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-F]

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: Final rule.

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SUMMARY: These final regulations specify the criteria HCFA uses to

determine if a facility that furnishes dialysis services to Medicare

patients with end-stage renal disease (ESRD) qualifies for a higher

payment under an exception to its prospectively determined payment rate

and the procedures HCFA uses to evaluate ESRD payment exception

requests. These regulations also revise the way HCFA computes

acquisition costs for organs that are transplanted into Medicare

beneficiaries.

EFFECTIVE DATE: September 15, 1997.

FOR FURTHER INFORMATION CONTACT: Michael Powell, (410) 786-4557.

SUPPLEMENTARY INFORMATION:

I. Background

Under sections 1881(b)(2) and (b)(7) of the Social Security Act

(the Act), a facility that furnishes dialysis services to Medicare

patients with ESRD 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 that

are billed separately. The composite rate may be adjusted periodically

to reflect actual facility costs.

When a facility's costs are higher than the prospectively

determined rate, we 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 the Medicare Provider Reimbursement Manual

(PRM) (HCFA Pub. 15-1).

A facility may incur excess costs when it furnishes dialysis

services to a patient population with a greater than average number of

pediatric patients or patients with other medical conditions, such as

those with heart disease or unstable medical conditions, who 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 and its

patients are unable to obtain dialysis services elsewhere without

considerable hardship (an isolated essential facility).

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 costs because the

treatments involve increased labor or supplies. When this occurs, a

facility may apply for an exception to the composite rate.

On several occasions, we have denied exception requests based on

application of the criteria contained in the 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

believe it is necessary to codify in regulations the specific

requirements for determining exceptions.

II. Provisions of the Proposed Rule

On August 26, 1994, we published in the Federal Register (59 FR

44097) a proposed rule that specified the conditions (previously

contained in the PRM) that a facility furnishing dialysis services to

patients with ESRD must meet in order to qualify for a higher payment

under an exception to the prospectively determined payment rate. The

proposed rule also contained the criteria that we would use to evaluate

whether the facility meets the conditions.

We also proposed to revise 42 CFR Part 413, Subpart H, Payment for

ESRD Services. Currently, all of the Medicare payment rules for covered

outpatient maintenance dialysis treatments can be found in

Sec. 413.170. We proposed 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. The table outlining

this change is shown below.

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New section Old section

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

413.172 Principles of prospective 413.170(b)

payment.

413.174 Prospective rates for hospital- 413.170(c)

based and independent ESRD facilities.

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

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

413.180 Procedures for requesting 413.170(f)

exceptions to payment rates.

413.182 Criteria for approval of 413.170(g)

exception requests.

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

service intensity (patient mix).

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

essential facility.

[[Page 43658]]

413.188 Payment exception: 413.170(g)(4)

Extraordinary circumstances.

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

dialysis training costs.

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

dialysis.

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

413.196 Notification of changes in rate- 413.170(i)

setting methodologies and payment rates.

413.198 Recordkeeping and cost 413.174

reporting requirements for outpatient

maintenance dialysis.

413.200 Payment of independent organ 413.178

procurement organizations and

histocompatibility laboratories.

413.202 Organ procurement organization 413.179

(OPO) cost for kidneys sent to foreign

countries or transplanted in patients

other than Medicare beneficiaries.

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III. Analysis of and Responses to Public Comments

In response to the August 26, 1994 proposed rule, we received nine

timely items of correspondence. The specific comments and our responses

are set forth below following each section describing the specific

provisions of the proposed rule. The sections generally follow the

order of the discussed topics in the proposed rule, with the exception

of the section entitled Bad debts that appears last.

A. General

Comment: One commenter suggested that we update the composite rate

on a regularly scheduled basis, as is done for the hospital inpatient

prospective payment system rates, home health agency rates, hospice

rates, and resource-based relative value scale rates.

Response: Under section 4201 of the Omnibus Budget Reconciliation

Act of 1990 (OBRA '90), Public Law 101-508, from January 1, 1991,

onward, Congress has set the composite rates for payment for ESRD

services furnished to Medicare beneficiaries. Any change would require

legislative action. Thus, we have no discretion in this regard.

B. Procedures for Requesting Exceptions to Payment Rates (Sec. 413.180)

We proposed to 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 proposed to specify that a

facility requesting an exception to its payment rate must do so within

180 days of:

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

The effective date that HCFA opens the exceptions process;

or

The date on which an extraordinary cost-increasing event,

as described in proposed Secs. 413.182(c) and 413.188.

In Sec. 413.180(f)(5), we proposed 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 us to more intensively

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

(for example, number of treatments) must be explained and the

explanation included with the documentation supporting the exception

request.

We also proposed in Sec. 413.180(f) and Sec. 413.182 to 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 patients with severe medical conditions. After

submitting evidence that it treats these patients, the facility should

submit records to show that a more experienced and better trained

nursing staff is required to treat these patients and/or additional

nursing staff time is needed. 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 patients with other

medical conditions that were 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.

In Sec. 413.180 (g) and (h), we proposed to codify in regulations

the requirement under section 1881(b)(7) of the Act that specifies that

unless we disapprove a composite rate exception request within 60

working days after it is filed with an intermediary, the exception is

deemed approved. We require that intermediaries review and process all

exception requests within 15 working days, and we process the

exceptions within 45 working days.

Comment: One commenter suggested that we set three levels of

documentation for exception requests in order to reduce the amount of

work involved in both the preparation and review of an exception

request. These three levels of documentation would include new

requests, renewal of an existing request with significant changes, and

renewal of an existing request with no significant changes,

respectively. The first level (new requests) would incorporate the

standard currently required for all exception requests. The second

level (renewal of an existing request) would require sufficient

documentation to justify any additional amounts over the amount

previously granted by HCFA but would not require documentation for

previously justified exceptions. The third level (renewal of an

existing request with no significant changes) would require only the

submission of basic data and a facility certification to demonstrate

that the situation has not changed.

Response: We do not agree with the commenter that the exceptions

process should be established at three different levels. Given the

limited timeframe allowed by the Act to approve or deny an exception

(60 working days), we do not believe it would be feasible to sort

through three levels of requests and address the specific issues

associated with each level. Moreover, because of the volume of

exceptions we receive during each exception window, we are unable to

maintain exception documentation on past windows in-house, but must

store these files at the Federal Records Center. Retrieving records

could significantly lengthen the time we would need to review a

request.

However, we agree with the commenter that requiring facilities to

file new exception requests each time a cycle is opened may be overly

burdensome for those facilities where no significant changes have

occurred from the previous exception cycle. Therefore, we are providing

(at Sec. 413.180(e)) a mechanism for a facility to request retention of

its current exception rate. This option is only available to those

facilities that can demonstrate that the circumstances under which

their current exception rates were granted still apply.

Historically, these providers have been required to prepare new

exception request submissions for each exception

[[Page 43659]]

cycle. Almost all pediatric hospitals furnishing dialysis services that

apply for exceptions are granted them, and the same is true for many

isolated essential facilities. To ease the repetitive filing burden

(and cost) for these types of facilities, we are providing for the

continuation of prior exception amounts for qualifying facilities.

Also, this provision would eliminate uncertainties concerning future

payment rates.

We note that during an earlier exception cycle that opened March 1,

1991 and closed August 27, 1991, we allowed renal facilities a similar

option of continuing to receive the exception payment rates approved

during the preceding exception cycle (December 1, 1989 to May 29,

1990).

For each exception cycle, servicing intermediaries will inform all

facilities by letter, 30 days prior to the effective date of a new

exception cycle, that they can request exception payment rates approved

during the preceding exception cycle. The facilities must then file a

request with their servicing intermediary during the 30 days prior to

the opening of the next exception cycle. This request should consist of

a letter to the facility's servicing intermediary requesting the

continuation of its previously approved exception amount. While no

specific documentation is required with this request, the facility

should provide enough information to adequately demonstrate that the

circumstances under which the previous exception was granted have not

changed. For example, for all exception requests facilities should

document that its cost per treatment is higher than its composite

payment rate, or if a facility is an isolated essential facility, it

should specify that no new facilities have been established nearby.

This request must be filed with the intermediary before the beginning

of the exception cycle. The document must be delivered during the

intermediary's regular business hours. Delivery of the request must be

accomplished through a method that documents the time and date of

receipt. A postmark or other similar mark does not serve as

documentation of the time and date of receipt.

The intermediary will determine whether the renal facility still

meets the exception criteria, that is, that the circumstances under

which the exception was granted still exist. The intermediary will be

required to make a determination on these requests within 10 working

days and notify the provider and HCFA. If the intermediary determines

that the renal facility meets the exception criteria, the approved

exception amount would be equal to the previously approved rate, and

payment at this approved rate would continue. In cases where an

exception cycle is opened because a rate increase has been approved by

Congress, a facility that chooses to retain its exception rate would do

so in lieu of any update to its composite payment rate(s).

If the facility does not continue to meet the exception criteria,

the intermediary will notify the facility that, effective with the

opening of the new exception cycle, the currently approved exception

rate will expire and the current composite rate will go into effect. If

this facility still believes it is entitled to an exception during this

exception cycle, it can file a complete exception request during the

remainder of the 180-day cycle.

If a renal facility does not request retention of its previously

approved exception rate but still wishes an exception, the facility

would be required to submit a new request during the new exception

cycle. However, the approval of an exception does not assure that the

amount would be equal to or higher than the currently approved

exception amount. Furthermore, if the facility fails to adequately

justify its exception request in accordance with the regulations and

program instructions, its exception request could be denied.

Comment: One commenter suggested that we add an inflation factor to

the approved rate in the second and third year during which an

exception has been granted.

Response: A facility requesting approval of an exception to its

composite rate must request a higher payment rate based on its

projected budget estimate(s). Therefore, an approved exception rate

based on projected costs would already include the inflation factor.

The projected budget estimate(s) should cover the period to which the

exception rate is to apply.

Comment: Several commenters suggested that we should establish

regularly scheduled intervals or effective dates for the opening of the

exceptions process to avoid placing an administrative burden on the

provider, the intermediary, and HCFA.

Response: Currently, the exceptions process is opened each time

there is a legislative change in the composite payment rate. In

addition, because of the lack of any updates to the composite rates in

recent years, we have opened the exceptions process three times without

issuing new rates, most recently from November 1, 1993 through April

29, 1994. Only Congress has the authority to issue new rates. Deciding

whether to issue new rates has been driven by several factors, such as:

(a) A review of updated ESRD audited cost and statistical data; (b) an

analysis of the general growth and mix of the ESRD population in renal

dialysis facilities, and (c) Congressional concerns with payment rates.

Therefore, if new prospective payment rates are not issued by Congress,

we will continue to determine when to open the exceptions process.

Comment: One commenter suggested that when we open the exceptions

process all facilities should be eligible to apply for an exception,

rather than the limited group of facilities specified in the proposed

rule.

Response: In the preamble of the proposed rule, we stated that we

had opened the exceptions process in situations where there had not

been a rate change, permitting facilities that had received partial

approvals, new facilities, or facilities that had been previously

denied exceptions the chance to file for an exception. We did not mean

to imply that the exceptions process is only open to these facilities.

Whenever we have opened the exceptions window, all facilities have been

permitted to apply for an exception, regardless of previous

circumstances. However, it is only when the exception window is open

that a facility may seek an exception. Likewise, a facility wishing to

retain its previously approved exception rate may only do so during the

30-day period prior to the opening of an exception cycle. We have added

a sentence to Sec. 413.180(b) to clarify this requirement.

Comment: One commenter pointed out that Sec. 413.180(f)(5), which

requires the facility to provide a comparative analysis of its costs in

the most recent cost reporting period and prior years, does not specify

the number of prior years' data required. The commenter believed that

in order to avoid arbitrarily denying an exception request that did not

contain enough comparative years, we should specify the number of years

required.

Response: We agree with the commenter and have included language in

Sec. 413.180(f)(5) to state that the materials submitted to us must

include a comparative analysis of the facility's costs in its most

recently completed cost report with reported costs from (at least 2)

prior years.

Comment: One commenter recommended that the regulation should

specify the intermediary's review responsibilities during the 15

working days it has to make a recommendation to HCFA. Another commenter

stated that the

[[Page 43660]]

intermediary's determinations regarding ``completeness'' invite

subjective interpretations. Both commenters suggested the

intermediary's 15 working day timeframe should be extended.

Response: The specific review responsibilities for intermediaries

are detailed in Chapter 27 of the PRM. These responsibilities include:

(a) Reviewing for completeness and accuracy the exception request, the

cost report, the facility's projected costs, and any other

documentation submitted by the facility to support its exception; (b)

maintaining a composite rate exception log; (c) developing the content

of the letter used to return an exception request to the facility; and

(d) determining whether the facility's costs are reasonable and

allowable. The intermediary makes the determination with respect to

``completeness,'' and, if the renal facility fails to submit the

documentation required by Chapter 27 of the PRM, the exception request

is returned to the facility. Rather than specify the intermediary's

responsibilities in the regulation, we believe the PRM is the

appropriate place to do so. Because of the statutory deadline (section

1881(b)(7) of the Act) that an exception request is deemed approved

unless we disapprove it within 60 working days, and the volume of

exceptions received during an exceptions window, we believe the present

timeframes (15 working days for the intermediary and 45 working days

for HCFA) for processing exceptions should be maintained in order to

ensure that all exceptions are processed timely.

Comment: One commenter was concerned about the implications of

proposed Sec. 413.180(l). The commenter stated that this section

implies that the facility must submit an entirely new exception request

if the first request (or any subsequent request) is denied.

Furthermore, the commenter believed that facilities should be able to

send all additional data or clarifications directly to HCFA. The

commenter asserted that filing an entirely new request was unnecessary.

Response: As explained above, the intermediary has 15 working days

to review the exception request for completeness and accuracy, and, if

the exception request is denied because the ESRD facility did not

submit the required documentation, the intermediary returns the

exception request with a letter. Presently, the instructions in the PRM

require that the entire exception request be returned when an exception

is denied, and a new request must be submitted with the missing

documentation.

We agree with the commenter that, in this situation, the submission

of an entirely new exception request is not necessary. We have revised

the instructions in the PRM to indicate that the denial letter from the

intermediary to the ESRD facility will include a list of missing or

inadequate documentation and the intermediary will request only the

submission of the missing or corrected information. However, we do not

agree with the suggestion that the ESRD facility should provide the

additional information directly to HCFA. Because of the volume of

exceptions received during an exception window, administratively it

will be more efficient to have each servicing intermediary track the

exceptions processed through its office and review the new information

submitted by the ESRD facility. The intermediary will then forward the

exceptions to us in accordance with Chapter 27 of the PRM.

Comment: One commenter suggested that because of the significant

data gathering and analysis required for an exception, it should be

understandable that some data elements are missed or that additional

support or clarification may be required by the intermediary. The

commenter suggested that providers should be permitted to submit this

additional documentation after the 180-day period without an immediate

exception denial. Furthermore, rate increases should be approved

retroactively to the date that all detailed information is received.

Response: We disagree with the commenter. An ESRD facility that

files its exception request promptly at the opening of a 180-day

exception period and has its exception denied would have an additional

opportunity to submit a new request before the exception period closes.

If a facility chooses instead to file an exception request at or near

the end of the 180-day exception period and it is not filed with all

required documentation, we do not believe that it is unfair to deny the

exception request. Facilities must accept the risk associated with

filing their exception requests at the last minute. Since the composite

rate system is a prospective payment system, we believe that it would

be inconsistent to grant exceptions retroactively based on the

subsequent receipt of information.

C. Criteria for Approval of Exception Requests (Sec. 413.182)

We proposed to redesignate the contents of Sec. 413.170(g),

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

section, we listed the criteria that may be the basis of a rate

exception. These criteria are: atypical service intensity (patient mix)

(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); and frequency of dialysis (new Sec. 413.192).

We received no comments on this listing. Comments on the criteria

themselves are discussed in the appropriate sections below.

D. Payment Exception: Atypical Service Intensity (Patient Mix)

(Sec. 413.184)

In the proposed rule, we specified the documentation required of a

facility requesting a rate exception based on patient mix.

In Sec. 413.184(b)(1), we proposed to 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

the transplant;

Patients awaiting a transplant who are medically able,

have given consent, and are on an active transplant list, as well as

projected transplants;

Home patients;

In-facility patients, staff-assisted or self-dialysis;

Individual patient diagnoses;

Diabetic patients;

Patients isolated because of a contagious disease;

Age of patients;

Mortality rate, 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

ESRD patients, including reason 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

involves more intense dialysis services and special dialysis

procedures, we will compare the above data submitted by providers to

data contained in our Patient Profile Tables. The information in the

Tables is developed annually and represents information on persons with

ESRD covered by Medicare.

In Sec. 413.184(b)(2)(i), we proposed to require that a facility

submit the following documentation on costs of nursing personnel

(registered nurses (RNs), licensed practical nurses (LPNs), technicians

and aides) incurred during the most recently completed fiscal or

calendar year cost report showing:

Amount of remuneration of each employee;

Number of personnel;

[[Page 43661]]

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, we use staff-to-patient ratios to determine

whether there is an excess number of employees assigned to a facility's

dialysis department; however, we also may consider staffing schedules.

Thus, 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 patients with other medical conditions

that were treated and the more experienced or additional staff needed

to treat them.

When adjudicating exception requests, we 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.

Proposed Sec. 413.184(b)(2)(ii) included the requirement 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;

The make and model number and component cost of each

dialyzer; and

That the supplies are prudently purchased (for example,

the facility uses bulk purchase discounts when available).

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.

When adjudicating exception requests, we will utilize the above

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

medically necessary to meet their special medical needs.

Comment: One commenter believed it is an unreasonable burden to

require facilities to submit 12 months of staffing schedules, since

these schedules are not normally kept as permanent files and a facility

might not be able to anticipate the opening of an exception window. The

commenter suggested that 3 to 6 months of staffing schedules would be

more than reasonable to sufficiently document a facility's normal

staffing ratios.

Response: Staffing schedules were only mentioned in the proposed

rule as an example of the type of records a provider could submit to

document its higher nursing costs and/or to demonstrate that there is

not an excessive number of employees assigned to a facility's dialysis

department. These schedules are basic source documents representing

services rendered, and we believe that renal dialysis facilities

maintain these schedules. We continue to believe that it is not

unreasonable for a facility to submit 12 months of staffing schedules

in support of its higher nursing costs. Regardless of the nature of the

supporting documentation submitted, the facility must ensure that the

data adequately substantiate its higher labor costs for the entire cost

reporting year.

Comment: One commenter wanted the meaning of ``productive and

nonproductive hours'' clarified. The commenter was confused as to where

activities such as educational meetings, lunch breaks, paperwork, and

charting fit into the documentation of staff costs.

Response: The term ``productive hours'' means the amount of paid

nursing staff time spent on direct (hands-on) patient care and any

hours explicitly connected to patient care, such as charting. All other

paid nursing staff time, such as training, education, management,

holidays, vacations, sick time, and lunch breaks, is considered

``nonproductive hours''.

Comment: One commenter believed that serving an atypical patient

population could result in cost increases in areas beyond staff and

supplies. Specifically, patients with severe cardiac complications

might require additional monitoring equipment, and patients with

communicable respiratory diseases (such as tuberculosis) might require

special ventilation systems. The commenter recommended that documented

overhead costs should be included in the calculation of a higher

exception rate.

Response: We agree with the commenter and have in the past approved

exception amounts for overhead costs related to (a) special equipment

necessary for the care of patients with other medical conditions, and

(b) isolation areas required for the care of hepatitis or other

patients where the facility can show that isolation is necessary. For

these costs to be considered under this set of exception criteria,

documentation must be submitted demonstrating the basis of the higher

costs and the incremental impact on per treatment costs. The

documentation must also explain how these costs relate to the atypical

patient mix exception criteria. We have added Sec. 413.184(b)(2)(iii)

to state that the facility must submit documentation on overhead costs

incurred during the most recently completed cost reporting year

showing--

The basis of the higher overhead costs;

The impact on the specific cost components; and

The effect on per treatment costs.

Comment: One commenter suggested that we should publish a complete,

detailed list of supplies used in the typical dialysis treatment,

including the cost of those supplies and the volume of each that is

used per treatment. The commenter recommended that the listing should

be in the same format as we require the facilities to use. The

commenter also stated that we must publish the components of the

composite rate in order to allow appropriate comparisons, including the

costs, staffing ratios, and employee mix (that is, anything that we

deem to be essential in order to make the comparison).

Response: When evaluating the reasonableness of a facility's

component costs shown in its exception request, we use national data

and general program statistics. Chapter 27 of the PRM includes our

median cost per treatment data as follows:

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

Cost component Amount

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

Salaries...................................................... $40.00

Supplies...................................................... 33.00

Overhead, excluding employee benefits......................... 47.00

Overhead, including employee benefits......................... 54.00

Employee benefits............................................. 7.00

Laboratory.................................................... 3.00

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

We do not maintain detailed breakdowns of the above cost

components. The cost components were derived from audited cost reports

of hospital-based and independent renal dialysis facilities. Therefore,

it would be difficult for us to publish an accurate list of these

components to use as comparisons.

Comment: One commenter stated that where a provider had

demonstrated that higher nursing staff costs are necessary to care for

the sicker patients being treated, we should also recognize the higher

amount of administrative and general (A & G) costs that will be

allocated through the step-down process on the hospital's cost report.

The

[[Page 43662]]

commenter also stated that since Medicare cost reporting policy

recognizes ``accumulated cost'' as a fair and accurate basis for

allocating A & G costs for cost reporting purposes, we must consider

these allocated A & G costs when adjudicating ESRD exception requests.

Response: As stated in the proposed rule, the accounting protocol

used for cost reporting is separate and distinct from identifying the

actual A & G costs that are directly attributable to higher nursing

staff costs. For a hospital-based facility, if the direct cost of

nursing staff salaries in the dialysis department increased, the A & G

allocated to that department would automatically increase. This is the

result of the hospital cost reporting accounting protocol, which

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

costs of the other departments. 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 salary costs.

In accordance with Sec. 413.180(f)(3), a facility must submit

materials that show that the elements of excessive costs are

specifically attributable to one or more of the conditions specified by

the exception criteria set forth in Sec. 413.182. According to

Sec. 413.182, HCFA may approve exceptions to an ESRD facility's

prospective payment rate if the facility demonstrates with convincing

objective evidence that its total per treatment costs are reasonable

and allowable under the relevant cost reimbursement principles of Part

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

directly attributable to any of the exception criteria.

Our regulations do not require that the same principles of cost

allocations and cost apportionment be used to determine which costs, in

excess of the payment rate, are directly attributable to the exception

criteria. Moreover, a provider that is granted an exception is not

automatically entitled to the same payment it would have received under

cost reimbursement. The excess costs must be directly attributable to

the exception criteria.

E. Payment Exception: Isolated Essential Facility (Sec. 413.186)

We proposed to include the requirements of existing

Sec. 413.170(g)(2) as new Sec. 413.186, and add documentation

requirements for facilities that apply for a payment rate exception

based on being an isolated essential facility.

1. Isolated Facility

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

located outside an established Metropolitan Statistical Area (MSA) and

provides dialysis to a permanent patient population as opposed to a

transient patient population.

2. 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.

3. 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

must identify the additional costs incurred on a per treatment basis

and then relate that additional cost per treatment to the exception

criteria.

4. 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.

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 the current and next to 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.

Comment: One commenter sought an explanation of the basis for the

existing volume of treatment criterion (redesignated

Sec. 413.186(b)(3)). The commenter also recommended the establishment

of a guideline for the necessary size of a facility's permanent patient

population and a guideline related to a facility's minimum utilization

rate.

Response: Facilities applying for an isolated essential facility

exception are required to submit information with respect to the volume

of treatments in order to permit comparisons with similar facilities

and to determine a facility's treatment capacity. We will review the

issue of developing guidelines for permanent patient population size

and minimum utilization rates to determine whether it is appropriate to

establish national guidelines.

Comment: One commenter requested that we clarify the language in

Sec. 413.186(b)(4) pertaining to usage of the facility ``by area

residents other than the applying facility's patients.''

Response: We have revised Sec. 413.186(b)(4) to specify that in

determining whether a facility qualifies for an exception based on its

being an isolated essential facility, we will consider the extent to

which dialysis facilities (other than the applying facility's patients)

are used by area residents.

Comment: One commenter suggested that a facility could be located

in an MSA but still be the only supplier of dialysis in its

geographical area. The commenter recommended that Sec. 413.186(c)(1) be

revised to prevent an otherwise ``isolated'' and ``essential'' facility

from being automatically denied because it is located in an MSA.

Response: We agree with the commenter that it is possible that an

``isolated'' facility might be located in an MSA but still qualify for

an exception based on all other criteria specified in this section. We

are aware of several unique situations in this country where only one

dialysis facility is located in a particular area that is considered an

MSA. In these situations, given the characteristics associated with

most MSAs, we look more closely at whether these facilities are truly

[[Page 43663]]

isolated (for example, increased availability of mass transportation,

better road conditions, and stronger commuting patterns).

Further, we are aware that sole community hospitals (SCHs) and

isolated essential facilities are defined utilizing different criteria.

SCHs and isolated essential facilities render distinct care, with SCHs

responsible for normal inpatient hospital stays, and isolated essential

facilities responsible for routine outpatient maintenance dialysis that

can be provided by a hospital-based or independent dialysis facility.

Also, SCHs are defined under 42 CFR Part 412--Prospective Payment

Systems for Inpatient Hospital Services, and isolated essential

facilities are defined under 42 CFR Part 413, subpart H--Payment for

End-Stage Renal Disease Services. However, in one criterion, location

in an MSA, the definitions are similar. Within this definition, an SCH

located in an MSA is automatically disqualified from being designated

as an SCH. Because of the differences between isolated essential

facilities and SCHs and the fact that several isolated essential

facilities are unique (as explained above) we are changing the

definition for isolated essential facilities located in an MSA.

Therefore, we are revising Sec. 413.186(c)(1) to state that to be

considered isolated, we would generally require the facility to

document that it is located outside an established MSA.

F. Payment Exception: Extraordinary Circumstances (Sec. 413.188)

We proposed to redesignate existing Sec. 413.170(g)(4) as

Sec. 413.188.

We received no comments on this proposed change.

G. Payment Exception: Self-Dialysis Training Costs (Sec. 413.190)

We proposed to repeat the content of existing Sec. 413.170(g)(5) in

new Sec. 413.190(a) and to specify the documentation that we would

require of a facility requesting a rate exception under this provision.

We proposed to require that a facility justify its exception request by

separately identifying those elements contributing to its costs in

excess of the composite training rate. In adjudicating these exception

requests, we would 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 materials). Overhead and other indirect costs do not

generally form a basis for granting an exception for purposes of self-

dialysis training costs.

Under Sec. 413.190(e), we proposed that 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.

Number and qualifications of staff at training sessions.

Proposed Sec. 413.190(f) provided that 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 actual training sessions exceeds the billable limit, the

facility may request a composite rate adjustment limited to the lesser

of the facility's projected training cost per treatment or calculate

the cost per treatment using the minimum and maximum training sessions

discussed below.

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

patient 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, we presume 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.

To justify an accelerated training exception request, the proposed

rule required that an ESRD facility 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. 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 proposed to deny

any exception request that a facility submits without the above

documentation.

For purposes of clarification, we have revised Sec. 413.190(f)(2)

to state that a facility may request an exception if the facility

elects to train 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 is less than its actual

training sessions.

Comment: One commenter objected to the current criterion under

which a facility must train at least five patients per year in order to

qualify for a self-dialysis training exception. The commenter believed

that establishing a minimum number of patients trained may serve as a

disincentive for facilities to start a new home training program and

may conflict with the requirement of section 1881(b)(7) of the Act and

proposed Sec. 413.174(a)(3) states that our payment policies provide

incentives for increasing the use of home dialysis.

Response: This criterion was not addressed in the proposed rule.

However, we do use a minimum number of three patients per modality as a

qualifying criterion for a self-dialysis training exception. To

determine if a facility qualifies, we use each facility's average

number of patients trained for the 2 previous years (if 2 years are

available). We believe each facility must have a minimum number of

patients to ensure that it is operating an ongoing cost-effective

training program. Based on our experience and review of this subject we

determined the number to be three.

Comment: One commenter suggested that the overhead and physical

plant cost components represent real, necessary, and unavoidable

facility costs and should be included in the calculation of training

exception rates.

Response: In the proposed rule at Sec. 413.190(d), we stated that

the higher training costs do not generally include overhead and other

indirect costs. However, we agree with the commenter that it is

appropriate to include overhead and physical plant costs for exception

request purposes. Therefore, we have revised this section to state that

``the exception requests for higher training rates are limited to those

cost components relating to training such as

[[Page 43664]]

technical staff, medical supplies, and the special costs of education

(manuals and education materials). These requests may include overhead

and other indirect costs to the extent that these costs are directly

attributable to the additional training costs.''

Comment: One commenter stated that under proposed

Sec. 413.190(f)(1), accelerated training exceptions evidently are based

on training sessions for hemodialysis training, since hemodialysis is

normally furnished three times a week. The commenter believed the

regulations should also provide for exceptions for accelerated training

associated with CAPD or CCPD, which are typically daily treatment

modalities.

Response: The proposed rule may not have been clear with respect to

exceptions related to CAPD and CCPD training. Although CAPD and CCPD

are daily treatment modalities, ESRD facilities are paid for training

sessions based on the equivalent of three hemodialysis treatments a

week for each week that CAPD and CCPD treatments are provided.

Accordingly, we are revising Sec. 413.190(f)(1) to specify the basis

for payment of training sessions for CAPD and CCPD patients. Thus,

exceptions for accelerated training are considered for each modality

(including CAPD and CCPD) based on the number of actual training

sessions in excess of billable training sessions (three per week).

Comment: One commenter objected to our proposed requirement that

every training session for a particular modality be provided during the

shorter, but more condensed, training period.

Response: We have revised proposed Sec. 413.190(f)(5) to change the

requirement that ``all'' training sessions be provided on an

accelerated basis and are instead requiring that an ESRD facility must

show that ``a significant number of training sessions for a particular

modality are provided during a shorter, but more condensed, period.''

Based on our experience and review of this subject we determined that

80 percent represents a significant number of training sessions.

H. Payment Exception: Frequency of Dialysis (Sec. 413.192)

We proposed to redesignate Sec. 413.170(g)(6) as Sec. 413.192 and

add several new requirements as discussed below.

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.

To document that it furnishes a substantial number of dialysis

treatments at a frequency of less than three times per week, we

proposed that a 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 (vacationing

patients or frequently relocating patients), 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.

We also proposed that the facility must 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; and

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 us 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.

We received no comments on these proposed provision.

I. Appeals (Sec. 413.194)

We proposed to redesignate existing Sec. 413.170(h) as

Sec. 413.194. In addition, we proposed to specify that exhaustion of

administrative remedies is a prerequisite for judicial review.

We did not receive any comments on these proposed changes.

J. Notification of Changes in Rate-Setting Methodologies and Payment

Rates (Sec. 413.196)

We proposed to redesignate existing Sec. 413.170(i) as Sec. 413.196

with only coding and editorial changes.

We did not receive any comments on these proposed changes.

K. Recordkeeping and Cost Reporting Requirements for Outpatient

Maintenance Dialysis (Sec. 413.198)

We proposed to redesignate existing Sec. 413.174 as Sec. 413.198.

We did not receive any comments on this proposed change.

L. Organ Acquisition Costs (Sec. 412.113)

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

lung acquisition costs incurred by transplant centers on a reasonable

cost basis. Currently, Medicare-certified transplant centers compute

Medicare acquisition costs for these organs on Supplemental Worksheet

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

acquisition costs of hearts, livers, and lungs transplanted in patients

other than Medicare beneficiaries are deducted from the total

acquisition costs for all hearts, livers, and lungs. Medicare

reimburses the remaining balance as program costs for these organs.

Based on recent cost analyses, we are concerned about the high Medicare

costs associated with acquiring a small number of hearts, livers, and

lungs. As a result, we proposed to change the method of computing

heart, liver, and lung acquisition costs to determine more accurately

the costs of acquiring organs transplanted in Medicare recipients. The

method we proposed for computing acquisition costs for hearts, livers,

and lungs conforms to the method used for

[[Page 43665]]

kidney acquisition costs, which more accurately accounts for Medicare's

portion of such costs, including organ wastage. The formula for payment

for kidney acquisition is specified in existing Sec. 413.179. We also

proposed to revise the heading in paragraph (d) of this section by

replacing the terms ``heart, kidney, liver, and lung'' with ``organ''

and revising the cross-reference to indicate that ``organs are defined

in Sec. 486.302.''

In the August 26, 1994 proposed rule, we made the following

specific proposals:

1. Payment to Independent Organ Procurement Organizations (OPOs) and

Histocompatibility Laboratories

We proposed to redesignate existing Sec. 413.178 as Sec. 413.200.

In proposed Sec. 413.200(b), we revised the definition of

``freestanding'' to provide that an 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 also proposed to 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 OPO 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, a hospital-based OPO may not necessarily service a

single transplant center.

We received no comments on this proposed revision.

2. OPO or Transplant Center Costs for Kidneys Sent to Foreign Countries

or Transplanted in Patients Other Than Medicare Beneficiaries

We proposed to redesignate existing Sec. 413.179 as Sec. 413.202

with the changes discussed below.

We proposed to expand the applicability of redesignated

Sec. 413.202 to include hearts, livers, and lungs by making it apply to

``organs'' instead of ``kidneys.'' We believed that this revision would

result in a more reasonable determination of Medicare heart, liver, and

lung acquisition costs because the formula for determining kidney

acquisition costs more fairly accounts for Medicare's portion of such

costs, including organ wastage. We cross referred Sec. 412.113 to

Sec. 413.202 to ensure proper cost determination.

Comment: Several commenters asserted that substituting the term

``organs'' for ``kidneys'' in redesignated Sec. 413.202 inappropriately

imposed the revised methodology for determining Medicare's share of

heart, liver, and lung acquisition costs on OPOs. They argued that OPOs

do not have the data necessary to allocate organs between Medicare and

non-Medicare patients.

Response: We agree with the commenters that substituting the term

``organs'' for ``kidneys'' would impose the revised methodology for

determining Medicare's share of heart, liver, and lung acquisition

costs on OPOs. Our intention in the proposed notice was to revise the

methodology for Medicare transplant centers, but the proposed revision

of redesignated Sec. 413.202 inadvertently applied to OPOs as well.

Therefore, we have returned to the original language in redesignated

Sec. 413.202 by resubstituting ``kidneys'' for ``organs'' and removing

any reference to transplant centers; however, this section is now only

applicable to OPOs. To account for all organs acquired by all

transplant centers, we have added Sec. 413.203. In addition, we have

specified that the term ``organs'' is defined in Sec. 486.302.

Comment: Several commenters suggested that the payment method that

we proposed to apply to heart, liver, and lung acquisition costs is not

always accurate. The number of Medicare beneficiaries awaiting kidneys

and receiving ancillary pretransplant services could be greater or less

than the percentage of Medicare beneficiaries ultimately receiving

transplants. The commenters suggested revising Supplemental Worksheet

D-6 (HCFA Form 2552), so that the kidney acquisition ancillary charges

can be segregated into two columns, one for Medicare beneficiary

services and another for the non-Medicare patients, thereby assuring

that the appropriate ancillary service costs for each payer group could

be accurately identified. The other direct kidney acquisition costs

such as the kidney itself, transportation costs, etc., flowing through

the step-down process could be determined based on the ratio of usable

kidneys transplanted into Medicare and non-Medicare patients. The

commenters believed that this approach would ensure that we would not

be in violation of the requirement under section 1861(v)(1)(A) of the

Act that the costs of services be borne by the appropriate payer.

Response: We will consider the suggested ancillary cost report

revisions during our next review of Supplemental Worksheet D-6.

M. Payment for Erythropoietin/Epoietin (EPO) (Sec. 413.174(f))

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

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

for EPO are based on increments of 1,000 unit doses, rounded to the

nearest 100 units. Section 13566 of the Omnibus Budget Reconciliation

Act of 1993 (Public Law 103-66) amended section 1881(b)(11)(B)(ii) of

the Act to reduce the maximum payment for EPO from $11 to $10 per 1,000

units. HCFA may adjust this amount, as appropriate, within stated

limits. Existing Sec. 413.170(c)(6)(iii)(B) provides for annual

publication of a Federal Register notice indicating whether an update

in the EPO payment amount is appropriate and requesting public comment.

We proposed to revise Sec. 413.174(f) to add the statutory reference

and to state that we would only publish a Federal Register notice

proposing a revision to the EPO payment amount when we determine that

an adjustment to the payment amount is necessary. We would no longer

publish an annual notice.

Comment: One commenter supported our proposal to eliminate the

requirement to publish an annual notice regarding EPO payment when

there is no payment change. However, the commenter objected to the

provision under proposed Sec. 413.174(f)(3)(iii) that limited any EPO

payment increases to the percentage increase in the implicit price

deflator for the gross national product. The commenter believed that

this provision is unfair to ESRD providers because the providers cannot

control the cost of EPO. The commenter noted that other drugs given to

dialysis patients are reimbursed based on acquisition costs or

wholesale prices, or both.

Response: Proposed Sec. 413.174(f)(3)(iii) is merely a

redesignation of existing Sec. 413.170(c)(6)(iii)(c). This provision is

mandated by section 1881(b)(11)(B)(ii)(II) of the Act, which gives the

Secretary authority to adjust the EPO payment rate (beginning in 1995),

but limits the amount of any payment increase. Since this requirement

is statutorily mandated, we do not have the authority to eliminate

[[Page 43666]]

this provision. However, in assessing the need for an adjustment to the

EPO payment rate, we would consider the actual costs incurred by ESRD

facilities for EPO. If we determined that the payment limit set by

statute is inadequate to ensure access to EPO by Medicare

beneficiaries, we would seek a legislative change.

N. Bad Debts (Sec. 413.178)

In the proposed rule, we proposed to redesignate existing

Sec. 413.178 as Sec. 413.200 and move the requirements of existing

Sec. 413.170(e) to new Sec. 413.178. New Sec. 413.178 will cover the

proceedings for payment and reimbursement of bad debts.

Comment: One commenter suggested that the language in proposed

Sec. 413.178, implies that ESRD facilities can be reimbursed for all

Medicare bad debts incurred for all covered services provided. The

commenter contended that past policy had allowed reimbursement for

Medicare bad debts incurred in the provision of ``composite rate''

dialysis services only. Therefore, the commenter recommended that the

wording be modified to clarify that only bad debts related to composite

rate services are subject to reimbursement.

Response: We have not made any changes to our existing bad debt

policy. Medicare bad debts for ESRD services (that is, services covered

under the composite rate) will continue to be determined by calculating

a facility's unrecovered reasonable costs, which represent the

difference between a facility's total Medicare revenues (including

beneficiaries' payments) and Medicare total reasonable costs. Payment

for allowable bad debts is limited to the lesser of the unrecovered

reasonable costs or the total of Medicare uncollectible deductibles and

coinsurance. An example can be found in chapter 27 of the PRM. We

reimburse each facility its allowable Medicare bad debts in a single

lump sum payment after the facility's cost reporting period ends. As

the commenter suggested, we have revised Sec. 413.178(c) to clarify,

consistent with our longstanding policy, that reimbursement for bad

debts is available only for covered services under the composite rate.

IV. Provisions of Final Regulations

As discussed above, we have considered the public comments received

on the August 26, 1994 proposed rule and we are adopting that rule as

final with the following modifications:

In Sec. 413.178(c), we state that a facility must request

payment for uncollectible deductible and coinsurance amounts owed by

beneficiaries by submitting an itemized list of all specific

uncollectable amounts related to covered services under the composite

rate.

We have added a sentence to Sec. 413.180(b) to clarify the

requirement that a facility wishing to retain its previously approved

exception rate may only do so during the 30-day period prior to the

opening of an exception cycle.

We have added Sec. 413.180(e) to state that a facility may

elect to retain its previously approved exception rate in lieu of any

composite rate increase or any other exception amount if--

(1) The conditions under which the exception was granted have not

changed;

(2) The facility files a request to retain the rate with its fiscal

intermediary during the 30-day period before the opening of an

exception cycle; and

(3) The request is approved by the fiscal intermediary.

We specify in Sec. 413.180(f)(5) that the facility must

compare its most recently completed cost report with cost reports from

``(at least 2)'' prior years.

We have added new Sec. 413.184(b)(2)(iii), stating that

the facility must submit documentation on overhead costs incurred

during the most recently completed fiscal or calendar year cost report

showing the basis of the higher overhead costs, the impact on the

specific cost components, and the effect on per treatment costs.

We have revised Sec. 413.186(b)(4) to clarify that in

determining whether a facility qualifies for an exception based on its

being an isolated essential facility, we consider other dialysis

facility usage by area residents (other than the applying facility's

patients).

We have revised Sec. 413.186(c)(1) to state that to be

considered isolated, ``generally'' a facility is located outside an

established MSA and provides dialysis to a permanent patient

population.

In Sec. 413.190(d), we have specified that an exception

request for a higher training rate may include overhead and other

indirect costs to the extent that these costs are directly attributable

to the additional training costs.

In Sec. 413.190(f)(1), we have added language to state

that although CCPD and CAPD are daily treatment modalities, ESRD

facilities are paid the equivalent of three hemodialysis training

treatments for each week that CAPD and CCPD training treatments are

provided.

We have revised Sec. 413.190(f)(2) to state that a

facility may request an exception if the facility elects to train 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 is less than its actual training sessions.

We have revised Sec. 413.190(f)(5) to state that, to

justify an accelerated training exception request, an ESRD facility

must document that a ``significant number of'' training sessions,

rather than ``all'' sessions for a particular modality are provided

during a shorter but more condensed period.

In redesignated Sec. 413.198, we have revised the cross-

references.

We have made several changes related to organ acquisition

costs.

+ In Sec. 412.113(d), we revised the paragraph heading, and

replaced the terms ``heart, kidney, liver, and lung'' with ``organ''.

We also revised the cross-reference to indicate that ``organs are

defined in Sec. 485.12''.

+ In Sec. 413.202, we revised the section title and made other

technical changes.

+ We added a new Sec. 413.203 that specifies the transplant

centers' costs for organs sent to foreign countries or transplanted in

patients other than Medicare beneficiaries.

We also have made minor technical changes to the

regulation text for readability and ease of use.

V. Impact Statement

HCFA has examined the impacts of this final rule as required by

Executive Order 12866 and the Regulatory Flexibility Act (Public Law

96-354). Executive Order 12866 directs agencies to assess all costs and

benefits of available regulatory alternatives and, when regulation is

necessary, to select regulatory approaches that maximize net benefits

(including potential economic, environmental, public health and safety

effects; distributive impacts; and equity. The Regulatory Flexibility

Act requires agencies to analyze options for regulatory relief for

small businesses. For purposes of the RFA, States and individuals are

not considered small entities. We do consider all hospitals and ESRD

facilities as small entities.

In addition, section 1102(b) of the Act requires us 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. Such

an analysis must conform to the provisions of section 604 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.

[[Page 43667]]

A. Payment Exception Requests

The purpose of this portion of this final rule is generally 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 PRM. This final rule

affects all ESRD facilities, including hospital-based and freestanding,

that file a request for an ESRD exception.

Our records indicate that as of December 31, 1994, there were 2,526

renal dialysis facilities, all of which were eligible to file exception

requests. Of these, 377 or 15 percent of the facilities filed exception

requests during our most recent exception cycle, November 1, 1993 to

April 29, 1994. Of these requests, 293 facilities were granted

exceptions (mostly partially granted), and 84 were denied.

Currently, a facility whose request is granted only partially or is

denied an exception may appeal this determination to the PRRB. The PRRB

is bound by the statute and regulations but not by program

instructions; thus, it may come to a different conclusion than if it

followed program instructions. Codifying in regulations details now

found in the PRM instructions will bind the PRRB to more specific bases

for adjudicating an appeal of a partially denied or denied exception

request.

B. Organ Acquisition Costs

In 1994, there were 72 hospitals certified to perform heart

transplants, and 40 hospitals certified to perform liver transplants.

These hospitals constitute less than 2 percent of all Medicare-

participating hospitals. In 1994, there were 381 heart transplants and

283 liver transplants performed on Medicare beneficiaries. Although the

number of Medicare transplants represents 10 percent of the total

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

report data indicates the average Medicare acquisition cost per heart

and liver is higher than the average non-Medicare acquisition cost. 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 final rule extends the formula used to compute kidney

acquisition costs to other organs, including hearts, livers, and lungs.

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

organs transplanted into Medicare beneficiaries to the total overall

number of usable organs. This ratio will not affect our obligation to

pay allowable organ acquisition costs, but will 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 will not be affected by this rule. Facilities that have not will

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

of allowable acquisition costs.

We are not preparing analyses for either the RFA or section 1102(b)

of the Act because we have determined and certify that this final rule

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

small entities or a significant impact on the operations of a

substantial number of small rural hospitals.

In accordance with the provisions of Executive Order 12866, this

final rule was not reviewed by the Office of Management and Budget.

VI. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, agencies are required to

provide 60-day notice in the Federal Register and solicit public

comments before a collection of information requirement is submitted to

the Office of Management and Budget (OMB) for review and approval. In

order to fairly evaluate whether an information collection should be

approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act

of 1995 requires that we solicit comment on the following issues:

Whether the information collection is necessary and useful

to carry out the proper functions of the agency;

The accuracy of the agency's estimate of the information

collection burden;

The quality, utility, and clarity of the information to be

collected; and

Recommendations to minimize the information collection

burden on the affected public, including automated collection

techniques.

The information collection requirements (42 CFR 413.178, 413.180,

413.182, 413.184, 413.186, 413.188, 413.190, 413.192, and 413.194)

associated with requiring ESRD facilities to provide documentation for

payment exception requests are currently approved by OMB under 0938-

0296, HCFA-9044, that expires on May 31, 1998.

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 practice and procedure, Health facilities, Health

professions, Kidney diseases, Medicare, Reporting and recordkeeping

requirements, Rural areas, X-rays.

42 CFR Chapter IV is amended as set forth below:

A. Part 412 is amended as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL

SERVICES

1. The authority citation for part 412 continues to read as

follows:

Authority: Secs. 1102 and 1871 of the Social Security Act (42

U.S.C. 1302 and 1395hh).

Subpart H--Payments to Hospitals Under the Prospective Payment Systems

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

follows:

Sec. 412.113 Other payments.

* * * * *

(d) Organ acquisition. Payment for organ acquisition costs incurred

by hospitals with approved transplantation centers is made on a

reasonable cost basis. The term ``Organs'' is defined in Sec. 486.302

of this chapter.

B. Part 413 is amended as follows:

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

END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED

PAYMENT RATES FOR SKILLED NURSING FACILITIES

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

follows:

Authority: Secs. 1102, 1861(v)(1)(a), and 1871 of the Social

Security Act as amended (42 U.S.C. 1302, 1395x(v)(1)(A), and

1395hh).

2. Subpart H is revised to read as follows:

[[Page 43668]]

Subpart H--Payment for End-Stage Renal Disease (ESRD) Services and

Organ Procurement Costs

Sec.

413.170 Scope.

413.172 Principles of prospective payment.

413.174 Prospective rates for hospital-based and independent ESRD

facilities.

413.176 Amount of payments.

413.178 Bad debts.

413.180 Procedures for requesting exceptions to payment rates.

413.182 Criteria for approval of exception requests.

413.184 Payment exception: Atypical service intensity (patient

mix).

413.186 Payment exception: Isolated essential facility.

413.188 Payment exception: Extraordinary circumstances.

413.190 Payment exception: Self-dialysis training costs.

413.192 Payment exception: Frequency of dialysis.

413.194 Appeals.

413.196 Notification of changes in rate-setting methodologies and

payment rates.

413.198 Recordkeeping and cost reporting requirements for

outpatient maintenance dialysis.

413.200 Payment of independent organ procurement organizations and

histocompatibility laboratories.

413.202 Organ procurement organization (OPO) cost for kidneys sent

to foreign countries or transplanted in patients other than Medicare

beneficiaries.

413.203 Transplant center costs for organs sent to foreign

countries or transplanted in patients other than Medicare

beneficiaries.

Sec. 413.170 Scope.

This subpart implements sections 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. 413.172 through Sec. 413.198, ``outpatient maintenance dialysis''

means outpatient dialysis, home dialysis, 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; and

(c) Establishing procedures that a facility must follow to appeal

its payment amount under the prospective payment system.

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 the changes specified in Sec. 413.196(b) in the Federal Register.

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

facilities.

(a) Establishment of rates. HCFA establishes prospective payment

rates for ESRD facilities 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) Determination of independent facility. 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 (b) is

an initial determination under Sec. 498.3 of this chapter.

(c) Determination of hospital-based facility. A determination under

this paragraph (c) is an initial determination under Sec. 498.3 of this

chapter. For purposes of rate-setting and payment under this section,

HCFA determines 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) Nondetermination of hospital-based facility. 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) Add-on amounts. 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 chapter), 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/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, as

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) Additional payment for certain drugs. 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

[[Page 43669]]

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 follows:

(1) Hospital-based facilities. HCFA makes payments 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.

Sec. 413.176 Amount of payments.

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

under Part B of Medicare before the dialysis 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 dialysis 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 Bad debts.

(a) HCFA will reimburse each facility its allowable Medicare bad

debts, as defined in Sec. 413.80(b), up to the facility's costs, as

determined under Medicare principles, in a single lump sum payment at

the end of the facility's cost reporting period.

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

amounts owed by beneficiaries before requesting reimbursement 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 that specifically enumerates all uncollectable amounts related to

covered services under the composite rate.

Sec. 413.180 Procedures for requesting exceptions to payment rates.

(a) Outpatient maintenance dialysis payments. All payments for

outpatient maintenance dialysis furnished at or by facilities are made

on the basis of prospective payment rates.

(b) Criteria for requesting an exception. If a facility projects on

the basis of prior year costs and utilization trends that it will have

an allowable cost per treatment higher than its prospective rate set

under Sec. 413.174, and if these excess costs are attributable to one

or more of the factors in Sec. 413.182, the facility may request, in

accordance with paragraph (d) of this section, that HCFA approve an

exception to that rate and set a higher prospective payment rate.

However, a facility may only request an exception or seek to retain its

previously approved exception rate when authorized under the conditions

specified in paragraphs (d) and (e) of this section.

(c) Application of deductible and coinsurance. The higher payment

rate is subject to the application of deductible and coinsurance in

accordance with Sec. 413.176.

(d) Payment rate exception request. A facility must request an

exception to its payment rate within 180 days of--

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

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

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

occurs, as specified (or provided for) in Secs. 413.182(c) and 413.188.

(e) Criteria for retaining a previously approved exception rate. A

facility may elect to retain its previously approved exception rate in

lieu of any composite rate increase or any other exception amount if--

(1) The conditions under which the exception was granted have not

changed;

(2) The facility files a request to retain the rate with its fiscal

intermediary during the 30-day period before the opening of an

exception cycle; and

(3) The request is approved by the fiscal intermediary.

(f) Documentation for a payment rate exception request. If the

facility is requesting an exception to its payment rate, it must submit

to HCFA its most recently completed cost report as required under

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

as determined by HCFA to be needed to adjudicate each type of

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 cost reports from (at least 2) prior years.

The facility must explain any material statistical data or cost

changes, or both, and include an explanation with the documentation

supporting the exception request.

(g) Completion of requirements and criteria. 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.

(h) Approval of an exception request. An exception request is

deemed approved unless it is disapproved within 60 working days after

it is filed with its intermediary.

(i) Determination of an exception request. 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.

(j) Period of approval: Payment exception request. Except for

exceptions approved under Secs. 413.180(e), 413.180(k), 413.182(c), and

413.188, 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.

(k) Period of approval: Payment exception request under

Secs. 413.182(c) and 413.188. 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.

(l) Denial of an exception request. HCFA denies exception requests

submitted without the documentation specified in Sec. 413.182 and the

applicable regulations cited there.

[[Page 43670]]

(m) Criteria for refiling a denied exception request. A facility

that has been denied an exception request during the 180 days may file

another exception request if all required documentation is filed with

the intermediary by the 180th day.

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 of 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.

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) In-facility patients, staff-assisted, or self-dialysis;

(v) Individual patient diagnosis;

(vi) Diabetic patients;

(vii) Patients isolated because of contagious disease;

(viii) Age of patients;

(ix) Mortality rate, 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 also must--

(i) Submit documentation on costs of nursing personnel (registered

nurses, licensed practical nurses, technicians, and aides) incurred

during the most recently completed fiscal 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 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 each dialyzer and its component

cost; and

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

discounts are used when available).

(iii) Submit documentation on overhead costs incurred during the

most recently completed fiscal or calendar year cost reporting year

showing--

(A) The basis of the higher overhead costs;

(B) The impact on the specific cost components; and

(C) The effect on per treatment costs.

Sec. 413.186 Payment exception: Isolated essential facility.

(a) Qualifications. 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 determining qualifications. 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 from medical services;

(3) Volume of treatments; and

(4) The extent that other dialysis facilities are used by area

residents (other than the applying facility's patients).

(c) Documentation. (1) Isolated. Generally, 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 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 how the facility's costs in excess of its

composite rate payment are attributable to its being an isolated

essential facility.

[[Page 43671]]

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

area surrounding the facility.

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

for the next 12 months prepared on cost report forms.

(v) 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.

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

dialysis facility.

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

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

(viii) The historical and projected patient-to-staff ratios and

number of machines used for maintenance dialysis treatments.

(ix) 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.

(x) The geographic boundaries and population size of the facility's

service area.

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 will not grant an exception based on increased costs if a

facility has chosen 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.

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

(a) Qualifications. 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) Justification. 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) Criteria for determining proper cost reporting. 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) Limitation of exception requests. 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 materials). These requests

may include overhead and other indirect costs to the extent that these

costs are directly attributable to the additional training 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 (normally three times a week for hemodialysis).

Continuous cycling peritoneal dialysis (CCPD) and continuous ambulatory

peritoneal dialysis (CAPD) are daily treatment modalities; ESRD

facilities are paid the equivalent of three hemodialysis treatments for

each week that CCPD and CAPD treatments are provided.

(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 billable training dialysis

sessions is less than the number of actual training sessions, the

facility may request a composite rate exception, 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, that is, three times per week.

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

patient for hemodialysis training and 15 sessions for CCPD and CAPD

training.

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

exception, 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 a significant number of training sessions

for a particular modality are provided during a 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. 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.

Sec. 413.192 Payment exception: Frequency of dialysis.

(a) Qualification. 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) Definition. For purposes of this section, ``substantial'' means

the number of treatments furnished by the facility is at least 15

percent lower than the number would be if all patients dialyzed three

times a week.

(c) Limitation for per treatment payment rates. Per treatment

payment rates granted under this exception may not exceed the amount

that produces weekly payments 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

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

following information:

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

the

[[Page 43672]]

cost report that is 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 among 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.

(4) 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.

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

in the number of treatments.

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 has the authority to review the action taken by HCFA

on the facility's requests. However, the PRRB's decision is subject to

review by the Administrator under Sec. 405.1875 of this chapter.

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

accordance with paragraph (b)(1) of this section, 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

is 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.

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 comment. Revisions of the rate-

setting methodology are published in the Federal Register in accordance

with the Department's established rulemaking procedures.

Sec. 413.198 Recordkeeping and cost reporting requirements for

outpatient maintenance dialysis.

(a) Purpose and Scope. This section implements section

1881(b)(2)(B)(i) of the Act by specifying recordkeeping and cost

reporting requirements for ESRD facilities approved under subpart U of

part 405 of this chapter. The records and reports will enable HCFA to

determine the costs incurred in furnishing outpatient maintenance

dialysis as defined in Sec. 413.170(a).

(b) Recordkeeping and reporting requirements. (1) Each facility

must keep adequate records and submit the appropriate HCFA-approved

cost report in accordance with Secs. 413.20 and 413.24, which provide

rules on financial data and reports, and adequate cost data and cost

finding, respectively.

(2) The cost reimbursement principles set forth in this part

(beginning with Sec. 413.134, Depreciation, and excluding the

principles listed in paragraph (b)(4) of this section), apply in the

determination and reporting of the allowable cost incurred in

furnishing outpatient maintenance dialysis treatments to patients

dialyzing in the facility, or incurred by the facility in furnishing

home dialysis service, supplies, and equipment.

(3) Allowable cost is the reasonable cost related to dialysis

treatments. Reasonable cost includes all necessary and proper expenses

incurred by the facility in furnishing the dialysis treatments, such as

administrative costs, maintenance costs, and premium payments for

employee health and pension plans. It includes both direct and indirect

costs and normal standby costs. Reasonable cost does not include costs

that--

(i) Are not related to patient care for outpatient maintenance

dialysis;

(ii) Are for services or items specifically not reimbursable under

the program;

(iii) Flow from the provision of luxury items or servicess (items

or services substantially in excess of or more expensive than those

generally considered necessary for the provision of needed health

services); or

(iv) Are found to be substantially out of line with other

institutions in the same area that are similar in size, scope of

services, utilization, and other relevant factors.

(4) The following principles of this part do not apply in

determining adjustments to allowable costs as reported by ESRD

facilities:

(i) Section 413.157, Return on equity capital of proprietary

providers;

(ii) Section 413.200, Reimbursement of OPAs and histocompatibility

laboratories;

(iii) Section 413.9, Cost related to patient care (except for the

principles stated in paragraph (b)(3) of this section); and

(iv) Sections 413.64, Payments to providers, and Secs. 413.13,

413.30, 413.35, 413.40, 413.74, and Secs. 415.55

[[Page 43673]]

through 415.70, Sec. 415.162, and Sec. 415.164 of this chapter,

Principles of reimbursement for services by hospital-based physicians.

Sec. 413.200 Payment of independent organ procurement organizations

and histocompatibility laboratories.

(a) Principle. Covered services furnished after September 30, 1978

by organ procurement organizations (OPOs) and histocompatibility

laboratories in connection with kidney acquisition and transplantation

will be reimbursed under the principles for determining reasonable cost

contained in this part. Services furnished by freestanding OPOs and

histocompatibility laboratories, that have an agreement with the

Secretary in accordance with paragraph (c) of this section, will be

reimbursed by making an interim payment to the transplant hospitals

using these services and by making a retroactive adjustment, directly

with the OPO or laboratory, based upon a cost report filed by the OPO

or laboratory. (The reasonable costs of services furnished by hospital

based OPOs or laboratories will be reimbursed in accordance with the

principles contained in Secs. 413.60 and 413.64.)

(b) Definitions. For purposes of this section:

Freestanding refers to an OPO or a histocompatibility laboratory

that is not--

(1) Subject to the control of the hospital with respect to the

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

(2) 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. 413.2171(d) of this chapter.

OPO means an organization defined in Sec. 486.302 of this chapter.

(c) Agreements with independent OPOs and laboratories. (1) Any

freestanding OPO or histocompatibility laboratory that wishes to have

the cost of its pretransplant services reimbursed under the Medicare

program must file an agreement with HCFA under which the OPO or

laboratory agrees--

(i) To file a cost report in accordance with Sec. 413.24(f) within

three months after the end of each fiscal year;

(ii) To permit HCFA to designate an intermediary to determine the

interim reimbursement rate payable to the transplant hospitals for

services provided by the OPO or laboratory and to make a determination

of reasonable cost based upon the cost report filed by the OPO or

laboratory;

(iii) To provide such budget or cost projection information as may

be required to establish an initial interim reimbursement rate;

(iv) To pay to HCFA amounts that have been paid by HCFA to

transplant hospitals and that are determined to be in excess of the

reasonable cost of the services provided by the OPO or laboratory; and

(v) Not to charge any individual for items or services for which

that individual is entitled to have payment made under section 1861 of

the Act.

(2) The initial cost report due from an OPO or laboratory is for

its first fiscal year during any portion of which it had an agreement

with the Secretary under paragraphs (c) (1) and (2) of this section.

The initial cost report covers only the period covered by the

agreement.

(d) Interim reimbursement. (1) Hospitals eligible to receive

Medicare reimbursement for renal transplantation will be paid for the

pretransplantation services of a freestanding OPO or histocompatibility

laboratory that has an agreement with the Secretary under paragraph (c)

of this section, on the basis of an interim rate established by an

intermediary for that OPO or laboratory.

(2) The interim rate will be based on the average cost per service

incurred by an OPO or laboratory, during its previous fiscal year,

associated with procuring a kidney for transplantation. This interim

rate may be adjusted if necessary for anticipated cost changes. If

there is not adequate cost data to determine the initial interim rate,

it will be determined according to the OPO's or laboratory's estimate

of its projected costs for the fiscal year.

(3) Payments made on the basis of the interim rate will be

reconciled directly with the OPO or laboratory after the close of its

fiscal year, in accordance with paragraph (e) of this section.

(4) Information on the interim rate for all freestanding OPOs and

histocompatibility laboratories shall be disseminated to all transplant

hospitals and intermediaries.

(e) Retroactive adjustment. (1) Cost reports. Information provided

in cost reports by freestanding OPOs and histocompatibility

laboratories must meet the requirements for cost data and cost finding

specified in paragraphs (a) through (e) of Sec. 413.24. These cost

reports must provide a complete accounting of the cost incurred by the

agency or laboratory in providing covered services, the total number of

Medicare beneficiaries who received those services, and any other data

necessary to enable the intermediary to make a determination of the

reasonable cost of covered services provided to Medicare beneficiaries.

(2) Audit and adjustment. A cost report submitted by a freestanding

OPO or histocompatibility laboratory will be reviewed by the

intermediary and a new interim reimbursement rate for the succeeding

fiscal year will be established based upon this review. A retroactive

adjustment in the amount paid under the interim rate will be made in

accordance with Sec. 413.64(f). If the determination of reasonable cost

reveals an overpayment or underpayment resulting from the interim

reimbursement rate paid to transplant hospitals, a lump sum adjustment

will be made directly between that intermediary and the OPO or

laboratory.

(f) For services furnished on or after April 1, 1988, no payment

may be made for services furnished by an OPO that does not meet the

requirements of part 485, subpart D of this chapter.

(g) Appeals. Any OPO or histocompatibility laboratory that

disagrees with an intermediary's cost determination under this section

is entitled to an intermediary hearing, in accordance with the

procedures contained in Secs. 405.1811 through 405.1833, if the amount

in controversy is $1,000 or more.

Sec. 413.202 Organ procurement organization (OPO) cost for kidneys

sent to foreign countries or transplanted in patients other than

Medicare beneficiaries.

An OPO's total costs for all kidneys is reduced by the costs

associated with procuring kidneys sent to foreign transplant centers or

transplanted in patients other than Medicare beneficiaries. OPOs, as

defined in Sec. 435.302 of this chapter, must separate costs for

procuring kidneys that are sent to foreign transplant centers and

kidneys transplanted in patients other than Medicare beneficiaries from

Medicare allowable costs prior to final settlement by the Medicare

fiscal intermediaries. Medicare costs are 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. Certain

long-standing arrangements that existed before March 3, 1988 (for

example, an OPO that procures kidneys at a military transplant hospital

for transplant at that hospital), will be deemed to be Medicare kidneys

for cost reporting statistical purposes. The OPO must submit a request

to the

[[Page 43674]]

fiscal intermediary for review and approval of these arrangements.

Sec. 413.203 Transplant center costs for organs sent to foreign

countries or transplanted in patients other than Medicare

beneficiaries.

(a) A transplant center's total costs for all organs is reduced by

the costs associated with procuring organs sent to foreign transplant

centers or transplanted in patients other than Medicare beneficiaries.

Organs are defined in Sec. 486.302 (only covered organs will be paid

for on a reasonable cost basis).

(b) Transplant center hospitals must separate costs for procuring

organs that are sent to foreign transplant centers and organs

transplanted in patients other than Medicare beneficiaries from

Medicare allowable costs prior to final cost settlement by the Medicare

fiscal intermediaries.

(c) Medicare costs are based on the ratio of the number of usable

organs transplanted into Medicare beneficiaries to the total number of

usable organs applied to reasonable costs.

C. 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, 1871, and 1881(b)(1) of the Social

Security Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(1)).

Subpart E--Determination of Reasonable Charges Under the ESRD

Program

Sec. 414.313 [Amended]

2. In Sec. 414.313(a), the reference ``in Sec. 413.170 of this

chapter'' is revised to read ``in part 413, subpart H of this

subchapter''.

Sec. 414.314 [Amended]

3. In Sec. 414.314(a)(5), the reference ``(Sec. 413.170)'' is

revised to read ``(part 413, subpart H of this subchapter)''.

(Catalog of Federal Domestic Assistance Program No. 93.773,

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

Supplementary Medical Insurance Program)

Dated: June 7, 1997.

Bruce C. Vladeck,

Administrator, Health Care Financing Administration.

[FR Doc. 97-21444 Filed 8-14-97; 8:45 am]

BILLING CODE 4120-01-P