Medicare Program; End Stage Renal Disease (ESRD) Payment Exception Requests and Organ Procurement Costs

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 412, 413, and 414

[BPD-763-P]

RIN 0938-AG20

Medicare Program; End Stage Renal Disease (ESRD) Payment

Exception Requests and Organ Procurement Costs

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Proposed rule.

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SUMMARY: These proposed regulations specify the criteria HCFA would use

to determine if a facility furnishing dialysis services to patients

with end stage renal disease qualifies for a higher payment under an

exception to the prospectively determined payment rate.

These regulations are intended to inform providers of the

procedures HCFA uses to evaluate payment exception requests. They

implement existing authority in section 1881 (b)(2) and (b)(7) of the

Social Security Act (the Act).

These regulations would also revise the way we compute acquisition

costs for hearts and livers that are transplanted into Medicare

beneficiaries.

DATES: Comments will be considered if we receive them at the

appropriate address, as provided below, no later than 5 p.m. on October

25, 1994.

ADDRESSES: Mail comments (an original and three copies) to the

following address:

Health Care Financing Administration, Department of Health and Human

Services, Attention: BPD-763-P, P.O. Box 26676, Baltimore, MD 21207.

If you prefer, you may deliver your written comments to one of the

following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,

Washington, DC 20201, or

Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore,

MD 21207.

Due to staffing and resource limitations, we cannot accept comments

by facsimile (FAX) transmission. In commenting, please refer to file

code BPD-763-P. Comments received timely will be available for public

inspection as they are received, generally beginning approximately 3

weeks after publication of a document, in Room 309-G of the

Department's offices at 200 Independence Avenue, SW., Washington, DC,

on Monday through Friday of each week from 8:30 a.m. to 5 p.m. (phone:

(202) 690-7890).

If you wish to submit comments on the information collection

requirements contained in this proposed rule, you may submit comments

to:

Allison Herron, HCFA Desk Officer, Office of Information and Regulatory

Affairs, Room 3002, New Executive Office Building, Washington, DC

20503.

Copies: To order copies of the Federal Register containing this

document, send your request to: New Orders, Superintendent of

Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date

of the issue requested and enclose a check or money order payable to

the Superintendent of Documents, or enclose your Visa or Master Card

number and expiration date. Credit card orders can also be placed by

calling the order desk at (202) 783-3238 or by faxing to (202) 275-

6802. The cost for each copy (in paper or microfiche form) is $4.50. As

an alternative, you may view and photocopy the Federal Register

document at most libraries designated as U.S. Government Depository

Libraries and at many other public and academic libraries throughout

the country that receive the Federal Register. The order desk operator

will be able to tell you the location of U.S. Government Depositories.

FOR FURTHER INFORMATION CONTACT: Michael Powell, (410) 966-4557

SUPPLEMENTARY INFORMATION:

I. Background

End Stage Renal Disease Payment Exception Requests

In accordance with section 1881(b)(2) and (b)(7) of the Act, a

facility that furnishes dialysis services to Medicare patients with end

stage renal disease is paid a prospectively determined rate for each

dialysis treatment furnished. This rate is a composite that includes

all costs associated with furnishing dialysis services except for the

costs of physician services and certain laboratory tests and drugs,

which are billed separately. The composite rate may be adjusted

periodically to reflect actual facility costs.

When a facility incurs higher costs, HCFA may, under certain

conditions, grant the facility an exception to its composite rate and

set a higher prospective rate. The facility must show, on the basis of

projected cost and utilization trends, that it will have an allowable

cost per treatment higher than its prospective payment rate and that

the excess costs are attributable to one or more specific

circumstances. These conditions are specified in existing regulations

at 42 CFR 413.170 and are discussed in greater detail in Chapter 27 of

HCFA's Provider Reimbursement Manual (PRM).

A facility may incur excess costs when it furnishes dialysis

services to a patient population with a greater number of pediatric

patients or sick patients, such as those with heart disease or unstable

medical conditions, which require special equipment, procedures,

supplies or staff trained in treating these patients. This is referred

to as ``atypical service intensity'' or ``patient mix.'' A facility may

also incur increased costs when it is the only supplier of dialysis

services in its geographical area (an isolated essential facility), and

its patients are unable to obtain dialysis services elsewhere without

considerable hardship. Such an isolated facility may find it difficult

to find trained staff, may have to pay employees additional wages or

travel allowances, or may have to pay additional costs to have supplies

shipped to the area.

A facility may also incur excess costs as a result of a fire,

earthquake, flood, or other natural disaster (extraordinary

circumstances). However, we do not recognize those costs when a

facility did not maintain adequate insurance, did not file a claim for

losses covered by insurance, or did not use its self-insurance program.

Increased training costs may also be associated with a facility's

self-dialysis training program. A facility may train patients to

perform self-dialysis with little or no professional assistance in the

facility or at home. It may also train other individuals to assist

patients in performing self-dialysis or home dialysis. A facility that

has training costs greater than its composite training rate may apply

for an exception, but must prove that the costs are reasonable and

allowable.

Typically, a patient undergoes dialysis three times a week. A

facility may furnish a substantial number of treatments to patients who

dialyze less frequently than three times a week. As a result, the

facility typically has higher per treatment cost because the treatments

involve increased labor or supplies. When this occurs, a facility may

apply for an exception to the composite rate.

Organ Acquisition Costs

Under Sec. 412.113, Medicare pays for heart, kidney, and liver

acquisition costs incurred by transplant centers on a reasonable cost

basis. Currently, Medicare-certified transplant centers compute

Medicare acquisition costs for hearts and livers on Supplemental

Worksheet D-6 of the Hospital Cost Report (Form HCFA-2552). The average

acquisition costs of hearts and livers transplanted in patients other

than Medicare beneficiaries are deducted from the total acquisition

costs for all hearts and livers. Medicare reimburses the remaining

balance as program costs for these organs. Based on recent cost

analyses, we are concerned about the very high Medicare costs

associated with acquiring a small number of hearts and livers. As a

result, we propose to change the method of computing heart and liver

acquisition costs to more accurately determine the costs of acquiring

organs transplanted in Medicare recipients. The method we propose for

computing acquisition costs for hearts and livers conforms to the

method used for kidneys because the kidney formula more fairly accounts

for Medicare's portion of such costs, including organ wastage. The

kidney formula is specified in Sec. 413.202.

II. Proposed Revisions

End Stage Renal Disease Payment Exception Requests

On several occasions, we have denied exception requests based on

application of the criteria contained in our PRM, and the facilities

have appealed the denials; subsequently some denials have been

overturned by the Provider Reimbursement Review Board (PRRB) because

the PRRB is not bound by the guidelines in the PRM. Therefore, we are

proposing to place in regulations the specific requirements for

determining exceptions. We are proposing the conditions contained in

the PRM, with explanations in this preamble, that a facility must meet

to qualify for a payment exception and the criteria that we use to

evaluate whether the facility meets the conditions.

We propose to revise 42 CFR Part 413, Subpart H, Payment for ESRD

Services. Currently, all our rules for payment for covered outpatient

maintenance dialysis treatments are in Sec. 413.170. We propose to

reorganize the content of Subpart H and divide existing Sec. 413.170

into several smaller sections so that readers can more easily locate

specific topics.

Following is a list of the new sections:

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New section Old section

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413.170Scope...................................... 413.170(a)

413.172Principles of Prospective Payment.......... 413.170(b)

413.174Prospective rates for hospital based and 413.170(c)

independent ESRD facilities.

413.176Amount of payments......................... 413.170(d)

413.178Bad debts.................................. 413.170(e)

413.180Procedures for requesting exceptions to 413.170(f)

payment rates.

413.182Criteria for approval of exception requests 413.170(g)

413.184Payment exception: Atypical service 413.170(g)(1)

intensity (patient mix).

413.186Payment exception: Isolated essential 413.170(g)(2)

facility.

413.188Payment exception: 413.170(g)(4)

Extraordinarycircumstances.

413.190Payment exception: Self-dialysistraining 413.170(g)(5)

costs.

413.192Payment exception: Frequency of dialysis... 413.170(g)(6)

413.194Appeals.................................... 413.170(h)

413.196Notification of changes in rate-setting 413.170(i)

methodologies and payment rates.

413.198Recordkeeping and cost reporting 413.174

requirements for outpatient maintenance dialysis.

413.200Payment of independent organ procurement 413.178

organizations and histocompatibility laboratories.

413.202Organ procurement organizations' (OPOs') or 413.179

transplant centers' costs for kidneys sent to

foreign countries or transplanted in patients

other than Medicare beneficiaries.

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Below we discuss the proposed content of Subpart H.

Section 413.180 Procedures for Requesting Exceptions to Payment Rates

We would redesignate the content of Sec. 413.170(f), Procedures for

requesting exceptions to payment rates, as new Sec. 413.180. In

Sec. 413.180(d), we propose to expand this item to provide that a

facility must request an exception to its payment rate within 180 days

of:

The effective date of its new prospective payment rate(s);

The effective date that HCFA opens the exceptions process;

or

An extraordinary cost-increasing event, as described in

Sec. 413.188.

In determining the 180-day period in which HCFA issues new

prospective payment rates or opens the exceptions process, HCFA counts

the effective date as the first day of the 180-day period because

payment for ESRD services under the new composite rates or an approved

exception begins that day. An exception request with all required

documentation must be filed with the intermediary by the 180th day.

Delivery of the request must be accomplished through a method that

documents the date of receipt during the intermediary's regular

business hours. A postmark or other similar mark does not serve as

documentation of the date of receipt.

Initially, when the ESRD prospective payment rate regulations were

promulgated, HCFA intended to annually review composite rates. However,

when HCFA determined that updated rates could not be issued in the near

future, it opened the exceptions process without issuing new rates.

This allowed ESRD facilities additional opportunities (other than when

new rates are issued) to file for exceptions to their payment rates.

HCFA has opened the exceptions process twice, permitting facilities

that had received partial approvals, new facilities or facilities that

had been previously denied exceptions the chance to file for an

exception.

In Sec. 413.180(f), we propose to require that the facility

applying for an exception request compare its most recently completed

cost report with those of prior years. Such comparisons may reveal

significant changes that may indicate errors or problems with the cost

or statistical data and, thus, the need for HCFA to more intensively

review the applicable area. Any changes to cost or statistical data

(for example, treatments) must be explained and the explanation

included with the documentation supporting the exception request.

In Secs. 413.180(f)(3) and 413.182, we would require that ESRD

facilities provide documentation showing that their excessive costs are

specifically or directly attributable to one or more of the exception

criteria. As an example, for an atypical service intensity request, the

facility should be able to document the excessive costs of furnishing

care to sicker patients. After submitting evidence that it treats

sicker patients, to document higher labor costs, the facility should

submit records to show that either a more experienced and better

trained nursing staff is required to treat these patients, or

additional nursing staff time is needed, or both. An example of the

type of records that a provider should submit to document its higher

nursing costs could consist of staffing schedules, indicating staff and

patients per shift. The facility could indicate (on the schedules) the

sicker patients treated and the more experienced or additional staff

needed to treat them. The monthly staffing schedules should represent

12 months and coincide with the actual cost reporting period of the

cost report submitted with the exception request.

For a hospital facility, if the direct cost of nursing staff in the

dialysis department increased, the administrative and general (A & G)

costs allocated to that department would automatically increase. This

is the result of hospital cost reporting accounting protocol, which

requires A & G costs to be allocated on the basis of the accumulated

costs of the other departments. The accounting protocol used for cost

reporting is separate and distinct from identifying the actual A & G

costs that are directly attributable to the additional nursing staff

costs. Since the total A & G costs represent costs allocated to the

dialysis department, they do not accurately reflect the actual A & G

costs incurred as a result of the additional nursing staff costs. The

facility must separately identify the A & G costs directly attributable

to the additional nursing staff costs.

In Sec. 413.180(g), we propose to codify in regulations section

1881(b)(7) of the Act by providing that unless HCFA disapproves a

composite rate exception request within 60 working days after it is

filed with its intermediary, the exception is deemed approved. We

believe the Congress viewed the 60 days as beginning when we have a

fully documented exception request. Therefore, the first day for

counting the 60 working days is the date that the exception request is

filed with all required documentation with the intermediary, not the

date it was mailed nor the date postmarked on the package. For this

reason, facilities are advised to send their requests by a method that

documents the date of receipt during the intermediary's regular

business hours. We would require that intermediaries review and process

all exception requests within 15 working days, and we would process the

exceptions within 45 working days. If we fail to process a composite

rate exception request timely, we would deem the renal facility's rate

request approved.

Section 413.182 Criteria for Approval of Exception Requests

We propose to redesignate the content of Sec. 413.170(g), criteria

for approval of exception requests, as Sec. 413.182. In this section we

would list the criteria that may be the basis of a rate exception.

These criteria are: Atypical service intensity (patient mix), as

specified in a new Sec. 413.184; Isolated essential facility (new

Sec. 413.186); Extraordinary circumstances (new Sec. 413.188); Self-

dialysis training costs (new Sec. 413.190); or Frequency of dialysis

(new Sec. 413.192).

HCFA occasionally receives one-month time studies from facilities

attempting to show that they are entitled to an exception. HCFA does

not require one-month time studies and has not considered a one-month

time study as adequate documentation to justify an exception. In the

event that a time study is used, an applicant should refer to the

general Medicare principles regarding the adequacy of periodic time

sampling described in chapter 23 of the Provider Reimbursement Manual

(HCFA Publication 15-1).

Section 413.184 Payment Exception: Atypical Service Intensity (Patient

Mix)

In new Sec. 413.184, paragraph (a) would repeat the content of

existing Sec. 413.170(g)(1). We would specify in a new paragraph (b)

the documentation required of a facility requesting a rate exception

under this provision.

We would require that a facility submit a list of all outpatient

dialysis patients (including all home patients) treated during the most

recently completed fiscal or calendar year showing:

Patients who received transplants, including the date of

transplant;

Patients awaiting a transplant who are medically able,

have given consent, and are on an active transplant list, and projected

transplants;

Home patients;

Infacility patients, staff assisted or self-dialysis;

Individual patient diagnoses;

Diabetic patients;

Patients isolated because of a contagious disease;

Age of patients;

Mortality rate broken out by age and diagnosis;

Number of patient transfers, reasons for transfers and any

related information; and

Total number of hospital admissions for the facility's

patients, reason for, and length of stay for, each admission.

When adjudicating exception requests, to determine if a substantial

proportion of the facility's outpatient maintenance dialysis treatments

involve more intense dialysis services and special dialysis procedures,

HCFA will compare the above data submitted by providers to data

contained in HCFA's Patient Profile Tables. The information in the

Tables is developed annually and represents information on persons with

end-stage renal disease covered by Medicare. While the number of

treatments is used when determining whether a facility furnishes a

substantial proportion of treatments to atypical patients, it is the

typical or the atypical patient mix that generates the total treatment

count used in this determination. In determining whether a facility's

patients are atypically sick, each patient category is individually

compared to its corresponding specific norm (national average). Various

combinations of factors might lead to a determination that a facility

has an atypical patient mix. For example, a facility might qualify for

an exception for atypical patient mix if the percentage of its diabetic

patients, older patients, and mortality rate were significantly higher

than the national averages.

By its very nature, an exceptions process addresses situations that

are not anticipated, and, because of the myriad combinations of factors

that are possible, we cannot articulate a single specific standard that

encompasses all of these situations. Instead, HCFA will evaluate each

request on a case-by-case basis to determine if the characteristics of

the patient population are such that it might be beyond the facility's

control to incur higher costs. (Facilities will still have to

demonstrate that the atypical patient mix, in fact, caused higher

costs.)

We would also require that a facility submit the following

documentation on nursing personnel (registered nurses (RNs), licensed

practical nurses (LPNs), technicians and aides) costs incurred during

the most recently completed fiscal or calendar year cost report

showing:

Amount of remuneration of each employee;

Number of personnel;

Amount of time spent in the dialysis unit; and

Staff to patient ratio based on total hours, with an

analysis of productive and nonproductive hours.

The facility must demonstrate that its nursing personnel costs have

been allocated properly between each mode of care, and that the

additional nursing hours per treatment are not the result of an excess

number of employees in the outpatient maintenance renal dialysis

department. Normally, when determining whether there is an excess

number of employees assigned to a facility's dialysis department, HCFA

uses staff to patient ratios. However, in addition to the staff to

patient ratios, we might also consider staffing schedules, as

previously discussed.

When adjudicating exception requests, HCFA will utilize the above

data to determine if the facility's patients received significantly

more nursing hours per treatment than patients would receive in other

facilities and whether the facility's higher per treatment costs were

necessitated by the special needs of the patients.

We would also require that a facility submit documentation on

supply costs incurred during the most recently completed fiscal or

calendar year cost report showing:

By modality, a complete list of supplies used routinely in

a dialysis treatment; and

The make and model number of dialyzer and component cost

of each dialyzer.

The facility must demonstrate that excess supply cost per treatment

is caused by the special needs of the patients and is not the result of

inefficiency. The facility must submit documentation to demonstrate

that it prudently purchases items and services (for example, uses bulk

purchase discounts when available).

When adjudicating exception requests, HCFA will utilize the above

data to determine if the facility's patients received supplies that are

medically necessary to meet special medical needs of the facility's

patients.

Section 413.186 Payment Exception: Isolated Essential Facility

We would redesignate Sec. 413.170(g)(2) as new Sec. 413.186, retain

the existing content of Sec. 413.170(g)(2) and add documentation

requirements for facilities to use when applying for a payment rate

exception based on being an isolated essential facility.

Isolated Facility

To be considered ``isolated,'' a facility must document that it is

located outside an established Metropolitan Statistical Area and

provides dialysis to a permanent patient population, as opposed to a

transient patient population.

Essential Facility

To be considered essential, the facility must document that a

substantial number of its patients cannot obtain dialysis services

elsewhere without substantial additional hardship and the additional

hardship the patients will incur, generally, will be in travel time and

cost.

Cost per Treatment

The facility must document that its cost per treatment is

reasonable and explain how the facility's cost per treatment in excess

of its composite rate relates to the isolated essential facility

criteria. For example, if a facility incurs higher supply costs, it

will need to identify the additional costs incurred on a per treatment

basis and then relate that additional cost per treatment to the

exception criteria.

Additional Information

The facility must also furnish, in a format that concisely explains

the facility's cost and patient data to support its request, the

following information:

A list of current and requested payment rates for each

modality.

An explanation of how the facility's costs in excess of

its composite rate payment are attributable to the isolated essential

facility criteria specified above in this section.

An explanation of any unusual geographic conditions in the

area surrounding the facility.

A copy of the latest filed cost report and a budget

estimate for the next 12 months on cost report forms.

An explanation of unusual costs reported on the facility's

actual or budgeted cost reports and any significant changes in budgeted

costs and data compared to actual costs and data reported on the latest

filed cost report.

The name, location of, and distance to, the nearest ESRD

facility.

A list of patients, treatment modality, commuting distance

and commuting time to current and next nearest ESRD facility.

The historical and projected patient to staff ratios and

number of machines used for maintenance dialysis treatments.

A computation of the facility's treatment capacity,

computed by dividing the maintenance treatments actually furnished by

the total maintenance treatments that could have been furnished (in

other words, total stations multiplied by the number of hours of

operation divided by the average length of dialysis) for the year.

The geographic boundaries and population size of the

facility's service area.

Section 413.188 Payment Exception: Extraordinary Circumstances

We would redesignate Sec. 413.170(g)(4) as Sec. 413.188 with no

changes except for the addition of internal paragraph coding.

Section 413.190 Payment Exception Self-Dialysis Training Costs

In new Sec. 413.190, paragraph (a) would repeat the content of

existing Sec. 413.170(g)(5). To that we would add the documentation

that we would require of a facility requesting a rate exception under

this provision. We would require that a facility justify its exception

request by separately identifying those elements contributing to its

costs in excess of the composite training rate. We consider the

facility's total costs, cost finding and apportionment, including its

allocation methodology, to determine if costs are properly reported by

treatment modality. Exception requests for a higher training rate will

be granted only with respect to those cost components relating to

training such as technical staff, medical supplies, and the special

costs of education (manuals and education material). Overhead and other

indirect costs do not generally form a basis for granting an exception.

The facility must provide the following information to support its

exception request:

A copy of the facility's training program.

Computation of the facility's cost per treatment for

maintenance and training sessions including an explanation of the cost

difference between the two modalities.

Class size and patients' training schedules.

Number of training sessions required, by treatment

modality, to train patients.

Number of patients trained for the current year and the

prior 2 years on a monthly basis.

Projection for the next 12 months of future training

candidates.

The number and qualifications of staff at training

sessions.

Accelerated Training Exception

An ESRD facility may bill Medicare for a dialysis training session

only when a patient receives a dialysis treatment (which normally is

three times a week). If an ESRD facility elects to train all its

patients using a particular modality more often than during each

dialysis treatment and, as a result, the number of its billable

training dialysis sessions is less than its actual training sessions,

the facility may request a composite rate limited to the lesser of the

facility's projected training cost per treatment (CPT) or the CPT the

facility would have received in training a patient. For example,

facility x trains patients 5 days a week for a 3-week training period

(15 training sessions). Facility Y trains patients only during a

dialysis session, 3 per week, but for a 5-week training period. Both

facilities' composite training rates were determined to be $150 per

treatment. Facility X's payment would be adversely affected, since its

payment would be limited to the number of billable training sessions.

Facility X's payment would be $1,350 (3 weeks x 3 treatments per week

x $150) compared to facility Y's $2,250 payment (5 weeks x 3

treatments per week x $150). To correct this situation, an exception

may be approved (assuming the facility documents costs) to increase

facility X's rate not to exceed $250 per treatment ($2,250 9).

An ESRD facility may bill a maximum per patient of 25 training

sessions for hemodialysis training and 15 training sessions for

continuous cycling peritoneal dialysis (CCPD) and continuous ambulatory

peritoneal dialysis (CAPD) training. To ensure adequate patient

training, HCFA presumes a minimum number of training sessions per

patient in calculating exception rates, 15 for hemodialysis and 5 for

CAPD and CCPD, where the renal facility's actual experience is less

than the minimum number of training sessions. The minimum and maximum

numbers are based on HCFA's national data and general program

statistics. These numbers represent the minimum and maximum number of

treatments necessary to adequately train a patient and have been

established to avoid paying any additional costs associated with over-

training as well as assuring that quality of care is not jeopardized by

not adequately training a patient.

For example, a facility trains all its CAPD and CCPD patients in 3

training sessions, and its composite training rate is determined to be

$150. To calculate a facility's training exception rate, the facility's

training rate is multiplied by 15 (the maximum training sessions per

patient) and then divided by the facility's actual training sessions,

unless the actual sessions are less than the minimum. Using the

facility's actual training sessions, the exception training rate would

be $750 ($150 x 15 = $2,250 3). However, based on using the

minimum of 5 training sessions, the approved training rate would be

$450 ($150 x 15 = $2250 5).

To justify an accelerated training exception request, an ESRD

facility must document that all training sessions provided under a

particular modality are to be provided during the shorter but more

condensed period. The facility must submit with the exception request a

list of patients, by modality, trained during the most recent cost

report period, and the list must include each beneficiary's name, age,

and training status (completed, not completed, being retrained, or in

the process of being trained). The total treatments from the patient

list must agree with the total treatments reported on the cost report

filed with the request. We propose to deny exception requests that a

facility submits without the above documentation.

Section 413.192 Payment Exception Frequency of Dialysis

We would redesignate paragraph (g)(6) of Sec. 413.170 as

Sec. 413.192 and add the following provisions.

Existing Sec. 412.170(g)(6) specifies that, to qualify for an

exception to the prospective payment rate based on frequency of

dialysis, the facility must have a substantial portion of outpatient

maintenance dialysis treatments furnished to patients who dialyze less

frequently than three times per week. A facility that furnishes a

substantial portion of outpatient maintenance dialysis services to

patients who dialyze less frequently than three times per week

typically has higher costs per treatment because the treatments that

are furnished to these patients last longer and involve higher labor

and supply costs. For a facility to qualify as having a substantial

portion of outpatient maintenance dialysis treatments furnished to

patients who dialyze less frequently than three times per week, a

facility must be able to document that it has a decrease in treatments

in excess of 15 percent, and cost increases due to frequency. Because

the facility is only dialyzing patients twice a week instead of three

times, if 100 percent of their patients dialyze twice a week, the

facility would lose 33.3 percent of treatments on an annual basis. HCFA

has determined that 15 percent of lost treatments is substantial.

The percentages calculated above, and HCFA's determination of what

is substantial is explained below. If a facility had 200 patients and

all the patients dialyzed twice a week, then the facility would be

losing 200 billable treatments a week or 33.3 percent. This calculation

is as follows:

200 patients x 3 times a week=600 treatments a week;

200 patients x 2 times a week=400 treatments a week;

Lost treatments=200 treatments a week.

Lost treatmentstotal treatments=percentage of lost treatments

(200600=33.3 percent).

To arrive at a reasonable determination of substantial, we

concluded that slightly less than half a facility's treatments would

have to be furnished to patients who dialyze less frequently than three

times a week. This calculation is as follows:

200 patients x 3 times a week=600 treatments a week;

100 patients x 2 times a week=200 treatments a week;

100 patients x 3 times a week=300 treatments a week;

Total treatments furnished=500 treatments a week.

Lost treatments=100 treatments (100600=16.67 percent).

We propose to require that, in order to document that it furnishes

a substantial number of dialysis treatments at a frequency less than

three times per week, a facility submit the following information. The

facility must submit a list of patients who received outpatient

dialysis treatments for the latest historical cost report that is being

filed with the request. The list must indicate--

Whether the patients are permanent, transient or

temporary;

The medically prescribed frequency of dialysis; and

The number of dialysis treatments that each patient

received on a weekly and yearly basis and an explanation of any

discrepancy between that calculation and the number of treatments

reported on the facility's cost report.

The facility must also submit a list of patients used to project

treatments. The list must indicate--

Whether the patients are permanent, transient or

temporary;

The medically prescribed frequency of dialysis;

The number of dialysis treatments that each patient is

projected to receive on a weekly and yearly basis, an explanation of

any discrepancy between that calculation and the number of treatments

reported on the facility's projected cost report, and an explanation

for any change between prior actual and projected data.

In order for HCFA to determine if the facility meets the 15 percent

requirement discussed above, the following information must be

submitted:

A schedule showing the number of treatments to be

furnished twice a week and the number of treatments that would have

been furnished if each beneficiary were dialyzed three times a week,

including a computation of the facility's projected cost per treatment

using projected treatments based on the twice a week calculation and

the three times a week calculation.

A schedule showing the computation of the percentage

decrease in the number of treatments, which must be at least 15 percent

to be deemed substantial for approval of an exception.

Section 413.194 Appeals

Existing Sec. 413.170(h) would be redesignated as Sec. 413.194. In

new Sec. 413.194, in addition to coding and editorial changes, we would

make clear that exhaustion of administrative remedies is a prerequisite

for judicial review.

Section 413.196 Notification of Changes in Rate-Setting Methodologies

and Payment Rates

Existing Sec. 413.170(i) would be redesignated as Sec. 413.196 with

only coding and editorial changes.

Section 413.198 Recordkeeping and Cost Reporting Requirements for

Outpatient Maintenance Dialysis

Existing Sec. 413.174 would be redesignated as Sec. 413.198.

Section 413.200 Payment of Independent Organ Procurement Organizations

and Histocompatibility Laboratories

Existing Sec. 413.178 would be redesignated as Sec. 413.200. In new

Sec. 413.200(b), we would revise the definition of ``Freestanding.'' We

would provide that an organ procurement organization (OPO) or a

histocompatibility laboratory is freestanding unless it--

Is subject to the control of the hospital with regard to

the hiring, firing, training and paying of employees; and

Is considered as a department of the hospital for

insurance purposes (including malpractice insurance, general liability

insurance, worker's compensation insurance, and employee retirement

insurance).

We would remove from the definition of ``freestanding'' the

requirement that hospital-based OPOs service a single transplant

center. Section 4009(g) of the Omnibus Budget Reconciliation Act of

1987 (Public Law 100-203) required that OPOs be designated by Medicare

to include no more than one OPO per service area. As the certification

process limited only one to an area and some of the OPOs were hospital-

based, limiting the OPO's responsibility to a single transplant center

became impractical. An OPO (whether independent or hospital-based) is

required to service all transplant centers in its area. Accordingly, it

would be very rare when a hospital-based OPO would service a single

transplant center.

Section 413.202 Organ Procurement Organizations' (OPOs') or Transplant

Centers' Costs for Kidneys Sent to Foreign Countries or Transplanted in

Patients Other Than Medicare Beneficiaries

Existing Sec. 413.179 would be redesignated as Sec. 413.202 with

changes discussed below.

Organ Acquisition Costs

To ensure that there is a more reasonable and accurate

determination of the Medicare program's share of heart and lung

acquisition costs, we propose to pay transplant hospitals using the

same method that we use to determine Medicare's share of the cost of

acquiring kidneys. As noted earlier, organ acquisition costs are paid

to Medicare-certified transplant centers as cost passthroughs

(Sec. 412.113(d)). The cost of acquiring kidneys for transplant is

determined by using a formula specified in Sec. 413.179. Existing

Sec. 413.179 (redesignated as Sec. 413.202 in this proposed rule)

requires that transplant hospitals compute Medicare kidney acquisition

costs based on the ratio of the number of usable kidneys transplanted

into Medicare beneficiaries to the total number of usable kidneys

applied to reasonable costs. We propose to expand the applicability of

redesignated Sec. 413.202 to include hearts and livers by making it

apply to ``organs'' instead of ``kidneys.'' We believe that this

revision would result in a more reasonable determination of Medicare

heart and liver acquisition costs because the kidney formula more

fairly accounts for Medicare's portion of such costs, including organ

wastage. We would cross refer Sec. 412.113 to Sec. 413.202 to ensure

proper cost determination.

By making this change, we would ensure that acquisition costs of

organs transplanted in non-Medicare recipients are excluded from

Medicare payment. Section 1861(v)(1)(A) of the Act requires that the

cost of services be borne by the appropriate payor. Accordingly, the

cost associated with organs not used by Medicare beneficiaries must be

borne by the responsible individual or third party payor. The law

precludes Medicare from paying any costs associated with organs not

used by Medicare beneficiaries.

Consequently, we would require that Medicare-certified transplant

centers and organ procurement organizations (OPOs) separate costs

associated with organs transplanted in non-Medicare recipients from

Medicare allowable costs prior to final settlement by the Medicare

fiscal intermediary. To separate costs, we would require that the

transplant centers compute the ratio of the number of organs used for

Medicare beneficiaries to the total number of organs used and adjust

the costs for organs transplanted in patients other than Medicare

beneficiaries (proposed Sec. 413.202).

Payment for Erythropoietin (EPO)/Epoietin (EPO)

Erythropoietin (EPO) is an anti-anemia drug given to dialysis

patients with a specified level of anemia. Payments to ESRD facilities

are made in increments of 1,000 unit doses, rounded to the nearest 100

units. Section 13566 of the Omnibus Budget Reconciliation Act of 1993

(OBRA '93) decreased the maximum payment for EPO from $11 to $10 per

1,000 units, which is specified in section 1881(b)(11)(B)(ii) of the

Act. This amount is subject to adjustment by HCFA, if necessary.

Existing Sec. 413.170(c) provides that HCFA publishes annually a

Federal Register notice indicating whether an update in the EPO payment

amount is appropriate and requesting public comment. We would revise

redesignated Sec. 413.174(f) to add the statutory reference and to

clarify that when we determine that an adjustment to the payment amount

is necessary, we publish a Federal Register notice proposing a revision

to the EPO payment amount, but that we will no longer publish a notice

routinely on an annual basis.

III. Response to Comments

Because of the large number of items of correspondence we normally

receive on a proposed rule, we are not able to acknowledge or respond

to them individually. However, we will consider all comments that we

receive by the date and time specified in the ``Dates'' section of this

preamble, and we will respond to the comments in the preamble to the

final rule.

IV. Collection of Information Requirements

Sections 413.184, 413.186, 413.190, and 413.192 of the regulations

contain information collection or recordkeeping requirements, or both,

that are subject to review by the Office of Management and Budget under

the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). The

information collection requirements concern the documentation required

of a facility furnishing dialysis services to patients with end stage

renal disease that requests an exception to the prospective payment

rate. The respondents who will provide the information include

providers that furnish dialysis services to patients with end stage

renal disease. No new reporting burden will exist as a result of this

regulation, since we propose to place in regulations current

documentation requirements already published in Chapter 27 of the PRM.

Therefore, the public reporting burden for this collection of

information would be the same as that for Chapter 27, which was

approved by OMB on September 21, 1991 for use through September 30,

1994, under control number 0938-0296. Organizations and individuals

desiring to submit comments on the information collection and

recordkeeping requirements should direct them to the OMB official whose

name appears in the ``ADDRESSES'' section of this preamble. A notice

will be published in the Federal Register after approval of the

regulations' information collection requirements is obtained.

V. Regulatory Impact Statement

We generally prepare a regulatory flexibility analysis that is

consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601

through 612) unless the Secretary certifies that a proposed rule would

not have a significant economic impact on a substantial number of small

entities. For purposes of the RFA, all hospitals and ESRD facilities

are considered to be small entities. Individuals and States are not

included in the definition of a small entity.

Also, section 1102(b) of the Act requires the Secretary to prepare

a regulatory impact analysis if a rule may have a significant impact on

the operations of a substantial number of small rural hospitals. This

analysis must conform to the provisions of section 603 of the RFA. For

purposes of section 1102(b) of the Act, we define a small rural

hospital as a hospital that is located outside of a Metropolitan

Statistical Area and has fewer than 50 beds.

Payment Exception Requests

The purpose of this portion of the proposed rule is to codify in

regulations existing policy concerning an ESRD facility's request for

an exception to its prospectively determined payment rate. This policy

is contained in chapter 27 of the Provider Reimbursement Manual (PRM).

This proposed rule would affect all ESRD facilities, including

hospital-based and freestanding, that file for an ESRD exception

request.

Our records indicate that as of December 31, 1990, there were 1,968

facilities eligible to file exception requests. Of these, 275 or 14

percent of the facilities filed exception requests during the December

1, 1989 to May 29, 1990 exception period. This resulted in 194 granted

requests (mostly partially granted) and 81 denials. During our most

recent exception request cycle, for the period March 1, 1991 through

August 27, 1991, 135 facilities filed exception requests. This resulted

in 87 requests being granted at least in part and 48 denials.

Under current procedures, an ESRD facility requesting an exception

to its prospective payment rate complies with the instructions

contained in chapter 27 of the PRM. A facility whose request is granted

only partially or is denied an exception may appeal its request to the

Provider Reimbursement Review Board (PRRB). The PRRB is bound by the

statute and regulations and, in interpreting them, may come to a

different conclusion than if it followed program instructions. If we

codify in regulations details now found in the PRM instructions, the

PRRB would be presented with more specific bases for adjudicating an

appeal of a partially denied or denied exception request.

Organ Acquisition Costs

In 1992, there were 66 hospitals certified to perform heart

transplants and 33 hospitals certified to perform liver transplants.

These amount to less than two percent of all Medicare participating

hospitals. In 1991, there were 182 liver transplants and 335 heart

transplants performed on Medicare beneficiaries. Although the number of

Medicare transplants represents less than one-fourth of the total

number of heart and liver transplants, a preliminary review of cost

report data indicates the average Medicare acquisition cost per liver

and per heart is higher than the average non-Medicare acquisition cost.

Most organ procurement costs are incurred before a recipient is

identified as a Medicare beneficiary; thus, we do not believe the

Medicare program's share of acquisition costs should exceed the non-

Medicare share. We believe that the current method of cost

reimbursement contains the potential for transplant centers to include

some non-Medicare costs in the Medicare costs.

This proposed rule would extend the formula used to compute kidney

acquisition costs to other organs, including hearts and livers.

Acquisition costs would be based on the ratio of the number of usable

organs transplanted into Medicare beneficiaries to the total number of

usable organs. It would not affect our obligation to pay allowable

organ acquisition costs, but would prevent Medicare from bearing costs

associated with non-Medicare procedures. Based on the number of

Medicare organ transplants, we anticipate annual Medicare program

savings associated with this provision of less than $5 million.

Facilities that have been correctly reporting non-Medicare acquisition

costs would not be affected by this proposal. Facilities that have not

would find their Medicare payments reduced to better reflect Medicare's

share of allowable acquisition costs.

For the reasons stated above, we are not preparing analyses for

either the RFA or section 1102(b) of the Act since we have determined,

and the Secretary certifies, that this proposed rule would not result

in a significant economic impact on a substantial number of small

entities and would not have a significant economic impact on the

operations of a substantial number of small rural hospitals.

In accordance with the provisions of Executive Order 12866, this

regulation was not reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 412

Administrative practice and procedure, Health facilities, Medicare,

Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 413

Health facilities, Kidney diseases, Medicare, Puerto Rico,

Reporting and recordkeeping requirements.

42 CFR Part 414

Administrative paractice and procedure, Health facilities, Health

professions, Kidney diseases, Medicare, Reporting and recordkeeping

requirements, Rural area, X-rays.

42 CFR Chapter IV would be amended as set forth below:

A. 42 CFR part 412 is amended as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL

SERVICES

1. The authority citation for part 412 is revised to read as

follows:

Authority: Secs. 1102, 1815(e), 1820, 1871, 1881, and 1886 of

the Social Security Act (42 U.S.C. 1302, 1395g(e), 1395i-4, 1395hh,

1395rr, and 1395ww).

2. Section 412.113 is amended by revising paragraph (d) to read as

follows:

Sec. 412.113 Other payments.

* * * * *

(d) Heart, kidney, and liver acquisition costs incurred by

hospitals with approved transplantation centers. Payment for heart,

kidney, and liver acquisition costs incurred by hospitals with approved

transplantation centers is made on a reasonable cost basis, as provided

in Sec. 413.202.

B. 42 CFR part 413 is amended as follows:

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR

END-STAGE RENAL DISEASE SERVICES

1. The authority citation for part 413 continues to read as

follows:

Authority: Secs. 1102, 1814(b), 1815, 1833(a), 1861(v), 1871,

1881, 1883, and 1886 of the Social Security Act as amended (42

U.S.C. 1302, 1395f(b), 1395g, 1395l(a), 1395x(v), 1395hh, 1395rr,

1395tt, and 1395ww).

2.-3. Section 413.170 is revised to read as follows:

Sec. 413.170 Scope.

Basis and purpose. This subpart implements section 1881(b)(2) and

(b)(7) of the Act by--

(a) Setting forth the principles and authorities under which HCFA

is authorized to establish a prospective payment system for outpatient

maintenance dialysis furnished in or under the supervision of an ESRD

facility approved under subpart U of part 405 of this chapter (referred

to as ``facility'' in this section). For purposes of this section and

Sec. 413.198, outpatient maintenance dialysis means outpatient

dialysis, home dialysis and self-dialysis and home dialysis training,

as defined in Sec. 405.2102(f)(2)(ii), (f)(2)(iii), and (f)(3) of this

chapter, and includes all items and services specified in Secs. 410.50

and 410.52 of this chapter.

(b) Providing procedures and criteria under which a facility may

receive an exception to the prospective payment rates established under

this section; and

(c) Establishing procedures and criteria for a facility to appeal

its payment amount under the prospective payment system.

4. A new Sec. 413.172 is added to read as follows:

Sec. 413.172 Principles of prospective payment.

(a) Payments for outpatient maintenance dialysis are based on rates

set prospectively by HCFA.

(b) All approved ESRD facilities must accept the prospective

payment rates established by HCFA as payment in full for covered

outpatient maintenance dialysis.

(c) HCFA publishes the methodology used to establish payment rates

and changes in those rates in the Federal Register, as provided in

Sec. 413.196(b).

Sec. 413.174 [Redesignated as Sec. 413.198]

5. Existing section 413.174 is redesignated as Sec. 413.198.

6. A new Sec. 413.174 is added to read as follows:

Sec. 413.174 Prospective rates for hospital-based and independent ESRD

facilities.

(a) In accordance with section 1881(b)(7) of the Act, HCFA

establishes prospective rates using a methodology that--

(1) Differentiates between hospital-based facilities and

independent ESRD facilities;

(2) Effectively encourages efficient delivery of dialysis services;

and

(3) Provides incentives for increasing the use of home dialysis.

(b) For purposes of rate-setting and payment under this section,

HCFA considers any facility that does not meet all of the criteria of a

hospital-based facility to be an independent facility. A determination

under this paragraph is an initial determination under Sec. 498.3 of

this chapter.

(c) For purposes of rate-setting and payment under this section,

HCFA will determine that a facility is hospital-based if the--

(1) Facility and hospital are subject to the bylaws and operating

decisions of a common governing board. This governing board, which has

final administrative responsibility, approves all personnel actions,

appoints medical staff, and carries out similar management functions;

(2) Facility's director or administrator is under the supervision

of the hospital's chief executive officer and reports through him or

her to the governing board;

(3) Facility personnel policies and practices conform to those of

the hospital;

(4) Administrative functions of the facility (for example, records,

billing, laundry, housekeeping, and purchasing) are integrated with

those of the hospital; and

(5) Facility and hospital are financially integrated, as evidenced

by the cost report, which reflects allocation of overhead to the

facility through the required step-down methodology.

(d) In determining whether a facility is hospital-based, HCFA does

not consider--

(1) An agreement between a facility and a hospital concerning

patient referral;

(2) A shared service arrangement between a facility and a hospital;

or

(3) The physical location of a facility on the premises of a

hospital.

(e) If all the physicians furnishing services to patients in an

ESRD facility elect the initial method of payment (as described in

Sec. 414.313(c) of this subchapter), the prospective rate (as described

in paragraph (a) of this section) paid to that facility is increased by

an add-on amount as described in Sec. 414.313.

(f) Erythropoietin (EPO)/Epoietin (EPO).

(1) When EPO is furnished to an ESRD patient by a Medicare approved

ESRD facility or a supplier of home dialysis equipment and supplies,

payment is based on the amount specified in paragraph (f)(3) of this

section.

(2) The payment is made only on an assignment basis, that is,

directly to the facility or supplier, which must accept, as payment in

full, the amount that HCFA determines.

(3) HCFA determines the payment amount in accordance with the

following rules:

(i) The amount is prospectively determined, as specified in section

1881(b)(11)(B)(ii) of the Act, reviewed and adjusted by HCFA, if

necessary, and paid to hospital-based and independent dialysis

facilities and to suppliers of home dialysis equipment and supplies,

regardless of the location of the facility, supplier, or patient.

(ii) If HCFA determines that an adjustment to the payment amount is

necessary, HCFA publishes a Federal Register notice proposing a

revision to the EPO payment amount and requesting public comment.

(iii) Any increase in this amount for a year does not exceed the

percentage increase (if any) in the implicit price deflator for gross

national product (as published by the Department of Commerce) for the

second quarter of the preceding year over the implicit price deflator

for the second quarter of the second preceding year.

(iv) The Medicare payment amount is subject to the Part B

deductible and coinsurance.

(g) In addition to the prospective payment described in this

section, HCFA makes an additional payment for certain drugs furnished

to ESRD patients by a Medicare-approved ESRD facility. HCFA makes this

payment directly to the ESRD facility. The facility must accept the

allowance determined by HCFA as payment in full. Payment for these

drugs is made as described below:

(1) Hospital-based facilities. HCFA makes payment in accordance

with the cost reimbursement rules set forth in this part.

(2) Independent facilities. HCFA makes payment in accordance with

the methodology set forth in Sec. 405.517 of this chapter for paying

for drugs that are not paid on a cost or prospective payment basis.

7. A new Sec. 413.176 is added to read as follows:

Sec. 413.176 Amount of payments.

(a) If the beneficiary has incurred the full deductible applicable

under Part B of Medicare before the treatment, the intermediary pays

the facility 80 percent of its prospective payment rate.

(b) If the beneficiary has not incurred the full deductible

applicable under Part B of Medicare before the treatment, the

intermediary subtracts the amount applicable to the deductible from the

facility's prospective rate and pays the facility 80 percent of the

remainder, if any.

Sec. 413.178 [Redesignated as Sec. 413.200]

8. Existing Sec. 413.178 is redesignated as Sec. 413.200.

9. A new Sec. 413.178 is added to read as follows:

Sec. 413.178 Bad debts.

(a) HCFA reimburses each facility its allowable Medicare bad debts,

up to the facility's costs as determined under Medicare principles, in

a single lump sum payment after the facility's cost reporting period

ends.

(b) A facility must attempt to collect deductible and coinsurance

amounts owed by beneficiaries before requesting payment from HCFA for

uncollectible amounts. Section 413.80 specifies the collection efforts

facilities must make.

(c) A facility must request payment for uncollectible deductible

and coinsurance amounts owed by beneficiaries by submitting an itemized

list of all specific uncollectible amounts related to covered services.

Sec. 413.179 [Redesignated as Sec. 413.202]

10. Existing Sec. 413.179 is redesignated as Sec. 413.202.

11. A new Sec. 413.180 is added to read as follows:

Sec. 413.180 Procedures for requesting exceptions to payment rates.

(a) All payments for outpatient maintenance dialysis furnished at

or by facilities are made on the basis of prospective payment rates.

(b) If a facility projects on the basis of prior year cost and

utilization trends that it will have an allowable cost per treatment

higher than its prospective rate set under this chapter and if these

excess costs are attributable to one or more of the factors in

Sec. 413.182, the facility may request that HCFA approve an exception

to that rate and set a higher prospective payment rate.

(c) This higher payment rate is subject to the rules governing the

amount of payment in Sec. 413.176.

(d) A facility must request an exception to its payment rate within

180 days of--

(1) The effective date of its new prospective payment rate;

(2) The effective date that HCFA opens the exceptions process; or

(3) The date on which an extraordinary cost increasing event

occurs, as described in Secs. 413.182(c) and 413.188.

(e) The facility must demonstrate to HCFA's satisfaction that the

requirements of this section and the criteria in Sec. 413.182 are fully

met. The burden of proof is on the facility to show that one or more of

the criteria are met and that the excessive costs are justifiable under

the reasonable cost principles set forth in this part. The burden of

proof is not on HCFA to show that the criteria are not met and that the

facility's costs are not allowable.

(f) If requesting an exception to its payment rate, a facility must

submit to HCFA its most recently completed cost report as required

under Sec. 413.198 and whatever statistics, data, and budgetary

projections are determined by HCFA to be needed to adjudicate the

exception. HCFA may audit any cost report or other information

submitted. The materials submitted to HCFA must--

(1) Separately identify elements of cost contributing to costs per

treatment in excess of the facility's payment rate;

(2) Show that the facility's costs, including those costs that are

not directly attributable to the exception criteria, are allowable and

reasonable under the reasonable cost principles set forth in this part;

(3) Show that the elements of excessive cost are specifically

attributable to one or more conditions specified in Sec. 413.182;

(4) Specify the amount of additional payment per treatment the

facility believes is required for it to recover its justifiable excess

costs; and

(5) Specify that the facility has compared its most recently

completed cost report with prior years. The facility must explain any

material cost changes and include the data and explanation with the

documentation supporting the exception request.

(g) An exception request is deemed approved unless it is

disapproved within 60 working days after it is filed with its

intermediary.

(h) In determining the facility's payment rate under the exception

process, HCFA excludes all costs that are not reasonable or allowable

under the reasonable cost principles set forth in this part.

(i) Except for exceptions approved under Sec. 413.182(c), a

prospective exception payment rate approved by HCFA applies for the

period from the date the complete exception request was filed with its

intermediary until the earlier of the--

(1) Date the circumstances justifying the exception rate no longer

exist; or

(2) End of the period during which the announced rate was to apply.

(j) A prospective exception payment rate approved by HCFA under

Secs. 413.182(c) and 413.188 applies from the date of the extraordinary

event until the end of the period during which the prospective

announced rate was to apply, unless HCFA determines that another date

is more appropriate. If HCFA does not extend the exception period and

the facility believes that it continues to require an exception to its

rate, the facility must reapply in accordance with the procedures in

this section.

(k) HCFA denies exception requests submitted without the

documentation specified in Sec. 413.182 and the applicable cross-

references.

(l) Facilities that have been denied exception requests during the

180 days may file a subsequent exception request if all required

documentation is filed with the intermediary by the 180th day.

12. A new Sec. 413.182 is added to read as follows:

Sec. 413.182 Criteria for approval of exception requests.

HCFA may approve exceptions to an ESRD facility's prospective

payment rate if the facility demonstrates by convincing objective

evidence that its total per treatment costs are reasonable and

allowable under the relevant cost reimbursement principles or this part

413 and that its per treatment costs in excess of its payment rate are

directly attributable to any of the following criteria:

(a) Atypical service intensity (patient mix), as specified in

Sec. 413.184.

(b) Isolated essential facility, as specified in Sec. 413.186.

(c) Extraordinary circumstances, as specified in Sec. 413.188.

(d) Self-dialysis training costs, as specified in Sec. 413.190.

(e) Frequency of dialysis, as specified in Sec. 413.192.

13. A new Sec. 413.184 is added to read as follows:

Sec. 413.184 Payment exception: Atypical service intensity (patient

mix).

(a) To qualify for an exception to the prospective payment rate

based on atypical service intensity (patient mix)--

(1) A facility must demonstrate that a substantial proportion of

the facility's outpatient maintenance dialysis treatments involve

atypically intense dialysis services, special dialysis procedures, or

supplies that are medically necessary to meet special medical needs of

the facility's patients. Examples that may qualify under this criterion

are more intense dialysis services that are medically necessary for

patients such as--

(i) Patients who have been referred from other facilities on a

temporary basis for more intense care during a period of medical

instability and who return to the original facility after

stabilization;

(ii) Pediatric patients who require a significantly higher staff-

to-patient ratio than typical adult patients; or

(iii) Patients with medical conditions that are not commonly

treated by ESRD facilities and that complicate the dialysis procedure.

(2) The facility must demonstrate clearly that these services,

procedures or supplies and its per treatment costs are prudent and

reasonable when compared to those of facilities with a similar patient

mix.

(3) A facility must demonstrate that--

(i) Its nursing personnel costs have been allocated properly

between each mode of care; and (ii) The additional nursing hours per

treatment are not the result of an excess number of employees.

(b) Documentation:

(1) A facility must submit a listing of all outpatient dialysis

patients (including all home patients) treated during the most recently

completed fiscal or calendar year showing--

(i) Patients who received transplants, including the date of

transplant;

(ii) Patients awaiting a transplant who are medically able, have

given consent, and are on an active transplant list, and projected

transplants;

(iii) Home patients;

(iv) Infacility patients, staff-assisted or self-dialysis;

(v) Individual patient diagnosis;

(vi) Diabetic patients;

(vii) Patients isolated because of a contagious disease;

(viii) Age of patients;

(ix) Mortality rate broken out by age and diagnosis;

(x) Number of patient transfers, reasons for transfers and any

related information; and

(xi) Total number of hospital admissions for the facility's

patients, reason for, and length of stay, of each session.

(2) The facility must also--

(i) Submit the following documentation on costs of nursing

personnel (registered nurses, licensed practical nurses, technicians

and aides) incurred during the most recently completed fiscal or

calendar year cost report showing--

(A) Amount each employee was paid;

(B) Number of personnel;

(C) Amount of time spent in the dialysis unit; and

(D) Staff to patient ratio based on total hours, with an analysis

of productive and nonproductive hours.

(ii) Submit the following documentation on supply costs incurred

during the most recently completed fiscal or calendar year cost report

showing--

(A) By modality, a complete list of supplies used routinely in a

dialysis treatment;

(B) The make and model number of dialyzer, and component cost of

each dialyzer; and

(C) That supplies are prudently purchased (for example, that bulk

discounts are used when available).

14. A new Sec. 413.186 is added to read as follows:

Sec. 413.186 Payment exception: Isolated essential facility.

(a) To qualify for an exception to the prospective payment rate

based on being an isolated essential facility--

(1) The facility must be the only supplier of dialysis in its

geographical area;

(2) The facility's patients must be unable to obtain dialysis

services elsewhere without substantial additional hardship; and

(3) The facility's excess costs must be justifiable.

(b) Criteria for approval of exception requests: In determining

whether a facility qualifies for an exception based on its being an

isolated essential facility, HCFA considers--

(1) Local permanent residential population density;

(2) Typical local commuting distances for medical services;

(3) Volume of treatments; and

(4) Dialysis facility usage by area residents other than the

applying facility's patients.

(c) Documentation:

(1) Isolated. To be considered isolated, the facility must document

that it is located outside an established Metropolitan Statistical Area

and provides dialysis to a permanent patient population, as opposed to

a transient patient population.

(2) Essential. To be considered essential, the facility must

document--

(i) That a substantial number of its patients cannot obtain

dialysis services elsewhere without additional hardship; and

(ii) The additional hardship the patients will incur, generally, in

travel time and cost.

(3) Cost per treatment. The facility must--

(i) Document that its cost per treatment is reasonable; and

(ii) Explain how the facility's cost per treatment in excess of its

composite rate relates to the isolated essential facility criteria

specified in paragraph (b) of this section.

(4) Additional information. The facility must also furnish the

following information in a format that concisely explains the

facility's cost and patient data to support its request:

(i) A list of current and requested payment rates for each

modality.

(ii) An explanation of any unusual geographic conditions in the

area surrounding the facility.

(iii) A copy of the latest filed cost report and a budget estimate

for the next 12 months prepared on cost report forms.

(iv) An explanation of unusual costs reported on the facility's

actual or budgeted cost reports and any significant changes in budgeted

costs and data compared to actual costs and data reported on the latest

filed cost report.

(v) The name, location of, and distance to, the nearest renal

dialysis facility.

(vi) A list of patients by modality showing commuting distance and

time to the current and the next nearest renal dialysis facility.

(vii) The historical and projected patient to staff ratios and

number of machines used for maintenance dialysis treatments.

(viii) A computation showing the facility's treatment capacity,

arrived at by taking the total stations multiplied by the number of

hours of operation for the year divided by the average length of a

dialysis treatment.

(ix) The geographic boundaries and population size of the

facility's service area.

15. A new Sec. 413.188 is added to read as follows:

Sec. 413.188 Payment exception: Extraordinary circumstances.

(a) To qualify for an exception to the prospective payment rate

based on extraordinary circumstances, the facility must substantiate

that it incurs excess costs beyond its control due to a fire,

earthquake, flood, or other natural disaster.

(b) HCFA does not grant an exception based on increased costs if a

facility chose not to--

(1) Maintain adequate insurance protection against such losses

(through the purchase of insurance, the maintenance of a self-insurance

program, or other equivalent alternative); or

(2) File a claim for losses covered by insurance or utilize its

self-insurance program.

16. A new Sec. 413.190 is added to read as follows:

Sec. 413.190 Payment exception: Self-dialysis training costs.

(a) To qualify for an exception to the prospective payment rate

based on self-dialysis training costs, the facility must establish that

it incurs per treatment costs for furnishing self-dialysis and home

dialysis training that exceed the facility's payment rate for such

training sessions.

(b) To justify its exception request, a facility must--

(1) Separately identify those elements contributing to its costs in

excess of the composite training rate; and

(2) Demonstrate that its per treatment costs are reasonable and

allowable.

(c) HCFA considers the facility's total costs, cost finding and

apportionment, including its allocation of costs, to determine if costs

are properly reported by treatment modality.

(d) Exception requests for a higher training rate are limited to

those cost components relating to training such as technical staff,

medical supplies, and the special costs of education (manuals and

education material) and do not generally include overhead and other

indirect costs.

(e) Documentation: The facility must provide the following

information to support its exception request:

(1) A copy of the facility's training program.

(2) Computation of the facility's cost per treatment for

maintenance sessions and training sessions including an explanation of

the cost difference between the two modalities.

(3) Class size and patients' training schedules.

(4) Number of training sessions required, by treatment modality, to

train patients.

(5) Number of patients trained for the current year and the prior 2

years on a monthly basis.

(6) Projection for the next 12 months of future training

candidates.

(7) The number and qualifications of staff at training sessions.

(f) Accelerated training exception:

(1) An ESRD facility may bill Medicare for a dialysis training

session only when a patient receives a dialysis treatment (which

normally is three times a week).

(2) If an ESRD facility elects to train all its patients using a

particular treatment modality more often than during each dialysis

treatment and, as a result, the number of its billable training

dialysis sessions are reduced, the facility may request a composite

rate limited to the lesser of the--

(i) Facility's projected training cost per treatment; or

(ii) Cost per treatment the facility would have received in

training a patient if it had trained patients only during a dialysis

treatment.

(3) An ESRD facility may bill a maximum per patient of 25 training

sessions for hemodialysis training and 15 training sessions for

continuous cycling peritoneal dialysis (CCPD) and continuous ambulatory

peritoneal dialysis (CAPD) training.

(4) In computing the payment amount under an accelerated training

exception, to ensure adequate patient training, HCFA uses a minimum

number of training sessions per patient, (15 for hemodialysis and 5 for

CAPD and CCPD) when the facility actually provides fewer than the

minimum number of training sessions.

(5) To justify an accelerated training exception request, an ESRD

facility must document that all training sessions provided for a

particular modality are provided during the shorter but more condensed

period.

(6) The facility must submit with the exception request a list of

patients, by modality, trained during the most recent cost report

period, and the list must include each beneficiary's--

(i) Name;

(ii) Age; and

(iii) Training status (completed, not completed, being retrained,

or in the process of being trained).

(7) The total treatments from the patient list must be the same as

the total treatments reported on the cost report filed with the

request.

17. A new Sec. 413.192 is added to read as follows:

Sec. 413.192 Payment exception: Frequency of dialysis.

(a) To qualify for an exception to the prospective payment rate

based on frequency of dialysis, the facility must establish that it has

a substantial portion of outpatient maintenance dialysis treatments

furnished to patients who dialyze less frequently than three times per

week.

(b) For purposes of this section, substantial means the number of

treatments furnished by the facility is at least 15 percent lower than

the number if all patients dialyzed three times a week.

(c) Per treatment payment rates granted under this exception may

not exceed the amount that results in weekly payment per patient equal

to three times the facility's prospective composite rate, exclusive of

any exception amounts.

(d) Documentation: To document that an ESRD facility furnishes a

substantial number of dialysis treatments at a frequency less than 3

times per week per patient, the facility must submit the following

information:

(1) A list of patients receiving outpatient dialysis treatments for

the cost report that is being filed with the request. The list must

indicate--

(i) Whether the patients are permanent, transient or temporary;

(ii) The medically prescribed frequency of dialysis; and

(iii) The number of dialysis treatments that each patient received

on a weekly and yearly basis and an explanation of any discrepancy

between that calculation and the number of treatments reported on the

facility's cost report.

(2) A list of patients used to project treatments. The list must

indicate--

(i) Whether the patients are permanent, transient or temporary;

(ii) The medically prescribed frequency of dialysis;

(iii) The number of dialysis treatments that each patient is

projected to receive on a weekly and yearly basis, an explanation of

any discrepancy between that calculation and the number of treatments

reported on the facility's projected cost report, and an explanation

for any change between prior actual and projected data.

(3) A schedule showing the number of treatments to be furnished

twice a week and the number of treatments that would have been

furnished if each patient were dialyzed three times a week, including a

computation of the facility's projected costs per treatment using the--

(i) Projected number of treatments furnished twice a week; and

(ii) Number of treatments if patients dialyze three times a week.

(4) A schedule showing the computation of the percentage decrease

in the number of treatments.

18. A new Sec. 413.194 is added to read as follows:

Sec. 413.194 Appeals.

(a) Appeals under section 1878 of the Act. (1) A facility that

disputes the amount of its allowable Medicare bad debts reimbursed by

HCFA under Sec. 413.178 may request review by the intermediary or the

Provider Reimbursement Review Board (PRRB) in accordance with subpart R

of part 405 of this chapter.

(2) A facility must request and obtain a final agency decision

prior to seeking judicial review of a dispute regarding the amount of

allowable Medicare bad debts.

(b) Other appeals. (1) A facility that has requested higher payment

per treatment in accordance with Sec. 413.180 may request review from

the intermediary or the PRRB if HCFA has denied the request in whole or

in part. In such a case, the procedure in subpart R of part 405 of this

chapter is followed to the extent that it is applicable.

(2) The PRRB, subject to review by the Administrator under

Sec. 405.1875 of this chapter, has the authority to review the action

taken by HCFA on the facility's requests.

(3) A facility must request and obtain a final agency decision

prior to seeking judicial review of the denial, in whole or in part, of

the exception request.

(c) Procedure. (1) The facility must request review within 180 days

of the date of the decision on which review is sought.

(2) The facility may not submit to the reviewing entity, whether it

be the intermediary or the PRRB, any additional information or cost

data that had not been submitted to HCFA at the time HCFA evaluated the

exception request.

(d) Determining amount in controversy. For purposes of determining

PRRB jurisdiction under subpart R of part 405 of this chapter for the

appeals described in paragraph (b) of this section--

(1) The amount in controversy per treatment is determined by

subtracting the amount of program payment from the amount the facility

requested under Sec. 413.180; and

(2) The total amount in controversy is calculated by multiplying

the amount in controversy per treatment by the projected number of

treatments for the exception request period (as specified in

Sec. 413.180(g) and (h)).

19. A new Sec. 413.196 is added to read as follows:

Sec. 413.196 Notification of changes in rate-setting methodologies and

payment rates.

(a) HCFA or the facility's intermediary notifies each facility of

changes in its payment rate. This notice includes changes in individual

facility payment rates resulting from corrections or revisions of

particular geographic labor cost adjustment factors.

(b) Changes in payment rates resulting from incorporation of

updated cost data or general revisions of geographic labor cost

adjustment factors are announced by notice published in the Federal

Register without opportunity for prior public comment. Revisions of the

rate-setting methodology are published in the Federal Register in

accordance with the Department's established rulemaking procedures.

20. Newly redesignated Sec. 413.200 is amended by revising the

heading and paragraph (b) to read as follows:

Sec. 413.200 Payment of independent organ procurement organizations

and histocompatibility laboratories.

* * * * *

(b) Definitions. For purposes of this section:

Freestanding--An OPO or a histocompatibility laboratory is

freestanding unless it--

(1) Is subject to the control of the hospital in regard to the

hiring, firing, training and paying of employees; and

(2) Is considered as a department of the hospital for insurance

purposes (including malpractice insurance, general liability insurance,

worker's compensation insurance, and employee retirement insurance).

Histocompatibility laboratory means a laboratory meeting the

standards and providing the services for kidneys or other organs set

forth in Sec. 405.2171(d) of this chapter.

OPO means an organization that meets the definition in Sec. 485.302

of this chapter.

* * * * *

Sec. 413.202 [Amended]

21. In newly redesignated section 413.202, the following changes

are made:

(a) The heading is revised to read as follows: 413.202 Organ

procurement organizations' (OPOs') or transplant centers' costs for

organ sent to foreign countries or transplanted in patients other than

Medicare beneficiaries.

(b) The term ``organs'' is substituted for ``kidneys'' in the text

wherever the term appears.

(c) The phrase ``military transplant hospital'' is substituted for

``military renal transplant hospital''.

C. 42 CFR part 414 is amended as follows:

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

1. The authority citation for part 414 continues to read as

follows:

Authority: Secs. 1102, 1833(a), 1834 (a) and (h), 1871, and 1881

of the Social Security Act (42 U.S.C. 1302, 1395l(a), 1395m (a) and

(h), 1395hh, and 1395rr).

2. Section 414.313 is amended by revising paragraph (a) to read as

follows:

Sec. 414.313 Initial method of payment.

(a) Basic rule. Under this method, the intermediary pays the

facility for routine professional services furnished by physicians.

Payment is in the form of an add-on to the facility's composite rate

payment, which is described in part 413 subpart H of this subchapter.

* * * * *

3. Section 414.314 is amended by revising paragraph (a)(5) to read

as follows:

Sec. 414.314 Monthly capitation payment method.

(a) Basic rules. * * *

(5) Payment for physician administrative services (Sec. 414.310) is

made to the dialysis facility as part of the facility's composite rate

(part 413 subpart H of this subchapter) and not to the physician under

the MCP.

* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.773,

Medicare--Hospital Insurance; and Program No. 93.774, Medicare--

Supplementary Medical Insurance Program)

Dated: May 15, 1994.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

Dated: August 10, 1994.

Donna E. Shalala,

Secretary.

[FR Doc. 94-20626 Filed 8-25-94; 8:45 am]

BILLING CODE 4120-01-P