Medicare Program; End-Stage Renal Disease Prospective Payment System, Quality Incentive Program, and Durable Medical Equipment, Prosthetics, Orthotics, and Supplies

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 411, 413 and 414

[CMS-1614-P]

RIN 0938-AS13

Medicare Program; End-Stage Renal Disease Prospective Payment System, Quality Incentive Program, and Durable Medical Equipment, Prosthetics, Orthotics, and Supplies

AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Proposed rule.

SUMMARY:

This rule proposes to update and make revisions to the End-Stage Renal Disease (ESRD) prospective payment system (PPS) for calendar year (CY) 2015. This rule also proposes to set forth requirements for the ESRD quality incentive program (QIP), including payment years (PYs) 2017 and 2018. This rule also proposes to make a technical correction to remove outdated terms and definitions. In addition, this rule proposes to set forth the methodology for adjusting Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) fee schedule payment amounts using information from the Medicare DMEPOS Competitive Bidding Program (CBP); make alternative payment rules for DME and enteral nutrition under the Medicare DMEPOS CBP; clarify the statutory Medicare hearing aid coverage exclusion and specify devices not subject to the hearing aid exclusion; update the definition of minimal self-adjustment regarding what specialized training is needed by suppliers to provide custom fitting services if they are not certified orthotists; clarify the Change of Ownership (CHOW) and provides for an exception to the current requirements; revise the appeal provisions for termination of a contract and notification to beneficiaries under the Medicare DMEPOS CBP, and add a technical change related to submitting bids for infusion drugs under the Medicare DMEPOS CBP.

DATES:

To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. E.S.T. on September 2, 2014.

ADDRESSES:

In commenting, please refer to file code CMS-1614-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (please choose only one of the ways listed):

1.

Electronically.

You may submit electronic comments on this regulation to

http://www.regulations.gov.

Follow the “Submit a comment” instructions.

2.

By regular mail.

You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1614-P, P.O. Box 8010, Baltimore, MD 21244-8010.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3.

By express or overnight mail.

You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1614-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4.

By hand or courier.

Alternatively, you may deliver (by hand or courier) your written comments ONLY to the following addresses prior to the close of the comment period: a. For delivery in Washington, DC—Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201.

(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

b. For delivery in Baltimore, MD—Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address, call telephone number (410) 786-9994 in advance to schedule your arrival with one of our staff members.

Comments erroneously mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

For information on viewing public comments, see the beginning of the

SUPPLEMENTARY INFORMATION

section.

FOR FURTHER INFORMATION CONTACT:

Stephanie Frilling, (410) 786-4507, for issues related to the ESRD PPS, the ESRD PPS CY 2015 Base Rate and Payment for Frequent Hemodialysis.

Michelle Cruse, (410) 786-7540, for issues related to the ESRD PPS and the Low Volume Payment Adjustment.

Karen Reinhardt, (410) 786-0189, for issues related to the ESRD PPS and the Outlier Payment Policy.

Wendy Tucker, (410) 786-3004, for issues related to the ESRD PPS and Wage Index.

Heidi Oumarou, (410) 786-7342, for issues related to the ESRD PPS Market Basket Update.

Anita Segar, (410) 786-4614, for issues related to the ESRD QIP.

Christopher Molling (410) 786-6399 and Hafsa Vahora (410) 786-7899 for issues related to the methodology for making national price adjustments based upon information gathered from the DMEPOS CBP.

Sandhya Gilkerson, (410) 786-4085, for issues related to the alternative payment methodologies under the CBP.

Sandhya Gilkerson, (410) 786-4085 and Michelle Peterman, 410-786-2581 for issues related to the clarification of the statutory Medicare hearing aid coverage exclusion.

Michelle Peterman, (410) 786-2591 for issues related to the definition of minimal self-adjustment at 414.402.

Janae James (410) 786-0801 for issues related to CHOW and breach of contract appeals.

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments:

All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received:

http://www.regulations.gov.

Follow the search instructions on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.

Electronic Access

This

Federal Register

document is also available from the

Federal Register

online database through

Federal Digital System (FDsys),

a service of the U.S.

Government Printing Office. This database can be accessed via the internet at

http://www.gpo.gov/fdsys/.

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 of the ESRD PPS that are posted on the CMS Web site identified above should contact Stephanie Frilling at 410-786-4507.

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. Executive Summary

A. Purpose

1. End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

2. End-Stage Renal Disease (ESRD) Quality Incentive Program (QIP)

3. Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS)

B. Summary of the Major Provisions

1. ESRD PPS

2. ESRD QIP

3. DMEPOS

C. Summary of Costs and Benefits

1. Impacts of the Proposed ESRD PPS

2. Impacts for ESRD QIP

3. Impacts for DMEPOS

II. Calendar Year (CY) 2015 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

A. Background on the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

B. Routine Updates and Proposed Policy Changes to the CY 2015 ESRD PPS

1. ESRD PPS Base Rate

a. Changes to the Drug Utilization Adjustment

i. The Drug Utilization Adjustment Finalized in CY 2014 ESRD PPS Final Rule

ii. PAMA Changes to the Drug Utilization Adjustment

b. Payment Rate Update for CY 2015

c. CY 2015 ESRD PPS Wage Index Budget Neutrality Adjustment

d. Labor-Related Share

2. ESRD Bundled Market Basket and Labor-Related Share

a. Background

b. Rebasing and Revision the ESRD Bundled Market Basket

i. Cost Category Weights

ii. Proposed Price Proxies for the CY 2012 ESRDB Market Basket

iii. Proposed Market Basket Estimate for the CY 2015 ESRDB PPS Update

c. Proposed Productivity Adjustment

d. Calculation of the Proposed ESRDB Market Basket Update, Adjusted for Multifactor Productivity for CY 2015

e. Labor-Related Share

3. The Proposed CY 2015 ESRD PPS Wage Indices

a. Background

b. Proposed Implementation of New Labor Market Delineations

c. Transition Period

4. Proposed Revisions to the Outlier Policy

a. Proposed Changes to the Outlier Services MAP Amounts and Fixed Dollar Loss Amounts

b. Outlier Policy Percentage

C. Restatement of Policy Regarding Reporting and Payment for More than Three Dialysis Treatments per Week -

1. Reporting More than Three Dialysis Treatments per Week on Claims

2. Medical Necessity for More Than Three Treatments per Week

D. Delay of Payment for Oral-Only Drugs under the ESRD PPS

E. ESRD Drug Categories Included in the ESRD PPS Base Rate

F. Low-Volume Payment Adjustment (LVPA)

1 . Background

2. The United States Government Accountability Office Study on the LVPA

a. The GAO's Main Findings

b. The GAO's Recommendations

3. Clarification of the LVPA Policy

a. Hospital-Based ESRD Facilities

b. Cost Reporting Periods Used for Eligibility

G. Continued Use of ICD-9-CM Codes and Corrections to the ICD-10-CM Codes Eligible for the Comorbidity Payment Adjustment

III. End-Stage Renal Disease (ESRD) Quality Incentive Program (QIP)

A. Background

B. Considerations in Updating and Expanding Quality Measures under the ESRD QIP

C. Web sites for Measure Specifications

D. Updating the NHSN Bloodstream Infection in Hemodialysis Outpatients Clinical Measure for the PY 2016 ESRD QIP and Future Payment Years

E. Oral-Only Drugs Measures in the ESRD QIP

F. Proposed Requirements for the PY 2017 ESRD QIP

1. Proposed Revision to the Expanded ICH CAHPS Reporting Measure

2. Proposed Measures for the PY 2017 ESRD QIP

a. PY 2016 Measures Continuing in PY 2017 and Future Payment Years

b. Proposal to Determine when a Measure is “Topped-Out” in the ESRD QIP, and Proposal to Remove a Topped-Out Measure from the ESRD QIP, Beginning with PY 2017

c. New Measures Proposed for PY 2017 and Future Payment Years

i. Proposed Standardized Readmission Ratio (SRR) Clinical Measure

3. Proposed Performance Period for the PY 2017 ESRD QIP

4. Proposed Performance Standards, Achievement Thresholds, and Benchmarks for the PY 2017 ESRD QIP

a. Proposed Performance Standards, Achievement Thresholds, and Benchmarks for the Clinical Measures in the PY 2017 ESRD QIP

b. Estimated Performance Standards, Achievement Thresholds, and Benchmarks for the Clinical Measures Proposed for the PY 2017 ESRD QIP

c. Proposed Performance Standards for the PY 2017 Reporting Measures

5. Proposal for Scoring the PY 2017 ESRD QIP Measures

a. Scoring Facility Performance on Clinical Measures Based on Achievement

b. Scoring Facility Performance on Clinical Measures Based on Improvement

6. Weighting the Total Performance Score

7. Proposed Minimum Data for Scoring Measures for the PY 2017 ESRD QIP and Proposal for Changing Attestation Process for Patient Minimums

8. Proposed Payment Reductions for the PY 2017 ESRD QIP

9. Proposal for Data Validation

10. Proposal to Monitor Access to Dialysis Facilities

11. Proposed Extraordinary Circumstances Exception

G. Proposed Requirements for the PY 2018 ESRD QIP Beginning in PY 2018

1. Proposal to Modify the Mineral Metabolism Reporting Measure

2. Proposed New Measures for the PY 2018 ESRD QIP and Future Payment Years

a. Proposed Standardized Transfusion Ratio (STrR) Clinical Measure

b. Proposal to Adopt the Pediatric Peritoneal Dialysis Adequacy Clinical Measure and Add the Proposed Measure to the Dialysis Adequacy Measure Topic

c. Proposed ICH CAHPS Clinical Measure

d. Proposed Screening for Clinical Depression and Follow-Up Reporting Measure

e. Proposed Pain Assessment and Follow-Up Reporting Measure

f. Proposed NHSN Healthcare Personnel Influenza Vaccination Reporting Measure

2. Proposed Performance Period for the PY 2018 ESRD QIP

3. Proposed Performance Standards, Achievement Thresholds, and Benchmarks for the PY 2018 ESRD QIP

a. Proposed Performance Standards, Achievement Thresholds, and Benchmarks for the Clinical Measures in the PY 2018 ESRD QIP

b. Estimated Performance Standards, Achievement Thresholds, and Benchmarks for the Clinical Measures Proposed for the PY 2018 ESRD QIP

c. Proposed Performance Standards for the PY 2018 Reporting Measures

4. Proposal for Scoring the PY 2018 ESRD QIP Measures

a. Scoring Facility Performance on Clinical Measures Based on Achievement

b. Scoring Facility Performance on Clinical Measures Based on Improvement

c. Proposal for Scoring the ICH CAHPS Clinical Measure

d. Proposals for Calculating Facility Performance on Reporting Measures

5. Proposed Minimum Data for Scoring Measures for the PY 2018 ESRD QIP

6. Proposal for Calculating the Clinical Measure Domain Score

7. Proposal for Calculating the Reporting Measure Domain Score, the Reporting Measure Adjuster, and the TPS for the PY 2018 ESRD QIP

8. Example of the Proposed PY 2018 ESRD QIP Scoring Methodology

H. Future Considerations for Stratifying ESRD QIP Measures for Dual-Eligible Beneficiaries

IV. Technical Corrections for 42 Part 405

V. Methodology for Adjusting DMEPOS Payment Amounts using Information from Competitive Bidding Programs

A. Background

1. Payment Basis for Certain DMEPOS

2. Fee Schedule Payment Methodologies

3. Regional Fee Schedule Payment Methodology for P&O

4. DMEPOS Competitive Bidding Programs Payment Rules

5. Adjusting Payment Amounts using Information from the DMEPOS Competitive Bidding Program

6. Diversity of Costs

7. Advanced Notice of Proposed Rulemaking

B. Proposed Provisions

1. Proposed Regional Adjustments Limited by National Parameters

a. Regional Payment Adjustments

1. P&O Regional Fee Weights—CMS Region 1 (Boston) (Weighted by Total Paid Claims for Dates of Service from July 1, 1991, thru June 30, 1992)

b. National Parameters

c. Rural and Frontier State Adjustments

d. Areas Outside the Contiguous United States

2. Methodology for Items and Services Included in Limited Number of Competitive Bidding Programs

3. Adjusted Payment Amounts for Accessories used with Different Types of Base Equipment

4. Adjustments to Single Payment Amounts that Result from Unbalanced Bidding

5. National Mail Order Program—Northern Mariana Islands

6. Updating Adjusted Payment Amounts

7. Summary of Proposed Methodologies

VI. Proposed Payment Methodologies and Payment Rules for Durable Medical

Equipment and Enteral Nutrition Furnished under the Competitive Bidding Program

A. Background

B. Proposed Provisions

1. Payment on a continuous rental basis for select items

a. Enteral nutrition

b. Oxygen and oxygen equipment

c. Standard manual wheelchairs

d. Standard power wheelchairs

e. CPAP and respiratory assist devices

f. Hospital beds

g. Transition rules

h. Beneficiary-owned equipment

2. Responsibility for repair of beneficiary-owned power wheelchairs furnished under CBPs

3. Phasing in the proposed payment rules in CBAs

4. Submitting bids for items paid on a continuous rental basis

VII. Scope of Hearing Aid Coverage Exclusion

A. Background

B. Current Issues

C. Proposed Provisions

VIII. Definition of Minimal Self-Adjustment of Orthotics Under Competitive Bidding

A. Background

B. Current Issues

C. Proposed Provisions

IX. Revision to Change of Ownership Rules to Allow Contract Suppliers to Sell Specific Lines of Business

A. Background

B. Proposed Provisions

X. Proposed Changes to the Appeals Process for Termination of Competitive Bidding Contract

XI. Technical Change Related to Submitting Bids for Infusion Drugs under the DMEPOS Competitive Bidding Program

XII. Accelerating Health Information Exchange

XIII. Collection of Information Requirements

XIV. Response to Comments

XV. Economic Analyses

A. Regulatory Impact Analysis

1. Introduction

2. Statement of Need

3. Overall Impact

B. Detailed Economic Analysis

1. CY 2015 End-Stage Renal Disease Prospective Payment System

a. Effects on ESRD Facilities

b. Effects on Other Providers

c. Effects on the Medicare Program

d. Effects on Medicare Beneficiaries

e. Alternatives Considered

2. End-Stage Renal Disease Quality Incentive Program

3. DMEPOS Provisions

C. Accounting Statement

XVI. Regulatory Flexibility Act Analysis

XVII. Unfunded Mandates Reform Act Analysis

XVIII. Federalism Analysis

XIX. Congressional Review Act

XX. 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:

AHRQ—Agency for Healthcare Research and Quality

ANOVA—Analysis of Variance

ANPRM—Advanced Notice of Proposed Rulemaking

ARM—Adjusted Ranking Metric

ASP—Average Sales Price

ATRA—The American Taxpayer Relief Act of 2012

BEA—Bureau of Economic Analysis

BLS—Bureau of Labor Statistics

BMI—Body Mass Index

CBA—Competitive Bidding Area

CBP—Competitive Bidding Program

CBSA—Core based statistical area

CCN—CMS Certification Number

CDC—Centers for Disease Control and Prevention

CfC—Conditions for Coverage

CHOW—Change of Ownership

CKD—Chronic Kidney Disease

CPAP—Continuous positive airway pressure

CY—Calendar Year

DFC—Dialysis Facility Compare

DME—Durable Medical Equipment

DMEPOS—Durable Medical Equipment, Prosthetics, Orthotics, and Supplies

ESA—Erythropoiesis stimulating agent

ESRD—End-Stage Renal Disease

ESRDB End-Stage Renal Disease bundled

ESRD PPS— End-Stage Renal Disease Prospective Payment System

FDA—Food and Drug Administration

GEM—General Equivalence Mappings

HCP—Healthcare Personnel

HD—Hemodialysis

HAIs—Healthcare-Acquired Infections

HCPCS—Healthcare Common Procedure Coding System

HCFA—Health Care Financing Administration

HLM—Hierarchical Logistic Modeling

HHS—Department of Health and Human Services

ICD—International Classification of Diseases

ICD-9-CM—International Classification of Disease, 9th Revision, Clinical Modification

ICD-10-CM—International Classification of Disease, 10th Revision, Clinical Modification

ICH CAHPS—In-Center Hemodialysis Consumer Assessment of Healthcare Providers and Systems

IGI—IHS Global Insight

IIC—Inflation-indexed charge

IOLs—Intraocular Lenses

IPPS—Inpatient Prospective Payment System

ICH CAHPS—In-Center Hemodialysis Consumer Assessment of Healthcare Providers and Services

IUR—Inter-unit reliability

MAC—Medicare Administrative Contractor

MAP—Medicare Allowable Payment

MFP—Multifactor Productivity

MIPPA—Medicare Improvements for Patients and Providers Act of 2008

MLR—Minimum Lifetime Requirement

MSA—Metropolitan statistical areas

NAMES—National Association of Medical Equipment Suppliers

NHSN—National Health Safety Network

NQF—National Quality Forum

NQS—National Quality Strategy

OBRA—Omnibus Budget Reconciliation Act

OMB—Office of Management and Budget

P&O—Prosthetics and orthotics

PAMA—Protecting Access to Medicare Act of 2014

PC—Product category

PD—Peritoneal Dialysis

PEN—Parenteral and enteral nutrition

PFS—Physician Fee Schedule

QIP—Quality Incentive Program

RMA—Reporting Measure Adjuster

RSPA—Regional single payment amounts

RUL—Reasonable useful lifetime

SAF—Standard Analysis File

SHR—Standardized Hospitalization Ratio Admissions

SMR—Standardized Mortality Ratio

SPA—Single payment amount

STrR—Standardized Transfusion Ratio

TENS—Transcutaneous electrical nerve stimulation

TEP—Technical Expert Panel

TPS—Total Performance Score

VBP—Value Based Purchasing

I. Executive Summary

A. Purpose

1. End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

On January 1, 2011, we implemented the ESRD PPS, a case-mix adjusted bundled prospective payment system for renal dialysis services furnished by ESRD facilities. This rule proposes to update and make revisions to the End-Stage Renal Disease (ESRD) prospective payment system (PPS) for calendar year (CY) 2015. Section 1881(b)(14) of the Social Security Act (the Act), as added by section 153(b) of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275), and section 1881(b)(14)(F) of the Act, as added by section 153(b) of MIPPA and amended by section 3401(h) of the Affordable Care Act (Pub. L. 111-148), established that beginning CY 2012, and each subsequent year, the Secretary shall annually increase payment amounts by an ESRD market basket increase factor, reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act.

Section 632 of the American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240) included several provisions that apply to the ESRD PPS. Section 632(a) of ATRA added section 1881(b)(14)(I) to the Act, which required the Secretary, by comparing per patient utilization data from 2007 with such data from 2011, to reduce the single payment amount to reflect the Secretary's utilization of ESRD-related drugs and biologicals. We finalized the amount of the drug utilization adjustment pursuant to this section in the CY 2014 ESRD PPS final rule with a 3- to 4-year transition (78 FR 72161 through 72170). Section 632(b) of ATRA prohibited the Secretary from paying for oral-only ESRD-related drugs and biologicals under the ESRD PPS before January 1, 2016. And finally, section 632(c) of ATRA requires the Secretary, by no later than January 1, 2016, to analyze the case mix payment adjustments under section 1881(b)(14)(D)(i) of the Act and make appropriate revisions to those adjustments.

On April 1, 2014, the Congress enacted the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. 113-93). PAMA section 217 includes several provisions that apply to the ESRD PPS. Specifically, sections 217(b)(1) and (2) of PAMA amend sections 1881(b)(14)(F) and (I) of the Act. We interpret the amendments to sections 1881(b)(14)(F) and (I) as replacing the drug utilization adjustment that was finalized in the CY 2014 ESRD PPS final rule with specific provisions that dictate what the market basket update will be for CY 2015 (0.0 percent) and how it will be reduced in CYs 2016 through 2018. Section 217(a)(1) of PAMA amends section 632(b)(1) of ATRA, which now provides that the Secretary may not pay for oral-only drugs and biologicals used for the treatment of ESRD under the ESRD PPS prior to January 1, 2024. Section 217(a)(2) further amends section 632(b)(1) of ATRA by adding a sentence that provides: “Notwithstanding section 1881(b)(14)(A)(ii) of the Social Security Act (42 U.S.C. 1395rr(b)(14)(A)(ii)), implementation of the policy described in the previous sentence shall be based on data from the most recent year available.” Finally, PAMA section 217(c) provides that, as part of the CY 2016 ESRD PPS rulemaking, the Sectary shall establish a process for (1) determining when a product is no longer an oral-only drug; and (2) including new injectable and intravenous products into the ESRD PPS bundled payment.

As discussed further below, section 212 of PAMA provides that the Secretary may not adopt ICD-10 prior to October 1, 2015. HHS has announced that it intends to issue an interim final rule that will require use of ICD-10 beginning October 1, 2015 and will require the continued use of ICD-9-CM through September 30, 2015. Therefore, the ESRD PPS will continue to use ICD-9 through September 30, 2015 and will require use of ICD-10 beginning October 1, 2015 for purposes of the comorbidity payment adjustment.

2. End-Stage Renal Disease (ESRD) Quality Incentive Program (QIP)

This rule also proposes to set forth requirements for the ESRD Quality Incentive Program (QIP), including for payment years (PYs) 2017 and 2018. The program is authorized under section 1881(h) of the Social Security Act (the Act). The ESRD QIP is the most recent step in fostering improved patient outcomes by establishing incentives for dialysis facilities to meet or exceed performance standards established by CMS.

3. Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS)

This proposed rule proposes a methodology for making national price adjustments to payments for Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) paid under fee schedules based upon information gathered from the DMEPOS competitive bidding programs (CBPs) and proposes to phase in special payment rules in a limited number of competitive bidding areas (CBAs) under the CBP for certain, specified DME and enteral nutrition. This rule proposes to clarify the statutory Medicare hearing aid coverage exclusion under section 1862(a)(7) of the Act and the regulation at 42 CFR 411.15(d) to further specify the scope of this exclusion and to note certain devices excepted from the hearing aid exclusion. In addition, this rule proposes to update the definition of minimal self-adjustment at § 414.402 to note the specialized training that is needed by suppliers to provide custom fitting services if they are not certified orthotists. Finally, this rule proposes a revision to the Change of Ownership (CHOW) policy in the current regulations to allow a product category to be severed from a competitive bidding contract and transferred to a new contract when a contract supplier sells a distinct line of business to a qualified successor entity.

B. Summary of the Major Provisions

1. ESRD PPS

•

Update to the ESRD PPS base rate for CY 2015:

For CY 2015, we are proposing an ESRD PPS base rate of $239.33. This amount reflects a 0.0 percent update to the payment rate as required by section 1881(b)(14)(F)(i) of the Act, as amended by section 217(b)(2) of PAMA, and the application of the proposed wage index budget-neutrality adjustment factor of 1.001306 to the CY 2014 ESRD PPS base rate of $239.02.

•

Rebasing and revision of the ESRD bundled (ESRDB) market basket:

For CY 2015, we are proposing to rebase and revise the ESRDB market basket so the cost weights and price proxies would reflect the mix of goods and services that underlie ESRD bundled operating and capital costs for CY 2012. We note that if PAMA had not been enacted the proposed 2012-based ESRDB market basket update less productivity for CY

2015 would have been 1.6 percent, or (2.0 percent less 0.4 percentage point).

•

Update to the labor-related share:

Because the cost distributions would change significantly as a result of the proposed ESRDB market basket revision, the proposed labor-related share would be 50.673 percent compared to the current labor-related share of 41.737 percent. The change to the labor-related share would have a significant impact on payments for certain ESRD facilities, specifically those ESRD facilities that have low wage index values. Therefore, for CY 2015 we are proposing a 2-year transition, in which the CY 2015 payment would be based on a 50/50 blended labor-related share that would apply to all ESRD facilities. ESRD facilities would receive 50 percent of their current labor-related share and 50 percent of their revised labor-related share. Specifically, we would apply a labor-related share of 46.205 ((41.737+50.673)/2 = 46.205). For CY 2016, the labor-related share would be based on 100 percent of the revised labor-related share.

•

Update to the wage index and wage index floor:

We adjust wage indices on an annual basis using the most current hospital wage data to account for differing wage levels in areas in which ESRD facilities are located. In CY 2015, we are not proposing any changes to the application of the wage index budget-neutrality adjustment factor and will continue to apply the budget-neutrality adjustment to the base rate for the ESRD PPS. We will continue our policy for the gradual phase-out of the wage index floor and reduce the wage index floor values to 0.40, as finalized in the CY 2014 ESRD PPS final rule (78 FR 72173-72174).

•

Update to the Core-Based Statistical Areas (CBSA):

For CY 2015, we are proposing to implement the new CBSA delineations as described in the February 28, 2013 OMB Bulletin No. 13-01, beginning with the CY 2015 ESRD PPS wage index. In addition, we are proposing to implement a 2-year transition, under which a 50/50 blended wage index would apply to all ESRD facilities for CY 2015. Specifically, facilities would receive 50 percent of their CY 2015 wage index based on the CBSA delineations for CY 2014 and 50 percent of their CY 2015 wage index based on the proposed new CBSA delineations. In CY 2016, facilities' wage index values would be based 100 percent on the new CBSA delineations.

•

Update to the outlier policy:

We are updating the outlier services fixed dollar loss amounts for adult and pediatric patients and Medicare Allowable Payments (MAPs) for adult patients for CY 2015 using 2013 claims data. Based on the use of more current data, the fixed-dollar loss amount for pediatric beneficiaries would increase from $54.01 to $56.30 and the MAP amount would increase from $37.29 to $40.05, as compared to CY 2014 values. For adult beneficiaries, the fixed-dollar loss amount would decrease from $98.67 to $85.24 and the MAP amount would increase from $51.97 to $52.61. The 1 percent target for outlier payments was not achieved in CY 2013. We believe using CY 2013 claims data to update the outlier MAP and fixed dollar loss amounts for CY 2015 will increase payments for ESRD beneficiaries requiring higher resource utilization in accordance with a 1 percent outlier percentage.

•

Clarification for the low-volume payment adjustment (LVPA):

We are clarifying two policies regarding MAC verification and proposing conforming changes to the LVPA regulation. The first clarification explains that MACs can consider supporting data from hospital-based ESRD facilities to verify the facility's total treatment count. The second clarification explains that MACs can add or prorate treatment counts from non-standard cost reporting periods (those that are not 12-month periods) where there is a change in ownership that does not result in a new Provider Transaction Access Number.

•

Continued use of ICD-9-CM codes and corrections to the ICD-10-CM codes eligible for the comorbidity payment adjustment:

Section 212 of PAMA provides that the Secretary may not adopt ICD-10 prior to October 1, 2015. HHS has announced that it intends to issue an interim final rule that will require use of ICD-10 beginning October 1, 2015 and will require the continued use of ICD-9-CM through September 30, 2015. Therefore, the ESRD PPS will continue to use ICD-9 through September 30, 2015 and will require use of ICD-10 beginning October 1, 2015 for purposes of the comorbidity payment adjustment. For CY 2015, we are correcting several typographical errors and omissions in the Tables that appeared in the CY 2014 ESRD PPS final rule.

2. ESRD QIP

This rule proposes to implement requirements for the ESRD QIP, including measure sets for PYs 2017 and 2018.

•

PY 2017 Measure Set:

For PY 2017, we are proposing to remove one measure from the ESRD QIP, the Hemoglobin Greater than 12 g/dL clinical measure, on the grounds that it is “topped out”. We are also proposing to adopt the Standardized Readmission Ratio (SRR) clinical measure, which evaluates care coordination.

•

PY 2018 Measure Set:

For PY 2018, we are proposing to adopt two new clinical measures—the Standardized Transfusion Ratio (STrR) and Pediatric Peritoneal Dialysis Adequacy—and three new reporting measures: (1) Pain Assessment and Follow-Up; (2) Clinical Depression Screening and Follow-Up; and (3) National Healthcare Safety Network (NHSN) Healthcare Personnel Influenza Vaccination. We are also proposing to transition the In-Center Hemodialysis Consumer Assessment of Healthcare Providers and Systems (ICH CAHPS) survey reporting measure to a clinical measure.

•

Revision to the ICH CAHPS Reporting Measure:

Beginning with the PY 2017 program year, we are proposing to revise the ICH CAHPS reporting measure to determine facility eligibility for the measure based on the number of survey-eligible patients treated during the “eligibility period”, which we propose to define as the Calendar Year (CY) that immediately precedes the performance period. Survey-eligible patients are defined in the ICH CAHPS measure specifications available at

http://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/ESRDQIP/061_TechnicalSpecifications.html

and

https://ichcahps.org

.

•

Revision to the NHSN Bloodstream Infection in Hemodialysis Outpatients Clinical Measure:

Beginning with the PY 2016 program year, we are proposing to revise the NHSN Bloodstream Infection in Hemodialysis Outpatients clinical measure to calculate facility performance using the Adjusted Ranking Metric (ARM).

•

Revision to the Mineral Metabolism Reporting Measure:

Beginning with the PY 2018 program year, we are proposing to revise the Mineral Metabolism reporting measure to allow facilities to submit both serum phosphorus and plasma phosphorus measurements.

•

Extraordinary Circumstances Exemption:

Beginning with the PY 2017 ESRD QIP, we are proposing to exempt dialysis facilities from all requirements of the ESRD QIP clinical and reporting measures during the months in which they are forced to close due to a natural disaster or other extraordinary circumstances.

•

New Scoring Methodology for PY 2018:

For PY 2018, we are proposing to use a new scoring methodology for the ESRD QIP. This proposed scoring methodology would assign facility Total Performance Scores (TPS) on the basis of two domains, the Clinical Measure

Domain and the Reporting Measure Domain. Facility scores on clinical measures in the Clinical Measure Domain would be divided into subdomains that align with National Quality Strategy (NQS) domains and weighted according to the number of measures in a subdomain, facility experience with the measure, and the measure's alignment with CMS priorities for quality improvement. These weighted scores would be summed to produce a facility's Clinical Measure Domain score. Facility scores on reporting measures in the Reporting Measure Domain would be summed and calculated to produce a facility's Reporting Measure Adjuster, which would be subtracted from the facility's Clinical Measure Domain score to produce a facility's TPS.

3. DMEPOS

•

The methodology for making national price adjustments based upon information gathered from the DMEPOS CBPs:

As required by the MIPPA, this rule proposes methodologies for using information from the DMEPOS CBP to adjust the fee schedule amounts for DME in areas where CBPs are not implemented. The rule proposes to use the same methodologies to adjust the fee schedule amounts for enteral nutrition and off-the shelf (OTS) orthotics in areas where CBPs are not implemented.

•

Phase in of special payment rules in a limited number of CBAs under the CBP for certain, specified DME and enteral nutrition.

This rule proposes to phase-in special payment rules for certain DME and enteral nutrition under the DMEPOS CBP in a limited number of CBAs.

•

Medicare hearing aid coverage exclusion under section 1862(a)(7) of the Act:

This rule proposes to modify the regulation at § 411.15 to address the scope of the statutory hearing aid exclusion and note the types of devices that are not subject to the hearing aid exclusion.

•

Definition of minimal self-adjustment at § 414.402:

This rule proposes to update the regulation to indicate what specialized training is needed to provide custom fitting services if suppliers are not certified orthotists.

•

Change of Ownership Rules to Allow Contract Suppliers to Sell Specific Lines of Business:

This proposed rule proposes to establish an exception under the CHOW rules to allow CMS to sever a product category from a contract, incorporate the product category into a new contract, and transfer the new contract to a qualified new owner under certain specific circumstances.

•

Termination of a Competitive Bidding Contract:

This rule proposes to clarify the effective date for terminations of competitive bidding contracts, which impacts the deadline for which contract suppliers must notify its beneficiaries of the termination.

C. Summary of Costs and Benefits

In section XII.B of this proposed rule, we set forth a detailed analysis of the impacts that the proposed changes would have on affected entities and beneficiaries. The impacts include the following:

1. Impacts of the Proposed ESRD PPS

The impact chart in section XII.B.1.a of this proposed rule displays the estimated change in payments to ESRD facilities in CY 2015 compared to estimated payments in CY 2014. The overall impact of the CY 2015 changes is projected to be a 0.3 percent increase in payments. Hospital-based ESRD facilities have an estimated 0.5 percent increase in payments compared with freestanding facilities with an estimated 0.3 percent increase.

We estimate that the aggregate ESRD PPS expenditures would increase by approximately $30 million from CY 2014 to CY 2015. This reflects a $0 million change from the payment rate update and a $30 million increase due to the updates to the outlier threshold amounts. As a result of the projected 0.3 percent overall payment increase, we estimate that there will be an increase in beneficiary co-insurance payments of 0.3 percent in CY 2015, which translates to approximately $10 million.

2. Impacts for ESRD QIP

The overall economic impact of the ESRD QIP is an estimated $11.9 million in PY 2017 and $7.2 million in PY 2018. In PY 2017, we expect the total payment reductions to be approximately $11.9 million, and the costs associated with the collection of information requirements for the validation of NHSN data feasibility study to be approximately $27 thousand for all ESRD facilities. In PY 2018, we expect the total payment reductions to be approximately $7 million, and the costs associated with the collection of information requirements for the NHSN Healthcare Personnel Influenza Vaccination reporting measure to be approximately $248 thousand for all ESRD facilities.

The ESRD QIP will continue to incentivize facilities to provide high-quality care to beneficiaries.

3. Impacts for DMEPOS

a. Proposed methodology for making national price adjustments to DMEPOS fee schedule amounts based upon information gathered from the DMEPOS competitive bidding programs

The proposed regulation proposes to adjust Medicare fee schedule amounts for items subject to DMEPOS CBPs beginning January 1, 2016, using information from the DMEPOS CBPs to be applied to items in non-competitive bidding areas. It is estimated that these adjustments would save over $7 billion for the 5-year period beginning January 1, 2016, and ending December 30, 2020. The estimated savings are primarily derived from price reductions for items. It is expected that most of the economic impact would result from reduced payment amounts. The ability of suppliers to furnish items is not expected to be impacted.

b. Proposed phase in of special payment rules under the competitive bidding program for certain DME and enteral nutrition

We believe that the proposed special payment rules for certain DME and enteral nutrition under the DMEPOS CBPs would not have a significant impact on beneficiaries and suppliers. Contract suppliers are responsible for furnishing items and services needed by the beneficiary, and the cost to suppliers for furnishing these items and services does not change based on whether or not the equipment and related items and services are paid for separately under a capped rental payment method. Because the supplier's bids would reflect the cost of furnishing items in accordance with the new payment rules, we expect the overall savings to generally be the same as they are under the current payment rules.

Furthermore, the proposed special payment rules would be phased under a limited number of areas first to evaluate their impact on the program, beneficiaries, and suppliers, including costs, quality, and access. Expanded use of the special payment rules in other areas or for other items would be addressed in future rulemaking.

c. Proposed clarification of the statutory Medicare hearing aid coverage exclusion stipulated at section 1862(a)(7) of the Act

This proposed rule proposes to clarify the scope of the Medicare coverage exclusion for hearing aids and withdraw coverage of bone anchored hearing aids. This proposal would not have a significant fiscal impact on the Medicare program, because the

Medicare program expenditures for bone anchored hearing aids during the period CY2005 through CY 2013 are less than $9,000,000. This proposed rule, if finalized, would provide further guidance about coverage of DME with regard to the statutory hearing aid exclusion. The proposed rule, if finalized, would leave unchanged coverage of cochlear implants and brain stem implants, which are not considered hearing aids.

d. Proposed update of the definition of minimal self-adjustment at 42 CFR 414.402

The proposed rule proposes to update the definition of minimal self-adjustment to make clear that minimal self-adjustment means an adjustment that the beneficiary, caretaker for the beneficiary, or supplier of the device can perform and does not require the services of a certified orthotist (that is, an individual certified by either the American Board for Certification in Orthotics and Prosthetics, Inc., or the Board for Orthotist/Prosthetist Certification) or a physician as defined in section 1861(r) of the Act, a treating practitioner means a physician assistant, nurse practitioner, or clinical nurse specialist as defined in section 1861(aa)(5) of the Act, an occupational therapist as defined in 42 CFR 484.4, or physical therapist as defined in 42 CFR 484.4 in compliance with all applicable Federal and State licensure and regulatory requirements. If finalized, this revised definition would impact suppliers furnishing custom fitted orthotics that do not have this expertise. These suppliers would be required to hire an individual with expertise. For example, according to the Bureau of Labor Statistics Occupational Employment Statistics May 2013 the median pay for a certified orthotist is $30.27 an hour. The impact will vary according to the caseload of custom fitted orthotics provided by an individual supplier.

e. Change of Ownership Rules to Allow Contract Suppliers to Sell Specific Lines of Business

This rule proposes to clarify the CHOW rules in order to limit disruption to the normal course of business for DME suppliers. This rule proposes to establish an exception under the current CHOW rules to allow CMS to sever a product category from a contract, incorporate the product category into a new contract, and transfer the new contract to a qualified new owner under certain specific circumstances. This proposed clarification would impact businesses in a positive way by allowing them to conduct everyday transactions with less disruption from our rules and regulations.

II. Calendar Year (CY) 2015 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

A. Background on the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

On August 12, 2010, we published in the

Federal Register

a final rule (75 FR 49030 through 49214) in which we implemented a case-mix adjusted bundled PPS for Medicare outpatient ESRD dialysis services beginning January 1, 2011, in accordance with section 1881(b)(14) of the Act, as added by section 153(b) of MIPPA. On November 10, 2011, we published in the

Federal Register

a final rule (76 FR 70228 through 70316) in which we made a number of routine updates for CY 2012, implemented the second year of the transition to the ESRD PPS, made several policy changes and clarifications, and made technical changes. On November 9, 2012, we published in the

Federal Register

a final rule (77 FR 67450 through 67531) in which we made a number of routine updates for CY 2013, implemented the third year of the transition to the ESRD PPS, and made several policy changes and reiterations.

On December 2, 2013, we published in the

Federal Register

a final rule (78 FR 72156 through 72253) titled, Medicare Program; End-Stage Renal Disease Prospective Payment System, Quality Incentive Program, and Durable Medical Equipment, Prosthetics, Orthotics, and Supplies” (hereinafter referred to as the CY 2014 ESRD PPS final rule). In that final rule, for the ESRD PPS, we made a number of routine updates for CY 2014, implemented the fourth and final year of the transition, implemented sections 632(a) and (b)(1) of ATRA, and made policy changes and clarifications. Specifically, in that rule, we finalized the following:

•

Update to the ESRD PPS base rate for CY 2015.

An ESRD PPS base rate of $239.02 per treatment for renal dialysis services. This amount reflected the CY 2014 ESRD bundled (ESRDB) market basket update of 3.2 percent minus a multifactor productivity adjustment of 0.4 percent, that is, a 2.8 percent increase. This amount also reflected the application of the wage index budget-neutrality adjustment of 1.000454, the home dialysis training add-on budget neutrality adjustment factor of 0.999912, and the portion of the drug utilization adjustment that was transitioned for CY 2014, or $8.16.

•

Update to the wage index floor.

A 0.05 reduction to the CY 2014 and CY 2015 wage index floor values, which resulted in a wage index floor value of 0.45 for CY 2014 and a wage index floor value of 0.40 for CY 2015 under the ESRD PPS.

•

Update to the outlier policy.

Using CY 2012 claims data to update the outlier Medicare Allowable Payments (MAPs) and fixed dollar loss amounts for CY 2014, which resulted in updated fixed dollar loss amounts for adult and pediatric patients and MAPs for adult patients. Specifically, for pediatric beneficiaries, we finalized a fixed-dollar loss amount of $54.01 and a MAP amount of $40.49. For adult beneficiaries, we finalized a fixed-dollar loss amount of $98.67 and a MAP amount of $50.25.

•

The application of ICD-10-CM diagnosis codes to the comorbidity payment adjustment.

We discussed and provided a crosswalk from ICD-9-CM to ICD-10-CM for codes that are subject to the comorbidity payment adjustment. We finalized a policy under which all ICD-10-CM codes to which ICD-9-CM codes that are eligible for the comorbidity payment adjustment crosswalk are eligible for the comorbidity payment adjustment beginning on October 1, 2014 with two exceptions. As discussed further below, however, section 212 of the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. 113-93) provides that the Secretary may not adopt ICD-10 prior to October 1, 2015. HHS has announced that it intends to issue an interim final rule that will require use of ICD-10 beginning October 1, 2015 and will continue to require use of ICD-9-CM through September 30, 2015. Accordingly, we plan to continue to require facilities to utilize ICD-9-CM codes to identify comorbidities eligible for the comorbidity payment adjustment through September 30, 2015, and then to use ICD-10-CM codes beginning October 1, 2015.

•

The self-dialysis and home dialysis training add-on adjustment.

An increase to the self-dialysis and home dialysis training add-on adjustment from $33.44 to $50.16.

•

The delay in payment for oral-only ESRD-related drugs and biologicals until January 1, 2016.

We also delayed payment for oral-only ESRD-related drugs under the ESRD PPS until January 1, 2016. As discussed further below, section 217(a)(1) of PAMA amended section 632(b)(1) of ATRA to provide that the Secretary may not include oral-only ESRD-related drugs for payment

under the ESRD PPS prior to January 1, 2024.

B. Routine Updates and Proposed Policy Changes to the CY 2015 ESRD PPS

1. ESRD PPS Base Rate

In the CY 2011 ESRD PPS final rule (75 FR 49071 through 49083), we discussed the development of the ESRD PPS per treatment base rate that is codified in the Medicare regulations at § 413.220 and § 413.230. The CY 2011 ESRD PPS final rule also provides a detailed discussion of the methodology used to calculate the ESRD PPS base rate and the computation of factors used to adjust the ESRD PPS base rate for projected outlier payments and budget-neutrality in accordance with sections 1881(b)(14)(D)(ii) and 1881(b)(14)(A)(ii) of the Act, respectively. Specifically, the ESRD PPS base rate was developed from CY 2007 claims (that is, the lowest per patient utilization year as required by section 1881(b)(14)(A)(ii) of the Act), updated to CY 2011, and represented the average per treatment Medicare Allowable Payment (MAP) for composite rate and separately billable services. In accordance with section 1881(b)(14)(D) of the Act and regulations at § 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 applicable outlier payments or training payments.

a. Changes to the Drug Utilization Adjustment

i. The Drug Utilization Adjustment Finalized in the CY 2014 ESRD PPS Final Rule

Section 1881(b)(14)(I) of the Act, as added by section 632(a) of the American Taxpayer Relief Act of 2012 (ATRA), required that, for services furnished on or after January 1, 2014, the Secretary shall make reductions to the single payment for renal dialysis services to reflect the Secretary's estimate of the change in the utilization of ESRD-related drugs and biologicals (excluding oral-only ESRD-related drugs) by comparing per patient utilization data from 2007 with such data from 2012. Section 1881(b)(14)(I) further required that in making the reductions, the Secretary take into account the most recently available data on Average Sales Prices (ASP) and changes in prices for drugs and biologicals reflected in the ESRD market basket percentage increase factor under section 1881(b)(14)(F). Consistent with these requirements, in CY 2014, we finalized a payment adjustment to the CY 2014 ESRD PPS base rate that reflected the change in utilization of ESRD-related drugs and biologicals from CY 2007 to CY 2012.

Specifically, we finalized the drug utilization adjustment amount of $29.93 per treatment, and finalized a policy to implement this amount over a 3- to 4-year transition period. For CYs 2014 and 2015, we stated that we would implement the transition by offsetting the payment update by a portion of the reduction amount necessary to create an overall impact of a zero percent for facilities from the previous year's payments. For example, in CY 2014 we finalized a per treatment drug utilization adjustment amount for the first transition year of $8.16 or 3.3 percent, which represented the CY 2014 ESRDB market basket update minus productivity and other impacts to create an overall impact of zero percent. For a complete discussion of the methodology for computing the drug adjustment please see the CY 2014 ESRD PPS final rule (78 FR 72161 through 72170).

ii. PAMA Changes to the Drug Utilization Adjustment

On April 1, 2014, Congress enacted PAMA. Section 217(b), titled Mitigation of the Application of Adjustment to ESRD Bundled Payment Rate to Account for Changes in the Utilization of Certain Drugs and Biologicals, amends section 1881(b)(14)(I) of the Act by inserting “and before January 1, 2015” after January 1, 2014. This amendment effectively eliminates the remaining years of the drug utilization adjustment transition. In its place, the PAMA amendments to section 1881(b)(14)(F)(i) dictate what the market basket increase factor will be for 2015 and how it will be reduced in 2016 through 2018. In particular, PAMA section 217(b)(2)(C) amended section 1881(b)(14)(F)(i) by adding subclause (III), which provides that “[n]otwithstanding subclauses (I) and (II), in order to accomplish the purposes of subparagraph (I) with respect to 2015, the increase factor described in subclause (I) for 2015 shall be 0.0 percent.” We interpret subclause (III) to mean that the market basket increase factor less the productivity adjustment for 2015 is 0.0 percent. The PAMA amendments also provide for a payment reduction in lieu of the drug utilization adjustment in 2016 through 2018. In particular, PAMA section 217(b)(2)(ii) further amends section 1881(b)(14)(i)(I) by adding at the end the following new sentence, “ In order to accomplish the purpose of subparagraph (I) with respect to 2016, 2017, and 2018, after determining the increase factor described in the preceding sentence for each of 2016, 2017, and 2018, the Secretary shall reduce such increase factor by 1.25 percentage points for each of 2016 and 2017 and by 1 percentage point for 2018.” We interpret this provision as requiring us to reduce the market basket increase factor for 2016 through 2018 by the percentages prescribed in the statute.

b. Payment Rate Update for CY 2015

As discussed in section II.B.2 of this proposed rule, 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, provides that, beginning in 2012, the ESRD PPS payment amounts are required to be annually increased by the rate of increase in the ESRD market basket, reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. If PAMA had not stipulated a 0.0 percent payment update for CY 2015, we would have proposed a payment update of 1.6 percent, (a 2.0 percent ESRDB market basket update less a 0.4 percent productivity adjustment). In accordance with section 1881(b)(14)(F)(i)(III) of the Act, as added by PAMA section 217(b)(2)(C), however, we propose a 0.0 percent update to the CY 2014 ESRD PPS base rate of $239.02 for CY 2015.

c. CY 2015 ESRD PPS Wage Index Budget Neutrality Adjustment

For CY 2015 we propose to apply the wage index budget-neutrality adjustment factor of 1.001306 to the unadjusted CY 2014 and CY 2015 ESRD PPS base rate (that is, $239.02), yielding a proposed CY 2015 ESRD PPS wage-index budget-neutrality adjusted base rate of $239.33 ($239.02 × 1.001306 = $239.33).

d. Labor-Related Share

As discussed in section II.2.e, as part of the proposed ESRDB market basket rebasing and revision, we are proposing to update the labor-related share value from 41.737 percent to 50.673 percent. We note that some ESRD facilities are adversely affected by this proposal. For example, rural facilities and facilities located in CBSA areas with wage indexes below 1 will experience reduced payments due to an increase in the labor-related share, while other facilities located in CBSA area where wage indices are above 1 will experience increased payments. While we are proposing the new labor-related share under the ESRD PPS payment system computed at 50.673 percent, we propose to implement this value using a 2-year 50/50 blend transition.

Therefore, for CY 2015 we propose to apply 50 percent of the value of the current labor-related share under the ESRD PPS (41.737) and 50 percent of the value of the new labor-related share, (50.673), add the values together and divide by two, for a CY 2015 labor-related value of 46.205 ((41.737 + 50.673)/2 = 46.205). Beginning in CY 2016 we propose to apply 100 percent of the proposed labor-related share value of 50.673 percent. We propose to continue to apply a labor-related share value of 50.673 percent until such time in the future the ESRDB market basket is again rebased in computing a wage index-adjusted base rate for ESRD facilities. We believe that this approach is similar to the 50/50 blend transition proposed for the CY 2015 wage indexes and discussed in section II.3.c of this rule and that a 2- year transition is necessary to allow ESRD facilities time to adjust to the new labor related-share value.

We note that we considered implementing the computed labor related share value of 50.673 for CY 2015, but that would have increased the CY 2015 proposed wage index budget neutrality factor to 1.002081. This increase would have resulted in a decrease in CY 2015 Medicare payments to rural facilities of 1.3 percent, and an increase to urban facilities 0.5 percent. When we apply the transition labor-related share value of 46.205, the disparity in impacts for rural and urban facilities is reduced to less than 1.0 percent. Specifically, rural facilities would experience a decrease in payments of 0.5 percent and urban facilities would experience an increase in payments of 0.4 percent. (For more information of the CY 2015 Impact of Proposed Changes in Payments to ESRD Facilities for CY 2015 ESRD proposed rule, see section XV of this rule). Therefore, we believe a 2-year transition strikes an appropriate balance between ensuring that ESRD PPS payments are as accurate and stable as possible while giving facilities time to adjust to the new labor-related share factor.

In summary, we propose a CY 2015 ESRD PPS base rate update of $239.33. This reflects a 0.0 percent payment update consistent with section 1881(b)(14)(F)(i)(III), as added by section 217(b)(2) of PAMA. This base rate reflects the CY 2015 proposed wage index budget neutrality factor of 1.001306, and a labor-related share value of 46.205.

2. ESRD Bundled Market Basket and Labor-Related Share

a. Background

In accordance with section 1881(b)(14)(F)(i) of the Act, beginning in 2012, the ESRD payment amounts are required to be annually increased by an ESRD market basket increase factor that is reduced by the productivity adjustment in section 1886(b)(3)(B)(xi)(II) of the Act. The application of the productivity adjustment may result in the increase factor being less than 0.0 for a year and may result in payment rates for a year being less than the payment rates for the preceding year. The statute also provides that the market basket increase factor should reflect the changes over time in the prices of an appropriate mix of goods and services used to furnish renal dialysis services.

In the CY 2011 ESRD PPS final rule (75 FR 49151 through 49162), we established an ESRD Bundled market basket using CY 2008 as the base year. This market basket was used to annually update the ESRD base rate payments for CY 2012, CY 2013, and CY 2014. In this CY 2015 ESRD PPS proposed rule, we are proposing to revise and rebase the ESRDB market basket to a base year of CY 2012. We note that PAMA dictates a market basket update for CY 2015 of 0.0 percent and a reduction to the market basket updates in CYs 2016 through 2018 (by 1.25 percentage points for each of 2016 and 2017 and by 1 percentage point for 2018).

The term “market basket” refers to the mix of goods and services needed to produce ESRD care, and is also commonly used to denote the input price index that includes both weights (mix of goods and services) and price factors. The term “ESRDB market basket” as used in this proposed rule refers to the ESRDB input price index.

The proposed CY 2012-based ESRDB market basket represents the costs of operating and capital-related costs. The percentage change in the ESRDB market basket reflects the average change in the price of a fixed set of goods (both operating and capital) and services purchased by ESRD facilities in providing renal dialysis services. For further background information, see the CY 2011 final rule with comment period (75 FR 49151 through 49162).

For purposes of the ESRDB PPS, the ESRDB market basket is a fixed-weight (Laspeyres-type) price index. A Laspeyres-type index compares the cost of purchasing a specified mix of goods and services in a selected base period to the cost of purchasing that same group of goods and services at current prices. The effects on total expenditures resulting from changes in the quantity or mix of goods and services purchased subsequent or prior to the base period are, by design, not considered.

We construct the market basket in three steps. The first step is to select a base period and estimate total base period expenditure shares for mutually exclusive and exhaustive spending categories. We use total costs for operating and capital expenses. These shares are called “cost” or “expenditure” weights. The second step is to match each expenditure category to a price/wage variable, called a price proxy. We draw these price proxy variables from publicly available statistical series published on a consistent schedule, preferably at least quarterly. The final step involves multiplying the price series for each spending category by the cost weight for that category. The sum of these products (that is, weights multiplied by proxy index levels) for all cost categories yields the composite index level of the market basket for a given quarter or year. Repeating the third step for other quarters and years produces a time series of market basket index levels, from which we can calculate rates of growth.

The market basket represents a fixed-weight index because it answers the question of how much more or less it would cost, at a later time, to purchase the same mix of goods and services that was purchased in the base period.

We are proposing to use CY 2012 as the base year for the proposed rebased and revised ESRDB market basket cost weights. The cost weights for this proposed ESRDB market basket are based on the cost report data for independent ESRD facilities. We refer to the market basket as a CY market basket because the base period for all price proxies and weights are set to CY 2012 = 100. Source data included CY 2012 Medicare cost reports (Form CMS-265-11), supplemented with 2012 data from the U.S. Census Bureau's Services Annual Survey (SAS). Medicare cost reports from hospital-based ESRD providers were not used to construct the proposed ESRDB market basket because data from independent ESRD facilities tend to better reflect the actual cost structure faced by the ESRD facility itself, and are not influenced by the allocation of overhead over the entire institution, as can be the case with hospital-based providers. This approach is consistent with our standard methodology used in the development of other market baskets.

Consistent with our discussion in the CY 2011 final rule with comment period

(75 FR 49153), and as further discussed below, to implement section 1881(b)(14)(F)(i) of the Act we propose to revise and rebase the market basket so the cost weights and price proxies reflect the mix of goods and services that underlie ESRD bundled operating and capital costs for CY 2012.

b. Rebasing and Revision of the ESRD Bundled Market Basket

The terms “rebasing” and “revising”, while often used interchangeably, actually denote different activities. Rebasing means shifting the base year for the structure of costs of the input price index (for example, for this proposed rule, we propose to shift the base year cost structure from CY 2008 to CY 2012). Revising means changing data sources, cost categories, price proxies, and/or methodology used in developing the input price index. We are proposing both to rebase and revise the ESRDB market basket to reflect CY 2012 total cost data.

We selected CY 2012 as the new base year because 2012 is the most recent year for which relatively complete Medicare cost report (MCR) data are available. In developing the proposed market basket, we reviewed ESRD expenditure data from ESRD MCRs (CMS Form 265-11) for CY 2012 for each freestanding ESRD facility that reported expenses and payments. The CY 2012 cost reports are those with cost reporting periods beginning on or after January 1, 2012 and before December 31, 2012. We propose to maintain our policy of using data from freestanding ESRD facilities because freestanding ESRD data reflect the actual cost structure faced by the ESRD facility itself. In contrast, expense data for a hospital-based ESRD reflect the allocation of overhead over the entire institution. Due to this method of allocation, the expenses of each hospital-based component may be skewed.

We developed cost category weights for the proposed CY 2012-based ESRDB market basket in two stages. First, we derived base weights for nine major categories (Wages and Salaries, Employee Benefits, Medical Supplies, Lab Services, Housekeeping & Operations, Pharmaceuticals, Administrative and General, Capital-Related Building & Fixed Equipment, and Capital-Related Machinery) from the ESRD MCRs. Second, we are proposing to divide the Administrative & General cost category into further detail using 2012 U.S. Census Bureau Services Annual Survey (SAS) Data for the industry Kidney Dialysis Centers (NAICS 621492). We apply the 2012 distributions from the SAS data to the 2012 “Administrative & General” cost weight to yield the more detailed 2012 cost weights. This is similar to the methodology we used to break the 2008-based Administrative & General Costs into more detail for the ESRDB market basket as detailed in the CY 2011 ESRD final rule (75 FR 49154 through 49159). The main difference is that in the 2008-based market basket we relied on data from the U.S. Census Bureau Business Expenses Survey (BES). The BES data was the predecessor to the SAS. The Census Bureau SAS data are published annually, with the most recent data available being 2012. For more information on the SAS data, see

http://www.census.gov/services/sas/about_the_surveys.html

.

We are proposing to include a total of 20 detailed cost categories for the proposed CY 2012-based ESRDB market basket, which is four more cost categories than the CY 2008-based ESRDB market basket. In addition, we are proposing to further decompose both the Wages and Salaries and Employee Benefits cost categories into four more detailed cost categories reflecting the occupational mix of full time equivalents (FTEs) at ESRD facilities. The four detailed occupational categories that will underlie both Wages and Salaries and Employee Benefits are: (1) Health-related workers; (2) Management workers; (3) Administrative workers; and (4) Service workers. Having more detailed cost categories for these compensation costs enables them to be proxied more precisely. We are also proposing to collapse the Professional Fees and All Other Services cost categories into single categories rather than splitting those categories into Labor-Related and Non-Labor-Related Services. We will continue to assume that 87 percent of Professional Fees are labor-related costs and will be included in the proposed labor-related share. In addition, we are proposing to revise our labels for All Other Materials to Medical Materials and Supplies, Laboratories to Lab Services, and All Other Labor-Related/Non Labor-Related to All Other Goods and Services. A more thorough discussion of our proposals is provided below.

i. Cost Category Weights

Using Worksheets A and B from the CY 2012 Medicare cost reports, we first computed cost shares for nine major expenditure categories: Wages and Salaries, Employee Benefits, Pharmaceuticals, Supplies, Lab Services, Administrative and General (A&G), Housekeeping and Operations, Capital-Related Building & Equipment, and Capital-Related Machinery. Edits were applied to include only cost reports that had total costs greater than zero. In order to reduce potential distortions from outliers in the calculation of the cost weights for the major expenditure categories, cost values for each category less than the 5th percentile or greater than the 95th percentile were excluded from the computations. The resulting data set included information from approximately 4,700 independent ESRD facilities' cost reports from an available pool of 5,333 cost reports. Expenditures for the nine cost categories as a proportion of total expenditures are shown in Table 1.

Table 1 presents the proposed CY 2012-based ESRDB and CY 2008-based ESRDB market basket major cost weights as derived directly from the MCR data. Following the table, we describe the sources of the major category weights and their subcategories in the proposed CY 2012-based ESRDB market basket.

Table 1—Proposed CY 2012-Based ESRDB Market Basket Major Cost Weights

Cost category

Proposed CY 2012-based ESRDB market basket

CY 2008-based ESRDB

market basket

Wages and Salaries

31.839%

26.338%

Employee Benefits

6.570%

5.163%

Pharmaceuticals

16.510%

26.358%

Supplies

10.097%

9.726%

Lab Services

1.532%

0.356%

Housekeeping & Operations

3.785%

3.604%

Administrative & General (residual)

17.419%

17.594%

Capital-related Building & Fixed Equipment

8.378%

7.910%

Capital-related Machinery

3.870%

2.951%

Note: Totals may not sum to 100.000% due to rounding.

Some costs are reported on the Medicare cost report but are not included in the ESRD bundled payment. For example, we removed the expenses related to vaccine costs from total expenditures since these are excluded from the ESRD bundled payment, but reported on the Medicare cost report.

We are proposing to expand the expenditure categories developed from the Medicare cost reports to allow for more detailed expenditure decomposition. To expand these cost categories, SAS data were used because the Medicare cost reports do not collect detailed information on the items of interest. Those categories include: benefits for all employees, professional fees, telephone, utilities, and all other goods and services. We chose to separately break out these categories to more accurately reflect ESRD facility costs. We describe below how the initially computed categories and weights from the cost reports were modified to yield the final 2012 ESRDB market basket expenditure categories and weights presented in this proposed rule.

Wages and Salaries

The weight for wages and salaries for direct patient care for 2012 was initially derived from Worksheet B of the Medicare cost report. However, because the cost center for direct patient care salaries does not include all other wage and salary costs for non-health workers and physicians, it was necessary to derive a methodology to include all salaries, not just direct patient care salaries, in order to calculate the appropriate market basket cost weight. This was accomplished in the following steps.

(1) From the trial balance of the cost report (Worksheet A), we computed the ratio of salaries to total costs in each of the following cost centers: housekeeping and operations, employee benefits for direct patient care, Administrative & General, Supplies, Laboratories, and Pharmaceuticals.

(2) We then multiplied the ratios computed in step 1 by the total costs for each corresponding cost center from Worksheet B. This provided us with an estimate of salaries other than direct-patient care for each cost center.

(3) The estimated salaries for each of the cost centers on Worksheet B estimated in step 2 were subsequently summed and added to the direct patient care salary figure (resulting in a new total salaries figure).

(4) The estimated non-direct patient care salaries (see step 2) were then subtracted from their respective cost categories to avoid double-counting their values in the total costs.

As a result of this process, we moved from an estimated Wages and Salaries cost weight of 23.242 percent (as estimated using only direct patient care salaries as a percent of total costs) to a weight of 31.839 percent (capturing both direct patient care salaries and all other salary costs and, again, dividing that by total costs found on the Medicare cost report), as seen in Table 2.

The final adjustment made to this category is to include contract labor costs. These costs appear on the Medicare cost report; however, they are embedded in the Administrative and General category and cannot be disentangled using the Medicare cost reports alone. To move the appropriate expenses from the A&G category to Wages and Salaries, we used data from the 2012 SAS, which reported 2.3 of total expenses were spent on contract labor costs. We allocated 80 percent of that figure to Wages and Salaries. At the same time, we subtracted that same amount from A&G, where the contract labor expenses would be reported on the cost report. The 80 percent figure that was used was determined by taking salaries as a percentage of total compensation (excluding contract labor) from the 2012 MCR data. The resulting cost weight for Wages and Salaries increases to 33.650 percent.

Table 2—ESRD Wages & Salaries Share Determination

Components

Cost share

(%)

08 MCR Salaries Direct Patient Care (DPC)

22.297

08 MCR Additional Salaries Weight (other than DPC)

4.041

08 Wage & Salary Weight normalized after adding separately billable services into the bundle

−1.373

08 Contract Labor (wages) (80% of BES CL share)

1.790

08 Final Wage & Salary Weight

26.755

12 MCR Salaries Direct Patient Care (DPC)

23.242

12 MCR Additional Salaries Weight (other than DPC)

8.597

12 Contract Labor (80% of SAS CL share)

1.811

12 Final Wage & Salary Weight

33.650

Benefits

The Benefits weight was derived from the MCR data for employee benefits for direct patient care and supplemented with data from the 2012 SAS to account for non-direct patient care benefits. The cost report only reflects health-related benefit costs associated with direct patient care; that is, it does not reflect retirement benefits. In order to include the benefits related to non-direct patient care, we estimated this marginal increase from the SAS Benefits weight. Unlike the MCR, data the SAS benefits share includes expenses related to the retirement and pension benefits. In order to be consistent with the cost report definitions we do not want to include the costs associated with retirement and pension benefits in the cost share weights. These costs are relatively small compared to the costs for the health related benefits, accounting for only 2.7 percent of the total benefits costs as reported on the SAS. Our method produced a Benefits

(both direct patient care and non-direct patient care) weight that was 1.824 percentage points larger (8.394 vs. 6.570) than the Benefits weight for direct patient care calculated directly from the cost reports. To avoid double-counting and to ensure all of the market basket weights still totaled 100 percent, we removed this additional 1.824 percentage point for Benefits from the residual category.

The final adjustment made to this category is to include contract labor costs. Once again, these costs appear on the Medicare cost report; however, they are embedded in the Administrative and General category and cannot be disentangled using the Medicare cost report alone. We applied 20 percent of total contract labor costs, as estimated using the SAS, to the Benefits cost weight calculated from the cost reports. The resulting cost weight for Benefits increases to 8.847 percent.

The Table 3 compares the 2008-based Benefits cost share derivation as detailed in the CY 2011 ESRD final rule (75 FR 49155-49156) to the proposed 2012-based Benefits cost share derivation as explained above.

Table 3—ESRD Benefit Share Determination

Components

Cost share

(percent)

08 MCR Benefits

5.163

08 BES Additional Benefits Weight (Health only)

1.143

08 Contract Labor (20% of BES benefits share)

0.448

08 Final Benefit Weight

6.754

12 MCR Benefits

6.570

12 SAS Additional Benefits Weight (Health only)

1.824

12 Contract Labor (20% of SAS benefits share)

0.453

12 Final Benefit Weight

8.847

Utilities

We developed a weight for Utility expenses using the 2012 SAS data, as utilities are not separately identified on the Medicare cost report. The SAS data reports the percentage of expenses for `purchased fuels (except motor fuels)', `purchased electricity', and `water, sewer, refuse, and other utilities.' We applied these ratios to the administrative and general cost share (net of contract labor and additional benefits). The resulting Electricity, Fuel (Natural Gas), and Water and Sewerage weights in the proposed 2012 ESRDB market basket are 0.973, 0.101, and 0.765 percent, respectively; together these categories yield a combined Utilities cost weight of 1.838 percent.

Pharmaceuticals

The proposed ESRDB market basket includes expenditures for all drugs, including formerly separately billable drugs and ESRD-related drugs that were covered under Medicare Part D before the ESRD PPS was implemented. We were able to calculate an expenditure weight for pharmaceuticals directly from the following cost centers on Worksheet B: columns 11 `Drugs Included in Composite Rate'; 12 `ESAs'; 13 `ESRD-Related Drugs; and drug expenses reported on line 5 column 10, `Non-ESRD related drugs.' The Non-ESRD related drugs would include drugs and biologicals, administered during dialysis for non-ESRD related conditions as well as oral-only drugs. Since these are costs to the facility for providing ESRD treatment to the patient we propose to include them in the drug cost share weight. Vaccine expenditures, which are mandated as separately reimbursable, were excluded when calculating this cost weight. Section 1842(o)(1)(A)(iv) of the Act requires that influenza, pneumococcal, and hepatitis B vaccines described in subparagraph (A) or (B) of section 1861(s)(10) of the Act be paid based on 95 percent of average wholesale price (AWP) of the drug. Since these drugs are excluded from other prospective payment systems, we exclude them from the proposed ESRDB market basket, as well.

Finally, to avoid double-counting, the weight for the Pharmaceuticals category was reduced to exclude the estimated share of non-direct patient care salaries and benefits associated with the applicable drug cost centers referenced above. This resulted in a proposed ESRDB market basket weight for Pharmaceuticals of 16.510 percent. ESA expenditures accounted for 12.383 percentage points of the Pharmaceuticals weight, and all other drugs accounted for the remaining 4.127 percentage points (.438 percent for Drugs Included in Composite Rate, 3.534 percent for ESRD-Related Drugs, and 0.155 percent for Non-ESRD related drugs).

The 9-percentage point decrease in the pharmaceutical share between 2008 and 2012 (25.052 percent to 16.510 percent) is due largely to the drop in drug utilization. The drug percentage of the base rate used in 2011 was about 31 percent; however, the analysis conducted for the drug utilization adjustment showed that the drug portion of the base rate in 2014 would have fallen to only be 22 percent of the base rate had it been fully implemented. The cost report data corroborate the drop in drug costs for facilities over the same time frame.

Supplies

We calculated the weight for Supplies included in the bundled rate using the costs reported in the Supplies cost center (column 7 on Worksheet B) of the Medicare cost report. This total was divided by total expenses to derive a weight for the Supplies component in the ESRDB market basket. Finally, to avoid double-counting, the weight for the Supplies category was reduced to exclude the estimated share of non-direct patient care salaries and benefits associated with this cost center. The resulting proposed 2012-based ESRDB market basket weight for Supplies is 10.097 percent.

Lab Services

We calculated the weight for Lab Services included in the bundled rate using the costs reported in the Laboratory cost center (column 8 on Worksheet B) of the Medicare cost report. This total was divided by total expenses to derive a weight for the Lab component in the ESRDB market basket. Finally, to avoid double-counting, the weight for the Lab services category was reduced to exclude the estimated share of non-direct patient care salaries and benefits associated with this cost center. The resulting proposed 2012-based ESRDB market basket weight for Lab Services is 1.532 percent.

The cost weight for lab services is substantially lower than the 2008 ESRDB market basket lab weight of 5.497 percent. This is due to the change in the method used to determine lab costs. In 2008, we relied on MCR data for the cost share weight; however, the majority of lab services were performed by labs outside of the dialysis facility and those costs were not reported on the MCR. Therefore, in the 2008 ESRDB market basket we inflated the expenses reported for labs in ESRD facilities to reflect the use from other provider types. This adjustment factor was estimated based on the lab payment to dialysis facilities relative to the lab fee payment to other providers. For the rebased ESRDB market basket, the 2012 cost report data represents the expenses under the bundled payment system, and all of the expenses related to lab fees (whether in house or contracted through an outside lab) are reported in the MCR data.

Housekeeping & Operations

We calculated the weight for Housekeeping and Operations included in the bundled rate using the costs reported on worksheet A, column 8,

lines 3 & 4 of the Medicare Cost Report. This total was divided by total expenses to derive a weight for the Housekeeping and Operations component in the ESRDB market basket. Finally, to avoid double-counting, the weight for the Housekeeping & Operations category was reduced to exclude the estimated share of non-direct patient care salaries and benefits associated with this cost center. The resulting proposed 2012-based ESRDB market basket weight for Housekeeping and Operations is 3.785 percent.

Administrative and General (A&G)

We computed the proportion of total A&G expenditures using the A&G cost center data from Worksheet B (column 9) of the Medicare cost reports. As described above, we exclude contract labor from this cost category and apportion these costs to the salary and benefits cost weights. Similar to other expenditure category adjustments, we then reduced the computed weight to exclude salaries and benefits associated with the A&G cost center and the additional benefits for non-direct patient care. The resulting A&G cost weight is 13.331 percent. This A&G cost weight is then fully apportioned to derive detailed cost weights for Utilities, Telephone, Professional Fees, and All Other Goods and Services.

Professional Fees

A separate weight for Professional Fees was developed using the 2012 SAS data. Professional fees include fees associated with the following: purchased professional & technical services (such as accounting, bookkeeping, legal, management, consulting, and other professional services fees) and purchased advertising & promotional services. To estimate professional fees, we first calculated the ratio of SAS professional fees to SAS expenses that match the A&G expenses from the cost reports. We then applied this ratio to the A&G total cost weight to estimate the proportion of ESRD facility professional fees. The resulting weight for the proposed 2012-based ESRDB market basket is 0.617 percent. An estimated 87 percent of the expenses are considered labor-related and subsequently included in the proposed labor-related share, which is described in more detail below.

Telephone

Because telephone service expenses are not separately identified on the Medicare cost report, we developed a Telephone Services weight using the 2012 SAS expenses. We estimated a ratio of telephone services expenses to total administrative and general expenses from SAS. We applied this ratio to the total A&G cost weight from the cost reports to estimate the proportion of ESRD facility telephone expenses. The resulting proposed 2012-based ESRDB market basket cost weight for Telephone Services is 0.468 percent.

All Other Goods and Services

A separate weight for All Other Goods and Services was developed using the 2012 SAS data. All other Goods and Services include expenses for purchased software, professional liability insurance, data processing and other purchased computer services, and all other operating expenses not otherwise captured. We estimated a ratio of All Other Goods and Services expenses to Total Administrative and General expenses from SAS. We then applied this ratio to the total A&G cost weight from the cost reports to estimate the cost weight for ESRD facility All Other Goods and Services. The resulting proposed 2012-based ESRDB market basket cost weight for All Other Goods and Services is 10.407 percent.

Capital

We developed a market basket weight for the Capital category using data from Worksheet B of the Medicare cost reports. Capital-related costs include depreciation and lease expense for buildings, fixtures, movable equipment, property taxes, insurance, the costs of capital improvements, and maintenance expense for buildings, fixtures, and machinery. Because housekeeping as well as operation & maintenance costs are included in the Worksheet B cost center for Capital-Related costs (Worksheet B, column 2), we excluded the costs for these two categories and developed a separate expenditure category for housekeeping & operations, as detailed above. Similar to the methodology used for other market basket cost categories with a salaries component, we computed a share for non-direct patient care salaries and benefits associated with the Capital-related Machinery cost center. We used Worksheet B to develop two capital-related cost categories, one for Buildings and Equipment (based on worksheet B column 2 less housekeeping & operations), and one for Machinery (based on worksheet B column 4). We reasoned this delineation was particularly important given the critical role played by dialysis machines. Likewise, because price changes associated with Buildings and Equipment could move differently than those associated with Machinery, we felt that separate price proxies would be more appropriate. The resulting proposed 2012-based ESRDB market basket weights for Capital-related Buildings and Equipment and Capital-related Machinery are 8.378 and 3.870 percent, respectively.

Table 4 lists all of the cost categories and cost weights in the proposed CY 2012 ESRDB market basket compared to the cost categories and cost weights in the CY 2008 ESRDB market basket.

Table 4—Comparison of the Proposed CY 2012-Based ESRDB Market Basket Cost Categories & Weights and the CY 2008-Based ESRDB Market Basket Cost Categories & Weights.

2008 Cost category

2008 Cost weight

(percent)

Proposed 2012 cost weight

(percent)

Proposed 2012 cost category

Total

100.000

100.000

Total.

Compensation

33.509

42.497

Compensation.

Wages and Salaries

26.755

33.650

Wages and Salaries.

Employee Benefits

6.754

8.847

Employee Benefits.

Utilities

1.264

1.839

Utilities.

Electricity

0.621

0.973

Electricity.

Natural Gas

0.127

0.101

Natural Gas.

Water and Sewerage

0.516

0.765

Water and Sewerage.

All Other Materials

39.765

28.139

Medical Materials and Supplies.

Pharmaceuticals

25.052

16.510

Pharmaceuticals.

Supplies

9.216

10.097

Supplies.

Lab Services

5.497

1.532

Lab Services.

All Other Services

15.929

15.277

All Other Goods and Services.

Telephone

0.597

0.468

Telephone Service.

Housekeeping and Operations

2.029

3.785

Housekeeping and Operations.

Labor-Related Services

2.768

Prof. Fees: Labor-related

1.549

0.617

Professional Fees (Labor-related and NonLabor-related services).

All Other Labor-related

1.219

NonLabor-Related Services

10.535

10.407

All Other Goods and Services.

Prof. Fees: Nonlabor-related

0.224

All Other Nonlabor-related

10.311

Capital Costs

9.533

12.248

Capital Costs.

Capital Related-Building and Equipment

7.459

8.378

Capital Related-Building and Equipment.

Capital Related-Machinery

2.074

3.870

Capital Related-Machinery.

Note: Totals may not sum to 100.000 percent due to rounding.

ii. Proposed Price Proxies for the CY 2012 ESRDB Market Basket

After developing the cost weights for the proposed CY 2012-based ESRDB market basket, we selected the most appropriate wage and price proxies currently available to represent the rate of price change for each expenditure category. We base the price proxies on Bureau of Labor Statistics (BLS) data and group them into one of the following BLS categories:

•

Employment Cost Indexes.

Employment Cost Indexes (ECIs) measure the rate of change in employment wage rates and employer costs for employee benefits per hour worked. These indexes are fixed-weight indexes and strictly measure the change in wage rates and employee benefits per hour. ECIs are superior to Average Hourly Earnings (AHE) as price proxies for input price indexes because they are not affected by shifts in occupation or industry mix, and because they measure pure price change and are available by both occupational group and by industry. The industry ECIs are based on the North American Classification System (NAICS) and the occupational ECIs are based on the Standard Occupational Classification System (SOC).

•

Producer Price Indexes.

Producer Price Indexes (PPIs) measure price changes for goods sold in other than retail markets. PPIs are used when the purchases of goods or services are made at the wholesale level.

•

Consumer Price Indexes.

Consumer Price Indexes (CPIs) measure change in the prices of final goods and services bought by consumers. CPIs are only used when the purchases are similar to those of retail consumers rather than purchases at the wholesale level, or if no appropriate PPIs were available.

We evaluated the price proxies using the criteria of reliability, timeliness, availability, and relevance:

•

Reliability.

Reliability indicates that the index is based on valid statistical methods and has low sampling variability. Widely accepted statistical methods ensure that the data were collected and aggregated in a way that can be replicated. Low sampling variability is desirable because it indicates that the sample reflects the typical members of the population. (Sampling variability is variation that occurs by chance because only a sample was surveyed rather than the entire population.)

•

Timeliness.

Timeliness implies that the proxy is published regularly, preferably at least once a quarter. The market baskets are updated quarterly, and therefore, it is important for the underlying price proxies to be up-to-date, reflecting the most recent data available. We believe that using proxies that are published regularly (at least quarterly, whenever possible) helps to ensure that we are using the most recent data available to update the market basket. We strive to use publications that are disseminated frequently, because we believe that this is an optimal way to stay abreast of the most current data available.

•

Availability.

Availability means that the proxy is publicly available. We prefer that our proxies are publicly available because this will help ensure that our market basket updates are as transparent to the public as possible. In addition, this enables the public to be able to obtain the price proxy data on a regular basis.

•

Relevance.

Relevance means that the proxy is applicable and representative of the cost category weight to which it is applied. The CPIs, PPIs, and ECIs that we have selected to propose in this regulation meet these criteria. Therefore, we believe that they continue to be the best measure of price changes for the cost categories to which they would be applied.

Table 7 lists all price proxies for the proposed revised and rebased ESRDB market basket. Below is a detailed explanation of the price proxies used for each cost category weight.

Wages and Salaries

We will continue using an ECI blend for wages and salaries in the proposed 2012-based ESRDB market basket. However, we are proposing to expand the number of occupation categories and associated ECIs from two to four based on FTE data from ESRD Medicare Cost Reports and the availability of ECIs from BLS. We calculated weights for the Wages and Salaries sub-categories using 2012 FTE data and associated 2012 Average Mean Wage data from the Bureau of Labor Statistics' Occupational Employment Statistics.

Wages and Salaries—Health Related

We are proposing to continue using the ECI for Wages & Salaries for Hospitals (All Civilian) (BLS series code #CIU1026220000000I). Of the two health-related ECIs that we considered (“Hospitals” and “Health Care and Social Assistance”), the wage distribution within the Hospital NAICS sector (622) is more closely related to the wage distribution of ESRD facilities than it is to the wage distribution of the

Health Care and Social Assistance NAICS sector (62).

The Wages and Salaries—Health Related subcategory weight within the Wages and Salaries cost category is 80percent. The ESRD Medicare Cost Report FTE categories used to define the Wages and Salaries—Health Related subcategory include “Physicians,” “Registered Nurses,” “Licensed Practical Nurses,” “Nurses' Aides,” “Technicians,” and “Dieticians.”

The current 2008-based ESRD Market Basket uses the ECI for Wages & Salaries for Hospitals (All Civilian) for 50 percent of Wages and Salaries.

Wages and Salaries—Management

We propose using the ECI for Wages & Salaries for Management, Business, and Financial (Private Industry) (BLS series code #CIU2020000110000I). We feel this ECI is the most appropriate price proxy to measure the price growth of management functions at ESRD facilities. Furthermore, we regularly use this ECI-wages for management, business, and financial in our other market baskets, such as the MEI.

The Wages and Salaries—Management subcategory weight within the Wages and Salaries cost category is 8 percent. The ESRD Medicare Cost Report FTE category used to define the Wages and Salaries—Management subcategory is “Management.”

Wages and Salaries—Administrative

We propose using the ECI for Wages & Salaries for Office and Administrative Support (Private Industry) (BLS series code #CIU2020000220000I). We feel this ECI is the most appropriate price proxy to measure the price growth of administrative support at ESRD facilities. Furthermore, we regularly use this ECI for administrative wages in our other market baskets, such as the MEI.

The Wages and Salaries—Administrative subcategory weight within the Wages and Salaries cost category is 7 percent. The ESRD Medicare Cost Report FTE category used to define the Wages and Salaries—Administrative subcategory is “Administrative.”

Wages and Salaries—Services

We propose using the ECI for Wages & Salaries for Service Occupations (Private Industry) (BLS series code #CIU2020000300000I). We feel this ECI is the most appropriate price proxy to measure the price growth of all other non-health related, non-management, and non-administrative service support at ESRD facilities. Furthermore, we regularly use this ECI for all other service wages in our other market baskets, such as the MEI.

The Wages and Salaries—Services subcategory weight within the Wages and Salaries cost category is 6 percent. The ESRD Medicare Cost Report FTE categories used to define the Wages and Salaries—Services subcategory are “Social Workers” and “Other.”

Table 5 lists the four ECI series and the corresponding weights used to construct the proposed ECI blend for wages and salaries. We feel this new ECI blend is the most appropriate price proxy to measure the growth of wages and salaries faced by ESRD facilities.

Table 5—ECI Blend for Wages and Salaries in the Proposed 2012 Based ESRDB Market Basket

Cost category

ECI Series

Weight (%)

Wages and Salaries—Health Related

ECI—Wages & Salaries—Hospital (All Civilian)

80

Wages and Salaries—Management

ECI—Wages & Salaries—Management, Business, and Financial (Private Industry)

7

Wages and Salaries—Administrative

ECI—Wages & Salaries—Office and Administrative Support (Private Industry)

7

Wages and Salaries—Services

ECI—Wages & Salaries—Service Occupations (Private Industry)

6

The current 2008-based ESRDB market basket uses a 50 percent/50 percent blend of the “ECI—Wages & Salaries—Hospital (All Civilian)” and the “ECI—Wages and Salaries—Healthcare and Social Assistance” for the wages and salaries ECI blend.

Benefits

We will continue using an ECI blend for Benefits in the proposed 2012-based ESRDB market basket; however, we are proposing to expand the number of occupation categories and associated ECIs from two to four based on the components of the proposed Wage and Salaries ECI blend.

Benefits—Health Related

We are proposing to continue using the ECI for Benefits for Hospitals (All Civilian) to measure price growth of this subcategory. The ECI for Benefits for Hospitals is calculated using the ECI for Total Compensation for Hospitals (BLS series code # CIU1016220000000I) and the relative importance of wages and salaries within total compensation. We believe this constructed ECI series is technically appropriate for the reason stated above in the wages and salaries price proxy section.

Benefits—Management

We propose using the ECI for Benefits for Management, Business, and Financial (Private Industry) to measure price growth of this subcategory. The ECI for Benefits for Management, Business, and Financial is calculated using the ECI for Total Compensation for Management, Business, and Financial (BLS series code # CIU2010000110000I) and the relative importance of wages and salaries within total compensation. We believe this constructed ECI series is technically appropriate for the reason stated above in the wages and salaries price proxy section.

Benefits—Administrative

We propose using the ECI for Benefits for Office and Administrative Support (Private Industry) to measure price growth of this subcategory. The ECI for Benefits for Office and Administrative Support is calculated using the ECI for Total Compensation for Office and Administrative Support (BLS series code # CIU2010000220000I) and the relative importance of wages and salaries within total compensation. We believe this constructed ECI series is technically appropriate for the reason stated above in the wages and salaries price proxy section.

Benefits—Services

We propose using the ECI for Benefits for Service Occupations (Private Industry) to measure price growth of this subcategory. The ECI for Benefits for Service Occupations is calculated using the ECI for Total Compensation for Service Occupations (BLS series code # CIU2030000300000I) and the relative importance of wages and salaries within total compensation. We believe this constructed ECI series is technically appropriate for the reason stated above in the wages and salaries price proxy section.

We feel the new benefits ECI blend is the most appropriate price proxy to measure the growth of prices faced by

ESRD facilities. Table 6 lists the four ECI series and the corresponding weights used to construct the proposed benefits ECI blend.

Table 6—Benefites ECI Blend in the Proposed 2012-Based ESRDB Market Basket

Cost category

ECI Series

Weight (%)

Benefits—Health Related

ECI—Benefits—Hospital (All Civilian)

80

Benefits—Management

ECI—Benefits—Management, Business, and Financial (Private Industry)

7

Benefits—Administrative

ECI—Benefits—Office and Administrative Support (Private Industry)

7

Benefits—Services

ECI—Benefits—Service Occupations (Private Industry)

6

The current 2008-based ESRDB market basket uses a 50 percent/50 percent blend of the “ECI—Benefits—Hospital (All Civilian)” and the “ECI—Benefits—Healthcare and Social Assistance” for the benefits ECI blend.

Electricity

We propose to continue using the PPI for Commercial Electric Power (BLS series code #WPU0542) to measure the price growth of this cost category. This is the same proxy used in the current 2008-based ESRDB market basket.

Natural Gas

We propose to continue using the PPI for Commercial Natural Gas (BLS series code #WPU0552) to measure the price growth of this cost category. This is the same proxy used in the current 2008-based ESRDB market basket.

Water and Sewerage

We propose to continue using the CPI for Water and Sewerage Maintenance (BLS series code #CUUR0000SEHG01) to measure the price growth of this cost category. This is the same proxy used in the current 2008-based ESRDB market basket.

Pharmaceuticals

We propose to change the price proxy used for the pharmaceuticals cost category. A recent Health and Human Services Office of the Inspector General (OIG) report titled “Update: Medicare Payment for End Stage Renal Disease Drugs” recommended that CMS consider updating the ESRD payment bundle using a factor that takes into account drug acquisition costs. CMS had responded to this recommendation by stating that we would consider these findings in the continual evaluation of the ESRD market basket, particularly during the next rebasing and revising of the market basket index.

1

1

http://oig.hhs.gov/oei/reports/oei-03-12-00550.asp.

Drug acquisition cost data is neither publicly available nor the methods used to determine it transparent, and, therefore, wouldn't meet our price proxy criteria of relevance, reliability, transparency, and public availability. However, after considering several viable options that do meet the criteria we are proposing to use the PPI: Vitamin, Nutrient, and Hematinic Preparations (BLS series code #WPU063807). This index includes drugs that are most similar to ESAs and other drugs used in the ESRD setting, such as iron supplements. The definition of a hematinic is a medicine that increases the hemoglobin content of the blood, and these types of drugs are used to treat iron-deficiency anemia essential for normal erythropoiesis.

We believe the PPI: Vitamin, Nutrient, and Hematinic Preparations to be the most technically appropriate index available to measure the price growth of the pharmaceuticals cost category in the proposed 2012-based ESRDB market basket. The current 2008-based ESRDB market basket uses the PPI: Pharmaceuticals for Human Use.

Supplies

We propose using the PPI for Surgical and Medical Instruments (BLS series code #WPU1562) since it excludes orthopedic, prosthetic, ophthalmic, and dental type medical equipment and devices, which are not likely to be used extensively in the ESRD setting. The types of equipment under Surgical and Medical Instruments, particularly blood transfusion and IV equipment, seem most similar to the medical equipment and supplies that would be used in the ESRD setting. The current 2008-based ESRDB market basket uses the PPI for Medical, Surgical, and Personal Aid Devices.

Lab Services

We propose to continue using the PPI for Medical Laboratories (BLS series code #PCU621511621511) to measure the price growth of this cost category. This is the same proxy used in the current 2008-based ESRDB market basket.

Telephone Service

We propose to continue using the CPI for Telephone Services (BLS series code #CUUR0000SEED) to measure the price growth of this cost category. This is the same proxy used in the current 2008-based ESRDB market basket.

Housekeeping and Operations

We propose to continue using the PPI for Cleaning and Building Maintenance Services (BLS series code #WPU49) to measure the price growth of this cost category. This is the same proxy used in the current 2008-based ESRDB market basket.

Professional Fees

We propose to continue using the ECI (Compensation) for Professional and Related Occupations (Private Industry) (BLS series code # CIU2010000120000I) to measure the price growth of this cost category. This is the same proxy used in the current 2008-based ESRDB market basket.

All Other Goods and Services

We propose using the PPI for Finished Goods less Foods and Energy (BLS series code #WPUFD4131) as the price proxy for the All Other Goods and Services cost category. This PPI series is used in most of CMS' other market baskets to measure the expenses for the residual category of all other goods and services. It is more consistent with the purchase of items at a wholesale rather than a consumer level. The current 2008-based ESRDB market basket (specifically, the “All Other Non Labor-Related Services” cost category) uses the CPI-U, All Items less Foods and Energy.

Capital-Related Building and Equipment

We propose using the PPI for Lessors of Nonresidential Buildings (BLS series code #PCU531120531120) as it represents the types of fixed capital expenses most likely faced by ESRD facilities. We also use this proxy in the MEI as the fixed capital proxy for physicians. We believe the PPI for Lessors of Nonresidential Buildings is more appropriate as fixed capital expenses in both the ESRD and physician office setting should be more congruent with trends in business office space costs rather than residential costs. The current 2008-based ESRDB market

basket uses the CPI for Owners' Equivalent Rent of Residences.

Capital Related Machinery

We propose to continue using the PPI for Electrical Machinery and Equipment (BLS series code #WPU117) to measure the price growth of this cost category. This is the same proxy used in the current 2008-based ESRDB market basket.

Table 7 shows all the proposed price proxies for the proposed CY 2012-based ESRDB Market Basket.

Table 7—Proposed Price Proxies for the CY 2012-Based ESRDB Market Basket

Cost category

Price proxy

Cost weight %

Compensation

42.497

Wages and Salaries

33.650

Health-related Wages

ECI—Wages & Salaries—Hospital (Civilian)

26.920

Management Wages

ECI—Wages & Salaries—Management, Business, and Financial (Private)

2.356

Administrative Wages

ECI—Wages & Salaries—Office and Administrative Support (Private)

2.356

Service Wages

ECI—Wages & Salaries—Service Occupations (Private)

2.019

Employee Benefits

8.847

Health-related Benefits

ECI—Benefits—Hospital (Civilian)

7.078

Management Benefits

ECI—Benefits—Management, Business, and Financial (Private)

0.619

Administrative Benefits

ECI—Benefits—Office and Administrative Support (Private)

0.619

Service Benefits

ECI—Benefits—Service Occupations (Private)

0.531

Utilities

1.839

Electricity

PPI—Commercial Electric Power

0.973

Natural Gas

PPI—Commercial Natural Gas

0.101

Water and Sewerage

CPI—Water and Sewerage Maintenance

0.765

Medical Materials and Supplies

28.139

Pharmaceuticals

PPI—Vitamin, Nutrient, and Hematinic Preparations

16.510

Supplies

PPI—Surgical and Medical Instruments

10.097

Lab Services

PPI—Medical Laboratories

1.532

All Other Goods and Services

15.277

Telephone Service

CPI—Telephone Services

0.468

Housekeeping and Operations

PPI—Cleaning and Building Maintenance Services

3.785

Professional Fees

ECI—Compensation—Professional and Related Occupations (Private)

0.617

All Other Goods and Services

PPI—Finished Goods less Foods and Energy

10.407

Capital Costs

12.248

Capital Related Building and Equipment

PPI—Lessors of Nonresidential Buildings

8.378

Capital Related Machinery

PPI—Electrical Machinery and Equipment

3.870

Total

100.000

Note:

Totals may not sum to 100.000% due to rounding.

iii. Proposed Market Basket Estimate for the CY 2015 ESRDB PPS Update

As discussed previously in this proposed rule, beginning with the CY 2015 ESRD PPS update, we are proposing to adopt the CY 2012-based ESRDB market basket as the appropriate market basket of goods and services for the ESRD PPS.

Based on the IHS Global Insight, Inc. (IGI) first quarter 2014 forecast with history through the fourth quarter of 2013, the most recent estimate of the proposed CY 2012-based ESRDB market basket for CY 2015 is 2.0 percent. IGI is a nationally recognized economic and financial forecasting firm that contracts with CMS to forecast the components of the CMS market baskets. Based on IGI's first quarter 2014 forecast with history through the fourth quarter of 2013, the estimate of the current CY 2008-based ESRDB market basket for CY 2015 is 2.7 percent.

Table 8 compares the proposed CY 2012-based ESRDB market basket and the CY 2008-based ESRDB market basket percent changes. For the historical period between CY 2011 and CY 2013, the average difference between the two market baskets is -1.8 percentage points. This is primarily the result of the lower pharmaceutical cost share combined with the proposed revised price proxy for the pharmaceutical cost category. For the CY 2014 and CY 2015 forecasts, the difference in the market basket forecasts are mainly driven by the same factors as in the historical period; however, it is important to note that the differences between the two market baskets are projected to be smaller as the growth in the price proxy for the pharmaceutical category are projected to grow at more similar growth rates in the projected period than the growth rates in the recent historical period.

Table 8—Proposed CY 2012-Based ESRDB Market Basket and CY 2008 Based ESRDB Market Basket, Percent Changes: 2011-2015

Calendar Year (CY)

Proposed Rebased CY 2012-based ESRDB Market Basket

CY 2008-Based ESRDB

Market Basket

Historical data

CY 2011

1.2

2.8

CY 2012

1.4

3.4

CY 2013

1.1

3.0

Average CY 2011-2013

1.3

3.1

Forecast:

CY 2014

1.8

2.3

CY 2015

2.0

2.7

Source: IHS Global Insight, Inc. 1st quarter 2014 forecast with historical data through 4th quarter 2013.

c. Proposed Productivity Adjustment

Under section 1881(b)(14)(F)(i) of the Act, as amended by section 3401(h) of the Affordable Care Act, for CY 2012 and each subsequent year, the 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 as 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 Bureau of Labor Statistics (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. We note 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. The details regarding the methodology for forecasting MFP and how it is applied to the market basket were finalized in the CY 2012 ESRD PPS final rule (76 FR 70232 through 70234). Using this method and the IGI forecast for the first quarter of 2014 of the 10-year moving average of MFP, the CY 2015 MFP factor we would have proposed is 0.4 percent. As discussed further below, however, section 1881(b)(F)(i)(III) of the Act, as added by section 217(b)(2) of PAMA, requires the Secretary to implement a 0.0 percent payment update in CY 2015.

d. Calculation of the Proposed ESRDB Market Basket Update, Adjusted for Multifactor Productivity for CY 2015

Under section 1881(b)(14)(F) of the Act, beginning in CY 2012, ESRD PPS payment amounts shall be annually increased by an ESRD market basket percentage increase factor reduced by the productivity adjustment. For CY 2015, section 1881(b)(14)(F)(i)(III) of the Act, as added by section 217(b)(2) of PAMA, requires the Secretary to implement a 0.0 percent ESRDB market basket increase to the ESRD PPS base rate. In addition, we interpret the reference to “[n]otwithstanding subclause (III)” that was added to amended section 1881(b)(14)(F)(i)(III) as precluding the application of the multi-factor productivity (MFP) adjustment in 2015. As a result of these provisions, the proposed CY 2015 ESRD market basket increase is 0.0 percent. We note that if PAMA had not been enacted the proposed 2012-based ESRDB market basket update less productivity for CY 2015 would have been 1.6 percent, or 2.0 percent less 0.4 percentage point.

e. Labor-Related Share

We define the labor-related share (LRS) as those expenses that are labor-intensive and vary with, or are influenced by, the local labor market. The labor-related share of a market basket is determined by identifying the national average proportion of operating costs that are related to, influenced by, or vary with the local labor market. The labor-related share is typically the sum of Wages and Salaries, Benefits, Professional Fees, Labor-related Services, and a portion of the Capital share from a given market basket.

We propose to use the proposed 2012-based ESRDB market basket costs to determine the proposed labor-related share for ESRD facilities of 50.673 percent, as shown in Table 9 below. These figures represent the sum of Wages and Salaries, Benefits, Housekeeping and Operations, 87 percent of the weight for Professional Fees (details discussed below), and 46 percent of the weight for Capital-related Building and Equipment expenses (details discussed below). We note that this is a similar methodology used to compute the labor-related share used from CY 2011 through CY 2014.

Table 9—Proposed CY 2015 Labor-Related Share and CY 2014 ESRDB Labor-Related Share

Cost category

Proposed CY 2015 ESRDB labor-related share

(percent)

CY 2014 ESRDB

labor-related share

(percent)

Wages

33.650

26.755

Benefits

8.847

6.754

Housekeeping and operations

3.785

2.029

Professional fees (labor-related)

0.537

2.768

Capital labor-related

3.854

3.431

Total

50.673

41.737

The labor-related share for Professional Fees (87 percent) reflects the proportion of ESRD facilities' professional fees expenses that we believe vary with local labor market. We conducted a survey of ESRD facilities in 2008 to better understand the proportion of contracted professional services that ESRD facilities typically purchase outside of their local labor market. These purchased professional services include functions such as accounting and auditing, management consulting, engineering, and legal services. Based on the survey results, we determined that, on average, 87 percent of professional services are purchased from local firms and 13 percent are purchased from businesses located outside of the ESRD facility's local labor market. Thus, we are proposing to

include 87 percent of the cost weight for Professional Fees in the labor-related share, the same percentage as used in prior years.

The labor-related share for capital-related expenses (46 percent of ESRD facilities' adjusted Capital-related Building and Equipment expenses) reflects the proportion of ESRD facilities' capital-related expenses that we believe varies with local labor market wages. Capital-related expenses are affected in some proportion by variations in local labor market costs (such as construction worker wages) that are reflected in the price of the capital asset. However, many other inputs that determine capital costs are not related to local labor market costs, such as interest rates. The 46-percent figure is based on regressions run for the inpatient hospital capital PPS in 1991 (56 FR 43375). We use a similar methodology to calculate capital-related expenses for the labor-related shares for rehabilitation facilities (70 FR 30233), psychiatric facilities, long-term care facilities, and skilled nursing facilities (66 FR 39585).

3. The Proposed CY 2015 ESRD PPS Wage Indices

a. Background

Section 1881(b)(14)(D)(iv)(II) of the Act provides that the ESRD PPS may include a geographic wage index payment adjustment, such as the index referred to in section 1881(b)(12)(D) of the Act. In the CY 2011 ESRD PPS final rule (75 FR 49117), we finalized for the ESRD PPS the use of the Office of Management and Budget's (OMB) Core-Based Statistical Areas (CBSAs)-based geographic area designations described in OMB bulletin 03-04, issued June 6, 2003 as the basis for revising the urban and rural areas and their corresponding wage index values. This bulletin, as well as subsequent bulletins, is available online at

http://www.whitehouse.gov/omb/bulletins_index2003-2005.

We also finalized that we would use the urban and rural definitions used for the Medicare IPPS but without regard to geographic reclassification authorized under section 1886(d)(8) and (d)(10) of the Act. In the CY 2012 ESRD PPS final rule (76 FR 70239), we finalized that, under the ESRD PPS, we will continue to utilize the ESRD PPS wage index methodology, first established under the basic case-mix adjusted composite rate payment system, for updating the wage index values using the OMB's CBSA-based geographic area designations to define urban and rural areas.

b. Proposed Implementation of New Labor Market Delineations

OMB publishes bulletins regarding CBSA changes, including changes to CBSA numbers and titles. In accordance with our established methodology, we have historically adopted via rulemaking CBSA changes that are published in the latest OMB bulletin. On February 28, 2013, OMB issued OMB Bulletin No. 13-01, which established revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of the delineations of these statistical areas. A copy of this bulletin may be obtained at

http://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf.

According to OMB, “[t]his bulletin provides the delineations of all Metropolitan Statistical Areas, Metropolitan Divisions, Micropolitan Statistical Areas, Combined Statistical Areas, and New England City and Town Areas in the United States and Puerto Rico based on the standards published on June 28, 2010, in the

Federal Register

(75 FR 37246-37252) and Census Bureau data.” In this CY 2015 ESRD PPS proposed rule, when referencing the new OMB geographic boundaries of statistical areas, we are using the term “delineations” rather than the term “definitions” that we have used in the past, consistent with OMB's use of the terms (75 FR 37249). Because the bulletin was not issued until February 28, 2013, with supporting data not available until later, and because the changes made by the bulletin and their ramifications needed to be extensively reviewed and verified, we were unable to undertake such a lengthy process before publication of the FY 2014 IPPS/LTCH PPS proposed rule and, thus, did not implement changes to the hospital wage index for FY 2014 based on these new CBSA delineations.

Likewise, for the same reasons, the CY 2014 ESRD PPS wage index (based upon the pre-floor, pre-reclassified hospital wage data, which is unadjusted for occupational mix) also did not reflect the new CBSA delineations. In the FY 2015 IPPS/LTCH PPS proposed rule, we proposed to implement the new CBSA delineations as described in the February 28, 2013 OMB Bulletin No. 13-01, beginning with the FY 2015 IPPS wage index (79 FR 28054 through 28055).

Similarly, in this CY 2015 ESRD PPS proposed rule, we are proposing to implement the new CBSA delineations as described in the February 28, 2013 OMB Bulletin No. 13-01, beginning with the CY 2015 ESRD PPS wage index. We believe that the most current CBSA delineations accurately reflect the local economies and wage levels of the areas where facilities are located, and we believe that it is important for the ESRD PPS to use the latest CBSA delineations available in order to maintain an up-to-date payment system that accurately reflects the reality of populations shifts and labor market conditions. We have reviewed our findings and impacts relating to the new CBSA delineations using the most recent data available at the time of this proposed rule, and have concluded that there is no compelling reason to further delay the implementation of the CBSA delineations as set forth in OMB Bulletin 13-01.

In order to implement these changes for the ESRD PPS, it is necessary to identify the new labor market area delineation for each county and facility in the country. For example, if we adopt the new CBSA delineations, there would be new CBSAs, urban counties that would become rural, rural counties that would become urban, and existing CBSAs that would be split apart. Because the wage index of urban areas is typically higher than that of rural areas, ESRD facilities currently located in rural counties that would become urban if we adopt the new CBSA delineations would generally experience an increase in their wage index values. We have identified 105 counties and 113 facilities that would move from rural to urban status if we adopt the new CBSA delineations beginning in CY 2015. Table 10: (CY 2015 Proposed Rural to Urban CBSA Crosswalk) shows the CBSA delineations for CY 2014 and the rural wage index values proposed for CY 2015 based on those delineations, compared to the proposed CBSA delineations for CY 2015 and the proposed urban wage index values for CY 2015 based on the new delineations, and the percentage change in these values for those counties that would change from rural to urban if we adopt the new CBSA delineations. If we adopt the new OMB delineations illustrated in Table 10 below, approximately 100 facilities would experience an increase in their wage index values.

Table 10—CY 2015 Proposed Rural to Urban CBSA Crosswalk

County name

State

ESRD PPS CY 2014 CBSA

delineations

CBSA

Urban/Rural

Wage index value

Proposed ESRD PPS CY 2015 CBSA

delineations

CBSA

Urban/Rural

Wage index value

Change in value

(percent)

BALDWIN

AL

01

RURAL

0.6981

19300

URBAN

0.7279

4.27

PICKENS

AL

01

RURAL

0.6981

46220

URBAN

0.8288

18.72

COCHISE

AZ

03

RURAL

0.9159

43420

URBAN

0.8970

−2.06

LITTLE RIVER

AR

04

RURAL

0.7265

45500

URBAN

0.7390

1.72

WINDHAM

CT

07

RURAL

1.1292

49340

URBAN

1.1536

2.16

SUSSEX

DE

08

RURAL

1.0248

41540

URBAN

0.9296

−9.29

CITRUS

FL

10

RURAL

0.8010

26140

URBAN

0.7653

−4.46

GULF

FL

10

RURAL

0.8010

37460

URBAN

0.7861

−1.86

HIGHLANDS

FL

10

RURAL

0.8010

42700

URBAN

0.8011

0.01

SUMTER

FL

10

RURAL

0.8010

45540

URBAN

0.8125

1.44

WALTON

FL

10

RURAL

0.8010

18880

URBAN

0.8260

3.12

LINCOLN

GA

11

RURAL

0.7425

12260

URBAN

0.9213

24.08

MORGAN

GA

11

RURAL

0.7425

12060

URBAN

0.9358

26.03

PEACH

GA

11

RURAL

0.7425

47580

URBAN

0.7570

1.95

PULASKI

GA

11

RURAL

0.7425

47580

URBAN

0.7570

1.95

KALAWAO

HI

12

RURAL

0.9953

27980

URBAN

0.9510

−4.45

MAUI

HI

12

RURAL

0.9953

27980

URBAN

0.9510

−4.45

BUTTE

ID

13

RURAL

0.7425

26820

URBAN

0.8966

20.75

DE WITT

IL

14

RURAL

0.8363

14010

URBAN

0.8935

6.84

JACKSON

IL

14

RURAL

0.8363

16060

URBAN

0.8354

−0.11

WILLIAMSON

IL

14

RURAL

0.8363

16060

URBAN

0.8354

−0.11

SCOTT

IN

15

RURAL

0.8454

31140

URBAN

0.8319

−1.60

UNION

IN

15

RURAL

0.8454

17140

URBAN

0.8942

5.77

PLYMOUTH

IA

16

RURAL

0.8483

43580

URBAN

0.8948

5.48

KINGMAN

KS

17

RURAL

0.7838

48620

URBAN

0.8503

8.48

ALLEN

KY

18

RURAL

0.7770

14540

URBAN

0.8403

8.15

BUTLER

KY

18

RURAL

0.7770

14540

URBAN

0.8403

8.15

ACADIA

LA

19

RURAL

0.7608

29180

URBAN

0.7896

3.79

IBERIA

LA

19

RURAL

0.7608

29180

URBAN

0.7896

3.79

ST. JAMES

LA

19

RURAL

0.7608

35380

URBAN

0.8778

15.38

TANGIPAHOA

LA

19

RURAL

0.7608

25220

URBAN

0.9487

24.70

VERMILION

LA

19

RURAL

0.7608

29180

URBAN

0.7896

3.79

WEBSTER

LA

19

RURAL

0.7608

43340

URBAN

0.8347

9.71

ST. MARYS

MD

21

RURAL

0.8586

15680

URBAN

0.8625

0.45

WORCESTER

MD

21

RURAL

0.8586

41540

URBAN

0.9296

8.27

MIDLAND

MI

23

RURAL

0.8232

33220

URBAN

0.7964

−3.26

MONTCALM

MI

23

RURAL

0.8232

24340

URBAN

0.8832

7.29

FILLMORE

MN

24

RURAL

0.9057

40340

URBAN

1.1384

25.69

LE SUEUR

MN

24

RURAL

0.9057

33460

URBAN

1.1162

23.24

MILLE LACS

MN

24

RURAL

0.9057

33460

URBAN

1.1162

23.24

SIBLEY

MN

24

RURAL

0.9057

33460

URBAN

1.1162

23.24

BENTON

MS

25

RURAL

0.7603

32820

URBAN

0.9069

19.28

YAZOO

MS

25

RURAL

0.7603

27140

URBAN

0.7932

4.33

GOLDEN VALLEY

MT

27

RURAL

0.9055

13740

URBAN

0.8718

-3.72

HALL

NE

28

RURAL

0.8957

24260

URBAN

0.9253

3.30

HAMILTON

NE

28

RURAL

0.8957

24260

URBAN

0.9253

3.30

HOWARD

NE

28

RURAL

0.8957

24260

URBAN

0.9253

3.30

MERRICK

NE

28

RURAL

0.8957

24260

URBAN

0.9253

3.30

JEFFERSON

NY

33

RURAL

0.8226

48060

URBAN

0.8417

2.32

YATES

NY

33

RURAL

0.8226

40380

URBAN

0.8783

6.77

CRAVEN

NC

34

RURAL

0.7963

35100

URBAN

0.8547

7.33

DAVIDSON

NC

34

RURAL

0.7963

49180

URBAN

0.8660

8.75

GATES

NC

34

RURAL

0.7963

47260

URBAN

0.9156

14.98

IREDELL

NC

34

RURAL

0.7963

16740

URBAN

0.9123

14.57

JONES

NC

34

RURAL

0.7963

35100

URBAN

0.8547

7.33

LINCOLN

NC

34

RURAL

0.7963

16740

URBAN

0.9123

14.57

PAMLICO

NC

34

RURAL

0.7963

35100

URBAN

0.8547

7.33

ROWAN

NC

34

RURAL

0.7963

16740

URBAN

0.9123

14.57

OLIVER

ND

35

RURAL

0.7125

13900

URBAN

0.7251

1.77

SIOUX

ND

35

RURAL

0.7125

13900

URBAN

0.7251

1.77

HOCKING

OH

36

RURAL

0.8315

18140

URBAN

0.9499

14.24

PERRY

OH

36

RURAL

0.8315

18140

URBAN

0.9499

14.24

COTTON

OK

37

RURAL

0.7824

30020

URBAN

0.7948

1.58

JOSEPHINE

OR

38

RURAL

1.0120

24420

URBAN

1.0123

0.03

LINN

OR

38

RURAL

1.0120

10540

URBAN

1.0919

7.90

ADAMS

PA

39

RURAL

0.8730

23900

URBAN

1.0142

16.17

COLUMBIA

PA

39

RURAL

0.8730

14100

URBAN

0.9382

7.47

FRANKLIN

PA

39

RURAL

0.8730

16540

URBAN

1.0997

25.97

MONROE

PA

39

RURAL

0.8730

20700

URBAN

0.9406

7.74

MONTOUR

PA

39

RURAL

0.8730

14100

URBAN

0.9382

7.47

UTUADO

PR

40

RURAL

0.4000

10380

URBAN

0.4000

0.00

BEAUFORT

SC

42

RURAL

0.8381

25940

URBAN

0.8807

5.08

CHESTER

SC

42

RURAL

0.8381

16740

URBAN

0.9123

8.85

JASPER

SC

42

RURAL

0.8381

25940

URBAN

0.8807

5.08

LANCASTER

SC

42

RURAL

0.8381

16740

URBAN

0.9123

8.85

UNION

SC

42

RURAL

0.8381

43900

URBAN

0.8275

−1.26

CUSTER

SD

43

RURAL

0.8343

39660

URBAN

0.9075

8.77

CAMPBELL

TN

44

RURAL

0.7387

28940

URBAN

0.7039

−4.71

CROCKETT

TN

44

RURAL

0.7387

27180

URBAN

0.7775

5.25

MAURY

TN

44

RURAL

0.7387

34980

URBAN

0.9053

22.55

MORGAN

TN

44

RURAL

0.7387

28940

URBAN

0.7039

−4.71

ROANE

TN

44

RURAL

0.7387

28940

URBAN

0.7039

−4.71

FALLS

TX

45

RURAL

0.7917

47380

URBAN

0.8202

3.60

HOOD

TX

45

RURAL

0.7917

23104

URBAN

0.9412

18.88

HUDSPETH

TX

45

RURAL

0.7917

21340

URBAN

0.8356

5.55

LYNN

TX

45

RURAL

0.7917

31180

URBAN

0.8870

12.04

MARTIN

TX

45

RURAL

0.7917

33260

URBAN

0.8973

13.34

NEWTON

TX

45

RURAL

0.7917

13140

URBAN

0.8541

7.88

OLDHAM

TX

45

RURAL

0.7917

11100

URBAN

0.8308

4.94

SOMERVELL

TX

45

RURAL

0.7917

23104

URBAN

0.9412

18.88

BOX ELDER

UT

46

RURAL

0.8877

36260

URBAN

0.9259

4.30

AUGUSTA

VA

49

RURAL

0.7694

44420

URBAN

0.8357

8.62

BUCKINGHAM

VA

49

RURAL

0.7694

16820

URBAN

0.9087

18.11

CULPEPER

VA

49

RURAL

0.7694

47894

URBAN

1.0418

35.40

FLOYD

VA

49

RURAL

0.7694

13980

URBAN

0.8504

10.53

RAPPAHANNOCK

VA

49

RURAL

0.7694

47894

URBAN

1.0418

35.40

STAUNTON CITY

VA

49

RURAL

0.7694

44420

URBAN

0.8357

8.62

WAYNESBORO CITY

VA

49

RURAL

0.7694

44420

URBAN

0.8357

8.62

COLUMBIA

WA

50

RURAL

1.0932

47460

URBAN

1.0974

0.38

PEND OREILLE

WA

50

RURAL

1.0932

44060

URBAN

1.1467

4.89

STEVENS

WA

50

RURAL

1.0932

44060

URBAN

1.1467

4.89

WALLA WALLA

WA

50

RURAL

1.0932

47460

URBAN

1.0974

0.38

FAYETTE

WV

51

RURAL

0.7391

13220

URBAN

0.8037

8.74

RALEIGH

WV

51

RURAL

0.7391

13220

URBAN

0.8037

8.74

GREEN

WI

52

RURAL

0.9074

31540

URBAN

1.1190

23.32

The wage index values of rural areas are typically lower than that of urban areas. Therefore, ESRD facilities located in a county that is currently designated as urban under the ESRD PPS wage index that would become rural if we adopt the new CBSA delineations may experience a decrease in their wage index values. We have identified 39 counties and 29 ESRD facilities that would move from urban to rural status if we adopt the new CBSA delineations beginning in CY 2015. Table 11: (CY 2015 Proposed Urban to Rural CBSA Crosswalk) shows the CBSA delineations for CY 2014 and the proposed urban wage index values for CY 2015 based on those delineations, compared with the proposed CBSA delineations and wage index values for CY 2015 based on those delineations, and the percentage change in these values for those counties that would change from urban to rural if we adopt the new CBSA delineations. If we adopted the new CBSA delineations illustrated in Table 11 below, approximately 30 facilities would experience a decrease in their wage index values.

Table 11—CY 2015 Proposed Urban to Rural CBSA Crosswalk

County name

State

ESRD PPS CY 2014 CBSA

delineations

CBSA

Urban/Rural

Wage index value

Proposed ESRD PPS CY 2015 CBSA

delineations

CBSA

Urban/Rural

Wage index value

Change in value

(%)

GREENE

AL

46220

URBAN

0.8336

01

RURAL

0.6930

−16.9

FRANKLIN

AR

22900

URBAN

0.7593

04

RURAL

0.7265

−4.3

POWER

ID

38540

URBAN

0.9707

13

RURAL

0.7425

−23.5

FRANKLIN

IN

17140

URBAN

0.8942

15

RURAL

0.8454

−5.5

GIBSON

IN

21780

URBAN

0.8524

15

RURAL

0.8454

−0.8

GREENE

IN

14020

URBAN

0.9096

15

RURAL

0.8454

−7.1

TIPTON

IN

29020

URBAN

0.9023

15

RURAL

0.8454

−6.3

FRANKLIN

KS

28140

URBAN

0.9454

17

RURAL

0.7811

−17.4

GEARY

KS

31740

URBAN

0.7225

17

RURAL

0.7811

8.1

NELSON

KY

31140

URBAN

0.8313

18

RURAL

0.7774

−6.5

WEBSTER

KY

21780

URBAN

0.8524

18

RURAL

0.7774

−8.8

FRANKLIN

MA

44140

URBAN

1.0309

22

RURAL

1.1596

12.5

IONIA

MI

24340

URBAN

0.8998

23

RURAL

0.8313

−7.6

NEWAYGO

MI

24340

URBAN

0.8998

23

RURAL

0.8313

−7.6

GEORGE

MS

37700

URBAN

0.7423

25

RURAL

0.7584

2.2

STONE

MS

25060

URBAN

0.8209

25

RURAL

0.7584

−7.6

CRAWFORD

MO

41180

URBAN

0.9457

26

RURAL

0.7827

−17.2

HOWARD

MO

17860

URBAN

0.8349

26

RURAL

0.7827

−6.3

WASHINGTON

MO

41180

URBAN

0.9457

26

RURAL

0.7827

−17.2

ANSON

NC

16740

URBAN

0.9283

34

RURAL

0.7880

−15.1

GREENE

NC

24780

URBAN

0.9405

34

RURAL

0.7880

−16.2

ERIE

OH

41780

URBAN

0.7792

36

RURAL

0.8338

7.0

OTTAWA

OH

45780

URBAN

0.9152

36

RURAL

0.8338

−8.9

PREBLE

OH

19380

URBAN

0.8918

36

RURAL

0.8338

−6.5

WASHINGTON

OH

37620

URBAN

0.8167

36

RURAL

0.8338

2.1

STEWART

TN

17300

URBAN

0.7554

44

RURAL

0.7297

−3.4

CALHOUN

TX

47020

URBAN

0.8504

45

RURAL

0.7909

−7.0

DELTA

TX

19124

URBAN

0.9751

45

RURAL

0.7909

−18.9

SAN JACINTO

TX

26420

URBAN

0.9881

45

RURAL

0.7909

−20.0

SUMMIT

UT

41620

URBAN

0.9548

46

RURAL

0.8993

−5.8

CUMBERLAND

VA

40060

URBAN

0.9556

49

RURAL

0.7573

−20.8

DANVILLE CITY

VA

19260

URBAN

0.7985

49

RURAL

0.7573

−5.2

KING AND QUEEN

VA

40060

URBAN

0.9556

49

RURAL

0.7573

−20.8

LOUISA

VA

40060

URBAN

0.9556

49

RURAL

0.7573

−20.8

PITTSYLVANIA

VA

19260

URBAN

0.7985

49

RURAL

0.7573

−5.2

SURRY

VA

47260

URBAN

0.9156

49

RURAL

0.7573

−17.3

MORGAN

WV

25180

URBAN

0.9113

51

RURAL

0.7249

−20.5

PLEASANTS

WV

37620

URBAN

0.8167

51

RURAL

0.7249

−11.2

We note that facilities in some urban CBSAs could experience a change in their wage index values even though they remain urban because an urban CBSA's boundaries and/or the counties included in that CBSA could change. Table 12 (CY 2015 Proposed Urban to a Different Urban CBSA Crosswalk) shows the CBSA delineations for CY 2014 and urban wage index values for CY 2015 based on those delineations, compared with the proposed CBSA delineations and urban wage index values for CY 2015 based on those delineations, and the percentage change in these values for counties that would remain urban even though the CBSA boundaries and/or counties included in that CBSA would change.

Table 12—CY 2015 Proposed Urban to a Different Urban CBSA Crosswalk

County name

State

ESRD PPS CY 2014 CBSA

delineations

CBSA

Urban/Rural

Wage index value

Proposed ESRD PPS CY 2015 CBSA

delineations

CBSA

Urban/Rural

Wage index value

Change In value (%)

MARIN

CA

41884

URBAN

1.7049

42034

URBAN

1.7317

1.6

FLAGLER

FL

37380

URBAN

0.8494

19660

URBAN

0.8407

−1.0

DE KALB

IL

16974

URBAN

1.0368

20994

URBAN

1.0347

−0.2

KANE

IL

16974

URBAN

1.0368

20994

URBAN

1.0347

−0.2

MADISON

IN

11300

URBAN

1.0115

26900

URBAN

1.0170

0.5

MEADE

KY

31140

URBAN

0.8313

21060

URBAN

0.7650

−8.0

ESSEX

MA

37764

URBAN

1.0808

15764

URBAN

1.1196

3.6

OTTAWA

MI

26100

URBAN

0.8167

24340

URBAN

0.8832

8.1

JACKSON

MS

37700

URBAN

0.7423

25060

URBAN

0.7927

6.8

BERGEN

NJ

35644

URBAN

1.3136

35614

URBAN

1.2887

−1.9

HUDSON

NJ

35644

URBAN

1.3136

35614

URBAN

1.2887

−1.9

MIDDLESEX

NJ

20764

URBAN

1.1085

35614

URBAN

1.2887

16.3

MONMOUTH

NJ

20764

URBAN

1.1085

35614

URBAN

1.2887

16.3

OCEAN

NJ

20764

URBAN

1.1085

35614

URBAN

1.2887

16.3

PASSAIC

NJ

35644

URBAN

1.3136

35614

URBAN

1.2887

−1.9

SOMERSET

NJ

20764

URBAN

1.1085

35084

URBAN

1.1520

3.9

BRONX

NY

35644

URBAN

1.3136

35614

URBAN

1.2887

−1.9

DUTCHESS

NY

39100

URBAN

1.1576

20524

URBAN

1.1387

−1.6

KINGS

NY

35644

URBAN

1.3136

35614

URBAN

1.2887

−1.9

NEW YORK

NY

35644

URBAN

1.3136

35614

URBAN

1.2887

−1.9

ORANGE

NY

39100

URBAN

1.1576

35614

URBAN

1.2887

11.3

PUTNAM

NY

35644

URBAN

1.3136

20524

URBAN

1.1387

−13.3

QUEENS

NY

35644

URBAN

1.3136

35614

URBAN

1.2887

−1.9

RICHMOND

NY

35644

URBAN

1.3136

35614

URBAN

1.2887

−1.9

ROCKLAND

NY

35644

URBAN

1.3136

35614

URBAN

1.2887

−1.9

WESTCHESTER

NY

35644

URBAN

1.3136

35614

URBAN

1.2887

−1.9

BRUNSWICK

NC

48900

URBAN

0.8899

34820

URBAN

0.8641

−2.9

BUCKS

PA

37964

URBAN

1.0934

33874

URBAN

1.0236

−6.4

CHESTER

PA

37964

URBAN

1.0934

33874

URBAN

1.0236

−6.4

MONTGOMERY

PA

37964

URBAN

1.0934

33874

URBAN

1.0236

−6.4

ARECIBO

PR

41980

URBAN

0.4471

11640

URBAN

0.4229

−5.4

CAMUY

PR

41980

URBAN

0.4471

11640

URBAN

0.4229

−5.4

CEIBA

PR

21940

URBAN

0.4000

41980

URBAN

0.4460

11.5

FAJARDO

PR

21940

URBAN

0.4000

41980

URBAN

0.4460

11.5

GUANICA

PR

49500

URBAN

0.4000

38660

URBAN

0.4169

4.2

GUAYANILLA

PR

49500

URBAN

0.4000

38660

URBAN

0.4169

4.2

HATILLO

PR

41980

URBAN

0.4471

11640

URBAN

0.4229

−5.4

LUQUILLO

PR

21940

URBAN

0.4000

41980

URBAN

0.4460

11.5

PENUELAS

PR

49500

URBAN

0.4000

38660

URBAN

0.4169

4.2

QUEBRADILLAS

PR

41980

URBAN

0.4471

11640

URBAN

0.4229

−5.4

YAUCO

PR

49500

URBAN

0.4000

38660

URBAN

0.4169

4.2

ANDERSON

SC

11340

URBAN

0.8775

24860

URBAN

0.9025

2.8

GRAINGER

TN

34100

URBAN

0.7002

28940

URBAN

0.7039

0.5

LINCOLN

WV

16620

URBAN

0.8017

26580

URBAN

0.8773

9.4

PUTNAM

WV

16620

URBAN

0.8017

26580

URBAN

0.8773

9.4

Likewise, ESRD facilities currently located in a rural area may remain rural under the new CBSA delineations but experience a change in their rural wage index value due to implementation of the new CBSA delineations. Table 13 (CY 2015 Proposed Changes to the Statewide Rural Wage Index Crosswalk) shows the CBSA numbers for CY 2014 and the proposed rural statewide wage index values for CY 2015, compared with the proposed statewide rural wage index values for CY 2015, and the percentage change in these values.

Table 13—CY 2015 Proposed Changes to the Statewide Rural Wage Index Crosswalk

State

ESRD PPS CY 2014 CBSA

delineations

CBSA

Urban/Rural

Wage index value

Proposed ESRD PPS CY 2015 CBSA

delineations

CBSA

Urban/Rural

Wage index value

Change in value (%)

AL

01

RURAL

0.6981

01

RURAL

0.6930

−0.73

AZ

03

RURAL

0.9159

03

RURAL

0.9253

1.03

CT

07

RURAL

1.1292

07

RURAL

1.1337

0.40

FL

10

RURAL

0.8010

10

RURAL

0.8394

4.79

GA

11

RURAL

0.7425

11

RURAL

0.7439

0.19

HI

12

RURAL

0.9953

12

RURAL

1.0276

3.25

IL

14

RURAL

0.8363

14

RURAL

0.8365

0.02

KS

17

RURAL

0.7838

17

RURAL

0.7811

−0.34

KY

18

RURAL

0.7770

18

RURAL

0.7774

0.05

LA

19

RURAL

0.7608

19

RURAL

0.7135

−6.22

MD

21

RURAL

0.8586

21

RURAL

0.8778

2.24

MA

22

RURAL

1.3971

22

RURAL

1.1596

−17.00

MI

23

RURAL

0.8232

23

RURAL

0.8313

0.98

MS

25

RURAL

0.7603

25

RURAL

0.7584

−0.25

NE

28

RURAL

0.8957

28

RURAL

0.8909

−0.54

NY

33

RURAL

0.8226

33

RURAL

0.8208

−0.22

NC

34

RURAL

0.7963

34

RURAL

0.7880

−1.04

OH

36

RURAL

0.8315

36

RURAL

0.8338

0.28

OR

38

RURAL

1.0120

38

RURAL

0.9985

−1.33

PA

39

RURAL

0.8730

39

RURAL

0.8079

−7.46

SC

42

RURAL

0.8381

42

RURAL

0.8357

−0.29

TN

44

RURAL

0.7387

44

RURAL

0.7297

−1.22

TX

45

RURAL

0.7917

45

RURAL

0.7909

−0.10

UT

46

RURAL

0.8877

46

RURAL

0.8993

1.31

VA

49

RURAL

0.7694

49

RURAL

0.7573

−1.57

WA

50

RURAL

1.0932

50

RURAL

1.0917

−0.14

WV

51

RURAL

0.7391

51

RURAL

0.7249

−1.92

WI

52

RURAL

0.9074

52

RURAL

0.9120

0.51

While we believe that the new CBSA delineations would result in wage index values that are more representative of the actual costs of labor in a given area, we also recognize that use of the new CBSA delineations would result in reduced payments to some facilities. In particular, approximately 30 facilities would experience reduced payments if we adopt the new CBSA delineations. At the same time, use of the new CBSA delineations would result in increased payments for approximately 100 facilities, while the majority of facilities would experience no change in payments due to the implementation of the new CBSA delineations. We are proposing to implement the new CBSA delineations using a 2-year transition with a 50/50 blended wage index value for all facilities in CY 2015 and 100% of the wage index based on the new CBSA delineations in CY 2016.

c. Transition Period

We considered having no transition period and fully implementing the proposed new CBSA delineations beginning in CY 2015, which would mean that all facilities would have payments based on the new delineations starting on January 1, 2015. However, because more facilities would have increased rather than decreased payments beginning in CY 2015, and because the overall amount of ESRD payments would increase slightly due to the new CBSA delineations, the wage index budget neutrality factor would be higher. This higher factor would reduce the ESRD PPS per treatment base rate for all facilities paid under the ESRD PPS, despite the fact that the majority of ESRD facilities are unaffected by the new CBSA delineations. Thus, we believe that it would be appropriate to provide for a transition period to mitigate any resulting short-term instability of a lower ESRD PPS base rate as well as any negative impacts to facilities that experience reduced payments. In addition, we note that for CY 2015, section 1881(b)(14)(F)(i)(III), as added by section 217 of PAMA, requires a 0.0 payment update (for further discussion on this update please see section II.B.1.a.ii of this rule), and thus, there is no possibility of offsetting any reduction, even a slight reduction, to the ESRD PPS base rate in CY 2015.

Therefore, we are proposing a two-year transition blended wage index for all facilities. Facilities would receive 50 percent of their CY 2015 wage index value based on the CBSA delineations for CY 2014 and 50 percent of their CY 2015 wage index value based on the proposed new CBSA delineations. This results in an average of the two values. We propose that facilities' CY 2016 wage index values would be based 100 percent on the new CBSA delineations. We believe a two-year transition strikes an appropriate balance between ensuring that ESRD PPS payments are as accurate and stable as possible while giving facilities time to adjust to the new CBSA delineations.

In the CY 2011 ESRD PPS final rule (75 FR 49117), we finalized a policy to use the labor-related share of 41.737 percent for the ESRD PPS. For the CY 2015 ESRD PPS, we propose to use a labor-related share of 50.673 percent, which we propose to transition over a 2-year period with the labor-related share in CY 2015 based 50 percent on the old labor-related share and 50 percent on the new labor-related share, and the labor-related share in CY 2016 based 100 percent on the new labor-related share. For a complete discussion of the proposed changes in the CY 2015 ESRD PPS market basket and labor-related share, as well as the transition of the labor-related share; please see sections II.B.2.e and XII.B.1.a of this proposed rule.

4. Proposed Revisions to the Outlier Policy

Section 1881(b)(14)(D)(ii) of the Act requires that the ESRD PPS include a payment adjustment for high cost outliers due to unusual variations in the type or amount of medically necessary care, including variability in the amount of erythropoiesis stimulating agents (ESAs) necessary for anemia management. Our regulations at 42 CFR 413.237(a)(1) provide that ESRD outlier services are the following items and services that are included in the ESRD PPS bundle: (i) ESRD-related drugs and biologicals that were or would have been, prior to January 1, 2011, separately billable under Medicare Part B; (ii) ESRD-related laboratory tests that were or would have been, prior to January 1, 2011, separately billable under Medicare Part B; (iii) medical/surgical supplies, including syringes, used to administer ESRD-related drugs, that were or would have been, prior to January 1, 2011, separately billable under Medicare Part B; and (iv) renal dialysis service drugs that were or would have been, prior to January 1, 2011, covered under Medicare Part D, excluding ESRD-related oral-only drugs.

In the CY 2011 ESRD PPS final rule (75 FR 49142), we stated that for purposes of determining whether an ESRD facility would be eligible for an outlier payment, it would be necessary for the facility to identify the actual ESRD outlier services furnished to the patient by line item on the monthly claim. The ESRD-related drugs, laboratory tests, and medical/surgical supplies that we would recognize as outlier services were specified in Attachment 3 of Change Request 7064, Transmittal 2033 issued August 20, 2010, rescinded and replaced by Transmittal 2094, dated November 17, 2010. With respect to the outlier policy, Transmittal 2094 identified additional drugs and laboratory tests that may be eligible for ESRD outlier payment.

Transmittal 2094 was rescinded and replaced by Transmittal 2134, dated January 14, 2011, which was issued to correct the subject on the Transmittal page and made no other changes.

In the CY 2012 ESRD PPS final rule (76 FR 70246), we eliminated the issuance of a specific list of eligible outlier service drugs which were or would have been separately billable under Medicare Part B prior to January 1, 2011. However, we use separate guidance to continue to identify renal dialysis service drugs which were or would have been covered under Part D for outlier eligibility purposes in order to provide unit prices for calculating imputed outlier services. We also can identify, through our monitoring efforts, items and services that are incorrectly being identified as eligible outlier services in the claims data. Information about these items and services and any updates to the list of renal dialysis items and services that qualify as outlier services are made through administrative issuances, if necessary.

Our regulations at 42 CFR 413.237 specify the methodology used to calculate outlier payments. An ESRD facility is eligible for an outlier payment if its actual or imputed Medicare Allowable Payment (MAP) amount per treatment for ESRD outlier services exceeds a threshold. The MAP amount represents the average incurred amount per treatment for services that were or would have been considered separately billable services prior to January 1, 2011. The threshold is equal to the ESRD facility's predicted ESRD outlier services MAP amount per treatment (which is case-mix adjusted) plus the fixed dollar loss amount. In accordance with § 413.237(c) of the regulations, facilities are paid 80 percent of the per treatment amount by which the imputed MAP amount for outlier services (that is, the actual incurred amount) exceeds this threshold. ESRD facilities are eligible to receive outlier payments for treating both adult and pediatric dialysis patients.

In the CY 2011 ESRD PPS final rule, using 2007 data, we established the outlier percentage at 1.0 percent of total payments (75 FR 49142 through 49143). We also established the fixed dollar loss amounts that are added to the predicted outlier services MAP amounts. The outlier services MAP amounts and fixed dollar loss amounts are different for adult and pediatric patients due to differences in the utilization of separately billable services among adult and pediatric patients (75 FR 49140).

As we explained in the CY 2011 ESRD PPS final rule (75 FR 49138 and 49139), the predicted outlier services MAP amounts for a patient are determined by multiplying the adjusted average outlier services MAP amount by the product of the patient-specific case-mix adjusters applicable using the outlier services payment multipliers developed from the regression analysis to compute the payment adjustments. For CY 2014, the outlier services MAP amounts and fixed dollar loss amounts were based on 2012 data (78FR 72180). Therefore, the outlier thresholds for CY 2014 were based on utilization of ESRD-related items and services furnished under the ESRD PPS. Because of the utilization of epoetin and other outlier services has continued to decline under the ESRD PPS, we lowered the MAP amounts and fixed dollar loss amounts for CYs 2013 and 2014 to allow for an increase in payments for ESRD beneficiaries requiring higher resources.

a. Proposed Changes to the Outlier Services MAP Amounts and Fixed Dollar Loss Amounts

For CY 2015, we are not proposing any changes to the methodology used to compute the MAP or fixed dollar loss amounts. Rather, in this proposed rule, we are updating the outlier services MAP amounts and fixed dollar loss amounts to reflect the utilization of outlier services reported on the 2013 claims using the December 2013 claims file. The impact of this update is shown in Table 14, which compares the outlier services MAP amounts and fixed dollar loss amounts used for the outlier policy in CY 2014 with the updated estimates for this proposed rule. The estimates for the proposed outlier CY 2015 outlier policy, which are included in Column II of Table 14, were inflation-adjusted to reflect projected 2015 prices for outlier services.

Table 14—Outlierpolicy: Impact of Using Updated Data To Define the Outlier Policy

Column I

Final outlier policy for CY 2014 (based on 2012 data price

inflated to 2014) *

Age <18

Age >=18

Column II

Proposed outlier policy for CY 2015 (based on 2013 data price inflated to 2015) *

Age <18

Age >=18

Average outlier services MAP amount per treatment

1

$37.29

$51.97

$40.05

$52.61

Adjustments

Standardization for outlier services

2

1.1079

0.9866

1.1182

0.9899

MIPPA reduction

0.98

0.98

0.98

0.98

Adjusted average outlier services MAP amount

3

$40.49

$50.25

$43.89

$51.04

Fixed dollar loss amount that is added to the predicted MAP to determine the outlier threshold

4

$54.01

$98.67

$56.30

$85.24

Patient months qualifying for outlier payment

6.7%

5.3%

6.2%

6.3%

* The outlier services MAP amounts and fixed dollar loss amounts were inflation adjusted to reflect updated prices for outlier services (that is, 2014 prices in Column I and projected 2015 prices in Column II).

1

Excludes patients for whom not all data were available to calculate projected payments. The outlier services MAP amounts are based on 2013 data. The medically unbelievable edits of 400,000 units for EPO and 1,200 mcg for Aranesp that are in place under the ESA claims monitoring policy were applied.

2

Applied to the average outlier MAP per treatment. Standardization for outlier services is based on existing case mix adjusters for adult and pediatric patient groups.

3

This is the amount to which the separately billable (SB) payment multipliers are applied to calculate the predicted outlier services MAP for each patient.

4

The fixed dollar loss amounts were calculated using 2013 data to yield total outlier payments that represent 1% of total projected payments for the ESRD PPS.

As seen in Table 14, the estimated fixed dollar loss amount that determines the CY 2015 outlier threshold amount for adults (Column II) is lower than that used for the CY 2014 outlier policy (Column I). The threshold is lower in

spite of the fact that the average outlier services MAP per treatment has increased. Between 2012 and 2013, the variation in outlier services across patients declined among adults. The net result is an increase in the percentage of patient-months qualifying for outlier payment (6.3 percent based on 2013 data versus 5.3 percent based on 2012 data) but a decrease in the average outlier payment per case. The estimated fixed dollar loss amount that determines the CY 2015 outlier threshold amount for pediatric patients (Column II) is higher than that used for the CY 2014 outlier policy (Column I).

For pediatric patients, there was an increase in the overall average outlier service MAP amount between 2012 ($37.29 per treatment as shown in Column I) and 2013 ($40.05 per treatment, as shown in Column II). In addition, there was a continuing tendency in 2013 for a relatively small percentage of pediatric patients to account for a disproportionate share of the total outlier service MAP amounts. The one percent target for outlier payments is therefore expected to be achieved based on a smaller percentage of pediatric outlier cases using 2013 data compared to 2012 data (6.2 percent of pediatric patient months are expected to qualify for outlier payments rather than 6.7 percent). These patterns led to the estimated fixed dollar loss amount for pediatric patients being higher for the outlier policy for CY 2015 compared to the outlier policy for CY 2014. Generally, there is a relatively higher likelihood for pediatric patients that the outlier threshold may be adjusted to reflect changes in the distribution of outlier service MAP amounts. This is due to the much smaller overall number of pediatric patients compared to adult patients, and therefore to the fact that the outlier threshold for pediatric patients is calculated based on data for a much smaller number of pediatric patients compared to adult patients.

We propose to update the fixed dollar loss amounts that are added to the predicted MAP amounts per treatment to determine the outlier thresholds for CY 2015 from $98.67 to $85.24 for adult patients and from $54.01 to $56.30 for pediatric patients compared with CY 2014 amounts. We estimate that the percentage of patient months qualifying for outlier payments under the current policy will be 6.3 percent and 6.2 percent for adult and pediatric patients, respectively, based on the 2013 data. The pediatric outlier MAP and fixed dollar loss amounts continue to be lower for pediatric patients than adults due to the continued lower use of outlier services (primarily reflecting lower use of epoetin and other injectable drugs).

b. Outlier Policy Percentage

42 CFR 413.220(b)(4) stipulates that the per treatment base rate is reduced by 1 percent to account for the proportion of the estimated total payments under the ESRD PPS that are outlier payments. Based on the 2013 claims, outlier payments represented approximately 0.5 percent of total payments, again falling short of the 1 percent target due to further declines in the use of outlier services. Use of 2013 data to recalibrate the thresholds, which reflect lower utilization of EPO and other outlier services and reduced variation in outlier services among adults, is expected to result in aggregate outlier payments close to the 1 percent target in CY 2015. We believe the proposed update to the outlier MAP and fixed dollar loss amounts for CY 2015 will increase payments for ESRD beneficiaries requiring higher resource utilization and come closer to meeting our 1 percent outlier policy.

We note that recalibration of the fixed dollar loss amounts in this proposed rule for CY 2015 outlier payments results in no change in payments to ESRD facilities for beneficiaries with renal dialysis items and services that are not eligible for outlier payments, but increases payments to providers for beneficiaries with renal dialysis items and services that are eligible for outlier payments. Therefore, beneficiary co-insurance obligations would also increase for renal dialysis services eligible for outlier payments.

C. Restatement of Policy Regarding Reporting and Payment for More Than Three Dialysis Treatments per Week

1. Reporting More Than Three Dialysis Treatments per Week on Claims

Since the composite payment system was implemented in the 1980s, CMS has reimbursed ESRD facilities based upon three hemodialysis treatments per week and allowed for the payment of additional weekly dialysis treatments with medical justification. When a dialysis modality regimen requires more than three weekly dialysis treatments, such as with short, frequent hemodialysis (HD) and peritoneal dialysis (PD) modalities, we apply payment edits to ensure that Medicare payment on the monthly claim is consistent with the three times-weekly dialysis treatment payment limit, which translates to payment for 13 treatments for a 30-day month and 14 treatments for a 31-day month.

Under section 1881(b)(14)(C) of the Act, the ESRD PPS may provide for payment on the basis of renal dialysis services furnished during a week, or month, or such other appropriate unit of payment as the Secretary specifies. In the CY 2011 ESRD PPS final rule (75 FR 49064), CMS finalized the per treatment basis of payment in which ESRD facilities ar

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