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

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## Record

- **Collection:** Federal Register
- **Document type:** Uncategorized Document
- **Published:** August 26, 1994

## Text

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.

-----------------------------------------------------------------------

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:

------------------------------------------------------------------------
New section Old section
------------------------------------------------------------------------
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.
------------------------------------------------------------------------

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-20626. Public record. Not legal advice.