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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2023-23915

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** November 6, 2023
- **Citation:** 88 FR 76344

## Text

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 413 and 512
[CMS-1782-F]
RIN 0938-AV05
Medicare Program; End-Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury, End-Stage Renal Disease Quality Incentive Program, and End-Stage Renal Disease Treatment Choices Model

AGENCY:

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

ACTION:

Final rule.

SUMMARY:

This final rule updates and revises the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) for calendar year (CY) 2024. This rule also updates the payment rate for renal dialysis services furnished by an ESRD facility to individuals with acute kidney injury (AKI). In addition, this final rule updates requirements for the ESRD Quality Incentive Program and the ESRD Treatment Choices Model.

DATES:

These regulations are effective on January 1, 2024.

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.

ESRDApplications@cms.hhs.gov
, for issues related to applications for the Transitional Drug Add-on Payment Adjustment (TDAPA) or Transitional Add-On Payment Adjustment for New and Innovative Equipment and Supplies (TPNIES).

ESRDQIP@cms.hhs.gov
, for issues related to the ESRD Quality Incentive Program (QIP).

ETC-CMMI@cms.hhs.gov
, for issues related to the ESRD Treatment Choices (ETC) Model.

SUPPLEMENTARY INFORMATION:

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

Table of Contents

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

I. Executive Summary

A. Purpose

B. Summary of the Major Provisions

C. Summary of Cost and Benefits

II. Calendar Year (CY) 2024 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

A. Background

B. Provisions of the Proposed Rule, Public Comments, and Responses to the Comments on the CY 2024 ESRD PPS

C. Transitional Add-On Payment Adjustment for New and Innovative Equipment and Supplies (TPNIES) Clarifications and Application for CY 2024 Payment

D. Continuation of Approved Transitional Add-On Payment Adjustments for New and Innovative Equipment and Supplies for CY 2024

E. Continuation of Approved Transitional Drug Add-On Payment Adjustments for CY 2024

III. Calendar Year (CY) 2024 Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury (AKI)

A. Background

B. Summary of the Proposed Provisions, Public Comments, and Responses to Comments on CY 2024 Payment for Renal Dialysis Services Furnished to Individuals With AKI

C. Annual Payment Rate Update for CY 2024

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

A. Background

B. Updates to the Regulation Text for the ESRD QIP

C. Updates to the Requirements Beginning With the PY 2026 ESRD QIP

D. Updates to the Requirements Beginning With the PY 2027 ESRD QIP

V. End-Stage Renal Disease Treatment Choices (ETC) Model

A. Background

B. Summary of the Proposed Provisions, Public Comments, and Responses to Comments on the ETC Model

VI. Collection of Information Requirements

VII. Regulatory Impact Analysis

A. Statement of Need

B. Overall Impact

C. Impact Analysis

D. Detailed Economic Analysis

E. Accounting Statement

F. Regulatory Flexibility Act Analysis (RFA)

G. Unfunded Mandates Reform Act Analysis (UMRA)

H. Federalism

I. Congressional Review Act

VIII. Files Available to the Public via the Internet

I. Executive Summary

A. Purpose

This rule finalizes changes related to the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS), payment for renal dialysis services furnished to individuals with acute kidney injury (AKI), the ESRD Quality Incentive Program (QIP), and the ESRD Treatment Choices (ETC) Model. Additionally, this rule finalizes policies that reflect our commitment to achieving equity in health care for our beneficiaries by supporting our ability to assess whether, and to what extent, our programs and policies perpetuate or exacerbate systemic barriers to opportunities and benefits for underserved communities. Our policy objectives include commitment to advancing health equity, which stands as the first pillar of the Centers for Medicare & Medicaid Services (CMS) Strategic Plan,
1

and reflect the goals of the Administration, as stated in the President's Executive Order 13985.
2

We define health equity as the attainment of the highest level of health for all people, where everyone has a fair and just opportunity to attain their optimal health regardless of race, ethnicity, disability, sexual orientation, gender identity, socioeconomic status, geography, preferred language, or other factors that affect access to care and health outcomes.”
3

In the calendar year (CY) 2023 ESRD PPS final rule, we noted that, when compared with all Medicare fee-for-service (FFS) beneficiaries, Medicare FFS beneficiaries receiving dialysis are disproportionately young, male, African American, have disabilities and low income as measured by eligibility for both Medicare and Medicaid (dual eligible status), and reside in an urban setting (87 FR 67183). In this final rule, we continue to address health equity for beneficiaries with ESRD who are members of underserved communities, including but not limited to those living in rural communities, those who have disabilities, and racial and ethnic minorities. The term `underserved communities' refers to populations sharing a particular characteristic, including geographic communities, that have been systematically denied a full

opportunity to participate in aspects of economic, social, and civic life.
4

Specifically, in the CY 2024 ESRD PPS proposed rule (88 FR 42431), we requested information regarding a potential payment adjustment for geographically isolated and rural ESRD facilities, proposed additional payment for the subgroup of Pediatric ESRD Patients (as defined in 42 CFR 413.171), and proposed policies to further our efforts to determine if payment to ESRD facilities treating patients with co-morbidities such as sickle cell anemia is aligned with resource use by such ESRD facilities. As discussed in sections II.B.1.g and II.B.1.j of this final rule, we are now finalizing the proposed payment adjustment for Pediatric ESRD Patients and policies to improve the measurement of individual resource use. Additionally, we are adding three new measures to the ESRD QIP measure set that are aimed at promoting health equity for ESRD patients, including by enabling ESRD facilities to identify gaps experienced by their patient populations.

1
Centers for Medicare & Medicaid Services (2022). Health Equity. Available at:
https://www.cms.gov/pillar/health-equity.

2
86 FR 7009 (January 25, 2021).
https://www.federalregister.gov/documents/2021/01/25/2021-01753/advancing-racial-equity-and-support-for-underserved-communities-through-the-federal-government.

3
Centers for Medicare & Medicaid Services (2022). Health Equity. Available at:
https://www.cms.gov/pillar/health-equity.

4
86 FR 7009 (January 25, 2021).
https://www.federalregister.gov/documents/2021/01/25/2021-01753/advancing-racial-equity-and-support-for-underserved-communities-through-the-federal-government.

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

On January 1, 2011, we implemented the ESRD PPS, a case-mix adjusted, bundled PPS for renal dialysis services furnished by ESRD facilities as required by section 1881(b)(14) of the Social Security Act (the Act), as added by section 153(b) of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275). Section 1881(b)(14)(F) of the Act, as added by section 153(b) of MIPPA, and amended by section 3401(h) of the Patient Protection and Affordable Care Act (the Affordable Care Act) (Pub. L. 111-148), established that beginning CY 2012, and each subsequent year, the Secretary of the Department of Health and Human Services (the Secretary) shall annually increase payment amounts by an ESRD market basket percentage increase, reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. This final rule updates the ESRD PPS for CY 2024.

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

On June 29, 2015, the President signed the Trade Preferences Extension Act of 2015 (TPEA) (Pub. L. 114-27). Section 808(a) of the TPEA amended section 1861(s)(2)(F) of the Act to provide coverage for renal dialysis services furnished on or after January 1, 2017, by a renal dialysis facility or a provider of services paid under section 1881(b)(14) of the Act to an individual with AKI. Section 808(b) of the TPEA amended section 1834 of the Act by adding a new subsection (r) that provides for payment for renal dialysis services furnished by renal dialysis facilities or providers of services paid under section 1881(b)(14) of the Act to individuals with AKI at the ESRD PPS base rate beginning January 1, 2017. This final rule updates the AKI payment rate for CY 2024.

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

The End-Stage Renal Disease Quality Incentive Program (ESRD QIP) is authorized by section 1881(h) of the Act. The Program establishes incentives for facilities to achieve high quality performance on measures with the goal of improving outcomes for ESRD beneficiaries. This final rule finalizes several updates for the ESRD QIP, including: (1) updates that will begin with Payment Year (PY) 2026, including one new quality measure, modifications to two current measures, and the removal of two measures; (2) the addition of two new measures beginning with PY 2027; (3) a revision to the regulatory definition of “minimum total performance score” that more accurately captures how we calculate the median of national ESRD facility performance on reporting measures; and (4) the codification of our previously finalized measure selection, retention, and removal policies.

4. End-Stage Renal Disease Treatment Choices (ETC) Model

The ETC Model is a mandatory Medicare payment model tested under section 1115A of the Act. The ETC Model is operated by the Center for Medicare and Medicaid Innovation (Innovation Center) and tests the use of payment adjustments to encourage greater utilization of home dialysis and kidney transplants, to preserve or enhance the quality of care furnished to Medicare beneficiaries while reducing Medicare expenditures.

The ETC Model was finalized as part of a final rule published in the
Federal Register
on September 29, 2020, titled “Medicare Program: Specialty Care Models to Improve Quality of Care and Reduce Expenditures” (85 FR 61114), referred to herein as the “Specialty Care Models final rule.” We revised and updated certain ETC Model policies in the CY 2022 ESRD PPS final rule (86 FR 61874), and the CY 2023 ESRD PPS final rule (87 FR 67136). In this final rule, we are finalizing a modification to our regulations at 42 CFR 512.390 to acknowledge the availability of administrative review of targeted review requests. This change will provide ETC Participants with information about the availability of administrative review if an ETC Participant wishes to seek additional review of its targeted review request.

B. Summary of the Major Provisions

1. ESRD PPS

•
Update to the ESRD PPS base rate for CY 2024:
The final CY 2024 ESRD PPS base rate is $271.02, an increase from the CY 2023 ESRD PPS base rate of $265.57. This amount reflects the application of the combined wage index and transitional pediatric ESRD add-on payment adjustment (TPEAPA) budget-neutrality adjustment factor (0.999534) and a productivity-adjusted market basket percentage increase of 2.1 percent as required by section 1881(b)(14)(F)(i)(I) of the Act, equaling $271.02 (($265.57 × 0.999534) × 1.021 = $271.02).

•
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 2024, we are updating the wage index values based on the latest available data.

•
Annual update to the outlier policy:
We are updating the outlier policy based on the most current data. Accordingly, we are updating the Medicare allowable payment (MAP) amounts for adult and pediatric patients for CY 2024 using the latest available CY 2022 claims data. We are updating the ESRD outlier services fixed dollar loss (FDL) amount for pediatric patients using the latest available CY 2022 claims data and updating the FDL amount for adult patients using the latest available claims data from CY 2020, CY 2021, and CY 2022. For pediatric beneficiaries, the final FDL amount will decrease from $23.29 to $11.32, and the MAP amount will decrease from $25.59 to $23.36, as compared to CY 2023 values. For adult beneficiaries, the final FDL amount will decrease from $73.19 to $71.76, and the MAP amount will decrease from $39.62 to $36.28. The 1.0 percent target for outlier payments was not achieved in CY 2022. Outlier payments represented approximately 0.8 percent of total

Medicare payments rather than 1.0 percent.

•
Update to the offset amount for the transitional add-on payment adjustment for new and innovative equipment and supplies (TPNIES) for CY 2024:
The final CY 2024 average per treatment offset amount for the TPNIES for capital-related assets that are home dialysis machines is $10.00. This offset amount reflects the application of the ESRD Bundled (ESRDB) productivity-adjusted market basket update of 2.1 percent ($9.79 × 1.021 = $10.00). There are no capital-related assets set to receive the TPNIES in CY 2024 for which this offset will apply.

•
Clarifications to the TPNIES eligibility criteria:
We are finalizing certain clarifications regarding our evaluation of the TPNIES eligibility criteria under § 413.236(b).

•
TPNIES application received for CY 2024:
In this final rule, we announce our determination on the one TPNIES application under consideration for the TPNIES for CY 2024 payment.

•
Modifications to the administrative process for the low-volume payment adjustment (LVPA):
We are finalizing exceptions to the current LVPA attestation process for ESRD facilities that are affected by disasters and other emergencies. These exceptions will allow ESRD facilities to close and reopen in response to a disaster or other emergency and still receive the LVPA. Additionally, the exceptions will allow an ESRD facility to receive the LVPA even if it exceeds the LVPA treatment volume threshold if its treatment counts increase due to treating additional patients displaced by a disaster or emergency.

•
Policy to measure patient-level utilization:
We are finalizing a requirement for ESRD facilities to report the time on machine (that is, the amount of time that a beneficiary spends receiving an in-center hemodialysis treatment) on claims, effective January 1, 2025. This will serve to provide more data to better inform CMS's pursuit of equitable payment policies in the future.

•
Transitional Pediatric ESRD Add-on Payment Adjustment (TPEAPA):
We are finalizing the establishment of a new budget neutral add-on payment adjustment of 30 percent of the per treatment payment amount for renal dialysis services furnished to Pediatric ESRD Patients effective January 1, 2024, for CYs 2024, 2025, and 2026. This will serve to bring Medicare payments for renal dialysis services furnished to pediatric patients more in line with their estimated relative costs for the next 3 years until further collection and analysis of cost report data can be conducted.

•
Add-on payment adjustment following the end of the transitional drug add-on payment adjustment (TDAPA) period:
We are finalizing a new add-on payment adjustment for certain new renal dialysis drugs and biological products in existing ESRD PPS functional categories after the end of the TDAPA period, which we call the post-TDAPA add-on payment adjustment. This payment adjustment will be case-mix adjusted and set at 65 percent of expenditure levels for the given renal dialysis drug or biological product. The post-TDAPA add-on payment adjustment will be applied to all ESRD PPS payments and paid for 3 years.

•
Reporting of discarded billing units of certain renal dialysis drugs and biological products paid for under the ESRD PPS:
We are finalizing a new policy to require the use of the JW or JZ modifier on claims to track discarded amounts of single-dose container and single-use package renal dialysis drugs and biological products paid for under the ESRD PPS, effective January 1, 2025.

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

We are updating the AKI payment rate for CY 2024. The final CY 2024 payment rate is $271.02, which is the same as the base rate finalized for the ESRD PPS for CY 2024.

3. ESRD QIP

We are finalizing several updates for the ESRD QIP. Beginning with PY 2026, we are adding the Facility Commitment to Health Equity reporting measure to the ESRD QIP measure set, modifying the COVID-19 Vaccination Coverage Among Healthcare Personnel (HCP) reporting measure to align with updated measure specifications developed by the Centers for Disease Control and Prevention (CDC), removing the Ultrafiltration Rate reporting measure and the Standardized Fistula Rate clinical measure, and updating the Clinical Depression Screening and Follow-Up measure's scoring methodology and converting that measure to a clinical measure. Beginning with PY 2027, we are adding the Screening for Social Drivers of Health reporting measure and the Screen Positive Rate for Social Drivers of Health reporting measure to the ESRD QIP measure set. In addition, we are revising the codified definition of “minimum total performance score” and codifying our previously finalized measure selection, retention, and removal policies.

4. ETC Model

We are finalizing a modification to our regulations at § 512.390 to acknowledge the ability of the CMS Administrator to review the results of ETC Participants' targeted review requests.

C. Summary of Costs and Benefits

In section VII.D.5 of this final rule, we set forth a detailed analysis of the impacts that the finalized changes will have on affected entities and beneficiaries. The impacts include the following:

1. Impacts of the Final ESRD PPS

The impact table in section VII.D.5.a of this final rule displays the estimated change in Medicare payments to ESRD facilities in CY 2024 compared to estimated Medicare payments in CY 2023. The overall impact of the CY 2024 changes is projected to be a 2.1 percent increase in Medicare payments. Hospital-based ESRD facilities have an estimated 3.1 percent increase in Medicare payments compared with freestanding ESRD facilities with an estimated 2.0 percent increase. We estimate that the aggregate ESRD PPS expenditures will increase by approximately $190 million in CY 2024 compared to CY 2023. This reflects an increase of approximately $180 million from the payment rate update and the final post-TDAPA add-on payment adjustment and approximately $10 million in estimated TDAPA payment amounts for Korsuva
®
and Jesduvroq (daprodustat), as further described in the following paragraphs. Because of the projected 2.1 percent overall payment increase, we estimate there will be an increase in beneficiary coinsurance payments of 2.1 percent in CY 2024, which translates to approximately $40 million.

Section 1881(b)(14)(D)(iv) of the Act provides that the ESRD PPS may include such other payment adjustments as the Secretary determines appropriate. Under this authority, CMS implemented § 413.234 to establish the TDAPA, a transitional drug add-on payment adjustment for certain new renal dialysis drugs and biological products and § 413.236 to establish the TPNIES, a transitional add-on payment adjustment for certain new and innovative equipment and supplies. The TDAPA and the TPNIES are not budget neutral.

As discussed in section II.D of this final rule, the TPNIES payment period for the Tablo® System ends on December 31, 2023. As discussed in section II.E of this final rule, the TDAPA

payment period for Korsuva® (difelikefalin) will continue through March 31, 2024, and for Jesduvroq, will continue throughout 2024. As described in section VII.D.5 of this final rule, we estimate that the overall TDAPA payment amounts in CY 2024 will be approximately $13.3 million, of which, approximately $2.7 million will be attributed to beneficiary coinsurance amounts. We note that these expenditures are estimated in addition to the overall $180 million increase described in the preceding paragraphs and are not fully represented in the detailed impact analysis shown in Table 24.

Lastly as discussed in section II.B.1.i of this final rule, we are finalizing a non-budget-neutral payment adjustment for certain new renal dialysis drugs and biological products after the TDAPA period ends, starting in CY 2024. The structure of the post-TDAPA add-on payment adjustment for a new renal dialysis drug or biological product will be based on the case-mix adjusted average per-treatment expenditure for such drug or biological product. We will apply a 65 percent risk-sharing adjustment to the calculated payment amount for the post-TDAPA add-on payment adjustment. We are finalizing a 3-year period following TDAPA during which the drug or biological product would be included in the post-TDAPA add-on payment adjustment. During this period, the renal dialysis drug or biological product would be considered for outlier payments, if it meets the definition of an ESRD outlier service. The first drug that will meet these criteria in CY 2024 will be Korsuva®, which fits into the existing ESRD PPS functional category for antipruritic drugs and biological products. The post-TDAPA add-on payment adjustment calculated for Korsuva® will be $0.2493.

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

The impact table in section VII.D.5.c of this final rule displays the estimated change in Medicare payments to ESRD facilities for renal dialysis services furnished to individuals with AKI compared to estimated Medicare payments for such services in CY 2023. The overall impact of the CY 2024 changes is projected to be a 2.0 percent increase in Medicare payments for individuals with AKI. Hospital-based ESRD facilities have an estimated 2.1 percent increase in Medicare payments compared with freestanding ESRD facilities that have an estimated 2.0 percent increase. The overall impact reflects the effects of the final Medicare payment rate update and final CY 2024 ESRD PPS wage index. We estimate that the aggregate Medicare payments made to ESRD facilities for renal dialysis services furnished to individuals with AKI, at the final CY 2024 ESRD PPS base rate, will increase by $1 million in CY 2024 compared to CY 2023.

3. Impacts of the Final Changes to the ESRD QIP

We estimate that the overall economic impact of the PY 2026 ESRD QIP will be approximately $136.9 million. The $136.9 million estimate for PY 2026 includes $120.9 million in costs associated with the collection of information requirements and approximately $16 million in payment reductions across all facilities. We also estimate that the overall economic impact of the PY 2027 ESRD QIP will be approximately $144.3 million. The $144.3 million estimate for PY 2027 includes $130.5 million in costs associated with the collection of information requirements and approximately $13.8 million in payment reductions across all facilities.

4. Impacts of the Final Changes to the ETC Model

The impact estimate in section VII.D.5.d of this final rule describes the estimated change in anticipated Medicare program savings arising from the ETC Model over the duration of the ETC Model as a result of the changes in this final rule. We estimate that the ETC Model will result in $28 million in net savings over the 6.5-year duration of the ETC Model. We also estimate that the changes in this final rule will produce no change in net savings for the ETC Model. As the ETC Model targeted review process has already been finalized in the Specialty Care Models final rule and ETC Participants are not required to seek administrative review of targeted review determinations, we expect there will be minimal additional burden associated with the administrative review policy we are finalizing.

II. Calendar Year (CY) 2024 End Stage Renal Disease (ESRD) Prospective Payment System (PPS)

A. Background

1. Statutory Background

On January 1, 2011, CMS implemented the ESRD PPS, a case-mix adjusted bundled PPS for renal dialysis services furnished by ESRD facilities, as required by section 1881(b)(14) of the Act, as added by section 153(b) of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275). Section 1881(b)(14)(F) of the Act, as added by section 153(b) of MIPPA and amended by section 3401(h) of the Patient Protection and Affordable Care Act (Affordable Care Act) (Pub. L. 111-148), established that beginning with CY 2012, and each subsequent year, the Secretary shall annually increase payment amounts by an ESRD market basket percentage increase reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act.

Section 632 of the American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240) included several provisions that apply to the ESRD PPS. Section 632(a) of ATRA added section 1881(b)(14)(I) to the Act, which required the Secretary, by comparing per patient utilization data from 2007 with such data from 2012, to reduce the single payment for renal dialysis services furnished on or after January 1, 2014, to reflect the Secretary's estimate of the change in the utilization of ESRD-related drugs and biologicals (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. Section 632(c) of ATRA required the Secretary, by no later than January 1, 2016, to analyze the case-mix payment adjustments under section 1881(b)(14)(D)(i) of the Act and make appropriate revisions to those adjustments.

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

Section 217(a)(1) of PAMA amended section 632(b)(1) of ATRA to provide that the Secretary may not pay for oral-only ESRD-related drugs under the ESRD PPS prior to January 1, 2024. Section 217(a)(2) of PAMA further amended section 632(b)(1) of ATRA by

requiring that in establishing payment for oral-only drugs under the ESRD PPS, the Secretary must use data from the most recent year available. Section 217(c) of PAMA provided that as part of the CY 2016 ESRD PPS rulemaking, the Secretary shall establish a process for (1) determining when a product is no longer an oral-only drug; and (2) including new injectable and intravenous products into the ESRD PPS bundled payment.

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

2. System for Payment of Renal Dialysis Services

Under the ESRD PPS, a single per-treatment payment is made to an ESRD facility for all the renal dialysis services defined in section 1881(b)(14)(B) of the Act and furnished to individuals for the treatment of ESRD in the ESRD facility or in a patient's home. We have codified our definition of renal dialysis services at § 413.171, which is in 42 CFR part 413, subpart H, along with other ESRD PPS payment policies. The ESRD PPS base rate is adjusted for characteristics of both adult and pediatric patients and accounts for patient case-mix variability. The adult case-mix adjusters include five categories of age, body surface area, low body mass index, onset of dialysis, and four comorbidity categories (that is, pericarditis, gastrointestinal tract bleeding, hereditary hemolytic or sickle cell anemia, myelodysplastic syndrome). A different set of case-mix adjusters are applied for the pediatric population. Pediatric patient-level adjusters include two age categories (under age 13, or age 13 to 17) and two dialysis modalities (that is, peritoneal or hemodialysis) (§ 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 payment 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).

There are four additional payment adjustments under the ESRD PPS. The ESRD PPS provides adjustments, when applicable, for: (1) a training add-on for home and self-dialysis modalities (§ 413.235(c)); (2) an additional payment for high cost outliers due to unusual variations in the type or amount of medically necessary care (§ 413.237); (3) a TDAPA for certain new renal dialysis drugs and biological products (§ 413.234(c)); and (4) a TPNIES for certain new and innovative renal dialysis equipment and supplies (§ 413.236(d)).

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.

Most recently, we published a final rule, which appeared in the November 7, 2022, issue of the
Federal Register
, titled “Medicare Program; End-Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury, and End-Stage Renal Disease Quality Incentive Program, and End-Stage Renal Disease Treatment Choices Model,” referred to herein as the “CY 2023 ESRD PPS final rule.” In that rule, we updated the ESRD PPS base rate, wage index, and outlier policy for CY 2023. We also finalized changes that included rebasing and revising the ESRD Bundled (ESRDB) market basket to reflect a 2020 base year, refining the methodology for outlier calculations, implementing a wage index floor of 0.600, implementing a permanent 5 percent cap on year-over-year wage index decreases for ESRD facilities, and modifying the definition of “oral-only drug.” For further detailed information regarding these updates, see 87 FR 67136.

B. Provisions of the Proposed Rule, Public Comments, and Response to the Comments on the CY 2024 ESRD PPS

The proposed rule, titled “Medicare Program; End-Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury, End-Stage Renal Disease Quality Incentive Program, and End-Stage Renal Disease Treatment Choices Model” (88 FR 42430 through 42544), referred to herein as the “CY 2024 ESRD PPS proposed rule,” appeared in the
Federal Register
on June 30, 2023, with a comment period that ended on August 25, 2023. In that rule, we proposed to make a number of annual updates for CY 2024, including updates to the ESRD PPS base rate, wage index, outlier policy, and the offset amount for the TPNIES. We also proposed two new exceptions to the LVPA eligibility requirements for ESRD facilities impacted by a disaster or other emergency, a new add-on payment adjustment for pediatric ESRD patients, a new add-on payment adjustment for certain new drugs and biological products after the TDAPA period ends, a new reporting requirement for discarded billing units of certain renal dialysis drugs or biological products, and a new reporting requirement for time on machine data for in-center hemodialysis treatments. We proposed clarifications regarding our evaluation of the TPNIES eligibility criteria under § 413.236(b) and included a summary of the one CY 2024 TPNIES application that we received by the February 1, 2023 deadline with our preliminary analysis of the applicant's claims related to substantial clinical improvement and other eligibility criteria for the TPNIES. In addition, the proposed rule included a request for information regarding potential changes to the LVPA and a potential new payment adjustment for geographic isolation.

We received 344 public comments on our ESRD PPS proposals, including comments from kidney and dialysis organizations, such as large and small dialysis organizations; for-profit and non-profit ESRD facilities; ESRD networks; and a dialysis coalition. We also received comments from patients; healthcare providers for adult and pediatric ESRD beneficiaries; home renal dialysis services and advocacy organizations; provider and legal advocacy organizations; administrators and insurance groups; a non-profit dialysis association, a professional association, and alliances for kidney care and home dialysis stakeholders; drug and device manufacturers; health care systems; a health care consultant; and the Medicare Payment Advisory Commission (MedPAC).

We received comments related to issues that we either did not discuss in the CY 2024 ESRD PPS proposed rule or that we discussed for the purpose of background or context, but for which we did not propose changes in the rule. These include, for example, concerns regarding staff training, education for kidney disease patients, access to innovation for Medicare Advantage

beneficiaries, transportation for ESRD patients, nutrition for ESRD patients, and telehealth. We also received several comments on Medicare coverage for certain Humanitarian Use Devices. We are not providing detailed responses to those comments in this final rule because they are out of the scope of the CY 2024 ESRD PPS proposed rule. We thank the commenters for their input and will consider the recommendations in potential future rulemaking.

We received numerous comments on the potential inclusion of oral-only drugs into the ESRD PPS bundled payment beginning January 1, 2025. As noted in the CY 2023 ESRD PPS final rule (87 FR 67180), we expect that the only oral-only drugs and biological products that would be included in the ESRD bundled payment in CY 2025 are phosphate binders. Commenters expressed concerns on potential access and health equity issues, which could result from including oral-only drugs and biological products in the ESRD PPS bundled payment. Some commenters also expressed additional concerns associated with the potential inclusion of oral-only drugs and biological products in the ESRD PPS bundled payment, such as concerns about the following: the administrative burden of managing a patient's dosage and combination of phosphate lowering drugs; administration of the prescription insofar as patients think they must go to the ESRD facility to obtain the phosphate binders; confusion for patients, in that some patients think the phosphate lowering drugs would only be dispensed at the ESRD facility, and since the drugs must be taken with food, they would not be able to take the drugs because eating during dialysis is not allowed, or they must go to the ESRD facility to get the phosphate binders even when they do not have a dialysis treatment; innovation of new oral-only drugs and biological products, such as phosphate lowering therapies, would be unavailable because of the cost of the new drugs or biological products; and the definition of oral-only drugs and biological products for phosphate lowering agents until an intravenous or injectable equivalent of the drug is available. We thank the commenters for their insight regarding the potential inclusion of oral-only drugs and biological products in the ESRD PPS bundled payment beginning in CY 2025; however, we did not make any proposals related to the potential inclusion of oral-only drugs and biological products in the ESRD PPS bundled payment in CY 2025 in the CY 2024 ESRD PPS proposed rule. We will take commenters' insight, concerns, and recommendations into consideration for future rulemaking on this topic.

Additionally, we received some comments from commenters including ESRD patients and caregivers which contained details of quality-of-care concerns or adverse quality events for which the commenters had first-hand experience. We address these comments as they concern the proposals in the CY 2024 ESRD PPS proposed rule, but we wish to note that any serious adverse quality events can be reported to the CMS ombudsman. Information on beneficiary rights and how to report quality events can be found at
https://www.cms.gov/center/special-topic/ombudsman/medicare-beneficiary-ombudsman-home
.

In this final rule, we provide a summary of each proposed provision, a summary of the public comments received and our responses to them, and the policies we are finalizing for the CY 2024 ESRD PPS.

1. CY 2024 ESRD PPS Update

a. CY 2024 ESRD Bundled (ESRDB) Market Basket Percentage Increase; Productivity Adjustment; and Labor-Related Share

(1) Background

In accordance with section 1881(b)(14)(F)(i) of the Act, as added by section 153(b) of MIPPA and amended by section 3401(h) of the Affordable Care Act, beginning in 2012, the ESRD PPS payment amounts are required to be annually increased by an ESRD market basket percentage increase and reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. The application of the productivity adjustment may result in the increase factor being less than 0.0 for a year and may result in payment rates for a year being less than the payment rates for the preceding year. Section 1881(b)(14)(F)(i) of the Act also provides that the market basket increase factor should reflect the changes over time in the prices of an appropriate mix of goods and services included in renal dialysis services.

As required under section 1881(b)(14)(F)(i) of the Act, CMS developed an all-inclusive ESRD Bundled (ESRDB) input price index using CY 2008 as the base year (75 FR 49151 through 49162). We subsequently revised and rebased the ESRDB input price index to a base year of CY 2012 in the CY 2015 ESRD PPS final rule (79 FR 66129 through 66136). In the CY 2019 ESRD PPS final rule (83 FR 56951 through 56964), we finalized a rebased ESRDB input price index to reflect a CY 2016 base year. In the CY 2023 ESRD PPS final rule (87 FR 67141 through 67154), we finalized a revised and rebased ESRDB input price index to reflect a CY 2020 base year.

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

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

(2) CY 2024 ESRD Market Basket Update

We proposed to use the 2020-based ESRDB market basket as finalized in the CY 2023 ESRD PPS final rule (87 FR 67141 through 67154) to compute the proposed CY 2024 ESRDB market basket percentage increase based on the best available data. Consistent with historical practice, we proposed to estimate the ESRDB market basket percentage increase based on IHS Global Inc.'s (IGI) forecast using the most recently available data at the time of rulemaking. IGI is a nationally recognized economic and financial forecasting firm with which CMS contracts to forecast the components of the market baskets. As discussed in the CY 2024 ESRD PPS proposed rule (88 FR 42435 through 42436), we proposed to calculate the market basket update for CY 2024 based on the proposed market basket percentage increase and the proposed productivity adjustment, following our longstanding methodology.

(a) CY 2024 Market Basket Percentage Increase

Based on IGI's first quarter 2023 forecast of the 2020-based ESRDB market basket, the proposed CY 2024 market basket percentage increase was 2.0 percent. We also proposed that if more recent data became available after the publication of the CY 2024 ESRD PPS proposed rule and before the publication of the final rule (for example, a more recent estimate of the market basket percentage increase), we would use such data, if appropriate, to determine the CY 2024 market basket percentage increase in this final rule.

(b) Productivity Adjustment

Under section 1881(b)(14)(F)(i) of the Act, as amended by section 3401(h) of the Affordable Care Act, for CY 2012 and each subsequent year, the ESRDB market basket percentage increase shall be reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. The statute defines the productivity adjustment to be equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business multifactor productivity (MFP) (as projected by the Secretary for the 10-year period ending with the applicable fiscal year (FY), year, cost reporting period, or other annual period) (the “productivity adjustment”).

The Bureau of Labor Statistics (BLS) publishes the official measures of productivity for the United States economy. As we noted in the CY 2023 ESRD PPS final rule (87 FR 67155), the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the Act previously was published by BLS as private nonfarm business MFP. Beginning with the November 18, 2021, release of productivity data, BLS replaced the term “multifactor productivity” with “total factor productivity” (TFP). BLS noted that this is a change in terminology only and will not affect the data or methodology.
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As a result of the BLS name change, the productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the Act is now published by BLS as private nonfarm business TFP; however, as mentioned previously, the data and methods are unchanged. We referred readers to
https://www.bls.gov/productivity/
for the BLS historical published TFP data. A complete description of IGI's TFP projection methodology is available on CMS's website at
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch
. In addition, in the CY 2022 ESRD PPS final rule (86 FR 61879), we noted that effective for CY 2022 and future years, we will be changing the name of this adjustment to refer to it as the productivity adjustment rather than the MFP adjustment. We stated this was not a change in policy, as we will continue to use the same methodology for deriving the adjustment and rely on the same underlying data.

5
Total Factor Productivity in Major Industries—2020. Available at:
https://www.bls.gov/news.release/prod5.nr0.htm
.

Based on IGI's first quarter 2023 forecast, the proposed productivity adjustment for CY 2024 (the 10-year moving average of TFP for the period ending CY 2024) was 0.3 percentage point. Furthermore, we proposed that if more recent data became available after the publication of the CY 2024 ESRD PPS proposed rule and before the publication of this final rule (for example, a more recent estimate of the productivity adjustment), we would use such data, if appropriate, to determine the CY 2024 productivity adjustment in this final rule.

(c) CY 2024 Market Basket Update

In accordance with section 1881(b)(14)(F)(i) of the Act, we proposed to base the CY 2024 market basket percentage increase on IGI's first quarter 2023 forecast of the 2020-based ESRDB market basket. We proposed to then reduce this percentage increase by the estimated productivity adjustment for CY 2024 based on IGI's first quarter 2023 forecast. Therefore, the proposed CY 2024 ESRDB market basket update was equal to 1.7 percent (2.0 percent market basket percentage increase reduced by a 0.3 percentage point productivity adjustment). Furthermore, as noted previously, we proposed that if more recent data became available after the publication of the CY 2024 ESRD PPS proposed rule and before the publication of the final rule (for example, a more recent estimate of the market basket and/or productivity adjustment), we would use such data, if appropriate, to determine the CY 2024 market basket percentage increase and productivity adjustment in the final rule.

We invited public comment on our proposals for the CY 2024 ESRDB market basket update and productivity adjustment. Approximately 150 commenters, including large dialysis organizations (LDOs); provider advocacy organizations; nonprofit dialysis associations; a coalition of dialysis organizations; a network of dialysis organizations; professional organizations and several ESRD facilities, commented on the proposed CY 2024 ESRDB market basket update. The following is a summary of the public comments received on these proposals and our responses.

Comment:
Commenters generally supported increasing the ESRD PPS base rate and the utilization of the most recent data available (for example, a more recent estimate of the market basket and/or productivity adjustment) to determine the final CY 2024 ESRD PPS update. MedPAC recommended that the ESRD PPS base rate increase for CY 2024 should be updated by the amount determined under current law, and commented that analysis reported in the March 2023 Report to the Congress: Medicare Payment Policy
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concluded that this increase is warranted based on its analysis of payment adequacy (which includes an assessment of beneficiary access, supply and capacity of facilities, facilities' access to capital, quality, and financial indicators for the sector). Many commenters expressed concern that the CY 2024 payment update does not adequately factor in the effects of many challenges faced by ESRD facilities, such as the impact of the COVID-19 public health emergency (PHE), inflationary pressure, higher patient acuity, Federal budget sequestration, increasing labor costs due to labor shortages, and other increased costs, such as personal protective equipment (PPE), drugs, and supplies. Several commenters also asserted that during the last two ESRD PPS rulemaking cycles the ESRDB market basket updates have not kept pace with the market basket increases for other Medicare providers, such as hospitals and Skilled Nursing Facilities (SNFs). Commenters additionally noted that the proposed CY 2024 ESRDB market basket increase was lower than certain other estimates of overall inflation and healthcare-specific inflation. One commenter stated that since the ESRD PPS' inception, the annual updates in several years have fallen far below other measures, such as general inflation or health care inflation as measured by the Consumer Price Index (CPI).

6

https://www.medpac.gov/wp-content/uploads/2023/03/Mar23_MedPAC_Report_To_Congress_v2_SEC.pdf.

Response:
We are required to update ESRD PPS payments annually by the market basket update adjusted for productivity, as directed by section 1881(b)(14)(F)(i) of the Act. Specifically, section 1881(b)(14)(F)(i)(I) of the Act states that the increase factor shall be based on an ESRD market basket percentage increase for a bundled payment system for renal dialysis services that reflects changes over time in the prices of an appropriate mix of goods and services included in renal dialysis services. We believe the increase in the 2020-based ESRDB market basket adequately reflects the average change in the price of goods and services ESRD facilities purchase to provide ESRD medical services and is technically appropriate to use as the ESRD payment update factor. The ESRDB market basket is a fixed-weight, Laspeyres-type index that measures price changes over time and would not reflect increases in costs associated with changes in the volume or intensity of

input goods and services. As such, the ESRDB market basket update would reflect the prospective price pressures described by the commenters (such as wage growth or higher energy prices) but would not inherently reflect other factors that might increase the level of costs, such as the quantity of labor used or any shifts between contract workers and staffed employees. We note that cost changes (that is, the product of price and quantities) would only be reflected when a market basket is rebased, and the base year weights are updated to a more recent time period. We finalized the 2020-based ESRDB market basket in the CY 2023 ESRD PPS final rule (87 FR 67141), and therefore, any change in the cost structure for ESRD facilities that occurred between 2016 and 2020 is now reflected in the cost weights for the 2020-based ESRDB market basket, which was the most recent fully complete cost data available at the time of rulemaking. We will continue to monitor the cost share weights and, if technically appropriate, consider rebasing the ESRDB market basket more frequently than usual should the cost weights change significantly. Any proposal to rebase the ESRDB market basket would occur through notice-and-comment rulemaking. The final CY 2024 ESRDB market basket update reflects the most recent available data regarding prices of labor used to provide renal dialysis services. As set forth later in section II.B.1.a.(2)(c) of this final rule, the final productivity-adjusted CY 2024 ESRDB market basket update is 2.1 percent, representing a ESRDB market basket increase of 2.4 percent reduced by a productivity adjustment of 0.3 percent. We note that the final CY 2024 ESRDB market basket update is 0.4 percentage points higher than the proposed CY 2024 ESRDB market basket update. We recognize that this 2.1 percent productivity-adjusted ESRDB market basket update may still be lower than some commenters believe is appropriate; however, it reflects the most recent available data regarding expected price inflation for inputs required to provide renal dialysis services based on CMS's longstanding methodology.

We acknowledge commenters' claims that the CY 2024 ESRD PPS proposed market basket increase is less than increases for other Medicare payment systems, including the Inpatient Prospective Payment System (IPPS) and the Hospital Outpatient Prospective Payment System (OPPS). In response to these concerns, we note that one cause of these differences is that the mix of inputs used to provide renal dialysis services is different from those used for other services captured by other CMS market baskets. For example, the ESRDB market basket labor cost weights (reflecting those cost weights that use an Employment Cost Index (ECI) as price proxy) are generally lower than the labor cost weights in other CMS PPS market baskets, and the pharmaceuticals and medical supply cost weights in the ESRDB market basket (which is based on the ESRD Medicare cost report (Form CMS-265-11)) are higher than the pharmaceuticals and medical supply cost weights in other CMS PPS market baskets.
7

The weighting together of these different mixes of inputs can appropriately result in differential rates of increase for various market baskets. Additionally, we acknowledge that many measures of inflation are higher than both the proposed 1.7 percent and the final 2.1 percent productivity-adjusted ESRDB market basket update for CY 2024. We note that some of the measures of inflation that commenters referenced in their comments are either measures of past inflation or measures of current inflation. The ESRDB market basket update is based on a forecast for the changes in input prices as measured by the ESRDB market basket for CY 2024, and not a measure of inflation during CY 2023. Under section 1881(b)(14)(F)(i) of the Act, the annual market basket update reflects the changes over time in the prices of an appropriate mix of goods and services included in renal dialysis services. We believe that this is a more accurate estimate of the changes in input prices faced by ESRD facilities than less specific measures such as overall inflation or inflation across the entire healthcare sector. Additionally, concerns raised by commenters that the ESRDB market basket updates have been lower than general inflation or healthcare inflation measures are not relevant comparisons, because the law requires that the increase be based on an index that measures input price pressures for providing renal dialysis services. We acknowledge that many patients, ESRD facilities, and other health care providers believe that rising prices are a major concern in providing high quality care; however, we project that growth in input prices for renal dialysis services will slow in CY 2024 relative to CY 2023, which is reflected in the productivity-adjusted ESRDB market basket update of 2.1 percent.

7
Public data can be found at
https://www.bls.gov/eci/home.htm
and
https://www.cms.gov/data-research/statistics-trends-and-reports/cost-reports
.

Comment:
Several commenters indicated a belief that the ESRDB market basket update would have an impact on quality of care provided by ESRD facilities. Other commenters indicated that they believe the current quality of care that ESRD PPS beneficiaries receive is too low, and used this belief as justification for either supporting or opposing the ESRDB market basket update.

Response:
We appreciate commenters' insight into the quality of care which Medicare beneficiaries receive at ESRD facilities. Medicare beneficiaries have a right to safe, appropriate, and quality health services. For ESRD facilities, the Federal health and safety requirements are codified at 42 CFR part 494. To determine if a facility meets ESRD conditions for coverage, the State survey agency (SA), or a CMS-approved national accrediting organization (AO), performs an on-site survey of the facility. After the initial approval, dialysis facilities have routine onsite surveys to monitor compliance with the Federal requirements. If a dialysis facility is found to be deficient in one or more of the standards in the conditions for coverage, it may participate in, or be covered under, the Medicare program only if the dialysis facility has submitted an acceptable plan of correction for achieving compliance within a reasonable period of time acceptable to CMS. In the case of an immediate jeopardy situation (that is, a situation in which the facility's non-compliance with one or more Medicare conditions for coverage has caused, or is likely to cause, serious injury, harm, impairment, or death to a patient), we may require a shorter time period for achieving compliance.

When poor quality or unsafe health care is furnished by any type of Medicare-certified provider or supplier, a complaint may be filed by anyone, including patients, family members, or staff. Dialysis facility complaints relating to improper care, unsafe conditions, and quality of care may be filed with the State Health Department or the ESRD Network.
8

8

https://www.cms.gov/training-education/open-door-forums/end-stage-renal-disease-clinical-laboratories-esrd/network.

CMS has an established complaint process to protect all patients from abuse, neglect, exploitation, and inadequate care and supervision. The goal of the complaints process is to establish a system that will assist in promoting and protecting the health and safety of all patients receiving health services in a Medicare-certified facility. The procedures for handling complaints

are outlined in Chapter 5 of the State Operations Manual,
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and they are followed when complaints and reported incidents, including referrals from the public or other Federal entities, involve Medicare-certified providers/suppliers. The evaluation, investigation, and resolution of complaints are critical certification activities. CMS and the SAs, or AOs, are responsible for ensuring that participating providers/suppliers of healthcare services continually meet Federal requirements. This requires that the SA, or AO, promptly reviews complaints/incidents, conducts unannounced onsite investigations of reports alleged noncompliance, and informs the CMS locations any time a facility is found to be out of compliance with the applicable certification requirements. We believe the resources provided by the ESRD PPS are appropriate to enable ESRD facilities to comply with the requirements and procedures described above.

9

https://www.cms.gov/medicare/provider-enrollment-and-certification/surveycertificationgeninfo/downloads/som107c05pdf.pdf.

Comment:
One ESRD patient stated that ESRD facilities were already being paid too much and that the quality of care provided by ESRD facilities was insufficient given the payment amount.

Response:
We appreciate the comments on Medicare payment amounts to ESRD facilities. As stated previously, we are required to update ESRD PPS bundled payments by the market basket update adjusted for productivity under section 1881(b)(14)(F)(i) of the Act, which states that the Secretary shall annually increase payment amounts by an ESRD market basket percentage increase that reflects changes over time in the prices of an appropriate mix of goods and services included in renal dialysis services. As such, we believe that the final CY 2024 ESRDB market basket update is appropriate. We note that MedPAC states that payment rates are adequate for the ESRD facilities. In addition, regarding the commenter's belief that ESRD facilities are being paid too much, and the concerns the commenter noted citing specific quality of care issues for ESRD patients, we note that, as described earlier in this section, CMS is actively engaged in efforts to ensure Medicare ESRD beneficiaries receive quality care. Additionally, the ESRD QIP actively monitors and adjusts payments to facilities under the ESRD PPS based on their performance on several quality measures.

Comment:
Several commenters, including a coalition of dialysis organizations, stated that ESRD facilities face relatively small profit margins when caring for Medicare beneficiaries and indicated that they believe the ESRDB market basket increase amount would lead to lower standards of care in CY 2024 and that to prevent this, CMS should consider increasing payments by a larger amount. One ESRD patient characterized the proposed CY 2024 ESRDB market basket update as being insufficient for the extent of the financial impact of recent inflationary events. Numerous commenters stated that a larger payment rate increase would allow ESRD facilities to hire more staff and increase the quality of care. Some commenters suggested that CMS reevaluate the proposed market basket update and instead increase ESRD PPS payments by a larger amount.

Response:
We understand that commenters are concerned about the profit margins for ESRD facilities. As stated previously, we believe that the final CY 2024 ESRDB market basket update reflects the most recent available data regarding the input prices required to provide renal dialysis services. We did not propose any additional increases to the ESRD PPS base rate to improve ESRD facility margins or otherwise account for factors that commenters believe are not adequately represented in the market basket update methodology, and we are not finalizing any such increases. We will continue to monitor the adequacy of the ESRD PPS payment amount and will consider these comments in potential future rulemaking. In addition, as described earlier in this section, CMS is actively engaged in efforts to ensure Medicare ESRD beneficiaries receive quality care.

Comment:
Several commenters, including a provider advocacy organization, noted that the ESRD PPS payment rate update would have implications for Medicare Advantage payment rates. Many of these commenters expressed that the proposed ESRDB market basket update of 1.7 percent would lead to lower payments from Medicare Advantage.

Response:
We understand that some commenters are concerned about the impact that the proposed CY 2024 ESRDB market basket update would have on rates for other payors, including Medicare Advantage. However, we are required to update the ESRD PPS bundled payment by the market basket update adjusted for productivity under section 1881(b)(14)(F)(i) of the Act, which states that the Secretary shall annually increase payment amounts by an ESRD market basket percentage increase that reflects changes over time in the prices of an appropriate mix of goods and services included in renal dialysis services. This update is not intended to account for or direct the business practices of other payors. We note that the final productivity-adjusted CY 2024 ESRDB market basket update is 2.1 percent, which represents an increase to the proposed productivity-adjusted CY 2024 ESRDB market basket update of 1.7 percent, and we anticipate that the increase alleviates some of the commenters' concerns. We did not propose to make any additional methodological changes to the market basket update or ESRD PPS base rate to account for other payors and are not finalizing any additional methodological changes on this topic.

Comment:
We received numerous other comments on potential implications of the proposed CY 2024 ESRDB market basket update. Several commenters claimed the proposed CY 2024 ESRD PPS base rate update would have a negative impact on other factors including, but not limited to, wait times for dialysis appointments, access to innovative treatments for ESRD patients, ESRD treatments for nursing home patients, ESRD treatments for the elderly, Medicare Part A payments, and hospitalizations for ESRD PPS patients.

Response:
We recognize that commenters are concerned about the impact that the magnitude of the CY 2024 ESRDB market basket update has on ESRD facilities' ability to provide quality renal dialysis services. As stated previously, the final CY 2024 ESRDB market basket update reflects the most recent available data regarding prices for inputs used to provide renal dialysis services. We recognize that payment policy within the ESRD PPS can affect the quality and accessibility of renal dialysis services; however, the CY 2024 ESRDB market basket update adequately reflects the average change in the price of goods and services ESRD facilities purchase to provide renal dialysis services, so we do not agree with commenters' claims that the ESRDB market basket update would have a negative impact on these other factors. We did not propose any changes to the existing ESRDB market basket update methodology in the CY 2024 ESRD PPS proposed rule and are not finalizing any such methodological changes in this rule. We appreciate the insight of commenters into the implications of the ESRDB market basket update and will keep these implications in mind in future rulemaking.

Comment:
Several commenters questioned CMS's longstanding market basket methodology. Commenters expressed concern over the accuracy of the forecast underlying the proposed

market basket update for CY 2024, including that CMS's use of the IGI forecast for determining the market basket update does not capture the specialized nature of ESRD facility costs. A few commenters requested that CMS reexamine the forecasting approach or consider other methods and data sources to calculate the final rule market basket update that better reflect the rapidly increasing input prices and costs facing ESRD facilities. Other commenters indicated that they believed that it is inappropriate to continue to use the same mix of goods and services that were used at the inception of the ESRD PPS in the CY 2011 ESRD PPS final rule. One ESRD facility suggested that, because there has been significant variation between the forecasted and actual ESRDB market basket price growth, CMS should evaluate whether the market basket methodology is inherently flawed. Several commenters believed that a retrospective adjustment to the base rate to account for past differences between the ESRDB market basket update for a given year and what the ESRDB market basket update would have been for that year based on the actual changes in prices, known as a forecast error adjustment, could alleviate some of the perceived flaws in the market basket update methodology.

Response:
We thank commenters for providing these comments on the ESRDB market basket update methodology. In response to the commenters' request that we reexamine the current forecasting approach for determining the ESRDB market basket update, we provide the following information. IGI is a nationally recognized economic and financial forecasting firm with which CMS contracts to forecast the price proxies used in the market baskets. At the time of the CY 2024 ESRD PPS proposed rule, based on the IGI first quarter 2023 forecast with historical data through the fourth quarter of 2022, the 2020-based ESRDB market basket update was forecasted to be 2.0 percent for CY 2024, reflecting forecasted compensation price growth of 3.7 percent (by comparison, compensation price growth in the ESRDB market basket averaged 2.6 percent from 2013 to 2022). In the CY 2024 ESRD PPS proposed rule, we proposed that if more recent data became available, we would use such data, if appropriate, to derive the final CY 2024 ESRDB market basket update for the final rule. For this final rule, we now have an updated forecast of the price proxies underlying the market basket that incorporates more recent historical data and reflects a revised outlook regarding the U.S. economy and expected price inflation for CY 2024. Based on IGI's third quarter 2023 forecast with historical data through the second quarter of 2023, we are projecting a CY 2024 ESRDB market basket update of 2.4 percent (reflecting forecasted compensation price growth of 4.1 percent) and a productivity adjustment of 0.3 percentage point. Therefore, for CY 2024 a final ESRDB productivity-adjusted market basket update of 2.1 percent (2.4 percent less 0.3 percentage point) will be applicable, compared to the 1.7 percent productivity-adjusted market basket update that was proposed. We note that section 1881(b)(14)(F)(i) of the Act states that the Secretary shall annually increase payment amounts by an ESRD market basket percentage increase that reflects changes over time in the prices of an appropriate mix of goods and services included in renal dialysis services. We believe that the current market basket update methodology as finalized in the CY 2011 ESRD PPS final rule (75 FR 49151 through 49162), and most recently updated in the CY 2023 ESRD PPS final rule (87 FR 67141 through 67157) to reflect a 2020 base year, fulfills this statutory requirement. We support the continued use of the current mix of goods and services to provide continuity to the financial impacts of the ESRD PPS payment policy, and we note that the weighting for this mix of goods and services is updated periodically through rebasing. However, we will consider the commenter's suggestion regarding the use of different methods or other data sources for the ESRDB market basket for future rulemaking. We discuss the commenters' request for a forecast error adjustment below. We did not propose any methodological changes to the ESRDB market basket update methodology for CY 2024, and we are finalizing the continued use of the ESRDB market basket methodology as finalized in the CY 2023 ESRD PPS final rule (87 FR 67141 through 67157). We do not believe that the ESRDB market basket update is inherently flawed because the forecast errors for CYs 2021 and 2022 were higher-than-normal due to the high inflation during the COVID-19 PHE, which we discuss further in section II.B.1.a.(2)(d) of this final rule. We will continue to monitor the performance of the ESRDB market basket update, and we will keep these comments on the market basket methodology in mind for future rulemaking. We note that CMS engages with the public, including the dialysis industry and associations, routinely throughout the year in our continuing efforts to align payment with resource utilization. We welcome continuing dialogue on the topic of improving the market basket update methodology, and other topics pertinent to the ESRD PPS, toward the common goal of improving care for ESRD patients.

Comment:
Some commenters provided information on additional rising costs faced by ESRD facilities that the commenters believed were not adequately captured in the proposed CY 2024 ESRDB market basket update. These additional costs included the following: costs associated with compliance with additional regulations regarding infection control; costs related to supply chain problems; rising costs for certain supplies; and cost related to changes in labor, such as additional pay for traveling nurses or contract nurses.

Response:
We appreciate the insight into changing costs that ESRD facilities face. As stated previously, the final CY 2024 ESRDB market basket update reflects the most recent available data regarding prices for inputs used to provide renal dialysis services. These costs which commenters listed are included in the ESRDB and so the change in their prices would be included in the CY 2024 ESRDB market basket update. If the rising costs the commenters' mentioned are due to an increase in quantity of the good purchased, rather than an increase in price, we note that such cost changes would only be reflected when a market basket is rebased, and the base year weights are updated to a more recent time period. We finalized the 2020-based ESRDB market basket in the CY 2023 ESRD PPS final rule (87 FR 67141); therefore, any change in the cost structure for ESRD facilities that occurred between 2016 and 2020 is now reflected in the cost weights for the 2020-based ESRDB market basket, which was the most recent fully complete cost data available at the time of rulemaking. We believe that it is technically appropriate to use the 2020-based ESRDB market basket for the CY 2024 ESRDB market basket update.

Comment:
One commenter asserted that experience over the past few years has indicated that the ESRD PPS methodology is unable to reflect short-term and long-term impacts of an economic shock, such as the COVID-19 PHE. The commenter noted that although CMS offers detailed explanations of the market basket's construction and issues data through its website, the dialysis provider community still has little insight into the factors contributing to annual

payment updates that the commenter believes consistently fail to reflect increases in the cost of care delivery. The commenter urged CMS to engage in a formal dialogue with the kidney care community outside of the annual rulemaking process to better identify the methodology's limitations and inform development of improvements. The commenter also requested that IGI have representation and participation in this dialogue.

Response:
We appreciate the commenter's concerns regarding the market basket methodology. Our longstanding ESRDB market basket update methodology sets rates prospectively on an annual basis. We acknowledge that over the course of a year, short term changes in economic conditions can lead to uncertainty, which may be exacerbated by economic shocks. Because the ESRD PPS base rate is updated annually, the purpose of the ESRDB market basket update is to account for the change in price of the ESRDB from year to year, not necessarily to capture the effect of shorter term fluctuations of prices. That short term fluctuations are not addressed by the ESRDB market basket update is a consequence of the annual nature of the update as required by section 1881(b)(14)(F) of the Act. We believe the ESRDB market basket update appropriately captures the change in the price of goods and services over time in the long term. Some commenters have suggested a forecast error adjustment as a way to mitigate the impact of these short-term uncertainties, which we discuss in further detail in section II.B.1.a.(2)(d) of this final rule. CMS will continue to engage with the public regarding ways to ensure the Medicare ESRD PPS payments are appropriate and that the market basket price proxies and base year weights are accurate.

Comment:
We received several comments, including from a patient organization, stating that the proposed ESRDB market basket update would not sufficiently support innovation.

Response:
We note that ESRD PPS policies to encourage the adaptation of new innovations, such as the TDAPA and TPNIES, are add-on payment adjustments to the base rate, and although there is only one ESRD PPS bundled payment, these adjustments are not a part of the ESRDB and therefore, are not included in the ESRD PPS base rate or the ESRDB market basket update. This is similarly true for the post-TDAPA add-on payment adjustment that we are finalizing in this rule, which is described in further detail in section II.B.1.i of this final rule. These add-on payment adjustments are actively supporting the adoption of certain new and innovative drugs, biological products, equipment and supplies by ESRD facilities, by providing additional payment to offset the additional cost of those drugs, biological products, equipment and supplies. We did not propose any changes to the ESRDB market basket update methodology to account for innovation within the ESRD PPS and are not finalizing any such changes in this final rule. We will consider these comments on supporting innovation and access to innovative products in potential future rulemaking.

Comment:
We received approximately 90 comments related to the nature of labor costs at ESRD facilities, including comments from large dialysis organizations, advocacy organizations, ESRD facilities, providers, and a coalition of dialysis organizations. Commenters generally stated that labor costs at ESRD facilities are increasing, which is driving overall cost increases at ESRD facilities, and that the proposed ESRDB market basket update was insufficient to cover these increased labor costs. Many of the commenters cited that the growth in their labor costs has outpaced the ESRDB market basket updates or the growth of the market basket compensation cost category in the ESRDB market basket. Additionally, some commenters noted that labor costs were rising across the healthcare sector, which the commenters asserted was not appropriately reflected in the ESRDB market basket update. Commenters described other barriers to hiring and maintaining staff including, but not limited to, burnout, lack of resources, inability to match competitive pay, and long travel times for staff. A coalition of dialysis organizations commented that it was increasingly difficult for ESRD facilities to hire new staff while competing with other health care providers with more resources and non-healthcare employers. They stated that this was leading to some ESRD facilities having to turn away patients or being unable to continue operations. One LDO noted that staffing concerns are leading to ESRD facilities using a higher percentage of more-expensive contract labor and that contract labor wages and benefits make up 1.9 percent and 0.5 percent of the 2020-based ESRDB, respectively. Some commenters highlighted the COVID-19 PHE as a significant factor in the workforce shortage that ESRD facilities face; however, some commenters indicated that they believe this workforce shortage has been in progress for a long time.

Some ESRD facilities and LDOs included various additional information or data on the extent to which their labor costs have increased over the past few years. Several commenters, including an LDO and a non-profit dialysis organization, referenced an analysis that showed labor costs grew at a compound average growth rate of 6.96 percent from 2018 to 2022, whereas the proxy for labor used in the ESRDB market basket update methodology grew at a compound average growth rate of 3.15 percent from 2018 to Q1 2022. One provider advocacy organization commented that its analysis found that direct patient care labor costs per dialysis treatment increased by 18.9 percent from 2017 to 2022.

Commenters also stated that the increasing labor costs were resulting in staffing concerns at ESRD facilities. Some of these comments highlighted access issues arising from fewer available dialysis sessions. Some comments referenced quality issues related to the burden placed on workers at ESRD facilities by low staffing and the limited training of staff at ESRD facilities due to high turnover. Many of these comments came from ESRD patients, caretakers and patient advocates and included the commenters' personal experience on the issues related to receiving care at ESRD facilities (for example, difficulty finding appointments, having to travel significant distances to get care, and how low staffing at ESRD facilities has impacted their care). Other commenters conveyed their concern about inadequate staffing and related many incidents of significant adverse events and sub-standard quality care, which they attributed to low staffing. A kidney disease patient organization included multiple testimonials from ESRD patients regarding their issues in trying to locate dialysis treatments.

Some commenters highlighted the impact that staffing shortages had on home dialysis. Several patients expressed a willingness and desire for self-dialysis training, but stated they were unable to receive self-dialysis dialysis training due to staff shortages at their clinics.

Response:
We thank commenters for their insight into labor supply and labor costs at ESRD facilities, and we recognize that labor costs are a driving factor in cost increases at ESRD facilities. We acknowledge that CY 2022 price growth for the 2016-based ESRDB market basket was higher (5.1 percent) than was forecasted at the time of the CY 2022 ESRD PPS final rule (2.4 percent). We note that the lower projected CY 2024 ESRDB market basket percent increase (2.4 percent) relative to the observed CY 2022 historical increase, as well as the forecasted CY

2023 ESRDB market basket increase of 3.1 percent, reflect the expectation that wage and price pressures will lessen in CY 2024 compared to recent years. As described previously, the ESRDB market basket measures price changes (including changes in the prices for wages and salaries and benefits) over time and would not reflect increases in costs associated with changes in the volume or intensity of input goods and services until the market basket is rebased. An ESRD-specific compensation price index is unavailable; therefore, we use a composite wage and benefit index of various Employment Cost Indices (ECIs) reflecting the occupational mix of full-time equivalents (FTE) data from ESRD Medicare Cost reports and ECIs from BLS (87 FR 67147). Health-related occupations account for 79 percent of the 2020-based ESRDB compensation cost weight and are proxied by the ECI for All Civilian Workers in Hospitals, reflecting similar medical occupations used in ESRD facilities (particularly nurses) and their associated price growth. As discussed in the CY 2023 ESRD PPS final rule, we believe the composite weighted index for wages and salaries and benefits to be a reasonable proxy for the compensation component of the ESRDB market basket. We note that section 1881(b)(14)(F)(i) of the Act states that the Secretary shall annually increase payment amounts by an ESRD market basket percentage increase that reflects changes over time in the prices of an appropriate mix of goods and services included in renal dialysis services. While labor is included in the mix of goods and services in the ESRD PPS bundled payment, the annual market basket increase accounts for more than the price change for labor. As such, it is possible for the market basket increase to be less than the increase in the price of labor if the other goods and services included in the ESRDB do not experience as large of a price increase. Our analysis of the data used to determine the ESRDB market basket forecast indicates that this dynamic is reflected in the market basket increases for the past few years. For example, in 2021 the overall market basket forecast was an increase of 1.9 percent, but the labor portion of the ESRDB market basket was forecasted to increase by 2.5 percent. We recognize commenters' view that the proposed ESRDB market basket increase for CY 2024 was less than ESRD facilities' reported labor increases. However, if, as commenters have stated, labor is the driving factor for the increase in costs for ESRD facilities, it would be expected that the labor percentage increase would be greater than the overall ESRDB market basket percentage increase. This is because the ESRDB market basket increase is a weighted average of the changes in prices for the ESRDB market basket. Labor is only one part of the ESRDB market basket, and commenters have indicated that other components of the ESRDB market basket have not experienced the same growth in price as labor. We believe the 2020-based ESRDB market basket increase adequately reflects the average change in the price of goods and services ESRD facilities purchase to provide renal dialysis services, including labor, and is technically appropriate to use as the ESRD PPS payment update factor. The ESRDB market basket update will reflect the expected prospective price pressures described by the commenters as increasing during a high inflation period (such as faster wage growth or higher energy prices) but inherently will not reflect other factors that might increase the level of costs, such as the quantity of labor used. Therefore, the final CY 2024 ESRDB market basket update reflects the most recent available data regarding both prices and the items and services used to provide renal dialysis services.

We thank commenters for including detailed information and data on the changes to labor costs that ESRD facilities face. We agree that during the COVID-19 PHE, labor costs increased more than normal. According to our analysis, the ESRDB market basket compensation price growth was forecasted to increase a cumulative 18.9 percent from CY 2017 to CY 2022. This is the same as the figure which one commenter described as being the change in direct labor costs over that time. We recognize that some comments indicated that ESRD facilities experienced larger or smaller changes in labor costs than this over that time. We note that the ESRDB market basket does not measure each individual ESRD facility's own experience, but instead the ESRDB market basket cost weights reflect the experience of the average ESRD facility. Therefore, if one area of the country experienced an increase in labor costs at a higher rate than other areas of the country, that would not be wholly captured in the annual update. Instead, the relative difference in labor cost growth should be captured in changes to the wage index for that ESRD facility. However, we recognize that our wage index methodology uses historical data instead of a forecast and as such takes longer to update in response to periods of large change.

We appreciate comments from ESRD patients which highlighted their experiences at ESRD facilities. We are concerned by the comments which indicate access and quality concerns at ESRD facilities related to staffing issues. We note that § 494.180(b) requires that an ESRD facility have an adequate number of qualified and trained staff; however, the governing body of the facility has a measure of discretion when determining staffing. The ESRD PPS provides a bundled payment that encompasses all renal dialysis services, including labor. We recognize that staffing shortages can pose a difficulty to ESRD patients who desire training for self-dialysis. We note that the ESRD PPS includes an add-on payment adjustment for self-dialysis training (42 CFR 413.235(c); 81 FR 77851 to 77856). We appreciate the comments regarding these staffing issues and will consider them for potential future rulemaking.

Comment:
One commenter encouraged CMS to explore other changes to the composition of the market basket to better capture evolving dynamics in the labor force. The commenter provided as an example that the ECI may no longer accurately capture the changing composition and cost structure of the hospital labor market given the large increases in short-term contract labor use and its growing costs.

Several commenters expressed concern that not all the ESRDB market basket price proxies, particularly the labor-related price proxies, accurately reflect ESRD facilities' faster than expected cost growth. One commenter noted that for healthcare providers across all sectors, the impact of the tight labor market (both in the healthcare sector and general economy overall) has forced ESRD facilities to rely more heavily on contracted labor. The commenter further pointed out that under the 2020-based ESRDB market basket, contract labor wages and benefits have 1.9 percent and 0.5 percent weights, respectively; however, the commenter expressed concern that these weights were derived by assuming that ESRD facilities use the same labor amount and mix as they did more than a decade ago, which does not reflect the current environment in which dialysis providers deliver care. They stated that use of the U.S. Census Bureau's Services Annual Survey (SAS) data may not reflect staffing ratio or minimum wage requirements adopted by State and municipal governments since 2012, the recent years' shift in labor mix, unanticipated increase in compensation

expenses, or the COVID-19 PHE's overall impact on the healthcare labor force.

A few commenters stated that certain market basket components rely, to some extent, on severely lagged data, which during times of unusual circumstances, could limit a forecast model's ability to capture economic shocks and the subsequent impact on health care providers' costs. The commenters stated, for example, the BLS's ECI price proxies generally hold the employment mix constant for several years. They stated that the ECI's weights reflected the 2012 occupational mix until recently (the December 2022 BLS release updated the data to reflect 2021 employment weights). The commenters noted that since ECI employment weights are held constant for a period this would introduce inaccuracies into the market basket updates. They stated that since the ECI 2012 weights were used for the price proxies in the ESRDB market basket through the CY 2022 rulemaking cycles it could have resulted in errors in the ESRDB market basket update.

Response:
We appreciate the commenters' concerns about the composition of the ESRDB market basket and whether the price proxies used in the market basket are accurately capturing the price pressures experienced by ESRD facilities.

The commenters are correct that the ECI data are based on fixed occupational weights; however, we believe these indexes continue to be technically appropriate measures of pure compensation inflation to be used in the ESRDB market basket. Because the market baskets are intended to measure price changes over time, and not changes in costs that also reflect quantity and intensity changes, the fixed occupational distribution of the ECI is appropriate. BLS periodically updates these distributions (in the January 2023 release of December 2022 ECI data they introduced updated 2021 fixed employment weights, replacing the 2012 weights used through September 2022). Additionally, the observed ECI for Wages and Salaries for All Civilian workers in Hospitals (which accounts for 29 percent of the 2020-based ESRDB market basket) data has reflected recent wage “price” pressures as growth in 2021 and 2022 accelerated relative to 2020. The projection of the ECI also considers anticipated wage pressures due to various economic and industry-specific factors; the hospital ECI is projected to grow faster in 2023 compared to the historical average growth in the series, particularly prior to 2021. We note that when developing its forecast for the ECI for All Civilian Workers in Hospitals, IGI considers overall labor market conditions (including rise in contract labor employment due to tight labor market conditions) as well as trends in contract labor wages, which both have an impact on wage pressures for workers employed directly by the hospital. We also acknowledge the commenters' concerns that the ECI only reflects employed labor costs; however, we note that the alternative publicly available average hourly earnings series also does not include contract labor costs. Additionally, we analyzed the FTE data reported on the Medicare cost reports and found that the share of contract labor FTEs is about 2 percent of all FTEs and has remained relatively constant in 2021 and 2022. We will continue to monitor the cost report data as it is received to ensure that the ECI series used to proxy ESRD labor categories continues to offer the most appropriate price proxies for measuring compensation price growth in ESRD facilities.

Lastly, we acknowledge commenters' concern that the contract labor cost weight in the ESRDB market basket relies on 2012 SAS data published by the United States Census Bureau inflated to 2020-dollar values as the basis for the contract labor cost weight. We proposed and finalized the methodology for deriving the compensation cost share weights in the CY 2023 ESRD PPS rulemaking cycle (87 FR 67141 through 67157). Because the Medicare cost report data does not capture the specific costs for contract labor, we therefore must rely on other data sources to estimate the share of contract labor costs that are reported within Administrative and General costs on the cost reports. We have not identified any other data source that provides specific contract labor costs for ESRD facilities.

Final Rule Action:
After consideration of the comments received, we are finalizing a CY 2024 ESRDB productivity-adjusted market basket increase of 2.1 percent based on the most recent data available. As noted previously, based on the more recent data available for this CY 2024 ESRD PPS final rule (that is, IGI's third quarter 2023 forecast of the 2020-based ESRDB market basket with historical data through the second quarter of 2023), the CY 2024 ESRDB market basket update is 2.4 percent. Based on the more recent data available from IGI's third quarter 2023 forecast, the current estimate of the productivity adjustment for CY 2024 is 0.3 percentage point. Therefore, the current estimate of the CY 2024 ESRD productivity-adjusted market basket increase factor is equal to 2.1 percent (that is, the 2.4 percent market basket update reduced by the 0.3 percentage point productivity adjustment).

(d) Requests for a Forecast Error Payment Adjustment

In the CY 2024 ESRD PPS proposed rule (88 FR 42435), we discussed that in the CY 2023 ESRD PPS final rule (87 FR 67157), many commenters requested that CMS apply a forecast error payment adjustment to the ESRD PPS base rate to support ESRD facilities during the inflationary period occurring at that time, particularly accounting for what commenters stated was an error in the forecasted payment updates for CYs 2021 and 2022. In response to those comments, we reminded readers that ESRDB market basket updates are set prospectively, meaning the update relies on a mix of both historical data for part of the period for which the update is calculated and forecasted data for the remainder. We explained that while there is no precedent to adjust for market basket forecast error in the annual ESRD PPS update, the forecast error for a market basket update is calculated as the actual market basket increase for a given year less the forecasted market basket increase.
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We also explained that due to the uncertainty regarding future price trends, forecast errors can be both positive and negative. For example, the CY 2017 ESRDB forecast error was −0.8 percentage point, while the CY 2021 ESRDB forecast error was +1.2 percentage points. At the time of the CY 2023 ESRD PPS final rule, CY 2022 historical data was not yet available to calculate a forecast error for CY 2022; however, based on the latest available historical data for CY 2022, we now calculate that the CY 2022 ESRDB forecast error was +2.7 percentage points.

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FAQ—Market Basket Definitions and General Information. Available at:
https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/medicareprogramratesstats/downloads/info.pdf.

We further noted that, in the CY 2023 ESRD PPS final rule (87 FR 67156), we recognized that recent higher inflationary trends impacted the outlook for price growth over the next several quarters. For that CY 2023 ESRD PPS final rule, we used an updated forecast of the price proxies underlying the market basket that incorporated more recent historical data and reflected a revised outlook regarding the U.S. economy and expected price inflation for CY 2023 for ESRD facilities. We explained that predictability in

Medicare payments is important to enable ESRD facilities to budget and plan their operations, and that forecast errors are unpredictable (87 FR 67517). Prior to the COVID-19 PHE period, the positive differences between the actual and forecasted market basket increase in prior years have offset negative differences over time. Therefore, we stated in the CY 2024 ESRD PPS proposed rule that, in accordance with our longstanding ESRDB market basket update methodology, we would not propose to apply a forecast error adjustment to the ESRDB market basket update for CY 2024.

Comment:
We received approximately 30 comments related to CMS's decision not to propose a forecast error adjustment for CY 2024. These commenters, including a coalition of dialysis providers, several LDOs, and numerous provider and patient advocacy organizations, requested that CMS reevaluate and implement a payment adjustment to account for past forecast errors. Many commenters requested that CMS apply a forecast error adjustment to the ESRD PPS payment update for CY 2024. Some specific suggestions for payment adjustments included: a CY 2024 adjustment of 10 to 20 percent per discharge; an adjustment for the “underpayment” of ESRD facilities since 2020; and/or the adoption a forecast error adjustment like the one used in the SNF PPS. Several commenters stated that absent a forecast error adjustment they may be forced to close some of their ESRD facilities, particularly those facilities located in areas with vulnerable populations.

The commenters stated that the forecast error was driven mainly by unforeseen increased costs for labor (including a higher reliance on contract labor staff), equipment, and medical supplies (including PPE and pharmaceuticals), which resulted in increased costs to provide care to ESRD beneficiaries that were never properly reimbursed under the Medicare ESRD PPS payments. Commenters stated that while the growth in these costs has begun to stabilize somewhat in 2023, they continue to be substantially higher than pre-pandemic levels. Commenters also pointed out that while high wage inflation and labor shortages affect all health care providers, dialysis providers are particularly vulnerable because there is not variation in types of services performed or billed and due to the less variable payer mix that relies more on Medicare and Medicaid payment than other health care provider types.

One commenter noted that while other health care providers have experienced similar forecast errors in CY 2022 and CY 2023, the current cumulative underpayment error for the ESRD PPS exceeds the errors in other payment systems such as IPPS, home health, and long-term care hospitals.

Some commenters acknowledged that since the market basket updates are set prospectively, they are inherently imperfect, and forecast errors from year to year may occur in either a positive or negative direction. However, several commenters noted that in the case of the ESRDB market basket these differences have not offset one another over time. The commenters stated a belief that the magnitude of the errors in 2021 and 2022, which they state resulted from a flawed methodology that failed to accurately forecast higher than normal inflation, are highly unlikely to even out over time unless there is a similar, fast moving deflationary event resulting in the same magnitude in the forecast.

Many commenters requested CMS establish a payment adjustment modeled after the forecast error adjustment for payments to SNFs that was established in 2004 (68 FR 46057). These commenters responded to CMS's view that historical negative forecast errors are offset by positive errors by noting that over the past few years the forecast errors have been predominantly positive, at 1.2 percent and 2.7 percent in CYs 2021 and 2022 respectively. As such, the ESRD PPS base rate is lower than it would have been if the forecasts had been accurate. Many of these commenters supported a forecast error adjustment methodology that would, like the SNF adjustment of 2004, only be applied if the error is larger than a certain threshold. Multiple commenters supported a threshold of 0.5 percentage point for this adjustment. Many commenters compared the state of SNF payment in 2004 and of the ESRD PPS today, emphasizing the similarities in the amount by which the recent market basket updates had been incorrect, the source of the error mainly attributable to unexpectedly large increases in the costs of labor, and certain similar statutory language describing the SNF PPS and the ESRD PPS. A coalition of dialysis organizations suggested that for the CY 2024 ESRD PPS final rule CMS should adjust the ESRD PPS base rate by the cumulative forecast error since 2019 but added that they would also approve of adjusting the ESRD PPS base rate by the cumulative forecast error since the inception of the ESRD PPS in 2011. Some commenters, including an LDO, suggested in lieu of a permanent forecast error adjustment policy for ESRDs, CMS could apply a one-time positive adjustment to the ESRD PPS base rate to account for the forecast error in recent years, with commenters suggesting it be applied to the ESRD PPS base rate in a non-budget neutral manner. Some commenters, including an LDO, recognized that CMS's view that the market basket errors could balance out over time could be true for small variations; however, the commenters stated that it would not hold true for periods of significant missed forecasts due to periods of rapid change, for example during the COVID-19 PHE. Generally, commenters stated that they agreed with CMS on the importance of predictability for payments but stated that payment accuracy was more important, so a forecast error payment adjustment would be useful as it would improve payment accuracy.

Some comments included additional information on what commenters stated could happen with or without a forecast error adjustment. One LDO commented that their analysis indicated that the under-forecast would lead to a total of $1.8 billion in underpayments between CY 2021 to 2027. One patient-led dialysis organization recommended an “Essential Worker Safety Catch” to revise past updates to ensure labor is adequately compensated. A provider advocacy organization questioned CMS's use of 2020-cost reports in determining payment for CY 2024, saying it was outdated and inaccurate. One ESRD facility commented that given the size of recent errors, they believed it was likely that errors would continue to increase and potentially become larger in the future.

Response:
While the projected ESRDB market basket updates for CY 2021 and CY 2022 were under-forecast (that is, actual increases were greater than forecasted), as is the preliminary CY 2023 forecast error, this was largely due to unanticipated inflationary and labor market pressures as the economy emerged from the COVID-19 PHE. An analysis of the forecast error of the ESRDB market basket over a longer period shows the forecast error has been both positive and negative. We recognize that the COVID-19 PHE and high inflationary environment have had an adverse impact on costs for ESRD facilities. Due to ESRD payments being set prospectively, we rely on a projection of the ESRDB market basket that reflects both historical and forecasted trends. Due to the uncertainty regarding future price trends, the difference between the projected and actual market basket increases can be both positive and negative. We note that from CY 2012 to CY 2020, the only year in which the forecast error of the ESRDB

market basket update exceeded the 0.5 percentage point threshold in absolute terms (which is applicable for the SNF PPS forecast error adjustment) was CY 2017. The forecasted CY 2017 ESRDB market basket update was 0.8 percentage point higher than the actual CY 2017 percentage increase of the 2012-based ESRDB market basket based on historical data. We also acknowledge that the ESRDB market basket forecast errors for CY 2021 (1.2 percentage points) and CY 2022 (2.7 percentage points) exceeded the 0.5 percentage point threshold where the forecasted ESRDB market basket updates were lower than the actual percentage increases based on historical data. These recent forecast errors were largely a function of uncertainty in the overall economy and the health sector specifically due to the nature of the COVID-19 PHE and the unforeseen rapidly accelerating inflationary environment. Rapid increase in costs during the COVID-19 PHE has led to a positive forecast error for every Medicare PPS.

The data on which the final CY 2024 ESRDB market basket update is based is the most recent available data. We note that the 2020 cost report data was used for rebasing the market basket as finalized in the CY 2023 ESRD PPS final rule (87 FR 67141 through 67154), and at the time of CY 2023 rulemaking the 2020 cost report data was the most recent year of complete cost report data available to develop the ESRDB market basket cost weights. The ESRDB market basket cost weights do not change from year to year since it is a fixed-weight Laspeyres index; therefore, for CY 2024, we use the most recent available forecast of the price proxies to estimate the growth in the input prices of this mix of goods and services for providing renal dialysis services for the coming year. The most recent forecast of the price proxies in the ESRDB market basket for this final rule is the IGI third quarter 2023 forecast with historical data through the second quarter of 2023. This is the established methodology as finalized in the CY 2011 ESRD PPS final rule (75 FR 49151 through 49162). Therefore, while the weighting of the various goods and services that make up the ESRDB market basket did utilize 2020 data for rebasing, it is inaccurate to characterize the CY 2024 market basket increase as being based on 2020 data generally. We do not agree with the commenter that stated a belief that because forecast errors have been greater in recent years it is likely that forecast errors will be larger in the future. As we have indicated, the larger-than-normal forecast errors in CY 2021 and CY 2022 were largely due to unanticipated inflationary and labor market pressures as the economy emerged from the COVID-19 PHE, which we do not anticipate will continue in CY 2024. Our preliminary estimates of the CY 2023 ESRD PPS forecast error indicate that it was smaller than the forecast errors in CY 2022 and CY 2021.

For these reasons, after evaluating the historical performance of the ESRDB market basket and the financial environment unique to ESRD facilities, we do not believe it is appropriate to include adjustments to the ESRDB market basket update for future years based on the difference between the actual and forecasted ESRDB market basket increase in prior years. However, we will continue to monitor the overall performance of the ESRDB market basket update, including analyzing the change in the price of labor inputs for ESRD facilities over time. We will take commenters' concerns into consideration for potential future rulemaking.

Comment:
One LDO commented that they believe that CMS has a statutory obligation to implement a forecast error adjustment under section 1881(b)(14)(F)(i) of the Act, which states that the Secretary shall annually increase payment amounts by an ESRD market basket percentage increase for a bundled payment system for renal dialysis services that reflects changes over time in the prices of an appropriate mix of goods and services included in renal dialysis services. The commenter acknowledged that forecasting prices is inherent in a PPS but indicated that they believe that the current methodology fails to annually capture the changes over time in the price of providing renal dialysis services. The commenter stated that correcting for prior and future forecast errors is a step CMS can easily implement to ensure the ESRD PPS payment, and future market basket update factors, reflect the prices of delivering renal dialysis services. The commenter noted that in 2004 when CMS implemented a forecast error adjustment in the payment system for SNFs it was based on very similar statutory language and was implemented under what the commenter stated were “virtually identical” circumstances to the ESRD PPS today.

Response:
We thank the commenter for sharing their view on this issue; however, we do not agree that CMS's position regarding an ESRD PPS forecast error payment adjustment conflicts with any statutory requirements for the ESRD PPS. We appreciate the commenter's interpretation of the circumstances involved in the implementation of the forecast error adjustment for SNF payment; however, we disagree with the claim that the circumstance was virtually identical to the ESRD PPS today. While the cumulative under-forecast of the SNF market basket increases in 2004 was based on a rapid increase in the price of labor, it was not due to a PHE as occurred with the ESRD PPS's under-forecast in recent years. Additionally, it was an issue which only SNFs were experiencing, unlike the current ESRD PPS environment where multiple Medicare payment systems have faced similar forecast errors. We note that when CMS finalized a forecast error adjustment for the SNF payment system, we concluded that a forecast error adjustment was appropriate for payment accuracy for SNFs; not that it was required under the statute (68 FR 46057). For these reasons, we do not agree with the commenter's stated belief that a forecast error adjustment would be required to fulfill the ESRD PPS statutory requirements, and, at this time, for the reasons discussed previously, we do not believe that a forecast error payment adjustment would be appropriate for the ESRD PPS.

Final Rule Action:
After consideration of the comments we received, we are finalizing a CY 2024 ESRDB productivity-adjusted market basket increase of 2.1 percent based on the most recent data available. As noted previously, based on the more recent data available for this CY 2024 ESRD PPS final rule (that is, IGI's third quarter 2023 forecast of the 2020-based ESRDB market basket with historical data through the second quarter of 2023), the CY 2024 ESRDB market basket update is 2.4 percent. Based on the more recent data available from IGI's third quarter 2023 forecast, the current estimate of the productivity adjustment for CY 2024 is 0.3 percentage point. Therefore, the current estimate of the CY 2024 ESRD productivity-adjusted market basket increase factor is equal to 2.1 percent (2.4 percent market basket update reduced by 0.3 percentage point productivity adjustment). We are finalizing our proposal to determine the CY 2024 ESRDB market basket update for the final rule without an adjustment to account for past forecast errors. Additionally, we did not propose and are not finalizing any methodology for a forecast error payment adjustment. We will continue to monitor the performance of the ESRDB market basket forecasts and will consider the information provided by commenters for potential future rulemaking.

(e) Labor-Related Share

We define the labor-related share 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. For the CY 2024 ESRD PPS payment update, we proposed to continue using a labor-related share of 55.2 percent, which was finalized in the CY 2023 ESRD PPS final rule (87 FR 67153 through 67154).

Comment:
We received three comments which acknowledged our proposal to use the labor-related share of 55.2 percent as finalized in the CY 2023 ESRD PPS final rule. Additionally, one LDO commented on the weights attributed to contract labor and benefits in the 2020-based ESRDB market basket, indicating that they thought that these areas were under-represented in the 2020-based ESRDB market basket. This LDO recognized that CMS did not propose any changes to the labor-related share from CY 2023. One provider advocacy organization suggested CMS utilize a different labor-related share for ESRD facilities with low wage index values, noting that for facilities with low wage index values, labor likely relates to a smaller share of total costs.

Response:
We thank commenters for reviewing the proposed labor-related share. We appreciate the comment on the weights of contract labor in the 2020-based ESRDB market basket. As stated in section II.B.1.a.(2)(c) of this final rule, changes in both the cost and quantity of an input are reflected when the ESRDB market basket is rebased, and the base year weights are updated to a more recent time period. We finalized the 2020-based ESRDB market basket in the CY 2023 ESRD PPS final rule (87 FR 67141), and, therefore, any change in the cost structure for ESRD facilities that occurred between 2016 and 2020 is now reflected in the cost weights for the 2020-based ESRDB market basket, which was the most recent fully complete cost data available at the time of rulemaking. Our monitoring indicates that the 2020-based ESRDB market basket is still appropriate for determining the cost weights for inputs for providing renal dialysis services. Therefore, following the methodology finalized in the CY 2011 ESRD PPS final rule (75 FR 49116), we consider the labor related components of the ESRDB market basket to be an appropriate basis for the labor-related share for the CY 2024 ESRD PPS payments. We will continue to monitor the cost share weights and, if technically appropriate, consider rebasing the ESRDB market basket more frequently than usual should the cost weights change significantly. We appreciate the suggestion to use a different labor-related share for low wage index ESRD facilities. We did not propose any methodological changes to the application of the labor-related share, such as using a different labor-related share for different ESRD facilities, but we will consider this comment in potential future rulemaking.

Comment:
One commenter expressed appreciation that the labor-related share of the ESRD PPS increased from 52.3 percent to 55.2 percent in CY 2023 and stated that they believe this is a consistent trend with the ESRD PPS, for which CMS has increased the labor-related share of the market basket over the lifetime of the PPS. The commenter opined that increasing the labor-related share of the market basket, while positive, does not fully address the steep rising costs of labor needed to deliver care to Medicare beneficiaries with ESRD, since it only alters the percentage of ESRD PPS payments allocated to labor as compared with other inputs required for renal dialysis services but does not deliver more resources through the ESRD PPS to cover the rising costs of care associated with the increases in the cost of labor.

Response:
The purpose of the labor-related share is to reflect the proportion of the national ESRD PPS base payment rate that is adjusted by the wage index. CMS adjusts the labor-related portion of the base rate to account for geographic differences in the area wage levels using an appropriate wage index, which reflects the relative level of hospital wages and wage-related costs in the geographic area in which the ESRD facility is located. Therefore, we include a cost category in the labor-related share if the costs are labor intensive and vary with the local labor market. We note that the historical increase to the labor-related share is based on the increase to the labor-related cost-weights in the ESRDB market basket.

As acknowledged by the commenter, the purpose of the labor-related share is to allocate ESRD payment between labor-related costs and non-labor costs. The labor-related share is not meant to increase payments overall for the rising cost of labor.

Final Rule Action:
We are finalizing our proposal to use the labor-related share of 55.2 percent, as finalized in the CY 2023 ESRD PPS final rule, for CY 2024 ESRD PPS payments.

b. CY 2024 ESRD PPS Wage Indices

(1) Background

Section 1881(b)(14)(D)(iv)(II) of the Act provides that the ESRD PPS may include a geographic wage index payment adjustment, such as the index referred to in section 1881(b)(12)(D) of the Act, as the Secretary determines to be appropriate. In the CY 2011 ESRD PPS final rule (75 FR 49200), we finalized an adjustment for wages at § 413.231. Specifically, CMS adjusts the labor-related portion of the ESRD PPS base rate to account for geographic differences in the area wage levels using an appropriate wage index, which reflects the relative level of hospital wages and wage-related costs in the geographic area in which the ESRD facility is located. We use the Office of Management and Budget's (OMB's) CBSA-based geographic area designations to define urban and rural areas and their corresponding wage index values (75 FR 49117). OMB publishes bulletins regarding CBSA changes, including changes to CBSA numbers and titles. The bulletins are available online at
https://www.whitehouse.gov/omb/information-for-agencies/bulletins/
.

We have also adopted methodologies for calculating wage index values for ESRD facilities that are in urban and rural areas where there is no hospital data. For a full discussion, see the CY 2011 and CY 2012 ESRD PPS final rules at 75 FR 49116 through 49117 and 76 FR 70239 through 70241, respectively. For urban areas with no hospital data, we compute the average wage index value of all urban areas within the State to serve as a reasonable proxy for the wage index of that urban CBSA, that is, we use that value as the wage index. For rural areas with no hospital data, we compute the wage index using the average wage index values from all contiguous CBSAs to represent a reasonable proxy for that rural area. We applied the statewide urban average based on the average of all urban areas within the State to Hinesville-Fort Stewart, Georgia (78 FR 72173), and we applied the wage index for Guam to American Samoa and the Northern Mariana Islands (78 FR 72172).

Under § 413.231(d), a wage index floor value of 0.6000 is applied under the ESRD PPS as a substitute wage index for areas with very low wage index values, as finalized in the CY 2023 ESRD PPS final rule (87 FR 67161). Currently, all areas with wage index values that fall below the floor are in Puerto Rico and the U.S. Virgin Islands. However, the wage index floor value is applicable for any area that may fall

below the floor. A further description of the history of the wage index floor under the ESRD PPS can be found in the CY 2019 ESRD PPS final rule (83 FR 56964 through 56967) and the CY 2023 ESRD PPS final rule (87 FR 67161).

An ESRD facility's wage index is applied to the labor-related share of the ESRD PPS base rate. In the CY 2023 ESRD PPS final rule (87 FR 67153), we finalized a labor-related share of 55.2 percent. In the CY 2021 ESRD PPS final rule (85 FR 71436), we updated the OMB delineations as described in the September 14, 2018, OMB Bulletin No. 18-04, beginning with the CY 2021 ESRD PPS wage index. In that same rule, we finalized the application of a 5 percent cap on any decrease in an ESRD facility's wage index from the ESRD facility's wage index from the prior CY. We finalized that the transition would be phased in over 2 years, such that the reduction in an ESRD facility's wage index would be capped at 5 percent in CY 2021, and no cap would be applied to the reduction in the wage index for the second year, CY 2022. In the CY 2023 ESRD PPS final rule (87 FR 67161), we finalized a permanent policy under § 413.231(c) to apply a 5 percent cap on any decrease in an ESRD facility's wage index from the ESRD facility's wage index from the prior CY. For CY 2024, as discussed in section II.B.1.a.(2)(e) of this final rule, the labor-related share to which the wage index will be applied is 55.2 percent.

(2) CY 2024 ESRD PPS Wage Index

For CY 2024, we proposed to update the wage indices to account for updated wage levels in areas in which ESRD facilities are located using our existing methodology. We proposed to use the most recent pre-floor, pre-reclassified hospital wage data collected annually under the inpatient PPS. The ESRD PPS wage index values are calculated without regard to geographic reclassifications authorized under sections 1886(d)(8) and (d)(10) of the Act and utilize pre-floor hospital data that are unadjusted for occupational mix. For CY 2024, the updated wage data are for hospital cost reporting periods beginning on or after October 1, 2019, and before October 1, 2020 (FY 2020 cost report data).

For CY 2024, we proposed to update the ESRD PPS wage index to use

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2023-23915. Public record. Not legal advice.