# Medicare Program; End-Stage Renal Disease Prospective Payment System and Quality Incentive Program; Ambulance Fee Schedule; Durable Medical Equipment; and Competitive Acquisition of Certain Durable Medical Equipment, Prosthetics, Orthotics and Supplies > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2011-28606 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** November 10, 2011 - **Citation:** 76 FR 70228 ## Text DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Parts 413 and 414 [CMS-1577-F] RIN 0938-AQ27 Medicare Program; End-Stage Renal Disease Prospective Payment System and Quality Incentive Program; Ambulance Fee Schedule; Durable Medical Equipment; and Competitive Acquisition of Certain Durable Medical Equipment, Prosthetics, Orthotics and Supplies AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Final rule. SUMMARY: This final rule updates and makes certain revisions to the End-Stage Renal Disease (ESRD) prospective payment system (PPS) for calendar year (CY) 2012. We are also finalizing the interim final rule with comment period published on April 6, 2011, regarding the transition budget-neutrality adjustment under the ESRD PPS,. This final rule also sets forth requirements for the ESRD quality incentive program (QIP) for payment years (PYs) 2013 and 2014. In addition, this final rule revises the ambulance fee schedule regulations to conform to statutory changes. This final rule also revises the definition of durable medical equipment (DME) by adding a 3-year minimum lifetime requirement (MLR) that must be met by an item or device in order to be considered durable for the purpose of classifying the item under the Medicare benefit category for DME. Finally, this final rule implements certain provisions of section 154 of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) related to the durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) Competitive Acquisition Program and responds to comments received on an interim final rule published January 16, 2009, that implemented these provisions of MIPPA effective April 18, 2009. (See the Table of Contents for a listing of the specific issues addressed in this final rule.) DATES: Effective dates: These regulations are effective on January 1, 2012. Also, effective January 1, 2012, we are finalizing the interim final rule with comment (“Medicare Programs: Changes to the End-Stage Renal Disease Prospective Payment System Transition Budget-Neutrality Adjustment”) published on April 6, 2011 (76 FR 18930). Additionally, effective January 12, 2012 the interim rule amending 42 CFR Part 414, published on January 16, 2009 (74 FR 2873), is confirmed as final. FOR FURTHER INFORMATION CONTACT: Terri Deutsch, (410) 786-4533, for issues related to ESRD. Roechel Kujawa, (410) 786-9111, for issues related to ambulance services. Heidi Oumarou, (410) 786-7942, for issues related to the ESRD market basket. Shannon Kerr, (410) 786-3039, for issues related to the quality incentive program. Sandhya Gilkerson, (410) 786-4085, for issues related to DME MLR. Hafsa Bora, (410) 786-7899 or Iffat Fatima, (410) 786-6709, for DMEPOS Competitive Acquisition Program issues related to comments received on an interim final rule that implemented provisions of MIPPA effective April 18, 2009. SUPPLEMENTARY INFORMATION: Addenda Are Only Available Through the Internet on the CMS Web Site In the past, a majority of the Addenda referred to throughout the preamble of our proposed and final rules were available in the Federal Register . However, the Addenda of the annual proposed and final rules will no longer be available in the Federal Register . Instead, these Addenda to the annual proposed and final rules will be available only through the Internet on the CMS Web site. The Addenda to the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) rules are available at: http://www.cms.gov/ESRDPayment/PAY/list.asp . Readers who experience any problems accessing any of the Addenda to the proposed and final rules that are posted on the CMS Web site identified above should contact Lisa Hubbard at (410) 786-4533. Table of Contents To assist readers in referencing sections contained in this preamble, we are providing a Table of Contents. Some of the issues discussed in this preamble affect the payment policies, but do not require changes to the regulations in the Code of Federal Regulations (CFR). I. Calendar Year (CY) 2012 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) A. Background on the End-Stage Renal Disease Prospective Payment System B. Summary of the Proposed Provisions and Responses to Comments on the CY 2012 ESRD PPS 1. Updates to the Composite Rate and ESRD PPS Base Rate a. Composite Rate b. ESRD PPS Base Rate 2. ESRD Bundled Market Basket a. Overview and Background b. Final Market Basket Update Increase Factor and Labor-Related Share for ESRD Facilities for CY 2012 c. Productivity Adjustment d. Calculation of the ESRDB Market Basket Update, Adjusted for Multifactor Productivity for CY 2012 3. Transition Budget-Neutrality Adjustment for CY 2011 4. Transition Budget-Neutrality Adjustment for CY 2012 5. Low-Volume Facility Provisions 6. Update to the Drug Add-On to the Composite Rate Portion of the ESRD Blended Payment Rate a. Estimating Growth in Expenditures for Drugs and Biologicals in CY 2012 b. Estimating per Patient Growth c. Applying the Growth Update to the Drug Add-On Adjustment d. Update to the Drug Add-On Adjustment for CY 2012 7. Updates to the Wage Index Values and Wage Index Floor for the Composite Rate Portion of the Blended Payment and the ESRD PPS Payment a. Reduction to the ESRD Wage Index Floor b. Policies for Areas with no Hospital Data c. Wage Index Budget-Neutrality Adjustment d. ESRD PPS Wage Index Tables 8. Drugs a. Vancomycin b. Drug Overfill 9. Revisions to Patient-Level Adjustment for Body Surface Area (BSA) 10. Revisions to the Outlier Policy a. Revisions Related to Outlier ESRD Drugs and Biologicals b. Exclusion of Automated Multi-Channel Chemistry (AMCC) Laboratory Tests From the Outlier Calculation c. Impact of Final Changes to the Outlier Policy D. Technical Corrections 1. Training Add-On 2. ESRD-Related Laboratory Test E. Clarifications to the CY 2011 ESRD PPS 1. ICD-9-CM Diagnosis Codes 2. Emergency Services to ESRD Beneficiaries F. Miscellaneous Comments II. End-Stage Renal Disease Quality Incentive Program for Payment Years (PYs) 2013 and 2014 A. Background for the End-Stage Renal Disease Quality Incentive Program for PY 2013 and PY 2014 B. Summary of the Proposed Provisions and Responses to Comments on the End-Stage Renal Disease (ESRD) Quality Incentive Program (QIP) for PY 2013 and PY 2014 1. PY 2013 ESRD QIP Requirements a. Performance Measures for the PY 2013 ESRD QIP b. Performance Period and Case Minimum for the PY 2013 ESRD QIP c. Performance Standards for the PY 2013 ESRD QIP d. Methodology for Calculating the Total Performance Score and Payment Reduction for the PY 2013 ESRD QIP 2. PY 2014 ESRD QIP a. Performance Measures for the PY 2014 ESRD QIP i. Anemia Management Measure ii. Dialysis Adequacy Measure iii. Vascular Access Type (VAT) Measure iv. Vascular Access Infections Measure v. Standardized Hospitalization Ratio (SHR)-Admissions Measure vi. Minimum Case Number for Clinical Measures and Other Considerations vii. National Healthcare Safety Network (NHSN) Dialysis Event Reporting Measure viii. Patient Experience of Care Survey Usage Measure ix. Mineral Metabolism Reporting Measure 3. Performance Period for the PY 2014 ESRD QIP 4. Performance Standards and the Methodology for Calculating the Total Performance Score for the PY 2014 ESRD QIP i. Performance Standards for the PY 2014 ESRD QIP ii. Setting Performance Benchmarks and Thresholds iii. Scoring Provider and Facility Performance on Clinical Measures Based on Achievement iv. Scoring Provider/Facility Performance on Clinical Measures Based on Improvement v. Calculating the VAT Measure Score vi. Calculating the NHSN Dialysis Event Reporting Measure, Patient Experience Survey Usage Reporting Measure and Mineral Metabolism Reporting Measure Scores vii. Weighting of the PY 2014 ESRD QIP Measures and Calculation of the PY 2014 ESRD QIP viii. Examples for 2014 ESRD QIP Performance Scoring Model 6. Payment Reductions for the PY 2014 ESRD QIP 7. Public Reporting Requirements 8. Future QIP Measures 9. Process of Updating Measures III. Ambulance Fee Schedule A. Summary of Proposed Provisions 1. Section 106 of the Medicare and Medicaid Extenders Act of 2010 (MMEA) a. Amendment to Section 1834(l)(13) of the Act b. Amendment to Section 146(b)(1) of MIPPA c. Amendment to Section 1834(l)(12) of the Act 2. Technical Correction B. Response to Comments IV. Durable Medical Equipment and Supplies A. Background for Durable Medical Equipment (DME) and Supplies B. Current Issues C. Overview of the Provisions of the Proposed Durable Medical Equipment (DME) Regulation D. Summary of the Proposed Provisions and Responses to Comments on the Definition of Durable Medical Equipment (DME) and the 3-Year Minimum Lifetime Requirement (MLR) 1. Application of the 3-Year MLR to Items Currently Covered as DME and to Supplies and Accessories of Covered DME 2. Application of the 3-Year MLR to Multi-Component Devices V. Interim Final Rule Regarding the Competitive Acquisition Program for Certain Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) A. Background 1. Legislative and Regulatory History of the DMEPOS Competitive Bidding Program 2. The MIPPA and the Medicare DMEPOS Competitive Bidding Program B. Overview of the Interim Final Rule C. Summary of the Interim Final Rule Provisions and Response to Comments on Changes to the Competitive Acquisition of Certain Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) by Certain Provisions of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) 1. General Changes to the DMEPOS Competitive Bidding Program a. Temporary Delay of the Medicare DMEPOS Competitive Bidding Program b. Supplier Feedback on Missing Covered Documents c. Disclosure of Subcontractors and Their Accreditation Status Under the Competitive Bidding Program d. Exemption From Competitive Bidding for Certain DMEPOS e. Exclusion of Group 3 Complex Rehabilitative Power Wheelchairs 2. Round 1 Changes to the Competitive Bidding Program a. Rebidding of the “Same Areas” as the Previous Round 1, Unless Otherwise Specified b. Rebidding of the “Same Items and Services” as the Previous Round 1, Unless Otherwise Specified D. Other Public Comments Received on the January 16, 2009 Interim Final Rule VI. Collection of Information Requirements VII. Economic Analyses VIII. Regulatory Flexibility Act Analysis IX. Unfunded Mandates Reform Act Analysis X. Federalism Analysis XI. Files Available to the Public via the Internet Regulations Text Acronyms Because of the many terms to which we refer by acronym in this final rule, we are listing the acronyms used and their corresponding meanings in alphabetical order below: AMCC Automated Multi-Channel Chemistry ASP Average Sales Price AV Arteriovenous BLS Bureau of Labor Statistics BMI Body Mass Index BSA Body Surface Area CY Calendar Year CBSA Core-Based Statistical Area CDC Centers for Disease Control and Prevention CLABSI Central Line Access Bloodstream Infections CFR Code of Federal Regulations CIP Core Indicators Project CMS Centers for Medicare & Medicaid Services CPM Clinical Performance Measure CPT Current Procedural Terminology CROWNWeb Consolidated Renal Operations in a Web-Enabled Network DFC Dialysis Facility Compare DFR Dialysis Facility Report DME Durable Medical Equipment ESA Erythropoiesis stimulating agent ESRD End-Stage Renal Disease ESRDB End-Stage Renal Disease Bundled FDA Food and Drug Administration FI/MAC Fiscal Intermediary/Medicare Administrative Contractor FY Fiscal Year GDP Gross Domestic Product HAI Healthcare-associated Infections HCPCS Healthcare Common Procedure Coding System HD Hemodialysis HHD Home Hemodialysis ICD-9-CM International Classification of Diseases, 9th Edition, Clinical Modifications ICH CAHPS In-Center Hemodialysis Consumer Assessment of Healthcare Advisors IGI IHS Global Insight IPPS Inpatient Prospective Payment System KDIGO Kidney Disease: Improving Global Outcomes KDOQI Kidney Disease Outcome Quality Initiative Kt/V A measure of dialysis adequacy where K is dialyzer clearance, t is dialysis time, and V is total body water volume LDO Large Dialysis Organization MAP Medicare Allowable Payment MCP Monthly Capitation Payment MIPPA Medicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110-275) MMA Medicare Prescription Drug, Improvement and Modernization Act of 2003 MMEA Medicare and Medicaid Extenders Act of 2010 Public Law 111-309 MFP Multifactor Productivity NHSN National Healthcare Safety Network NQF National Quality Forum PD Peritoneal Dialysis PFS Physician Fee Schedule PPS Prospective Payment System PSR Performance Score Report PY Payment Year QIP Quality Incentive Program REMIS Renal Management Information System RFA Regulatory Flexibility Act RUL Reasonable Useful Lifetime SBA Small Business Administration SIMS Standard Information Management System SHR Standardized Hospitalization Ratio SSA Social Security Administration The Act Social Security Act The Affordable Care Act The Patient Protections and Affordable Care Act URR Urea reduction ratio VBP Value Based Purchasing I. Calendar Year (CY) 2012 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) A. Background on the End-Stage Renal Disease Prospective Payment System On August 12, 2010, we published in the Federal Register , a final rule (75 FR 49030 through 49214), entitled, “End-Stage Renal Disease Prospective Payment System”, hereinafter referred to as the CY 2011 ESRD PPS final rule. In the CY 2011 ESRD PPS final rule, we implemented a case-mix adjusted bundled PPS for Medicare outpatient ESRD dialysis patients beginning January 1, 2011, in accordance with 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). The ESRD PPS replaced the basic case-mix adjusted composite payment system and the methodologies for the reimbursement of separately billable outpatient ESRD services. Also, section 1881(b)(14)(F) of the Act, as added by section 153(b) of MIPPA and amended by section 3401(h) of Public Law 111-148, the Affordable Care Act, established that beginning CY 2012, and each subsequent year, the Secretary shall reduce the market basket increase factor by a productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. In the CY 2011 ESRD PPS final rule (75 FR 49030), the Centers for Medicare & Medicaid Services (CMS) finalized the following: • A base rate of $229.63 per treatment for renal dialysis services (but postponed payment for oral-only renal dialysis drugs under the ESRD PPS until January 1, 2014) that applies to both adult and pediatric dialysis patients prior to the application of any case-mix adjustments. This amount included the 2 percent reduction for budget neutrality required by MIPPA, a one percent reduction for estimated outlier payments, and a reduction to account for estimated payments for case-mix and the low-volume payment adjustments. • A 4-year transition period (for those ESRD facilities that elected to receive blended payments during the transition) during which ESRD facilities receive a blend of payments under the prior basic case-mix adjusted composite payment system and the new ESRD PPS. Although the statute uses the term “phase-in”, we use the term “transition” to be consistent with other Medicare payment systems. • A −3.1 percent transition budget-neutrality adjustment to ensure that overall spending under the ESRD PPS did not increase as a result of the provision that permits ESRD facilities to be excluded from the 4-year transition. • Payment adjustments for dialysis treatments furnished to adults for patient age, body surface area (BSA), low body mass index (BMI), onset of dialysis, and six specified co-morbidities. • A home or self-care dialysis training payment adjustment of $33.44 per treatment paid in addition to the case-mix adjusted per treatment amount, which is wage adjusted and applies to claims for patients trained by ESRD facilities certified to provide home dialysis training. • Payment adjustments for dialysis treatments furnished to pediatric patients for patient age and dialysis modality. • A low-volume payment adjustment for adult patients of 18.9 percent that applies to the otherwise applicable case-mix adjusted payment rate for facilities that qualify as low-volume ESRD facilities. • An outlier payment policy that provides an additional payment to ESRD facilities treating high cost, resource-intensive patients. • The wage index adjustment that is applied when calculating the ESRD PPS payment rates in order to account for geographic differences in area wage levels. • An ESRD bundled (ESRDB) market basket index used to project prices in the costs of goods and services used to furnish outpatient maintenance dialysis. In addition, on April 6, 2011, we published an interim final rule with comment period in the Federal Register (76 FR 18930), entitled “Changes in the End-Stage Renal Disease Prospective Payment System Transition Budget-Neutrality Adjustment”, which revised the ESRD transition budget-neutrality adjustment for CY 2011. In the interim final rule, we revised the 3.1 percent transition budget-neutrality adjustment reduction to a zero percent transition budget-neutrality adjustment for renal dialysis services furnished on April 1, 2011 through December 31, 2011. B. Summary of the Proposed Provisions and Responses to Comments on the CY 2012 ESRD PPS The proposed rule entitled, “Medicare Program; Changes to the End-Stage Renal Disease Prospective Payment System for CY 2012, End-Stage Renal Disease Quality Incentive Program for PY 2013 and PY 2014; Ambulance Fee Schedule; and Durable Medical Equipment” (76 FR 40498) (the “proposed rule”) appeared in the Federal Register on July 8, 2011, with a comment period that ended on August 30, 2011 (76 FR 40498). In that proposed rule, for the ESRD PPS, we proposed to (1) make a number of routine updates for CY 2012, (2) implement the second year of the transition, (3) make several policy changes and clarifications, and (4) technical changes with regard to the CY 2011 ESRD PPS final rule. We received approximately 40 public comments on the ESRD PPS proposals, including comments from dialysis facilities, the national organizations representing dialysis facilities, nephrologists, patients, pharmaceutical manufacturers, hospitals and their representatives, and MedPAC. In this final rule, we provide a summary of each proposed provision, a summary of the public comments received, our responses to them, and what we are finalizing for the CY 2012 ESRD PPS in this final rule. 1. Updates to the Composite Rate and ESRD PPS Base Rate a. Composite Rate Section 1881(b)(14)(E)(i) of the Act requires a 4-year transition under the ESRD PPS. For CY 2012, under 42 CFR 413.239(a)(2), ESRD facilities that receive payment through the transition receive a blended rate equal to the sum of 50 percent of the ESRD PPS amount and 50 percent of the basic case-mix adjusted composite payment amount. Accordingly, we continue to update the composite rate portion of the blended payment during the 4-year transition (that is, CYs 2011 through 2013). For a historical perspective of the basic case-mix adjusted composite payment system for ESRD facilities, including the CY 2011 update to the composite rate portion of the blended rate, please see the CY 2011 Physician Fee Schedule (PFS) proposed rule, (75 FR 40164) and the CY 2011 PFS final rule (75 FR 49031 through 49033). In addition, we discuss the CY 2012 drug add-on and the updated wage index values for the composite rate portion of the blended payment in sections I.C.6 and I.C.7, respectively, of this final rule. Under section 1881(b)(14)(F)(ii) of the Act, for years during which the transition applies, the composite rate portion of the blend shall be annually increased by the ESRDB market basket, which for CY 2012 and each subsequent year, shall be reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. In section I.B.2.b of this final rule, we are finalizing the CY 2012 ESRDB market basket update of 3.0 percent, based on the third quarter 2011 IGI forecast of the ESRDB market basket. In section I.B.2.c of this final rule, we are finalizing the CY 2012 MFP adjustment of 0.9 percent based on the third quarter 2011 IGI forecast of the MFP. We proposed to add the CY 2011 Part D per treatment amount (that is, $0.49) to the CY 2011 composite rate in order to update the Part D amount for CY 2012 using the ESRDB market basket minus the productivity adjustment (76 FR 40502). We believed this approach is preferable to applying a growth factor to the $0.49 that is based on the rates for overall prescription drug prices that were used in the National Health Expenditure Projections, as we did for the establishment of the CY 2011 ESRD PPS base rate, because it is consistent with the update applied to the ESRD PPS base rate, which includes a per treatment amount for former part D drugs (that is, $0.49). We sought comment on our proposal to add the CY 2011 part D payment amount (that is, $0.49) to the composite rate portion of the blended payment and update it using the ESRDB market basket minus productivity adjustment. The basis for the first part of the transition budget-neutrality adjustment (that is, the calculation of the $0.49 part D amount) was set forth in the CY 2011 ESRD PPS final rule at 75 FR 49082. The comments and our responses are set forth below. Comment: Several commenters expressed concerns about the proposed methodology to add the former Part D oral drug amount ($0.49) to the composite rate and then apply the market basket reduced by the productivity adjustment. Some commenters believe that updating the payment for oral equivalents of injectable drugs by the ESRD market basket minus productivity could set a precedent that might affect access to care for preferred agents when oral drugs are included in the bundle in 2014. One commenter stated that it is inappropriate to apply the productivity adjustment to full transition blended payment. Instead, they believe the blended payment amount, for CY 2012, should be split with 50 percent of it paid at the PPI-inflated market basket rates and 50 percent of it adjusted using the update factors because the transition blended payment rate is based on 50 percent of the PPS payment rate and 50 percent on the old composite rate plus drug add-on rate. One commenter acknowledged that by using the split methodology, ESRD PPS would be updated differently than other payment systems, but the commenter believed that this distinction was appropriate because of the unique nature of the program and because drugs represent such a large portion of the overall costs incurred by dialysis facilities. Response: Beginning in 2012, section 1881(b)(14)(F) of the Act, requires us to annually update the ESRD PPS payment amounts and the composite rate portion of the blended transition payment by an ESRD market basket increase that is reduced by the productivity adjustment described in section 1886(b)(3)(B)xi)(II) of the Act. Given that the same update is used for both ESRD PPS and transition blended payments, and given the ESRD PPS base rate includes a portion of former Part D drugs, we proposed to add the $0.49 part D drug amount to the composite rate portion of the blended payment because we wanted to update it consistent with how we update the ESRD PPS base rate. Further, because the statute requires an update using the ESRDB market basket less productivity and the ESRDB market basket is comprised of the Producer Price Index (PPI) for prescription drugs as a proxy for measuring price growth in ESRD-related drugs, we believe that our proposal to add the $0.49 to the composite rate and update it using the ESRDB market basket less productivity is appropriate. Therefore, for CY 2012, the composite rate payment, including the $0.49 Part D amount, will be updated by the ESRDB market basket less productivity. With regard to the commenter's concerns that the addition of $0.49 to the composite rate would set a precedent that might affect access to care for preferred agents when oral-only drugs are included in the bundle in 2014, we note that we did not propose any payment policies for the oral-only drugs in the proposed rule. We will address in future rulemaking oral-only drugs and the bundled amount established in CY 2011, and there will be an opportunity for public comment on any future proposals we may make. Consequently, for CY 2012, the composite rate portion of the ESRD PPS blended payment is $141.94. The $141.94 reflects the addition of the CY 2011 part D per treatment amount ($0.49) to the CY 2011 composite rate of $138.53, and application of the ESRDB market basket minus productivity adjustment ($138.53 + 0.49 = $139.02; $139.02 × 1.021 = $141.94). b. ESRD PPS Base Rate We described the development of the ESRD PPS per-treatment base rate in the CY 2011 ESRD PPS final rule (75 FR 49071) and established Medicare regulations at 42 CFR 413.220 and 413.230. The CY 2011 ESRD PPS final rule also provides a detailed discussion of the methodology used to calculate the ESRD PPS base rate and the computation of factors used to adjust the ESRD PPS base rate for projected outlier payments and budget-neutrality in accordance with sections 1881(b)(14)(D)(ii) and 1881(b)(14)(A)(ii) of the Act, respectively (75 FR 49071 through 49082). Specifically, the ESRD PPS base rate was developed from CY 2007 claims (that is, the lowest per patient utilization year), updated to CY 2011, and represented the average per treatment Medicare allowable payment (MAP) for composite rate and separately billable services. In addition, in accordance with § 413.230, the ESRD PPS base rate is adjusted for the patient-specific case-mix adjustments, applicable facility adjustments, geographic differences in area wage levels using an area wage index, as well as any outlier payment or training add-on adjustments. For CY 2011, the ESRD PPS base rate was $229.63 (75 FR 49082). As required by section 1881(b)(14)(F) of the Act, in this final rule, for CY 2012, we applied the 2.1 percent increase (ESRDB market basket update less productivity) to the CY 2011 ESRD PPS base rate of $229.63, which results in an ESRD PPS base rate for CY 2012 of $234.45 (229.63 × 1.021 = 234.45). The ESRD PPS base rate applies to the ESRD PPS portion of the blended payments under the transition and to the ESRD PPS payments. In addition, as discussed in section I.C.7.c of the proposed rule (76 FR 40509), we proposed to apply the wage index budget-neutrality adjustment factor to the ESRD PPS base rate in CY 2012. We did not receive any comments on this proposal. Therefore, we are finalizing the policy to apply the wage index budget-neutrality adjustment to the ESRD PPS base rate. For CY 2012, we apply the wage index budget-neutrality adjustment factor of 1.001520 to the updated base rate (that is, $234.45), yielding an ESRD PPS wage-index budget-neutrality adjusted base rate for CY 2012 of $234.81 ($234.45 × 1.001520 = 234.81). 2. ESRD Bundled Market Basket a. Overview and Background In accordance with section 1881(b)(14)(F)(i) of the Act, as added by section 153(b) of MIPPA and amended by section 3401(h) of the Affordable Care Act, beginning in 2012, the ESRD bundled payment amounts are required to be annually increased by an ESRD market basket increase factor that is reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. The statute further provides that the market basket increase factor should reflect the changes over time in the prices of an appropriate mix of goods and services used to furnish renal dialysis services. Under section 1881(b)(14)(F)(ii) of the Act, as added by section 153(b) of MIPPA and amended by section 3401(h) of the Affordable Care Act, the ESRD bundled (ESRDB) rate market basket increase factor will also be used to update the composite rate portion of ESRD payments during the ESRD PPS transition period from 2011 through 2013; though beginning in 2012, such market basket increase factor will be reduced by the productivity adjustment. As a result of amendments by section 3401(h) of the Affordable Care Act, a full market basket was applied to the composite rate portion of the blended payment in CY 2011 during the first year of the transition. b. Final Market Basket Update Increase Factor and Labor-Related Share for ESRD facilities for CY 2012 As required under section 1881(b)(14)(F) of the Act, CMS developed an all-inclusive ESRDB input price index (75 FR 49151 through 49162). Although “market basket” technically describes the mix of goods and services used to produce ESRD care, 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 that market basket. Accordingly, the term “ESRDB market basket”, as used in this document, refers to the ESRDB input price index. We proposed to use the same methodology described in the CY 2011 ESRD PPS final rule (75 FR 49151 through 49162) to compute the CY 2012 ESRDB market basket increase factor and labor-related share based on the best available data (76 FR 40503). Consistent with historical practice, we estimate the ESRDB market basket update based on IHS Global Insight (IGI), Inc.'s forecast using the most recently available data. IGI is a nationally recognized economic and financial forecasting firm that contracts with CMS to forecast the components of the market baskets. Using this method and the IGI forecast for the first quarter of 2011 of the CY 2008-based ESRDB market basket (with historical data through the fourth quarter of 2010), and consistent with our historical practice of estimating market basket increases based on the best available data, the proposed CY 2012 ESRDB market basket increase factor was 3.0 percent. We also proposed that if more recent data became subsequently available (for example, a more recent estimate of the market basket), we would use that data, if appropriate, to determine the CY 2012 update in the final rule. Therefore, we used the IGI's third quarter 2011 forecast with history through the second quarter of 2011, and as discussed below, the projected market basket update for CY 2012 that we are finalizing is 3.0 percent based on the 2008-based ESRDB market basket. Additionally, we proposed to continue to use a labor-related share of 41.737 percent for CY 2012 for the ESRD PPS payment (76 FR 40503), which was finalized in the CY 2011 ESRD final rule (75 FR 49161). We also proposed to continue to use a labor-related share of 53.711 percent for the ESRD composite rate portion of the blended payment for all years of the transition (76 FR 40503). This labor-related share was developed from the labor-related components of the 1997 ESRD composite rate market basket that was finalized in the 2005 PFS final rule (70 FR 70168), and is consistent with the mix of labor-related services paid under the composite rate, as well as the method finalized in the CY 2011 ESRD PPS final rule (75 FR 49116). The comments we received on these proposals and our responses are set forth below. Comment: Several commenters believe that there should be more transparency in the calculation of the market basket update and are concerned about the lack of data available to validate the calculations. Response: We agree that the public should be able to replicate the methodology used to construct the ESRDB market basket. We disagree, however, that CMS has not been fully transparent in the calculation of the market basket update. In the CY 2011 ESRD final rule (75 FR 49151 through 49161), we provided the public with the cost shares for the ESRDB market basket and the data sources for the establishment of those cost shares. We also provided a detailed description of the data sources used to develop the ESRDB market basket cost weights and the price proxies used in the ESRDB market basket were listed for each cost category, which are based on data maintained and published by the Bureau of Labor Statistics (BLS). We refer the commenter to the BLS regarding any specific information on the detailed price proxies. In addition, to assist the commenter and other interested stakeholders in locating these price proxies on the BLS Web site, we have provided the individual BLS series codes for the indexes in the price proxy discussion of the final rule and the directions for obtaining the data through the BLS Web site. These two pieces of information, the cost weights and the price proxies, allow the public to replicate the historical time series of the ESRDB market basket. The forecasts of the individual price proxies used in a market basket are developed independently by IGI, a nationally recognized economic and financial forecasting firm. We purchase IGI's detailed price proxy projections for use in the Medicare market baskets. As a matter of practice, we publish all of the underlying detail for each price proxy for the historical period. However, because the projections of each individual price proxy are proprietary, we aggregate those projections into higher level categories and then publish the results with a one-quarter lag on the CMS Web site. This is consistent with the level of data provided for other PPS payment system market baskets. The ESRDB market basket data, including the detail as described above, is published on the CMS Web site at the following link: ( https://www.cms.gov/MedicareProgramRatesStats/04_MarketBasketData.asp#TopOfPage ). After considering the public comments received and for the reasons we previously articulated, we are finalizing our proposals to continue to use the ESRDB market basket forecasts for the ESRD PPS and transition payment updates. Therefore, we are finalizing the ESRDB market basket update of 3.0 percent, based on the IGI third quarter forecast of the ESRDB market basket. We did not receive any public comments regarding our proposal to continue to use the labor-related shares for the ESRD PPS portion and composite portion of the blended payment during the transition period. Therefore, we are also finalizing the proposal to continue to use the labor-related share of 41.737 percent for the CY 2012 ESRD PPS payment and the labor-related share of 53.711 percent for the CY 2012 ESRD composite rate portion of the blended payment, for those facilities that elected to transition to the bundled ESRD PPS. c. Productivity Adjustment The ESRDB market basket must be annually adjusted by changes in economy-wide productivity. Specifically, under section 1881(b)(14)(F) of the Act, as amended by section 3401(h) of the Affordable Care Act, for CY 2012 and each subsequent year, the ESRD market basket percentage increase factor shall be reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. The statute defines the productivity adjustment to be equal to the 10-year moving average of changes in annual economy-wide private nonfarm business multifactor productivity (MFP) (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost reporting period, or other annual period) (the “MFP adjustment”). The BLS is the agency that publishes the official measure of private nonfarm business MFP. Please see http://www.bls.gov/mfp to obtain the BLS historical published MFP data. CMS notes that the proposed and final methodology for calculating and applying the MFP adjustment to the ESRD payment update is similar to the methodology used in other payment systems, as required by section 3401 of the Affordable Care Act. The projection of MFP is currently produced by IGI, an economic forecasting firm. In order to generate a forecast of MFP, IGI replicated the MFP measure calculated by the BLS using a series of proxy variables derived from IGI's U.S. macroeconomic models. These models take into account a very broad range of factors that influence the total U.S. economy. IGI forecasts the underlying proxy components such as gross domestic product (GDP), capital, and labor inputs required to estimate MFP and then combines those projections according to the BLS methodology. In Table 1 below, we identify each of the major MFP component series employed by the BLS to measure MFP. We also provide the corresponding concepts forecasted by IGI and determined to be the best available proxies for the BLS series. ER10NO11.000 IGI found that the historical growth rates of the BLS components used to calculate MFP and the IGI components identified are consistent across all series and therefore suitable proxies for calculating MFP. We have included below a more detailed description of the methodology used by IGI to construct a forecast of MFP, which is aligned closely with the methodology employed by the BLS. For more information regarding the BLS method for estimating productivity, please see the following link: http://www.bls.gov/mfp/mprtech.pdf . At the time of the development of this CY 2012 final rule, the BLS published a historical time series of private nonfarm business MFP for 1987 through 2010, with 2010 being a preliminary value. Using this historical MFP series and the IGI forecasted series, IGI has developed a forecast of MFP for 2011 through 2021, as described below. We note that the historical MFP series and the IGI forcasted series are updates from those used at the time of the proposed rule (1987 through 2009, and 2010 through 2021, respectively). To create a forecast of BLS' MFP index, the forecasted annual growth rates of the “non-housing, nongovernment, non-farm, real GDP,” “hours of all persons in private nonfarm establishments adjusted for labor composition,” and “real effective capital stock” series (ranging from 2011 to 2021) are used to “grow” the levels of the “real value-added output,” “private non-farm business sector labor input,” and “aggregate capital input” series published by the BLS. Projections of the “hours of all persons” measure are calculated using the difference between the projected growth rates of real output per hour and real GDP. This difference is then adjusted to account for changes in labor composition in the forecast interval. Using these three key concepts, MFP is derived by subtracting the contribution of labor and capital inputs from output growth. However, in order to estimate MFP, we need to understand the relative contributions of labor and capital to total output growth. Therefore, two additional measures are needed to operationalize the estimation of the IGI MFP projection: Labor compensation and capital income. The sum of labor compensation and capital income represents total income. The BLS calculates labor compensation and capital income (in current dollar terms) to derive the nominal values of labor and capital inputs. IGI uses the “nongovernment total compensation” and “flow of capital services from the total private non-residential capital stock” series as proxies for the BLS' income measures. These two proxy measures for income are divided by total income to obtain the shares of labor compensation and capital income to total income. In order to estimate labor's contribution and capital's contribution to the growth in total output, the growth rates of the proxy variables for labor and capital inputs are multiplied by their respective shares of total income. These contributions of labor and capital to output growth is subtracted from total output growth to calculate the “change in the growth rates of multifactor productivity:” MFP = Total output growth − ((labor input growth * labor compensation share) + (capital input growth * capital income share)) The change in the growth rates (also referred to as the compound growth rates) of the IGI MFP are multiplied by 100 in order to calculate the percent change in growth rates (the percent change in growth rates are published by the BLS for its historical MFP measure). Finally, the growth rates of the IGI MFP are converted to index levels based to 2005 to be consistent with the BLS' methodology. For benchmarking purposes, the historical growth rates of IGI's proxy variables were used to estimate a historical measure of MFP, which was compared to the historical MFP estimate published by the BLS. The comparison revealed that the growth rates of the components were consistent across all series, and therefore validated the use of the proxy variables in generating the IGI MFP projections. The resulting MFP index was then interpolated to a quarterly frequency using the Bassie method for temporal disaggregation. The Bassie technique utilizes an indicator (pattern) series for its calculations. IGI uses the index of output per hour (published by the BLS) as an indicator when interpolating the MFP index. The comments we received on this proposal and our response are set forth below. Comment: One commenter stated that the factors used in the productivity adjustor, which are mostly derived from capital and labor related economic measures, are not appropriate for use to modify the market basket costs of drugs, which are consumable items. One commenter further believes that ESRD PPS should be treated differently than other PPS payment systems because drugs represent such a large portion of the overall costs incurred by dialysis services. One pharmaceutical company expressed concern about the proposal to apply the productivity adjustment to the Part D oral drug portion of the blended payment. Response: In accordance with section 1881(b)(14)(F)(i) of the Act, beginning in 2012, all renal dialysis services included in the ESRD bundle are required to be annually increased by an ESRD market basket increase factor that is reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. Therefore, CMS is statutorily required to update ESRD PPS payments by a market basket update less productivity. We also note that CMS is statutorily required to update the ESRD composite rate portion of the blended payment by the ESRDB market basket less productivity. During the transition, any items or services included in the bundle have been factored into the cost shares for the ESRDB market basket; as such, the costs associated with oral drugs that were formerly paid under Part D are included in the ESRDB market basket cost share weight for drugs. As finalized in the CY 2011 ESRD final rule (75 FR 49156), the market basket drug cost share weight accounts for all drugs included in the ESRD bundled payment, including ESRD-related oral drugs with injectable equivalents that were formerly covered under Medicare Part D as well as the costs associated with any other drugs as reported on the ESRD Medicare Cost Report. In 2014, any changes to the bundle will be factored into a revised ESRDB market basket and be subject to notice and comment rulemaking. Therefore, although drugs account for a larger proportion of expenses in the ESRDB market basket than in some other provider-type PPS market baskets, we will continue to update the ESRD payments as statutorily mandated by the Congress. As such, for CY 2012, the ESRD PPS payment rate and the composite portion of the blended payment will be increased by the estimated market basket update less productivity, 2.1 percent (3.0 percent ESRDB market basket less 0.9 percentage point MFP adjustment), which is described in more detail below. After careful consideration of the public comments and to satisfy the statutory requirement for ESRD payment updates mentioned above, we are finalizing our proposed method for calculating and applying the MFP adjustment to the ESRDB market basket. d. Calculation of the ESRDB Market Basket Update, Adjusted for Multifactor Productivity for CY 2012 Under section 1881(b)(14)(F)(i) of the Act, beginning in 2012, ESRD PPS payment amounts and the composite rate portion of the transition blended payment amounts shall be annually increased by an ESRD market basket percentage increase factor reduced by a productivity adjustment. We proposed to estimate the ESRDB market basket percentage for CY 2012 based on the CY 2008-based ESRDB market basket (76 FR 40504). In order to calculate the MFP-adjusted update for the ESRDB market basket during the transition period, we proposed that the MFP percentage adjustment be subtracted from the CY 2012 market basket update calculated using the CY 2008-based ESRDB market basket (75 FR 40504). We proposed that the end of the 10-year moving average of changes in the MFP should coincide with the end of the appropriate CY update period. Since the market basket update is reduced by the MFP adjustment to determine the annual update for the ESRD PPS and the ESRD composite rate portions of the blended payment during the transition, we believe it is appropriate for the numbers associated with both components of the calculation (the market basket and the productivity adjustment) to coincide so that changes in market conditions are aligned. Therefore, for the CY 2012 update, we proposed that the MFP adjustment be calculated as the 10-year moving average of changes in MFP for the period ending December 31, 2012. We proposed to round the final annual adjustment to the one-tenth of one percentage point level up or down as applicable according to conventional rounding rules (that is, if the number we are rounding is followed by 5, 6, 7, 8, or 9, we will round the number up; if the number we are rounding is followed by 1, 2, 3, or 4, we will round the number down). Thus, in accordance with section 1881(b)(14)(F)(i) of the Act, the proposed market basket increase factor for CY 2012 for the ESRDB market basket was based on the 1st quarter 2011 forecast of the CY 2008-based ESRDB market basket update, which was estimated to be 3.0 percent. This market basket percentage was then reduced by the MFP adjustment (the 10-year moving average of MFP for the period ending CY 2012) of 1.2 percent, which is calculated as described above and based on IGI's 1st quarter 2011 forecast. The resulting proposed MFP-adjusted ESRDB market basket update for CY 2012 was equal to 1.8 percent, or 3.0 percent less 1.2 percent. We proposed that if more recent data were subsequently available (for example, a more recent estimate of the market basket and MFP adjustment), we would use such data, if appropriate, to determine the CY 2012 market basket update and MFP adjustment in the CY 2012 ESRD PPS final rule. Consistent with historical practice and our proposal, we update the market basket increase factor estimate and the MFP adjustment in this final rule to reflect the most recent available data (75 FR 40505). We received no public comments related to the proposed MFP-adjusted ESRDB market basket update for CY 2012. Therefore, we are finalizing our proposal to base the CY 2012 market basket update, which is used to determine the applicable percentage increase for the ESRD PPS and transition payments, on the most recent data available, which is the third quarter 2011 forecast of the CY 2008-based ESRDB market basket (estimated to be 3.0 percent). The MFP adjustment (the 10-year moving average of MFP for the period ending CY 2012) we are finalizing is 0.9 percent, which was calculated as described above and based on IGI's third quarter 2011 forecast. Therefore, the final MFP-adjusted ESRDB market basket update for CY 2012 is 2.1 percent (3.0 percent ESRDB market basket less 0.9 percentage point MFP adjustment). 3. Transition Budget-Neutrality Adjustment for CY 2011 Section 1881(b)(14)(E)(iii) of the Act requires that an adjustment to payments be made for renal dialysis services provided by ESRD facilities during the transition so that the estimated total payments under the ESRD PPS, including payments under the transition, equal the estimated total amount of payments that would otherwise occur under the ESRD PPS without such a transition. In the CY 2011 ESRD PPS final rule, we explained that because we would not know the actual number of ESRD facilities that would elect to opt out of the transition prior to publishing the final rule, we would simulate payments under the existing basic case-mix adjusted composite payment system and under the ESRD PPS to determine how many ESRD facilities we believed would elect to receive payment under 100 percent ESRD PPS. Based on our simulations using 2007 data, we estimated that 43 percent of ESRD facilities would financially benefit from receiving full payment under the ESRD PPS. We indicated that based on the simulation of estimated payments, a 3.1 percent reduction would be applied to all payments made to ESRD facilities for renal dialysis services furnished on January 1, 2011 through December 31, 2011 (75 FR 49082 through 49083). On April 6, 2011, we published an interim final rule with comment period in the Federal Register (76 FR 18930), entitled “Changes to the End-Stage Renal Disease Prospective Payment System Transition Budget-Neutrality Adjustment”, which revised the ESRD transition budget-neutrality adjustment finalized for CY 2011. In the interim final rule, we indicated that based upon the election data submitted by ESRD facilities, 87 percent of ESRD facilities elected to opt out of the transition. When we applied the actual number of ESRD facilities electing to receive payment under the ESRD PPS, the transition budget-neutrality adjustment was determined to be zero rather than a 3.1 reduction in payments. We revised the 3.1 percent transition budget-neutrality adjustment reduction to a zero percent transition budget-neutrality adjustment for renal dialysis services furnished on April 1, 2011 through December 31, 2011. We also indicated that we would respond to comments submitted on the interim final rule in the CY 2012 ESRD PPS final rule. We received four comments during the IFC comment period and three comments in response to the CY 2012 ESRD PPS proposed rule. All comments were in support of the revised CY 2011 transition budget-neutrality adjustment factor. Therefore, we are finalizing the revised CY 2011 transition budget-neutrality adjustment factor of zero for ESRD claims for renal dialysis services furnished on April 1, 2011 through December 31, 2011. 4. Transition Budget-Neutrality Adjustment for CY 2012 Section 1881(b)(14)(E)(i) of the Act requires the Secretary to provide a four-year phase-in of the payments under the ESRD PPS for renal dialysis services furnished on or after January 1, 2011, with payments under the ESRD PPS fully implemented for renal dialysis services furnished on or after January 1, 2014. We use the term “transition” rather than “phase-in” to be consistent with other Medicare payment systems. Section 1881(b)(14)(E)(ii) of the Act permitted ESRD facilities to make a one-time election to be excluded from the transition. An ESRD facility that elected to be excluded from the transition would receive payment for renal dialysis services provided on or after January 1, 2011, based on 100 percent of the payment rate under the ESRD PPS rather than a blended payment based in part on the payment rate under the basic case-mix adjusted composite payment system and in part on the payment rate under the ESRD PPS. Section 1881(b)(14)(E)(iii) of the Act also requires that we make an adjustment to payments during the transition so that the estimated total amount of payments under the ESRD PPS, including payments under the transition, equals the estimated total amount of payments that would otherwise occur under the ESRD PPS without such a transition. We refer to this provision as the transition budget-neutrality adjustment. As described in the CY 2011 ESRD PPS final rule (75 FR 49082), the transition budget-neutrality adjustment is comprised of two parts. For the first part, we created a payment adjustment to the composite rate portion of the blended payment during the transition to account for the per treatment costs of drugs that were paid under Part D. For the second part, we computed a factor that would make the estimated total amount of payments under the ESRD PPS, including payments under the transition, equal to the estimated total amount of payments that would otherwise occur without such a transition. In the proposed rule, we addressed both parts of the transition budget-neutrality adjustment (76 FR 40505 and 40506). The first part of the transition budget-neutrality adjustment was addressed in section I.C.1. of this final rule where we address updates to the composite rate and the ESRD PPS base rate. For the second part of the transition budget-neutrality factor, we first determined the estimated increase in payments under the transition and then determined an offset factor, based on estimates of which facilities would choose to opt out of the transition (for a detailed description, see the CY 2011 ESRD PPS proposed rule, 74 FR 49946). We estimated the number of facilities that would choose to opt out of the transition by comparing payment under the transition to payment under the PPS and choosing the option that was financially beneficial to each facility. Using that approach, we estimated that 43 percent of facilities would choose to opt out of the transition and determined the transition budget-neutrality adjustment to be a reduction of 3.1 percent. In the April 6, 2011 interim final rule with comment (76 FR 18930 through 18934), however, we updated the number of facilities that chose to opt out of the transition to 87 percent, based on actual election data that we received and recalculated a transition budget-neutrality adjustment of zero percent. Given that the transition budget-neutrality adjustment required under section 1881(b)(14)(A)(ii) of the Act applies in each year of the transition, we must update the transition budget-neutrality adjustment for CY 2012. In the proposed rule (76 FR 40506), we noted that we were not proposing for CY 2012 to change the methodology used to calculate the second part of the budget-neutrality adjustment. However, we proposed to use more updated data. In order to ensure that total payments under the transition equal total payment amounts without a transition, we would reduce all payments to ESRD facilities in CY 2012 by a factor that is equal to 1 minus the ratio of estimated payments under the ESRD PPS if there were no transition to the total estimated payments under the transition. In the proposed rule, we explained that we started with 2009 utilization data from claims, as 2009 was the latest complete year of claims data available of complete claims data. In this final rule, we used 2010 claims as it is the latest available year. Using price growth factors for CY 2011 and CY 2012 that are discussed in the impact analysis in section I.VII.B.1 of this final rule, we updated the CY 2010 utilization data to CY 2011 and CY 2012 payments. We then took the estimated CY 2012 payments under the full ESRD PPS and the blended payments under the transition based on actual facility election data and compared these estimated payments to the total estimated payments in CY 2012 as if all facilities had elected to receive payment under the full ESRD PPS. We then calculated the transition budget-neutrality factor to be 1 minus the ratio of estimated payments under the ESRD PPS if there were no transition to the total estimated payments under the transition, which results in zero percent. Therefore, for CY 2012, we proposed that a zero percent reduction to all payments would be made to ESRD facilities (that is, the zero percent adjustment would be applied to both the blended payments under the transition and payments made under the 100 percent ESRD PPS). We solicited comments on the proposed second part of CY 2012 transition budget-neutrality adjustment methodology. The comments and our responses are set forth below. Comment: Several national associations and one dialysis organization supported the zero percent transition budget-neutrality adjustment for CY 2012. One commenter indicated that the proposed rule appropriately reflected that a greater percentage of ESRD facilities than estimated elected to receive payment under the ESRD PPS. Response: We thank the commenters for their support. Therefore, in this final rule, we are finalizing the proposed second part of the transition budget-neutrality adjustment and the zero percent budget-neutrality adjustment for CY 2012. 5. Low-Volume Facility Provisions Section 1881(b)(14)(D)(iii) of the Act requires a low-volume payment adjustment that “reflects the extent to which costs incurred by low-volume facilities (as defined by the Secretary) in furnishing renal dialysis services exceed the costs incurred by other facilities in furnishing such services, and for payment for renal dialysis services furnished on or after January 1, 2011, and before January 1, 2014, such payment adjustment shall not be less than 10 percent”. We established the low-volume payment adjustment, including the methodology we used to develop the low-volume treatment threshold in the CY 2011 ESRD PPS final rule (75 FR 49117 through 49125). Because the analysis included data that spanned a 3-year period, we defined a low-volume ESRD facility as a facility that is able to maintain its low-volume status each year of the 3-year period. This timeframe provided us with a sufficient span of time to view consistency in business operations through the data. Under 42 CFR 413.232(b), a low-volume facility is an ESRD facility that: (1) Furnished less than 4,000 dialysis treatments in each of the 3 years preceding the payment year and (2) has not opened, closed, or received a new provider number due to a change in ownership during the 3 years preceding the payment year. Under § 413.232(c), the number of treatments shall be equal to the aggregate number of treatments furnished by other ESRD facilities that are both under common ownership and 25 road miles or less from the ESRD facility in question. This geographic proximity criterion is only applicable to ESRD facilities that are Medicare certified on or after January 1, 2011. Section 413.232(f) requires an ESRD facility to provide an attestation statement to their respective fiscal intermediary or Medicare administrative contractor (FI/MAC) that the facility meets all the criteria in order to receive the low-volume adjustment. We note that furnishing 4,000 treatments in a year equates to approximately 25 patients per year receiving three dialysis treatments a week (or hemo-equivalent treatments). In the proposed rule, we discussed § 413.232 and clarified that the “payment year” is the period of time that we use for determining payment to ESRD facilities, which is a calendar year, and that eligibility years mean the 3 years preceding the payment year and are based on cost reporting years (76 FR 40506). We made this clarification to ensure that ESRD facilities and their respective FI/MACs understand the distinction between eligibility (which is based on cost reporting years) and the payment year (when ESRD facilities can begin to receive the low-volume payment adjustment). We did not seek comments on the clarifications of the payment and cost report years, however, we received three comments indicating the clarifications were helpful. In the proposed rule (76 FR 40506 and 40507), we proposed to establish the process for CY 2012 and each year thereafter, that an ESRD facility would be required to follow when submitting its attestation to notify its FI/MAC that it is eligible for the low-volume payment adjustment. We further explained that the attestation is required because: (1) ESRD facility's cost reporting periods vary and may not be based on the calendar year; and (2) the cost reports are due 5 months after the close of the cost reporting period (that is, there is a lag in the cost reporting submission). Thus, the FI/MACS may not have the cost report for the third year to determine eligibility and would need to rely on the attestation for that year. We proposed that if an ESRD facility believes that it is eligible for the low-volume adjustment, the ESRD facility would be required to submit an attestation to its respective FI/MAC no later than November 1st of each year, and proposed to amend the regulation text at § 413.232(f) (76 FR 40507). We noted that this timeframe provides 60 days for a FI/MAC to verify the cost report information and update the systems (76 FR 40507). We explained that if ESRD facilities are receiving the low-volume adjustment for the CY 2011 payment year, those ESRD facilities should submit another attestation to their respective FI/MAC no later than November 1, 2011, to qualify for the low-volume adjustment for the CY 2012 payment year. An ESRD facility must continue to attest that it is a low-volume facility for each subsequent payment year it believes it is eligible for the low-volume facility adjustment. We explained that if the FI/MAC does not receive an ESRD facility's attestation stating that the ESRD facility is eligible for the low-volume adjustment on or before November 1 prior to the payment year, the ESRD facility would not receive the low-volume adjustment for that payment year. We also noted that in the event a dialysis organization submits the low-volume attestation on behalf of its ESRD facilities, the dialysis organization will be required to identify each ESRD facility by name and provider number and submit them by the November 1 deadline. We solicited comment on our proposal and the proposed regulation text changes at § 413.232(f). We did not receive any comments and, therefore, in this final rule, we are finalizing a yearly November 1 deadline for attestation submission and we are revising the regulation at § 413.232(f) to reflect this date for CY 2012 and each year thereafter. However, because the CY 2012 final rule will not be effective before November 1, 2011, we are finalizing a later low-volume attestation submission deadline of January 3, 2012, for attestations that pertain to the CY 2012 low-volume adjustment. We believe this due date provides facilities sufficient time to submit an attestation and allows the agency (that is, the FI/MACs) time to process submissions. In addition, a later date is not possible since the CY 2012 payment year will be underway. Accordingly, we also are revising the regulation at § 413.232(f) to reflect this change. In the proposed rule, we indicated that the ESRD facility's cost reports for the cost reporting periods ending in the 3 years immediately preceding the payment year must report costs for 12-consecutive months (76 FR 40507). For example, an FI/MAC should not consider a short period cost report (that is, reporting costs for less than 12 months which may occur for new facilities or facilities under new ownership), for low-volume eligibility. Specifically, when an ESRD facility is assessing its eligibility for the low-volume adjustment and preparing its attestation, the ESRD facility should look at its 12-consecutive month cost reports for the cost reporting periods that end in the 3 years immediately preceding the payment year. As we indicated previously, the FI/MAC may not have a final-settled cost report for all 3 years needed to complete the ESRD facility's verification and we provided examples of such situations (76 FR 40507). Therefore, we proposed to amend the regulations at § 413.232(b)(1) and (b)(2) to clarify the meaning of year with regard to the treatment threshold that is used for determining low-volume eligibility and how it relates to the payment year. This proposed change to the regulations would make clear that the ESRD facility's cost reports for the 3 years immediately preceding the payment year must report costs for 12-consecutive months, and provide clarification that in the absence of an ESRD facility's final settled cost report, an FI/MAC can review the ESRD facility's as-filed cost report when determining if an ESRD facility meets the low-volume criteria. We believe that it is appropriate for the FI/MAC to determine eligibility based upon an as-filed cost report because the number of total treatments should not change between submission of the as-filed cost report and the final settled cost report. We solicited comment on the proposed changes at § 413.232(b)(1) and (b)(2). We did not receive any comments and, therefore, we are finalizing these proposed changes to the regulation at § 413.232(b)(1) and (b)(2). In the proposed rule, we explained that if an FI/MAC receives an ESRD facility's attestation stating that the ESRD facility believes that it qualifies for the low-volume payment adjustment and then finds that the ESRD facility did not meet the low-volume criteria, the FI/MAC will discontinue application of the low-volume adjustment (76 FR 40508). If the ESRD facility does not remain low-volume for each of the 3 years (12-consecutive month cost reporting periods) immediately preceding the payment year, the ESRD facility is not eligible for the low-volume adjustment until it can demonstrate again that for 3 years (12-consecutive month cost reporting periods) it has met the low-volume criteria. The comments we received and our responses are set forth below. Comment: One independent ESRD facility asked if an ESRD facility was determined not to qualify for the low-volume adjustment, would the low-volume adjustment be discontinued without payment implication. Response: Medicare is obligated to provide appropriate payment. If an ESRD facility has not met the eligibility requirements as described in 42 CFR 413.232, the ESRD facility would not be entitled to receive the low-volume adjustment and the inappropriate low-volume payments made in that payment year would be recouped. Comment: One commenter indicated that in the CY 2011 ESRD PPS final rule, we defined a low-volume facility at § 413.232(b)(2) as an ESRD facility that has not opened, closed, or received a new provider number due to a change in ownership during the 3 years preceding the payment year (75 FR 49118). The commenter pointed out that in the CY 2011 ESRD PPS final rule we did not finalize the phrase, “or received a new provider number due to a change in ownership” in the regulation text at § 413.232(b)(2) and in our discussion of the definition of a low-volume facility in this year's proposed rule we only referred to the phrase, “or had a change in ownership” (76 FR 40507). The commenter is concerned that if we do not include the phrase, “or received a new provider number due to a change in ownership” in the regulation text at § 412.232(b)(2) that it will negatively impact new owners of underperforming clinics that would otherwise wish to apply for the low-volume designation. Response: We agree with the commenter that in the CY 2011 final rule we inadvertently omitted the phrase, “or received a new provider number due to a change in ownership” in the regulation text finalized at § 413.232(b)(2). In the preamble of both the CY 2011 ESRD PPS proposed and final rules (74 FR 49118 through 49919, 74 FR 49975), we made clear that under § 413.232(b), a low-volume facility is defined as an ESRD facility that “has not opened, closed, or received a new provider number due to a change of ownership * * *”; however, we inadvertently omitted language from the regulation (74 FR 50024, 74 FR 49200). Therefore, in this final rule, we are making a technical correction to the regulation text at § 413.232(b)(2) to reflect that a low-volume facility is an ESRD facility that has not open, closed, or received a new provider number due to a change in ownership in the 3 years preceding the payment year. Comment: One independent ESRD facility questioned the policy that ESRD facilities must remain low volume (that is, provide less than 4,000 dialysis treatments) for three years immediately preceding the payment year or risk not qualifying for the low-volume adjustment until it can once again demonstrate it is low volume for three consecutive years. The commenter further stated that many small or rural dialysis facilities provide the only access to care in a geographic area and this policy requires the established low-volume facility to choose between providing access to care and significant, long term payment reductions. The commenter further stated that this policy could result in dialysis facilities denying care to avoid crossing the 4,000 threshold. The commenter suggested that CMS consider reducing the eligibility timeline for small facilities that have met the low-volume eligibility criteria so that they could re-qualify for the low-volume adjustment in the following year if their treatments returned to less than 4,000 per year. Response: We do not agree with the commenter's assertion of the negative effects of the low-volume eligibility criteria. The low-volume adjustment is intended for ESRD facilities that are located in areas that have a population base resulting in less than 4,000 treatments per year and is not intended to account for fluctuations or business decisions that increase or decrease the number of treatments that can or would be provided. We do not believe that these fluctuations or changes in the population from year to year would in most circumstances result in a facility not being eligible for the low-volume adjustment. As we indicated in the CY 2011 ESRD PPS final rule (75 FR 49118 and 49119), we believe the low-volume adjustment should encourage small ESRD facilities to continue to provide access to care, but are concerned about potential disincentives that low-volume facilities could have regarding patient care. We are monitoring the number of facilities that are receiving the low-volume adjustment. Any changes in the low-volume methodology will be discussed in future rulemaking. As for allowing facilities that lose low-volume status to requalify for low-volume status the next year, any changes in the low-volume eligibility criteria would be addressed in future rulemaking. 6. Update to the Drug Add-On to the Composite Rate Portion of the ESRD Blended Payment Rate Section 1881(b)(14)(E)(i) of the Act requires a four-year transition under the ESRD PPS. Under § 413.239, ESRD facilities were permitted to make a one-time election by November 1, 2011, to be excluded from the transition and receive full payment under the ESRD PPS. Under § 413.239, in CY 2012, ESRD facilities that elected to receive payment under the transition will be paid a blended amount that will consist of 50 percent of the basic case-mix adjusted composite payment system and 50 percent on the ESRD PPS payment. Thus, we must continue to update the composite rate portion of the blended payment amount during the ESRD PPS 4-year transition (CYs 2011 through 2013), which includes an update to the drug add-on. Under section 1881(b)(12) of the Act, the basic case-mix adjusted composite payment system includes the services comprising the composite rate and an add-on to the composite rate component to account for the difference between pre-MMA payments for separately billed drugs and the revised drug pricing specified in the statute. For the drug add-on for CY 2012 (76 FR 40508 and 40509), we did not propose any changes to the methodology, but merely updated the data used in computing the drug add-on as described below. a. Estimating Growth in Expenditures for Drugs and Biologicals in CY 2012 Section 1881(b)(12)(F) of the Act specifies that the drug add-on increase must reflect “the estimated growth in expenditures for drugs and biologicals (including erythropoietin) that are separately billable * * *”. By referring to “expenditures”, we believe the statute contemplates that the update would account for both increases in drug prices, as well as increases in utilization of those drugs. To account for increases in drug prices and utilization, we used the 5 years of drug expenditure data based on ASP pricing and proposed to use this data for trend analysis (76 FR 40508). We then removed growth in enrollment for the same time period from the expenditure growth so that the residual reflects the per patient expenditure growth (which includes price and utilization combined). To estimate drug expenditure growth using trend analysis for CY 2012, we looked at the average annual growth in total drug expenditures between 2006 and 2010. First, we estimated the total drug expenditures for all ESRD facilities in CY 2010. We used the final CY 2006 through CY 2009 ESRD claims data and the latest available CY 2010 ESRD facility claims, updated through December 31, 2010 (that is, claims with dates of service from January 1 through December 31, 2010, that were received, processed, paid, and passed to the National Claims History File as of December 31, 2010). We indicated that for this final rule, we intended to use additional updated CY 2010 claims with dates of service for the same timeframe (76 FR 40508). This updated CY 2010 data file would include claims received, processed, paid, and passed to the National Claims History File as of June 30, 2011. We inflated the CY 2010 drug expenditures to estimate the June 30, 2011 update of the 2010 claims file. The net adjustment to the CY 2010 claims data was an increase of 11.62 percent to the 2010 expenditure data, which allowed us to more accurately compare the 2009 and 2010 drug expenditure data to estimate per patient growth. Next, we calculated the average annual change in drug expenditures from 2006 through 2010. This average annual change showed an increase of 1.4 percent in drug expenditures from 2006 through 2010 (76 FR 40508). We used this 1.4 percent increase to project drug expenditures for both 2011 and 2012. For the final rule, using the full-year 2010 drug expenditure figure, we calculated the average annual change in drug expenditure from 2006 through 2010. This average annual change showed an increase of 1.0 percent in drug expenditures from 2006 through 2010. We used this 1.0 percent increase to project drug expenditures for both 2011 and 2012. We note, the change in the drug expenditures increase is a result of updated data. b. Estimating per Patient Growth In the proposed rule, we explained that once we had the projected growth in drug expenditures from 2011 to 2012, we calculated per patient growth between CYs 2011 and 2012 by removing the estimated growth in enrollment data between CY 2011 and CY 2012 (76 FR 40508). We estimate a 4.2 percent estimated growth in enrollment between CY 2011 and CY 2012. To obtain the per-patient estimated growth in expenditures, we divided the total drug expenditure change between 2011 and 2012 (1.014) by enrollment growth of 4.2 percent (1.042) for the same timeframe. The result was a per-patient growth factor equal to 0.973 (1.014/1.042 = 0.973). Thus, we projected a 2.7 percent decrease (2.7 percent = .027 = 0.973−1) in per patient growth in drug expenditures between 2011 and 2012. For this final rule, we estimate a 4.3 percent estimated growth in enrollment between CY 2011 and CY 2012. To obtain the per-patient estimated growth in expenditures, we divided the total drug expenditure change between 2011 and 2012 (1.010) by enrollment growth of 4.3 percent (1.043) for the same timeframe. The result is a per-patient growth factor equal to 0.968 (1.010/1.043 = 0.968). Thus, in this final rule, for CY 2012 we are projecting a 3.2 percent decrease (−3.2 percent = 1.010/1.043−1 = 0.968−1) in per patient growth in drug expenditures between 2011 and 2012. c. Applying the Growth Update to the Drug Add-On Adjustment In the CY 2006 PFS final rule (71 FR 69683), we applied the projected growth update percentage to the total amount of drug add-on dollars established for CY 2005 to establish a dollar amount for the CY 2006 growth update. In addition, we projected the growth in dialysis treatments for CY 2006 based on the projected growth in ESRD enrollment. We divided the projected total dollar amount of the CY 2006 growth by the projected growth in total dialysis treatments to develop the per treatment growth update amount. This growth update amount, combined with the CY 2005 per treatment drug add-on amount, resulted in an average drug add-on amount per treatment of $18.88 (or a 14.5 percent adjustment to the composite rate) for CY 2006. In the CY 2007 PFS final rule with comment period (71 FR 69684), as a result of public comments, we revised our update methodology by applying the growth update to the per treatment drug add-on amount. That is, for CY 2007, we applied the growth update factor of 4.03 percent to the $18.88 per treatment drug add-on amount resulting in an updated per treatment drug add-on amount of $19.64 per treatment (71 FR 69684). For CY 2008, the per treatment drug add-on amount was updated to $20.33. In the CY 2009, 2010 and 2011 PFS final rule with comment period (73 FR 69755 through 69757, 74 FR 61923, and 75 FR 73485, respectively), we applied a zero update to the per treatment drug add-on amount resulting in a per treatment drug add-on amount of $20.33. As discussed in detail below, in this final rule, for CY 2012, we are finalizing a zero update to the per treatment drug add-on amount of $20.33 established in CY 2008. d. Update to the Drug Add-On Adjustment for CY 2012 We estimated a 1.4 percent increase in drug expenditures between CY 2011 and CY 2012 (76 FR 40509). Combining this increase with a 4.2 percent increase in enrollment, as described above, we projected a 2.7 percent decrease in per patient growth of drug expenditures between CY 2011 and CY 2012. Therefore, we projected that the combined growth in per patient utilization and pricing for CY 2012 would result in a decrease to the drug add-on equal to 0.4 percentage points. This figure was derived by applying the 2.7 percent decrease to the CY 2011 drug add-on of $20.33. This resulted in a revised drug add-on of $19.78, which is 14.0 percent of the proposed CY 2012 base composite rate of $141.52. If we were to apply no decrease to the drug add-on of $20.33, this would result in a 14.4 percent drug add-on. However, similar to last year and as indicated above, we proposed a zero update to the drug add-on adjustment. We explained in the proposed rule that we believed this approach is consistent with the language under section 1881(b)(12)(F) of the Act, which states in part that “the Secretary shall annually increase” the drug add-on amount based on the growth in expenditures for separately billed ESRD drugs. Our understanding of the statute contemplates “annually increase” to mean a positive or zero update to the drug add-on. Therefore, we proposed to apply a zero update and maintain the $20.33 per treatment drug add-on amount for CY 2012. The comments and our responses are set forth below. Comment: Two commenters supported our proposed zero drug-add. Response: We thank the commenters for their support. Comment: One commenter indicated that ESA usage is overstated in 2006 through 2010 and that this would have an effect on the drug add-on and the ESRD PPS base rate calculations. The commenter recommended that we develop an ESA adjuster for the ESRD PPS base rate. Response: We used the best available data to compute the drug add-on and the base rate. We continue to believe that the information on ESRD claims represent the best information currently available to the agency. Because we are required under section 1881(b)(14)(A)(ii) of the Act to use the lowest utilization year (which we determined to be 2007), we did not have discretion on the data we used in calculating the ESRD PPS base rate. We note that it is common for utilization of services to change after implementation of a PPS. That is why we periodically review our payment systems to determine if a refinement is warranted. In addition, if we were to adjust for ESA over usage in computing the drug add-on, this would lower the trend and the drug add-on would become more negative. As we discussed above, section 1881(b)(12)(F) of the Act, precludes a reduction of the drug add-on because the statute requires that we annually increase the drug add-on. In this final rule, for CY 2012, we estimate a 1.0 percent increase in drug expenditures between CY 2011 and CY 2012. Combining this increase with a 4.3 percent increase in enrollment, we project a 3.2 percent decrease in per patient growth of drug expenditures between CY 2011 and CY 2012. Therefore, we project that the combined growth in per patient utilization and pricing for CY 2012 would result in a decrease to the drug add-on equal to 0.4 percentage points. This figure is derived by applying the 3.2 percent decrease to the CY 2011 drug add-on of $20.33. This results in a revised drug add-on of $19.69, which is 13.9 percent of the final CY 2012 base composite rate of $141.94. If we were to apply no decrease to the drug add-on of $20.33, this would result in a 14.3 percent drug add-on. Similar to last year and as discussed above, for CY 2012, we are finalizing a zero update to the drug add-on and maintaining the $20.33 per treatment drug add-on amount. The current $20.33 per treatment drug add-on reflected a 14.7 percent drug add-on adjustment to the composite rate in effect for CY 2011. Using the latest ESRDB market basket minus productivity adjustment to update the composite rate portion of the ESRD PPS payment (forecast of 2.1 percent in 2012 effective January 1, 2012, as discussed in section I.B.2.b. of this final rule), results in a decrease to the CY 2012 drug add-on adjustment from 14.7 to 14.3 percent in order to maintain the drug add-on at $20.33. This decrease occurs because the drug add-on adjustment is a percentage of the composite rate. Since the final CY 2012 composite rate is higher than the CY 2011 composite rate, and since the drug add-on remains at $20.33, the percentage decreases. Therefore, we are finalizing for CY 2012 the drug add-on adjustment of 14.3 percent to the composite rate. 7. Updates to the Wage Index Values and Wage Index Floor for the Composite Rate Portion of the Blended Payment and the ESRD PPS Payment Section 1881(b)(14)(D)(iv)(II) of the Act provides that the ESRD PPS may include such other payment adjustments as the Secretary determines appropriate, such as a payment adjustment by a geographic wage index, such as the index referred to in section 1881(b)(12)(D) of the Act. In the CY 2011 ESRD PPS final rule (75 FR 49117 through 49117) and CY 2011 PFS final rule (75 FR 73486), we finalized the wage index policy under the ESRD PPS. Specifically, under the ESRD PPS, we have adopted the same method and source of wage index values used previously for the basic case-mix adjusted composite payment system. We use the Office of Management and Budget's (OMB's) Core Based Statistical Area (CBSA)-based geographic area designations to define urban and rural areas and corresponding wage index values (76 FR 40509). In addition, the wage index values used under the ESRD PPS are the inpatient prospective payment system (IPPS) wage index values calculated without regard to geographic reclassifications authorized under sections 1881(d)(8) and (d)(10) of the Act, and utilize pre-floor hospital data that are unadjusted for occupational case mix. The CBSA-based geographic area designations are described in OMB Bulletin 03-04, originally issued June 6, 2003, and are available online at http://www.whitehouse.gov/omb/bulletins/b03-04.html . In addition, OMB has published subsequent bulletins regarding CBSA changes, including changes in CBSA numbers and titles. All ESRD rules and notices are considered to incorporate the CBSA changes published in the most recent OMB bulletin that applies to the hospital wage index used to determine the current ESRD wage index. The OMB bulletins may be accessed online at http://www.whitehouse.gov/omb/bulletins/index.html . Under the ESRD PPS, we adopted a wage index floor during the transition, though we intended to gradually reduce the ESRD wage index floor (76 FR 40509, 75 FR 49117, 75 FR 73486). In the proposed rule (76 FR 40502-40503), we did not propose any changes to the labor-related share for the ESRD PPS and the composite rate portion of the blend and proposed to continue to use a labor-related share of 41.737 percent for CY 2012 for the ESRD PPS. If an ESRD facility elected to transition to the PPS, the labor-related share for the composite rate portion of the blended payment is 53.711 percent. We proposed to continue to use the labor-related share of 53.711 percent for the composite rate portion of the blended payment for all the years of the transition. As discussed in section I.2.b of this final rule, we finalized the proposed labor-related share for the ESRD PPS and the composite rate portion of the blended payment. Finally, the wage data used to construct the wage index under the ESRD PPS is updated annually, based on the most current data available and based on OMB's definitions and corresponding wage index values. As we previously indicated, because ESRD facilities could elect to receive a blended payment during the transition, we continue to update the composite rate portion of the ESRD PPS blended payment, including adjusting payments for geographic differences in area wage levels (76 FR 40509, 75 FR 40163). We did not propose any changes to the methodology for the wage index used to adjust the composite rate portion of the ESRD PPS blended payment. However, we did propose to update the wage index values and the wage index budget-neutrality adjustment factor for CY 2012. We did not receive any comments pertaining to our proposal to update the wage index values and the wage index budget-neutrality adjustment factor for CY 2012 for the composite rate portion of the blended payment under the transition. Consequently, we are finalizing our proposal. Although we did not propose to make any changes to the methodology for updating the CY 2012 wage index under the ESRD PPS (that is, for full ESRD PPS payments and the ESRD PPS portion of the blended payment under the transition), we did propose a wage index budget-neutrality adjustment factor to be applied in CY 2012 and in subsequent years for the ESRD PPS (76 FR 40509). We received one comment as set forth below. Comment: One independent ESRD facility indicated that it based its decision to receive payment under the transition because the CY 2011 composite rate wage index value for the facility's area was higher than the wage index value for the ESRD PPS. The commenter stated that the higher composite rate wage index would be beneficial to those facilities that opted to receive payment under the transition. The commenter indicated that the variances between the CY 2012 proposed composite rate and ESRD PPS wage index values are not as great as compared to the CY 2011 variance, which was not anticipated by the commenter at the time the election was made to transition into the ESRD PPS and stated that this is not beneficial for those dialysis facilities transitioning to the ESRD PPS. Response: The commenter is correct that the differences in the CY 2012 composite rate and ESRD PPS wage index values in the proposed rule are not as significant as they were in the CY 2011 ESRD PPS final rule. The principle reason for the differences in the composite rate and ESRD PPS wage index values in the CY 2011 final rule is that the wage index budget neutrality adjustment was applied to the composite rate values, while budget neutrality for the ESRD PPS was achieved through the overall 98 percent budget-neutrality requirement (76 FR 40510). The reason the variances between the CY 2012 proposed composite rate and ESRD PPS wage index values are less pronounced is because the proposed wage index budget-neutrality adjustment for CY 2012 for the composite rate portion of the blended payment is lower than the budget-neutrality adjustment factor for CY 2011. As we discussed above, in detail and in section I.C.1 of this final rule, the wage index budget-neutrality adjustment for the ESRD PPS and the ESRD PPS portion of the blended payment is not applied to the wage index values, but rather to the ESRD PPS base rate. Therefore, the variance described by the commenter is related solely to the wage index budget-neutrality adjustment for the composite rate portion of the blended payment. A comparison to the ESRD PPS wage index value is not appropriate because the composite rate wage index has a wage index budget-neutrality adjustment applied while the ESRD PPS wage index does not. Since we did not receive any comments pertaining to our proposals regarding the method of applying the wage index budget-neutrality adjustment, that is, applying the wage index budget-neutrality adjustment to the wage index values for the composite rate portion of the blended payment and applying the wage index budget-neutrality adjustment to the ESRD PPS base rate for the PPS portion of the blended payment and the ESRD PPS payment, and for the reasons we discussed previously, we are finalizing those policies. a. Reduction to the ESRD Wage Index Floor The wage index floor for CY 2011 is 0.600 (75 FR 49116 and 49117 and 75 FR 73487). For CY 2012 and CY 2013, we proposed to continue to reduce the wage index floor by 0.05 for each of the remaining years of the transition (that is, for CY 2012, the wage index value would be reduced from 0.600 to 0.550, and further reduced to 0.500 for CY 2013) (76 FR 40510). The ESRD wage index floor value of 0.550 would be applied to areas with wage index values that are below the proposed wage index floor. Beginning January 1, 2014, we proposed that the wage index floor would no longer be applied because the wage index floor would be lower than areas with low wage index values. In the CY 2012 ESRD PPS proposed rule, we stated that we continue to believe that a gradual reduction in the floor is needed to support continuing patient access to dialysis in areas that have low wage index values, especially in areas where the wage index values are below the current wage index floor—specifically, ESRD facilities located in Puerto Rico (76 FR 40510). We solicited comments on the proposal to continue to gradually reduce the wage index floor in CYs 2012 and 2013 and, the elimination of the floor in CY 2014. The comments we received and our responses are set forth below. Comment: Three commenters responded regarding our proposal to reduce and eventually eliminate the wage index floor. One commenter requested that the wage index floor be maintained for rural dialysis facilities due to their higher staffing costs, which could aggravate disparities in care and might impair access to care in rural areas. One independent ESRD facility indicated that the reduction of the wage index floor threatens facilities with low wage index values and may result in access to care problems. One ESRD organization requested that we reconsider establishing a wage index floor after the transition because the commenter believes that eliminating the floor would be detrimental to small dialysis organizations (SDOs). The commenter also stated that some small facilities are located in a single community and, as such, are not able to spread their operating costs as larger organizations. The commenter further stated that these facilities are in parts of the country where the wage index is lowest, and the absence of a floor threatens their survival and negatively impacts access to care. Response: In the proposed rule, we proposed to reduce the floor by 0.05 for CYs 2012 and 2013 and to eliminate the floor beginning in 2014 (76 FR 40509 through 40510). We have been reducing the wage index floor since CY 2006 when ESRD facilities began to transition to the CBSAs and the wage index floor was 0.900 (70 FR 45799). We have reduced the wage index floor by 0.05 each year since then. In CY 2011, the floor is 0.600 and only impacts ESRD facilities located in Puerto Rico, because no other ESRD facilities are located in areas with a wage index value below 0.600. This is also the case in CY 2012, when the 0.05 reduction will bring the floor to 0.550. We continue to believe that artificially adjusting wage index values by substituting a wage index floor is not an appropriate method to address low wages in certain geographic locations. However, we are willing to take the points made by the commenters into consideration for future rulemaking with regard to the issue of eliminating the wage index floor in the future. With regard to the comment that small facilities are located in areas with the lowest wage index values and the negative effects of eliminating the floor, we note that the commenter is located in West Virginia and in CY 2011, has a wage index value of 0.7055, well above the wage index floor of 0.600. Therefore, the reduction of the floor does not impact this provider. With regard to areas that are impacted by the reduction of the wage index floor (that is Puerto Rico), we note that the overall impact (discussed in section VII.B of this final rule) of the changes in the outlier policy discussed in section I.C.10 of this final rule and the wage index results in a 0.3 percent increase in estimated payments. Therefore, we do not believe that ESRD facilities will be negatively impacted by the reduction in the wage index floor. We note that the wage index values reflects\ hospital wages, unadjusted for occupational mix. Therefore, we believe it reflects ESRD facility staff wages. With regard to the comment that some small facilities are located in a single community and, as such, are not able to spread their operating costs as larger organizations can, we do not understand the relationship between the wage index floor and limitations a facility may have to spread its operating costs. After considering the comments received, we are finalizing the 0.05 reduction to the wage index floor for CYs 2012 and 2013, resulting in a wage index floor of 0.550 and a wage index floor of 0.500, respectively. Although we continue to believe that artificially adjusting the wage index value using a floor, which does not reflect actual wages paid in that area, we will reconsider the floor in CY 2014. b. Policies for Areas With No Hospital Data In CY 2006, while adopting the CBSA designations for the basic case-mix adjusted composite payment system, we identified a small number of ESRD facilities in both urban and rural areas where there are no hospital data from which to calculate wage index values. Since there were ESRD facilities in these areas, we developed policies for each of these areas. In the CY 2011 ESRD PPS final rule (75 FR 49117), we finalized the methodology we have used for urban areas with no hospital data, that is, we compute the average wage index value of all urban areas within the State and use that value as the wage index. We also finalized the methodology established for rural areas with no hospital data originally adopted in the CY 2008 PFS final rule (72 FR 66283), in which we computed the wage index using the average wage index values from all contiguous CBSAs to represent a reasonable proxy for that rural area. For rural Massachusetts, we determined that the borders of Dukes and Nantucket Counties are continguous with Barnstable and Bristol counties. Under the methodology, the values for these counties are averaged to establish the wage index value for rural Massachusetts. For rural Puerto Rico, we finalized a policy to use the wage index floor as the wage index value, since all rural Puerto Rico areas were subject to the floor. In the proposed rule, we did not propose to change these methodologies. We proposed for CY 2012 and for future years, to continue to use the methodologies we adopted for establishing wage index values in both urban and rural geographic areas where there are no hospital wage data from which to calculate wage index values for ESRD facilities (76 FR 40510). We did not receive any comments on our proposed methodology for computing a wage index value for areas without hospital data for urban and rural geographic areas, or for Puerto Rico. Therefore, for CY 2012 and future years, we are finalizing our methodologies for computing a wage index value for areas without hospital data for urban and rural geographic areas and for Puerto Rico. For urban areas, we will compute the average wage index value of all urban areas within the State; for rural areas, we will compute the wage index using the average wage index values from all contiguous CBSAs; and for rural Puerto Rico, we will use the wage index floor. c. Wage Index Budget-Neutrality Adjustment We have broad discretion under section 1881(b)(14)(D)(iv)(II) of the Act to develop a geographic wage index. In addition, that section cites the wage index under the basic case-mix adjusted composite payment system as an example. We have previously interpreted the statute for the basic case-mix adjusted composite payment system (section 1881(b)(12)(D) of the Act) as requiring that the geographic adjustment be made in a budget-neutral manner. In CY 2011, we did not apply a wage index budget-neutrality adjustment factor under the ESRD PPS because budget-neutrality was achieved through the overall 98 percent budget-neutrality requirement in section 1881(b)(14)(A)(ii) of the Act. Given our authority to develop a wage index under section 1881(b)(14)(D)(iv)(II) of the Act, as well as the authority to use the geographic index under section 1881(b)(12)(D) of the Act, we proposed to apply the wage index in a budget-neutral manner under the ESRD PPS using a wage index budget-neutrality adjustment factor (76 FR 40510). However, as we discuss in greater detail below, we proposed that under the ESRD PPS, we would apply the wage index budget-neutrality adjustment factor to the ESRD PPS base rate. Under the basic case-mix adjustment composite payment system, we began applying the wage index budget-neutrality adjustment factor in CY 2006 (70 FR 70171). During the ESRD PPS transition, we proposed to continue to apply the wage index budget-neutrality adjustment to the wage index values for the composite rate portion of the ESRD PPS blended payment for CYs 2012 and 2013 (76 FR 40510). We noted that continuing to apply the budget-neutrality adjustment to the wage index for the composite rate portion of the ESRD PPS blended payment allows ESRD facilities going through the transition to continue to use a methodology to which they are accustomed. However, under the ESRD PPS, we believed that applying the wage index budget-neutrality adjustment factor to the ESRD PPS base rate would be consistent with the application of the wage index budget-neutrality adjustment factor in other prospective payment systems. We also believed that applying the wage index budget-neutrality adjustment factor to the ESRD PPS base rate is simpler and more straightforward in application and calculation. Applying the wage index budget-neutrality adjustment factor to the ESRD PPS base rate produces results that are not measurably different from applying the adjustment factor to the wage index, as is done for the composite rate portion of the blended payment during the transition. We sought comment on our proposal to apply the wage index budget-neutrality adjustment factor to the ESRD PPS base rate for purposes of the ESRD PPS payments and the ESRD PPS component of the blended payments during the transition. We did not receive any comments on our proposal to apply the wage index budget-neutrality adjustment to the ESRD PPS base rate and to continue to apply the wage index budget-neutrality adjustment to the wage index values for the composite rate portion of the blended payment. Therefore, for CY 2012 and subsequent years, we are finalizing our proposal to apply the wage index budget-neutrality adjustment factor to the ESRD PPS base rate for the purposes of the ESRD PPS payments and the ESRD PPS portion of the blended payment during the transition. We are also finalizing our proposal to continue to apply the wage-index budget-neutrality adjustment factor directly to the ESRD wage index values for the composite rate portion of the blended payment for CY 2012 and CY 2013. Because the ESRD wage index is only applied to the labor-related portion of the composite rate, we computed the wage index budget-neutrality adjustment factor based on that portion. That is, the labor-related share of the composite rate portion of the blended payment of 53.711 percent. This labor-related share was developed from the labor-related components of the 1997 ESRD composite rate market basket that was finalized in the 2005 PFS final rule (70 FR 70168). The labor-related share of the ESRD PPS is 41.737 percent labor (that is, the portion of the ESRD PPS payment rate and the ESRD PPS portion of the blended payment). As discussed in the CY 2011 ESRD PPS final rule (75 FR 49161), we used the 2008-based ESRDB market basket cost weights to determine the labor-related share for ESRD facilities under a bundled system. Under the ESRDB market basket, the labor-related share for ESRD facilities is 41.737. These figures represent the sum of Wages and Salaries, Benefits, Housekeeping and Operations, All Other Labor-related Services, 87 percent of the weight for Professional Fees and, 46 percent of the weight for Capital-related Building and Equipment expenses. To compute the proposed CY 2012 wage index budget-neutrality adjustment factors, we proposed to use the fiscal year (FY) 2012 pre-floor, pre-reclassified, non-occupational mix-adjusted hospital data to compute the wage index values, 2010 outpatient claims (paid and processed as of December 31, 2010), and geographic location information for each facility which, may be found through Dialysis Facility Compare (76 FR 40510-40511). Dialysis Facility Compare can be found at the Dialysis Facility Compare Web page on the CMS Web site at http://www.cms.hhs.gov/DialysisFacilityCompare/ . The FY 2012 hospital wage index data for each urban and rural locale by CBSA may also be accessed on the CMS Web site at http://www.cms.hhs.gov/AcuteInpatientPPS/WIFN/list.asp . The wage index data are located in the section entitled, “FY 2012 Final Rule Occupational Mix Adjusted and Unadjusted Average Hourly Wage and Pre-Reclassified Wage Index by CBSA.” We did not receive any comments on the methodology used to compute the budget-neutrality adjustment factors. Therefore, for CY 2012 and beyond, we are finalizing the methodology we proposed for computing the CY 2012 wage index budget-neutrality adjustment factors (76 FR 40510 and 40511). Using treatment counts from the 2010 claims and facility-specific CY 2011 payment rates, we computed the estimated total dollar amount each ESRD facility would have received in CY 2011. The total of these payments became the target amount of expenditures for all ESRD facilities for CY 2012. Next, we computed the estimated dollar amount that would have been paid for the same ESRD facilities using the final ESRD wage index for CY 2012. The total of these payments becomes the new CY 2012 amount of wage-adjusted payment rate expenditures for all ESRD facilities. After comparing these two dollar amounts (target amount divided by the new CY 2012 amount), we calculated two wage index budget-neutrality adjustment factors that, when multiplied by the applicable CY 2012 estimated payments, would result in aggregate payments to ESRD facilities that would remain budget-neutral when compared against the target amount of payment rate expenditures. The first factor was applied to the ESRD PPS base rate. The second factor was applied to the wage index values for the composite rate portion of the blended payment. Therefore, in this final rule, we are finalizing for CY 2012, the wage index budget-neutrality adjustment factor for the composite portion of the ESRD PPS blended payment of 1.002830, which is applied directly to the ESRD wage index values. For the ESRD PPS (that is, for the full ESRD PPS payments and the ESRD PPS portion of the blended payments during the transition), we are finalizing the wage index budget-neutrality adjustment factor of 1.001520 which is applied to the ESRD PPS base rate. Under the ESRD PPS, the wage index floor for CY 2012 is 0.550 because the wage index budget-neutrality adjustment factor is applied to the base rate. As we indicated in the proposed rule (76 FR 40511), because we apply the wage index budget-neutrality adjustment factor to the wage index values to ensure budget-neutrality under the composite rate portion of the blended payment, we also apply the wage index budget-neutrality adjustment factor to the wage index floor. We note this would apply to areas in Puerto Rico subject to the floor. Therefore, for the composite rate portion of the blended payment, we are finalizing for CY 2012 to apply the wage index budget-neutrality adjustment factor to the wage index floor of 0.550 which results in an adjusted wage index floor of 0.552 (1.002830 × 0.550). d. ESRD PPS Wage Index Tables The CY 2012 ESRD wage index tables, referred to as Addendum A (ESRD facilities located in urban areas), and Addendum B (ESRD facilities located in rural areas) are posted on the CMS Web site at: http://www.cms.gov/ESRDPayment/PAY/list.asp . The wage index tables list two separate columns of wage index values. One column represents the wage index values for the composite rate portion of the blended payment to which the wage index budget-neutrality adjustment factor has been applied. The other column lists the wage index values for the ESRD PPS, which does not reflect the application of the wage index budget-neutrality adjustment factor, because as we discussed above, we apply the wage index budget-neutrality adjustment factor to the ESRD PPS base rate. 8. Drugs a. Vancomycin In the CY 2011 ESRD PPS final rule (75 FR 49050 through 49052), we stated that antibiotics used for the treatment of venous access infections and peritonitis, are renal dialysis services under the ESRD PPS. Payments for anti-infective drugs in injectable forms (covered under part B) and oral or other forms of administration (formerly covered under part D) used in the treatment of ESRD, were included in computing the final ESRD PPS base rate and, would not be separately paid under the ESRD PPS. We also noted that the oral versions of vancomycin are not used for ESRD-related conditions and, therefore, would not be considered a renal dialysis service. We further stated that any anti-infective drug or biological used for the treatment of ESRD-related conditions would be considered a renal dialysis service and, not eligible for separate payment. We noted this policy also applies to any drug or biological that may be developed in the future. We established edits to ensure that separate payment could not be made to ESRD facilities for vancomycin which has traditionally been used by ESRD facilities to treat access infections. In the proposed rule (76 FR 40511), we acknowledged that since the publication of the CY 2011 ESRD PPS final rule, we had received numerous comments indicating that vancomycin is indicated in the treatment of both ESRD and non-ESRD conditions, such as skin infections. We further stated that after consultation with our medical experts, we concurred with the commenters. Therefore, we proposed to eliminate the restriction on vancomycin to allow ESRD facilities to receive separate payment by placing the AY modifier on the claim for vancomycin when furnished to treat non-ESRD-related conditions. In accordance with ICD-9 guidelines, as described in the ESRD PPS final rule (75 FR 49107), the ESRD facility would also be required to indicate the diagnosis code for which the vancomycin is indicated. We noted that treatment of any skin infection that is related to renal dialysis access management would be considered a renal dialysis service and would continue to be paid under the ESRD PPS, and no separate payment would be made. We sought public comments on our proposal to eliminate the restriction on vancomycin to allow ESRD facilities to receive separate payment for these drugs when furnished to treat non-ESRD-related conditions. The comments we received and our responses are set forth below: Comment: Two commenters suggested that we allow for separate payment for daptomycin when furnished by ESRD facilities for non-ESRD related conditions. Response: We thank the commenter for the suggestion to allow for separate payment of daptomycin when used for non-ESRD related conditions. As noted above, we had established system edits to ensure that ESRD facilities could not be paid separately for both vancomycin and daptomycin. We will consider removing the system edit for daptomycin in future rulemaking. Comment: We received six comments in support of our proposal to eliminate the restriction on vancomycin and allow for separate payment when furnished for non-ESRD-related conditions. Response: We thank the commenters for their support. Consequently, in this final rule we are finalizing the proposal to eliminate the restriction on vancomycin to allow ESRD facilities to receive separate payment by placing the AY modifier on the claim for vancomycin when furnished to treat non-ESRD related conditions. In accordance with ICD-9 guidelines as described in the CY 2011 ESRD PPS final rule (75 FR 49107), the ESRD facility must indicate the diagnosis code for which the vancomycin is indicated. We reiterate that treatment of any skin infection that is related to renal dialysis access management would be considered a renal dialysis service and would continue to be paid under the ESRD PPS, and no separate payment would be made. b. Drug Overfill In the CY 2011 PFS final rule (75 FR 73466), we explained the methodology for Part B payment for drugs and biologicals that include intentional overfill, and that the Medicare average sales price (ASP) payment limit is based on the amount of drug conspicuously indicated on the labeling approved by the Food and Drug Administration (FDA). We indicated that we had become aware of situations where manufacturers intentionally included a small amount of overfill in drug containers, and that this overfill is provided at no extra charge to the provider. We also noted that we understood the intent of the intentional overfill was to compensate for product loss during the proper preparation and administration of a drug. We explained that ASP calculations are based on data reported by manufacturers, including “volume per item”. Therefore, providers may only bill for the amount of drug product actually purchased and the cost that the product represents (75 FR 73467). We stated in the proposed rule (76 FR 40511) that this part B provision applies under the ESRD PPS. We explained that ESRD facilities receiving blended payments under the transition would receive payments based on ASP for separately billable ESRD drugs and biologicals for the composite rate portion of the blend. In addition, under the ESRD PPS outlier policy, the ESRD-related drugs that ESRD facilities report on claims are priced for the outlier policy using ASP prices. Therefore, ESRD facilities may only report units and charges for drugs or biologicals actually purchased. Comment: Three commenters expressed concern that the drug overfill policy was not appropriate under the ESRD PPS. One commenter stated that the use of overfill is an efficient operation and expressed concern that the new policy would lead to excessive wastage. A commenter disagreed with our assertion that overfill is provided by manufacturers without charge to the provider and stated that there would be additional costs if facilities are not allowed to maximize drug usage. The commenter believes the cost to providers includes the full amount of drug in each vial. One commenter stated that dialysis providers may and should administer overfill if clinically appropriate to reduce costs and waste. The commenter cited the administration of EPO as an example. One commenter stated that, “* * * providers have been purchasing drugs with overfill amounts and use of the overfill amount has long been known by both the Office of Inspector General (OIG) and CMS.” Response: We disagree with the commenters that believe our proposal would restrict the clinical use of intentional overfill. As we indicated in the CY 2011 PFS final rule (75 FR 73467), our policy here is not intended to limit the use of intentional overfill during the care of beneficiaries or in medical practice; such measures are beyond CMS' authority. Rather, the proposed rule merely set forth how and under what conditions we would make payment under the ESRD PPS outlier policy. Consistent with prior rulemaking, under our authority in section 1881(b)(14)(D)(ii) of the Act, we are adopting the ASP policy on overfill for purposes of calculating the outlier payment. We believe the use of the ASP policy for purposes of calculating the outlier payment is appropriate because, for the reasons stated, we believe overfill does not represent a cost to the facility; thus, overfill should not factor into our determination of outlier payments. This rule does not purport to regulate the use of overfill, only whether it is reimbursed under our outlier policy and the composite rate portion of the blended payment during the transition. Thus, whether we or the OIG had information about certain providers' purchase and use of overfill is irrelevant. Comment: A large dialysis organization indicated that the drug overfill policy should not apply to ESRD facilities because the ASP payment regulation applies to drugs “not paid on a cost or prospective payment system basis.” The commenter contends it would not apply under the ESRD PPS even though outlier eligible drugs are priced using the ASP prices established under section 1847A of the Act. The commenter stated that CMS cannot substitute the ASP method for a portion of the ESRD PPS. The commenter further contends that because dialysis providers may administer overfill, but CMS's proposal would prohibit them from submitting a claim that includes overfill, it appears that CMS expects providers either to inaccurately state the services furnished on the claims form or incur significant expense to separately track overfill amounts, which may be used for thousands of patients daily, resulting in unnecessary burden. The commenter opined that applying the ASP payment rule under the ESRD PPS is inconsistent with the policy objectives of a PPS leading to wastage if facilities continue to use single-use vials or extra expenses if facilities migrate to multi-dose vials. Response: We disagree with these comments. First, as noted above, we proposed to incorporate into our outlier policy the policy for overfill under the ASP methodology; however, our authority to determine an outlier policy is found in section 1881(b)(14) of the Act, which calls for a prospective payment basis for renal dialysis services and authorizes an outlier payment adjustment. Thus, contrary to the commenter's assertion, we are paying for drugs subject to the ESRD PPS outlier policy under a prospective payment system, not under section 1847A of the Act. Under the outlier policy, we use the ASP methodology, which is based upon manufacturer reporting of the labeled amount of a drug and not any other amount (that is, overfill amount). Therefore, we are establishing that the ESRD PPS outlier policy does not include an amount for overfill. Further, the outlier policy was designed to provide additional payments for high cost patients. To the extent a patient receives drug amounts at no cost to the facility (that is, overfill amounts), that amount may not be attributed to the cost of that patient. Finally, because we are continuing to pay under the composite rate portion of the blended payment for separately billable drugs using the ASP payment methodology, we should continue to utilize the methodology for pricing drugs for the outlier policy. Second, the commenter's contention about the scope of the “incident to” benefit reflects a misunderstanding of our proposal. We refer the commenter to discussion of the overfill policy in the CY 2011 PFS final rule (75 FR 73469), where we stated that our ASP overfill policy is not based on the “incident to” rules, but rather applies to all drugs and biologicals paid under section 1847A of the Act, regardless of setting. The “incident to” rules are similarly irrelevant to our proposal here. Our policy pertains only to how and whether we pay for drugs under our outlier policy under authority of section 1881(b)(14)(D)(ii) of the Act. Third, we disagree with the commenters that our policy will require ESRD facilities to inaccurately reflect the services they furnish. We expect that providers will continue to maintain accurate medical records for all beneficiaries as well as accurate inventory records of all drugs that were actually purchased and appropriately billed to Medicare. We acknowledge that separate tracking of overfill may increase burden on ESRD facilities that were not doing so before. However, given that we have adopted ASP policies generally for outliers under the ESRD PPS and we rely on data reported under the ASP methodology to determine the outlier thresholds, even if we believed overfill were something other than free product, we would have no ability to account for it separately. Finally, we disagree that our policy is inconsistent with waste reduction. As noted above, our policy does not apply to the use of overfill; rather, it applies only to whether we pay for overfill under our outlier policy. ESRD facilities remain free to take steps to reduce drug wastage and in doing so, reduce their costs in providing ESRD services—our policy only prevents an ESRD facility from accounting for something for which it incurred no cost in determining whether it met the high cost outlier policy. We are finalizing our proposal to incorporate the ASP overfill policy into our outlier policy and for purposes of the composite rate portion of the blended payment during the transition. Thus, ESRD facilities may only report units and charges for drugs and biologicals actually purchased. 9. Revisions to Patient-Level Adjustment for Body Surface Area (BSA) Under section 1881(b)(14)(D)(i) of the Act, the bundled ESRD PPS must include a payment adjustment based on case-mix that may take into account patient weight, body mass index (BMI), body surface area (BSA), and other appropriate factors. In the proposed rule (76 FR 40511 and 40512), we explained that we evaluated height and weight because the combination of these two characteristics allows us to analyze two measures of body size: BSA and BMI. We further explained that both body size measures are strong predictors of variation in payment for ESRD patients. As a result, in developing the ESRD PPS, we established a case-mix patient level adjustment for BSA that would be applied to each 0.1 m2 change in BSA compared to the national average. In the proposed rule (76 FR 40511 and 40512), we proposed to make one change related to the use of the national BSA average value used in the calculation of the BSA adjustment applied to the composite rate portion of the [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2011-28606. Public record. Not legal advice.