facilities. Thus, we believe the ESRD LRS of
55.2 percent is appropriate and we are finalizing our proposal to
continue to use this LRS for CY 2026 ESRD PPS payments. We note that
increasing the LRS would not impact the annual ESRDB market basket
increase because, the LRS of 55.2 percent is a percentage of labor-
related costs for providing ESRD care which is derived based on the sum
of cost weights in the ESRDB market basket. Since the LRS is determined
based on the cost share weights, it would not change from year to year
until the ESRDB market basket is rebased. Additionally, the LRS does
not impact the percentage increase in the ESRDB market basket as that
is determined solely based on the ESRDB cost share weights and the
weighted growth in the price proxies used in the ESRDB market basket.
The LRS is a separate concept that does not impact the ESRDB market
basket percentage increase. We will consider the commenters'
suggestions related to the LRS, when we next rebase and revise the
ESRDB market basket, and any such proposed changes will be made through
notice and comment rulemaking.
Comment: One LDO commented that the proposed productivity
adjustment of 0.8 percent was significantly larger than in prior years
and opined that it exceeded any actual productivity gains experienced
by ESRD facilities.
Response: Section 1881(b)(14)(F)(i)(II) of the Act requires the
Secretary to reduce the ESRDB market basket increase factor by the
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of
the Act, which specifies that 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). While we acknowledge that the CY 2026 proposed and final
productivity adjustment are greater than recent years, they are

[[Page 53077]]

derived from the same methodology as required by the statute, as
previously stated. We note that this statutory requirement does not
specify that the productivity adjustment reflects the productivity
gains experienced by ESRD facilities and is instead based on economy-
wide private nonfarm data.
Comment: A commenter noted that across inflation adjusted FFS
expenditures, ESRD PPS expenditures have consistently accounted for
between 5 and 7.5 percent of total Medicare spending over the past
decade and noted that this represented stability for the Medicare Trust
Fund. The commenter highlighted that this stability has persisted even
as CMS implemented new payment policies such as the TDAPA and TPNIES.
Response: We appreciate the commenters' perspective on the payment
stability of the ESRD PPS and agree that the program has been generally
stable while providing payment for high quality care for ESRD
beneficiaries.
Comment: A few comments addressed the timing of the data upon which
the ESRDB market basket and ESRDB market basket update were based. A
commenter requested CMS reevaluate the ESRDB market basket methodology
and use more recent data. Another commenter expressed a belief that the
market basket increase was based on 2020 data and requested CMS use
more recent data.
Response: We generally routinely rebase and revise the ESRDB market
basket to a base year every 4 to 5 years. We believe that this is
reasonable as the cost report data generally does not change much from
year-to-year. We note that the 2020 cost report data is used to
determine the cost-weights for the 2020-based ESRDB market basket;
however the CY 2026 ESRDB market basket percentage increase is based on
the expected growth in prices for 2026. The cost weights derived from
2020 ESRD Medicare cost report data are multiplied by the forecasted
price growth of each price proxy in the ESRDB market basket to
determine the overall ESRDB market basket percentage increase for CY
2026.
Comment: Many commenters report that the ESRDB market basket
updates have been under-forecast for four consecutive years from 2021
through 2024. Commenters overwhelmingly requested that CMS utilize its
authority to make adjustments to the ESRD PPS and implement a forecast
error adjustment policy for the ESRD PPS. While recognizing that
updates to the ESRDB market basket are set prospectively, making some
degree of forecast error inevitable, commenters asserted that ESRD
facilities should not be financially disadvantaged due to Medicare
market basket forecasting errors. Many urged CMS to reconsider its
decision not to adopt a forecast error policy, arguing that such an
adjustment is essential to ensure the funding Congress intended for
ESRD facilities.
Furthermore, commenters stated that the forecast errors in the ESRD
PPS are disproportionately worse than those in other Medicare payment
systems and continued to urge CMS to address what they view as the past
underfunding of the payment system. They recommended CMS implement a
one-time retrospective adjustment to the base rate in the amount of the
current cumulative forecast error, with some suggesting this adjustment
cover the entire period since the inception of the ESRD PPS, while
others proposed a timeframe from 2019 or 2020 through 2024.
Additionally, most commenters stated that they support the
implementation of a future forecast error correction policy that would
be triggered when the positive or negative error exceeds a 0.5
percentage point threshold, similar to the forecast error adjustment
threshold for the SNF PPS.
Some commenters opined on the statutory authority CMS has to
establish such an adjustment for the ESRD PPS, and others opined that
CMS should implement such an adjustment in this final rule rather than
wait for a future year. A few commenters noted that when establishing
the forecast error adjustment under the SNF PPS, CMS stated that such
an adjustment would not be considered a new source of funding for the
payment system. Some commenters opined that such an adjustment would
create more predictable payments, in contrast to past CMS statements
about predictability under a forecast error adjustment. One LDO
characterized forecast errors as being paramount to a rate cut as they
impact all future years. One professional association stated that a
forecast error adjustment was necessary given consolidation of
providers of renal dialysis services.
Response: We acknowledge commenters' opinions about the accuracy of
the ESRDB market basket forecasts and their requests for a policy to
increase payments based on recent forecast errors.
The ESRDB market basket updates are set prospectively for a future
calendar year, which requires that forecasted data be used for part of
the period. For example, the CY 2026 market basket update in this final
rule incorporates historical data through the second quarter of CY 2025
and forecasted data from the third quarter of CY 2025 through the
fourth quarter of CY 2026. Although there is no precedent for adjusting
the ESRD payment update to account for market basket forecast error,
such an error can be determined by comparing the actual market basket
increase for a given year with the forecasted market basket increase.
Due to the unpredictability of future price trends, forecast errors can
be either positive or negative, as has been observed since the
implementation of the ESRD PPS in CY 2011. Historically, these forecast
errors have generally been small, with the largest error (in absolute
terms) before 2021 being an over-forecast of 0.8 percentage point in
2017. For 2021 through 2024, the ESRDB market basket percentage
increase has been under-forecast, and the errors have been larger,
mainly due to uncertainties in the overall economy, and specifically in
the health sector, resulting from the Public Health Emergency (PHE) for
COVID-19 and the unexpectedly rapid acceleration of inflation. The
cumulative forecast error since the inception of the ESRD PPS (calendar
year 2012 to 2024) is 5.3 percent. The cumulative forecast is
calculated as the product of the annual forecast errors and excludes
the year 2015, as section 217(b) of PAMA required the CY 2015 ESRD PPS
payment update to be 0.0 percent.
Historically, there have been both over and under -forecasts for
the ESRDB market basket. However, we acknowledge that recent forecast
errors have been larger than prior errors and have been consecutively
under-forecast. We did not propose a forecast error policy for CY 2026,
and we are not finalizing such a policy in this final rule. We are
monitoring the performance of the ESRDB market basket and may propose a
policy to address forecast errors in potential future rulemaking, if
appropriate. When considering whether such a policy is appropriate, we
intend to evaluate all of the information the commenters provided,
including the provider consolidation mentioned by the commenter insofar
as consolidation could have impacts on access or quality of care.
Comment: A commenter questioned why CMS stated that the cumulative
forecast error for the ESRD PPS was at 4.3 percent in the CY 2025 ESRD
PPS final rule (89 FR 89096). The commenter provided data from 2019
through 2025 which indicated that the forecast error for the ESRD PPS
was ``nearly 8 percent.'' The commented expressed confusion as to the
discrepancy between the figure CMS stated in our rule and

[[Page 53078]]

the figure they generated from publicly available data.
Response: The CY 2025 ESRD PPS final rule (89 FR 89096) stated that
the cumulative forecast error from 2012 through 2023 (the latest
historical CY data at the time of rulemaking) was 4.3 percent. We note
that the 7.7 percent figure that the commenter provided is generated
from data from 2019 through 2025. Historical data is not available for
CY 2025. The cumulative forecast error since the inception of the ESRD
PPS (calendar year 2012 to 2024) is 5.3 percent which is appropriately
calculated as the cumulative product of the forecasted market basket
increase (1 plus the percentage increase) divided by the cumulative
product of the actual market basket increase (1 plus the percentage
increase) less 1.
Comment: Other commenters criticized the methodology of forecasting
the ESRDB market basket and requested greater transparency regarding
the IGI's methodology. A commenter stated that transparency would
better help commenters engage in notice and comment rulemaking. A
commenter expressed the belief that, given the accuracy of recent
forecasts, it was likely that forecast errors would continue in future
years. One LDO opined that the methodology was unable to accurately
predict price inflation above 2 percent.
Response: We understand and appreciate calls for greater
transparency with the ESRDB market basket forecasts, however, we note
that the market basket forecast methodology utilized by IGI is
proprietary and we cannot share detailed information. We do not agree
with the prediction that forecast errors are likely in future years. In
each given year, the ESRDB market basket increase is the most
appropriate estimation of the change in prices of the ESRDB market
basket based on the latest available data. As we have stated in past
rules, the forecast errors during the COVID-19 PHE were nontypical and
our preliminary analysis of CY 2025 data indicates the forecast was
reasonably accurate for that year. We note that our methodology of
forecasting has been able to capture inflation above 2 percent in the
past, and was reasonably accurate for the CY 2012, 2013 and 2014
forecasts, the lowest of which was 2.9 percent. The forecast
methodology was not able to capture some changes of price that resulted
from nontypical inflation during the PHE, and we anticipate the
forecast will continue to be accurate during times of more typical
inflation.
Comment: Some commenters referenced past statements made by CMS
which noted that historically forecast errors had been both positive
and negative and have balanced out over time. Commenters opined that
with continued errors in forecasts this statement is no longer
technically accurate. One LDO stated the belief that it would be
unlikely for future over-forecasts to offset past under-forecasts.
Another LDO noted that in the majority of years, the ESRDB market
basket forecast has been lower than the actual ESRDB market basket
update. Additionally, this LDO stated that their preliminary data
indicated that 2025 would be the 5th year in a row that the ESRDB
market basket increase was under -forecasted.
Response: As of 2020 the cumulative ESRDB market basket forecast
errors was negative, indicating forecasted ESRDB market basket
increases were greater than actual ESRDB market basket increases. While
the forecast errors during the PHE were notably positive, we do not
have any reason to believe that this trend will continue. Although the
commenter is accurate in noting that most of the ESRDB market basket
forecast errors during the life course of the ESRD PPS have been
positive, prior to CY 2021 the negative forecast errors did largely
offset the positive forecast errors and were generally small (lower
than 0.5 percentage point for any given year).
Comment: A professional association further expressed support for a
forecast error adjustment by stating that, in contrast to past CMS
statements on the matter, although the circumstances of the forecast
error differ between the ESRD PPS today and SNF in 2003, the impact on
providers is presenting the same.
Response: We recognize that the impact of lower payments on health
care providers is generally the same, but we believe the source of the
forecast error is important to consider. As we stated earlier in this
CY 2026 ESRD PPS final rule and previously noted in the CY 2025 ESRD
PPS final rule, the forecast errors in recent years 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 (89 FR 89096). Since these factors tend to
apply broadly across payment systems, and since the ESRD PPS has
historically been reasonably accurate, we believe the circumstances are
notably different from SNF PPS in 2003. While that forecast adjustment
was appropriate as SNF was impacted differently from other PPSs, the
same is not true for the ESRD PPS presently.
Comment: An LDO noted that the ESRD PPS has a greater cumulative
ESRDB market basket forecast error than other Medicare PPSs, despite
all Medicare PPSs experiencing similar forecast errors across the PHE.
Response: We recognize that is an accurate statement, however we
note that, as discussed previously, we do not make policy
determinations for the ESRD PPS based on other payment systems market
baskets, performance or forecast accuracy. We intend to continue to
monitor the ESRDB market basket forecast and payment rates and would
propose changes, if appropriate, through notice and comment rulemaking.
Comment: One LDO opined that CMS has a statutory obligation to
annually establish payment rates that reflect increases in dialysis
providers' cost of care, and that this obligation has not been met in
recent years.
Response: We disagree with the assertion that we have not met our
statutory requirement in establishing the annual ESRDB market basket
increases. We note that section 1881(b)(14)(F)(i)(I) of the Act
requires the update reflect changes over time in the prices of an
appropriate mix of goods and services included in renal dialysis
services, not the change in costs for ESRD facilities. CMS adjusts the
ESRD PPS payment amounts annually by applying the percentage increase
in the ESRDB market basket reduced by the productivity adjustment as
described in section 1886(b)(3)(B)(xi)(II) of the Act. Updating ESRD
PPS payment rates based on changes in costs would involve estimating
the change in quantity as well as price, which is not the statutory
requirement of the ESRD market basket update. Setting rates
prospectively is an intrinsic requirement of a prospective payment
system and our established ESRDB market basket update methodology is
consistent with the statutory requirement in section
1881(b)(14)(F)(i)(I) of the Act.
Final Rule Action: We did not propose and are not finalizing any
changes to the ESRDB market basket methodology for CY 2026. Thus, the
final ESRDB market basket update for CY 2026 is 2.1 percent,
representing an ESRDB market basket percentage increase of 2.9 percent
reduced by a 0.8 percentage point productivity adjustment.
Additionally, we did not propose any changes to the LRS and are
finalizing the continued use of a LRS of 55.2 percent for CY 2026.

[[Page 53079]]

2. CY 2026 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. As
discussed in detail later in this section, we later implemented an ESRD
PPS specific wage index methodology in the CY 2025 ESRD PPS final rule
(89 FR 89108 through 89117). Under current policy, we use OMB's CBSA-
based geographic area designations to define urban and rural areas and
their corresponding wage index values (75 FR 49117). OMB publishes
bulletins regarding CBSA changes, including changes to CBSA numbers and
titles. We most recently updated the CBSA delineations in the CY 2025
ESRD PPS final rule (89 FR 89117) to the OMB delineations as described
in OMB Bulletin No. 23-01, beginning with the CY 2025 ESRD PPS wage
index.\4\
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\4\ <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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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 U.S. 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 LRS of the ESRD PPS
base rate. In the CY 2023 ESRD PPS final rule (87 FR 67153), we
finalized the use of a LRS of 55.2 percent. In the CY 2021 ESRD PPS
final rule (85 FR 71436), we finalized a temporary policy which applied
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 2026, as discussed
in section II.B.1.b.(4). of the proposed rule, we proposed that the LRS
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 utilized pre-floor hospital data
that are unadjusted for occupational mix. In the CY 2025 ESRD PPS final
rule (89 FR 89116) we finalized a new ESRD PPS wage index methodology
which uses mean hourly wage data from the Bureau of Labor Statistics
(BLS) Occupational Employment Wages & Statistics (OEWS). This wage data
is then weighted by a national ESRD facility occupational mix (NEFOM)
which is derived from full time equivalent (FTE) data from freestanding
ESRD facility cost report data. Treatment data from ESRD facility cost
reports is also used to weigh the mean hourly wage data when
aggregating the wage data at a CBSA level. As set forth in Sec.
413.196(d)(2), we update the ESRD PPS wage index using the most current
wage data for occupations related to the furnishing of renal dialysis
services from BLS and occupational mix data from the most recent full
CY of Medicare cost reports submitted in accordance with Sec.
413.198(b).
For a detailed explanation of the current ESRD PPS wage index
methodology, see the discussion in the CY 2025 ESRD PPS final rule (89
FR 89108 through 89117), and for a detailed explanation of the steps we
use to calculate the ESRD PPS wage index according to this methodology
see Addendum C of the CY 2025 ESRD PPS proposed rule available at
<a href="https://www.cms.gov/medicare/payment/prospective-payment-systems/end-stage-renal-disease-esrd/esrd-payment-regulations-and-notices/cms-1805-p">https://www.cms.gov/medicare/payment/prospective-payment-systems/end-stage-renal-disease-esrd/esrd-payment-regulations-and-notices/cms-1805-p</a>.
b. National ESRD Facility Occupational Mix
Table 2 presents the national ESRD facility occupational mix
(NEFOM) alongside the BLS occupation titles and codes for the
occupations related to the furnishing of renal dialysis services. We
noted in the CY 2026 ESRD PPS proposed rule that we were presenting the
NEFOM to aid interested parties in their reconstruction of the proposed
ESRD PPS wage index, but the actual ESRD PPS wage index uses the total
FTEs for each occupation as described in the calculation in Addendum C
of the CY 2025 ESRD PPS proposed rule rather than the rounded
percentages presented in Table 2. The data in Table 2 is based on data
from CY 2023 freestanding ESRD facility cost reports. We note that
there are minor differences between the final CY 2026 NEFOM and the
NEFOM presented in the CY 2025 ESRD PPS final rule (89 FR 89101).

Table 2--Crosswalk of BLS Occupation Codes to ESRD Facility Cost Reports Occupation Classifications and the CY
2026 ESRD PPS Final Rule NEFOM
----------------------------------------------------------------------------------------------------------------
ESRD
Occupation freestanding
ESRD PPS colloquial name BLS occupation title code facilities FTE
percentage *
----------------------------------------------------------------------------------------------------------------
Registered Nurses (RN)..................... Registered Nurses.................. 29-1141 29.5

[[Page 53080]]

Licensed Practical Nurses (LPN)............ Licensed Practical and Licensed 29-2061 3.6
Vocational Nurses.
Nurse Aides................................ Nursing Assistants................. 31-1131 3.2
Technicians................................ Health Technologists and 29-2099 37.7
Technicians, All Other.
Social Workers............................. Healthcare Social Workers.......... 21-1022 4.8
Dietitians................................. Dietitians and Nutritionists....... 29-1031 4.6
Administrative Staff....................... Medical Secretaries and 43-6013 11.2
Administrative Assistants.
Management................................. Medical and Health Services 11-9111 5.4
Managers.
----------------------------------------------------------------------------------------------------------------
* Totals may not sum to 100.0 percent due to rounding.

c. Missing May 2024 BLS OEWS Data for Colorado
BLS reported data quality concerns for the May 2024 BLS OEWS
estimates for Colorado and did not include any areas of Colorado in
this release.\5\ Per Sec. 413.196(d)(2) we use the most current BLS
wage data for the occupations related to the furnishing of renal
dialysis services for our ESRD PPS wage index. In the CY 2025 ESRD PPS
final rule, we discussed a methodology for imputing missing data using
regression based on the most similar occupation to the occupation for
which there was missing data (89 FR 89100). We stated that we believe
that this methodology is generally most appropriate as it uses current
OEWS data to impute the missing estimates; however, that methodology
would not be as useful in this situation since the mean hourly wage
estimates for all occupations are missing for all 7 CBSAs and one rural
area in Colorado. In this instance we did not believe there was
sufficient May 2024 OEWS data from which to impute the missing values.
To address this missing data, we proposed to instead use the May 2023
BLS OEWS mean hourly wage estimates for the occupations in question and
adjust them to be comparable with 2024 wage values by multiplying the
wage estimates by an adjustment factor based on the average change in
national BLS OEWS wages for each occupation in the NEFOM. The
adjustment factors we proposed to apply in our proposed CY 2026 ESRD
PPS wage index were the percent change of national average wage for the
occupation in question for 2024 compared to the national average wage
for that occupation for 2023 from the May 2024 and May 2023 OEWS,
respectively. We explained that this adjustment is necessary since the
wage index is relative and if wages are higher in 2024 relative to
2023, using the unadjusted 2023 values might result in an
inappropriately low wage index value for Colorado. Alternatively, we
noted that we could freeze the CY 2023 wage index values for Colorado,
which would accomplish a similar purpose, but we believed that our
proposed methodology is most consistent with the language at Sec.
413.196(d)(2) as we were using the most current mean hourly wage data
from the BLS OEWS for Colorado, which is from the May 2023 OEWS. We
stated that should BLS release the May 2024 OEWS estimates for Colorado
before the publication of the ESRD PPS final rule, we proposed to use
those estimates instead of the adjusted May 2023 OEWS estimates for the
final CY 2026 ESRD PPS wage index. We requested comments on this
proposed methodology to address the missing Colorado OEWS data. On July
23, 2025, BLS published the OEWS mean hourly wage data for Colorado for
the May 2024 release of the OEWS and, consistent with our proposal, we
are using the published BLS data for Colorado for May 2024 for the CY
2026 ESRD PPS wage index.
---------------------------------------------------------------------------

\5\ All wage data for Colorado is missing in the 2024 OEWS
release due to concerns related to the quality of the data.
According to BLS, this concern was not with the OEWS survey results,
but rather with employment data from the Quarterly Census of
Employment and Wages (QCEW). OEWS uses QCEW employment data to
adjust estimates to represent all employment that is in scope for
the OEWS survey. For more information, see <a href="https://www.bls.gov/oes/notices/2024/colorado-data.htm">https://www.bls.gov/oes/notices/2024/colorado-data.htm</a>.
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d. CY 2026 ESRD PPS Wage Index
For CY 2026, we proposed to update the wage indices to account for
updated wage levels in areas in which ESRD facilities are located using
the ESRD PPS wage index methodology established in the CY 2025 ESRD PPS
final rule (89 FR 89098 through 89107) and specified in Sec.
413.196(d)(2). We proposed to use the most recent available BLS OEWS
mean hourly wage data for various occupations related to the furnishing
of renal dialysis services weighted by FTE data from CY 2023
freestanding ESRD facility cost reports. The ESRD PPS wage index values
are calculated without regard to geographic reclassifications
authorized under sections 1886(d)(8) and (d)(10) of the Act. For CY
2026, the updated wage data used in the analysis for this final rule
are from the April 2025 release of the BLS OEWS, which represents data
from six semiannual surveys spanning November 2021 through May 2024.
For CY 2026, we proposed updating the ESRD PPS wage index to use
the most recent available BLS OEWS wage data. We proposed that if more
recent data became available after the analysis performed for the
publication of the proposed rule and before the publication of this
final rule (for example, an update to the May 2024 BLS OEWS mean hourly
wage data or more complete CY 2023 cost report data), we would use such
data, if appropriate, to determine the CY 2026 ESRD PPS wage index in
the final rule. For CY 2026, the updated wage data used in the analysis
for this final rule are from the April 2025 release of the BLS OEWS,
which represents data from six semiannual surveys spanning November
2021 through May 2024.\7\
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\7\ <a href="https://www.bls.gov/news.release/pdf/ocwage.pdf">https://www.bls.gov/news.release/pdf/ocwage.pdf</a>.
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We received approximately 14 public comments on these proposals
including from LDOs, coalitions of kidney organizations, non-profit
dialysis organizations, ESRD facilities, a non-profit healthcare
organization, and a health insurance organization in Puerto Rico.
Multiple commenters discussed the impact of the wage index on payment
rates. We interpret these comments to be generally referring to the
impact of the wage index on a facility or subset of facilities, as the
wage index is implemented budget neutrally and does not have an impact
on overall payments under the ESRD

[[Page 53081]]

PPS. The following is a summary of the comments we received and our
responses.
Comment: A national kidney non-profit and an LDO expressed support
for the current ESRD PPS wage index and stated the belief that it was
more appropriate for ESRD facilities than the IPPS wage index which was
in use prior to 2025. Several other ESRD facilities, including an LDO,
expressed opposition to the methodology and stated that the legacy ESRD
PPS wage index was more appropriate
Response: We thank the commenters for expressing their opinion on
the current wage index methodology as we continue to evaluate its
performance. We agree with the commenters that the current ESRD PPS
wage index is the most appropriate wage index for ESRD facilities as it
represents cost of labor specific to ESRD facilities, however we
acknowledge that some commenters believe the legacy methodology was
more appropriate.
Comment: Several commenters stated that 72 percent of wage index
areas experienced a decrease in wage index values and asserted that
this indicates there is significant variance in the new wage index
methodology. Some commenters also noted that the proposed wage index
budget neutrality factor for CY 2026 resulted in a nearly 0.9 percent
increase to the ESRD PPS base rate and further interpreted that as
evidence that the wage index methodology produced lower wage index
values. The commenter requested that CMS work with interested parties
outside of the rulemaking process to improve the methodology for future
years.
Response: We do not believe that our methodology results in
significant variance. We believe that the referenced figure of 72
percent of wage index areas is referring to counties presented in the
wage index crosswalk in addendum A of the CY 2026 ESRD PPS proposed
rule. We are unsure why the commenters chose to analyze the percentage
of counties which receive a lower wage index value, even though the
wage index is calculated and applied at the CBSA level, but we note
that each CBSA contains multiple counties, which means that a decrease
in any CBSA's wage index would be replicated across all of its
constituent counties. ESRD facilities are not uniformly distributed
across counties, and therefore analysis at the county level could
overstate or understate the impact of changes in the wage index values
for certain CBSAs. In section VII.C of this CY 2026 ESRD PPS final
rule, we present a detailed impact analysis based on data from 7,608
ESRD facilities.\8\ When analyzed at the facility level, we estimate
that 12.6 percent of these ESRD facilities will experience a wage index
value change (positive or negative) of less than 0.5 percentage point
from CY 2025 to CY 2026, 20.2 percent of these ESRD facilities will
experience a wage index increase of 0.5 percentage point or more, and
67.2 percent will experience a wage index decrease of between 0.5
percentage point and 5 percent, which is our threshold for applying the
cap on wage index decreases. When evaluated at the facility level, we
note that the number of ESRD facilities whose wage index is decreasing
is slightly lower than the county-level figure the commenters cited.
---------------------------------------------------------------------------

\8\ Information on the CY 2025 and CY 2026 ESRD facility wage
indexes used in this analysis are found in Addendum B of this CY
2026 ESRD PPS final rule.
---------------------------------------------------------------------------

Additionally, we note that some of the wage index decreases that we
observe for CY 2026 can be attributed to wage index changes that were
finalized in CY 2025, but whose impact was mitigated by the 5-percent
cap on wage index decreases. As discussed in the CY 2026 ESRD PPS
proposed rule (90 FR 29352), the higher-than-average wage index budget
neutrality factor proposed for CY 2026 is, in large part, due to the
way the ESRD PPS applies the 5 percent cap on wage index decreases and
the transition from the legacy wage index methodology to the current
ESRD PPS wage index methodology beginning for CY 2025. Specifically,
when we implemented the current ESRD PPS wage index methodology, a
large number of ESRD facilities experienced a significant change in
wage index value, which was expected given that the current methodology
is based on different data from the legacy methodology. As we cap the
year-over-year reductions in wage index value at 5 percent, but we do
not similarly cap the year-over-year increases in wage index values,
any large shift in wage index values in a given year will result in a
higher-than-typical average ESRD PPS wage index value as the ESRD
facilities which would receive a significantly lower wage index value
instead receive a higher capped value. Thus, the CY 2025 ESRD PPS wage
index had a higher-than-typical average value, which resulted in a
lower-than-typical budget neutrality factor for CY 2025. For CY 2026,
many ESRD facilities which received a capped value in 2025 are now set
to receive a lower value. Thus, the average wage index value for CY
2026 is lower than that of CY 2025, which results in a budget
neutrality factor greater than 1, which increases the ESRD PPS base
rate. It would not be appropriate to consider relative CY 2026
decreases resulting from the application of the cap in CY 2025, the
transition year in which the current wage index methodology was first
implemented, as evidence of variability for CY 2026 as the decreases
were predominantly due to CY 2025 policies.
We welcome any additional information or suggestions on how best to
improve our methodology and ensure ESRD PPS wage index values are
appropriately stable and reflective of the labor costs in a given
geographic area. We have analyzed the potential factors which have
resulted in the changes presented in the CY 2026 wage index and intend
to continue to monitor the performance of the methodology. We would
propose changes, if warranted, in potential future rulemaking.
Comment: Several commenters requested additional information and
transparency on the ESRD PPS wage index methodology.
Response: We are willing to provide additional information on our
methodology but are uncertain what exactly commenters are requesting.
We note that when we proposed and finalized the ESRD PPS wage index
methodology we provided a substantial amount of methodological
information in the CY 2025 ESRD PPS proposed rule (89 FR 55760), the CY
2025 ESRD PPS final rule (89 FR 89084), and in Addendum C of the CY
2025 ESRD PPS proposed rule.\9\
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\9\ <a href="https://www.cms.gov/files/document/addendum-c-cms-1805-p-esrd-pps-proposed-wage-index-construction-methodology.pdf">https://www.cms.gov/files/document/addendum-c-cms-1805-p-esrd-pps-proposed-wage-index-construction-methodology.pdf</a>.
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Comment: One coalition of dialysis organizations requested CMS
publish imputed data points for mean hourly wage data for which BLS did
not publish OEWS estimates.
Response: We thank the commenters for this suggestion. We have
included a table in Addendum A of this CY 2026 ESRD PPS final rule that
includes the mean hourly wage data for all counties and job codes,
along with an indicator of whether the wage value is imputed or not.
Comment: Several commenters raised methodological concerns with the
ESRD PPS wage index methodology. One professional association noted
that BLS data was not stratified by facility type and therefore was not
specific to ESRD facilities. One LDO and a coalition of dialysis
organizations requested CMS explain why contract labor and overtime-
and-benefits were not

[[Page 53082]]

included in the methodology. The LDO further noted that overtime and
benefits may be impacted by state law and the labor-related share
includes overtime and benefits. The LDO also raised concerns regarding
the possibility that contract labor could be misattributed to another
CBSA, the interaction between existing facility-level payment
adjustments and the wage index, and CMS's decision to implement the new
methodology budget neutrally for CY 2025.
Response: We recognize the limitations of the data source upon
which the ESRD PPS wage index methodology is built. We discussed these
limitations in the CY 2025 ESRD PPS proposed rule (89 FR 55769) and, in
the CY 2025 ESRD PPS final rule (89 FR 89099, 89116), concluded that,
even with these limitations, the methodology represents a significant
improvement over the IPPS wage index for use in ESRD facilities. We
wish to reiterate that the purpose of the wage index is to estimate the
geographic variation in wages, and we believe that this wage index
methodology does that appropriately. The issues that the commenters
raised regarding contract labor, overtime and benefits would only have
a real impact on the resulting wage index should the yearly change in
the growth of those wage costs vary significantly from the yearly
change in the growth of the mean hourly wage. The commenter raises a
valid point about certain laws regarding overtime and benefits, as that
could result in geographic variation differing from mean hourly wage,
however we do not believe it would be appropriate to base ESRD PPS
payment policy directly on state or local legislation. Furthermore, we
still believe that the mean hourly wage for ESRD facility-specific
occupations would be a better proxy for ESRD facility-specific
occupation benefits and overtime, insofar as geographic variation, than
the acute hospital wage index. We welcome commenters' suggestions on
alternative proxies for mean hourly wage for this labor, and
methodological changes that could account for variation in overtime and
benefits to be considered in potential future rulemaking.
In the CY 2025 ESRD PPS rulemaking, we did not propose changes to
the LVPA or rural adjustment factors as a result of the new ESRD PPS
wage index, as we generally do not recalculate established factors when
we implement a new policy. For example, when we propose a budget
neutral payment adjustment, we do not update the adjustment factor
annually according to changes in utilization, nor do we apply a budget
neutrality factor to the ESRD PPS base rate in subsequent years.\10\
Similarly, we do not believe we are required to reevaluate adjustment
factors when we update the ESRD PPS wage index. However, we acknowledge
the commenter's point and will continue to evaluate the interaction
between the LVPA and the ESRD PPS wage index and propose any potential
changes, if appropriate, in future rulemaking. Lastly, we note that we
annually apply changes to the wage index in a budget neutral manner and
do not believe it would have been appropriate to deviate from this
long-established policy for the new ESRD PPS wage index methodology.
---------------------------------------------------------------------------

\10\ In CY 2011 CMS established the ESRD PPS case-mix adjusters,
which were set through regression and budget-neutrality calibration
(75 FR 49083). We have not annually updated these factors with each
wage index or utilization change. CMS has only revisited them when
making a discrete policy proposal such as we did in the CY 2016 ESRD
PPS rule (80 FR 68973).
---------------------------------------------------------------------------

Comment: A national forum of ESRD networks commented that if
hospital cost reports were not used to calculate the wage index budget
neutrality factor, then it would not appropriately reconcile the
increased expenses faced by those facilities.
Response: Hospital-based ESRD facilities were included in the
impact calculation presented in section VII.C.5. and Appendix B of this
final rule. The wage index budget neutrality factor was derived from
this analysis, and therefore includes hospital-based ESRD facilities.
We believe the commenter may be under the incorrect impression that
hospital-based ESRD facilities were excluded from the wage-index budget
neutrality analysis. Although hospital-based ESRD facilities are not
included in the cost report data for the NEFOM, we note that they are
included in the impact analysis for the wage-index budget neutrality
factor. The NEFOM is essentially the weights for the mean hourly wage
data used when calculating the wage index, and including only
freestanding ESRD facilities in the calculation of the NEFOM does not
meaningfully disadvantage hospital-based facilities as in any
methodology all ESRD facilities' wage index values would be based on a
single NEFOM.
Comment: Several commenters specifically discussed the impact of
the ESRD PPS wage index methodology on ESRD facilities in certain urban
areas, most notably New York. A commenter noted that New York CBSAs
experienced a significant decrease in wage index value in the CY 2025
ESRD PPS rule when the current wage index methodology was first
implemented and highlighted the fact that many CBSAs in New York were
set to see a lower wage index value for CY 2026 based on the proposed
wage index.
Response: We appreciate the commenters' concerns regarding the
projected decreases in wage index values for certain geographic areas
in New York. We acknowledge that several CBSAs in New York are
projected to receive lower wage index values for CY 2026; however, the
majority of these decreases are relatively modest, with only one CBSA
projected to experience a decrease greater than 5 percent. While we
recognize that even modest decreases in the wage index may result in
meaningful changes in payment amounts, we emphasize that, with the
application of the wage index budget neutrality adjustment factor, many
geographic areas are expected to experience increases in labor-related
payments relative to uncapped CY 2025 wage index values.
We also reiterate that changes to the wage index should not be
evaluated in isolation. Because the wage index is a relative measure,
decreases in a particular area generally reflect that wages in that
area are increasing at a slower rate than the national average, rather
than an absolute decline in wage levels.
Comment: A coalition of dialysis organizations opined that the 5
percent cap was not sufficient to mitigate swings in wage index value
resulting from the ESRD PPS wage index methodology.
Response: As discussed previously, we do not believe that the ESRD
PPS wage index methodology results in unreasonable variance, however
some variance is unavoidable. We believe that the 5 percent cap on year
over year decreases in wage index value, as codified at Sec.
413.231(c), sufficiently protects ESRD facilities from large,
unexpected decreases in wage index value. We are open to suggestions
for consideration of alternative policies to ensure the wage index is
reasonably predictable while continuing to appropriately reflect
relative geographic variation in wages.
Comment: A commenter expressed support for the current 0.6000 wage
index floor. The commenter requested CMS perform further analysis on
the wage index floor and expressed a belief that such analysis would
support an increase to the wage index floor. The commenter specifically
suggested that a wage index floor of 0.7000 would be appropriate. This
commenter specifically highlighted Puerto Rico and enumerated certain
labor costs which they stated contributed to the cost of care in Puerto
Rico.

[[Page 53083]]

Response: We thank the commenter for the continued support of the
wage index floor. We did not propose to change the wage index floor for
CY 2026 and are not finalizing any changes in this final rule. We will
continue to monitor the appropriateness of the current wage index
floor, including the interaction with any labor costs specific to
Puerto Rico, and will consider any further changes through notice-and-
comment rulemaking in future years.
Comment: We received a few comments in response to our proposal to
use adjusted BLS OEWS May 2023 estimates for Colorado should OEWS
estimates for the state not be published by the time the final rule was
developed. Commenters supported this methodology, however some raised
concerns about the situation and what CMS would do if similar issues
arose in the future.
Response: Colorado estimates for the May 2024 BLS OEWS were
released on July 23, 2025.\11\ We acknowledge the concerns of the
commenters, but this was a state-specific issue and BLS corrected it
expediently. In the future, should there be a regular occurrence of
this issue, we would consider potentially addressing it through
rulemaking, if necessary.
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\11\ <a href="https://www.bls.gov/oes/notices/2025/colorado-may-2024-oews-estimates.htm">https://www.bls.gov/oes/notices/2025/colorado-may-2024-oews-estimates.htm</a>.
---------------------------------------------------------------------------

Comment: A commenter requested CMS publish the uncapped wage index
values for CY 2026.
Response: The uncapped wage index values for the proposed and final
CY 2026 ESRD PPS wage index are available in Addenda A of the proposed
and final rules, respectively. We do not include the uncapped values
for ESRD facilities in the facility level impact analysis of Addendum B
as we believe that could cause confusion because the uncapped values do
not apply for certain ESRD facilities. We note that one can identify
the uncapped wage index value for an ESRD facility by looking up the
value in Addendum A for the CBSA in which the ESRD facility is located.
Comment: A commenter stated that pediatric hospital-based ESRD
facilities faced different wages than other ESRD facilities and
indicated that the IPPS wage index would be more appropriate for these
ESRD facilities. The commenter requested CMS either implement a blended
wage index for pediatric hospital-based facilities or implement an
exception process where an ESRD facility could apply to receive the
IPPS wage index.
Response: We acknowledge that pediatric hospital-based ESRD
facilities likely have different costs, as demonstrated by the analysis
which resulted in the Transitional Pediatric ESRD Add-on Payment
Adjustment (TPEAPA), a 30 percent increase in the per-treatment payment
amount for Pediatric ESRD Patients codified at Sec. 413.235(b)(2).
However, higher labor costs do not necessarily mean that an alternative
wage index methodology would be appropriate. We believe the TPEAPA
appropriately accounts for the differences in wage values faced by
pediatric hospital-based ESRD facilities and note that the purpose of
the ESRD PPS wage index is to estimate geographic variation in wages
faced by ESRD facilities. We continue to believe that the ESRD PPS
specific wage index is more appropriate for this purpose for pediatric
and hospital-based ESRD facilities as we believe the types of labor
utilized by these facilities are likely more similar to other ESRD
facilities than acute inpatient hospitals. However, we will take this
suggestion into consideration and make any potential changes to the
ESRD PPS wage index methodology, if appropriate, in future rulemaking.
Comments: A commenter stated the belief that the ESRD PPS wage
index did not reflect true labor costs. The commenter discussed an ESRD
facility that had increased labor costs and a decreasing wage index
value. Another commenter noted the increase in the costs of nursing
labor.
Response: The ESRD PPS wage index is intended to reflect the
relative wage costs faced by ESRD facilities. It is not intended to
capture overall trends in labor costs. We would expect some ESRD
facilities to experience increasing labor costs and decreasing wage
index values, as this would likely indicate the ESRD facility is in a
geographical location where wages are increasing at a lower rate than
the national average.
Final rule action: After consideration of public comments, we are
finalizing the use of the CY 2026 ESRD PPS wage index according to our
established methodology based on the May 2024 BLS OEWS mean wage data
and CY 2023 cost report data. Additionally, we are finalizing the use
of the May 2024 BLS OEWS estimates for Colorado, which were not
available at the time of proposed rulemaking but were released in July
2025. The final CY 2026 ESRD PPS wage index is set forth in Addendum A
and provides a crosswalk between the CY 2025 wage index and the CY 2026
wage index. Addendum B provides an ESRD facility level impact analysis.
Both Addendum A and Addendum B are 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>.
3. CY 2026 Update to the Outlier Policy
a. Background
Section 1881(b)(14)(D)(ii) of the Act requires that the ESRD PPS
include a payment adjustment for high-cost outliers due to unusual
variations in the type or amount of medically necessary care, including
variability in the amount of erythropoiesis stimulating agents (ESAs)
necessary for anemia management. Some examples of the patient
conditions that may be reflective of higher facility costs when
furnishing dialysis care are frailty and obesity. A patient's specific
medical condition, such as secondary hyperparathyroidism, may result in
higher per treatment costs. The ESRD PPS recognizes that some patients
require high-cost care, and we have codified the outlier policy and our
methodology for calculating outlier payments at Sec. 413.237.
Section 413.237(a)(1) enumerates the following items and services
that are eligible for outlier payments as ESRD outlier services:
<bullet> Renal dialysis drugs and biological products that were or
would have been, prior to January 1, 2011, separately billable under
Medicare Part B.
<bullet> Renal dialysis laboratory tests that were or would have
been, prior to January 1, 2011, separately billable under Medicare Part
B.
<bullet> Renal dialysis medical/surgical supplies, including
syringes, used to administer renal dialysis drugs and biological
products that were or would have been, prior to January 1, 2011,
separately billable under Medicare Part B.
<bullet> Renal dialysis drugs and biological products that were or
would have been, prior to January 1, 2011, covered under Medicare Part
D, including renal dialysis oral-only drugs effective January 1, 2025.
<bullet> Renal dialysis equipment and supplies, except for capital-
related assets that are home dialysis machines (as defined in Sec.
413.236(a)(2)), that receive the transitional add-on payment adjustment
as specified in Sec. 413.236 after the payment period has ended.\12\
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\12\ Under Sec. 413.237(a)(1)(vi), as of January 1, 2012, the
laboratory tests that comprise the Automated Multi-Channel Chemistry
panel are excluded from the definition of outlier services.
---------------------------------------------------------------------------

<bullet> Renal dialysis drugs and biological products that are
Composite Rate Services as defined in Sec. 413.171.
In the CY 2011 ESRD PPS final rule (75 FR 49142), CMS stated that
for purposes of determining whether an

[[Page 53084]]

ESRD facility would be eligible for an outlier payment, it would be
necessary for the ESRD facility to identify the actual ESRD outlier
services furnished to the patient by line item (that is, date of
service) on the monthly claim. Renal dialysis drugs, laboratory tests,
and medical/surgical supplies that are recognized as ESRD outlier
services were specified in Transmittal 2134, dated January 14,
2011.\13\ We use administrative issuances and guidance to continually
update the renal dialysis service items available for outlier payment
via our quarterly update CMS Change Requests (CRs), when applicable.
For example, we use these issuances to identify renal dialysis oral
drugs that were or would have been covered under Part D prior to 2011
to provide unit prices for determining the imputed MAP amounts. In
addition, we use these issuances to update the list of ESRD outlier
services by adding or removing items and services that we determined,
based on our monitoring efforts, are either incorrectly included or
missing from the list.
---------------------------------------------------------------------------

\13\ Transmittal 2033 issued August 20, 2010, was rescinded and
replaced by Transmittal 2094, dated November 17, 2010. Transmittal
2094 identified additional drugs and laboratory tests that may also
be eligible for ESRD PPS outlier payment. Transmittal 2094 was
rescinded and replaced by Transmittal 2134, dated January 14, 2011,
which included one technical correction. <a href="https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/downloads/R2134CP.pdf">https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/downloads/R2134CP.pdf</a>.
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Under Sec. 413.237, an ESRD facility is eligible for an outlier
payment if its imputed (that is, calculated) MAP amount per treatment
for ESRD outlier services exceeds a threshold. In past years, the MAP
amount has reflected the average estimated expenditure per treatment
for services that were or would have been considered separately
billable services prior to January 1, 2011. The threshold is equal to
the ESRD facility's predicted MAP per treatment plus the fixed dollar
loss (FDL) amount. As described in the following paragraphs, the ESRD
facility's predicted MAP amount is the national adjusted average ESRD
outlier services MAP amount per treatment, further adjusted for case-
mix and facility characteristics applicable to the claim. We use the
term ``national adjusted average'' in this section of this final rule
to more clearly distinguish the calculation of the average ESRD outlier
services MAP amount per treatment from the calculation of the predicted
MAP amount for a claim. The average ESRD outlier services MAP amount
per treatment is based on utilization from all ESRD facilities, whereas
the calculation of the predicted MAP amount for a claim is based on the
individual ESRD facility and patient characteristics of the monthly
claim. In accordance with Sec. 413.237(c), ESRD facilities are paid 80
percent of the per treatment amount by which the imputed MAP amount for
outlier services (that is, the actual incurred amount) exceeds this
threshold. ESRD facilities are eligible to receive outlier payments for
treating both adult and pediatric dialysis patients.
In the CY 2011 ESRD PPS final rule and codified in Sec.
413.220(b)(4), using 2007 data, we established the outlier percentage--
which is used to reduce the per treatment ESRD PPS base rate to account
for the proportion of the estimated total Medicare payments under the
ESRD PPS that are outlier payments--at 1.0 percent of total payments
(75 FR 49142 through 49143). We also established the FDL amounts that
are added to the predicted outlier services MAP amounts. The outlier
services MAP amounts and FDL amounts are different for adult and
pediatric patients due to differences in the utilization of separately
billable services among adult and pediatric patients (75 FR 49140). As
we explained in the CY 2011 ESRD PPS final rule (75 FR 49138 through
49139), the predicted outlier services MAP amounts for a patient are
determined by multiplying the adjusted average outlier services MAP
amount by the product of the patient-specific case-mix adjusters
applicable using the outlier services payment multipliers developed
from the regression analysis used to compute the payment adjustments.
In the CY 2023 ESRD PPS final rule, we finalized an update to the
outlier methodology to better target 1.0 percent of total Medicare
payments (87 FR 67170 through 67177). We explained that for several
years, outlier payments had consistently landed below the target of 1.0
percent of total ESRD PPS payments (87 FR 67169). Commenters raised
concerns that the methodology we used to calculate the outlier payment
adjustment since CY 2011 results in underpayment to ESRD facilities, as
the base rate has been reduced by 1.0 percent since the establishment
of the ESRD PPS to balance the outlier payment (85 FR 71409, 71438
through 71439; 84 FR 60705 through 60706; 83 FR 56969). In response to
these concerns, beginning with CY 2023, we began calculating the adult
FDL amounts based on the historical trend in FDL amounts that would
have achieved the 1.0 percent outlier target in the 3 most recent
available data years. We stated in the CY 2023 ESRD PPS final rule that
we would continue to calculate the adult and pediatric MAP amounts for
CY 2023 and subsequent years following our established methodology. In
that same CY 2023 ESRD PPS final rule, we provided a detailed
discussion of the methodology we use to calculate the MAP amounts and
FDL amounts (87 FR 67167 through 67169).
Lastly, in the CY 2025 ESRD PPS final rule we finalized several
methodological and policy changes to the ESRD PPS outlier policy to
address concerns that interested parties have raised in recent years.
First, we finalized an expansion of the definition of ESRD outlier
services in Sec. 413.237(a)(1) to include drugs and biological
products that are Composite Rate Services as defined in Sec. 413.171
(89 FR 89126). Second, we finalized a policy to include the case-mix
adjusted post-TDAPA add-on payment adjustment amount in the calculation
of the predicted MAP amounts when applicable (89 FR 89127). Lastly, we
finalized changes to the inflation factors for outlier eligible drugs
and biological products, laboratory tests, and supplies. For ESRD
outlier drugs and biological products, we use the projected inflation
factor for ESRD outlier services that are drugs and biological products
derived from the historical trend in average sales price (ASP) prices
and utilization for ESRD outlier drugs (89 FR 89127 through 89130). For
ESRD outlier laboratory tests and supplies, we use the growth in the
producer price index (PPI) Industry for Medical and Diagnostic
Laboratories and the PPI Commodity for Surgical and Medical
Instruments, respectively (89 FR 89129 through 89130).
b. CY 2026 Update to the Outlier Services MAP Amounts and FDL Amounts
For CY 2026, we proposed to update the MAP amounts for adult and
pediatric patients using the latest available CY 2024 claims data. We
proposed to update the ESRD outlier services FDL amount for pediatric
patients using the latest available CY 2024 claims data, and to update
the ESRD outlier services FDL amount for adult patients using the
latest available claims data from CY 2022, CY 2023, and CY 2024, in
accordance with the methodology finalized in the CY 2023 ESRD PPS final
rule (87 FR 67170 through 67174) and including the changes finalized in
the CY 2025 ESRD PPS final rule (89 FR 89108 through 89130). In the
proposed rule, we stated that the latest available CY 2024 claims data
showed that outlier payments represented approximately 0.8 percent of
total Medicare payments. We proposed to update these values with

[[Page 53085]]

the latest available data, if appropriate, in the final rule.
The following is a summary of the comments we received on this
proposal and our responses.
Comment: Several commenters expressed support for the proposed
reductions to the FDL and MAP amounts to better target outlier payments
at 1.0 percent of total ESRD PPS payments. Some commenters expressed
concern about the fact that CY 2024 outlier payments represented less
than 1.0 percent of total ESRD PPS payments and urged CMS to continue
to monitor this policy.
Response: We appreciate these comments, and we agree with the
importance of continued monitoring of the outlier policy. We intend to
continue to evaluate the performance of the outlier policy, including
the policy and technical changes that were finalized for CY 2025, and
may consider additional changes to the outlier policy through future
notice and comment rulemaking.
Comment: Several commenters urged CMS to change certain aspects of
the ESRD PPS outlier policy. Some commenters stated that a lower target
percentage, for example 0.5 percent of total payments, would be more
appropriate. These commenters stated that section 1881(b)(14)(D)(ii) of
the Act does not require the ESRD PPS outlier percentage to be 1.0
percent. Several commenters also stated that CMS should not include
TDAPA and TPNIES payments when calculating total ESRD PPS payments, of
which outlier payments are targeted at 1.0 percent.
Response: We appreciate these comments, but we do not agree that
either of the suggested revisions to the outlier methodology would be
more appropriate than the current outlier policy. As we have previously
stated, while we agree that section 1881(b)(14)(D)(ii) of the Act
provides the Secretary with discretion to set an appropriate outlier
percentage under the ESRD PPS, we continue to believe the 1.0 percent
target is more appropriate than a lower outlier percentage. As
discussed in the CY 2011 ESRD PPS final rule (75 FR 49134), we
established the 1.0 percent outlier percentage because it struck an
appropriate balance between our objective of paying an adequate amount
for the costliest, most resource-intensive patients while providing an
appropriate level of payment for those patients who do not qualify for
outlier payments. We continue to believe the 1.0 percent target strikes
the appropriate balance, and as we further noted in the CY 2023 ESRD
PPS final rule (87 FR 67171), a reduced outlier percentage may not
provide the appropriate level of payment for outlier cases and may not
protect access for beneficiaries whose care is unusually costly. This
is because if we were to decrease the target outlier percentage, we
would need to significantly increase the FDL amounts, which would make
it more difficult for ESRD facilities to receive outlier payment based
on their claims. We did not propose to reduce the outlier percentage
for CY 2026, and we are not finalizing any such reduction in this rule.
Likewise, we do not agree with the suggestion to exclude TDAPA and
TPNIES payments from total ESRD PPS payments for the purposes of
setting the FDL and MAP amounts for CY 2026. We believe that commenters
incorrectly assume that excluding TDAPA and TPNIES payments from this
calculation would result in an increase to non-outlier payments (that
is, total ESRD PPS payments other than those made as part of the
outlier adjustment under the ESRD PPS). To the contrary, this change to
our calculations would only reduce the total amount of outlier
payments, which would be 1.0 percent of a lower total ESRD PPS payment
figure, without increasing other (non-outlier) payments under the ESRD
PPS, since the base rate would continue to be reduced by 1.0 percent.
This change would require us to increase the FDL amounts, which would
make it more difficult for ESRD facilities to receive outlier payment
based on their claims.
Comment: Several commenters expressed that the proposed updates to
the FDL and MAP amounts would not address what commenters stated is an
underlying lack of payment adequacy for new drugs that are renal
dialysis services. Several commenters advocated for funding mechanisms
that would appropriately safeguard patient access to new drugs and
biological products after the 2-year TDAPA period expires.
Response: We appreciate the commenters' concerns regarding payment
for new renal dialysis drugs and biological products under the ESRD
PPS. As the commenters pointed out, and as we have previously stated,
the purpose of the ESRD PPS outlier adjustment is not to pay for new
drugs and biological products. Rather, the purpose of the ESRD PPS
outlier adjustment is to protect access to care for beneficiaries whose
care is exceptionally costly. In the CY 2025 ESRD PPS final rule (89 FR
89142), we stated that including new renal dialysis drugs that
previously received payment using the TDAPA would help ensure
appropriate payment when a patient's treatment is exceptionally
expensive due to an ESRD facility furnishing such drugs or biological
products to the patient whose treatment requires them.
We note that the post-TDAPA add-on payment adjustment, as discussed
in section II.B.6 of this final rule, provides additional payment for
certain new renal dialysis drugs and biological products after the end
of the 2-year TDAPA period. In the CY 2024 ESRD PPS final rule we
stated that one goal of the post-TDAPA add-on payment adjustment is to
support continued access to new renal dialysis drugs and biological
products and to support ESRD facilities' long-term planning and
budgeting for such drugs after the TDAPA period (88 FR 76393).
Therefore, we believe that for drugs that are in existing ESRD PPS
functional categories, ESRD PPS policy provides appropriate and
adequate payment in the short term during the 2-year TDAPA period, in
the medium term during the 3 years of payment under the post-TDAPA add-
on payment adjustment following the payment of TDAPA, and during the
long term when such new renal dialysis drugs and biological products
are paid for under the ESRD PPS base rate with no adjustment and are
expected to compete with other drugs and biological products in the
ESRD PPS. Lastly, we note that ESRD PPS payments are updated annually
based on the ESRDB market basket update, to reflect the changes over
time of the cost of renal dialysis services and to help ensure that
ESRD PPS payments are adequate. The composition of the ESRDB market
basket depends on ESRD facilities' spending for drugs and biological
products, as well as all other inputs ESRD facilities use in providing
renal dialysis services. As we noted in the CY 2024 ESRD PPS final rule
(88 FR 76391), CMS generally uses Medicare cost report data that lags
by approximately 3 to 4 years prior to the rulemaking year to consider
changes to market basket cost categories, cost weights, and price
proxies. CMS would be able to analyze Medicare cost report data for CY
2023 and CY 2024 to consider changes to the ESRDB market basket for CY
2027 rulemaking, if appropriate.
Comment: A few commenters stated that by paying only 0.8 percent of
total ESRD PPS payments in CY 2024, the ESRD PPS underpaid ESRD
facilities by approximately $0.63 per treatment, which the commenters
pointed out is greater than the proposed budget neutrality reduction
for the proposed NAPA. One of these commenters suggested that the
underpayment of

[[Page 53086]]

outliers in CY 2026 should be used to pay for the proposed NAPA in CY
2026.
Response: We appreciate the concerns raised by commenters regarding
the fact that outlier payments were only 0.8 percent of total ESRD PPS
payments in CY 2024, below our 1.0 percent target. We do not agree with
the commenter's assertion that that this perceived shortfall could be
used to budget-neutralize the proposed NAPA. We do not apply any budget
neutrality factor to the ESRD PPS to account for over- or under-payment
of outliers each year, relative to the 1.0 percent target established
in CY 2011. Rather, we re-calculate the FDL and MAP amounts annually,
and we set these values prospectively at a level that we project will
be 1.0 percent of total ESRD PPS payments.
As we discuss later in this CY 2026 ESRD PPS final rule, we are
finalizing the NAPA as proposed. Although there is no mechanism to
apply the methodology that the commenter suggested, we are clarifying
in this final rule that the NAPA will be applied to the predicted MAP
amounts for facilities located in Alaska, Hawaii, and the US Pacific
Territories, in accordance with our longstanding policy of applying
patient- and facility-level adjustment factors to the predicted MAP
amounts. We note that in the CY 2011 ESRD PPS final rule (75 FR 49085)
we established that the calculation of the predicted MAP included the
existing facility-level adjustment factors, which were the LVPA and the
rural adjustment factor. We note that this has the effect of slightly
reducing the outlier thresholds for most ESRD facilities nationwide,
which we project will result in slightly higher outlier payments for
most facilities in CY 2026.
Comment: A commenter noted that the proposed outlier thresholds
were estimated to pay out 1.87 percent of total ESRD PPS payments for
CY 2026. The commenter attributed this to the outlier policy's
assumptions on utilization being based on 2024 data and interpreted
this projected payment as evidence that utilization of outlier eligible
services is decreasing over time more than projected for 2024. Another
commenter noted the estimated 1.87 percent payments in the proposed
rule regulatory impact analysis and raised concerns that given the
expansion of the ESRD outlier services list in the CY 2025 ESRD PPS
final rule, trends in outlier utilization might be more difficult to
predict. Both commenters urged CMS to carefully monitor the performance
of the outlier methodology.
Response: We appreciate the comment and acknowledge that our
proposed impact results showed that estimated outlier payments would be
1.87 percent of total ESRD PPS payments for CY 2026. The commenter
accurately identified that this is an artifact of the payment
simulation methodology which creates an apparent discrepancy. We want
to further clarify that this apparent discrepancy is due to our
methodology, which we finalized in the CY 2023 ESRD PPS final rule (87
FR 67170 through 67177), in which we calculate the adult FDL amount
based on a straight-line projection of the FDL amounts which would have
achieved the 1 percent target in the most recent 3 years for which we
have data. We continue to believe that this methodology of utilizing
the trend of retrospectively calculated FDL amounts will allow CMS to
more accurately achieve the 1 percent target in future years. However,
because our impact methodology relies on simulated CY 2025 and CY 2026
payments using the same set of claims from CY 2024, our estimate of
outlier payments for CY 2025 and CY 2026 is based on CY 2024
utilization levels for ESRD outlier services. The commenter accurately
notes that because our simulated CY 2026 payments assume that
utilization will be the same for 2026 as it was for 2024, it does not
capture other historical trends in utilization the same way that our
retrospective methodology for projecting the FDL amount does.
Accordingly, although our simulated CY 2026 ESRD PPS payments reflect
outlier payments that are approximately 1.9 percent of total ESRD PPS
payment, we anticipate that the actual utilization of ESRD outlier
services in CY 2026 will be such that the final FDL and MAP amounts
will result in outlier payments that equal approximately 1.0 percent of
total ESRD PPS payments. We agree with the commenters that it is
important to monitor the performance of the outlier methodology and
will continue to do so and may propose changes to the methodology, if
appropriate, in potential future rulemaking.
Final Rule Action: After consideration of public comments, we are
finalizing our proposal to update the FDL and MAP amounts for CY 2026
based on the latest available data. The impact of this final update is
shown in Table 3, which compares the outlier services MAP amounts and
FDL amounts used for the outlier policy in CY 2025 with the updated
estimates for this final rule for CY 2026. The estimates for the final
CY 2026 MAP amounts, as shown in column II of Table 3, were inflation-
adjusted to reflect projected 2026 prices for ESRD outlier services.

Table 3--Outlier Policy: Impact of Updated Data for the Outlier Policy
----------------------------------------------------------------------------------------------------------------
Column I Final outlier policy Column II Final outlier
for CY 2025 (based on 2023 policy for CY 2026 (based on
data, price inflated to 2025) 2024 data, price inflated to
* 2026) **
---------------------------------------------------------------
Age < 18 Age >= 18 Age < 18 Age >= 18
----------------------------------------------------------------------------------------------------------------
Average outlier services MAP amount per $58.30 $32.40 $50.64 $24.83
treatment......................................
Adjustments: .............. .............. .............. ..............
Standardization for outlier services........ 1.0432 0.9768 1.0113 0.9731
MIPPA reduction............................. 0.98 0.98 0.98 0.98
Adjusted average outlier services MAP amount 59.60 31.02 50.19 23.68
Fixed-dollar loss amount that is added to 234.26 45.41 162.43 14.80
the predicted MAP to determine the outlier
threshold..................................
Patient-month-facilities qualifying for 6.09% 7.05% 7.58% 14.10%
outlier payment............................
----------------------------------------------------------------------------------------------------------------
* Column I was obtained from column II of Table 7 from the CY 2025 ESRD PPS final rule (89 FR 89130).
** The FDL amount for adults incorporates retrospective adult FDL amounts calculated using data from CYs 2022,
2023, and 2024.

As demonstrated in Table 3, the final FDL amount per treatment
amount that determines the CY 2026 outlier threshold amount for adults
(column II; $14.80) is lower than that used for the CY 2025 outlier
policy (column I;

[[Page 53087]]

$45.41). The lower threshold amount is accompanied by a decrease in the
adjusted average MAP amount for outlier services from $31.02 to $23.68.
For pediatric patients, there is a decrease in the FDL amount from
$234.26 to $162.43. There is a corresponding decrease in the adjusted
average MAP amount for outlier services among pediatric patients, from
$59.60 to $50.19. We note that the decrease in the projected MAP and
FDL amounts for both adult and pediatric patients is due, in part, to
the application of the ESRD PPS drug inflation factor following the
methodology finalized in the CY 2025 ESRD PPS final rule (89 FR 89127
through 89130), which resulted in a lower inflation factor than would
typically occur under the prior methodology. However, as discussed in
that rule, we believe this methodology is more appropriate for the ESRD
PPS as it more accurately captures trends in the prices and utilization
of ESRD PPS outlier services drugs and biological products.
We estimate that the percentage of patient months qualifying for
outlier payments in CY 2026 would be 14.10 percent for adult patients
and 7.58 percent for pediatric patients, based on the 2024 claims data.
c. Outlier Percentage
In the CY 2011 ESRD PPS final rule (75 FR 49081) and under Sec.
413.220(b)(4), we reduced the per treatment base rate by 1.0 percent to
account for the proportion of the estimated total payments under the
ESRD PPS that are outlier payments as described in Sec. 413.237. In
the 2023 ESRD PPS final rule, we finalized a change to the outlier
methodology to better achieve this 1.0 percent target (87 FR 67170
through 67174). Based on the CY 2024 claims available for this final
rule, outlier payments represented approximately 0.8 percent of total
payments, which is slightly below the 1.0 percent target.
4. Impacts to the CY 2026 ESRD PPS Base Rate
a. ESRD PPS Base Rate
In the CY 2011 ESRD PPS final rule (75 FR 49071 through 49083), CMS
established the methodology for calculating the ESRD PPS per-treatment
base rate, that is, the ESRD PPS base rate, and calculating the per-
treatment payment amount, which are codified at Sec. Sec. 413.220 and
413.230. The CY 2011 ESRD PPS final rule also provides a detailed
discussion of the methodology used to calculate the ESRD PPS base rate
and the computation of factors used to adjust the ESRD PPS base rate
for projected outlier payments and budget neutrality in accordance with
sections 1881(b)(14)(D)(ii) and 1881(b)(14)(A)(ii) of the Act,
respectively. Specifically, the ESRD PPS base rate was developed from
CY 2007 claims (that is, the lowest per patient utilization year as
required by section 1881(b)(14)(A)(ii) of the Act), updated to CY 2011,
and represented the average per treatment MAP for composite rate and
separately billable services. In accordance with section 1881(b)(14)(D)
of the Act and our regulation at Sec. 413.230, the per-treatment
payment amount is the sum of the ESRD PPS base rate, adjusted for the
patient specific case-mix adjustments, applicable facility adjustments,
geographic differences in area wage levels using an area wage index,
and any applicable outlier payment, training adjustment add-on, the
TDAPA, the TPNIES, the post-TDAPA add-on payment adjustment, and the
TPEAPA for CYs 2024, 2025 and 2026.
b. Annual Payment Rate Update for CY 2026
We proposed an ESRD PPS base rate for CY 2026 of $281.06, which we
stated was approximately a 1.9 percent increase from the CY 2025 ESRD
PPS base rate of $273.82. As outlined in section II.B.1.b. of the
proposed rule, 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 2026 ESRDB market basket
update in the final rule.
We invited public comment on our proposed CY 2026 ESRD PPS base
rate. The following is a summary of the comments we received and our
responses.
Comment: We received numerous comments which discussed payment
rates under the ESRD PPS. Commenters generally opined that the payment
rate was lower than appropriate due to various reasons. The reasons
specific to the annual ESRDB market basket increase are discussed in
section II.B.1.b.(5) of this final rule. Commenters that focused on the
overall payment rate often indicated a belief that it was inadequate
based on MedPAC margins, as reported in MedPAC's March 2025 Report to
Congress.\14\ Commenters highlighted that this report found that
projected CY 2025 Medicare margins for ESRD facilities were 0 and that
margins were negative in 2023. A few LDOs stated the belief that
MedPAC's margins were overstated because MedPAC did not consider the
statutorily required $0.50 ESRD network reduction. One coalition of
dialysis providers raised concerns with the use of Medicare marginal
profit rather than overall Medicare margins, which CMS has referenced
in the past. One LDO noted that many other facility types have positive
Medicare margins. A commenter stated that the current payment rate was
below the cost of providing renal dialysis services. MedPAC commented
that payment rates were adequate based on the analysis in its March
2025 Report to Congress.
---------------------------------------------------------------------------

\14\ <a href="https://www.medpac.gov/document/march-2025-report-to-the-congress-medicare-payment-policy/">https://www.medpac.gov/document/march-2025-report-to-the-congress-medicare-payment-policy/</a>.
---------------------------------------------------------------------------

Response: We agree with MedPAC that payment rates under the ESRD
PPS are adequate. While we view Medicare margins as an important tool
in evaluating payment adequacy, we believe other metrics including
overall facility margins and marginal profit are also useful tools. We
note that the marginal profit analysis by MedPAC indicates that the
payment rate is greater than the marginal cost of care, although we
appreciate the commenter's concern with the use of marginal profit and
will consider it when evaluating MedPAC reports in the future. We note
that we do not set payment rates based on Medicare margins or marginal
profit but rather based on the statutorily required methodology of
basing CY 2011 payments on payments that would have been made in 2011,
under the prior payment system, using the lowest per patient
utilization from 2007, 2008 or 2009 and then annually increasing that
rate by an ESRDB market basket percentage increase reduced by a
productivity adjustment as set forth in section 1881(b)(14)(A) and
1881(b)(14)(F) of the Act.
Comment: Several commenters stated various impacts of what they
view as lower-than-appropriate payment rates. Two impacts were noted
most frequently. First, several ESRD facilities reported difficulty
recruiting skilled labor and high turnover, resulting in subsequent
quality concerns. Second, several interested parties raised access
concerns related to ESRD facility closures. A professional association
highlighted nurse burnout and noted several potential areas of
improvement that ESRD facilities could implement to reduce turnover at
ESRD facilities.
Response: We appreciate these insights into the impact of the ESRD
PPS payment rate on ESRD facilities. As we have stated, we believe the
payment rate as prescribed by statute is

[[Page 53088]]

sufficient, however we will continue to monitor these metrics. We
appreciate the commenters' suggestions on how ESRD facilities could
strengthen their nursing workforce in ESRD facilities. While CMS
recognizes the importance of staff retention and maintaining
beneficiaries' access to ESRD facilities, we believe the commenters'
suggestions are generally outside the scope of the ESRD PPS or Medicare
payment policy.
Comment: Some commenters noted that when ESRD patients are unable
to access renal dialysis services in an ESRD facility they are likely
to go to an emergency department and receive the care at a greater cost
to Medicare. Other commenters noted that inpatient stays are often
prolonged if a patient is unable to find an outpatient ESRD facility to
go to after discharge.
Response: We appreciate commenters raising these concerns and will
continue to monitor ESRD beneficiaries' treatments in other sites of
service that are not ESRD facilities. We recommend sending any specific
issues regarding access to renal dialysis services, such as instances
where a beneficiary is unable to locate an outpatient ESRD facility
after discharge, to the ESRD PPS payment mailbox:
<a href="/cdn-cgi/l/email-protection#c28791908692a3bbafa7acb682a1afb1ecaaaab1eca5adb4">[email&#160;protected]</a>.
Comment: Some commenters indicated a specific concern for small and
independent ESRD facilities. A few commenters cited a MedPAC report
that indicated the smallest ESRD facilities had a -19 percent Medicare
margin.
Response: We appreciate the commenters' concern. We note that the
LVPA provides additional payment to low -volume ESRD facilities, and we
finalized changes to the LVPA policy effective CY 2025 which increased
the adjustment factor for low-volume facilities furnishing fewer than
3,000 treatments per year, increasing payments for these ESRD
facilities. We intend to continue to monitor costs and margins for ESRD
facilities, including low volume ESRD facilities, and propose changes
to address any discrepancy between the relative payment rate and
resource use, if appropriate, through notice and comment rulemaking.
Comment: A commenter stated that supply shortages were increasing
costs, resulting in the ESRD PPS payment rate being inadequate.
Response: We would appreciate receiving additional information on
the supply shortages the commenter mentions. Such information can be
sent to the ESRD PPS payment mailbox: <a href="/cdn-cgi/l/email-protection#99dccacbddc9f8e0f4fcf7edd9faf4eab7f1f1eab7fef6ef">[email&#160;protected]</a>.
Comment: One LDO stated that insufficient payment rate hampers
operational sustainability and highlighted the disproportionate impact
on vulnerable populations. Another LDO stated the belief that payment
adequacy was more important than predictability, in reference to a
request for a forecast error adjustment.
Response: As discussed previously, we believe payment under the
ESRD PPS is adequate and appropriate as required by statute. We
recognize the commenters' concerns related to sustainability and
predictability and acknowledge that lower-than-appropriate payments
could cause issues in both respects. As discussed in past rules, we
agree that predictability of ESRD PPS payments is important and setting
rates prospectively is intrinsic to a prospective payment system. We
will consider the commenters' concerns related to sustainability and
predictability and would propose any changes, if appropriate, in
potential future rulemaking.
Final Rule Action: After consideration of public comments, we are
finalizing a CY 2026 ESRD PPS base rate of $281.71. This amount
reflects several factors, described in more detail as follows:
Wage Index Budget Neutrality Adjustment Factor: We compute a wage
index budget neutrality adjustment factor that is applied to the ESRD
PPS base rate. For CY 2026, we are not finalizing any changes to the
methodology used to calculate this factor, which is described in detail
in the CY 2014 ESRD PPS final rule (78 FR 72174). We computed the final
CY 2026 wage index budget neutrality adjustment factor using treatment
counts from the 2024 claims and facility-specific CY 2025 payment rates
to estimate the total dollar amount that each ESRD facility would have
received in CY 2025. The total of these payments became the target
amount of expenditures for all ESRD facilities for CY 2026. Next, we
computed the estimated dollar amount that would have been paid for the
same ESRD facilities using the final CY 2026 ESRD PPS wage index and
final LRS for CY 2026. The total of these payments becomes the new CY
2026 amount of wage-adjusted expenditures for all ESRD facilities. The
wage index budget neutrality factor is calculated as the target amount
divided by the new CY 2026 amount. When we multiplied the wage index
budget neutrality factor by the applicable CY 2026 estimated payments,
aggregate Medicare payments to ESRD facilities would remain budget
neutral when compared to the target amount of expenditures. That is,
the wage index budget neutrality adjustment factor ensures that the
wage index updates and revisions do not increase or decrease aggregate
Medicare payments. The final CY 2026 wage index budget neutrality
adjustment factor is 1.00905. As we are not finalizing any changes to
our established ESRD PPS wage index policy, this final CY 2026 wage
index budget neutrality adjustment factor reflects the impact of all
established wage index policies, including the ESRD PPS wage index
methodology based on BLS OEWS and freestanding ESRD facility cost
report FTE data, the 5 percent cap on year-to-year decreases in wage
index values, the 3-year rural phase-out for ESRD facilities in
currently-rural CBSAs that became urban under the new delineations
adopted in CY 2025, and the LRS. We discussed in the CY 2025 ESRD PPS
final rule (89 FR 89131) that the impact of the application of the 5
percent cap on wage index decreases had a sizable impact on the budget
neutrality factor for CY 2025 due to the new wage index methodology
implemented in that year. That is, because a substantial number of ESRD
facilities would have experienced a greater than 5 percent decrease in
their wage index value as a result of the new wage index methodology,
the budget neutrality adjustment factor needed to offset the effect of
limiting those decreases to 5 percent had a larger magnitude impact on
the ESRD PPS base rate than we expect it would be in a typical year.
However, for CY 2026 the continued application of our established 5
percent cap policy results in a final wage-index budget neutrality
factor above 1, meaning the final ESRD PPS base rate increases as a
result of its application. This is because the average wage index value
is decreasing as, generally, ESRD facilities that received the 5
percent cap in CY 2025 are set to receive a lower wage index for CY
2026. We note that the final CY 2026 wage index budget neutrality
factor does not include any impacts associated with the TPEAPA, as was
the case with the 2024's combined wage index-TPEAPA budget neutrality
finalized factor for CY 2024. This is consistent with how we have
historically applied budget neutrality for case-mix adjusters,
including pediatric case-mix adjusters. We do not routinely apply a
budget neutrality factor to account for changes in overall payment
associated with changes in patient case-mix in years in which we do not
propose any changes to the case-mix adjustment amount. Although the
TPEAPA was established under the authority in section
1881(b)(14)(D)(iv) of the Act, which does not require budget
neutrality, we

[[Page 53089]]

stated in the CY 2024 ESRD PPS final rule that we were implementing the
TPEAPA in a budget neutral manner because it was similar to the
pediatric case-mix adjusters, and it accounts for costs which would
have been included in the cost reports used in the analysis conducted
when we created the ESRD PPS bundled payment in the CY 2011 ESRD PPS
final rule (88 FR 76378). Because the adjustment to maintain budget
neutrality associated with the TPEAPA was accounted for in the CY 2024
combined wage index and TPEAPA budget neutrality factor, and we did not
propose any changes to the TPEAPA amount, it would not be appropriate
to apply a budget neutrality factor for the TPEAPA for CY 2026.
NAPA Budget Neutrality Factor: As outlined in section II.B.8. of
this final rule, under the authority granted by section
1881(b)(14)(D)(iv) of the Act, we are finalizing a new facility-level
payment adjustment for ESRD facilities in Alaska, Hawaii, and certain
U.S. Pacific Territories,\15\ which we refer to in this final rule as
the non-contiguous areas payment adjustment (NAPA). This payment
adjustment will apply to ESRD PPS claims for treatments at ESRD
facilities in Alaska, Hawaii, Guam, American Samoa, and the Northern
Mariana Islands. This payment adjustment is capped at 25 percent and
will be applied to the non-LRS of the ESRD PPS base rate, which is 44.8
percent. We are finalizing that this payment adjustment will be budget
neutral and will result in a final NAPA budget neutrality factor of
0.99860.
---------------------------------------------------------------------------

\15\ See section II.B.8.b of this final rule for a discussion of
which U.S. Pacific Territories we considered for this adjustment.
---------------------------------------------------------------------------

Market Basket Update: Section 1881(b)(14)(F)(i)(I) of the Act
provides that, beginning in 2012, the ESRD PPS payment amounts are
required to be annually increased by an ESRD market basket percentage
increase. As outlined in section II.B.1.b.(1). of this final rule, the
final CY 2026 ESRDB market basked increase based on the third quarter
2025 CY 2026 projection of the ESRDB market basket is 2.9 percent. In
CY 2026, this amount must be reduced by the productivity adjustment
described in section 1886(b)(3)(B)(xi)(II) of the Act, as required by
section 1881(b)(14)(F)(i)(II) of the Act. As previously discussed in
section II.B.1.b.(2). of this final rule, the final CY 2026
productivity adjustment is 0.8 percentage point based on the third
quarter 2025 forecast (the 10-year moving average of TFP for the period
ending CY 2026), thus yielding a final CY 2026 ESRDB market basket
update of 2.1 percent for CY 2026. Therefore, the final CY 2026 ESRD
PPS base rate is $281.71 (($273.82 x 1.00905 x 0.99860) x 1.021 =
$281.71).
5. Update to the Average per Treatment Offset Amount for Home Dialysis
Machines
In the CY 2021 ESRD PPS final rule (85 FR 71427), we expanded
eligibility for the TPNIES under Sec. 413.236 to include certain
capital-related assets that are home dialysis machines when used in the
home for a single patient. To establish the TPNIES basis of payment for
these items, we finalized the additional steps that the Medicare
Administrative Contractors (MACs) must follow to calculate a pre-
adjusted per treatment amount, using the prices they establish under
Sec. 413.236(e) for a capital-related asset that is a home dialysis
machine, as well as the methodology that CMS uses to calculate the
average per treatment offset amount for home dialysis machines that is
used in the MACs' calculation, to account for the cost of the home
dialysis machine that is already in the ESRD PPS base rate. For
purposes of this final rule, we refer to this as the ``TPNIES offset
amount.''
The methodology for calculating the TPNIES offset amount is set
forth in Sec. 413.236(f)(3). Section 413.236(f)(3)(v) states that
effective January 1, 2022, CMS annually updates the amount determined
in Sec. 413.236(f)(3)(iv) by the ESRDB market basket update. The
TPNIES for capital-related assets that are home dialysis machines is
based on 65 percent of the MAC-determined pre-adjusted per treatment
amount, reduced by the TPNIES offset amount, and is paid for 2 CYs.
There are currently no capital-related assets that are home
dialysis machines set to receive the TPNIES for CY 2026, as the TPNIES
payment period for the Tablo[supreg] System ended on December 31, 2023,
and there are no TPNIES applications for CY 2026. However, as required
by Sec. 413.236(f)(3)(v), we proposed to update the TPNIES offset
amount annually according to the methodology described previously.
We proposed a CY 2026 TPNIES offset amount for capital-related
assets that are home dialysis machines of $10.41, based on the proposed
CY 2026 ESRDB market basket update of 1.9 percent (proposed 2.7 percent
ESRDB market basket percentage increase reduced by the proposed 0.8
percentage point productivity adjustment). We requested public comments
on our proposal to update the TPNIES offset amount for capital-related
assets for CY 2026.
The following is a summary of the comments we received on this
proposal and our responses.
Comment: A commenter stated the belief that the proposed TPNIES
offset amount was too low to compensate for TPNIES supplies.
Response: The TPNIES offset amount is not intended to account for
the cost of the renal dialysis equipment or supplies. As we explained
in the CY 2021 ESRD PPS final rule (85 FR 71423), we apply the TPNIES
offset amount so that ESRD facilities using a new and innovative home
dialysis machine would receive a per treatment payment to cover some of
the cost of the new machine per treatment minus a per treatment payment
amount that we estimate to be included in the ESRD PPS base rate for
current home dialysis machines that the facilities already own. We note
that the actual TPNIES payment for these machines would be based on
invoice pricing and reduced by the TPNIES offset amount. For a full
description of the methodology for TPNIES for capital related assets
please see the CY 2021 ESRD PPS final rule (85 FR 71427).
Final rule action: After consideration of public comment, we are
finalizing our proposal to update the CY 2026 TPNIES offset amount. For
the CY 2026 final TPNIES offset amount we are using the final ESRDB
market basket update factor in section II.B.1.b.(3). of this final
rule. Applying the final ESRDB market basket update factor of 1.021 to
the CY 2025 TPNIES offset amount results in the final CY 2026 TPNIES
offset amount of $10.43 ($10.22 x 1.021 = $10.43).
6. Post-TDAPA Add-On Payment Adjustment Updates
In the CY 2024 ESRD PPS final rule we finalized an add-on payment
adjustment for certain new renal dialysis drugs and biological
products, which would be applied for 3 years after the end of the TDAPA
period (88 FR 76388 through 76397). This adjustment, known as the post-
TDAPA add-on payment adjustment, is adjusted by the patient-level case-
mix adjusters and is applied to every ESRD PPS claim. In that final
rule we also clarified that for each year of the post-TDAPA period we
would update the post-TDAPA add-on payment adjustment amounts based on
utilization and ASP of the drug or biological product. The post-TDAPA
add-on payment adjustment amounts are calculated based on the
methodology codified at Sec. 413.234(g), which is the total drug
expenditure divided by the total ESRD PPS treatments multiplied by the
case mix standardization for the time period and

[[Page 53090]]

the 0.65 risk sharing factor, and the ESRDB pharmaceutical price proxy
for the payment year (88 FR 76396). In the CY 2025 ESRD PPS final rule
(89 FR 89136) we finalized our proposal to publish the post-TDAPA add-
on payment adjustment amount after the final rule in certain
circumstances to ensure that the post-TDAPA add-on payment adjustment
amount can be calculated using 12 months of utilization data.
For CY 2025 there is one drug, Korsuva[supreg] (difelikefalin),
included in the calculation of the post-TDAPA add-on payment adjustment
for each of the four calendar quarters and one drug, Jesduvroq[supreg],
included in the calculation for only the fourth calendar quarter. In
the CY 2025 ESRD PPS final rule (89 FR 89135), we finalized that the
post-TDAPA add-on payment adjustment amount for Korsuva[supreg] would
be $0.4601 for CY 2025; this figure was updated to $0.4684 in
transmittal 13245,\16\ which was a correction to CR 13865 after a
review found a small error in the calculation of this figure. At the
time of rulemaking, we did not have sufficient data to finalize a post-
TDAPA add-on payment adjustment amount for Jesduvroq[supreg] for CY
2025, so, consistent with our policy finalized in the CY 2025 ESRD PPS
final rule (89 FR 89136), we published the final post-TDAPA amount for
Jesduvroq[supreg] in transmittal 13245.\17\
---------------------------------------------------------------------------

\16\ CMS Transmittal 13245, dated May 29, 2025, is available at
<a href="https://www.cms.gov/files/document/r13245bp.pdf">https://www.cms.gov/files/document/r13245bp.pdf</a>.
\17\ CMS Transmittal 13245, dated May 29, 2025, is available at
<a href="https://www.cms.gov/files/document/r13245bp.pdf">https://www.cms.gov/files/document/r13245bp.pdf</a>.
---------------------------------------------------------------------------

a. CY 2026 Post-TDAPA Add-On Payment Adjustment Amounts
For CY 2026, we will have three drugs which are in the 3-year
period following the end of their TDAPA period and are potentially
eligible to be included in the calculation of the post-TDAPA add-on
payment adjustment. Section 413.234(c)(3) states that should CMS not
receive the latest full calendar quarter of ASP data for a drug or
biological product during the TDAPA or post-TDAPA period, we will not
pay any post-TDAPA add-on payment adjustment for such product in any
future year. The third quarter of 2025 reflecting quarter 1, 2025 sales
would be the latest quarter of ASP data at the time of rulemaking for
the proposed rule. As CMS had not received ASP data for quarter 3,
2025, which reflects sales for quarter 1, 2025 for Jesduvroq[supreg],
we did not propose to include Jesduvroq[supreg] in the calculation of
the post-TDAPA add-on payment adjustment for CY 2026 or any future
years. Therefore, due to the continued receipt of the latest full
calendar quarter of ASP data for the renal dialysis drugs discussed
later in this document, there are two drugs included in the calculation
of the post-TDAPA add-on payment adjustment for CY 2026.
The post-TDAPA add-on payment adjustment period for one of these
drugs, Korsuva[supreg], began on April 1, 2024, so Korsuva[supreg] will
be included in the calculation for the post-TDAPA add-on payment
adjustment for the entirety of CY 2026. The other drug,
DefenCath[supreg], began its TDAPA period on July 1, 2024, so it will
be included in the post-TDAPA add-on payment adjustment calculation for
quarters 3 and 4 of CY 2026.
In the CY 2026 ESRD PPS proposed rule, we presented the proposed
post-TDAPA add-on payment adjustment amounts for Korsuva[supreg] based
on the most recently available full year of utilization data at this
time. We were unable to present an estimate of the post-TDAPA add-on
payment adjustment amount for DefenCath[supreg] at that time using a
full year of utilization data, however we included a proposed post-
TDAPA amount based on the first 6 months of DefenCath[supreg]
utilization. The proposed post-TDAPA add-on payment adjustment amount
for Korsuva[supreg] was $0.2633 and the proposed post-TDAPA add-on
payment adjustment amount for DefenCath[supreg] was $1.4780. Consistent
with the methodology finalized in the CY 2024 ESRD PPS final rule (88
FR 76388 through 76389), we proposed to update these calculations with
the most recent available utilization and pricing data in the final
rule. We invited public comments on our proposed CY 2026 post-TDAPA
add-on payment adjustment amounts.
We received public comments on this proposal. The following is a
summary of the comments we received and our responses.
Comment: Numerous commenters requested we modify our methodology
for calculating the post-TDAPA add-on payment adjustment to be based on
per-claim utilization and only apply to claims that include the drug or
biological product in question and not be time limited. Commenters
generally expressed the opinion that such a payment adjustment would
better support innovation within the ESRD PPS. A commenter stated the
belief that the current post-TDAPA methodology has harmed patients by
failing to provide a sustainable pathway for payment for new drugs and
biological products and their suggested methodology would better
support innovation.
Response: As we discussed in the CY 2024 ESRD PPS final rule (88 FR
76388 through 76396) we do not agree that a methodology based on per-
claim utilization would be appropriate for the post-TDAPA add-on
payment adjustment, because it would directly incentivize utilization
of a particular drug or biological product, which we noted can result
in overutilization. While the TDAPA and post-TDAPA add-on payment
adjustments share the goal of supporting access to new renal dialysis
drugs or biological products used to treat or manage a condition in an
ESRD PPS functional category, the TDAPA's short-term objectives are
more consistent with a methodology that is based on per-claim
utilization. As we discussed in the CY 2019 and CY 2020 ESRD PPS final
rules (83 FR 56935; 84 FR 60654), for new renal dialysis drugs and
biological products that fall into an existing ESRD PPS functional
category, the TDAPA helps ESRD facilities to incorporate the new drugs
and biological products and make appropriate changes in their
businesses to adopt such products. We also explained that the TDAPA
provides additional payments for such associated costs and promotes
competition among the products within the ESRD PPS functional
categories, while focusing Medicare resources on products that are
innovative. The TDAPA for renal dialysis drugs and biological products
in existing ESRD PPS functional categories is inherently transitional
in nature and therefore not permanent. We later finalized a post-TDAPA
add-on payment adjustment beginning in CY 2024 that that provides a
glidepath for inclusion of such new renal dialysis drugs and biological
products into the ESRD PPS. In the CY 2024 ESRD PPS proposed rule (88
FR 42460), we stated that a 3-year period for the post-TDAPA add-on
payment adjustment would be consistent with the transition period that
was finalized at the beginning of the ESRD PPS, when ESRD facilities
were transitioned from receiving payments under the composite rate
payment system to receiving payments under the ESRD PPS (79 FR 49162).
We believe that the current post-TDAPA add-on payment adjustment
methodology provides the most appropriate incentives for ESRD
facilities to be efficient with resources, while providing an
appropriate level of payment that supports access to new renal dialysis
drugs and biological products. We recognize that the policy would not
permanently maintain increased payments for new renal dialysis drugs
and biological products

[[Page 53091]]

that receive the TDAPA, and we do not believe that such a permanent
increase in payments would be appropriate. We did not propose any
changes to the methodology used to calculate the post-TDAPA add-on
payment adjustment, the 3-year timeframe of the adjustment or the
application of the post-TDAPA add-on payment adjustment to all ESRD PPS
claims, for CY 2026, but we will consider the commenters' suggestions
for potential future rulemaking.
Comment: We received some comments which specifically discussed the
post-TDAPA add-on payment adjustment amount for Korsuva[supreg]. These
commenters generally said that the per-treatment amount was too low
when compared to the ASP of the drug. Some commenters stated that the
post-TDAPA add-on payment adjustment actively disincentivizes ESRD
facilities from stocking or providing it.
Response: We calculated the proposed post-TDAPA add-on payment
adjustment amount for Korsuva[supreg] based on our established
methodology under Sec. 413.234(g) although, as discussed previously,
we recognize that many commenters believe our established methodology
does not provide enough payment for drugs and biological products. We
strongly disagree with the statement that the post-TDAPA add-on payment
adjustment amount for Korsuva[supreg] disincentivizes providers from
utilizing the drug. As we stated in the CY 2025 ESRD PPS final rule (88
FR 89124), a new renal dialysis drug or biological product must
demonstrate to patients and nephrologists that it presents value
relative to existing treatment options, and the TDAPA further allows
new products to become competitive by providing payment at 100 percent
of ASP for the new drug or biological product. We expect that
nephrologists and patients would consider all relevant factors and all
available treatment options, and make the most appropriate decision for
each patient. We do not believe we can infer that utilization of
Korsuva[supreg] was depressed due to lack of adequate payment during
the TDAPA period, because payment under the TDAPA for Korsuva[supreg]
was based on 100 percent of ASP.
Furthermore, in the CY 2024 ESRD PPS final rule, we stated that one
goal of the post-TDAPA add-on payment adjustment is to support
continued access to new renal dialysis drugs and biological products
and to support ESRD facilities' long-term planning and budgeting for
such drugs after the TDAPA period (88 FR 76393). We believe that ESRD
PPS policy provides appropriate and adequate payment in the short term
during the 2-year TDAPA period, in the medium term during the 3 years
of payment under the post-TDAPA add-on payment adjustment following the
payment of TDAPA, and during the long term when such new renal dialysis
drugs and biological products are paid for under the ESRD PPS base rate
with no adjustment and are expected to compete with other drugs and
biological products in the ESRD PPS bundled payment.
Comment: A drug manufacturer commented that, based on the
preliminary calculation presented in the CY 2026 ESRD PPS proposed
rule, they expected that the final post-TDAPA add-on payment adjustment
amount for DefenCath[supreg] would be too low. They noted that at the
time the post-TDAPA add-on payment adjustment would begin being applied
for CY 2026 some of the data for the drug would be 2 years old. The
manufacturer explained that utilization during that time did not
reflect the current utilization of the drug as outside factors resulted
in lower utilization of the drug. The manufacturer requested that we
include data from quarters 3 and 4, 2025 in the calculation of the
post-TDAPA add-on payment adjustment. The commenter stated that basing
the post-TDAPA add-on payment amount on the higher 2025 data would
provide more appropriate payment for this drug during the two quarters
of the post-TDAPA add-on payment adjustment period. The commenter
highlighted the policy finalized in the CY 2025 ESRD PPS final rule
which allowed for CMS to publish a post-TDAPA add-on payment adjustment
amount outside of rulemaking based on the established methodology when
a full year of data would not be available at the time of final
rulemaking. The commenter urged CMS to not finalize a post-TDAPA add-on
payment amount at this time and instead calculate the post-TDAPA add-on
payment adjustment for DefenCath[supreg] outside of rulemaking. The
commenter stated the belief that the resulting add-on payment
adjustment amount would be more appropriate.
Response: We appreciate the commenter's concerns regarding the
post-TDAPA add-on payment adjustment amount for DefenCath[supreg]. As
we explained in the CY 2025 ESRD PPS final rule, we determined that it
is appropriate to calculate the post-TDAPA add-on payment adjustment
amount based on a full year of utilization data. While we recognize
that utilization can be influenced by external factors, the examples
cited by the commenter primarily reflect health care provider choice in
utilization. Although health care provider choice may be affected by a
range of considerations, we continue to believe it is appropriate to
account for these utilization patterns when calculating the post-TDAPA
add-on payment adjustment amount.
We did not propose any changes to our established methodology for
the post-TDAPA add-on payment adjustment in the CY 2026 ESRD PPS
proposed rule, such as an alternative methodology to establish a post-
TDAPA add-on payment adjustment amount outside of rulemaking in cases
where there is a full year of utilization data but concerns are raised
about that data. Accordingly, we are not finalizing any changes to our
post-TDAPA add-on payment adjustment methodology at this time. We note
that the period of higher utilization that the commenter discussed will
be included when calculating the CY 2027 post-TDAPA add-on payment
adjustment amount for DefenCath[supreg], assuming continued receipt of
ASP data as required under Sec. 413.234(c)(3).
We will continue to evaluate whether additional flexibilities may
be warranted in the post-TDAPA add-on payment adjustment calculation.
If we determine that changes are appropriate, we would propose
revisions to the methodology through future notice and comment
rulemaking. However, we note that we would have significant concerns
with adopting the rationale described by the commenter as a basis for
excluding or adjusting data, given that many drugs could assert similar
claims of lower utilization during the early months of market
availability. This type of utilization pattern is expected, as the
purpose of the TDAPA for new renal dialysis drugs and biological
products in existing ESRD PPS functional categories is to provide
additional payment to facilitate incorporation of these products into
provider business models. If utilization were immediately at high
levels, the TDAPA would not be needed to serve its intended purpose.
Final rule action: After consideration of public comments, we are
finalizing the post-TDAPA add-on payment adjustment amounts for each
quarter of CY 2026 presented in Table 4 according to our established
methodology. The final post-TDAPA add-on payment adjustment amount for
Korsuva[supreg] is $0.1131 which will be applied to ESRD PPS claims for
each quarter of CY 2026. The final post-TDAPA add-on payment adjustment
amount for DefenCath[supreg] is $2.3710 which will be applied to ESRD
PPS claims for the third and fourth quarter of CY 2026. Table 4 shows
the final post-TDAPA add-on payment adjustment amounts for each quarter
of

[[Page 53092]]

CY 2026. We note that there are no drugs or biological products which
will be included in the post-TDAPA add-on payment adjustment
calculation for any quarter of CY 2026 which lack 12 months of
utilization data.

Table 4--Final Post-TDAPA Add-On Payment Adjustment Amounts for CY 2026 by Quarter
----------------------------------------------------------------------------------------------------------------
Total post-
Add-on amount TDAPA add-on
Quarter for Add-on amount for payment
Korsuva[supreg] DefenCath[supreg] adjustment
amount
----------------------------------------------------------------------------------------------------------------
Q1 (January-March).......................................... $0.1131 $0 $0.1131
Q2 (April-June)............................................. 0.1131 0 0.1131
Q3 (July-September)......................................... 0.1131 2.3710 2.4841
Q4 (October-December)....................................... 0.1131 2.3710 2.4841
----------------------------------------------------------------------------------------------------------------

b. Technical Correction to Sec. 413.234(g)(5)
We proposed to modify the language at Sec. 413.234(g)(5) to fix a
typographical error in the spelling of the word ``adjusted''. We
welcomed public comments on this proposed change or any other areas
where the regulatory language should be corrected.
We did not receive public comments on this provision, and
therefore, we are finalizing the correction as proposed.
7. Changes to the TDAPA Eligibility Criteria
a. Background on the TDAPA
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 (IV) products into the ESRD
PPS bundled payment. Therefore, in the CY2016 ESRD PPS final rule (80
FR 69013 through 69027), we finalized a process that allowed us to
recognize when an oral-only renal dialysis service drug or biological
product is no longer oral-only, and a process to include new injectable
and IV products into the ESRD PPS bundled payment, and when
appropriate, modify the ESRD PPS payment amount.
The processes we finalized in the CY 2016 ESRD PPS final rule are
based on whether a drug or biological product fits within one of eleven
ESRD PPS functional categories. These ESRD PPS functional categories,
which were first established in the CY 2011 ESRD PPS final rule,
represent all the drugs and biological products included in the ESRD
PPS bundled payment, as well as those receiving the TDAPA (80 FR 69013
through 69027). As we established in the CY 2011 ESRD PPS final rule,
categorizing drugs and biological products based on drug action allows
us to determine which categories (and therefore, the drugs and
biological products within the categories) would be considered used for
the treatment of ESRD (75 FR 49047). We grouped the injectable and IV
drugs and biological products into functional categories based on their
action (80 FR 69014). This was done for the purpose of adding new drugs
or biological products with the same functions to the ESRD PPS bundled
payment as expeditiously as possible after the drugs become
commercially available so that beneficiaries have access to them. We
finalized the definition of an ESRD PPS functional category in our
regulations at Sec. 413.234(a) as a distinct grouping of drugs or
biologicals, as determined by CMS, whose end action effect is the
treatment or management of a condition or conditions associated with
ESRD.
In the CY 2016 ESRD PPS final rule, we established a requirement at
Sec. 413.234(b)(2) that, if a new injectable or IV product is used to
treat or manage a condition for which there is not an ESRD PPS
functional category, the new injectable or IV product is not considered
included in the ESRD PPS bundled payment and the following steps occur.
First, an existing ESRD PPS functional category is revised or a new
ESRD PPS functional category is added for the condition that the new
injectable or IV product is used to treat or manage. Next, the new
injectable or IV product is paid for using the transitional drug add-on
payment adjustment (TDAPA) described in Sec. 413.234(c). Then, the new
injectable or IV product is added to the ESRD PPS bundled payment
following payment of the TDAPA.
We finalized in the CY 2016 ESRD PPS final rule that the TDAPA
provides additional payment for certain new drugs and biological
products. Under Sec. 413.234(c), the TDAPA is based on pricing
methodologies under section 1847A of the Act and is paid until
sufficient claims data for rate setting analysis for the new injectable
or IV product are available, but not for less than 2 years. During the
time a new injectable or IV product is eligible for the TDAPA, it is
not eligible as an outlier service. Following payment of the TDAPA, the
ESRD PPS base rate would be modified, if appropriate, to account for
the new injectable or intravenous product in the ESRD PPS bundled
payment.
In the CY 2019 ESRD PPS final rule (83 FR 56927 through 56949), CMS
expanded the TDAPA to all new renal dialysis drugs and biological
products, not just those in new ESRD PPS functional categories. For new
renal dialysis drugs or biological products that fall within an ESRD
PPS functional category, we specified that the ESRD PPS base rate would
not be modified after the 2-year TDAPA period (83 FR 56943), but, as
consistent with the outlier policy at that time, we stated that the
drug or biological product would be eligible for outlier payment unless
it is a composite rate drug. In this same CY 2019 ESRD PPS final rule,
we modified the definition of ``new renal dialysis drug or biological
product'' at 413.234(a) to specify that the drug or biological product
must be approved by the FDA on or after January 1, 2020. We also
changed the basis of payment for the TDAPA from pricing methodologies
under section 1847A of the Act (which includes 106 percent of ASP) to
100 percent of ASP and updated the definitions of ``new renal dialysis
drug or biological product'' and ``oral-only drugs'' under Sec.
413.234(a).
In the CY 2020 ESRD PPS final rule (84 FR 60653 through 60681), we
finalized the exclusion of generic drugs and certain NDA types from
TDAPA eligibility to distinguish innovative from non-innovative renal
dialysis drugs and biological products. As codified at Sec.
413.234(e)(1) through Sec. 413.234(e)(7), NDA Type 3, 5, 7 or 8, Type
3 in combination with Type 2 or Type 4, or Type 5 in combination with
Type 2, or Type 9 when the ``parent NDA'' is a Type 3, 5, 7 or 8, are
excluded from TDAPA eligibility. Additionally, we

[[Page 53093]]

finalized a policy to use Wholesale Acquisition Cost (WAC) if ASP data
is not available, and if WAC is not available, to then use invoice
pricing. We also finalized a policy to no longer apply the TDAPA for a
new renal dialysis drug or biological product if CMS does not receive a
full calendar quarter of ASP data within 30 days of the last day of the
3rd calendar quarter after we begin applying the TDAPA for that product
or if CMS does not receive the latest full calendar quarter of ASP data
for the product beginning no later than 2-calendar quarters after CMS
determines that the latest full calendar quarter of ASP data is not
available.
The CY 2020 ESRD PPS final rule also established the transitional
payment for new and innovative equipment and supplies (TPNIES), a non-
budget neutral add-on payment adjustment for certain new and innovative
equipment and supplies (84 FR 60681 through 60699). TPNIES is codified
at Sec. 413.236. When the TPNIES was established, the eligibility
criteria at Sec. 413.236(b)(2) defined ``new'' as receiving FDA
marketing authorization on or after January 1, 2020. In the CY 2021
ESRD PPS final rule we modified the TPNIES eligibility criteria to
reflect the definition of ``new'' to mean within 3 years beginning on
the date of FDA marketing authorization (85 FR 71410 through 71414). In
the CY 2024 ESRD PPS final rule, we revised Sec. 413.236(b)(2) to
further clarify that an equipment or supply for which a complete
application has been submitted to CMS under Sec. 413.236(c) within 3
years of the date of the FDA marketing authorization would be
considered new (88 FR 71414 through 76415).
In both the CY 2019 and CY 2020 ESRD PPS final rules (83 FR 56927
through 56949; 84 FR 60653 through 60681), we explained that the aim of
the TDAPA is to help ESRD facilities incorporate into their business
model new drugs and biological products that fall within existing ESRD
PPS functional categories by providing additional payments. We further
explained that the TDAPA aims to promote competition among the products
within the ESRD PPS functional categories and focuses Medicare
resources on products that are innovative. For new renal dialysis drugs
and biological products that do not fall within an existing ESRD PPS
functional category, we clarified that the TDAPA could be a pathway
toward a potential base rate modification, if appropriate.
b. Modification to the Eligibility Timeframe for the TDAPA
In the CY 2019 ESRD PPS final rule, we explained that the main
goals of the TDAPA are to promote the incorporation of new renal
dialysis service drugs and biological products into the ESRD PPS
bundled payment and to focus Medicare resources on new and innovative
products (84 FR 60653). Under the current regulations, any renal
dialysis drug or biological product that receives FDA approval on or
after January 1, 2020, would be considered ``new'' under Sec.
413.234(a) and would be eligible for the TDAPA if it meets the other
criteria and is not excluded from TDAPA payment under Sec. 413.234(e).
When we finalized Sec. 413.234(a) in the CY 2019 ESRD PPS final rule
(83 FR 56932), we stated that we believed it was appropriate at that
time to consider renal dialysis drugs and biological products to be
considered new if they were approved after January 1, 2020. However,
because the regulatory definition for ``new renal dialysis drug or
biological product'' includes a specific date on which a drug or
biological product may start to be considered new but does not specify
a date when it is no longer considered new, the current regulatory
definition of a new renal dialysis drug or biological product could
apply to drugs with FDA approval dates that are increasingly old. For
example, for CY 2026 and future years, a renal dialysis drug or
biological product approved by FDA in 2020 would be over 5 years old.
As the TDAPA currently has no other time-dependent eligibility
requirements, that would mean there is the potential for increasingly
older drugs to be eligible for and receive the TDAPA. As discussed in
the CY 2019 ESRD PPS final rule, CMS grouped drugs and biological
products into functional categories based on their action for the
purpose of adding new drugs or biological products with the same
functions to the ESRD PPS bundled payment as expeditiously as possible
after the drugs become commercially available so that beneficiaries
have access to them (83 FR 56928). When CMS finalized the expansion of
the TDAPA to all new renal dialysis drugs and biological products later
in that same rule, one of the main goals was improving beneficiary
access to new and innovative products. At the time of the TDAPA
expansion, the January 1, 2020, timeframe for the regulatory definition
of ``new renal dialysis drug or biological product'' aligned with this
goal of TDAPA. However, we do not believe the original intention of
this requirement was to ensure that renal dialysis drugs and biological
products approved on or after January 1, 2020, would continue to be
eligible for the TDAPA in perpetuity after their FDA approval. As noted
previously, for the TPNIES, Sec. 413.236(b)(2) provides that an
equipment or supply for which a complete application has been submitted
to CMS under Sec. 413.236(c) within 3 years of the date of the FDA
marketing authorization is considered new. In the CY 2021 ESRD PPS
final rule, when CMS changed the TPNIES eligibility criteria set forth
at Sec. 413.236(b)(2), we stated that we did not believe newness
should be tied to the effective date of the TPNIES, and that a 3-year
eligibility window would be consistent with the timeframe for the new-
technology add-on payment (NTAP) under the IPPS (85 FR 71411 through
71412). Regarding the NTAP, Sec. 412.87(b)(2) notes that a medical
service or technology may be considered new within 2 to 3 years after
it is released onto the open market. Consistent with the views that CMS
expressed regarding the TPNIES eligibility timeframe in the CY 2021
ESRD PPS final rule, we believe that the continued use of the January
1, 2020, date for the TDAPA would allow for some renal dialysis drugs
and biological products to potentially qualify for the TDAPA well after
they are already established, which would conflict with CMS' original
intention for the TDAPA: to provide additional support to ESRD
facilities during the uptake period for innovative drugs and biological
products and help incorporate them into their business model (84 FR
60663).
We proposed to modify the language of Sec. 413.234 to reflect that
a TDAPA application must be submitted within 3 years of FDA approval
for a new renal dialysis drug or biological product to be eligible for
the TDAPA. We also proposed to restructure the section to consolidate
the TDAPA eligibility requirements in a new paragraph (c)(5) in Sec.
413.234, since current

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