Medicare Program; End-Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury, End-Stage Renal Disease Quality Incentive Program, Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) Competitive Bidding Program (CBP) and Fee Schedule Amounts, and Technical Amendments To Correct Existing Regulations Related to the CBP for Certain DMEPOS

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413 and 414

[CMS-1691-P]

RIN 0938-AT28

Medicare Program; End-Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury, End-Stage Renal Disease Quality Incentive Program, Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) Competitive Bidding Program (CBP) and Fee Schedule Amounts, and Technical Amendments To Correct Existing Regulations Related to the CBP for Certain DMEPOS

AGENCY:

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

ACTION:

Proposed rule.

SUMMARY:

This proposed rule would update and make revisions to the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) for calendar year (CY) 2019. This rule also proposes to update the payment rate for renal dialysis services furnished by an ESRD facility to individuals with acute kidney injury (AKI). In addition, it proposes a rebasing of the ESRD market basket for CY 2019. This proposed rule also proposes to update requirements for the ESRD Quality Incentive Program (QIP), and to make technical amendments to correct existing regulations related to the CBP for certain DMEPOS. Finally, this proposed rule proposes changes to bidding and pricing methodologies under the Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) competitive bidding program (CBP); adjustments to DMEPOS Fee Schedule amounts using information from competitive bidding for items furnished from January 1, 2019 through December 31, 2020; new payment classes for oxygen and oxygen equipment and a new methodology for ensuring that new payment classes for oxygen and oxygen equipment are budget neutral; payment rules for multi-function ventilators or ventilators that perform functions of other durable medical equipment (DME); and payment methodology revisions for mail order items furnished in the Northern Mariana Islands. This rule also includes a request for information related to establishing fee schedule amounts for new DMEPOS items and services. It also includes Requests for Information on promoting interoperability and electronic healthcare information exchange, and improving beneficiary access to dialysis facility and DMEPOS charge information.

DATES:

To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on September 10, 2018.

ADDRESSES:

In commenting, please refer to file code CMS-1691-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

Comments, including mass comment submissions, must be submitted in one of the following three 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-1691-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-1691-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

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

SUPPLEMENTARY INFORMATION

section.

FOR FURTHER INFORMATION CONTACT:

ESRDPayment@cms.hhs.gov

, for issues related to the ESRD PPS and coverage and payment for renal dialysis services furnished to individuals with AKI.

Delia Houseal, (410) 786-2724, for issues related to the ESRD QIP.

DMEPOS@cms.hhs.gov

, for issues related to DMEPOS payment policy.

Julia Howard, (410) 786-8645, for issues related to DMEPOS CBP technical amendments only.

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 website as soon as possible after they have been received:

http://www.regulations.gov

. Follow the search instructions on that website to view public comments.

Electronic Access

This

Federal Register

document is also available from the

Federal Register

online database through

Federal Digital System (FDsys),

a service of the United States Government Printing Office. This database can be accessed via the internet at

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

.

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. Coverage and Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury (AKI)

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

4. Changes to the DMEPOS Competitive Bidding Program and Fee Schedule Payment Rules

B. Summary of the Major Provisions

1. ESRD PPS

2. Payment for Renal Dialysis Services Furnished to Individuals With AKI

3. ESRD QIP

4. Changes to the DMEPOS Competitive Bidding Program and Fee Schedule Payment Rules

C. Summary of Cost and Benefits

1. Impacts of the Proposed ESRD PPS

2. Impacts of the Proposed Payment for Renal Dialysis Services Furnished to Individuals With AKI

3. Impacts of the Proposed ESRD QIP

4. Impacts of the Proposed Changes to the DMEPOS Competitive Bidding Program and Fee Schedule Payment Rules

II. Calendar Year (CY) 2019 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

A. Background

B. Provisions of the Proposed Rule

C. Solicitation for Information on Transplant and Modality Requirements

III. CY 2019 Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury (AKI)

A. Background

B. Annual Payment Rate Update for CY 2019

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

A. Background

B. Proposed Update to Requirements Beginning With the PY 2021 ESRD QIP

C. Proposed Requirements for the PY 2022 ESRD QIP

D. Proposed Requirements Beginning With the PY 2024 ESRD QIP

V. Changes to the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program (CBP)

A. Background

B. Current Method for Submitting Bids and Selecting Winners

C. Current Method for Establishing SPAs

D. Provisions of the Proposed Rule

VI. Adjustments to DMEPOS Fee Schedule Amounts Based on Information From the DMEPOS CBP

A. Background

B. Current Issues

C. Provisions of the Proposed Rule

VII. New Payment Classes for Oxygen and Oxygen Equipment and Methodology for Ensuring Annual Budget Neutrality of the New Classes

A. Background

B. Provisions of the Proposed Rule

VIII. Payment for Multi-Function Ventilators

A. Background

B. Current Issues

C. Provisions of the Proposed Rule

IX. Including the Northern Mariana Islands in Future National Mail Order CBPs

A. Background

B. Current Issues

C. Provisions of the Proposed Rule

X. Request for Information on the Gap-Filling Process for Establishing Fees for New DMEPOS Items

XI. DMEPOS CBP Technical Amendments

A. Background

B. Proposed Technical Amendments

XII. Burden Reduction on Comorbidities

A. Background

B. Proposed Documentation Requirements

XIII. Requests for Information

A. Request for Information on Promoting Interoperability and Electronic Healthcare Information Exchange Through Possible Revisions to the CMS Patient Health and Safety Requirements for Hospitals and Other Medicare- and Medicaid-Participating Providers and Suppliers

B. Request for Information on Price Transparency: Improving Beneficiary Access to Provider and Supplier Charge Information

XIV. Collection of Information Requirements

XV. Response to Comments

XVI. Economic Analyses

A. Regulatory Impact Analysis

B. Detailed Economic Analysis

C. Accounting Statement

XVII. Regulatory Flexibility Act Analysis

XVIII. Unfunded Mandates Reform Act Analysis

XIX. Federalism Analysis

XX. Reducing Regulation and Controlling Regulatory Costs

XXI. Congressional Review Act

XXII. Files Available to the Public via the Internet

Regulations Text

I. Executive Summary

A. Purpose

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

On January 1, 2011, we implemented the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS), a case-mix adjusted, bundled PPS for renal dialysis services furnished by ESRD facilities as required by section 1881(b)(14) of the Social Security Act (the Act), as added by section 153(b) of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). Section 1881(b)(14)(F) of the Act, as added by section 153(b) of MIPPA, and amended by section 3401(h) of the Patient Protection and Affordable Care Act (the Affordable Care Act) (Pub. L. 111-148), established that beginning calendar year (CY) 2012, and each subsequent year, the Secretary of the Department of Health and Human Services (the Secretary) shall annually increase payment amounts by an ESRD market basket increase factor, reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. This rule proposes updates and revisions to the ESRD PPS for CY 2019.

2. Coverage and Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury (AKI)

On June 29, 2015, the President signed the Trade Preferences Extension Act of 2015 (TPEA) (Pub. L. 114-27). Section 808(a) of TPEA amended section 1861(s)(2)(F) of the Act to provide coverage for renal dialysis services furnished on or after January 1, 2017, by a renal dialysis facility or a provider of services paid under section 1881(b)(14) of the Act to an individual with acute kidney injury (AKI). Section 808(b) of the TPEA amended section 1834 of the Act by adding a new subsection (r) that provides for payment for renal dialysis services furnished by renal dialysis facilities or providers of services paid under section 1881(b)(14) of the Act to individuals with AKI at the ESRD PPS base rate beginning January 1, 2017. This rule proposes to update the AKI payment rate for CY 2019.

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

The End-Stage Renal Disease Quality Incentive Program (ESRD QIP) is authorized under section 1881(h) of the Social Security Act (the Act), and is the most recent step in fostering improved patient outcomes by establishing incentives for dialysis facilities to meet or exceed performance standards established by the Centers for Medicare & Medicaid Services (CMS). This proposed rule proposes a number of updates for the ESRD QIP.

4. Changes to the DMEPOS Competitive Bidding Program and Fee Schedule Payment Rules

i. Changes to the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program (CBP):

This rule proposes to revise the DMEPOS CBP by implementing lead item pricing based on maximum winning bid amounts.

ii. Adjustments to DMEPOS Fee Schedule Amounts Based on Information from the DMEPOS CBP:

This rule proposes transitional fee schedule adjustments for DMEPOS items and services furnished on or after January 1, 2019 in areas that are currently CBAs and in areas that are currently not CBAs. Altogether, this rule proposes three different fee schedule adjustment methodologies depending on the area in which the items and services are furnished: (1) One fee schedule adjustment methodology for DME items and services furnished on or after January 1, 2019, in areas that are currently CBAs, in the event of a gap in the CBP; (2) another fee schedule adjustment methodology for items and services furnished from January 1, 2019, through December 31, 2020, in areas that are currently not CBAs, are not rural areas, and are located in the contiguous United States (U.S.); and (3) another fee schedule adjustment methodology for items and services furnished from January 1, 2019, through December 31, 2020, in areas that are currently not CBAs and are either rural areas or non-contiguous areas.

iii. New Payment Classes for Oxygen and Oxygen Equipment and Methodology for Ensuring Annual Budget Neutrality of the New Classes:

We are proposing to establish new, separate payment classes for portable gaseous oxygen equipment, portable liquid oxygen equipment, and high flow portable liquid oxygen contents. We are also proposing to establish a new methodology for ensuring that all new payment classes for oxygen and oxygen equipment are budget neutral in accordance with section 1834(a)(9)(D)(ii) of the Act.

iv. Payment for Multi-Function Ventilators:

This rule proposes to establish new rules to address payment for certain ventilators that are subject to the payment rules at section 1834(a)(3) of the Act but also perform the functions of other items of durable medical equipment (DME) that are subject to payment rules other than those at section 1834(a)(3) of the Act.

v. Including the Northern Mariana Islands in Future National Mail Order CBPs:

This rule proposes to amend

§ 414.210(g)(7) to indicate that beginning on or after the date that contracts take effect for a national mail order competitive bidding program that includes the Northern Mariana Islands, the fee schedule adjustment methodology under this paragraph would no longer apply.

B. Summary of the Major Provisions

1. ESRD PPS

•

Update to the ESRD PPS base rate for CY 2019:

The proposed CY 2019 ESRD PPS base rate is $235.82. This proposed amount reflects a productivity-adjusted market basket increase as required by section 1881(b)(14)(F)(i)(I) of the Act (1.5 percent), and application of the wage index budget-neutrality adjustment factor (0.999833), equaling $235.82 ($232.37 × 1.0150 × 0.999833 = $235.82).

•

Annual update to the wage index:

We adjust wage indices on an annual basis using the most current hospital wage data and the latest core-based statistical area (CBSA) delineations to account for differing wage levels in areas in which ESRD facilities are located. For CY 2019, we propose to increase the wage index floor, for areas with wage index values below the floor, to 0.5000 and are proposing to update the wage index values to the latest available data.

•

Update to the outlier policy:

We are proposing to update the outlier policy using the most current data, as well as update the outlier services fixed-dollar loss (FDL) amounts for adult and pediatric patients and Medicare Allowable Payment (MAP) amounts for adult and pediatric patients for CY 2019 using CY 2017 claims data. Based on the use of the latest available data, the proposed FDL amount for pediatric beneficiaries would increase from $47.79 to $47.88 and the MAP amount would decrease from $37.31 to $35.62, as compared to CY 2018 values. For adult beneficiaries, the proposed FDL amount would decrease from $77.54 to $69.73 and the MAP amount would decrease from $42.41 to $40.25. The 1 percent target for outlier payments was not achieved in CY 2017. Outlier payments represented approximately 0.8 percent of total payments rather than 1.0 percent. We believe using CY 2017 claims data to update the outlier MAP and FDL amounts for CY 2019 would increase payments for ESRD beneficiaries requiring higher resource utilization in accordance with a 1 percent outlier percentage. We are also soliciting comment on whether we should expand the outlier policy to include composite rate drugs and supplies.

•

Update to the Drug Designation Process:

We are proposing to update and revise our designation process and expand the transitional drug add-on payment adjustment (TDAPA) to all new drugs, not just those in new functional categories, and change the basis of determining the TDAPA from pricing methodologies under section 1847A of the Act, (which includes ASP +6) to ASP +0.

•

Update to the Low-Volume Payment Adjustment:

We are proposing revisions to the low-volume payment adjustment regulations to allow for more flexibility with regard to attestation dates and cost reporting requirements, as well as updating the requirements for eligibility with respect to certain changes of ownership.

2. Payment for Renal Dialysis Services Furnished to Individuals With AKI

We are proposing to update the AKI payment rate for CY 2019. The proposed CY 2019 payment rate is $235.82, which is the same as the base rate proposed under the ESRD PPS for CY 2019.

3. ESRD QIP

This proposed rule proposes a number of new requirements for the ESRD QIP beginning with PY 2021, including the following:

• We are proposing to update the ESRD QIP's measure removal criteria, which we now refer to as “factors”, so that they are more closely aligned with the measure removal factors we have adopted, or proposed to adopt for other quality reporting and pay for performance programs, as well as the priorities we have adopted as part of the Meaningful Measures Initiative.

• We are proposing to remove four measures: Healthcare Personnel Influenza Vaccination, Pain Assessment and Follow-Up, Anemia Management, and Serum Phosphorus. Removal of these measures would align the ESRD QIP measure set more closely with the priorities we have adopted as part of our Meaningful Measures Initiative.

• We are proposing to make several changes to the domains and domain weights that we use for purposes of our scoring methodology to more closely align the ESRD QIP with the priorities we have adopted as part of our Meaningful Measures Initiative. We are proposing to remove the Reporting Domain from the Program and to move each reporting measure currently in that domain (and not being proposed for removal) to another domain that is better aligned with the focus area of that measure. Additionally, we are proposing that the Patient and Family Engagement/Care Coordination Subdomain and the Clinical Care Subdomain, both of which are currently subdomains in the Clinical Measure Domain, would become their own domains. As a result, the ESRD QIP would be scored using four domains instead of three. Furthermore, we are proposing new domain and measure weights that better align with the priority areas we have adopted as part of our Meaningful Measures Initiative.

• We are proposing to update our policy governing when newly opened facilities must start reporting ESRD QIP data. The proposed policy would require facilities to begin reporting ESRD QIP data beginning with the month that begins 4 months after the month during which the CMS Certification Number (CCN) becomes effective (for example, a facility with a CCN effective date of January 15th would be required to begin reporting ESRD QIP data collected in May). The proposed policy would provide facilities with a longer time period than they are given now to learn how to properly report ESRD QIP data.

• We are proposing to increase the number of facilities that we select for validation under the National Healthcare Safety Network (NHSN) data validation study from 35 to 150 facilities, and to increase the number of records that each selected facility must submit to 20 records for each of the first 2 quarters of CY 2019 (for a total of 40 records). This proposal would improve the overall accuracy of the study.

• We are proposing to convert the current Consolidated Renal Operations in a Web-Enabled Network (CROWNWeb) data validation study into a permanent program requirement using the methodology we first adopted for PY 2016 because an analysis demonstrated that this methodology produced reliable validation results. We are also proposing that the 10 point deduction for failure to comply with the data request, which was first adopted for PY 2017, would become a permanent program requirement.

This proposed rule also proposes a number of new requirements for the ESRD QIP beginning with PY 2022, including the following:

• We are proposing to adopt the Percentage of Prevalent Patients Waitlisted (PPPW) Measure and to place it in the proposed Care Coordination Measure Domain (NQF #2988).

• We are proposing to adopt the Medication Reconciliation for Patients Receiving Care at Dialysis Facilities (MedRec) Measure (NQF #2988) and to place it in the Safety Measure Domain.

• We are proposing to increase the number of facilities that we select for validation under the NHSN data validation study from 150 to 300 facilities. This proposal would further improve the overall accuracy of the study.

This proposed rule also proposes to set forth new requirements for the ESRD QIP beginning with PY 2024, including the following:

• We are proposing to adopt the Standardized First Kidney Transplant Waitlist Ratio for Incident Dialysis Patients (SWR) Measure and to place it within the proposed Patient and Family Engagement/Care Coordination Domain as a second measure in the proposed Transplant measure topic.

Finally, we are proposing to codify in our regulations several previously finalized requirements for the ESRD QIP by revising § 413.177 and adopting a new § 413.178.

4. Changes to the DMEPOS Competitive Bidding Program and Fee Schedule Payment Rules

i. Changes to the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program (CBP):

We are proposing to revise the DMEPOS CBP by implementing lead item pricing based on maximum winning bid amounts. We are proposing to revise the definition of bid to mean an offer to furnish an item or items for a particular price and time period that includes, where appropriate, any services that are directly related to the furnishing of the item or items. We are proposing to revise the definition of composite bid to mean the bid submitted by the supplier for the lead item in the product category. We are proposing to revise the definition of lead item to mean the item in a product category with multiple items with the highest total nationwide Medicare allowed charges of any item in the product category prior to each competition.

ii. Adjustments to DMEPOS Fee Schedule Amounts Based on Information from the DMEPOS CBP:

We are proposing transitional fee schedule adjustments for DMEPOS items and services furnished on or after January 1, 2019 in areas that are currently CBAs and in areas that are currently not CBAs. Altogether, this rule proposes three different fee schedule adjustment methodologies depending on the area in which the items and services are furnished: (1) One fee schedule adjustment methodology for DME items and services furnished on or after January 1, 2019, in areas that are currently CBAs, in the event of a gap in the CBP; (2) another fee schedule adjustment methodology for items and services furnished from January 1, 2019, through December 31, 2020, in areas that are currently not CBAs, are not rural areas, and are located in the contiguous United States (U.S.); and (3) another fee schedule adjustment methodology for items and services furnished from January 1, 2019, through December 31, 2020, in areas that are currently not CBAs and are either rural areas or non-contiguous areas.

iii. New Payment Classes for Oxygen and Oxygen Equipment and Methodology for Ensuring Annual Budget Neutrality of the New Classes:

We are proposing to establish new, separate payment classes for portable gaseous oxygen equipment, portable liquid oxygen equipment, and high flow portable liquid oxygen contents. We are also proposing to establish a new methodology for ensuring that all new payment classes for oxygen and oxygen equipment are budget neutral in accordance with section 1834(a)(9)(D)(ii) of the Act.

iv. Payment for Multi-Function Ventilators:

We are proposing to establish new rules to address payment for certain ventilators that are subject to the payment rules at section 1834(a)(3) of the Act but also perform the functions of other items of durable medical equipment (DME) that are subject to payment rules other than those at section 1834(a)(3) of the Act.

v. Including the Northern Mariana Islands in Future National Mail Order CBPs:

We intend to include the Northern Mariana Islands under national mail order competitive bidding programs that become effective on or after January 1, 2019, so we are proposing to amend § 414.210(g)(7) to indicate that beginning on or after the date that contracts take effect for a national mail order competitive bidding program that includes the Northern Mariana Islands, the fee schedule adjustment methodology under this paragraph would no longer apply.

C. Summary of Costs and Benefits

In section XVI 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 XV of this proposed rule displays the estimated change in payments to ESRD facilities in CY 2019 compared to estimated payments in CY 2018. The overall impact of the proposed CY 2019 changes is projected to be a 1.7 percent increase in payments. Hospital-based ESRD facilities have an estimated 1.8 percent increase in payments compared with freestanding facilities with an estimated 1.7 percent increase.

We estimate that the aggregate ESRD PPS expenditures would increase by approximately $220 million in CY 2019 compared to CY 2018. This reflects a $190 million increase 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 1.7 percent overall payment increase, we estimate that there would be an increase in beneficiary co-insurance payments of 1.7 percent in CY 2019, which translates to approximately $60 million.

2. Impacts of the Proposed Payment for Renal Dialysis Services Furnished to Individuals With AKI

The impact chart in section XVI of this proposed rule displays the estimated change in proposed payments to ESRD facilities in CY 2019 compared to estimated payments in CY 2018. The overall impact of the proposed CY 2019 changes is projected to be a 1.5 percent increase in payments. Hospital-based ESRD facilities and freestanding facilities both have an estimated 1.5 percent increase in payments.

We estimate that the aggregate payments made to ESRD facilities for renal dialysis services furnished to AKI patients at the proposed CY 2019 ESRD PPS base rate would increase by less than $1 million in CY 2019 compared to CY 2018.

3. Impacts of the Proposed ESRD QIP

We estimate that the overall economic impact of the ESRD QIP would be approximately $219 million in PY 2021. The $219 million figure for PY 2021 includes costs associated with the collection of information requirements, which we estimate would be approximately $181 million. For PY 2022, we estimate that ESRD facilities would experience an overall economic impact of approximately $240 million as a result of the PY 2022 ESRD QIP. The $240 million figure for PY 2022 includes costs associated with the collection of information requirements, which we estimate would be approximately $202 million. Our proposal to add the SWR measure to the ESRD QIP measure set in PY 2024 would not result in additional costs associated with the collection of information requirements because the measure does not use data reported to CROWNWeb.

4. Impacts of the Proposed Changes to the DMEPOS Competitive Bidding Program and Fee Schedule Payment Rules

i. Changes to the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program (CBP)

This rule proposes to base single payment amounts on the maximum winning bid and to implement lead item pricing in the Medicare DMEPOS Competitive Bidding Program. The impacts of the rule are estimated by rounding to the nearer 5 million dollars and are expected to cost $10 million in Medicare benefit payments for the 5-year period beginning January 1, 2019 and ending September 30, 2023. The impacts on beneficiary cost sharing is roughly $3 million over this 5-year period. The Medicaid impacts for cost sharing for the beneficiaries enrolled in the Medicare Part B and Medicaid programs for the federal and state portions are assumed to both be $0 million.

ii. Adjustments to DMEPOS Fee Schedule Amounts Based on Information From the DMEPOS CBP

This rule proposes transitional fee schedule adjustments for DMEPOS items and services furnished in areas that are currently CBAs and in areas currently not CBAs on or after January 1, 2019. Altogether, this rule proposes three different fee schedule adjustment methodologies depending on the area in which the items and services are furnished: (1) One fee schedule adjustment methodology for DME items and services furnished on or after January 1, 2019, in areas that are currently CBAs, in the event of a gap in the CBP; (2) another fee schedule adjustment methodology for items and services furnished from January 1, 2019, through December 31, 2020, in areas that are currently not CBAs, are not rural areas, and are located in the contiguous United States (U.S.); and (3) another fee schedule adjustment methodology for items and services furnished from January 1, 2019, through December 31, 2020, in areas that are currently not CBAs and are either rural areas or non-contiguous areas.

The estimated impacts for this part of the rule are calculated against a baseline that assumes payments for items furnished in CBAs and non-CBAs are made consistent with the rules in place as of January 1, 2018, which establish payment for items furnished in CBAs based on fee schedule amounts fully adjusted in accordance with current regulations at 42 CFR 414.210(g). The impacts are expected to cost $1,050 million dollars in Medicare benefit payments and $260 million dollars in Medicare beneficiary cost sharing for the 2-year period beginning January 1, 2019 and ending December 31, 2020. The Medicaid impacts for cost sharing for the beneficiaries enrolled in the Medicare Part B and Medicaid programs for the federal and state portions are assumed to be $45 million dollars and $30 million dollars, respectively. Section 503 of the Consolidated Appropriations Act of 2016 and section 5002 of the Cures Act, added section 1903(i)(27) to the Act, which prohibits federal Medicaid reimbursement to states for certain DME expenditures that are, in the aggregate, in excess of what Medicare would have paid for such items. The requirement took effect January 1, 2018. We note that the costs for the Medicaid program and beneficiaries could be higher depending on how many state agencies adopt the higher Medicare adjusted fee schedule amounts for rural areas for use in paying claims under the Medicaid program. We are not able to quantify this impact.

iii. New Payment Classes for Oxygen and Oxygen Equipment and Methodology for Ensuring Annual Budget Neutrality of the New Classes

This rule proposes to establish new payment classes for oxygen and oxygen equipment and is estimated to be budget neutral to the Medicare program and its beneficiaries.

iv. Payment for Multi-Function Ventilators

This rule proposes to establish new rules to address payment for certain ventilators that are subject to the payment rules at section 1834(a)(3) of the Act but also perform the functions of other items of durable medical equipment (DME) that are subject to payment rules other than those at section 1834(a)(3) of the Act. The impacts are estimated by rounding to the nearer 5 million dollars and are expected to cost $15 million in Medicare benefit payments and $0 million in Medicare beneficiary cost sharing for the 5-year period beginning January 1, 2019 and ending September 30, 2023. The Medicaid impacts for cost sharing for the beneficiaries enrolled in the Medicare Part B and Medicaid programs for the federal and state portions are assumed to both be $0 million.

v. Including the Northern Mariana Islands in Future National Mail Order CBPs

This change would not have a fiscal impact.

II. Calendar Year (CY) 2019 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

A. Background

1. Statutory Background

On January 1, 2011, we implemented the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS), a case-mix adjusted bundled PPS for renal dialysis services furnished by ESRD facilities, as required by section 1881(b)(14) of the Social Security Act (the Act), as added by section 153(b) of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). Section 1881(b)(14)(F) of the Act, as added by section 153(b) of MIPPA and amended by section 3401(h) of the Patient Protection and Affordable Care Act (the Affordable Care Act), established that beginning with calendar year (CY) 2012, and each subsequent year, the Secretary of the Department of Health and Human Services (the Secretary) shall annually increase payment amounts by an ESRD market basket 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 2012, to reduce the single payment for renal dialysis services furnished on or after January 1, 2014 to reflect the Secretary's estimate of the change in the utilization of ESRD-related drugs and biologicals (excluding oral-only ESRD-related drugs). Consistent with this requirement, in the CY 2014 ESRD PPS final rule we finalized $29.93 as the total drug utilization reduction and finalized a policy to implement the amount over a 3- to 4-year transition period (78 FR 72161 through 72170).

Section 632(b) of ATRA prohibited the Secretary from paying for oral-only ESRD-related drugs and biologicals under the ESRD PPS prior to January 1, 2016. And section 632(c) of ATRA required the Secretary, by no later than January 1, 2016, to analyze the case-mix payment adjustments under section 1881(b)(14)(D)(i) of the Act and make appropriate revisions to those adjustments.

On April 1, 2014, the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. 113-93) was enacted. Section 217 of PAMA included several provisions that apply to the ESRD PPS. Specifically, sections 217(b)(1) and (2) of PAMA amended sections 1881(b)(14)(F) and (I) of the Act and replaced the drug utilization adjustment that was finalized in the CY 2014 ESRD PPS final rule (78 FR 72161 through 72170) with specific provisions that dictated the market basket update for CY 2015 (0.0 percent) and how the market basket should be reduced in CY 2016 through CY 2018.

Section 217(a)(1) of PAMA amended section 632(b)(1) of ATRA to provide that the Secretary may not pay for oral-only ESRD-related drugs under the ESRD PPS prior to January 1, 2024. Section 217(a)(2) of PAMA further amended section 632(b)(1) of ATRA by requiring that in establishing payment for oral-only drugs under the ESRD PPS, the Secretary must use data from the most recent year available. Section 217(c) of PAMA provided that as part of the CY 2016 ESRD PPS rulemaking, the Secretary shall establish a process for (1) determining when a product is no longer an oral-only drug; and (2) including new injectable and intravenous products into the ESRD PPS bundled payment.

Finally, on December 19, 2014, the President signed the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE) (Pub. L. 113-295). Section 204 of ABLE amended section 632(b)(1) of ATRA, as amended by section 217(a)(1) of PAMA, to provide that payment for oral-only renal dialysis services cannot be made under the ESRD PPS bundled payment prior to January 1, 2025.

2. System for Payment of Renal Dialysis Services

Under the ESRD PPS, a single, per-treatment payment is made to an ESRD facility for all of the renal dialysis services defined in section 1881(b)(14)(B) of the Act and furnished to individuals for the treatment of ESRD in the ESRD facility or in a patient's home. We have codified our definitions of renal dialysis services at 42 CFR 413.171, which is in 42 CFR part 413, subpart H, along with other ESRD PPS payment policies. The ESRD PPS base rate is adjusted for characteristics of both adult and pediatric patients and accounts for patient case-mix variability. The adult case-mix adjusters include five categories of age, body surface area, low body mass index, onset of dialysis, four comorbidity categories, and pediatric patient-level adjusters consisting of two age categories and two dialysis modalities (§ 413.235(a) and (b)).

The ESRD PPS provides for three facility-level adjustments. The first payment adjustment accounts for ESRD facilities furnishing a low volume of dialysis treatments (§ 413.232). The second adjustment reflects differences in area wage levels developed from core based statistical areas (CBSAs) (§ 413.231). The third payment adjustment accounts for ESRD facilities furnishing renal dialysis services in a rural area (§ 413.233).

The ESRD PPS provides a training add-on for home and self-dialysis modalities (§ 413.235(c)) and an additional payment for high cost outliers due to unusual variations in the type or amount of medically necessary care when applicable (§ 413.237).

The ESRD PPS also provides for a transitional drug add-on payment adjustment (TDAPA) to pay for a new injectable or intravenous product that is not considered included in the ESRD PPS bundled payment, meaning a product that is used to treat or manage a condition for which there is not an existing ESRD PPS functional category (§ 413.234). The ESRD PPS functional categories represent distinct groupings of drugs or biologicals, as determined by CMS, whose end action effect is the treatment or management of a condition or conditions associated with ESRD. New injectable or intravenous products that are not included in a functional category in the ESRD PPS base rate are paid for using the TDAPA for a minimum of 2 years, until sufficient claims data for rate setting analysis are available. At that point, utilization would be reviewed and the ESRD PPS base rate modified, if appropriate, to account for these products. The TDAPA is based on pricing methodologies under section 1847A of the Act (§ 413.234(c)).

3. Updates to the ESRD PPS

Policy changes to the ESRD PPS are proposed and finalized annually in the

Federal Register

. The CY 2011 ESRD PPS final rule was published on August 12, 2010 in the

Federal Register

(75 FR 49030 through 49214). That rule implemented the ESRD PPS beginning on January 1, 2011 in accordance with section 1881(b)(14) of the Act, as added by section 153(b) of MIPPA, over a 4-year transition period. Since the implementation of the ESRD PPS, we have published annual rules to make routine updates, policy changes, and clarifications.

On November 1, 2017, we published a final rule in the

Federal Register

titled, “Medicare Program; End-Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury, and End-Stage Renal Disease Quality Incentive Program” (82 FR 50738 through 50797) (hereinafter referred to as the CY 2018 ESRD PPS final rule). In that rule, we updated the ESRD PPS base rate for CY 2018, the wage index, and the outlier policy, and pricing outlier drugs. For further detailed information regarding these updates, see 82 FR 50738.

B. Provisions of the Proposed Rule

1. Drug Designation Process

a. Protecting Access to Medicare Act of 2014

Section 217(c) of PAMA requires the Secretary to implement a drug designation process for: (1) Determining when a product is no longer an oral-only drug; and (2) including new injectable and intravenous products into the bundled payment under such system. Therefore, in the CY 2016 ESRD PPS final rule (80 FR 69013 through 69027), we finalized a process that allows us to recognize when an oral-only renal dialysis service drug or biological is no longer oral only and a process to include new injectable and intravenous products into the ESRD PPS bundled payment, and when appropriate, modify the ESRD PPS payment amount.

In accordance with section 217(c)(1) of PAMA, we established § 413.234(d), which provides that an oral-only drug is no longer considered oral-only if an injectable or other form of administration of the oral-only drug is approved by the Food and Drug Administration (FDA). Additionally, in accordance with section 217(c)(2) of PAMA, we codified the drug designation process at § 413.234(b). As discussed in the CY 2016 ESRD PPS final rule (80 FR 69017 through 69022), effective January 1, 2016, if a new injectable or intravenous product is used to treat or manage a condition for which there is an ESRD PPS functional category, the new injectable or intravenous product is considered included in the ESRD PPS bundled payment and no separate payment is available. The new injectable or intravenous product qualifies as an outlier service. The ESRD bundled market basket updates the PPS base rate annually and accounts for price changes of the drugs and biologicals reflected in the base rate.

As we discuss in § 413.234(b)(2), if the new injectable or intravenous product is used to treat or manage a condition for which there is not an

ESRD PPS functional category, the new injectable or intravenous product is not considered included in the ESRD PPS bundled payment and the drug is evaluated. First, an existing ESRD PPS functional category is revised or a new ESRD PPS functional category is added for the condition that the new injectable or intravenous product is used to treat or manage. Next, the new injectable or intravenous product is paid for using the transitional drug add-on payment adjustment (TDAPA). Then, the new injectable or intravenous product is added to the ESRD PPS bundled payment following payment of the TDAPA.

Under § 413.234(c), the TDAPA is based on pricing methodologies under section 1847A of the Act and is paid until sufficient claims data for rate setting analysis for the new injectable or intravenous product are available, but not for less than 2 years. During the time a new injectable or intravenous product is eligible for the TDAPA, it is not eligible as an outlier service. Following payment of the TDAPA, the ESRD PPS base rate would be modified, if appropriate, to account for the new injectable or intravenous product in the ESRD PPS bundled payment.

b. Renal Dialysis Drugs and Biologicals Reflected in the Base Rate (ESRD PPS Functional Categories)

As discussed above, in the CY 2016 ESRD PPS final rule (80 FR 69024), we finalized the drug designation process as being dependent upon the functional categories, consistent with our policy since the implementation of the PPS in 2011. We provide a detailed discussion (80 FR 69013 through 69015) on how we accounted for renal dialysis drugs and biologicals in the ESRD PPS base rate since its implementation on January 1, 2011. In the CY 2011 ESRD PPS final rule (75 FR 49044 through 49053) we explained that in order to identify drugs and biologicals that are used for the treatment of ESRD and therefore meet the definition of renal dialysis services (defined at § 413.171) that would be included in the ESRD PPS base rate, we performed an extensive analysis of Medicare payments for Part B drugs and biologicals billed on ESRD claims and evaluated each drug and biological to identify its category by indication or mode of action. Categorizing drugs and biologicals on the basis of drug action allows us to determine which categories (and therefore, the drugs and biologicals within the categories) would be considered used for the treatment of ESRD (75 FR 49047). We grouped the injectable and intravenous drugs and biologicals into functional categories based on their action (80 FR 69014). This was done with the purpose of adding new drugs or biologicals with the same functions to the ESRD PPS bundled payment as expeditiously as possible after the drugs become commercially available so that beneficiaries have access to them. We finalized the definition of an ESRD PPS functional category in § 413.234(a) as a distinct grouping of drugs or biologicals, as determined by CMS, whose end action effect is the treatment or management of a condition or conditions associated with ESRD.

Using the functional categorization approach, we established categories of drugs and biologicals that are

not

considered used for the treatment of ESRD, categories of drugs and biologicals that are

always

considered used for the treatment of ESRD, and categories of drugs and biologicals that

may be

used for the treatment of ESRD but are also commonly used to treat other conditions (75 FR 49049 through 49051). The drugs and biologicals that were identified as

not

used for the treatment of ESRD were not considered renal dialysis services and were

not

included in computing the base rate. The functional categories of drugs and biologicals that are

not

included in the base rate can be found in the CY 2011 ESRD PPS final rule (75 FR 49049). The functional categories of drugs and biologicals that were

always

and

may be

considered used for the treatment of ESRD were considered renal dialysis services and were included in computing the base rate. Subsequent to the CY 2011 discussion about the

always

and

may be

functional categories (75 FR 49050 through 49051), we also discussed these categories in the CY 2016 ESRD PPS final rule (80 FR 69015 through 69018) and clarified the medical conditions or symptoms that indicate the drugs are used for the treatment of ESRD. See Table 1.

Table 1—ESRD PPS Functional Categories

Category

Rationale for association

Access Management

Drugs used to ensure access by removing clots from grafts, reverse anticoagulation if too much medication is given, and provide anesthetic for access placement.

Anemia Management

Drugs used to stimulate red blood cell production and/or treat or prevent anemia. This category includes ESAs as well as iron.

Bone and Mineral Metabolism

Drugs used to prevent/treat bone disease secondary to dialysis. This category includes phosphate binders and calcimimetics.

Cellular Management

Drugs used for deficiencies of naturally occurring substances needed for cellular management. This category includes levocarnitine.

Antiemetic

Used to prevent or treat nausea and vomiting related to dialysis. Excludes antiemetics used for purposes unrelated to dialysis, such as those used in conjunction with chemotherapy as these are covered under a separate benefit category.

Anti-infectives

Used to treat vascular access-related and peritonitis infections. May include antibacterial and antifungal drugs.

Antipruritic

Drugs in this classification have multiple clinical indications. Use within an ESRD functional category includes treatment for itching related to dialysis.

Anxiolytic

Drugs in this classification have multiple actions. Use within an ESRD functional category includes treatment of restless leg syndrome related to dialysis.

Excess Fluid Management

Drug/fluids used to treat fluid excess/overload.

Fluid and Electrolyte Management Including Volume Expanders

Intravenous drugs/fluids used to treat fluid and electrolyte needs.

Pain Management

Drugs used to treat vascular access site pain and to treat pain medication overdose, when the overdose is related to medication provided to treat vascular access site pain.

In computing the ESRD PPS base rate, we used the payments in 2007 for drugs and biologicals included in the

always

functional categories, that is, the injectable forms (previously covered under Part B)

and

oral or other forms of administration (previously covered under Part D) (75 FR 49050). For the oral or other forms of administration for those drugs that are

always

considered used for the treatment of ESRD, we determined that there were oral or other forms of injectable drugs only for the bone and mineral metabolism and cellular management categories. Therefore, we included the payments made under Part D for oral vitamin D (calcitriol, doxercalciferol and paricalcitol) and oral levocarnitine in our computation of the base rate (75 FR 49042).

In the CY 2011 ESRD PPS final rule (75 FR 49050 through 49051), we explained that drugs and biologicals that

may be

used for the treatment of ESRD may also be commonly used to treat other conditions. We used the payments made under Part B in 2007 for these drugs in computing the ESRD PPS base rate, which only included payments made for the injectable version of the drugs. We excluded the Part D payments for the oral (or other form of administration) substitutes of the drugs and biologicals described above because they were not furnished or billed by ESRD facilities or furnished in conjunction with dialysis treatments (75 FR 49051). For those reasons, we presumed that these drugs and biologicals that were paid under Part D were prescribed for reasons other than for the treatment of ESRD. However, we noted that if these drugs and biologicals paid under Part D are furnished by an ESRD facility for the treatment of ESRD, they would be considered renal dialysis services and not be billed or paid under Part D.

Table 19 of the CY 2011 ESRD PPS final rule (75 FR 49075) provides the Medicare allowable payments for all of the components of the ESRD PPS base rate for CY 2007, inflated to CY 2009, including payments for drugs and biologicals and the amount each contributed to the base rate, except for the oral-only renal dialysis drugs where payment under the ESRD PPS has been delayed. A list of the specific Part B drugs and biologicals that were included in the final ESRD PPS base rate is located in Table C of the Appendix of the CY 2011 ESRD PPS final rule (75 FR 49205 through 49209). A list of the former Part D drugs that were included in the final ESRD PPS base rate is located in Table D of the Appendix of that rule (75 FR 49210). As discussed in section II.3.d of this proposed rule, the ESRD PPS base rate is updated annually by the ESRD bundled (ESRDB) market basket.

c. Section 1847A of the Social Security Act (the Act) and Average Sales Price (ASP) Methodology Under the ESRD PPS

In the CY 2005 Physician Fee Schedule (PFS) final rule, published on November 15, 2004 (69 FR 66299 through 66302) in the

Federal Register

, we discussed that section 303(c) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) added section 1847A to the Act and established the Average Sales Price (ASP) methodology for certain drugs and biologicals not paid on a cost or prospective payment basis furnished on or after January 1, 2005. The ASP methodology is based on quarterly data submitted to CMS by drug manufacturers. The ASP amount is based on the manufacturer's sales to all purchasers (with certain exceptions) net of all manufacturer rebates, discounts, and price concessions. Sales that are nominal in amount are exempted from the ASP calculation, as are sales excluded from the determination of “best price” in the Medicaid drug rebate program. Each drug with a healthcare common procedure coding system (HCPCS) code has a separately calculated ASP. To allow time to submit and calculate these data, the ASP is updated with a two-quarter lag.

1

1

Sheingold, S., Marchetti-Bowick, E., Nguyen, N., Yabrof, K.R. (2016, March). Medicare Part B Drugs: Pricing and Incentives. Retrieved from

https://aspe.hhs.gov/system/files/pdf/187581/PartBDrug.pdf.

Section 1847A(b)(1)(A) of the Act requires that the Medicare payment allowance for a multiple source drug included within the same HCPCS code be equal to 106 percent of the ASP for the HCPCS code. Section 1847A(b)(1)(B) of the Act also requires that the Medicare payment allowance for a single source drug HCPCS code be equal to the lesser of 106 percent of the ASP for the HCPCS code or 106 percent of the wholesale acquisition cost (WAC) of the HCPCS code.

Section 1847A(c)(4) of the Act further provides a payment methodology in cases were the ASP is unavailable. Specifically Pub. 100-04, Chapter 17, section 20 (

https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/;clm104c17.pdf

) titled “Payment Allowance Limit for Drugs and Biologicals Not Paid on a Cost or Prospective Payment Basis”, provides guidance on how Medicare Part B pays for drugs and biologicals under section 1847A of the Act and notes that, in the case of a drug or biological during an initial period (not to exceed a full calendar quarter) in which data on the prices for sales for the drug or biological are not sufficiently available from the manufacturer to compute an average sales price for the drug or biological, the Secretary may determine the amount payable under this section for the drug or biological based on—the wholesale acquisition cost; or the methodologies in effect under this part on November 1, 2003, to determine payment amounts for drugs or biologicals. This publication provides guidance on how Medicare Part B pays for drugs and biologicals under section 1847A of the Act.

In the CY 2018 ESRD PPS final rule (82 FR 50742 through 50743), we discussed how we have used the ASP methodology since the implementation of the ESRD PPS when pricing ESRD-related drugs and biologicals previously paid separately under Part B (prior to the ESRD PPS) for purposes of ESRD PPS policies or calculations. We adopted § 413.234(c), which requires that the TDAPA is based on the pricing methodologies available under section 1847A of the Act (including 106 percent of ASP). We also use such pricing methodologies for new and existing injectable drugs or biologicals that qualify as an outlier service.

d. Proposed Revision to the Drug Designation Process Regulation

As noted above, in prior rulemakings we addressed how new drugs and biologicals are implemented under the ESRD PPS and how we have accounted for renal dialysis drugs and biologicals in the ESRD PPS base rate since its implementation on January 1, 2011. Accordingly, the drug designation process we finalized is dependent upon the functional categories we developed and is consistent with the policy we have followed since the inception of the ESRD PPS. However, since PAMA only required the Secretary to establish a process for including new injectable and intravenous drugs and biologicals, such new products were the primary focus of the regulation we adopted at § 413.234, rather than codifying our full policy for other renal dialysis drugs, such as drugs and biologicals with other forms of administration, including, oral, that by law are included under the ESRD PPS (though oral-only renal dialysis drugs are required to remain outside of the ESRD PPS bundle until CY 2025).

In this proposed rule, we propose to revise the drug designation process regulations at § 413.234 to reflect that the process applies for all new renal

dialysis drugs and biologicals that are approved regardless of the form or route of administration, that is, new injectable, intravenous, oral, or other route of administration, or dosage form. We note that for purposes of the ESRD PPS drug designation process, use of the term

form of administration

is used interchangeably with

route of administration.

We are proposing these revisions so that the regulation reflects our long standing policy for all new renal dialysis drugs and biologicals, regardless of the form or route of administration, with the exception of oral-only drugs. Specifically, we propose to replace the definition of “new injectable or intravenous product” at § 413.234(a), “an injectable, intravenous, oral or other form or route of administration drug or biological that is used to treat or manage a condition(s) associated with ESRD,” with a definition for “new renal dialysis drug or biological,” to encompass the broader scope of the drug designation process. Under this definition, a new renal dialysis drug or biological “must be approved by the Food and Drug Administration (FDA) on or after January 1, 2019 under section 505 of the Federal Food, Drug, and Cosmetic Act or section 351 of the Public Health Service Act, commercially available, have an HCPCS application submitted in accordance with the official HCPCS Level II coding procedures, and designated by CMS as a renal dialysis service under § 413.171. Oral-only drugs or biologicals are excluded until January 1, 2025.”

In our proposal to replace the definition of “new injectable or intravenous product” in § 413.234(a) with the proposed definition of “new renal dialysis drug or biological,” we have included the clause, “have an HCPCS application submitted in accordance with the official HCPCS Level II coding procedures.” We note that this would be a change from the existing policy of requiring that the new product be assigned an HCPCS code. We are proposing that new renal dialysis injectable or intravenous products are no longer required to be assigned an HCPCS code before the TDAPA can apply, instead we would require that an application has been submitted in accordance with the Level II HCPCS coding procedures. This would allow the application of the TDAPA to the ESRD PPS base rate to happen more quickly than under our current process wherein a lag that occurs when a drug or biological is approved but is waiting for the issuance of a code. Information regarding the HCPCS process is available on the CMS website at

https://www.cms.gov/Medicare/;Coding/MedHCPCSGenInfo/Application_Form_and_Instructions.html

.

This proposed definition would also address prior concerns that we narrowly defined “new” in the context of the functional categories (that is, the drug designation process primarily addresses “new” drugs that fall outside of the functional categories for purposes of being newly categorized and eligible for the TDAPA). As noted in section II.B.1.f of this proposed rule, even though we are maintaining the functional categories to determine whether or not to potentially adjust or modify the ESRD PPS base rate (that is, those renal dialysis drugs and biologicals that do not fall within an existing category), we are proposing to expand the TDAPA policy based on whether the renal dialysis drug or biological is new, that is, any renal dialysis drug or biological newly approved on or after January 1, 2019.

We solicit comment on the proposed revisions to § 413.234(a), (b), and (c).

e. Basis for Expansion of the TDAPA Eligibility Criteria

In the CY 2016 ESRD PPS final rule (80 FR 69017 through 69024), we acknowledged that there are unique situations identified by the commenters during that rulemaking regarding the eligibility criteria for the TDAPA. For example, commenters stated that they believed the drug designation process was excessive, could hinder innovation, prevent new treatment options from entering the marketplace, and CMS should contemplate the cost of new drugs and biologicals that fall within the functional categories. In the following paragraphs we have summarized key concerns commenters have raised. We indicated in the CY 2016 ESRD PPS final rule that we anticipated addressing these situations in future rulemaking and stated that we planned to consider the issues of ESRD facility resource use, supporting novel therapies, and balancing the risk of including new drugs for both CMS and the dialysis facilities.

In the CY 2016 ESRD PPS final rule (80 FR 69017 through 69024), commenters seemed concerned about the cost of new drugs that fit into the functional categories, rather than the process of adding new drugs to existing categories.

In the CY 2016 ESRD PPS final rule (80 FR 69020), a drug manufacturer suggested that in order to promote access to new therapies and encourage innovation in ESRD care, the TDAPA should apply to all new drugs not just those drugs that are used to treat or manage a condition for which we have not adopted a functional category. They pointed out that the functional categories are very comprehensive and capture every known condition related to ESRD. They indicated that under the proposed approach, CMS would make no additional payment regardless of whether the drug has a novel mechanism of action, new FDA approval, or other distinguishing characteristics and argued that such distinguishing characteristics provided rationale for additional payment. The commenter believed the CMS proposal sent conflicting messages to manufacturers about the importance of developing new treatments for this underserved patient population.

An organization of home dialysis patients commented (80 FR 69022) with a similar concern, noting that the functional categories are too broad and could prevent people on dialysis from receiving needed care, and be detrimental to innovation. The commenter stated that in the future there could be a new medication to help with fluid management but patients would be shut out of ever having the option for a new fluid management therapy since there is an existing functional category for excess fluid management and therefore, these drugs are considered to be included in the base rate. Therefore, we believe the commenter meant that drug manufacturers would be less likely to develop a new fluid management drug knowing it would never qualify for additional payment under the ESRD PPS. The commenter asked that CMS provide additional payment for new drugs that fit into the functional categories in order to incentivize new medications to come to market and to ensure they have the opportunity for better care, choices and treatment.

A national dialysis patient advocacy organization explained (80 FR 69021) that if new products are immediately added to the bundle without additional payment it would curtail innovation in treatments for people on dialysis. They believed clinicians should have the ability to evaluate the appropriate use of a new product and its effect on patient outcomes, and that the proposed rule did not allow for this. The commenter explained that Kidney Disease Improving Global Outcomes (KDIGO) and Kidney Disease Outcomes Quality Initiative (KDOQI) guidelines are often updated when evidence of improved therapies on patient outcomes are made available and that this rigorous and evidence-based process is extremely important in guiding widespread

treatment decisions in nephrology. The commenter expressed concern that under the proposed rule, reimbursement and contracting arrangements could instead dictate utilization of a product before real world evidence on patient outcomes is ever generated.

The comments we received for the drug designation process in the CY 2016 ESRD PPS rulemaking (80 FR 69017 through 69024) indicated that commenters were also concerned about the cost of the new drugs and biologicals, and in particular, new drugs and biologicals that fall within the functional categories, and therefore, considered by CMS to be reflected in the ESRD PPS base rate.

A national dialysis organization strongly urged (80 FR 69017) CMS to adopt the same process for all new drugs and biologicals (as opposed to only those that do not fall within a functional category) unless they are substantially the same as drugs or biologicals currently paid for under the ESRD PPS payment rate. For new drugs or biologicals that are substantially the same as drugs or biologicals currently paid under the ESRD PPS, the organization supported incorporating them into the PPS on a case-by-case basis using notice-and-comment rulemaking and foregoing the transition period

if

it can be shown that the PPS rate is adequate to cover the cost of the drug or biological. The organization believed if the rate is inadequate to cover the cost of the new drug then the TDAPA should apply. An LDO stated that, if implemented, the proposed process could jeopardize patient access to drugs that are clinically superior to existing drugs in the same functional category. For example, the commenter stated, if a new substantially more expensive anemia management drug is released and is clinically proven to be more effective than the current standard of care under the proposed rule, the ESRD PPS base rate would remain stagnant. They continued that it is not reasonable for CMS to expect that all dialysis facilities would incur frequent and substantial losses in order to furnish the more expensive, albeit more clinically effective, drug.

A dialysis organization and a professional association asked (80 FR 69019) that CMS consider a pass-through payment, meaning Medicare payment in addition to the ESRD PPS base rate for all new drugs that are considered truly new. They recommended a rate of 106 percent of ASP, minus the portion of the ESRD PPS base rate that CMS determines is attributable to the category of drugs that corresponds to a truly new drug. An LDO stated (80 FR 69020) that defining new drugs requires special consideration of cost. They suggested a similar approach by stating that rather than comparing the cost of the new drug to the ESRD PPS base rate, we should compare it to the cost of the existing drugs in the same CMS-defined “mode of action” category. In such a case, a drug might qualify for payment of the TDAPA on the basis that its cost per unit or dosage exceeds a specified percentage (for example 150 percent) of the average cost per unit or dosage of the top three most common drugs in the same category (based on utilization data). This comparison would demonstrate that the amount allocated to that category in the ESRD PPS base rate is insufficient to cover the cost of the new drug.

Other commenters referred (80 FR 69020) to pathways in other payment systems that provide payment for new drugs and biologicals to account for their associated costs. For example, the Outpatient Prospective Payment System (OPPS) provides a pass-through payment and the Inpatient Prospective Payment System (IPPS) provides a new technology add-on payment. Commenters indicated (80 FR 69020) that we should decouple the TDAPA from the functional categories and provide the additional payment for all new injectable and intravenous drugs and biologicals and oral equivalents for 2 to 3 years, similar to the IPPS or the OPPS.

f. Proposed Expansion of the TDAPA Eligibility Criteria

We continue to believe that the drug designation process does not prevent ESRD facilities from furnishing available medically necessary drugs and biologicals to ESRD beneficiaries. Additionally, our position has been that payment is adequate to ESRD facilities to furnish new drugs and biologicals that fall within existing ESRD PPS functional categories. The per treatment payment amount is a patient and facility level adjusted base rate plus any applicable adjustments, such as training or outlier. Finally, the ESRD PPS includes the ESRDB market basket, which updates the PPS base rate annually for input price changes for providing renal dialysis services and accounts for price changes of the drugs and biologicals that are reflected in the ESRD PPS base rate (80 FR 69019). However, in the CY 2016 ESRD PPS final rule, we also acknowledged that the outlier policy would not fully cover the cost of furnishing a new drug (80 FR 69021) and that newer drugs may be more costly. Consequently, due to the reasons detailed in the following paragraphs, we are reconsidering our previous policy on the drug designation policy.

We recognize the unique situations identified by the commenters discussed in section II.B.1.e of this proposed rule, and how they are impacted by the eligibility criteria for the TDAPA. Concerns regarding inadequate payment for renal dialysis services and hindrance of high-value innovation, among others, are important issues that we contemplate while determining appropriate payment policies. Additionally, subsequent to the issuance of the CY 2016 ESRD PPS final rule, we continue to hear concerns that the drug designation process is restrictive in nature; and receive requests from the dialysis industry and stakeholders that we reconsider the applicability of the TDAPA.

We acknowledge that ESRD facilities have unique circumstances with regard to implementing new drugs and biologicals into their standards of care. For example, when new drugs are introduced to the market, ESRD facilities need to analyze their budget and engage in contractual agreements to accommodate the new therapies into their care plans. Newly launched drugs and biologicals can be unpredictable with regard to their uptake and pricing which makes these decisions challenging for ESRD facilities. Furthermore, practitioners should have the ability to evaluate the appropriate use of a new product and its effect on patient outcomes. We agree that this uptake period would be best supported by the TDAPA pathway because it would help facilities transition/test new drugs and biologicals in their businesses under the ESRD PPS. The TDAPA provides flexibility and targets payment for the use of new renal dialysis drugs and biologicals during the period when a product is new to the market so that we can evaluate if resource use can be aligned with payment. As explained in section II.B.1.b of this proposed rule, the ESRD PPS base rate includes dollars allocated for drugs and biologicals that fall within a functional category, but those dollars may not directly address the total resource use associated with the newly launched drugs trying to compete in the renal dialysis market.

We believe that we need to be conscious of ESRD facility resource use and the financial barriers that may be preventing uptake of innovative new drugs and biologicals that, while are already accessible to them, may be under-prescribed because the new drugs are priced higher than currently utilized drugs (as argued by commenters).

Therefore, beginning January 1, 2019, we are proposing to add § 413.234(b)(1)(i), (ii) and revise § 413.234(c) to reflect that the TDAPA, under the authority of section 1881(b)(14)(D)(iv) of the Act, would apply to all new renal dialysis injectable or intravenous products, oral equivalents, and other forms of administration drugs and biologicals, regardless of whether or not they fall within a functional category. New renal dialysis drugs and biologicals that do not fall within an existing functional category would continue to be paid under the TDAPA and the ESRD PPS base rate would be modified, if appropriate, to reflect the new functional category. We are revising § 413.234(b)(2)(ii) and § 413.234(c)(2), removing § 413.234(c)(3), and adding § 413.234(c)(2)(i) to reflect that we would continue to provide the TDAPA, collect sufficient data, and modify the ESRD PPS base rate, if appropriate, for these new drugs and biologicals that do not fall within an existing functional category.

We propose to revise § 413.234(c)(1) to reflect that for new renal dialysis drugs and biologicals that fall within a functional category, the TDAPA would apply for only 2 years. While we are not collecting claims data for purposes of analyzing utilization to result in a change to the base rate, we would still monitor renal dialysis service utilization for trends and believe that this timeframe is adequate for payment. We believe that 2 years is a sufficient timeframe for facilities to set up system modifications, and adjust business practices so that there is seamless access to these new drugs within the ESRD PPS base rate. In addition, when we implement policy changes whereby facilities need to adjust their system modifications or protocols, we have provided a transition period. We believe that this 2-year timeframe is similar in that facilities are making changes to their systems and care plan to incorporate the new renal dialysis drugs and biologicals into their standards of care and this could be supported by a transition period. Also, the TDAPA for 2 years would address the stakeholders concerns regarding additional payment to account for higher cost of more innovative drugs that perhaps may not be adequately captured by the dollars allocated in the ESRD PPS base rate. That is, this transitional payment would give the new renal dialysis drugs and biologicals a foothold in the market so that when the timeframe is complete, they are able to compete with the existing drugs and biologicals under the outlier policy, if applicable. Meaning, once the timeframe is complete, drugs would then qualify as outlier services, if applicable, and the facility would no longer receive the TDAPA for any one particular drug. Instead, in the outlier policy space, there is a level playing field where drugs could gain market share by offering the best practicable combination of price and quality. We believe that the proposed timeframe is long enough to be meaningful but not too long as to improperly incentivize high cost items without more value, for example, substitutions of those drugs that already exist in the functional category.

We note that this proposal would increase Medicare expenditures, which would result in increases to ESRD beneficiary cost sharing, since we have not previously provided the TDAPA for new renal dialysis drugs and biologicals in the past. It is our understanding that there are new drugs and biologicals in the pipelines, for example, we are aware that there are new drugs that would fall within the anemia management, bone and mineral, and pain management categories. We would continue to monitor the use of the TDAPA and carefully evaluate the new renal dialysis drugs and biologicals that qualify. We would address any concerns through future refinements to the TDAPA policy.

We are also proposing that when a new renal dialysis drug or biological falls within an existing functional category at the end of the TDAPA period we would not modify the ESRD PPS base rate, but at the end of the 2 years, as consistent with the existing outlier policy, the drug would be eligible for outlier payment. However, as discussed in section II.B.1.h of this proposed rule, if the new renal dialysis drug or biological is considered to be a composite rate drug, it would not be eligible for an outlier payment. The intent of the TDAPA for these drugs is to provide a transition period for the unique circumstances experienced by ESRD facilities and to allow time for the uptake of the new drug. We do not believe that it would be appropriate to add dollars to the ESRD PPS base rate for new renal dialysis drugs and biologicals that fall within existing functional categories and that doing such would be in conflict with the fundamental principles of a PPS. Under a PPS, Medicare makes payments based on a predetermined, fixed amount that reflects the average patient and the facility retains the profit or suffers a loss resulting from the difference between the payment rate and the facility's cost which creates an incentive for cost control. It is not the intent of a PPS to add dollars to the base whenever something new is made available. We believe this proposal, that is, no modification to the base rate at the end of the TDAPA period for new renal dialysis drugs and biologicals that fall within an existing functional category would maintain the overall goal of a bundled PPS, that is, the limitation of applying the TDAPA would not undermine the bundle since there is no permanent adjustment to the base rate. This proposal would also strike a balance of maintaining the existing functional category scheme of the drug designation process and not adding dollars to the ESRD PPS base rate when the base rate may already reflect costs associated with such services, while still promoting high-value innovation and allowing facilities to adjust or factor in new drugs through a short-term transitional payment. We are proposing to add § 413.234(c)(1)(i) to reflect that when a new renal dialysis drug or biological falls within an existing functional category at the end of the TDAPA period, we would not modify the ESRD PPS base rate. We solicit comment on this proposal.

We are proposing to operationalize this proposed policy no later than January 1, 2020. This deadline would provide us with the appropriate time to prepare the necessary changes to our claims processing systems.

We solicit comment on the proposal to revise § 413.234(c) and (c)(1) to reflect that the TDAPA would apply for all new renal dialysis drugs and biologicals regardless of whether they fall within a functional category. Then, for new renal dialysis drug or biological that falls within an existing functional category, that payment would apply for 2 years and there would be no modification to the ESRD PPS base rate. We are also soliciting comment on the appropriateness of the 2-year timeframe for the TDAPA for new renal dialysis drugs and biologicals that fall within existing functional categories.

g. Proposed Basis of Payment for the TDAPA

Currently, under § 413.234(c), the TDAPA is based on pricing methodologies under section 1847A of the Act, including 106 percent of ASP (ASP+6). If we adopt the proposals discussed in section II.B.1.f of this proposed rule using the same pricing methodologies, Medicare expenditures would increase, which would result in increases of cost sharing for ESRD beneficiaries, since we have not previously provided the TDAPA for all new renal dialysis drugs and biologicals in the past.

The TDAPA is a payment adjustment under the ESRD PPS and is not intended to be a mechanism for payment for new drugs and biologicals under Medicare Part B, and under section 1881(b)(14)(D)(iv) of the Act, we believe it may not be appropriate to base the TDAPA strictly on section 1847A of the Act methodologies. For this proposed rule, we considered options for basing payment under the TDAPA, for example, maintaining the policy as is and facility cost of acquiring drugs and biologicals. We found that the while ASP could encourage certain unintended consequences (discussed below), it continues to be the best data available since it is commonly used to facilitate Medicare payment across care settings and, as described in section II.B.1.c, is based on the manufacturer's sales to all purchasers (with certain exceptions) net of all manufacturer rebates, discounts, and price concessions.

Further, since the implementation of section 1847A of the Act, stakeholders and executive policy advisors have analyzed this section of the statute and issued their respective critiques on the purpose of the ASP add-on percentage. On March 8, 2016, the Assistant Secretary for Planning and Evaluation (ASPE) issued an Issue Brief titled, “Medicare Part B Drugs: Pricing and Incentives” (

https://aspe.hhs.gov/system/files/pdf/;187581/PartBDrug.pdf

). In this brief ASPE touches on several concerns they have about the ASP methodology. Two of those concerns regard the economic incentives of cost and value. ASPE noted that the ASP methodology for Part B drugs falls short of providing value based incentives in several ways. Specifically, they noted physicians can often choose between several similar drugs for treating a patient and although the current system may encourage providers and suppliers to pursue the lowest price for drugs that are multiple source, payment based on drug specific ASP provides little incentive to make choices among the therapeutic options with an eye towards value and choose among the lowest price among all drugs available to effectively treat a patient. Rationale for the 6 percent add-on has been to cover administrative and overhead costs, but such costs are not proportional to the price of the drug. The fixed 6 percent of ASP provides a larger “add-on” for higher priced drugs than for lower priced drugs, resulting in increased profit margins for the physicians' office and hospitals creating a perverse incentive to choose the high priced drugs as opposed to lower priced alternatives of similar effectiveness.

In MedPAC's June 2015 Report to Congress (

http://medpac.gov/docs/default-source/reports/june-2015-report-to-the-congress-medicare-and-the-health-care-delivery-system.pdf

), MedPAC provides discussion around the meaning of the 6 percent that is added to the ASP and provides their opinion on its purpose. In their report, they state “There is no consensus on the original intent of the 6 percent add-on to ASP. A number of rationales have been suggested by various stakeholders. Some suggest that the 6 percent is intended to cover drug storage and handling costs. Others contend that the 6 percent is intended to maintain access to drugs for smaller practices and other purchasers who may pay above average prices for the drugs. Another view is that the add-on to ASP was intended to cover factors that may create a gap between the manufacturers' reported ASP and the average purchase price across providers (for example, prompt-pay discounts). Another rationale for the percentage add-on may be to provide protection for providers when price increases occur and the payment rate has not yet caught up.”

Finally, with regard to acquisition costs in a 2006 Report to Congress titled, “Sales of Drugs and Biologicals to Large Volume Producers (

https://www.cms.gov/Research-Statistics-Data-and-Systems/;Statistics-Trends-and-Reports/Reports/Downloads/LVP_RTC_2_09_06.pdf

), the Secretary was tasked to submit a Report to Congress (RTC) to include recommendations as to whether sales to large volume purchasers should be excluded from the computation of manufacturer's ASP. The contractor made extensive efforts to collect and analyze data regarding large volume drug purchasers. They were unable to obtain data on ASP by type of purchaser from the drug manufacturers, and were unable to determine net acquisition costs. The sensitive and proprietary nature of prescription drug pricing data made it extremely difficult to obtain the data necessary for the report. Given that ASP was designed to broadly reflect market prices without data on net acquisition cost, it is not possible to accurately analyze the impact of large volume purchasers on overall ASP. In 2018, we remain unable to obtain contractual information regarding drug pricing and ESRD PPS, which is especially pertinent since the dialysis stage is dominated by two large dialysis organizations who administer drugs and biologicals to the majority of ESRD beneficiaries.

To balance the price controls inherent in any PPS we believe that we need to take all of these issues into consideration to revise the basis for TDAPA payment. We are, and will continue to be, conscious of ESRD facility resource use and recognize the financial barriers that may be preventing uptake of innovative new drugs and biologicals. Therefore, we are proposing to revise § 413.234(c) under the authority of section 1881(b)(14)(D)(iv) of the Act, to reflect that we would base the TDAPA payments on 100 percent of ASP (ASP+0) instead of the pricing methodologies available under section 1847A of the Act (which includes ASP+6).

This proposal applies to new renal dialysis drugs and biologicals that fall within an existing functional category and to those that do not fall within an existing functional category. We believe that ASP+0 is a reasonable basis for payment for the TDAPA for new renal dialysis drugs and biologicals that fall within an existing functional category because there are already dollars in the per treatment base rate for a new drug's respective category. We also believe that ASP+0 is a reasonable basis for payment for the TDAPA for new renal dialysis drugs and biologicals that do not fall within the existing functional category because the ESRD PPS base rate has dollars built in for administrative complexities and overhead costs for drugs and biologicals. We note that there is no clear statement from Congress as to why the payment allowance is required to be 106 percent of ASP (ASP+6) as opposed to any other value from 101 to 105 percent, and, as MedPAC discussed in their June 2015 report, there is no consensus amongst stakeholders.

We further believe that moving from pricing methodologies available under section 1847A of the Act, (which includes ASP+6) to ASP+0 for all new renal dialysis drugs and biologicals regardless of whether they fall within an ESRD PPS functional category strikes a balance between the increase to Medicare expenditures (subsequently increasing beneficiary coinsurance) and stakeholder concerns discussed in section II.B.1.e of this proposed rule. That is, we propose to provide the TDAPA for new drugs that are within an existing functional category, which is an expansion from the existing policy. This proposal would also aim to promote innovation and bring more high-value drugs to market. This proposal would further address concerns about incentivizing use of high cost drugs in ESRD facilities, also discussed in section II.B.1.e of this proposed rule. We

solicit comment on the proposal to revise § 413.234(c) to reflect that we would base the TDAPA payments on ASP+0. While we propose to change the basis of payment for the TDAPA from pricing methodologies available under section 1847A of the Act, (which includes ASP+6) to ASP+0, we are also soliciting comment on other add-on percentages to the ASP amount, that is, ASP+1 to 6 percent for commenters to explain why it may be appropriate to have a higher percentage.

There are times when the ASP is not available. For example, when a new drug or biological is brought to the market, sales data is not sufficiently available for the manufacturer to compute an ASP. Therefore, when the ASP is not available, we propose that the TDAPA payment would be based on 100 percent of Wholesale Acquisition Cost (WAC) and, when WAC is not available, the TDAPA payment would be based on the drug manufacturer's invoice. We solicit comment on this proposal.

We note that this proposal to use ASP+0 as the basis for the TDAPA payments, if adopted, would apply prospectively to new drugs and biologicals as of January 1, 2019. Currently, calcimimetics are eligible for the TDAPA and payment for both the injectable and oral versions are based on pricing methodologies under section 1847A of the Act. This proposal would not affect calcimimetics, which would continue to be eligible for the TDAPA payment based on ASP+6.

h. Drug Designation Process for Composite Rate Drugs and Biologicals

In the CY 2016 ESRD PPS final rule, we did not discuss composite rate drugs and biologicals explicitly in context of the drug designation process. Composite rate services are discussed in the CY 2011 ESRD PPS final rule (75 FR 49036, 49078 through 49079) and are identified as renal dialysis services in § 413.171 and under section 1847(b)(14)(B) of the Act. Prior to the implementation of the ESRD PPS, certain drugs used in furnishing outpatient maintenance dialysis treatments were considered composite rate drugs and not billed separately. Composite rate drug and biological policies are discussed in Pub. 100-02, chapter 11, section 20.3.F (

https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/bp102c11.pdf

). This manual lists the drugs and fluids considered in the composite rate as heparin, antiarrythmics, protamine, local anesthetics, apresoline, dopamine, insulin, lidocaine, mannitol, saline, pressors, heparin antidotes, benadryl, hydralazine, lanoxin, solu-cortef, glucose, antihypertensives, antihistamines, dextrose, inderal, levophed, and verapamil. Drugs that are used as a substitute for any of these items, or are used to accomplish the same effect, are also covered under the ESRD PPS.

We used the composite rate payments made under Part B in 2007 for dialysis in computing the ESRD PPS base rate. These are identified on Table 19 of the CY 2011 ESRD PPS final rule (75 FR 49075) as “Composite Rate Services”. In addition, we note that under § 413.237, composite rate drugs and biologicals are not permitted to be considered for an outlier payment. The outlier policy is discussed in section II.B.3.c of this proposed rule.

Composite rate drugs and biologicals were also grouped into functional categories during the drug categorization for the CY 2011 ESRD PPS final rule (75 FR 49044 through 49053). For example, heparin is a composite rate drug and falls within the Access Management category. However, these functional categories exclude certain composite rate items given that certain drugs and biologicals formerly paid for under the composite rate were those that were routinely given during the time of the patient's dialysis and not always specifically for the treatment of their ESRD. For example, an antihypertensive composite rate drug that falls within the Cardiac Management category, which is not an ESRD PPS functional category, is not considered to be furnished for the treatment of ESRD and therefore, not included under the ESRD PPS.

In light of our proposal to expand the drug designation process and the TDAPA, we also propose, under the authority of section 1881(b)(14)(D)(iv) of the Act, that it extend to composite rate drugs and biologicals that are furnished for the treatment of ESRD. Specifically, beginning January 1, 2019, we propose that if a new renal dialysis drug or biological as defined in the proposed revision at § 413.234(a) is considered to be a composite rate drug or biological and falls within an ESRD PPS functional category, it would be eligible for the TDAPA. We note that composite rate drugs and biologicals that are not considered to be furnished for the treatment of ESRD, and therefore, are not included in the ESRD PPS, would not be eligible for the TDAPA, for example, antihypertensives. We believe that the same unique consideration for innovation and cost exists for drugs that are considered composite rate drugs. That is, the ESRD PPS base rate dollars allocated for these types of drugs may not directly address the costs associated with drugs in this category when they are newly launched and are finding their place in the market. Accordingly, we propose that the expanded drug designation process and the TDAPA policy we proposed in section II.B.1.f of this proposed rule, including the proposed changes to § 413.234, would be applicable to composite rate drugs, with one exception. Under our proposal, new composite rate drugs would not be subject to outlier payments following the period that the TDAPA applies, since we are not proposing to change the current outlier policy under § 413.237, which does not apply to composite rate drugs. We are, however, soliciting comments on whether we should consider applying our outlier policy to composite rate drugs in the future (see section II.B.3.c of this proposed rule). We would continue to monitor the use of the TDAPA and carefully evaluate the new renal dialysis drugs and biologicals that qualify. We would address any concerns through future refinements to the TDAPA policy.

We solicit comment on the proposal to recognize composite rate drugs and biologicals in the same manner as drugs that were formerly separately paid under Part B when furnished for the treatment of ESRD for purposes of the proposed revisions to the drug designation process and eligibility for the TDAPA.

2. Low-Volume Payment Adjustment (LVPA) Revision

a. Background

As required by section 1881(b)(14)(D)(iii) of the Act, the ESRD PPS includes a payment adjustment that reflects the extent to which costs incurred by low-volume facilities in furnishing renal dialysis services exceed the costs incurred by other facilities furnishing such services. We have established a low-volume payment adjustment (LVPA) factor of 23.9 percent for ESRD facilities that meet the definition of a low-volume facility. Under § 413.232(b), a low-volume facility is an ESRD facility that, based on the submitted documentation—(1) Furnished less than 4,000 treatments in each of the 3 cost reporting years (based on as-filed or final settled 12-consecutive month cost reports, whichever is most recent) preceding the payment year; and (2) Has not opened, closed, or received a new provider number due to a change in ownership in the 3 cost reporting years (based on as-filed or final settled 12-consecutive month cost reports, whichever is most recent) preceding the payment year.

Under § 413.232(c), for purposes of determining the number of treatments furnished by the ESRD facility, the number of treatments considered furnished by the ESRD facility equals the aggregate number of treatments furnished by the ESRD facility and the number of treatments furnished by other ESRD facilities that are both under common ownership with, and 5 road miles or less from, the ESRD facility in question.

For purposes of determining eligibility for the LVPA, “treatments” means total hemodialysis (HD) equivalent treatments (Medicare and non-Medicare as well as ESRD and non-ESRD). For peritoneal dialysis (PD) patients, 1 week of PD is considered equivalent to 3 HD treatments. As noted, we base eligibility on the 3 years preceding the payment year and those years are based on cost reporting periods. Specifically, under § 413.232(g), the ESRD facility's cost reports for the periods ending in the 3 years preceding the payment year must report costs for 12-consecutive months (76 FR 70237).

In order to receive the LVPA under the ESRD PPS, an ESRD facility must submit a written attestation statement to its Medicare Administrative Contractor (MAC) confirming that it meets all of the requirements specified § 413.232 and qualifies as a low-volume ESRD facility. Section 413.232(e) imposes a yearly November 1 deadline for attestation submissions. This timeframe provides 60 days for a MAC to verify that an ESRD facility meets the LVPA eligibility criteria (76 FR 70236). Further information regarding the administration of the LVPA is provided in the Medicare Benefit Policy Manual, CMS Pub. 100-02, Chapter 11, section 60.B.1.

b. Revisions to the LVPA Requirements and Regulations

We have heard from stakeholders that low-volume facilities rely on the low-volume adjustment and loss of the adjustment could result in beneficiary access issues. Specifically, stakeholders expressed concern that the eligibility criteria in the LVPA regulations are very explicit and leave little room for flexibility in certain circumstances. For example, in the CY 2017 ESRD PPS final rule (81 FR 77863), a commenter suggested refinements to the definition of a low-volume facility to address the rare change of ownership (CHOW) instance wherein the new owner accepts the Medicare agreement but the ownership change results in a new provider number because of a facility's type reclassification. The commenter explained that in this example, due to the issuance of a new Medicare provider billing number or provider transaction access number (PTAN) when the facility's type is reclassified, this facility would be deemed ineligible for the LVPA since our policy requires new Medicare provider billing numbers qualify for the LVPA, which takes 3 years. We also discovered that facilities that change their fiscal year without going through a CHOW become ineligible for the adjustment. Finally, stakeholders also communicated that the strict enforcement of the attestation deadline without exception should be reevaluated since missing the deadline results in the facility losing the LVPA and their payments are significantly reduced. Thus, in order to be responsive to stakeholders and increase flexibility with regard to eligibility for the LVPA, we are proposing to make changes to the LVPA regulation at § 413.232.

The first proposed revision concerns the assignment of a PTAN when a facility undergoes a CHOW as described in 42 CFR 489.18. A facility is ineligible under § 413.232(b)(2) and (g)(2) for the LVPA for 3 years if it goes through a CHOW that results in a new PTAN. In response to a comment we received during the CY 2011 ESRD PPS rulemaking (75 FR 49123), we explained that we believe that a 3-year waiting period serves as a safeguard against facilities establishing new facilities that are purposefully small. We also explained that we structured our analysis of the ESRD PPS by looking across data for 3 years as we believe that the 3-year timeframe provided us with a sufficient span of time to view consistency in business operations.

However, as we mentioned above, we have heard from stakeholders that this policy unfairly impacts facilities that undergo a CHOW that results in a change in facility type (for example, the facility type changes from hospital-based to freestanding). Under this scenario, as discussed in the Medicare State Operations Manual, Pub. 100-07, Chapter 3, Section 3210.4C (

https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/som107c03.pdf

) and the Medicare Program Integrity Manual, Pub. 100-08, Chapter 15, Section 15.7.7.1 (

https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/pim83c15.pdf

), CMS requires the issuance of a new CMS Certification Number (CCN) and provider agreement, which may lead to the issuance of a new PTAN, even if the new owner has accepted assignment of the existing Medicare provider agreement, that is, the new owner accepts the previous owner's assets and liabilities.

We agree with the stakeholders that the language in the regulation regarding PTAN status could restrict LVPA eligibility to an otherwise qualified ESRD facility from receiving the adjustment for 3 years, until the new PTAN qualifies for the adjustment. We recognize that there are technicalities regarding the assignment of a PTAN that could cause substantive impacts with eligibility for the LVPA that were not contemplated at the time the regulation was established. The intent of the LVPA has always been that if an ESRD facility undergoes a CHOW wherein the new owner accepts assignment of the existing Medicare provider agreement that they should continue to be eligible for the LVPA since this indicates a consistency in business operations.

We are proposing to expand the definition of a low-volume facility in § 413.232(b)(2) to include CHOWs where the new owner accepts assignment of the existing Medicare provider agreement and a new PTAN is issued due to a change in facility type. This proposal does not extend to CHOWs where a new PTAN is issued for any other reason. We solicit comment on the proposal to revise the language at § 413.232(b)(2) to reflect that ESRD facilities can meet the definition of a low-volume facility when they have a CHOW that results in a new PTAN due to a change in facility type but accepts assignment of the existing Medicare provider agreement. We are also proposing to amend § 413.232(g)(2), which governs the determination of LVPA eligibility, to recognize the proposed expansion of the low-volume facility definition to allow for PTAN changes when the facility type changes as a result of CHOW. We solicit comment on this proposal.

We are also proposing to allow for an extraordinary circumstance exception to the November 1 attestation deadline under § 413.232(e). We agree with the stakeholders that there could be unforeseeable factors that contribute to a delay in the submission of the attestation and we would not want to prevent an otherwise qualified ESRD facility from receiving the adjustment. For example, while a failure to timely submit the attestation because of poor communication between a facility and its respective MAC, or because a facility forgets to send the attestation to the MAC, would not constitute extraordinary circumstances; a natural disaster could, because such an event is unforeseeable and extraordinary, which may understandably delay the timely submission of the attestation. We expect

extraordinary exceptions to be rare and the determination of acceptability would be made on a case-by-case basis. We have heard from stakeholders that they have lost eligibility for the LVPA due to extraordinary circumstances, such as natural disasters, that prevented them from submitting their attestation by the deadline. In those types of instances, we believe an exception to the attestation deadline could be warranted. Therefore, we are proposing to add a clause in § 413.232(e) to recognize an exception to the filing deadline for extraordinary circumstances. In order to request an extraordinary circumstance exception, we also propose that the facility would need to submit a narrative explaining the rationale for the exception to their MAC. We would evaluate and review the narrative to determine if an exception is justified, and such a determination would be final, with no appeal. We solicit comment on the proposal to revise the language at § 413.232(e) to reflect that CMS would allow an exception to the attestation deadline of November 1 for extraordinary circumstances, if determined appropriate.

In addition, we are also proposing to allow ESRD facilities that change their fiscal year-end for cost reporting purposes outside of a CHOW to qualify for the LVPA if they otherwise meet the LVPA eligibility criteria. Under § 413.24(f)(3), facilities are able to change their cost reporting period when they request a change in writing from their MAC and meet specific criteria for approval. However, the current LVPA regulation at § 413.232(g)(2)(ii) does not technically address requirements for changing cost reporting periods except as a result of a CHOW, which has prohibited facilities from receiving the LVPA if they make a business decision to adjust their cost reporting period, which could interfere with the normal course of business. We recognize that there are business decisions an ESRD facility could make with regard to cost reporting periods that could substantively impact eligibility for the LVPA that we did not contemplate at the time the regulation was adopted. Specifically, there could be reasons why a cost report does not span 12-consecutive months. We did not intend for an ESRD facility to lose their LVPA eligibility simply because they made a decision to change their cost reporting period. The requirement that cost reports span 12-consecutive months was to bring a measure of consistent business operations.

We are proposing to add a new paragraph (3) to § 413.232(g) to provide direction for MACs in verifying the number of treatments when a change in a cost reporting period is approved. When this occurs, we propose that MACs would combine the two non-standard cost reporting periods of less than 12 months to equal a full 12-consecutive month period or combine the two non-standard cost reporting periods that in combination may exceed 12-consecutive months and prorate the data to equal a full 12-consecutive month period. This proposal does not impact or change requirements for reporting, as established by the MACs, or those set forth in § 413.24(f)(3). We solicit comment on the proposal to add proposed § 413.232(g)(3) to change the information and cost report timeframes MACs would review to determine LVPA eligibility. This would apply to ESRD facilities that change their cost reporting year for purposes outside of a CHOW to qualify for the LVPA, provided they otherwise meet the LVPA eligibility criteria for the purposes of allowing the ESRD facility to continue to receive the adjustment.

Finally, we are proposing two additional changes to correct and further clarify the LVPA regulation. The first would correct a cross-reference in § 413.232(b) by changing “paragraph (h)” to “paragraph (g)”. This error is the result of prior changes we made to the regulation when we deleted other paragraphs, but did not update the reference accordingly. The second proposed revision, which we are making to § 413.232(c)(2), would clarify that the reference to miles, are road miles. CMS recognizes that the current designation of miles under the regulation may not be specific enough and could cause confusion, and we have issued guidance (Medicare Benefit Policy Manual, Pub. L. 100-02, Chapter 11, Section 60) addressing road miles. Accordingly, we are proposing clarifying edits to § 413.232(c)(2).

3. Proposed CY 2019 ESRD PPS Update

a. ESRD Bundled (ESRDB) Market Basket and Labor-Related Share

i. Proposed Rebasing of the ESRDB Market Basket

In accordance with section 1881(b)(14)(F)(i) of the Act, as added by section 153(b) of MIPPA and amended by section 3401(h) of the Affordable Care Act, beginning in 2012, the ESRD PPS payment amounts are required to be annually increased by an ESRD market basket increase factor and reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. The application of the productivity adjustment may result in the increase factor being less than 0.0 for a year and may result in payment rates for a year being less than the payment rates for the preceding year. 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.

As required under section 1881(b)(14)(F)(i) of the Act, CMS developed an all-inclusive ESRD Bundled (ESRDB) input price index (75 FR 49151 through 49162) and subsequently revised and rebased the ESRDB input price index in the CY 2015 ESRD PPS final rule (79 FR 66129 through 66136). Effective for CY 2019, we are proposing to rebase the ESRDB market basket to a base year of CY 2016.

Although “market basket” technically describes the mix of goods and services used for ESRD treatment, this term is also commonly used to denote the input price index (that is, cost categories, their respective weights, and price proxies combined) derived from a market basket. Accordingly, the term “ESRDB market basket,” as used in this document, refers to the ESRDB input price index.

The ESRDB market basket is a fixed-weight, Laspeyres-type price index. A Laspeyres-type price index measures the change in price, over time, of the same mix of goods and services purchased in the base period. Any changes in the quantity or mix of goods and services (that is, intensity) purchased over time are not measured.

The index is constructed in three steps. First, a base period is selected (in this proposed rule, we are proposing to use 2016 as the base period) and total base period expenditures are estimated for a set of mutually exclusive and exhaustive spending categories, with the proportion of total costs that each category represents being calculated. These proportions are called “cost weights” or “expenditure weights.” Second, each expenditure category is matched to an appropriate price or wage variable, referred to as a “price proxy”. In almost every instance, these price proxies are derived from publicly available statistical series that are published on a consistent schedule (preferably at least on a quarterly basis). Finally, the expenditure weight for each cost category is multiplied by the level of its respective price proxy. The sum of these products (that is, the expenditure weights multiplied by their price index levels) for all cost categories yields the composite index level of the market basket in a given period. Repeating this step for other periods produces a series of market basket levels over time.

Dividing an index level for a given period by an index level for an earlier period produces a rate of growth in the input price index over that timeframe.

As noted above, the market basket is described as a fixed-weight index because it represents the change in price over time of a constant mix (quantity and intensity) of goods and services purchased to provide ESRD services. The effects on total expenditures resulting from changes in the mix of goods and services purchased subsequent to the base period are not measured. For example, an ESRD facility hiring more nurses to accommodate the needs of patients would increase the volume of goods and services purchased by the ESRD facility, but would not be factored into the price change measured by a fixed-weight ESRD market basket. Only when the index is rebased would changes in the quantity and intensity be captured, with those changes being reflected in the cost weights. Therefore, we rebase the market basket periodically so that the cost weights reflect changes between base periods in the mix of goods and services that ESRD facilities purchase to furnish ESRD treatment.

We are proposing to use CY 2016 as the base year for the proposed rebased 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 2016 (that is, the average index level for CY 2016 is equal to 100). The major source data for the proposed ESRDB market basket is the 2016 Medicare cost reports (MCRs) (Form CMS-265-11), supplemented with 2012 data from the United States (U.S.) Census Bureau's Services Annual Survey (SAS) inflated to 2016 levels. The 2012 SAS data is the most recent year of detailed expense data published by the Census Bureau for North American International Classification System (NAICS) Code 621492: Kidney Dialysis Centers. We also are proposing to use May 2016 Bureau of Labor Statistics (BLS) Occupational Employment Statistics data to estimate the weights for the Wages and Salaries and Employee Benefits occupational blends. We provide more detail on our methodology below.

The terms “rebasing” and “revising,” while often used interchangeably, actually denote different activities. The term “rebasing” means moving the base year for the structure of costs of an input price index (that is, in this exercise, we are proposing to move the base year cost structure from CY 2012 to CY 2016) without making any other major changes to the methodology. The term “revising” means changing data sources, cost categories, and/or price proxies used in the input price index. For CY 2019, we are proposing to rebase the ESRD market basket to reflect the 2016 cost structure of ESRD facilities. We are not proposing to revise the index; that is, we are not proposing to make any changes to the cost categories or price proxies used in the index.

We selected CY 2016 as the new base year because 2016 is the most recent year for which relatively complete MCR data are available. In developing the proposed market basket, we reviewed ESRD expenditure data from ESRD MCRs (CMS Form 265-11) for 2016 for each freestanding ESRD facility that reported expenses and payments. The 2016 MCRs are those ESRD facilities whose cost reporting period began on or after October 1, 2015 and before October 1, 2016. Of the 2016 MCRs, approximately 88 percent of freestanding ESRD facilities had a begin date on January 1, 2016, approximately 6 percent had a begin date prior to January 1, 2016, and approximately 6 percent had a begin date after January 1, 2016. Using this methodology allowed our sample to include ESRDs with varying cost report years including, but not limited to, the federal fiscal or CY.

We propose to maintain our policy of using data from freestanding ESRD facilities (which account for over 90 percent of total 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 from the entire institution.

We developed cost category weights for the proposed 2016-based ESRDB market basket in two stages. First, we derived base year cost weights for nine major categories (Wages and Salaries, Employee Benefits, Pharmaceuticals, Supplies, Lab Services, Housekeeping and Operations, Administrative and General, Capital-Related Building and Fixtures, and Capital-Related Machinery) from the ESRD MCRs. Second, we are proposing to divide the Administrative and 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 inflated to 2016 levels. We apply the estimated 2016 distributions from the SAS data to the 2016 Administrative and General cost weight to yield the more detailed 2016 cost weights in the proposed market basket. This is similar to the methodology we used to break the Administrative and General costs into more detail for the 2012-based ESRDB market basket (79 FR 40217 through 40221). The only difference is that for this proposed rebasing because SAS data is not available after 2012 we inflated the 2012 expense levels to 2016 dollars using appropriate price proxies and applied this expense distribution to the Administrative and General cost weight for 2016.

We are proposing to include a total of 20 detailed cost categories for the proposed 2016-based ESRDB market basket, which is the same number of cost categories as the 2012-based ESRDB market basket. We are proposing to continue to assume that 87 percent of Professional Fees and 46 percent of capital costs are labor-related costs and would be included in the proposed labor-related share. A more thorough discussion of our proposals is provided below.

a. Cost Category Weights

Using Worksheets A and B from the 2016 MCRs, we first computed cost shares for nine major expenditure categories: Wages and Salaries, Employee Benefits, Pharmaceuticals, Supplies, Lab Services, Housekeeping and Operations, Administrative and General, Capital-Related Building and Equipment, and Capital-Related Machinery. Edits were applied to include only cost reports that had total costs greater than zero. Total costs as reported on the MCR include those costs reimbursable under the ESRD bundled payment system. For example, we excluded expenses related to vaccine costs from total expenditures since these are not reimbursable under the ESRD bundled payment.

In order to reduce potential distortions from outliers in the calculation of the individual cost weights for the major expenditure categories for each cost category, values less than the 5th percentile or greater than the 95th percentile were excluded from the major cost weight computations. The proposed data set, after removing cost reports with total costs equal to or less than zero and excluding outliers, included information from approximately 5,700 independent ESRD facilities' cost reports from an available pool of 6,410 cost reports.

Table 2 presents the proposed 2016-based ESRDB and 2012-based ESRDB market basket major cost weights as derived directly from the MCR data.

Table 2—Proposed 2016-Based ESRDB Market Basket Major Cost Weights Derived From the Medicare Cost Report Data

Cost category

Proposed

2016-based

ESRDB

market basket

(percent)

2012-based

ESRDB

market basket

(percent)

Wages and Salaries

32.6

31.8

Employee Benefits

7.0

6.6

Pharmaceuticals

12.4

16.5

Supplies

10.4

10.1

Lab Services

2.2

1.5

Housekeeping and Operations

3.9

3.8

Administrative and General

18.4

17.4

Capital-related Building and Fixed Equipment

9.2

8.4

Capital-related Machinery

3.8

3.9

Note:

Totals may not sum to 100.0 percent due to rounding.

We are proposing to disaggregate certain major cost categories developed from the MCRs into more detail to more accurately reflect ESRD facility costs. Those categories include: Benefits, Professional fees, Telephone, Utilities, and All Other Goods and Services. We describe below how the initially computed categories and weights from the cost reports were modified to yield the proposed 2016 ESRDB market basket expenditure categories and weights presented in this proposed rule.

Wages and Salaries

The proposed Wages and Salaries cost weight is comprised of direct patient care wages and salaries and non-direct patient care wages and salaries. Direct patient care wages and salaries for 2016 was derived from Worksheet B, column 5, lines 8 through 17 of the MCR. Non-direct patient care wages and salaries includes all other wages and salaries costs for non-health workers and physicians, which we are proposing to derive using the following steps:

Step 1:

To capture the salary costs associated with non-direct patient care cost centers, we calculated salary percentages for non-direct patient care from Worksheet A of the MCR. The estimated ratios were calculated as the ratio of salary costs (Worksheet A, columns 1 and 2) to total costs (Worksheet A, column 4). The salary percentages were calculated for seven distinct cost centers: `Operations and Maintenance' combined with `Machinery & Rental & Maintenance' (line 3 and 6), Housekeeping (line 4), Employee Health and Wellness (EH&W) Benefits for Direct Patient Care (line 8), Supplies (line 9), Laboratory (line 10), Administrative & General (line 11), and Pharmaceuticals (line 12).

Step 2:

We then multiplied the salary percentages computed in step 1 by the total costs for each corresponding reimbursable costs center totals as reported on Worksheet B. The Worksheet B totals were based on the sum of reimbursable costs reported on lines 8 through 17. For example, the salary percentage for Supplies (as measured by line 9 on Worksheet A) was applied to the total expenses for the Supplies cost center (the sum of costs reported on Worksheet B, column 7, lines 8 through 17). This provided us with an estimate of Non-Direct Patient Care Wages and Salaries.

Step 3:

The estimated Wages and Salaries for each of the cost centers on Worksheet B derived in step 2 were subsequently summed and added to the direct patient care wages and salaries costs.

Step 4:

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

Using this methodology, we derive a proposed Wages and Salaries cost weight of 32.6 percent, reflecting an estimated direct patient care wages and salaries cost weight of 25.1 percent and non-direct patient care wages and salaries cost weight of 7.5 percent, as seen in Table 3.

The final adjustment made to this category is to include Contract Labor costs. These costs appear on the MCR; however, they are embedded in the Other Costs from the trial balance reported on Worksheet A, Column 3 and cannot be disentangled using the MCRs. To avoid double counting of these expenses, we propose to remove the estimated cost weight for the contract labor costs from the Administrative and General category (where we believe the majority of the contract labor costs would be reported) to the Wages and Salaries category. We are proposing to use data from the SAS (2012 data inflated to 2016), which reported 2.3 percent of total expenses were spent on contract labor costs. We allocated 80 percent of that contract labor cost weight to Wages and Salaries. At the same time, we subtracted that same amount from Administrative and General, where the majority of contract labor expenses would likely be reported on the MCR. The 80 percent figure that was used was determined by taking salaries as a percentage of total compensation (excluding contract labor) from the 2016 MCR data. This is the same method that was used to allocate contract labor costs to the Wages and Salaries cost category for the 2012-based ESRDB market basket.

The resulting proposed cost weight for Wages and Salaries increases to 34.5 percent when contract labor wages are added. The calculation of the proposed Wages and Salaries cost weight for the 2016-based ESRDB market basket is shown in Table 3 along with the similar calculation for the 2012-based ESRDB market basket.

Table 3—Proposed 2016 and 2012 ESRD Wages and Salaries Cost Weight Determination

Components

Proposed 2016 cost weight

(percent)

2012 cost weight

(percent)

Source

Wages and Salaries Direct Patient Care

25.1

23.2

MCR.

Wages and Salaries Non-direct Patient Care

7.5

8.6

MCR.

Contract Labor (Wages)

1.9

1.8

80% of SAS Contract Labor weight.

Total Wages and Salaries

34.5

33.7

Employee Benefits

The Employee Benefits cost weight was derived from the MCR data for direct patient care and supplemented with data from the SAS (2012 data inflated to 2016) to account for non-direct patient care Employee Benefits. The MCR data only reflects Employee Benefit costs associated with health and wellness; that is, it does not reflect retirement benefits.

In order to reflect the benefits related to non-direct patient care for employee health and wellness, we estimated the impact on the benefit weight using SAS. Unlike the MCR, data from 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. Incorporating the SAS data produced an Employee Benefits (both direct patient care and non-direct patient care) weight that was 1.6 percentage points higher (8.6 vs. 7.0) than the Employee Benefits weight for direct patient care calculated directly from the MCR. To avoid double-counting and to ensure all of the market basket weights still totaled 100 percent, we removed this additional 1.6 percentage points for Non-Direct Patient Care Employee Benefits from the Administrative and General cost category (where we believe the majority of the contract labor costs would be reported).

The final adjustment made to this category is to include contract labor benefit costs. Once again, these costs appear on the MCR; however, they are embedded in the Other Costs from the trial balance reported on Worksheet A, Column 3 and cannot be disentangled using the MCR data. Identical to our methodology above for allocating Contract Labor Costs to Wages and Benefits, 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 20 percent figure was determined by taking benefits as a percentage of total compensation (excluding contract labor) from the 2016 MCR data. The resulting cost weight for Employee Benefits increases to 9.1 percent when contract labor benefits are added. This is the same method that was used to allocate contract labor costs to the Benefits cost category for the 2012-based ESRDB market basket.

The Table 4 compares the 2012-based Benefits cost share derivation as detailed in the CY 2015 ESRD proposed rule (79 FR 40218) to the proposed 2016-based Benefits cost share derivation.

Table 4—Proposed 2016 and 2012 ESRD Employee Benefits Cost Weight Determination

Components

Proposed 2016 cost weight

(percent)

2012 cost weight

(percent)

Source

Employee Benefits Direct Patient Care

7.0

6.6

MCR.

Employee Benefits Non-direct Patient Care

1.6

1.8

SAS.

Contract Labor (Benefits)

0.5

0.5

20% of SAS Contract Labor weight.

Total Employee Benefits

9.1

8.8

Pharmaceuticals

The proposed 2016-based 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 calculated a Pharmaceutical cost weight from the following cost centers on Worksheet B, the sum of lines 8 through 17, for the following columns: 11 “Drugs Included in Composite Rate”; 12 “Erythropoiesis stimulating agents (ESAs)”; 13 “ESRD-Related Drugs”. We also added the 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 continue to include them in the Pharmaceutical cost weight. Section 1842(o)(1)(A)(iv) of the Act requires that influenza, pneumococcal, and hepatitis B vaccines described in paragraph (A) or (B) of section 1861(s)(10) of the Act be paid based on 95 percent of average wholesale price (AWP) of the drug. Since these vaccines are not reimbursable under the ESRD PPS, we exclude them from the proposed 2016-based ESRDB market basket.

Finally, to avoid double-counting, the weight for the Pharmaceuticals category was reduced to exclude the estimated share of Non-Direct Patient Care Wages and Salaries associated with the applicable pharmaceutical cost centers referenced above. This resulted in a proposed ESRDB market basket weight for Pharmaceuticals of 12.4 percent. ESA expenditures accounted for 10.0 percentage points of the proposed Pharmaceuticals cost weight, and All

Other Drugs accounted for the remaining 2.4 percentage points.

The Pharmaceutical cost weight decreased 4.1 percentage point from the 2012-based ESRD market basket to the proposed 2016-based ESRD market basket (16.5 percent to 12.4 percent). Most providers experienced a decrease in their Pharmaceutical cost weight since 2012. One provider in particular, a major dialysis provider, experienced a significant pharmaceutical cost weight decline in 2016. This provider's decline has an effect on the overall Pharmaceutical cost weight in the proposed 2016-based ESRDB market basket. We wish to note that the provider's decline in the pharmaceutical cost weight was found across the board in all states where the provider has facilities. Given this, we are proposing to include this provider's decline in our market basket results treating it as a `real' change in relative pharmaceutical costs. We are not proposing to use an alternative methodology, such as averaging cost weights from multiple years, as proposed for Lab Services.

Supplies

We calculated the Supplies cost weight using the costs reported in the Supplies cost center (Worksheet B, line 5 and the sum of lines 8 through 17, column 7) of the MCR. To avoid double-counting, the Supplies costs were reduced to exclude the estimated share of Non-Direct patient care Wages and Salaries associated with this cost center. The resulting proposed 2016-based ESRDB market basket weight for Supplies is 10.4 percent, about the same as the weight for the 2012-based ESRDB market basket.

Lab Services

We calculated the Lab Services cost weight using the costs reported in the Laboratory cost center (Worksheet B, line 5 and the sum of line 8 through 17, column 8) of the MCR. To avoid double-counting, the Lab Services costs were reduced to exclude the estimated share of Non-Direct Patient Care Wages and Salaries associated with this cost center. The proposed 2016-based ESRDB market basket weight for Lab Services is estimated at 2.2 percent.

The 2016 Lab Services expenses reported for a main chain provider were significantly lower than those reported in the 3 years prior (2013-2015) and lower than the 2016 Lab Services weight for all other providers. We believe the lower costs were based on a correction to the way that this chain is billing for these services, an assumption that is supported by the findings of a January 2016 Health and Human Services Office of the Inspector General (OIG) Report.

2

Because the recent reported costs from this chain reflect these unique circumstances, we propose to take a 2-year average of Lab Services costs for 2015 and 2016 for this chain in order to smooth out the year-to-year volatility. This approach results in a Lab cost weight for this chain that is higher than it was in 2012, which is then added to the 2016 Lab Services costs for all other providers, where the cost weight was similar in 2012 and 2016. As a result, the overall Lab Services cost weight increased 0.7 percentage points from the 2012-based ESRDB market basket to the proposed 2016-based ESRD market basket.

2

Review of Medicare Payments for Laboratory Tests Billed with an AY Modifier by Total Renal Laboratories, Inc.;

https://oig.hhs.gov/oas/reports/region1/11400505.pdf

.

Housekeeping and Operations

We calculated the Housekeeping and Operations cost weight using the costs reported on Worksheet A, lines 3 and 4, column 8, of the MCR. To avoid double-counting, the weight for the Housekeeping and Operations category was reduced to exclude the estimated share of Non-Direct Patient Care Waged and Salaries associated with this cost center. These costs were divided by total costs to derive a proposed 2016-based ESRDB market basket weight for Housekeeping and Operations of 3.9 percent.

Capital

We developed a proposed market basket weight for the Capital category using data from Worksheet B of the MCRs. Capital-related costs include depreciation and lease expenses for buildings, fixtures and movable equipment, property taxes, insurance costs, the costs of capital improvements, and maintenance expense for buildings, fixtures, and machinery. Because Housekeeping and Operations and 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 and 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 Wages and Salaries and Benefits associated with the Capital-related cost centers. We used Worksheet B to develop two capital-related cost categories: (1) Buildings and Fixtures (Worksheet B, the sum of lines 8 through 17, column 2 less housekeeping & operations as derived from expenses reported on Worksheet A (see above)), and (2) Machinery (Worksheet B, the sum of lines 8 through 17, 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 continue to believe that two capital-related cost categories are appropriate. The resulting proposed 2016-based ESRDB market basket weights for Capital-related Buildings and Fixtures and Capital-related Machinery are 9.2 and 3.8 percent, respectively.

Administrative and General

We computed the proportion of total Administrative and General expenditures using the Administrative and General cost center data from Worksheet B, the sum of lines 8 through 17, (column 9) of the MCRs. Additionally, we remove contract labor from this cost category and apportion these costs to the Wages and Salaries and Employee Benefits cost weights. Similar to other expenditure category adjustments, we then reduced the computed weight to exclude Wages and Salaries and Benefits associated with the Administrative and General cost center for Non-direct Patient Care as estimated from the SAS data. The resulting Administrative and General cost weight is 14.5 percent.

We are proposing to further disaggregate the Administrative and General cost weight to derive detailed cost weights for Electricity, Natural Gas, Water and Sewerage, Telephone, Professional Fees, and All Other Goods and Services. These detailed cost weights are derived by inflating the detailed 2012 SAS data forward to 2016 by applying the annual price changes from the respective price proxies to the appropriate market basket cost categories that are obtained from the 2012 SAS data. We repeat this practice for each year to 2016. We then calculate the cost shares that each cost category represents of the 2012 data inflated to 2016. These resulting 2016 cost shares were applied to the Administrative and General cost weight derived from the MCR (net of contract labor and additional benefits) to obtain the detailed cost weights for the proposed 2016-based ESRD market basket. This method is similar to the method used for the 2012-based ESRDB market basket.

Table 5 lists all of the cost categories and cost weights in the proposed 2016-

based ESRDB market basket compared to the 2012-based ESRDB market basket.

Table 5—Comparison of the Proposed 2016-Based and the 2012-Based ESRDB Market Basket Cost Categories and Weights

Proposed 2016 cost category

Proposed 2016 cost weights

(percent)

2012 cost weights

(percent)

Total

100.0

100.0

Compensation

43.6

42.5

Wages and Salaries

34.5

33.7

Employee Benefits

9.1

8.8

Utilities

2.0

1.8

Electricity

1.1

1.0

Natural Gas

0.1

0.1

Water and Sewerage

0.8

0.8

Medical Materials and Supplies

24.9

28.1

Pharmaceuticals

12.4

16.5

ESAs

10.0

12.9

Other Drugs (except ESAs)

2.4

3.6

Supplies

10.4

10.1

Lab Services

2.2

1.5

All Other Goods and Services

16.4

15.3

Telephone & Internet Services

0.5

0.5

Housekeeping and Operations

3.9

3.8

Professional Fees

0.7

0.6

All Other Goods and Services

11.3

10.4

Capital Costs

13.0

12.2

Capital Related-Building and Fixtures

9.2

8.4

Capital Related-Machinery

3.8

3.9

Note:

The cost weights are calculated using three decimal places. For presentational purposes, we are displaying one decimal and, therefore, the detail may not add to the total due to rounding.

b. Proposed Price Proxies for the 2016-Based ESRDB Market Basket

After developing the cost weights for the proposed 2016-based ESRDB market basket, we are proposing to select the most appropriate wage and price proxies currently available to represent the rate of price change for each expenditure category. We based the proposed price proxies on Bureau of Labor Statistics (BLS) data and group them into one of the following BLS categories:

(1)

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 NAICS and the occupational ECIs are based on the Standard Occupational Classification System (SOC).

(2)

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.

(3)

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 helps to 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 provision 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 2016-based ESRDB market

basket. We note that we are proposing to use the same proxies as those used in the 2012-based ESRDB market basket. Below is a detailed explanation of the price proxies used for each cost category weight.

Wages and Salaries

We are proposing to continue using a blend of ECIs to proxy the Wages and Salaries cost weight in the proposed 2016-based ESRDB market basket, and to continue using four occupational categories and associated ECIs based on full-time equivalents (FTE) data from ESRD MCRs and ECIs from BLS. We calculated occupation weights for the blended Wages and Salaries price proxy using 2016 FTE data from the MCR data and associated 2016 Average Mean Wage data from the Bureau of Labor Statistics' Occupational Employment Statistics. This is similar to the methodology used in the 2012-based ESRDB market basket to derive these occupational wages and salaries categories.

Health Related

We are proposing to continue using the ECI for Wages and Salaries for All Civilian Workers in Hospitals (BLS series code #CIU1026220000000I) as the price proxy for health-related occupations. Of the two health-related ECIs that we considered (“Hospitals” and “Health Care and Social Assistance”), the wage distribution within the Hospital NAICS sector (622) is more closely related to the wage distribution of ESRD facilities than it is to the wage distribution of the Health Care and Social Assistance NAICS sector (62).

The Wages and Salaries—Health Related subcategory weight within the Wages and Salaries cost category accounts for 79.9 percent of total Wages and Salaries in 2016. 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”.

Management

We are proposing to continue using the ECI for Wages and Salaries for Private Industry Workers in Management, Business, and Financial (BLS series code #CIU2020000110000I). We believe this ECI is the most appropriate price proxy to measure the wages and salaries price growth of management personnel at ESRD facilities.

The Wages and Salaries—Management subcategory weight within the Wages and Salaries cost category is 6.7 percent in 2016. The ESRD Medicare Cost Report FTE category used to define the Wages and Salaries—Management subcategory is “Management.”

Administrative

We are proposing to continue using the ECI for Wages and Salaries for Private Industry Workers in Office and Administrative Support (BLS series code #CIU2020000220000I). We believe this ECI is the most appropriate price proxy to measure the wages and salaries price growth of administrative support personnel at ESRD facilities.

The Wages and Salaries—Administrative subcategory weight within the Wages and Salaries cost category is 7.7 percent in 2016. The ESRD MCR FTE category used to define the Wages and Salaries—Administrative subcategory is “Administrative.”

Services

We propose using the ECI for Wages and Salaries for Private Industry Workers in Service Occupations (BLS series code #CIU2020000300000I). We believe this ECI is the most appropriate price proxy to measure the wages and salaries price growth of all other non-health related, non-management, and non-administrative service support personnel at ESRD facilities.

The Services subcategory weight within the Wages and Salaries cost category is 5.7 percent in 2016. The ESRD Medicare Cost Report FTE categories used to define the Wages and Salaries—Services subcategory are “Social Workers” and “Other.”

Table 6 lists the four ECI series and the corresponding weights used to construct the proposed ECI blend for Wages and Salaries compared to the 2012-based weights for the subcategories. We believe this ECI blend is the most appropriate price proxy to measure the growth of wages and salaries faced by ESRD facilities.

Table 6—Proposed ECI Blend for Wages and Salaries in the Proposed 2016-Based and 2012-Based ESRDB Market Baskets

Cost category

ECI series

Proposed 2016 weight (percent)

2012 Weight (percent)

Health Related

ECI for Wages and Salaries for All Civilian Workers in Hospitals

79.9

79.0

Management

ECI for Wages and Salaries for Private Industry Workers in Management, Business, and Financial

6.7

8.0

Administrative

ECI for Wages and Salaries for Private Industry Workers in Office and Administrative Support

7.7

7.0

Services

ECI for Wages and Salaries for Private Industry Workers in Service Occupations

5.7

6.0

Employee Benefits

We are proposing to continue using an ECI blend for Employee Benefits in the proposed 2016-based ESRDB market basket where the components match those of the proposed Wage and Salaries ECI blend. The proposed occupation weights for the blended Benefits price proxy are the same as those proposed for the wages and salaries price proxy blend as shown in Table 5. BLS does not publish ECI for Benefits price proxies for each Wage and Salary ECI; however, where these series are not published, they can be derived by using the ECI for Total Compensation and the relative importance of wages and salaries with total compensation as published by BLS for each detailed ECI occupational index.

Health Related

We are proposing to continue using the ECI for Benefits for All Civilian Workers in Hospitals to measure price growth of this subcategory. This is calculated using the ECI for Total Compensation for All Civilian Workers in Hospitals (BLS series code #CIU1016220000000I) and the relative importance of Wages and Salaries within Total Compensation as

published by BLS. We believe this constructed ECI series is technically appropriate for the reason stated above in the Wages and Salaries price proxy section.

Management

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

Administrative

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

Services

We are proposing to continue using the ECI for Total Benefits for Private Industry Workers in Service Occupations (BLS series code #CIU2030000300000I) to measure price growth of this subcategory. We believe this ECI series is technically appropriate for the reason stated above in the Wages and Salaries price proxy section

We feel the proposed benefits ECI blend continues to be the most appropriate price proxy to measure the growth of benefits prices faced by ESRD facilities. Table 7 lists the four ECI series and the corresponding weights used to construct the proposed benefits ECI blend.

Table 7—Proposed ECI Blend for Benefits in the Proposed 2016-Based and 2012-Based ESRDB Market Baskets

Cost category

ECI series

Proposed 2016 weight (percent)

2012 Weight (percent)

Health Related

ECI for Benefits for All Civilian Workers in Hospitals

79.9

79.0

Management

ECI for Benefits for Private Industry Workers in Management, Business, and Financial

6.7

8.0

Administrative

ECI for Benefits for Private Industry Workers in Office and Administrative Support

7.7

7.0

Services

ECI for Benefits for Private Industry Workers in Service Occupations

5.7

6.0

Electricity

We propose to continue using the PPI Commodity for Commercial Electric Power (BLS series code #WPU0542) to measure the price growth of this cost category.

Natural Gas

We propose to continue using the PPI Commodity for Commercial Natural Gas (BLS series code #WPU0552) to measure the price growth of this cost category.

Water and Sewerage

We propose to continue using the CPI U.S. city average for Water and Sewerage Maintenance (BLS series code #CUUR0000SEHG01) to measure the price growth of this cost category.

Pharmaceuticals

We propose to continue using the PPI Commodity for Biological Products, Excluding Diagnostic, for Human Use (which we will abbreviate as PPI-BPHU) (BLS series code #WPU063719) as the price proxy for the ESA drugs in the market basket. We propose to continue using the PPI Commodity for Vitamin, Nutrient, and Hematinic Preparations (which we will abbreviate as PPI-VNHP) (BLS series code #WPU063807) for all other drugs included in the bundle other than ESAs.

The PPI-BPHU measures the price change of prescription biologics, and ESAs would be captured within this index, if they are included in the PPI sample. Since the PPI relies on confidentiality with respect to the companies and drugs/biologicals included in the sample, we do not know if these drugs are indeed reflected in this price index. However, we believe the PPI-BPHU is an appropriate proxy to use because although ESAs may be a small part of the fuller category of biological products, we can examine whether the price increases for the ESA drugs are similar to the drugs included in the PPI-BPHU. We did this by comparing the historical price changes in the PPI-BPHU and the ASP for ESAs and found the cumulative growth to be consistent over the past 4 years. We will continue to monitor the trends in the prices for ESA drugs as measured by other price data sources to ensure that the PPI-BPHU is still an appropriate price proxy.

Additionally, since the non-ESA drugs used in the treatment of ESRD are mainly vitamins and nutrients, we believe that the PPI-VNHP continues to be the best available proxy for these types of drugs. While this index does include over-the-counter drugs as well as prescription drugs, a comparison of trends in the prices for non-ESA drugs shows similar growth to the proposed PPI-VNHP.

Supplies

We propose to continue using the PPI Commodity for Surgical and Medical Instruments (BLS series code #WPU1562) to measure the price growth of this cost category.

Lab Services

We propose to continue using the PPI Industry for Medical Laboratories (BLS series code #PCU621511621511) to measure the price growth of this cost category.

Telephone Service

We propose to continue using the CPI U.S. city average for Telephone Services (BLS series code #CUUR0000SEED) to measure the price growth of this cost category.

Housekeeping and Operations

We propose to continue using the PPI Commodity for Cleaning and Building Maintenance Services (BLS series code #WPU49) to measure the price growth of this cost category.

Professional Fees

We propose to continue using the ECI for Total Compensation for Private Industry Workers in Professional and Related (BLS series code # CIU2010000120000I) to measure the price growth of this cost category.

All Other Goods and Services

We propose to continue using the PPI Commodity for Final demand—Finished Goods Less Foods and Energy (BLS series code #WPUFD4131) to measure the price growth of this cost category.

Capital-Related Building and Equipment

We propose to continue using the PPI Industry for Lessors of Nonresidential Buildings (BLS series code #PCU531120531120) to measure the price growth of this cost category.

Capital-Related Machinery

We propose to continue using the PPI Commodity for Electrical Machinery and Equipment (BLS series code #WPU117) to measure the price growth of this cost category.

Table 8 shows all the proposed price proxies and cost weights for the proposed 2016-based ESRDB Market Basket.

Table 8—Proposed Price Proxies and Associated Cost Weights for the 2016-Based ESRDB Market Basket

Cost category

Price proxy

Proposed 2016 cost weight

Total ESRDB market basket

100.0

Compensation

43.6

Wages and Salaries

34.5

Health-related

ECI for Wages and Salaries for All Civilian Workers in Hospitals

27.6

Management

ECI for Wages and Salaries for Private Industry Workers in Management, Business, and Financial

2.3

Administrative

ECI for Wages and Salaries for Private Industry Workers in Office and Administrative Support

2.7

Services

ECI for Wages and Salaries for Private Industry Workers in Service Occupations

2.0

Employee Benefits

9.1

Health-related

ECI for Total Benefits for All Civilian workers in Hospitals

7.3

Management

ECI for Total Benefits for Private Industry workers in Management, Business, and Financial

0.6

Administrative

ECI for Total Benefits for Private Industry workers in Office and Administrative Support

0.7

Services

ECI for Total Benefits for Private Industry workers in Service Occupations

0.5

Utilities

2.0

Electricity

PPI Commodity for Commercial Electric Power

1.1

Natural Gas

PPI Commodity for Commercial Natural Gas

0.1

Water and Sewerage

CPI-U for Water and Sewerage Maintenance

0.8

Medical Materials and Supplies

24.9

Pharmaceuticals

12.4

ESAs

PPI Commodity for Biological Products, Excluding Diagnostics, for Human Use

10.0

Other Drugs

PPI Commodity for Vitamin, Nutrient, and Hematinic Preparations

2.4

Supplies

PPI Commodity for Surgical and Medical Instruments

10.4

Lab Services

PPI Industry for Medical Laboratories

2.2

All Other Goods and Services

16.4

Telephone Service

CPI-U for Telephone Services

0.5

Housekeeping and Operations

PPI Commodity for Cleaning and Building Maintenance Services

3.9

Professional Fees

ECI for Total Compensation for Private Industry Workers in Professional and Related

0.7

All Other Goods and Services

PPI for Final demand—Finished Goods less Foods and Energy

11.3

Capital Costs

13.0

Capital Related Building and Equipment

PPI Industry for Lessors of Nonresidential Buildings

9.2

Capital Related Machinery

PPI Commodity for Electrical Machinery and Equipment

3.8

Note:

The cost weights are calculated using three decimal places. For presentational purposes, we are displaying one decimal and therefore, the detail may not add to the total due to rounding.

ii. Proposed CY 2019 ESRD Market Basket Update, Adjusted for Multifactor Productivity

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. We propose to use the 2016-based ESRDB market basket as described in this proposed rule to compute the CY 2019 ESRDB market basket increase factor and labor-related share. Consistent with historical practice, we estimate the ESRDB market basket update based on IHS Global Inc.'s (IGI) forecast using the most recently available data. IGI is a nationally recognized economic and financial forecasting firm that contracts with CMS to forecast the components of the market baskets.

a. Market Basket Update

Using this methodology and the IGI forecast for the first quarter of 2018 of the proposed 2016-based ESRDB market basket (with historical data through the fourth quarter of 2017), and consistent with our historical practice of estimating market basket increases based on the best available data, the proposed CY 2019 ESRDB market basket increase factor is 2.2 percent.

b. Multifactor Productivity (MFP)

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 multifactor productivity (MFP) is derived by subtracting the contribution of labor and capital input growth from output growth. The detailed methodology for deriving the MFP projection was finalized in the CY 2012 ESRD PPS final rule (76 FR 70232 through 70235). The most up-to-date MFP projection methodology is available on the CMS website at

http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html

. We are not proposing any changes to the methodology for the projection of the MFP adjustment.

Using IGI's first quarter 2018 forecast, the proposed MFP adjustment for CY 2019 (the 10-year moving average of MFP for the period ending CY 2019) is projected to be 0.7 percent.

c. Market Basket Update Adjusted for Multifactor Productivity (MFP)

As a result of these provisions, the proposed CY 2019 ESRD market basket increase is 1.5 percent. This market basket increase is calculated by starting with the proposed 2016-based ESRDB market basket percentage increase factor of 2.2 percent for CY 2019, and reducing it by the MFP adjustment (the 10-year moving average of MFP for the period ending CY 2019) of 0.7 percentage point. We are also proposing that if more recent data are subsequently available (for example, a more recent estimate of the market basket increase or MFP adjustment), we would use such data to determine the market basket increase and MFP adjustment in the CY 2019 ESRD PPS final rule.

The CY 2019 ESRDB increase factor would be the same if we used the 2012-based ESRDB market basket. That is, the CY 2019 ESRDB market basket increase factor is 2.2 percent using the 2012-based ESRDB market basket. Table 9 shows the increase factors under the proposed 2016-based ESRDB and 2012-based ESRDB market basket.

Table 9—Historical and Projected Increase Factors Under the Proposed 2016-Based and 2012-Based ESRDB Market Basket

Calendar year

(CY)

Proposed 2016-Based ESRDB

market basket

2012-Based ESRDB

market basket

Historical Data:

CY 2015

2.0

2.2

CY 2016

1.9

2.0

CY 2017

1.4

1.3

Forecast:

CY 2018

1.9

1.9

CY 2019

2.2

2.2

Source: IHS Global Inc. 1st quarter 2018 forecast with historical data through 4th quarter 2017.

iii. Proposed Labor-Related Share for ESRD PPS

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

We propose to use the proposed 2016-based ESRDB market basket cost weights to determine the proposed labor-related share for ESRD facilities. Therefore, effective for CY 2019, we are proposing a labor-related share of 52.3 percent, slightly higher than the current 50.673 percent that was based on the 2012-based ESRD market basket, as shown in Table 10 below. We propose to move the labor-related share to a one decimal level of precision rather than the three decimal level of precision used previously. CMS is migrating all payment system labor-related shares to a one decimal level of precision. 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 used the same methodology for the 2012-based ESRD market basket.

Table 10—Proposed CY 2019 Labor-Related Share and CY 2018 Labor-Related Share

Cost category

Proposed CY 2019 ESRD labor-related share

CY 2018 ESRD

labor-related

share

Wages and salaries

34.5

33.650

Employee Benefits

9.1

8.847

Housekeeping and Operations

3.9

3.785

Professional Fees (Labor-Related)

0.6

0.537

Capital Labor-Related

4.2

3.854

Total Labor-Related Share

52.3

50.673

The labor-related share for Professional Fees reflects the proportion of ESRD facilities' professional fees expenses that we believe vary with local labor market (87 percent). We conducted a survey of ESRD facilities in

2008 to better understand the proportion of contracted professional services that ESRD facilities typically purchase outside of their local labor market. These purchased professional services include functions such as accounting and auditing, management consulting, engineering, and legal services. Based on the survey results, we determined that, on average, 87 percent of professional services are purchased from local firms and 13 percent are purchased from businesses located outside of the ESRD's local labor market. Thus, we are proposing to include 87 percent of the cost weight for Prof

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