Home/Federal/Federal Register/2026-22194

Rule2026-22194

Medicare Program; CY 2027 Changes to the End-Stage Renal Disease (ESRD) Prospective Payment System, Acute Kidney Injury (AKI) Dialysis Payment, and ESRD Quality Incentive Program

Primary source

Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.

Published

October 30, 2026

Effective

January 1, 2027

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 2027. 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.

Full Text

<html>
<head>
<title>Federal Register, Volume 91 Issue 209 (Friday, October 30, 2026)</title>
</head>
<body><pre>
[Federal Register Volume 91, Number 209 (Friday, October 30, 2026)]
[Rules and Regulations]
[Pages 68736-68858]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-22194]

[[Page 68735]]

Vol. 91

Friday,

No. 209

October 30, 2026

Part III

Department of Health and Human Services

-----------------------------------------------------------------------

Centers for Medicare & Medicaid Services

-----------------------------------------------------------------------

42 CFR Part 413

Medicare Program; CY 2027 Changes to the End-Stage Renal Disease (ESRD)
Prospective Payment System, Acute Kidney Injury (AKI) Dialysis Payment,
and ESRD Quality Incentive Program

Federal Register / Vol. 91, No. 209 / Friday, October 30, 2026 /
Rules and Regulations

[[Page 68736]]

-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 413

[CMS-1846-F]
RIN 0938-AV81

Medicare Program; CY 2027 Changes to the End-Stage Renal Disease
(ESRD) Prospective Payment System, Acute Kidney Injury (AKI) Dialysis
Payment, and ESRD Quality Incentive Program

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule updates and revises the End-Stage Renal
Disease (ESRD) Prospective Payment System for calendar year 2027. 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.

DATES: These regulations are effective on January 1, 2027.

FOR FURTHER INFORMATION CONTACT:
<a href="/cdn-cgi/l/email-protection#bbfee8e9ffebdac2d6ded5cffbd8d6c895d3d3c895dcd4cd">[email&#160;protected]</a> or Abigail Ryan at (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#84c1d7d6c0c5f4f4e8ede7e5f0edebeaf7c4e7e9f7aaececf7aae3ebf2">[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#a5f4ebe0f1f6f0f5f5eaf7f188e0f6f7e1e5c6c8d68bcdcdd68bc2cad3">[email&#160;protected]</a>, for issues related to the ESRD
Quality Incentive Program (QIP).

SUPPLEMENTARY INFORMATION:

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), and
the ESRD Quality Incentive Program (QIP).
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
updates the ESRD PPS for CY 2027, including a routine rebasing and
revising of the ESRD Bundled (ESRDB) market basket. This rule also
modifies the ESRD PPS base rate to reflect the incorporation of
phosphate binders \1\ into the ESRD PPS base rate, makes budget neutral
changes to certain ESRD PPS payment adjustments, and makes
modifications to the transitional drug add-on payment adjustment
(TDAPA) and post-TDAPA add-on payment adjustment. The payment
adjustments changed budget neutrally include the low-volume payment
adjustment (LVPA), the case mix adjusters for pediatric ESRD patients,
and the home and self-dialysis add-on payment adjustment.
---------------------------------------------------------------------------

\1\ We note that all currently available phosphate binders are
oral. Throughout this rule, we use the term ``oral phosphate
binders'' when specifically discussing these drugs in certain
contexts, such as the TDAPA or historical payment policies. The CY
2027 ESRD PPS base rate increase will encompass all current and
future phosphate binders, including a hypothetical future injectable
phosphate binder or other form of administration.
---------------------------------------------------------------------------

2. Coverage and Payment for Renal Dialysis Services Furnished to
Individuals With Acute Kidney Injury
On June 29, 2015, the President signed the Trade Preferences
Extension Act of 2015 (TPEA) (Pub. L. 114-27). Section 808(a) of the
TPEA amended section 1861(s)(2)(F) of the Act to provide coverage for
renal dialysis services furnished on or after January 1, 2017, by a
renal dialysis facility or a provider of services paid under section
1881(b)(14) of the Act to an individual with AKI. Section 808(b) of the
TPEA amended section 1834 of the Act by adding a new subsection (r)
that provides for payment for renal dialysis services furnished by
renal dialysis facilities or providers of services paid under section
1881(b)(14) of the Act to individuals with AKI at the ESRD PPS base
rate beginning January 1, 2017. This rule updates the AKI dialysis
payment rate for CY 2027. The AKI dialysis payment rate update will be
indirectly affected by the rebasing and revising of the ESRDB market
basket under the ESRD PPS because the AKI dialysis payment rate is the
ESRD PPS base rate, which is annually updated by the ESRDB market
basket percentage increase factor minus a productivity adjustment,
adjusted by the wage index. The change to the ESRD PPS case mix
adjusters for pediatric ESRD patients, the expansion of the LVPA, and
the technical changes to the TDAPA and post-TDAPA add-on payment
adjustment that we are finalizing in this rule will not directly affect
the CY 2027 AKI dialysis payment rate update.
3. End-Stage Renal Disease Quality Incentive Program (ESRD QIP)
The ESRD QIP is authorized by section 1881(h) of the Act. The
Program establishes incentives for facilities to achieve high quality
performance on measures with the goal of improving outcomes for ESRD
beneficiaries. This final rule includes the following changes to the
ESRD QIP measure set beginning with PY 2029: replace the Hypercalcemia
reporting measure with the Facility-Level Percentage of Chronic
Hyperphosphatemia in Dialysis Patients (Hyperphosphatemia) clinical
measure, update the National Healthcare Safety Network Bloodstream
Infection (NHSN BSI) clinical measure, remove the Medication
Reconciliation (MedRec) reporting measure, and remove the COVID-19
Vaccination Coverage Among Healthcare Personnel (HCP) reporting
measure. Finally, this final rule discusses feedback received on the
inclusion of the Dialysis Facility Discussion of Patient Life Goals (D-
PaLS) Patient-Reported Outcome Performance Measure (PRO-PM) in the ESRD
QIP.

B. Summary of the Major Provisions

1. ESRD PPS
<bullet> Rebasing and revising of the End-Stage Renal Disease
Bundled (ESRDB) market basket for CY 2027: We are rebasing and revising
the ESRDB market basket to a 2024 base year, reflecting the most recent
and complete set of Medicare cost report data as well as other publicly
available data. In addition, we are updating the labor-related share of
the ESRD PPS base rate to reflect the 2024 base year labor-related cost
share weights designated in the ESRDB market basket.

[[Page 68737]]

<bullet> Update to the ESRD PPS base rate for CY 2027: The CY 2027
ESRD PPS base rate is $297.52, an increase from the CY 2026 ESRD PPS
base rate of $281.71. This amount reflects the application of the wage
index budget neutrality adjustment factor (1.00260), the addition to
the base rate of $12.85 to include phosphate binders, the budget
neutrality factor for the budget neutral changes to several payment
adjustments \2\ (0.98864), and an ESRDB market basket update of 1.9
percent as required by section 1881(b)(14)(F)(i)(I) of the Act,
equaling $297.52 ((($281.71 + $12.85) x 1.00260 x 0.98864) x 1.019 =
$297.52).
---------------------------------------------------------------------------

\2\ This budget neutrality factor accounts for the budget
neutral changes to the LVPA (0.98901), the changes to payment for
pediatric ESRD patients (0.99999), and the changes to the home and
self-dialysis add-on payment adjustment (0.99964).
---------------------------------------------------------------------------

<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. This final rule updates 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 2027
using the latest available CY 2025 claims data. We are updating the
ESRD outlier services fixed dollar loss (FDL) amount for pediatric
patients using the latest available CY 2025 claims data and updating
the FDL amount for adult patients using the latest available claims
data from CY 2023, CY 2024, and CY 2025. For pediatric beneficiaries,
the FDL amount will increase from $162.43 to $229.49, and the MAP
amount will increase from $50.19 to $63.27, as compared to CY 2026
values. For adult beneficiaries, the FDL amount will increase from
$14.80 to $90.60, and the MAP amount will increase from $23.68 to
$41.83, as compared to CY 2026 values. The 1.0 percent target for
outlier payments was not achieved in CY 2025, as outlier payments
represented approximately 0.9 percent of total Medicare payments. Our
current estimates indicate outlier payments will be above the 1.0
percent target for CY 2026, which also reflects the underlying
utilization and cost trends that are contributing to increases in the
MAP and FDL amounts.
<bullet> Update to the offset amount for the transitional add-on
payment adjustment for new and innovative equipment and supplies
(TPNIES) for CY 2027: The CY 2027 average per treatment offset amount
for the TPNIES for capital-related assets that are home dialysis
machines is $10.63. This offset amount reflects the application of the
final ESRDB market basket update of 1.9 percent ($10.43 x 1.019 =
$10.63). There are no capital-related assets set to receive the TPNIES
in CY 2027 for which this offset will apply.
<bullet> Update to the post-TDAPA add-on payment adjustment
amounts: We calculated the post-TDAPA add-on payment adjustment in
accordance with 42 CFR 413.234(g). The final first quarter (Q1) post-
TDAPA add-on payment adjustment amount for Korsuva[supreg] is $0.0793
per treatment, which will be included in the calculation of the total
post-TDAPA add-on payment adjustment for only the first quarter of CY
2027. The final Q1 post-TDAPA add-on payment adjustment amount for
DefenCath[supreg] is $8.3220 per treatment. The post-TDAPA add-on
payment adjustment amount for DefenCath[supreg] will be included in the
calculation for each quarter of CY 2027. The final Q1 post-TDAPA add-on
payment adjustment amount for Vafseo[supreg] is $0.9970 per treatment.
The post-TDAPA add-on payment adjustment amount for Vafseo[supreg] will
be included in the calculation for each quarter of CY 2027. We are
finalizing the proposal to update the post-TDAPA add-on payment
adjustment amounts quarterly. As such, we are only finalizing the post-
TDAPA add-on payment adjustment amount for the first quarter of CY 2027
in this final rule and will publish the amounts for the other quarters
in CRs published after this final rule, conditional on the continued
receipt of Average Sales Price (ASP) data. The final post-TDAPA add-on
payment adjustment amount for a given quarter will be added to ESRD PPS
payments for all renal dialysis treatments furnished during that
quarter and will be adjusted by applicable patient level adjustment
factors.
<bullet> Incorporation of phosphate binders into the base rate: We
are incorporating phosphate binders into the ESRD PPS base rate at the
end of the TDAPA period for the drugs, for CY 2027 and beyond. The
final increase to the ESRD PPS base rate for phosphate binders is
$12.85. This final amount includes an increase to account for
operational costs, as outlined in section II.B.7. of this final rule.
<bullet> Expansion of the LVPA: We are expanding the LVPA to ESRD
facilities which furnish up to 8,000 treatments per year. We are
finalizing our proposal to make payments based on 6 tiers of volume.
This change will be budget neutral with a budget neutrality factor of
0.98901.
<bullet> Modifications to certain adjustments for pediatric ESRD
patients: We are modifying the case mix adjusters for pediatric ESRD
patients. Additionally, we are allowing ESRD facilities to receive the
LVPA for pediatric ESRD patients. These changes coincide with the end
of the Transitional Pediatric ESRD Add-on Payment Adjustment (TPEAPA)
as of December 31, 2026. We are finalizing these permanent policies to
address payment for pediatric ESRD patients after the temporary
increase through TPEAPA is no longer available.
<bullet> Modifications to the home and self-dialysis training add-
on: We are increasing the home and self-dialysis training add-on
payment adjustment to $138.00 from the current amount of $95.60. We
also will allow training sessions during the onset period (the first
120 days of ESRD dialysis). To reduce the potential for duplicative
payments during the onset period, we are reducing the onset adjustment
factor from 1.327 to 1.311. For the reasons discussed in section
II.B.10. of this final rule this change is budget neutral with a budget
neutrality factor of 0.99964.
<bullet> Modifications to the TDAPA and post-TDAPA add-on payment
adjustment: We are finalizing that, when ASP data is not usable because
ASP is zero or negative, we will use the most recent usable quarter of
ASP data, if available, as the basis for the TDAPA and the post-TDAPA
add-on payment adjustment.
2. Payment for Renal Dialysis Services Furnished to Individuals With
AKI
<bullet> Updates to the dialysis payment rate for individuals with
AKI: We are updating the AKI dialysis payment rate for CY 2027. The
final CY 2027 payment rate is $297.52, which is the same as the final
CY 2027 ESRD PPS base rate.
3. ESRD QIP
We are replacing the Hypercalcemia reporting measure with the
Hyperphosphatemia clinical measure beginning with PY 2029. Beginning
with PY 2029, we are updating the NHSN BSI clinical measure to use the
most

[[Page 68738]]

recently available national baseline data and to update the risk
adjustment methodology. We are removing the MedRec reporting measure
and the COVID-19 Vaccination Coverage Among HCP reporting measure from
the ESRD QIP measure set beginning with PY 2029. This final rule also
includes public comments received in response to an RFI on the
potential inclusion of the Dialysis Facility Discussion of Patient Life
Goals Patient-Reported Outcome Performance measure (D-PaLS PRO-PM) in
the ESRD QIP.

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 changes will have on affected entities
and beneficiaries. Table 1 summarizes the impacts of each final change
in this final rule.
[GRAPHIC] [TIFF OMITTED] TR30OC26.030

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 2027
compared to estimated Medicare payments in CY 2026. The overall impact
of the CY 2027 payment changes is projected to be a 2.7 percent
increase in Medicare payments. Hospital-based ESRD and freestanding
ESRD facilities will both have an estimated 2.7 percent increase in
Medicare payments. We estimate that the aggregate Medicare program
payments under the ESRD PPS will increase by approximately $190 million
in CY 2027 compared to CY 2026 because of the payment policies in this
rule. Because of the projected 2.7 percent overall payment increase, we
estimate there will be an increase in beneficiary coinsurance payments
of 2.7 percent in CY 2027, which translates to approximately $50
million (20 percent of the overall $240 million estimated payment
increase). This overall $240 million estimated increase, or 2.7
percent, includes the estimated impact of the final ESRD PPS market
basket update of 1.9 percent ($170 million), as well as the estimated
changes in payments associated with several changes that are expected
between CY 2026 and 2027. First, as outlined in section II.B.3.b. of
this final rule, we estimate that outlier payments in CY 2026 will be
approximately 2.6 percent of total ESRD PPS payments. Accordingly, the
increases to the FDL and MAP amounts for CY 2027 are projected to
reduce ESRD PPS payments by approximately 1.6 percent ($140 million).
At the same time, we estimate that approximately $410 million will be
paid through the TDAPA for DefenCath[supreg], Vafseo[supreg], and
phosphate binders in CY 2026. The end of the TDAPA periods for these
drugs is projected to result in a corresponding decrease to CY 2027
payments of (4.6 percent), which is offset by the final 4.4 percent
increase to the ESRD PPS base rate for phosphate binders for a net
decrease of $40 million, and further offset by the estimated 2.9
percent increase in payments under the post-TDAPA add-on payment
adjustment in CY 2027 ($260 million). The net difference between
estimated CY 2026 TDAPA payments and estimated CY 2027 payments under
the post-TDAPA add-on payment adjustment and the ESRD PPS base rate,
including the final incorporation of phosphate binders, is therefore a
2.5 percent increase in payments to ESRD facilities (1.044 x 1.029 x
0.954 = 1.025) which equals approximately $220 million ($260 million -
$40 million = $220 million). For CY 2027, we estimate total payments
associated with the post-TDAPA add-on payment adjustment will be
approximately $290 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(c) 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, there are no
new or continuing TPNIES payments for CY 2027. As discussed in section
II.E. of this final rule, there are no continuing TDAPA payments in CY
2027.
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 for CY 2027
compared to estimated Medicare payments for such services in CY 2026.
The overall impact of the CY 2027 changes is projected to be a 5.4
percent increase in Medicare payments for individuals with AKI.
Hospital-based ESRD facilities will have an estimated 5.2 percent
increase in Medicare payments compared with

[[Page 68739]]

freestanding ESRD facilities that would have an estimated 5.4 percent
increase. The overall impact reflects the effects of the final Medicare
ESRD PPS payment rate update and the final CY 2027 ESRD PPS wage index
and final labor related share of 63.5 percent. We estimate that the
aggregate Medicare payments made to ESRD facilities for renal dialysis
services furnished to individuals with AKI, at the final CY 2027 ESRD
PPS base rate, will increase by approximately $5 million in CY 2027
compared to CY 2026.
3. Impacts of the PY 2029 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 2029 ESRD QIP will be approximately
$133.2 million. The $133.2 million estimate for PY 2029 includes $114.5
million in costs associated with the collection of information
requirements and approximately $18.7 million in payment reductions
across all facilities.

II. Calendar Year (CY) 2027 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 \3\ (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).
---------------------------------------------------------------------------

\3\ 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 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 dialysis (PD) or hemodialysis
(HD) (Sec. 413.235(a) and (b)(1)).
The ESRD PPS provides four facility-level adjustments. The first
payment adjustment reflects differences in area wage levels developed
from core-based statistical areas (CBSAs) (Sec. 413.231). The second
payment adjustment, the low volume payment adjustment (LVPA), 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 third payment adjustment
accounts for ESRD facilities furnishing renal dialysis services in a
rural area (Sec. 413.233(a)). The fourth payment adjustment, the non-
contiguous areas payment adjustment (NAPA), accounts for non-labor
costs for ESRD facilities in certain non-contiguous areas of the U.S.
(Sec. 413.233(b)).
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)

[[Page 68740]]

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)); \4\ 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)).
---------------------------------------------------------------------------

\4\ As the TPEAPA only applies for CYs 2024, 2025, and 2026, it
will not apply for the CY 2027 payment year or future years.
---------------------------------------------------------------------------

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, in a final rule that appeared in the November 24,
2025, 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'' (90 FR 53068 through 53142),
referred to herein as the ``CY 2026 ESRD PPS final rule,'' we updated
the ESRD PPS base rate, wage index, and outlier policy for CY 2026.
This rule also finalized modifications to the eligibility timeframe for
the TDAPA and established a new payment adjustment for ESRD facilities
in certain non-contiguous areas, the NAPA. For further detailed
information regarding the CY 2026 updates and policy changes, see 90 FR
53068.

B. Summary of the Provisions of the Proposed Rule, Public Comments, and
Responses to the Comments on the CY 2027 ESRD PPS Update

The proposed rule, titled ``Medicare Program; CY 2027 Changes to
the End-Stage Renal Disease (ESRD) Prospective Payment System, Acute
Kidney Injury Dialysis (AKI) Payment, and ESRD Quality Incentive
Program'' (91 FR 38784-38875), referred to as the ``CY 2027 ESRD PPS
proposed rule,'' appeared in the June 26, 2026, issue of the Federal
Register, with a comment period that ended on August 24, 2026. In that
proposed rule, we proposed to make several annual updates for CY 2027
including a routine proposal to rebase and revise the ESRD Bundled
(ESRDB) market basket. This rule also proposed to modify the ESRD PPS
base rate to reflect the incorporation of phosphate binders into the
ESRD PPS bundled payment and to make budget neutral changes to certain
ESRD PPS payment adjustments, including proposed changes to the case
mix adjusters for pediatric ESRD patients, changes to the LVPA, and
modifications to the TDAPA and post-TDAPA add-on payment adjustment.
The proposed rule also included several requests for information to
advance alternative dialysis care, in accordance with E.O. 13879, which
were related to payment policy under the ESRD PPS (91 FR 38847 through
38855). The requests for information focused on advancing home
dialysis, palliative care to ESRD beneficiaries nationwide, and
potential changes to support alternative dialysis schedules.
We received 228 public comments on our proposals, 171 of which were
unique comments. These included comments from patients, caregivers,
health care providers, ESRD facilities, large dialysis organizations
(LDOs), regional chain dialysis organizations, small dialysis
organizations, non-profit healthcare organizations, professional
organizations, advocacy groups, drug manufacturers, device
manufacturers, and two coalitions of kidney care providers. We also
received comments from interested parties and health care providers in
the skilled nursing facility (SNF) and hospice industries.
We received several comments about ESRD PPS policies for which we
did not propose any changes for CY 2027. These comments are briefly
summarized in the following paragraphs; however, we are not addressing
these comments in this final rule because they are not within the scope
for the CY 2027 ESRD PPS proposed rule or final rule. We received
approximately 54 timely pieces of correspondence from unique submitters
which advocated for the removal of oral drugs which lower serum
phosphate from the ESRD PPS bundled payment.
We also received comments that offered suggestions broadly related
to improving quality of care for ESRD patients. Two professional
organizations and an advocacy group encouraged CMS to address ESRD
facility staffing concerns. One urged CMS to invest in nursing
education and raised safety concerns for home dialysis nurses.
Similarly, two others called for CMS to address dietitian-to-patient
staffing ratios, pointing to high rates of malnutrition among dialysis
patients. Several patients and caregivers urged CMS to prioritize
patient choice, shared decision-making, and outcomes that matter to
patients, like fatigue, recovery time, and ability to work or travel.
One professional organization added that therapy interventions improve
daily function and quality of life for patients with chronic kidney
disease. Industry commenters focused on payment mechanics requesting
new payment categories or lengthening the TDAPA payment period with
continued coverage for specific products. Comments from trade groups
highlighted unique barriers facing rural patients or those in non-
contiguous areas of the United States, requesting formal CMS review and
payment adjustments to reflect higher operational costs for rural areas
or the NAPA. One advocacy group raised concerns about limited
transparency in Medicare Advantage (MA) plans covering ESRD
beneficiaries, asking CMS to improve data collection on contracting,
payment, and home dialysis/transplant referral rates. We also received
comments which discussed the impact of ESRD PPS payment policies on MA
payment rates. One professional organization requested CMS use
``Physician Assistant/Physician Associate'' dual terminology in
regulatory language to reflect the profession's evolving title, while
another professional organization urged CMS to recognize the
professional standard of care that can be provided by physician
extenders in policy and regulation.
As we previously stated, we are not providing detailed responses to
these comments as they are not within the scope of the CY 2027 ESRD PPS
proposed rule or final rule. Nevertheless, we thank the commenters for
their input and will consider their recommendations to potentially
inform future rulemaking.
1. Rebasing and Revising of the ESRD Bundled (ESRDB) Market Basket; and
CY 2027 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

[[Page 68741]]

Care Act, beginning in 2012, the ESRD PPS payment amounts are required
to be annually increased by an ESRD market basket increase factor and
reduced by the productivity adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act. The application of the productivity
adjustment may result in the increase factor being less than 0.0 for a
year and may result in payment rates for a year being less than the
payment rates for the preceding year. Section 1881(b)(14)(F)(i) of the
Act also provides that the market basket increase factor should reflect
the changes over time in the prices of an appropriate mix of goods and
services included in renal dialysis services.
As required under section 1881(b)(14)(F)(i) of the Act, CMS
developed an all-inclusive ESRD Bundled (ESRDB) input price index using
CY 2008 as the base year effective for CY 2012 (75 FR 49151 through
49162). We subsequently rebased and revised 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), and to a base year of CY 2016 in the CY 2019 ESRD
PPS final rule (83 FR 56951 through 56964). In the CY 2023 ESRD PPS
final rule (87 FR 67141 through 67157), we finalized a rebased ESRDB
input price index to reflect a CY 2020 base year. Effective for CY
2027, we proposed to rebase and revise the ESRDB market basket to a
2024 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.
The index itself is constructed in three steps. First, a base
period is selected (in the proposed rule, we proposed to use 2024 as
the base period) and total base period costs are estimated for a set of
mutually exclusive and exhaustive spending categories, with the
proportion of total costs that each category represents being
calculated. These proportions are called cost weights. Second, each
cost category is matched to an appropriate price or wage variable,
referred to as a ``price proxy.'' In almost every instance, these price
proxies are derived from publicly available statistical series that are
published on a consistent schedule (preferably at least on a quarterly
basis). Finally, the cost weight for each cost category is multiplied
by the level of its respective price proxy. The sum of these products
(that is, the cost weights multiplied by their price index levels) for
all cost categories yields the composite index level of the market
basket in a given period. Repeating this step for other periods
produces a series of market basket levels over time. Dividing an index
level for a given period by an index level for an earlier period
produces a rate of growth in the input price index over that timeframe.
As previously noted, the market basket is described as a fixed-
weight index because it represents the change in price over time of a
constant mix (quantity and intensity) of goods and services needed to
provide renal dialysis services. The effects on total costs resulting
from changes in the mix of goods and services purchased after the base
period are not measured. For example, an ESRD facility hiring more
staff to accommodate the needs of patients would increase the volume of
goods and services purchased by the ESRD facility but would not be
factored into the price change measured by a fixed-weight ESRDB market
basket. Only when the index is rebased would changes in the quantity
and intensity be captured, with those changes being reflected in the
cost weights. Therefore, we rebase the market basket periodically so
that the cost weights reflect changes between base periods in the mix
of goods and services that ESRD facilities purchase to furnish ESRD
treatment.
We last rebased the ESRDB market basket cost weights effective for
CY 2023 (87 FR 67141 through 67157), with 2020 data used as the base
period for the construction of the market basket cost weights. In the
CY 2027 ESRD PPS proposed rule, we proposed to rebase the ESRDB market
basket to reflect the 2024 cost structure for ESRD facilities and to
revise applicable cost categories and price proxies used to determine
the ESRDB market basket.
We refer to the market basket as a CY market basket because the
base period for all price proxies and weights is set to CY 2024 (that
is, the average index level for CY 2024 is equal to 100). The major
source data for the ESRDB market basket is the 2024 Medicare cost
reports (Form CMS-265-11, OMB No. 0938-0236), supplemented with 2022
data from the United States (U.S.) Census Bureau's Services Annual
Survey (SAS) inflated to 2024 levels and the Bureau of Economic
Analysis's (BEA) 2017 Benchmark Input-Output (I-O) data, inflated to
2024. The 2022 SAS data and 2017 Benchmark I-O data are the most recent
year of detailed cost data published by the Census Bureau and the BEA
for North American Industry Classification System (NAICS) Code 6214:
Outpatient Care Centers, which is the 4-digit industry code that Kidney
Dialysis Centers are classified within. We also proposed to use the May
2024 OEWS data from BLS for NAICS 6214 to further disaggregate the
Wages and Salaries and Employee Benefits cost weights into occupational
categories. We provide more detail on our methodology in section
II.B.1.b. of this final rule.
In the following section, we provide an overview of the ESRDB
market basket, describe the methodologies for developing the cost
weights, and provide information on the price proxies. Then, we present
the proposed CY 2027 market basket update and labor-related share based
on the 2024-based ESRDB market basket.
b. Rebasing and Revising of the ESRDB Market Basket
The terms ``rebasing'' and ``revising,'' while often used
interchangeably, denote different activities. ``Rebasing'' means moving
the base year for the structure of costs of an input price index (for
example, in the proposed rule, we proposed to shift the base year cost
structure from 2020 to 2024). ``Revising'' means changing data sources
or price proxies used in the input price index. For CY 2027, we
proposed to rebase the ESRDB market basket to reflect the 2024 cost
structure of ESRD facilities and to revise the index, that is, make
changes to cost categories or price proxies used in the index.
(1) Development of Cost Categories and Weights
(a) Use of Medicare Cost Report Data
The major source of cost data for developing the rebased and
revised ESRDB market basket cost weights is the 2024 Medicare cost
reports. The 2024 Medicare cost reports are for those freestanding ESRD
facilities whose cost reporting period began on or after October 1,
2023, and before October 1, 2024 (approximately 95 percent of
freestanding ESRD facilities had a begin date on January 1, 2024,
approximately 4 percent had a begin date prior to January 1, 2024, and
approximately 1 percent had a begin date after January 1, 2024). Using
this methodology allowed our sample to include ESRD facilities

[[Page 68742]]

with varying cost report years including, but not limited to, the
federal fiscal year (FY) or CY. We proposed to use 2024 as the base
year because we believe that the 2024 Medicare cost reports represent
the most recent, complete set of Medicare cost report data available to
develop cost weights for ESRD facilities at the time of rulemaking. We
proposed to maintain our policy of using data from freestanding ESRD
facilities (which account for over 95 percent of total ESRD facilities
in CY 2024) because freestanding ESRD facility data reflects only the
cost structure faced by the ESRD facility itself. In contrast, cost
data for hospital-based ESRD facilities reflect the allocation of
overhead from the entire institution.
The current set of instructions and associated forms for the
Medicare cost reports for ESRD facilities (Form 265-11, OMB No. 0938-
0236) can be found in Chapter 42 of the Provider Reimbursement Manual
at the following website (<a href="https://www.cms.gov/regulations-and-guidance/guidance/manuals/paper-based-manuals-items/cms021935">https://www.cms.gov/regulations-and-guidance/guidance/manuals/paper-based-manuals-items/cms021935</a>). We reviewed cost
data from freestanding ESRD Medicare cost reports (CMS Form 265-11, OMB
No. 0938-0236) for 2024 for each ESRD facility that reported costs and
payments.
The major types of costs underlying the 2024-based ESRDB market
basket are derived from the Medicare cost reports (Form 265-11, OMB No.
0938-0236). Specifically, we proposed to use the Medicare cost reports
for eleven specific types of costs: Wages and Salaries; Employee
Benefits; Pharmaceuticals (both Erythropoiesis Stimulating Agents
(ESAs) and All Other Drugs in the ESRD PPS bundled payment); Supplies;
Laboratories; Housekeeping; Operations & Maintenance; Capital-related:
Buildings and Fixtures; Capital-related: Moveable Equipment;
Professional Liability Insurance; and Administrative & Other. Total
Costs are defined as the sum of the eleven cost categories and
associated costs identified previously.
To create a market basket that is representative of ESRD facilities
and to help ensure the major cost weights accurately reflect the
percentage of total costs for furnishing ESRD treatment, we proposed to
apply edits to remove reporting errors and outliers. Specifically,
edits were applied to include only Medicare cost reports that had total
costs greater than zero. Total costs as reported on the Medicare cost
report include those costs reimbursable under the ESRD PPS. For
example, we excluded costs related to vaccines from total expenditures
since these are not paid for under the ESRD PPS. Next, to reduce
potential distortions from outliers in the calculation of the
individual cost weights for the major expenditure categories for each
cost category, values less than the 5th percentile or greater than the
95th percentile were excluded from the major cost weight computations.
The resulting 2024 data set, after removing cost reports with total
costs equal to or less than zero and excluding outliers, included
information from approximately 6,514 independent ESRD facilities' cost
reports from an available pool of 7,297 cost reports (roughly 89
percent of the universe). This sample of ESRD facilities is
representative of the national universe of facilities by ownership-type
(proprietary, nonprofit, and government) and by urban/rural status.
Since each cost weight is determined independently, that is, the 5
percent trim is applied to each cost category, the resulting weights
may not sum to 100.0. We proposed normalizing the results
proportionally so that the sum of each of the cost category weights
will equal 100.0. A similar methodology was used to derive the major
cost weights in the 2020-based ESRDB market basket.
We note that for the 2024 Medicare cost reports, a discrepancy was
found with most Medicare cost reports submitted by a major large
dialysis organization (LDO) where Medicare cost report field
designating the ESRD facility as a chain was completed incorrectly.
Worksheet S, Part II, column 1, line 19 states ``Are you part of a
chain organization? Enter ``Y'' for yes or ``N'' for no. If yes,
complete lines 20 through 22.'' Many of these ESRD facilities entered
``N''; however, they provided the location of the chain organization in
lines Worksheet S, Part II, lines 20 through 22, indicating that the
correct response to line 19 should have been ``Y''. (We note that these
ESRD facilities had also indicated being part of a chain organization
in their prior year's cost report.) This led to reporting of
Administrative & Other net expenses that was inconsistent with the
chain designation. Worksheet A-3 provides for the computation of any
needed adjustments to costs applicable to services, facilities, and
supplies furnished to the ESRD facility by a related organization (by
common ownership or control). This worksheet is potentially completed
when an ESRD facility answers `Y' to Worksheet S, Part II. These
adjustments to costs are transferred to Worksheet A, column 7 (to be
reflected in Worksheet A, column 8) and, therefore, would then be
reflected in the Administrative & Other net expenses.
To correct this misreporting, we first checked if the value
reported on Worksheet A-3, Part B, column 1, line 1 was missing or 0,
and whether the value reported on Worksheet A-3, Part B, column 6, line
1 was greater than zero. If these conditions were satisfied, we added
the dollar ($) value of the related organization adjustment (Worksheet
A-3, Part B, column 6, line 1) to the Administrative & Other cost
center net expenses reported on Worksheet B, column 9, line 8.01. For
any ESRD facility that didn't have a discrepancy, no adjustment was
required to the Administrative & Other net expenses.
(i) Wages and Salaries Costs
We proposed to determine Wages and Salaries costs as the sum of (1)
direct patient care wages and salaries costs and (2) non-direct patient
care wages and salaries costs. Direct patient care wages and salaries
for 2024 are equal to the sum of costs from Worksheet B, column 4.01
(salaries for dialysis equipment technicians) and column 5 (direct
patient care salaries), lines 8.01 through 17.03 (reimbursable cost
centers) of the Medicare cost reports. Non-direct patient care wages
and salaries are equal to the sum of all other wages and salaries costs
for non-health workers, which we proposed to derive using the following
steps:
Step 1: To capture the salary costs associated with non-direct
patient care cost centers, we calculated salary percentages for non-
direct patient care from Worksheet A of the Medicare cost reports. The
estimated ratios were calculated as the ratio of salary costs
(Worksheet A, columns 1 and 2) to total costs (Worksheet A, column 4).
The salary percentages were calculated for seven distinct groups of
cost centers: `Operations & Maintenance of Plant' combined with
`Capital Related Costs--Renal Dialysis Equipment' (line 3 and 6),
Housekeeping (line 4), Employee Health and Wellness (EH&W) Benefits for
Direct Patient Care (line 8), Supplies (line 9 and 9.01), Laboratory
(line 10), Administrative & General (line 11), and Drugs (line 12).
Step 2: We then multiplied the salary percentages computed in step
1 by the total net costs for each corresponding reimbursable cost
center as reported on Worksheet B. The Worksheet B totals are based on
the sum of reimbursable costs reported on lines 8.01 through 17.03. For
example, the salary percentage for Supplies (as measured by line 9 and
9.01 on Worksheet A) was applied to the total net costs for the

[[Page 68743]]

Supplies cost center (the sum of costs reported on Worksheet B, column
7, lines 8.01 through 17.03). We complete this calculation for each of
the seven groups of cost centers listed in step 1.
Step 3: The estimated wages and salaries for each of the non-direct
patient cost centers in step 2 were summed and then added to the direct
patient care wages and salaries costs to calculate total Wages and
Salaries costs.
(ii) Employee Benefits Costs
We proposed to determine the Employee Benefits costs as the sum of
direct patient care EH&W benefits (which we will refer to as direct
patient care employee benefit costs) and estimated non-direct patient
care employee benefit costs. Direct patient care employee benefit costs
are reported on Worksheet B, column 6, lines 8.01 through 17.03 of the
Medicare cost reports. Non-direct patient care employee benefit costs
are not reported separately but are included in Worksheet A, column 3
(``Other''). We proposed to derive the non-direct patient care benefit
costs using the following steps:
Step 1: We calculate the ratio of direct patient care employee
benefit costs to direct patient care salaries for each ESRD facility.
This ratio is calculated as direct patient care employee benefit costs
(Worksheet B, column 6, lines 8.01 through 17.03) divided by the direct
patient care wages and salaries costs (Worksheet B, columns 4.01 and 5,
lines 8.01 through 17.03).
Step 2: We estimate total salaries for all non-direct patient care
cost centers except Administrative & Other. This would be the sum of
direct patient care salaries plus estimated salaries for the non-direct
patient care cost centers: EH&W benefits, pharmaceuticals, supplies,
laboratory, housekeeping, and operation and maintenance of plant and
equipment.
Step 3: To determine estimated non-direct patient care employee
benefit costs for all cost centers other than Administrative & Other we
multiply the costs from step 2 by the ratio determined in step 1.
Step 4: To calculate the employee benefit costs for Administrative
& Other cost centers, we first estimate adjusted Administrative & Other
costs by subtracting Professional Liability Insurance costs, estimated
employee benefits costs for all workers except those associated with
the Administrative & Other cost center (as derived in step 3), and
Administrative & Other costs associated with Non-ESRD related costs or
costs that are paid outside the ESRD PPS bundled payment (Worksheet B,
column 9, lines 5 through 7).
Step 5: We estimate the adjusted Administrative & Other salary
costs by multiplying the salary percentage for Administrative & Other
cost centers (calculated in step 1 of the wages and salaries section)
by the adjusted Administrative & Other costs calculated in step 4 of
this section.
Step 6: Total salaries are calculated by summing up the salary
costs associated with the non-direct patient care cost centers (derived
in step 2) and the adjusted Administrative & Other salary costs
(derived in step 5).
Step 7: To determine employee benefits costs for all employees, we
multiply the total salaries (calculated in step 6) by the ratio of
direct patient care benefits to direct patient care salaries
(calculated in step 1).
We note that the proposed methodology for deriving total employee
benefits costs from the Medicare cost report differs from the
methodology we have used in prior ESRDB market baskets. Previously, we
derived the Employee Benefits cost weight from Medicare cost report
data for direct patient care employee benefits and supplemented with
data from the 2012 U.S. Census Bureau's Services Annual Survey (SAS)
for NAICS 621492, Kidney Dialysis Centers, which were inflated to the
applicable base year (for example 2020) to account for non-direct
patient care employee benefits. The U.S. Census Bureau discontinued
publication of the SAS data for NAICS 621492 beginning in 2012 and
discontinued publication of the SAS effective after the 2022 data
release. For years between 2012 and 2022, the SAS data was only
available at the four-digit NAICS level of detail, and we therefore
continued to rely on the inflated 2012 data. We believe the proposed
methodology is a technical improvement to the prior methodology used to
derive the non-direct patient care employee benefits because it relies
on more recent Medicare cost report data that are specific to ESRD
facilities.
(iii) Pharmaceuticals Costs
The 2024-based ESRDB market basket includes expenditures for all
drugs, including formerly separately billable drugs and all other renal
dialysis drugs that were covered under Medicare Part D before the ESRD
PPS was implemented. We proposed to determine the pharmaceuticals costs
using data reported on Worksheet B; specifically, the sum of lines 8.01
through 17.03, for the following columns: column 11, ``Drugs Included
in Composite Rate,'' column 12, ``Erythropoiesis stimulating agents
(ESAs)''; and column 13, ``ESRD-Related and AKI-Related Drugs.'' We did
not include the drug costs for Non-ESRD Related Drugs, Supplies, and
Labs as reported on line 5, column 10 or the AKI Non-Renal Related
Drugs, Supplies, & Lab as reported on line 5.01 column 10 as these
costs are not included in the ESRD PPS bundled payment amount. Section
1842(o)(1)(A)(iv) of the Act requires that influenza, pneumococcal,
COVID-19, and hepatitis B vaccines described in paragraph (A) or (B) of
section 1861(s)(10) of the Act be paid based on 95 percent of average
wholesale price (AWP) of the vaccine. Since these vaccines are not paid
for under the ESRD PPS, we did not include costs reported on Worksheet
B, column 9, line 7 in the 2024-based ESRDB market basket. Finally, to
avoid double-counting, the pharmaceuticals costs are reduced by the
estimated share of non-direct patient care wages and salaries
associated with the applicable drug cost centers referenced previously.
This results in a 2024-based ESRDB market basket cost weight for
Pharmaceuticals of 5.3 percent, with ESA costs accounting for 3.0
percentage points and All Other Drugs accounting for the remaining 2.3
percentage points.
(iv) Supplies Costs
We calculate the Supplies costs using the costs reported in the
Supplies cost center (Worksheet B, column 7, lines 8.01 through 17.03)
of the Medicare cost report. To avoid double-counting, the Supplies
costs are reduced to exclude the estimated share of non-direct patient
care wages and salaries associated with this cost center.
(v) Laboratory Costs
We calculate the Laboratory costs using the costs reported in the
Laboratory cost center (Worksheet B, column 8, lines 8.01 through
17.03) of the Medicare cost report. To avoid double-counting, the
Laboratory costs are reduced to exclude the estimated share of non-
direct patient care wages and salaries associated with this cost
center.
The Medicare cost report data include reported costs for
Housekeeping, Operations & Maintenance, Capital-related: Buildings and
Fixtures, and Capital-related: Moveable Equipment in a single cost
center. We estimated the net costs for each of these four categories
using the following steps.
Step 1: We calculate the total net costs for Housekeeping,
Operations & Maintenance, and Capital-related as the sum of costs
reported on Worksheet B, column 3, lines 8.01 through 17.03).

[[Page 68744]]

Step 2: For each of the four subcategories, we estimate the share
of the total costs of each subcategory as follows:
<bullet> The Housekeeping share is determined based on the total
costs for Housekeeping reported on Worksheet A, column 4, line 4
divided by the total costs for all four subcategories reported on
Worksheet A, column 4, line 5.
<bullet> The Operations & Maintenance share is determined based on
the total costs for Operations & Maintenance costs reported on
Worksheet A, column 4, line 3 divided by the total costs for all four
subcategories reported on Worksheet A, column 4, line 5.
<bullet> The Capital-related: Buildings and Fixtures share is
determined based on the total costs for Capital-related buildings and
fixtures reported on Worksheet A, column 4, line 1 divided by the total
costs for all four subcategories reported on Worksheet A, column 4,
line 5.
<bullet> The Capital-related: Moveable Equipment share is
determined based on the total costs for Capital-related moveable
equipment reported on Worksheet A, column 4, line 2 divided by the
total costs for all four subcategories reported on Worksheet A, column
4, line 5.
(vi) Housekeeping Costs
The Housekeeping costs are estimated by multiplying the
housekeeping share determined in step 2 by the total net costs
calculated in step 1. To avoid double-counting, the costs for the
Housekeeping category are reduced to exclude the estimated share of
non-direct patient care wages and salaries associated with this cost
center.
(vii) Operations & Maintenance Costs
The Operations & Maintenance costs are estimated by multiplying the
operations & maintenance share determined in step 2 by the total net
costs calculated in step 1. The operations & maintenance costs include
the direct costs incurred in the operation and maintenance of the plant
and equipment such as heat, light, water (excluding water treatment for
dialysis purposes), air conditioning, and air treatment; the
maintenance and repair of buildings, parking facilities, and equipment;
painting; elevator maintenance; performance of minor renovation of
buildings and equipment; and protecting employees, visitors, and
facility property. To avoid double counting, the costs for the
Operations & Maintenance category are reduced to exclude the estimated
share of non-direct patient care wages and salaries associated with
this cost center.
(viii) Capital-Related: Buildings and Fixtures Costs
The Capital-related: Buildings and Fixtures costs are estimated by
multiplying the capital-related buildings and fixtures share from step
2 by the total net costs calculated in step 1. The capital-related
buildings and fixtures costs include depreciation and lease costs for
buildings and fixtures, property taxes, insurance costs, and capital
improvements.
(ix) Capital-Related: Moveable Equipment Costs
The Capital-related: Moveable Equipment costs are estimated by
multiplying the capital-related moveable equipment share from step 2 by
the total net costs calculated in step 1. The capital-related moveable
equipment costs include depreciation and lease costs for moveable
equipment, property taxes, insurance costs, and capital improvements.
Next, we sum the costs for capital-related moveable equipment to the
Capital-related Renal Dialysis Equipment costs (Worksheet B, column 4,
lines 8.01 through 17.03). We believe this delineation was particularly
important given the critical role played by dialysis machines.
Likewise, because price changes associated with buildings and fixtures
could move differently than those associated with moveable equipment,
we continue to believe that two capital-related cost categories are
appropriate.
(x) Professional Liability Insurance Costs
We proposed for the 2024-based ESRDB market basket to have a
separate category for professional liability insurance (PLI) costs
(often referred to as malpractice costs). The PLI costs are equal to
the sum of premiums, paid losses, and self-insurance costs reported on
Worksheet S, Part II, column 1, lines 15 through 17. For the 2020-based
ESRDB market basket we did not create a separate cost category and the
PLI costs were included with the Administrative & Other costs.
(xi) Administrative & Other Costs
We proposed to compute the proportion of total Administrative &
Other costs using the Administrative & Other cost center data from
Worksheet B, the sum of column 9, lines 8.01 through 17.03, less PLI
costs and other costs reported in this cost center but paid separately
from the ESRDB PPS, which include Non-ESRD Related Drugs, Supplies, &
Lab (line 5); AKI Non-renal Related Drugs, Supplies, & Labs (line
5.01); Whole Blood and Packed Red Blood cells (line 6); and Vaccines
(line 7). To avoid double-counting, the costs for the Administrative &
Other category are also reduced to exclude the estimated share of non-
direct patient care wages and salaries associated with this cost center
and the estimated non-direct patient care employee benefits costs.
(b) Final Major Cost Category Computation
After deriving the costs for the major cost categories for each
ESRD facility using the Medicare cost report data as previously
described, we proposed to address data outliers using the following
steps.
First, for each of the major cost weights, we proposed to trim the
data to remove outliers (a standard statistical process) by: (step 1)
requiring that major costs (such as Wages and Salaries costs) and total
costs be greater than zero; (step 2) dividing the costs for each of the
eleven categories (calculated as previously described in this section)
by total costs to obtain cost weights for each ESRD facility; and (step
3) excluding the top and bottom five percent of the major cost weight
(for example, Wages and Salaries costs as a percent of total costs). We
note that missing values are assumed to be zero consistent with the
methodology for how missing values were treated in the 2020-based ESRDB
market basket.
After the outliers are removed, we sum the costs for each category
across all remaining ESRD facilities. We then divide this by the sum of
total costs across all remaining ESRD facilities to obtain a cost
weight for the 2024-based ESRDB market basket for the given category.
This is the same methodology used for the 2020-based ESRDB market
basket.
The trimming process is done individually for each cost category so
that ESRD facilities excluded from one cost weight calculation are not
automatically excluded from another cost weight calculation. We note
that these trimming methods are the same types of edits performed for
the 2020-based ESRDB market basket, as well as other PPS market baskets
(including but not limited to Inpatient Prospective Payment System
(IPPS) operating market basket, Skilled Nursing Facility (SNF) market
basket, and home health market basket). We note that for each of the
cost weights, we evaluate the distribution of facilities and costs by
ownership-type, and by urban/rural status. For all cost weights, the
trimmed sample is nationally representative.
Table 2 presents the 2024-based ESRDB market basket major cost
weights as derived directly from the

[[Page 68745]]

Medicare cost report data compared to the 2020-based ESRDB market
basket major costs weights derived directly from the Medicare cost
report data.
BILLING CODE 4169-69-P
[GRAPHIC] [TIFF OMITTED] TR30OC26.031

BILLING CODE 4169-69-C
From 2020 to 2024, the Wages and Salaries and Employee Benefits
cost weights increased by 2.9 percentage points and 3.6 percentage
points, respectively. The increase in the 2024-based Wages and Salaries
and Employee Benefits cost weights is the result of faster growth in
labor costs compared to costs associated with the other market basket
cost weights (such as Pharmaceutical costs). This faster growth is
consistent with comments received during prior ESRD PPS rulemaking. The
Pharmaceuticals cost weight as calculated directly from the Medicare
cost reports decreased by 4.8 percentage points, which continues the
downward trend in the Pharmaceuticals cost weight observed since the
implementation of the ESRD PPS in 2011. We believe this falling
Pharmaceuticals cost weight is attributable to three main inter-related
factors: (1) reduced utilization per treatment of certain high-cost
drug classes (such as ESAs), (2) a shift to more
price[hyphen]competitive products, including generic drugs or
biosimilars, and (3) facility[hyphen]level cost management and
efficiency.
(c) Derivation of the Detailed Cost Weights
There are three instances where the ESRDB market basket costs
weights are further adjusted using secondary data sources. The first
adjustment is to estimate contract labor costs, which would be
reflected in the Administrative & Other cost weight of 16.8 percent
shown in Table 2 derived from the Medicare cost report data. We
proposed to estimate the contract labor share of costs and reallocate
those from Administrative & Other to Wages and Salaries and Employee
Benefits. The second adjustment further disaggregates the Wages and
Salaries and Employee Benefits weight, inclusive of contract labor
costs, into occupational subcategories. The third adjustment is to
further disaggregate the remaining Administrative & Other cost weight
(less the contract labor cost weight) into further detail using data
from the BEA Benchmark I-O data.

[[Page 68746]]

(i) Contract Labor Costs
Contract labor costs are reported in the Medicare cost report;
however, they are embedded in the Other Costs from the trial balance
reported on Worksheet A, Column 3 and cannot be disaggregated. We
proposed the following methodology to derive the contract labor cost
weight. Similar to the methodology used in the 2020-based ESRDB market
basket, we proposed to use data from the U.S. Census Bureau's Services
Annual Survey (SAS) to estimate these costs for the 2024-based ESRDB
market basket. We proposed to use data from the 2022 SAS for NAICS
6214, Outpatient Care Centers, inflated to 2024 to estimate the
contract labor weight for the 2024-based ESRDB market basket.
Previously, we used the 2012 SAS data for NAICS 621492, Kidney Dialysis
Centers inflated to the applicable base year. Since 2012 the SAS data
is no longer available from the Census Bureau at the 6-digit NAICS
level of detail, we believe our proposal to use the data for NAICS 6214
is a technically appropriate alternative as ESRD facilities would be
included within this NAICS category and the data reflects the more
recent experience of this industry's contract labor usage.
We proposed to use the share of the total costs for NAICS 6214
expenses for Temporary staff and leased employee expense from the 2022
SAS. Using this data, the 2024-based ESRDB Contract Labor cost weight
is 2.1 percent. To avoid double counting these costs, we proposed to
remove the 2.1 percent Contract Labor cost weight from the
Administrative & Other cost weight (where we believe most contract
labor costs would be reported). The resulting Administrative & Other
Residual Cost weight is 14.7 percent, which reflects the 16.8 percent
Administrative & Other cost weight from Medicare cost reports less the
2.1 percent Contract Labor cost weight.
As we did for the 2020-based ESRDB market basket (87 FR 67143), we
proposed to allocate contract labor costs to the Wages and Salaries and
Employee Benefits cost weights based on their relative proportions for
employed labor under the assumption that contract labor costs are
comprised of both wages and salaries and employee benefits. The
contract labor allocation proportion for wages and salaries is equal to
the Wages and Salaries cost weight as a percent of the sum of the Wages
and Salaries cost weight and the Employee Benefits cost weight. Using
the 2024 Medicare cost report data, this percentage is 77 percent.
Therefore, we proposed to allocate 77 percent of the Contract Labor
cost weight to the Wages and Salaries cost weight and 23 percent to the
Employee Benefits cost weight. The 2020-based ESRDB market basket
allocated 80 percent of the Contract Labor cost weight to the Wages and
Salaries cost weight and 20 percent to the Employee Benefits cost
weight.
Table 3 shows the Wages and Salaries and Employee Benefits cost
weights after contract labor allocation for the 2020-based ESRDB market
basket and the 2024-based ESRDB market basket. In aggregate, the
Compensation cost weight (calculated using more detailed decimal
places) increased from 45.9 percent to 50.9 percent, or 5.0 percentage
points.
[GRAPHIC] [TIFF OMITTED] TR30OC26.032

(ii) Disaggregation of Compensation Costs Into Occupational Categories
To further disaggregate the ``Wages and Salaries'' and ``Employee
Benefits'' cost weights into four occupational subgroups (Health-
Related, Management, Administrative, and Service), we proposed to use
the number of full time equivalents (FTEs) reported on Worksheet S-1,
column 3, lines 22 through 35 of the Medicare cost reports and annual
mean wages for the occupations within each group from the May 2024 BLS
OEWS for NAICS 6214, Outpatient Care Centers.\5\
---------------------------------------------------------------------------

\5\ <a href="https://www.bls.gov/oes/">https://www.bls.gov/oes/</a>.
---------------------------------------------------------------------------

The ESRD Medicare cost report FTE categories assigned to the
Health-Related subgroup include ``Physicians,'' ``Registered Nurses,''
``Licensed Practical Nurses,'' ``Nurses Aides,'' ``Technicians,'' and
``Dieticians''; assigned to the Management subgroup is ``Management'';
assigned to the Administrative subgroup is ``Administrative''; and
assigned to the Services subgroup are ``Social Workers'' and ``Other''.
For each FTE category, we estimate the mean annual wage from the May
2024 BLS OEWS data. We multiply the number of ESRD FTEs in each
subgroup by the estimated mean annual wage. Table 4 shows the share of
each FTE group's compensation (number of FTEs multiplied by the mean
annual wage) to total compensation for the 2024-based ESRD market
basket and the 2020-based ESRDB market basket. Table 5 shows the Wages
and Salaries and Employee Benefits occupational mix for the 2024-based
ESRDB market basket compared to the 2020-based occupational mix. The
2024 occupational distribution shows a shift to more health-related
FTEs and fewer Management and Administrative Support Occupation FTEs.

[[Page 68747]]

[GRAPHIC] [TIFF OMITTED] TR30OC26.033

[GRAPHIC] [TIFF OMITTED] TR30OC26.034

We proposed to multiply the occupational mix weights by the Wages
and Salaries cost weight and the Employee Benefits cost weight (both
inclusive of contract labor) to determine the occupational subgroups'
weights for Wages and Salaries and Employee Benefits as shown in Table
6. This is similar to the methodology used in the 2020-based ESRDB
market basket to derive these occupational subgroup weights.
(iii) Disaggregation of Administrative & Other Residual Cost Weight
To further divide the ``Administrative & Other'' residual cost
weight estimated from the 2024 Medicare cost report data into more
detailed cost categories, we proposed to use the 2017 Benchmark I-O
``The Use of Commodities by Industries, Before Redefinitions
(Producers' Prices)--Detail'' for NAICS 621400, Outpatient care
Centers, published by the BEA.\6\ The BEA Benchmark I-O data are
generally scheduled for publication every 5 years on a lagged basis,
with the most recent data available for 2017. The 2017 Benchmark I-O
data are derived from the 2017 Economic Census and are the building
blocks for BEA's economic accounts. Therefore, they represent the most
comprehensive and complete set of data on the economic processes or
mechanisms by which output is produced and distributed.\7\ BEA also
produces Annual I-O estimates; however, while based on a similar
methodology, these estimates reflect less comprehensive and less
detailed data sources and are subject to revision when benchmark data
become available. Instead of using the less detailed Annual I-O data,
we proposed to inflate the detailed 2017 Benchmark I-O data forward to
2024 by applying the annual price changes from the respective price
proxies to the appropriate market basket cost categories that are
obtained from the 2017 Benchmark I-O data and calculate the cost shares
that each cost category represents using the inflated data. These
resulting 2024 cost shares from this I-O based approach are applied to
the ``Administrative & Other'' cost weight to obtain the detailed cost
weights for the 2024-based ESRDB market basket. For example, the cost
for

[[Page 68748]]

Paper & Printing represents 3.9 percent of the sum of the residual
``All Other'' 2017 Benchmark I-O Outpatient Care Center expenditures
inflated to 2024. Therefore, the Paper & Printing cost weight
represents 3.9 percent of the 2024-based ESRDB market basket's
``Administrative & Other'' cost category (14.7 percent), yielding a
Paper & Printing cost weight of 0.6 percent in the 2024-based ESRDB
market basket (3.9 percent x 14.7 percent = 0.6 percent). For the 2020-
based ESRDB market basket (87 FR 67145), we used a different data
source to disaggregate the Administrative & Other residual cost weight.
The prior method used data from the 2012 U.S. Census Bureau's SAS for
NAICS 621492, inflated to the 2020 base year of the ESRDB market
basket. As mentioned previously, this data is no longer produced or
published by the Census Bureau and, therefore we proposed to use an
alternative data source.
---------------------------------------------------------------------------

\6\ Source: 2017 Benchmark Input-Output ``Use of Commodities by
Industries, Before Redefinitions (Producers' Prices)--Detail,''
NAICS 621400 (Outpatient Care Centers), published by the U.S. Bureau
of Economic Analysis (BEA). Available at <a href="https://apps.bea.gov/iTable/?reqid=1602&step=2&Categories=Core&isURI=1&_gl=1*4ozlmu*_ga*MTczMzgwNzcyNC4xNzYxNTk4OTIx*_ga_J4698JNNFT*czE3OTIwMDY0NzMkbzI0JGcxJHQxNzkyMDA3MTkwJGo1MiRsMCRoMA..#eyJhcHBpZCI6MTYwMiwic3RlcHMiOlsxLDIsM10sImRhdGEiOltbImNhdGVnb3JpZXMiLCJDb3JlIl0sWyJUYWJsZV9MaXN0IiwiVXNlQlJQcm8iXV19">https://apps.bea.gov/iTable/?reqid=1602&step=2&Categories=Core&isURI=1&_gl=1*4ozlmu*_ga*MTczMzgwNzcyNC4xNzYxNTk4OTIx*_ga_J4698JNNFT*czE3OTIwMDY0NzMkbzI0JGcxJHQxNzkyMDA3MTkwJGo1MiRsMCRoMA..#eyJhcHBpZCI6MTYwMiwic3RlcHMiOlsxLDIsM10sImRhdGEiOltbImNhdGVnb3JpZXMiLCJDb3JlIl0sWyJUYWJsZV9MaXN0IiwiVXNlQlJQcm8iXV19</a>.
\7\ <a href="http://www.bea.gov/papers/pdf/IOmanual_092906.pdf">http://www.bea.gov/papers/pdf/IOmanual_092906.pdf</a>.
---------------------------------------------------------------------------

Using this methodology, we proposed to derive 12 detailed cost
categories from the 2024-based ESRDB market basket Administrative &
Other cost weight of 14.7 percent. These categories are: (1)
Electricity; (2) Natural Gas; (3) Rubber & Plastics; (4) Paper &
Printing; (5) Miscellaneous Products; (6) Telephone and Internet
Service; (7) Administrative Services; (8) Financial Services; (9)
Professional Fees: Labor-related; (10) Professional Fees: Nonlabor-
related; (11) All Other Services: Labor-related; (12) All Other
Services: Nonlabor-related.
We noted that the cost category for Professional Fees: Labor-
related reflects the proportion of ESRD facilities' professional fees
expenses that we believe vary with local labor market. We conducted a
survey of ESRD facilities in 2008 to better understand the proportion
of contracted professional services that ESRD facilities typically
purchase outside of their local labor market. These purchased
professional services include functions such as accounting and
auditing, management consulting, engineering, and legal services. Based
on the survey results, we determined that, on average, 87 percent of
professional services are purchased from local firms, and 13 percent
are purchased from businesses located outside of the ESRD's local labor
market. Thus, to derive the Professional Fees: Labor-related weight we
proposed to allocate 87 percent of the expenses for Professional Fees
for these selected services as labor-related; we note that 87 percent
is the same percentage as used in prior years.
This methodology allows for seven additional detailed cost
categories than used in the 2020-based ESRDB market basket because the
Benchmark I-O data is more comprehensive than the SAS data. The 2020-
based ESRDB market basket included categories for Electricity, Natural
Gas, Telephone, Professional Fees, and All Other Goods and Services.
Table 6 sets forth the 2024-based ESRDB market basket, including
the cost categories and their respective cost weights. For compaison
purposes, the corresponding 2020-based ESRDB market basket cost weights
also are listed.
BILLING CODE 4169-69-P

[[Page 68749]]

[GRAPHIC] [TIFF OMITTED] TR30OC26.036

[[Page 68750]]

[GRAPHIC] [TIFF OMITTED] TR30OC26.037

BILLING CODE 4169-69-C
We received public comments on the proposed methodology for
deriving the cost weights of the 2024-based ESRDB market basket. The
following is a summary of the comments we received and our responses.
Comment: Most commenters supported CMS's proposal to rebase and
revise the ESRDB market basket from a 2020 base year to a 2024 base
year, describing this as a routine and methodologically sound update
that will better reflect current labor and input costs. However,
several commenters noted concerns with the timing of this rebasing
relative to the addition of oral-only phosphate binders to the ESRD PPS
bundled payment, which they noted did not occur until CY 2025. A few
commenters stated that because the 2024 cost report data pre-dates this
bundling change, that the resulting cost weights do not reflect the
current cost structure created by the phosphate-binder addition in
2027, which would have an impact on the resulting market basket cost
weights, and ultimately the labor-related share. The commenters stated
that the lack of inclusion of the phosphate binder drug costs results
in a lower drug cost weight and higher weights for other cost
categories, particularly categories that feed into the labor-related
share. A couple of commenters requested the market basket rebasing to
be delayed, while another commenter suggested conducting a supplemental
revaluation using 2025 data once available. A commenter disagreed with
a delay, arguing that more current data would not be sufficiently
complete or validated in time for the CY 2027 final rule.
Response: We appreciate the commenters' support of rebasing and
revising the ESRDB market basket to a 2024 base year, consistent with
our longstanding practice of periodically rebasing CMS market baskets
as more current and complete cost report data become available. We
recognize commenters' concern that the 2024 cost report data predate
the CY 2025 inclusion of oral-only phosphate binders in the ESRD PPS
bundled payment, and that there could be factors that have impacted
costs in subsequent years. However, rebasing on a cyclical schedule
using the most recently available complete data (which at the time of
this rulemaking was CY 2024) is necessary to ensure the market basket
is more reflective of ESRD cost structures than the 2020-based ESRDB
market basket. We will continue to monitor the cost share weights for
potential effects from the incorporation of phosphate binders into the
ESRD PPS bundled payment and, if technically appropriate, consider
updating the ESRD market basket weights at such time.
Final Rule Action: After consideration of the public comments we
received, we are finalizing the methodology for deriving the cost
weights of the 2024-based ESRDB market basket as proposed without
modification.
(2) Price Proxies for the 2024-Based ESRDB Market Basket
After computing the 2024-based cost weights for the ESRDB market
basket, it was necessary to select appropriate wage and price proxies
to reflect the rate of price change for each expenditure category.
Except for the proxy for professional liability insurance (PLI), all
price proxies are based on BLS data and are grouped into one of the
following BLS categories:
<bullet> Producer Price Indexes--Producer Price Indexes (PPIs)
measure the average change over time in the selling prices received by
domestic producers for their output. The prices included in the PPI are
from the first commercial transaction for many products and some
services (<a href="https://www.bls.gov/ppi/">https://www.bls.gov/ppi/</a>).
<bullet> Consumer Price Indexes--Consumer Price Indexes (CPIs)
measure the average change over time in the prices paid by urban
consumers for a market basket of consumer goods and services (<a href="https://www.bls.gov/cpi/">https://www.bls.gov/cpi/</a>). CPIs are only used when the purchases are similar to
those of retail consumers rather than purchases at the producer level,
or if no appropriate PPIs are available.
<bullet> Employment Cost Indexes--Employment Cost Indexes (ECIs)
measure the rate of change in employee wage rates and employer costs
for employee benefits per hour worked. These indexes are fixed-weight
indexes and strictly measure the change in wage rates and employee
benefits per hour. ECIs are superior to Average Hourly

[[Page 68751]]

Earnings (AHE) as price proxies for input price indexes because they
are not affected by shifts in occupation or industry mix, and because
they measure pure price change and are available by both occupational
group and by industry. The industry ECIs are based on the NAICS and the
occupational ECIs are based on the Standard Occupational Classification
System (SOC).
We evaluated the price proxies using the criteria of reliability,
timeliness, availability, and relevance:
<bullet> Reliability. Reliability indicates that the index is based
on valid statistical methods and has low sampling variability. Widely
accepted statistical methods ensure that the data were collected and
aggregated in a way that can be replicated. Low sampling variability is
desirable because it indicates that the sample reflects the typical
members of the population. (Sampling variability is variation that
occurs by chance because only a sample was surveyed rather than the
entire population.)
<bullet> Timeliness. Timeliness implies that the proxy is published
regularly, preferably at least once a quarter. The market basket levels
are updated quarterly, and therefore, it is important for the
underlying price proxies to be up-to-date, reflecting the most recent
data available. We believe that using proxies that are published
regularly (at least quarterly, whenever possible) helps to ensure that
we are using the most recent data available to update the market
basket. We strive to use publications that are disseminated frequently,
because we believe that this is an optimal way to stay abreast of the
most current data available.
<bullet> Availability. Availability means that the proxy is
publicly available. We prefer that our proxies are publicly available
because this would help ensure that our market basket updates are as
transparent to the public as possible. In addition, this enables the
public to be able to obtain the price proxy data on a regular basis.
<bullet> Relevance. Relevance means that the proxy is applicable
and representative of the cost category weight to which it is applied.
We believe the PPIs, CPIs, and ECIs selected meet these criteria.
Therefore, we believe that they continue to be the best proxy of price
changes for the cost categories to which they would be applied.
In the CY 2027 ESRD PPS proposed rule, we presented a detailed
explanation of the price proxies that we proposed for each cost
category weight.
(a) Health-Related Wages and Salaries
We proposed to use the ECI for Wages and Salaries for All Civilian
Workers in Hospitals (BLS series code #CIU1026220000000I) as the price
proxy for health-related occupations. Of the two health-related ECIs
that we considered (Hospitals and Health Care and Social Assistance),
the wage distribution within the Hospital NAICS sector (622) is more
closely related to the wage distribution of ESRD facilities than it is
to the wage distribution of the Health Care and Social Assistance NAICS
sector (62). This is the same price proxy used in the 2020-based ESRDB
market basket.
(b) Management Wages and Salaries
We proposed to use the ECI for Wages and Salaries for Private
Industry Workers in Management, Business, and Financial (BLS series
code #CIU2020000110000I). We believe this ECI is the most appropriate
price proxy to measure the wages and salaries price growth of
management personnel at ESRD facilities. This is the same price proxy
used in the 2020-based ESRDB market basket.
(c) Administrative Wages and Salaries
We proposed to use the ECI for Wages and Salaries for Private
Industry Workers in Office and Administrative Support (BLS series code
#CIU2020000220000I). We believe this ECI is the most appropriate price
proxy to measure the wages and salaries price growth of administrative
support personnel at ESRD facilities. This is the same price proxy used
in the 2020-based ESRDB market basket.
(d) Services Wages and Salaries
We proposed to use the ECI for Wages and Salaries for Private
Industry Workers in Service Occupations (BLS series code
#CIU2020000300000I). We believe this ECI is the most appropriate price
proxy to measure the wages and salaries price growth of all other non-
health related, non-management, and non-administrative service support
personnel at ESRD facilities.
BLS does not publish ECI for Benefits price proxies for each wages
and salaries ECI; however, where these series are not published, they
can be derived by using the ECI for Total Compensation and the relative
importance of wages and salaries with total compensation as published
by BLS for each detailed ECI occupational index. Therefore, we proposed
to use these derived ECI benefit price proxies for each of the
respective occupational benefit cost categories.
(e) Health-Related Benefits
We proposed to use the ECI for Benefits for All Civilian Workers in
Hospitals to measure price growth of this subcategory. This is
calculated using the ECI for Total Compensation for All Civilian
Workers in Hospitals (BLS series code #CIU1016220000000I) and the
relative importance of Wages and Salaries within Total Compensation as
published by BLS. We believe this constructed ECI series is technically
appropriate for the reasons stated in the Wages and Salaries price
proxy section. This is the same price proxy used in the 2020-based
ESRDB market basket.
(f) Management Benefits
We proposed to use the ECI for Benefits for Private Industry
Workers in Management, Business, and Financial to measure price growth
of this subcategory. This ECI is calculated using the ECI for Total
Compensation for Private Industry Workers in Management, Business, and
Financial (BLS series code #CIU2010000110000I) and the relative
importance of wages and salaries within total compensation. We believe
this constructed ECI series is technically appropriate for the reasons
stated in the Wages and Salaries price proxy section. This is the same
price proxy used in the 2020-based ESRDB market basket.
(g) Administrative Benefits
We proposed to use the ECI for Benefits for Private Industry
Workers in Office and Administrative Support to measure price growth of
this subcategory. This ECI is calculated using the ECI for Total
Compensation for Private Industry Workers in Office and Administrative
Support (BLS series code #CIU2010000220000I) and the relative
importance of Wages and Salaries within Total Compensation. We believe
this constructed ECI series is technically appropriate for the reasons
stated in the wages and salaries price proxy section. This is the same
price proxy used in the 2020-based ESRDB market basket.
(h) Services Benefits
We proposed to use the ECI for Total Benefits for Private Industry
Workers in Service Occupations (BLS series code #CIU2030000300000I) to
measure price growth of this subcategory. We believe this ECI series is
technically appropriate for the reasons stated in the Wages and
Salaries price proxy section. This is the same price proxy used in the
2020-based ESRDB market basket.

[[Page 68752]]

(i) Electricity
We proposed to use the PPI Commodity for Commercial Electric Power
(BLS series code #WPU0542) to measure the price growth of this cost
category. This is the same price proxy used in the 2020-based ESRDB
market basket.
(j) Natural Gas
We proposed to use the PPI Commodity for Commercial Natural Gas
(BLS series code #WPU0552) to measure the price growth of this cost
category. This is the same price proxy used in the 2020-based ESRDB
market basket.
(k) ESAs
We proposed to use the PPI Commodity for Biological Products,
Excluding Diagnostic, for Human Use (which we will abbreviate as PPI-
BPHU) (BLS series code #WPU063719) as the price proxy for the ESA drugs
in the market basket. The PPI-BPHU measures the price change of
prescription biological products, and ESAs would be captured within
this index, if they are included in the PPI sample. Since the PPI
relies on confidentiality with respect to the companies and drugs and
biological products included in the sample, we do not know if these
drugs are indeed reflected in this price index. However, we believe the
PPI-BPHU is an appropriate proxy to use because although ESAs may be a
small part of the fuller category of biological products, we can
examine whether the price increases for the ESA drugs are similar to
the drugs included in the PPI- BPHU. We did this by comparing the
historical price changes in the PPI- BPHU and the average sales price
(ASP) for ESAs and found the cumulative growth to be consistent over
the 2020 to 2024 timeframe. We will continue to monitor the trends in
the prices for ESA drugs as measured by other price data sources to
ensure that the PPI-BPHU is still an appropriate price proxy.
(l) All Other Drugs:
For all other drugs included in the ESRD PPS bundled payment other
than ESAs, we proposed to use a blend of 47 percent of the PPI
Commodity for Vitamin, Nutrient, and Hematinic Preparations (which we
will abbreviate as PPI-VNHP) (BLS series code #WPU063807), and 53
percent of the PPI Commodity for Pharmaceuticals for Human Use,
Prescription (which we will abbreviate as PPI-Pharmaceuticals) (BLS
series code #WPUSI07003). We continue to believe that the PPI-VNHP is
an appropriate price proxy for the iron supplements commonly used in
the treatment of ESRD, and an analysis of claims data indicate that
iron supplement costs and Vitamin D analogs account for about 47
percent of the All Other Drugs costs. For the remaining drugs
represented in the All Other Drugs category we proposed to use the PPI
Commodity for Pharmaceuticals for Human Use, Prescription, which
captures the inflationary price pressures for all types of prescription
drugs rather than a single therapeutic category of drugs. Though this
PPI measure includes a wide variety of prescription drugs, we believe
it is technically appropriate to use a broad indicator of prescription
drug price trends for three key reasons: (1) the more detailed PPI
measure where we believe these types of non-ESA drugs would be captured
would more likely reflect price trends not faced by ESRD facilities,
such as cancer drugs, (2) there have been notable changes to the types
and mix of drugs paid for under the ESRD PPS bundled payment since
2016, such as the inclusion of formerly oral-only drugs and the
addition of AKI-related drugs, and (3) the potential for future changes
to the types and mix of drugs that may be paid for under the ESRD PPS
bundled payment. For these reasons, we believe that a broader drug
index representing a larger mix of prescription drugs is technically
appropriate to the price proxy for this cost category. We will continue
to monitor the relative share of costs for iron supplements and other
types of drugs for this cost category to determine if the 47/53 PPI
blend warrants an adjustment, and if so, we would propose such an
adjustment in future rulemaking. This is similar to the price proxy
used in the 2020-based ESRDB market basket, but the composite weight
was 50/50.
(m) Supplies
We proposed to use the PPI Commodity for Surgical and Medical
Instruments (BLS series code #WPU1562) to measure the price growth of
this cost category. This is the same price proxy used in the 2020-based
ESRDB market basket.
We believe this is a technically appropriate price proxy for this
cost category. The Medicare cost report form instructions state that
Supplies include the direct cost of total dialysis supplies used in
furnishing dialysis services--for example, crit-lines, low volume lines
and dialyzers, catheter kits, fistula needles and tape, saline flushes,
bandages, chlorhexidine, tego caps for catheters, biopatch for catheter
dressing, oxygen, suction, emergency supplies, monitors for vitals, and
blood pressure cuffs. We requested comments on other price indexes that
could be applicable to the costs reported in this category, as the
instructions may not contain the exhaustive list of supply costs that
ESRD facilities include in this category. Examples of potential other
price proxies would include, but are not limited to, the PPI Commodity
for Medical and surgical appliances and supplies (BLS series code
WPU1563) and the PPI Commodity for Miscellaneous products, Personal
safety equipment and clothing (BLS series code WPU1571).
(n) Laboratories
We proposed to use the PPI Industry for Medical and Diagnostic
Laboratories (BLS series code #PCU62156215) to measure the price growth
of this cost category. This is the same price proxy used in the 2020-
based ESRDB market basket.
(o) Paper & Printing
We proposed to use a 25/75 blend of the PPI Commodity for
Publications Printed Matter and Printing Material (BLS Series Code
WPU094) and the PPI Commodity for Converted Paper and Paperboard
Products (BLS series code WPU0915) to proxy the price growth of this
cost category. The 2017 Benchmark I-O data shows that 25 percent of
paper and printing costs are for Printing (NAICS 323110) and the
remaining costs are for Paper manufacturing (NAICS 322). The 2020-based
ESRDB market basket did not have a separate cost category for paper and
printing. These costs would have been included in the All Other Goods
and Services cost category and proxied by the PPI--Final demand--
Finished goods less foods and energy.
(p) Rubber & Plastics
We proposed to use the PPI Commodity for Rubber and Plastic
Products (BLS series code WPU07) to proxy the price growth of this cost
category. The 2020-based ESRDB market basket did not have a separate
cost category for Rubber & Plastics. These costs would have been
included in the All Other Goods and Services cost category and proxied
by the PPI--Final demand--Finished goods less foods and energy.
(q) Miscellaneous Products
We proposed to use the PPI Commodity for Finished Goods Less Food
and Energy (BLS series code WPUFD4131) to proxy the price growth of
this cost category. This is the same price proxy used in the 2020-based
ESRDB market basket as these costs

[[Page 68753]]

were included in the All Other Goods and Services cost category.
(r) Telephone and Internet Service
We proposed to use the CPI U.S. city average for Telephone Services
(BLS series code #CUUR0000SEED) to measure the price growth of this
cost category. This is the same price proxy used in the 2020-based
ESRDB market basket.
(s) Housekeeping
We proposed to use the PPI Commodity for Cleaning and Building
Maintenance Services (BLS series code #WPU49) to measure the price
growth of this cost category. This is the same price proxy used in the
2020-based ESRDB market basket.
(t) Operations & Maintenance
We proposed to use the ECI for Total compensation for All Civilian
workers in Installation, Maintenance, and Repair (BLS series code
CIU1010000430000I) to measure the price growth of this cost category.
This is the same price proxy used in the 2020-based ESRDB market
basket.
(u) Administrative Services
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Office and Administrative Support (BLS series code
CIU2010000220000I) to proxy the price growth of this category. The
2020-based ESRDB market basket did not have a separate cost category
for Administrative Services. These costs would have been included in
the All Other Goods and Services cost category and proxied by the PPI--
Final demand--Finished goods less foods and energy.
(v) Financial Services
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Financial Activities (BLS series code
CIU201520A000000I) to proxy the price growth of this cost category. The
2020-based ESRDB market basket did not have a separate cost category
for Financial Services. These costs would have been included in the All
Other Goods and Services cost category and proxied by the PPI--Final
demand--Finished goods less foods and energy.
(w) Professional Fees: Labor-Related
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Professional and Related (BLS series code
CIU2010000120000I) to measure the price growth of this cost category.
This is the same price proxy used in the 2020-based ESRDB market
basket; however, the 2012 SAS data did not provide enough detailed
information to split the Professional Fees category between labor-
related and nonlabor-related services.
(x) Professional Fees: Nonlabor-Related
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Professional and Related (BLS series code
CIU2010000120000I) to measure the price growth of this cost category.
This is the same price proxy used in the 2020-based ESRDB market
basket; however, the 2012 SAS data did not provide enough detailed
information to split the professional fees category between labor-
related and nonlabor-related services.
(y) All Other Services: Labor-Related
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Service Occupations (BLS series code
CIU2010000300000I) to proxy the price growth of this cost category. The
2020-based ESRDB market basket did not have a separate cost category
for All Other Services: Labor-related. These costs would have been
included in the All Other Goods and Services cost category and proxied
by the PPI--Final demand--Finished goods less food and energy.
(z) All Other Services: Nonlabor-Related
We proposed to use the CPI for All Items Less Food and Energy (BLS
series code CUUR0000SA0L1E) to proxy the price growth of this cost
category. We believe that using the CPI for All Items Less Food and
Energy avoids double counting of changes in food and energy prices as
they are not included in the ESRD PPS (food) or are already captured
elsewhere in the market basket (energy). This is the same price proxy
used in other CMS market baskets, such as the IPPS, SNF, Long-term Care
Hospital (LTCH), Inpatient Rehabilitation Facility (IRF), and Inpatient
Psychiatric Facility (IPF), to proxy the growth in the remaining ``All
Other Services'' cost category. The 2020-based ESRDB market basket did
not have a separate cost category for All Other Services: Nonlabor-
related, these costs would have been included in the All Other Goods
and Services cost category and proxied by the PPI--Final demand--
Finished goods less food and energy.
(aa) Professional Liability Insurance
Unlike the other price proxies that are based on publicly available
price indexes from BLS and other public sources, the proxy for PLI is
based on data collected directly by CMS from a sample of commercial
insurance carriers. We proposed to use the CMS Physician PLI index to
measure the price growth of this cost category in the 2024-based ESRDB
market basket. This is the same proxy used in the Medicare Economic
Index (MEI) and the Home Health market basket. As detailed in the CY
2014 Physician Fee Schedule (PFS) final rule (78 FR 74271), a 2012 MEI
Technical Panel expressed that the current index appropriately reflects
the price changes in premiums throughout the industry.
(ab) Capital-Related: Buildings and Fixtures
We proposed to use the PPI for Lessors of Nonresidential Buildings
(BLS series code PCU531120531120) to measure the price growth of this
cost category in the 2024-based ESRDB market basket. This is the same
proxy used in the 2020-based ESRDB market basket.
(ac) Capital-Related: Moveable Equipment
We proposed to use the PPI Commodity for Electrical Machinery and
Equipment (BLS series code #WPU117) to measure the price growth of this
cost category. This is the same price proxy used in the 2020-based
ESRDB market basket.
Table 7 shows all the price proxies for the 2024-based ESRDB Market
Basket as well as whether the price proxy was used in the 2020-based
ESRDB market basket. As outlined in section II.B.1.b.(1)(b)(iii) of the
proposed rule, for the 2024-based ESRDB market basket we proposed
additional cost categories compared to the 2020-based ESRDB market
basket. Therefore, in Table 7, the cost category expenses listed as n/a
were included in the All Other Goods and Services cost category of the
2020-based ESRDB market basket and were proxied by the PPI Final
demand--Finished goods less foods and energy.
BILLING CODE 4169-69-P

[[Page 68754]]

[GRAPHIC] [TIFF OMITTED] TR30OC26.038

[[Page 68755]]

[GRAPHIC] [TIFF OMITTED] TR30OC26.039

BILLING CODE 4169-69-C
We invited public comments on our proposed price proxies for the
2024-based ESRDB market basket.
Final Rule Action: We did not receive any comments on the price
proxies we proposed to use in the 2024-based ESRD market basket;
therefore, we are finalizing the price proxies used in the 2024-based
ESRD market basket as proposed.
(3) 2024-Based ESRDB Market Basket Percentage Increase Results
As discussed in the CY 2027 ESRD PPS proposed rule (91 FR 38802),
we compared the yearly increase factors from CY 2021 through CY 2030
for the 2020-based ESRDB market basket and the 2024-based ESRDB market
basket. At the time of the proposed rule, based on IGI's first quarter
2026 forecast, this comparison showed that the annual increase factors
for individual years sometimes differed between the two indexes;
however, on average the two indexes produced identical results across
every period we examined: an identical projected CY 2027 update of 2.6
percent, an identical average annual growth of 3.7 percent for CY 2021
through CY 2025, and an identical average annual growth of 2.6 percent
for CY 2026 through CY 2030. We did not receive any comments on this
comparison of the proposed 2024-based and 2020-based ESRDB market
basket results.
For this final rule, we updated this comparison using IGI's third
quarter 2026 forecast, which reflects more recent historical data and a
revised economic outlook. Using this updated forecast, the trend
identified in the proposed rule no longer holds for CY 2027: the 2024-
based ESRDB market basket is now projected to increase 2.9 percent for
CY 2027, which is 0.1 percentage point higher than the projected CY
2027 increase under the 2020-based ESRDB market basket of 2.8 percent.
For the forecast period CY 2026 through CY 2030, the 2024-based ESRDB
market basket percentage is also on average, 0.1 percentage point
higher than the 5-year average projected increase of the 2020-based
ESRDB market basket. The higher projected increase for the 2024-based
market basket is attributable to a relatively higher compensation cost
weight compared to the 2020-based market basket, as well as the
disaggregation of the All Other Goods and Services cost category into
more detailed cost categories in the 2024-based ESRD market basket.
This increase is partially offset by the lower pharmaceutical cost
weight in the 2024-based ESRD market basket relative to the 2020-based
ESRD market basket.
c. Labor-Related Share for ESRD PPS
We define the labor-related share (LRS) as those expenses that are
labor-intensive and vary with, or are influenced by, the local labor
market. The labor-related share of a market basket is determined by
identifying the national average proportion of operating costs that are
related to, influenced by, or vary with the local labor market.
We proposed to use the 2024-based ESRDB market basket cost weights
to determine the labor-related share for ESRD facilities. Therefore,
effective for CY 2027, we proposed a labor-related share of 63.5
percent, compared to the current 55.2 percent that was based on the
2020-based ESRDB market basket cost weights, as shown in Table 8. These
figures represent the sum of Wages and Salaries, Employee Benefits,
Housekeeping, Operations & Maintenance, Administrative Services,
Professional Fees: Labor-related, All Other Services: Labor-related and
46 percent of the weight for Capital-related: Buildings and Fixtures
(details discussed later in this section). We used a similar
methodology to calculate the 2020-based ESRDB market basket labor-
related share.
BILLING CODE 4169-69-P

[[Page 68756]]

[GRAPHIC] [TIFF OMITTED] TR30OC26.040

BILLING CODE 4169-69-C
The labor-related share for capital-related expenses reflects the
proportion of ESRD facilities' capital-related expenses that we believe
varies with local labor market wages (46 percent of ESRD facilities'
Capital-related: Buildings and Fixtures expenses). Capital-related
expenses are affected in some proportion by variations in local labor
market costs (such as construction worker wages) that are reflected in
the price of the capital asset. However, many other inputs that
determine capital costs are not related to local labor market costs,
such as interest rates. The 46-percent figure is based on regressions
run for the inpatient hospital capital PPS in 1991 (56 FR 43375). We
use a similar methodology to calculate capital-related expenses for the
labor-related shares for rehabilitation facilities (70 FR 30233),
psychiatric facilities, long-term care hospitals, and skilled nursing
facilities (66 FR 39585).
We invited public comments on our proposed labor-related share
based on the 2024-based ESRDB cost weights. We received public comments
on the calculation of the proposed labor-related share based on the
2024-based ESRDB market basket cost weights. The following is a summary
of the comments we received and our responses. Comment: Commenters
offered mixed views on the proposed increase to the labor-related share
from 55.2 percent to 63.5 percent. Many commenters supported the
increase as a more accurate reflection of ESRD facilities' increasing
labor costs and as helpful to staffing and retention efforts. Despite
this, some commenters recommended that CMS phase-in the increase in the
labor-related share to minimize the impact of this change on ESRD
facilities in low-wage index areas. A commenter opposed finalizing the
labor-related share as proposed, arguing that it does not reflect the
current cost structure faced by ESRD facilities, particularly the
impact of the inclusion of the phosphate binder costs. Another
commenter noted that they were unable to reach a consensus on the
proposed labor-related share given the distributional impacts to their
members.
Response: The labor-related share represents the portion of the
ESRD PPS base payment rate that is adjusted by the wage index to
reflect geographic variation in area wage levels and is derived from
the cost weights in the ESRDB market basket that are labor-intensive
and vary with, or are influenced by, the local labor market. These
categories include Wages and Salaries, Employee Benefits, Housekeeping,
Operations & Maintenance, a portion of Professional Fees, and a portion
of Capital-Related Building and Fixtures expenses, consistent with the
methodology finalized in the CY 2023 ESRD PPS final rule (87 FR 67153
through 67154). We recognize commenters' concern that the 2024 cost
report data used to derive the 63.5 percent labor-related share predate
the CY 2025 addition of oral-only phosphate binders to the ESRD PPS
bundled payment. However, we believe it is technically appropriate to
rebase and revise the labor-related share to 63.5 percent to reflect
the most recently available cost report data at the time of CY 2027
rulemaking. We note that in the CY 2026 ESRD PPS final rule (90 FR
53075), several commenters expressed concern regarding the labor-
related share of 55.2 percent stating it was outdated.\8\ We will
continue to monitor the cost report data and the market basket cost
weights and, if appropriate, we will propose changes to the labor-
related share during future rulemaking.
---------------------------------------------------------------------------

\8\ <a href="https://www.govinfo.gov/content/pkg/FR-2025-11-24/pdf/2025-20681.pdf">https://www.govinfo.gov/content/pkg/FR-2025-11-24/pdf/2025-20681.pdf</a>.
---------------------------------------------------------------------------

We recognize that the increase to the LRS from 55.2 percent to 63.5
percent would reduce relative payments to low-wage index areas in a
budget neutral manner and we acknowledge the requests for a policy to
phase-in the updated LRS. As noted previously, the updated LRS of 63.5
percent is derived from the updated ESRDB market basket based on CY
2024 cost report data. This updated LRS is based on more recent data,
and we believe it is appropriate to use for CY 2027. We note that the
LRS is increasing by 8.3 percentage points for CY 2027. For an ESRD
facility with the lowest possible wage index value, which is the 0.600
wage index floor, the increase in LRS would result in a decrease in
payment of 4.3 percent. So, for the lowest wage index facilities the
payment impact of the increase to the LRS is less than 5 percent
overall and the impact for most facilities (with

[[Page 68757]]

higher wage index values) would be less. We believe that an across-the-
board phase-in of this policy would inappropriately impact other ESRD
facilities for which the higher LRS would better align payments with
actual costs. As such, we do not believe a phase-in policy would be
appropriate at this time.
Final Rule Action: After consideration of public comments received,
we are finalizing a labor-related share of 63.5 percent effective for
CY 2027, as proposed.
d. CY 2027 ESRD Market Basket Update
Under section 1881(b)(14)(F)(i) of the Act, beginning in CY 2012,
the ESRD PPS payment amounts are required to be annually increased by
an ESRD market basket percentage increase factor and reduced by the
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of
the Act. We proposed to use the 2024-based ESRDB market basket as
described in section II.B.1.b. of the proposed rule to compute the CY
2027 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 outlined in section II.B.1.d.(3)
of the proposed rule, we calculated the proposed ESRDB market basket
update for CY 2027 based on the 2024-based ESRDB market basket
percentage increase and the proposed productivity adjustment, following
our longstanding methodology.
(1) CY 2027 ESRDB Market Basket Percentage Increase
Using this methodology and IGI's first quarter of 2026 forecast of
the 2024-based ESRDB market basket (with historical data through the
fourth quarter of 2025), and consistent with our historical practice of
estimating market basket increases based on the best available data,
the proposed CY 2027 ESRDB market basket increase factor was projected
to be 2.6 percent. We also proposed that if more recent data became
available after the publication of the proposed rule and before the
publication of the final rule (for example, a more recent estimate of
the market basket percentage increase), we would use such data to
determine the CY 2027 ESRDB market basket percentage increase in the
final rule, provided such data is appropriate (meaning methodologically
consistent with the proposed approach, sufficiently complete, and
available in time to be reasonably evaluated for the final rule). Based
on the more recent data available for this CY 2027 ESRD PPS final rule
(that is, IGI's third quarter 2026 forecast of the 2024-based ESRDB
market basket with historical data through the second quarter of 2026),
the CY 2027 ESRDB market basket percentage increase is 2.9 percent.
We invited public comment on the proposed CY 2027 ESRDB market
basket percentage increase. The following is a summary of the comments
we received and our responses. Several comments discussing the ESRDB
market basket percentage increase also discussed the overall ESRD PPS
payment level, the ESRD PPS base rate, budget neutrality adjustments,
or payment adequacy under the ESRD PPS. These comments are summarized
and responded to in section II.B.4. of this final rule.
Comment: Several commenters acknowledged the proposed ESRDB
productivity-adjusted market basket increase of 1.6 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. Several commenters noted
that most of the $17.84 proposed increase to the ESRD PPS base rate (to
$299.55) is attributable to the $15.96 added to account for phosphate-
binders, leaving an effective increase of only about $1.88, or roughly
0.7 to 1.1 percent, once the phosphate binder amount is excluded. Some
commenters underscored the importance of accurate payments to ensure
ESRD facilities can hire and retain essential clinical staff, mitigate
high rates of staff turnover to higher-paying settings, which has had a
negative impact on patient experience. A commenter claimed that the
proposed ESRDB market basket percentage increase is lower than economy-
wide measures of inflation like the CPI and PPI. A couple of commenters
noted that the ESRD PPS update has consistently been lower than updates
under other Medicare facility-based PPS systems.
Response: We appreciate commenters' concerns regarding the CY 2027
productivity-adjusted market basket update. Section
1881(b)(14)(F)(i)(I) of the Act requires that the ESRD PPS payment rate
be increased by the ESRD bundled (ESRDB) market basket percentage
increase, reduced by the productivity adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act. We note that the phosphate binder
payment amount is a separate, distinct modification to the base rate
and is not part of the ESRDB market basket update itself; we clarified
that they do not offset one another. Additionally, we note that the
application of several budget neutrality factors is decreasing the CY
2027 ESRD PPS base rate. We discuss these budget neutrality factors in
greater detail in section II.B.4. of this final rule, however, we want
to emphasize that these factors maintain estimated payment at the same
amount and do not offset the overall payment impact of the ESRDB market
basket update.
The 2024-based ESRDB market basket percent change is equal to the
weighted price change of the individual price proxies and their
respective cost weights. The cost weights are primarily derived using
the freestanding ESRD Medicare cost reports and reflect relative shares
of input costs needed to provide medical services to ESRD
beneficiaries. Similarly, the other CMS PPS market baskets, such as the
2022-based SNF market basket and 2023-based IPPS market basket, reflect
the relative share of input costs needed to provide skilled nursing and
hospital care to Medicare beneficiaries based on the data reported on
the respective provider cost reports.
While we understand that commenters may compare the annual updates
in the ESRDB market basket to other Medicare market baskets, the ESRDB
market basket is developed in accordance with section 1881(b)(14)(F)(i)
of the Act requiring that the index reflect the composition of costs
associated with providing renal dialysis services. These costs (and the
subsequent cost distributions) are reported by ESRD facilities on the
Medicare cost reports and may differ (appropriately) from the relative
distribution of costs of other medical care providers such as inpatient
hospitals or skilled nursing facilities. Additionally, the price
proxies used in the ESRD market basket are intended to reflect the
price pressures faced by ESRD facilities. While some price proxies may
be similar to those used across other CMS market baskets, in most cases
they are appropriately different because they reflect the price
pressures faced by ESRD facilities. For example, the rate of increase
in the ESRD market basket compensation category reflects the weighted
average of the price increase for occupations employed by ESRD
facilities.
At the time of the CY 2027 ESRD PPS proposed rule, based on the IHS
Global Inc. first quarter 2026 forecast with historical data through
the fourth quarter of 2025, the 2024-based ESRDB

[[Page 68758]]

market basket update was forecasted to be 2.6 percent for CY 2027,
reflecting forecasted compensation price growth of 3.2 percent. In the
CY 2027 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 2027 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 includes more recent historical data
and reflects a revised outlook regarding the U.S. economy and expected
price inflation for CY 2027. Based on IHS Global Inc.'s third quarter
2026 forecast with historical data through the second quarter of 2026,
we are projecting a CY 2027 ESRDB market basket update of 2.9 percent
and a final ESRDB productivity-adjusted market basket update of 1.9
percent (2.9 percent reduced by the 1.0 percentage point productivity
adjustment) will be applicable, compared to the 1.6 percent
productivity-adjusted market basket update that was proposed.
Comment: Many commenters stated that the ESRDB market basket has
been consistently under-forecast relative to actual realized inflation,
estimating a cumulative error ranging from 6.0 to 7.7 percent that a
commenter did not believe were random. Many commenters continued to
request that CMS adopt a forecast-error correction policy for the ESRD
PPS similar to that used in the SNF PPS, including both a one-time
retrospective adjustment to correct the accumulated error and a
forward-looking policy triggered when the forecast error exceeds a
threshold (most commenters proposed <plus-minus>0.5 percentage point).
Several commenters requested greater transparency into IHS Global
Inc.'s (IGI) forecasting methodology of the price proxies used in the
market basket.
Response: We acknowledge commenters' continued concerns regarding
market basket forecast error; however, the ESRDB market basket updates
are set prospectively, which means that the update relies on a mix of
both historical data for part of the period for which the update is
calculated and forecasted data for the remainder. For instance, the CY
2027 market basket update in this final rule reflects historical data
through the second quarter of CY 2026 and forecasted data through the
fourth quarter of CY 2027. While there is no precedent to adjust for
market basket forecast error in the ESRD PPS payment update, a forecast
error can be calculated by comparing the actual market basket increase
for a given year less the forecasted market basket increase. Due to the
uncertainty regarding future price trends, forecast errors can be both
positive and negative, as has occurred since the implementation of the
ESRD PPS in CY 2011. Over most of this history the forecast errors were
smaller in magnitude, with the largest error (in absolute terms) prior
to 2021 being an over forecast (the actual market basket increase is
less than the forecasted market basket increase) of 0.8 percentage
point in 2017. More recently the ESRDB market basket has been under
forecast, as noted by the commenters, with larger errors occurring for
2021 through 2024. The cumulative forecast error since ESRD PPS
inception (CY 2012 to CY 2025) is 5.5 percent. These recent forecast
errors were largely a function of uncertainty in the overall economy
and the health sector specifically due to the nature of the Public
Health Emergency for COVID-19 and the unforeseen rapidly accelerating
inflationary environment.
We understand the request for greater transparency into IGI's
forecasting methodology of the price proxies used in the CMS market
baskets; however, we continue to reiterate that CMS purchases
independent forecasts of the price proxies used in the CMS market
baskets from IGI, a nationally recognized economic and financial
forecasting firm. The rationale for using an independent forecaster is
to ensure neutrality in the update while reflecting comprehensive
economic and health sector forecasting model capabilities that extend
beyond CMS' expertise. As the forecasting models are proprietary in
nature, we are not licensed to share information related to the
detailed models. More information on the IGI economic forecasts can be
found at the following website or by contacting the company directly
<a href="https://www.spglobal.com/market-intelligence/en/solutions/products/us-economic-modeling-forecasting-services">https://www.spglobal.com/market-intelligence/en/solutions/products/us-economic-modeling-forecasting-services</a>.
We recognize that forecast error under the ESRD PPS has been an
important concern of commenters in recent years. We did not propose a
policy to modify the ESRDB market basket update or ESRD PPS base rate
for CY 2027 to address forecast error and are not finalizing any such
policy in this final rule.
Final Rule Action: After consideration of the public comments we
received, we are finalizing the CY 2027 ESRDB market basket percentage
increase of 2.9 percent, based on the more recent data available for
this CY 2027 ESRD PPS final rule (that is, IGI's third quarter 2026
forecast of the 2024-based ESRDB market basket with historical data
through the second quarter of 2026).
(2) CY 2027 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 (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''.
BLS publishes the official measures of productivity for the United
States economy. The productivity measure referenced in section
1886(b)(3)(B)(xi)(II) of the Act is published by BLS as private nonfarm
business total factor productivity (TFP) (previously referred to as
multifactor productivity).\9\ 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>.
---------------------------------------------------------------------------

\9\ <a href="https://www.bls.gov/productivity/notices/2021/mfp-to-tfp-term-change.htm">https://www.bls.gov/productivity/notices/2021/mfp-to-tfp-term-change.htm</a>.
---------------------------------------------------------------------------

Based on IGI's first quarter 2026 forecast, the proposed
productivity adjustment for CY 2027 (the 10-year moving average growth
of TFP for the period ending CY 2027) was projected to be 1.0
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 2027 productivity adjustment in the
final rule.
We invited public comments on the productivity adjustment. The
following is a summary of the comments we received and our responses.
Comment: Several commenters had concerns regarding the application
and magnitude of the productivity adjustment. Some commenters requested
that CMS use its ``special exceptions and adjustments'' authority

[[Page 68759]]

to eliminate or reduce the 1.0 percentage point productivity cut for CY
2027. A commenter stated that the 1.0 percentage point productivity
adjustment would be the largest applied in ESRD PPS history and stated
that it does not reflect verifiable productivity gains specific to the
dialysis sector.
Response: Section 1881(b)(14)(F)(i)(II) of the Act requires the
application of the productivity adjustment, described in section
1886(b)(3)(B)(xi)(II), to the ESRD PPS market basket increase factor.
The CY 2027 productivity adjustment is derived based on the 10-year
moving average growth in economy-wide, private nonfarm business total
factor productivity for the period ending CY 2027. We recognize the
concerns of the commenters regarding the appropriateness of the
productivity adjustment; however, as we explained in response to
similar comments in prior ESRD PPS final rules (90 FR 53076), we are
required under section 1881(b)(14)(F)(i)(II) of the Act to apply the
specific productivity adjustment described here.
Since 2015, we have provided information on the general method for
calculating the productivity adjustment. This information includes
providing a link (<a href="http://www.bls.gov/productivity/">http://www.bls.gov/productivity/</a>) to the most recent
BLS historical TFP data, which currently allows interested parties to
obtain historical TFP annual index levels for 1987 through 2025. We
also provide the IGI projection model (<a href="https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/medicareprogramratesstats/downloads/tfp_methodology.pdf">https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/medicareprogramratesstats/downloads/tfp_methodology.pdf</a>), which for
this CY 2027 ESRD PPS final rule is used to derive annual TFP growth
rates for 2026 and 2027. The annual index level derived from this
method is then interpolated to quarterly levels, and the CY 2027
productivity adjustment is equal to the percent change in the 40-
quarter moving average projected level for the period ending December
31, 2027, relative to the 40-quarter moving average projected level for
the period ending December 31, 2026. We believe our methodology for the
productivity adjustment is consistent with section
1886(b)(3)(B)(xi)(II) of the Act, which states 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 for the 10-year period ending with the
applicable fiscal year, year, cost reporting period, or other annual
period).
At the time of this final rule, the 2027 productivity adjustment
reflects BLS historical TFP data through 2025 (released on March 19,
2026) and IGI's forecasted TFP growth for 2026 and 2027. The average
annual growth rate of historical TFP published by BLS for 2018 through
2025 is currently 1.0 percent and IGI is projecting average TFP growth
of about 0.9 percent for 2026 and 2027 based on IGI's third-quarter
2026 forecast. Combining the historical and projected TFP data over the
entire 10-year time period and interpolating into quarterly index
levels results in a 10-year moving average growth rate of TFP of 1.0
percent for CY 2027 (unchanged from the CY 2027 ESRD PPS proposed
rule). Interpolation of annual to quarterly data distributes the annual
data across quarters by estimating the values between two known annual
observations.
Final Rule Action: After consideration of the public comments we
received, we are finalizing the CY 2027 productivity adjustment of 1.0
percent based on the IGI third quarter 2026 forecast.
(3) CY 2027 ESRDB Market Basket Update
In accordance with section 1881(b)(14)(F)(i) of the Act, we
proposed to base the CY 2027 ESRDB market basket percentage increase on
IGI's first quarter 2026 forecast of the 2024-based ESRDB market
basket. We proposed to then reduce the ESRDB market basket percentage
increase by the proposed productivity adjustment for CY 2027 based on
IGI's first quarter 2026 forecast. Therefore, the proposed CY 2027
ESRDB market basket update was equal to 1.6 percent (proposed 2.6
percent ESRDB market basket percentage increase reduced by a proposed
1.0 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 2027 ESRD market basket
percentage increase and productivity adjustment in the final rule.
Accordingly, the final CY 2027 ESRDB market basket update is calculated
using the CY 2027 ESRDB market basket percentage increase, based on
IGI's third quarter 2026 forecast of the 2024-based ESRDB market
basket, and the final productivity adjustment, based on IGI's third
quarter 2026 forecast. Therefore, the final CY 2027 ESRDB market basket
update is 1.9 percent (2.9 percent ESRDB market basket percentage
increase reduced by a 1.0 percentage point productivity adjustment).
2. CY 2027 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 the Office of
Management and Budget's (OMB's) CBSA-based geographic area designations
to define urban and rural areas and their corresponding wage index
values (75 FR 49117).\10\ OMB publishes bulletins regarding CBSA
changes, including changes to CBSA numbers and titles. We most recently
updated the CBSA delineations used for the ESRD PPS wage index 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.\11\
---------------------------------------------------------------------------

\10\ We define urban areas at Sec. 413.231(b) as a Metropolitan
Statistical Area or a Metropolitan division (in the case where a
Metropolitan Statistical Area is divided into Metropolitan
Divisions), as defined by OMB. Rural areas are defined as any area
outside an urban area.
\11\ <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>.
---------------------------------------------------------------------------

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).

[[Page 68760]]

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. 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. As outlined in section
II.B.1.c. of the proposed rule, we proposed that the CY 2027 LRS to
which the wage index would be applied is 63.5 percent. This LRS is
based on the 2024-based ESRDB market basket as outlined in section
II.B.1.b. of the proposed rule.
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). Historically, the ESRD PPS
wage index values have 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 not adjusted 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 BLS OEWS. This
wage data is then weighted by a national ESRD facility occupational mix
(NEFOM) which is derived from FTE data from freestanding ESRD facility
cost reports. Treatment data from ESRD facility cost reports is also
used to weight 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 9 presents the NEFOM alongside the BLS occupation titles and
codes for the occupations related to the furnishing of renal dialysis
services. We noted in the CY 2027 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 9. The data in Table 9 is based
on data from CY 2024 freestanding ESRD facility cost reports. We note
that the rounded percentages in this table are unchanged from Table 10
of the CY 2027 ESRD PPS proposed rule (91 FR 38805), although the
underlying FTE counts may have changed.
[GRAPHIC] [TIFF OMITTED] TR30OC26.041

c. CY 2027 ESRD PPS Wage Index
For CY 2027, 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). The ESRD PPS wage index is specific for ESRD facilities
as it uses specific wage data weighted by an ESRD facility occupational
mix; this differentiates the ESRD PPS wage index from other Medicare
PPSs, several of which utilize

[[Page 68761]]

the pre-floor, pre-reclassified IPPS wage index. 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 2024 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 2027, the updated wage data used in the
analysis for the proposed rule, and this final rule, are the May 2025
OEWS data released by BLS on May 15 2026, which represents data from
six semiannual surveys spanning November 2022 through May 2025.\12\
---------------------------------------------------------------------------

\12\ <a href="https://www.bls.gov/news.release/pdf/ocwage.pdf">https://www.bls.gov/news.release/pdf/ocwage.pdf</a>.
---------------------------------------------------------------------------

For CY 2027, we proposed to update 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 2025 BLS OEWS mean hourly
wage data or more complete CY 2024 cost report data), we would use such
data, if appropriate, to determine the CY 2027 ESRD PPS wage index in
the final rule. For this final rule, we used the most recently
available CY 2024 cost report data. No update to the May 2025 BLS OEWS
was published at the time of the development of this final rule.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Several commenters expressed concerns about the current
ESRD wage index methodology and stated that the legacy ESRD PPS wage
index was more appropriate. A commenter expressed support for the wage
index floor policy, but urged CMS to increase the floor from 0.6000 to
0.7000. Another commenter urged CMS to use its authority under section
1881(b)(14)(D)(iv) of the Act, which permits CMS to adopt such other
payment adjustments as the Secretary determines appropriate, to
establish a non-budget neutral wage index floor or supplemental payment
adjustment for ESRD facilities in low-wage-index areas.
Response: We appreciate the concerns raised by the commenters
regarding the ESRD PPS wage index methodology. We continue to believe
that the ESRD facility-specific methodology is most appropriate for the
ESRD PPS. We did not propose any changes to the ESRD PPS wage index
methodology for CY 2027, such as a return to the legacy ESRD PPS wage
index methodology, and we are not finalizing any such changes in this
final rule. We will continue to evaluate the ESRD PPS wage index
methodology and consider whether changes may be appropriate through
notice-and-comment rulemaking in future years.
Regarding the wage index floor, as we discussed in the CY 2023 ESRD
PPS final rule, the 0.6000 wage index floor was based on a statistical
analysis (87 FR 67161). We did not propose to change the wage index
floor or establish any other supplemental policies to increase payments
to ESRD facilities in low-wage-index areas, for CY 2027 and are not
finalizing any such changes in this final rule. We will continue to
monitor the appropriateness of the current wage index floor and
consider whether further changes are warranted through notice-and-
comment rulemaking in future years.
Comment: Some commenters expressed concern about the combined
impact of the wage index and the increase to the LRS. A commenter urged
CMS to consider changes to the wage index, LRS, and other adjustors
together as one connected system rather than in silos.
Response: We appreciate the concerns that commenters raised about
the impact of the updates to the wage index and the LRS on ESRD
facilities in low-wage areas. As we discuss in section II.B.1.c. of
this final rule, the increase to the LRS reflects the latest available
estimates of the labor-related costs in the ESRDB market basket. We do
not believe a delay to the implementation of the increase to the LRS is
appropriate as the updated LRS will more accurately reflect labor costs
as a percentage of the ESRD PPS bundled payment amount. Overall payment
impacts, which take into account all payment changes in this final
rule, are discussed in section VII.C.5.a. of this final rule.
Comment: A commenter urged CMS to revisit the ESRD-specific wage
index methodology to incorporate wage data drawn specifically from the
healthcare sector, or from ESRD facilities directly, rather than an
all-industry BLS average, to evaluate whether the current occupational-
mix weighting adequately compensates for that underlying data
limitation.
Response: As we have previously noted, 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 so appropriately. We
note that although we use all-industry wages, the job codes are either
for healthcare occupations, such as RNs, or are healthcare-specific
occupations, such as Medical Secretaries and Administrative Assistants.
Thus, we believe the ESRD PPS wage index is appropriately based on the
specific occupations involved in furnishing renal dialysis services. We
intend to continue to monitor the ESRD PPS wage index, including the
wage data and occupational mix, and may consider future changes through
notice and comment rulemaking, if appropriate.
After consideration of public comments, we are finalizing our
proposal to update the ESRD PPS wage index following our established
methodology. For CY 2027, the final wage index is based on wage
estimates from the May 2025 BLS OEWS, which represents data from six
semiannual surveys spanning November 2022 through May 2025, and the
most recently available CY 2024 cost report data. The final CY 2027
ESRD PPS wage index is set forth in Addendum A and provides a crosswalk
between the final CY 2026 wage index and the final CY 2027 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 2027 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 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

[[Page 68762]]

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.\13\
---------------------------------------------------------------------------

\13\ 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 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.\14\ 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.
---------------------------------------------------------------------------

\14\ 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>.
---------------------------------------------------------------------------

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
ESRD 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 ESRD outlier services MAP amounts. The ESRD
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 ESRD outlier services MAP amounts for a
patient are determined by multiplying the adjusted average ESRD outlier
services MAP amount by the product of the patient-specific case-mix
adjusters applicable using the ESRD 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

[[Page 68763]]

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 2027 Update to the Outlier Services MAP Amounts and FDL Amounts
For CY 2027, we proposed to update the MAP amounts for adult and
pediatric patients using the latest available CY 2025 claims data. We
proposed to update the ESRD outlier services FDL amount for pediatric
patients using the latest available CY 2025 claims data, and to update
the ESRD outlier services FDL amount for adult patients using the
latest available claims data from CY 2023, CY 2024, and CY 2025, in
accordance with the methodology finalized in the CY 2023 ESRD PPS final
rule (87 FR 67170 through 67174) and the changes finalized in the CY
2025 ESRD PPS final rule (89 FR 89108 through 89130). The latest
available CY 2025 claims data show that outlier payments represented
approximately 0.9 percent of total Medicare payments. We proposed to
update these values with the latest available data, if appropriate, in
the final rule.
We received public comments on these proposals. The following is a
summary of the comments we received and our responses.
Comment: Several commenters expressed concerns about the proposed
increases to the FDL and MAP amounts for CY 2027. Some commenters
recommended that CMS use more current 2026 utilization data instead of
relying on 2025 projections. Other commenters recommended that CMS
phase-in MAP and FDL amount increases more gradually rather than a
single large jump.
Response: We appreciate the concerns raised by commenters regarding
the projected increase in outlier payments in CY 2026 and corresponding
increases in the FDL and MAP amounts for CY 2027. As we noted in the CY
2027 ESRD PPS proposed rule, these increases are primarily attributable
to the projected utilization of drugs currently paid for through the
TDAPA in CY 2025, which will be ESRD outlier services in CYs 2026 and
2027. Specifically, we projected that payments under the outlier
adjustment would be approximately 3.0 percent of total ESRD PPS
payments in CY 2026 based on utilization from the latest available CY
2025 claims. As a result, we proposed to increase the MAP and FDL
amounts to better achieve the 1.0 percent outlier target in CY 2027.
Although the proposed CY 2027 adult FDL amount was higher than the CY
2026 adult FDL amount, we noted that the retrospective FDL methodology
that we finalized in the CY 2023 ESRD PPS final rule accounts for the
introduction of these new ESRD outlier services by calculating a
retrospective trend line based on prior years' TDAPA or TPNIES
utilization (87 FR 67174).
Regarding the recommendation to use more recent 2026 utilization
data, we note that the latest available full CY of claims data is CY
2025, which is the source of the estimates used in the proposed rule.
At the time of final rulemaking, CY 2026 utilization is only available
through the end of the second quarter and does not incorporate any
information about utilization or pricing patterns in the second half of
CY 2026. We will take these comments into consideration to potentially
inform future changes to the outlier methodology through notice and
comment rulemaking.
We do not agree with the recommendation to phase-in the increases
to the FDL and MAP amounts over time. As we have previously noted, we
update the outlier FDL and MAP amounts each year to target outlier
payments at 1.0 percent of total ESRD PPS payments. If we applied a
lower FDL or MAP amount in CY 2027, we estimate that outlier payments
would exceed 1.0 percent.
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 payment amounts 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 and 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 payments based
on their claims. We did not propose to reduce the outlier percentage
for CY 2027, and we are not finalizing any such reduction in this final
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 2027. We believe that commenters
incorrectly assume that excluding TDAPA and TPNIES payment amounts 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 suggested
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 payments based on their claims.
Comment: Some commenters expressed concerns about the interaction
between outlier payments and new drugs. A commenter urged

[[Page 68764]]

CMS to develop a predictable, long-term approach for paying for new
drugs after they transition out of a TDAPA period, particularly drugs
within an existing ESRD PPS functional category. Another commenter
encouraged CMS to reserve outlier payments for unusual clinical
variation, not as a payment mechanism for new drugs, stating that new
drugs are the primary driver for outlier payments in direct contrast to
the purpose of the policy. This commenter stated that patients who
require unusually higher-cost services are less likely to qualify for
outlier payments under the current system.
Response: We agree with commenters that the outlier adjustment is
intended to recognize unusual variations in cost due to the use of ESRD
outlier services and is not intended as a payment mechanism for new
renal dialysis drugs. Rather, the drug designation process under 42 CFR
413.234, which includes the TDAPA and post-TDAPA add-on payment
adjustment, is the ESRD PPS mechanism for incorporating new renal
dialysis drugs and biological products. As discussed in section II.B.6.
of this final rule, we are finalizing our proposal to calculate the
post-TDAPA add-on payment adjustment amounts more frequently to reflect
updated information beginning in CY 2027.
Final rule action: After consideration of public comments, we are
finalizing our proposal to update the outlier FDL and MAP amounts based
on the latest available data. Table 10 outlines the final FDL and MAP
amounts for CY 2027. We note that these figures include all changes to
the ESRD outlier services for CY 2027, including the incorporation of
phosphate binders into the ESRD PPS base rate, which will mean
phosphate binders are included as ESRD outlier services in CY 2027 as
discussed in section II.B.7. of this final rule.
[GRAPHIC] [TIFF OMITTED] TR30OC26.042

As demonstrated in Table 10, the FDL amount per treatment that
determines the CY 2027 outlier threshold amount for adults (column II;
$90.60) is significantly higher than that used for the CY 2026 outlier
policy (column I; $14.80). The higher threshold amount is accompanied
by an increase in the adjusted average MAP amount for ESRD outlier
services from $23.68 to $41.83. These increases are primarily
attributable to the projected utilization of drugs that were paid for
through the TDAPA in CY 2025, which will be ESRD outlier services in
CYs 2026 and 2027. Specifically, we project that payments under the
outlier adjustment will be approximately 2.6 percent of total ESRD PPS
payments in CY 2026 based on utilization from the latest available CY
2025 claims. As a result, we are increasing the MAP and FDL amounts to
better achieve the 1.0 percent outlier target in CY 2027. Although the
final CY 2027 adult FDL amount is higher than the CY 2026 adult FDL
amount, we note that the retrospective FDL methodology that we
finalized in the CY 2023 ESRD PPS final rule accounts for the
introduction of these new ESRD outlier services by calculating a
retrospective trend line based on prior years' TDAPA or TPNIES
utilization (87 FR 67174). The retrospective FDL calculations for CYs
2023, 2024, and 2025 are $116.21,

[[Page 68765]]

$114.06, and $102.63, respectively. Following the methodology we
finalized in the CY 2023 ESRD PPS final rule (87 FR 67170 through
67174), we use these retrospective FDL amounts to project a downward
trend in the FDL amount for CY 2027, resulting in the final adult FDL
amount of $90.60.
For pediatric patients, there is also an increase in the FDL amount
from $162.43 to $229.49. There is a corresponding increase in the
adjusted average MAP amount for ESRD outlier services among pediatric
patients, from $50.19 to $63.27. We noted that, as outlined in section
II.B.7. of the final rule, we are including phosphate binders in the
ESRD PPS base rate. Accordingly, phosphate binders will be eligible as
ESRD outlier services for CY 2027, and we have included them in our
calculations. Generally, including additional drugs and biological
products results in increases to the MAP and FDL amounts, which is
contributing to the increases to these figures for CY 2027.
We estimate that the percentage of patient-facility-months
qualifying for outlier payments in CY 2027 will be 7.51 percent for
adult patients and 6.26 percent for pediatric patients, based on the
2025 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 CY 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 2025 claims available for this final
rule, outlier payments represented approximately 0.88 percent of total
payments, which is slightly below the 1.0 percent target.
4. Impacts to the CY 2027 ESRD PPS Base Rate
a. Background
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 included 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-level
adjustments, geographic differences in area wage levels using an area
wage index, and any applicable outlier payment, home and self-dialysis
training add-on payment adjustment, 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 2027
We proposed an ESRD PPS base rate for CY 2027 of $299.55. As
discussed in section II.B.1.d. of this final rule, we proposed that if
more recent data became available after the publication of the proposed
rule and before the publication of the final rule (for example, a more
recent estimate of the market basket percentage increase or
productivity adjustment), we would use such data, if appropriate, to
determine the CY 2027 ESRDB market basket update in the final rule. We
received public comments on these proposals. The following is a summary
of the comments we received and our responses.
Comment: Most commenters who discussed ESRD PPS payment policy
supported increasing the overall ESRD PPS payment rate. Many
commenters, however, expressed an opinion that the proposed ESRD PPS
base rate of $299.55 was insufficient, which added to many commenters'
concerns about current payment adequacy under the ESRD PPS. Some
commenters noted that this represented an increase of $17.84 over the
CY 2026 base rate, $15.96 of which is attributable to the increase to
the base rate to account for phosphate binders, resulting in an
increase to the base rate of only $1.88 outside of the phosphate binder
increase. As discussed in section II.B.7. of this final rule, many
commenters supported the base rate increase for phosphate binders. Many
commenters acknowledged that the reason why the proposed increase
outside of the phosphate binder increase was low was due to the
application of various budget neutrality factors. Many commenters
expressed support for implementing certain proposed policy changes non-
budget neutrally.
Several comments discussed payment adequacy under the ESRD PPS.
Multiple commenters listed figures published by MedPAC listing Original
Medicare margins for ESRD facilities, noting that MedPAC has found low
and occasionally negative margins in past reports.
Many commenters included current or potential future impacts of
lower than appropriate ESRD PPS payments. These impacts included
difficulty hiring and maintaining skilled staff, ESRD facility
closures, difficulty providing certain expensive drugs and biological
products, or other cost reductions. Some commenters provided data on
ESRD facility closures, predominantly in rural areas, and attributed
this trend to concerns about payment adequacy under the ESRD PPS.
Several commenters attributed perceived lower than appropriate payment
to historical under-forecasts of the ESRDB market basket, which they
stated has resulted in a lower base rate than if forecasts had been
accurate.
A few commenters indicated a belief that payment rates under the
ESRD PPS were generally adequate. A few commenters raised concerns
related to cost sharing under the ESRD PPS and noted that higher
payment rates result in increased beneficiary cost sharing. A commenter
requested CMS assess and publicly report the beneficiary level impact
of ESRD PPS payment changes on cost sharing.
Response: We appreciate support for increasing the ESRD PPS base
rate and recognize the concerns over the payment amounts set under the
ESRD PPS. The final ESRDB market basket update is 1.9 percent, higher
than the proposed value of 1.6 percent, which we believe addresses some
of the commenters' concerns about payment adequacy. However, we want to
clarify a few points about the proposed CY 2027 ESRD PPS base rate. The
proposed ESRD PPS base rate of $299.55 was derived from the CY 2026
ESRD PPS base rate of $281.71, the proposed ESRDB market basket update
of 1.6 percent, the proposed increase to incorporate phosphate binders
of $15.96, the proposed wage index budget neutrality factor of 1.00267,
and the proposed budget neutrality factor of 0.98783 for the proposed
policy changes to the LVPA, pediatric payment adjustments and training
add-on adjustments. As highlighted by some commenters, the reason why
the CY

[[Page 68766]]

2027 ESRD PPS base rate is not, excluding the increase of phosphate
binders, 1.6 percent higher (or, 1.9 percent higher using the final
ESRDB market basket update) than the CY 2026 ESRD PPS base rate is due
to the budget neutrality factors applied. We discuss why we believe
applying these budget neutrality factors is appropriate in the
following comment and response.
We strongly caution commenters against using the ESRD PPS base rate
as an estimate of payment adequacy or as a proxy for payment levels
under the ESRD PPS. The proposed budget neutrality factor of 0.98783
reduced the proposed ESRD PPS base rate because the proposed policy
changes to the LVPA, training add-on, and pediatric payment modifiers
result in increases to the payment adjustment factors. If we did not
apply this budget neutrality factor, then these policy changes would
increase the overall payment rate. The ESRD PPS base rate is not
intended to be an average payment amount for ESRD beneficiaries; it is
a base unit of payment that is then adjusted by several adjustment
factors, almost all of which increase payment. In practice, the ESRD
PPS base rate represents the payment provided for an adult patient aged
70-79, with the average BSA of 1.9, has none of the applicable
comorbidities, is not in the onset period, and is being treated in an
ESRD facility that is neither rural nor low volume and that has a wage
index value of 1.000. We acknowledge that the base rate, adjusted by
the wage index and other adjustment factors (on a budget neutral
basis), represents the payment for beneficiaries with AKI, as required
by section 1834(r)(1) of the Act.
We acknowledge the quality concerns that commenters have raised and
the data points cited by commenters. We note that in its March 2026
MedPAC Report to Congress \15\, MedPAC concluded that payment adequacy
indicators for ESRD facilities were generally favorable and recommended
that the Congress should eliminate the payment rate update for CY 2027.
We agree with MedPAC that payment under the ESRD PPS is appropriate. We
share the concerns of commenters regarding ESRD facility closures,
especially in rural areas, and note that this was a significant
motivator for our changes to the LVPA, which are finalizing, as
discussed in section II.B.8. of this final rule.
---------------------------------------------------------------------------

\15\ Medicare Payment Advisory Commission. March 2026. Report to
the Congress: Medicare Payment Policy. Washington, DC: MedPAC.
<a href="https://www.medpac.gov/document/march-2026-report-to-the-congress-medicare-payment-policy/">https://www.medpac.gov/document/march-2026-report-to-the-congress-medicare-payment-policy/</a>.
---------------------------------------------------------------------------

We agree with the commenters who stated that payments under the
ESRD PPS were generally adequate and recognize their concerns related
to beneficiary cost sharing. We note that the increase to beneficiary
cost sharing associated with the ESRDB market basket update is the
result of a statutorily required payment rate update, but we will
continue to be mindful of the impact of our payment policies on
beneficiary out-of-pocket costs.
Comment: A commenter stated that CMS should reconsider our
longstanding philosophy on applying budget neutrality factors. The
commenter acknowledged that budget neutrality was appropriate for
certain changes, like case mix adjustment factors, but believed it
would not be appropriate for others. The commenter highlighted the new
ESRD PPS wage index methodology implemented in the CY 2025 ESRD PPS
final rule (89 FR 89198 through 89107) as an example of a policy which
they believe should not be implemented budget neutrally.
Response: We appreciate the commenter's perspective regarding the
application of budget neutrality under the ESRD PPS. Section
1881(b)(14) of the Act establishes the statutory framework for the ESRD
PPS. Section 1881(b)(14)(A)(ii) of the Act established the aggregate
payment level when the ESRD PPS was implemented in CY 2011, while
section 1881(b)(14)(D) of the Act requires or authorizes various
adjustments to payments under the ESRD PPS, including adjustments based
on case mix, for high-cost outliers, for low-volume facilities, and
such other payment adjustments as the Secretary determines appropriate.
Consistent with this statutory framework and our longstanding
implementation of the ESRD PPS, we generally believe that it is
appropriate to implement changes to payment adjustments in a budget-
neutral manner when those changes are intended to redistribute payments
to better account for differences in relative resource use for costs
that are already reflected in the ESRD PPS base rate. In these
circumstances, the purpose of modifying the adjustment is to improve
the distribution of payments under the ESRD PPS rather than to increase
or decrease the aggregate level of payment for renal dialysis services.
This approach is consistent with how we have historically applied
budget neutrality to payment adjustments under the ESRD PPS, including
case-mix adjustments.
For example, we applied a budget neutrality factor when
implementing the new ESRD PPS wage index methodology in CY 2025 because
labor costs are already reflected in the ESRD PPS base rate and the
purpose of the wage index is to account for geographic differences in
those labor costs (89 FR 89097 through 89116). The new ESRD PPS wage
index methodology changed how the labor-related portion of the existing
ESRD PPS payment is distributed among ESRD facilities based on
geographic differences in wages; it did not add a new category of renal
dialysis services or costs to the ESRD PPS bundle. Accordingly, we
believe it was appropriate to implement that methodology in a budget-
neutral manner so that the change in methodology itself would not
increase or decrease aggregate ESRD PPS payments (89 FR 89109).
We believe it is appropriate to implement the modifications to the
LVPA in this rule in a budget neutral manner. Section
1881(b)(14)(D)(iii) of the Act requires the ESRD PPS to include a
payment adjustment that reflects the extent to which costs incurred by
low-volume facilities exceed the costs incurred by other facilities.
The costs of furnishing renal dialysis services at low-volume
facilities were represented in the data used to establish the ESRD PPS
bundled payment (75 FR 49117 through 49125). The purpose of modifying
the LVPA therefore is to better align relative payments with relative
resource use among ESRD facilities, rather than to recognize a new
category of costs or services that is not already reflected in the ESRD
PPS base rate. Implementing such modifications without a corresponding
budget neutrality adjustment would increase aggregate ESRD PPS payments
solely as a result of a policy intended to recalibrate how payments for
existing bundled costs are distributed. Our intention in proposing
modifications to payment adjustments like the LVPA is generally to make
payments that align relative payments with relative resource use, not
to increase the ESRD PPS base rate.
By contrast, where a policy accounts for costs that are not already
reflected in the ESRD PPS base rate, an increase in aggregate ESRD PPS
payments may be appropriate. As discussed elsewhere in this final rule,
phosphate binders were not included in the ESRD PPS base rate when the
ESRD PPS was established in CY 2011 and were not subsequently
incorporated into the base rate. Accordingly, we are increasing the
ESRD PPS base rate to account for the costs of phosphate binders rather
than offsetting that increase through a budget neutrality adjustment.

[[Page 68767]]

We therefore do not believe that all changes to the ESRD PPS
necessarily should be treated identically for purposes of budget
neutrality. Rather, in determining whether budget neutrality is
appropriate for a particular policy, we consider the applicable
statutory authority and the nature and purpose of the payment change.
In general, where a change to an existing payment adjustment is
intended to improve the allocation of payments for costs already
reflected in the ESRD PPS base rate, we believe that implementing the
change in a budget-neutral manner appropriately preserves the
distinction between redistributing payments under the ESRD PPS and
increasing the payment amount to account for additional costs or
services. Where a policy instead incorporates costs or services that
are not already reflected in the ESRD PPS base rate, an increase in
aggregate ESRD PPS payments may be appropriate, subject to the
applicable statutory authority.
Comment: Commenters expressed concerns over the estimated 1.1
percent increase to overall ESRD PPS payments. Commenters noted that
this is lower than the proposed 1.6 percent ESRDB market basket update.
Many commenters stated a belief that this 1.1 percent payment increase
was insufficient, comparing it to a wide array of estimates for
inflation.
Response: We want to clarify why the estimated year-over-year
payment increase is less than the proposed 1.6 percent ESRDB market
basket update. In our impact analysis, both for the CY 2027 ESRD PPS
proposed rule and for this final rule, we simulate claims for CY 2026
and CY 2027 using available CY 2025 claims data. As part of this
simulation, we applied the 1.6 percent ESRDB market basket update, as
well as simulated the impact of other changes to ESRD PPS payment,
including those resulting from policies proposed in the CY 2027 ESRD
PPS proposed rule. There are several factors which contribute to the
year-over-year estimated increase in payments being lower than the
proposed ESRDB market basket update; however, the primary cause driving
the lower year over year payment impact for CY 2027 presented in the CY
2027 proposed rule was the impact of the routine changes to the outlier
policy as shown in Table 26 in the ESRD PPS CY 2027 proposed rule (91
FR 38860). We estimated and are currently estimating outliers being
larger than 1 percent for 2026 and we proposed MAP and FDL amounts to
better achieve the 1.0 percent outlier target for CY 2027 (91 FR
38808). So, it is not surprising that the proposed change to the MAP
and FDL amounts are expected to result in a year-over-year decrease in
estimated outlier payments.
While we believe that the estimated year-over-year payment increase
is an important metric that interested parties may consider when
evaluating the impact of the rule, we caution interested parties to
interpret it carefully. We include detailed impacts on each of the new
policies and many of the routine and established policies in Table 30
in section VII.C.5.a. of this final rule. We note that table indicates
that the year-over-year increase in ESRD PPS payments is 2.4 percent,
which is higher than the 1.9 percent ESRDB market basket update. These
figures are different for the same underlying reasons as the difference
the commenters noted.
Comment: A commenter stated CMS should conduct and publish a
comprehensive ESRD PPS base rate adequacy analysis using the most
current available and representative facility cost-report data.
Response: We continually monitor the adequacy of payment rates
under the ESRD PPS, which we have used to inform payment policies. We
reiterate that we caution interested parties against using the base
rate as a proxy for overall payment amount, as budget neutral increases
to payment adjustments reduce the base rate while maintaining the
overall payment amount. We note that in proposing the modifications to
the LVPA, we published an analysis of payment-to-cost ratios using CY
2024 cost report data and CY 2025 claims data (91 FR 38822). However,
in discussing that analysis, we also discussed the limitations of such
an analysis in terms of evaluating payment adequacy. We will take into
consideration the commenter's suggestion that we publish further
analysis on payment rate adequacy.
Comment: A commenter stated that a market basket update cannot
fully address payment adequacy since it is designed to measure changes
in prices for a fixed mix of inputs. The commenter stated that even a
perfectly calibrated market basket update would only preserve the
purchasing power of the existing base rate but would not determine
whether that original rate was adequate to start with.
Response: We agree with the commenter that the ESRDB market basket
update, as required by section 1881(b)(14)(F) of the Act, represents
the change in prices of the same mix of goods and services purchased in
the base period. It is not intended to capture changes in the types of
renal dialysis services purchased by ESRD facilities. We recognize the
extent to which this can create perceived payment adequacy concerns,
especially as it pertains to new renal dialysis technologies that may
be higher cost than those which were utilized when the base rate was
established. Additionally, we recognize that it is not a measure of
payment adequacy for the initial CY 2011 ESRD PPS base rate. The CY
2011 ESRD PPS base rate was established in the CY 2011 ESRD PPS final
rule based on statutory requirements, which required that overall
payments be equal to 98 percent of what they would have been under the
composite rate system (75 FR 49071 through 49083). We believe that
payments under the ESRD PPS are sufficient for ESRD facilities to
furnish renal dialysis services to Medicare beneficiaries. Although the
original payment rate from 2011 and the ESRDB market basket increases
are based on that fixed bundle of goods and services; by providing a
single bundled payment we allow ESRD facilities to provide whichever
services are most appropriate for a patient. This gives ESRD facilities
the flexibility to provide new technologies to patients when
appropriate.
Final Rule Action: After consideration of public comments, we are
finalizing a CY 2027 ESRD PPS base rate of $297.52, which is
approximately a 5.6 percent increase from the CY 2026 ESRD PPS base
rate of $281.71. The final CY 2027 ESRD PPS base rate is calculated 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 2027, we did not propose and 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 CY 2027 wage index budget neutrality adjustment factor
using treatment counts from the 2025 claims and facility-specific CY
2026 payment rates to estimate the total dollar amount that each ESRD
facility would have received in CY 2026. The total of these payments
became the target amount of expenditures for all ESRD facilities for CY
2027. Next, we computed the estimated dollar amount that would have
been paid for the same ESRD facilities using the CY 2027 ESRD PPS wage
index and LRS for CY 2027. The total of these payments becomes the new
CY 2027 amount of wage-adjusted expenditures for all ESRD facilities.
The wage index budget neutrality factor is calculated as the target
amount divided

[[Page 68768]]

by the new CY 2027 amount. When we multiplied the wage index budget
neutrality factor by the applicable CY 2027 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 2027 wage index budget neutrality
adjustment factor is 1.00260. As we are not finalizing any changes to
our established ESRD PPS wage index methodology, this final CY 2027
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 CBSAs
which we currently consider urban that were considered rural prior to
the new delineations adopted in CY 2025,\16\ and the final LRS.
---------------------------------------------------------------------------

\16\ We note that the 3-year rural phase-out finalized in the CY
2025 ESRD PPS final rule (89 FR 89117 through 89119) ends December
31, 2026. As discussed in that rule, we will not apply a rural
transition adjustment factor in CY 2027 or any future year for ESRD
facilities that were rural in CY 2024 but were redesignated as urban
for CY 2025. The final wage index budget neutrality factor for CY
2027 reflects the budget neutrality associated with the end of this
policy.
---------------------------------------------------------------------------

We note that the final CY 2027 wage index budget neutrality factor
does not include any impacts associated with the TPEAPA, as was the
case with the CY 2024 combined wage index-TPEAPA budget-neutrality
factor finalized for CY 2024. Although CY 2026 is the final year of the
TPEAPA, as outlined in section II.B.9. of this final rule, we are
finalizing budget neutral changes to the payment adjustments that apply
for pediatric ESRD patients. Rather than calculating a combined TPEAPA-
wage index budget neutrality factor, we are including the effect of the
end of TPEAPA in the budget neutrality factor for those pediatric
policy changes. This is more consistent with what we have done in past
years where there were multiple budget neutral policy changes outside
the wage index in a given year, such as in the CY 2016 ESRD PPS final
rule (80 FR 69011). This final budget neutrality factor does not
incorporate the budget neutrality impact of the end of the TPEAPA
effective January 1, 2027. That budget neutrality impact is included in
the budget neutrality factor for the payment adjustments described in
this final rule.
Budget Neutrality Factor for Certain Payment Adjustment Changes: As
outlined in sections II.B.8., II.B.9., and II.B.10. of this final rule,
under the authority granted by section 1881(b)(14)(D)(iv) of the Act,
we are finalizing changes to the LVPA, payment adjustments for
pediatric ESRD patients, and home and self-dialysis training add-on
payment adjustment. We are finalizing that the changes to these payment
adjustments will be budget neutral and result in a combined budget
neutrality factor of 0.98864. This is calculated based on the combined
budget neutrality factor of 0.98901 for the LVPA changes, 0.99999 for
the pediatric changes, and 0.99964 for the changes to the home and
self-dialysis training add-on payment adjustment. As noted previously,
this budget neutrality factor also includes the budget neutrality
impact associated with the end of the TPEAPA effective January 1, 2027.
Addition of Phosphate Binders to the ESRD PPS Base Rate: As
outlined in section II.B.7. of this final rule, for CY 2027 we are
finalizing our proposal to modify the ESRD PPS base rate in a non-
budget neutral manner, by adding $12.85 to account for phosphate
binders in the ESRD PPS bundled payment. This application would yield a
CY 2027 ESRD PPS base rate of $294.56 ($281.71 + $12.85 = $294.56),
prior to the application of the market basket update and budget
neutrality factors. We are finalizing the application of the budget
neutrality factors to the base rate after the increase to the ESRD PPS
base rate, as proposed. As noted in the CY 2027 ESRD PPS proposed rule,
this is appropriate because those budget neutrality factors were
calculated using estimated payments, which incorporated the increase to
the base rate.
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.d. of this final rule, the
final CY 2027 ESRDB market basket increase based on IGI's third quarter
2026 forecast of the final 2024-based ESRDB market basket is 2.9
percent. For CY 2027, 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.d.(2) of this final rule, the final CY 2027
productivity adjustment is 1.0 percentage point based on IGI's third
quarter 2026 forecast of the 10-year moving average of TFP for the
period ending CY 2027, thus yielding a final CY 2027 ESRDB market
basket update of 1.9 percent for CY 2027. Therefore, the final CY 2027
ESRD PPS base rate is $297.52 (($294.56 x 1.00260x 0.98864) x 1.019 =
$297.52).
5. Updated 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-a

[…truncated; see source link]

View on FederalRegister.gov →Plain-text source

Indexed from Federal Register on October 30, 2026.

This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.