Medicare Programs; End-Stage Renal Disease Prospective Payment System, 49922-50102 [E9-22486]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 74, Number 187 (Tuesday, September 29, 2009)]
[Proposed Rules]
[Pages 49922-50102]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-22486]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 410, 413 and 414



Medicare Programs; End-Stage Renal Disease Prospective Payment System; 
Town Hall Meeting on End-Stage Renal Disease Prospective Payment 
System; Proposed Rule and Notice

Federal Register / Vol. 74, No. 187 / Tuesday, September 29, 2009 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 413 and 414

[CMS-1418-P]
RIN 0938-AP57


Medicare Programs; End-Stage Renal Disease Prospective Payment 
System

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement a case-mix adjusted bundled 
prospective payment system (PPS) for Medicare outpatient end-stage 
renal disease (ESRD) dialysis facilities beginning January 1, 2011, in 
compliance with the statutory requirement of the Medicare Improvements 
for Patients and Providers Act (MIPPA), enacted July 15, 2008. The 
proposed ESRD PPS would replace the current basic case-mix adjusted 
composite payment system and the methodologies for the reimbursement of 
separately billable outpatient ESRD services.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on November 16, 
2009.

ADDRESSES: In commenting, please refer to file code CMS-1418-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov.
    Follow the instructions under the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1418-P, P.O. Box 8010, 
Baltimore, MD 21244-8010.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1418-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses: a. For delivery in Washington, 
DC--Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-9994 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: William Cymer, (410) 786-4533. Lynn 
Riley, (410) 786-1286, (ESRD Quality Incentive Program.)

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following Web site as soon as possible after they have been 
received: https://www.regulations.gov. Follow the search instructions on 
that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

I. Background
    A. Origins of the Composite Payment System
    B. Statutory Authority for a Bundled ESRD PPS
    1. BIPA
    2. MMA
    3. The Basic Case-Mix Adjustment
    4. MIPPA
II. Overview of the Proposed ESRD PPS
III. The Proposed ESRD PPS Bundle
    A. Composite Rate Services
    B. ESAs and Their Oral Forms
    C. Other Drugs and Biologicals and Their Oral Equivalents
    D. Diagnostic Laboratory Tests and Other Items and Services
    E. Home Dialysis Patients (Method I and II) and Self Dialysis 
Training
    1. Payment for Home Dialysis
    a. Method I--The Composite Rate
    b. Method II--Dealing Directly With Suppliers
    2. Self Dialysis Training
    F. Physician Services
IV. Unit of Payment
    A. Administrative Complexity Due to Phase-In
    B. Administrative Complexity Due to Interruptions in Service
    C. No Incentive To Discourage Skipped Treatments
V. Data Sources
    A. Patient Claims Data
    B. Medicare Cost Reports
    C. Patient Claim and Cost Report Summary Data 2004-2006
    D. Data for the Case-Mix Analyses, 2004-2006
    E. Prescription Drug Event Data CY 2007
VI. Analytical Approach
VII. Development of Budget-Neutral ESRD Bundled Base Rate
    A. Calculation of the CY 2007 Unadjusted Rate per Treatment
    B. Determining the Update Factors for the Budget-Neutrality 
Calculation
    C. Standardization Adjustment
    D. Calculation of the Budget-Neutrality Adjustment
    a. Outlier Adjustment
    b. 98 Percent Budget Neutrality Adjustment
    E. Calculation of Transition Budget-Neutrality Adjustment
VIII. Cost Regression Used To Develop Proposed Payment Adjustment 
Factors
    A. Proposed Regression Analysis
    1. Dependent Variables
    a. Average Cost per Treatment for Composite Rate Services
    b. Average Medicare Allowable Payment (MAP) for Separately 
Billable Services

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    2. Independent Variables
    a. Control Variables
    b. Proposed Case-Mix Adjustment Variables
    B. Proposed Patient-Level Adjustments
    1. Patient Age
    2. Patient Sex
    3. Body Surface Area and Body Mass Index
    a. Body Surface Area
    b. Body Mass Index
    4. Onset of Dialysis (New Patient Adjustment)
    5. Co-morbidities
    6. Race/Ethnicity
    a. REMIS Data Analysis
    b. EBD Data Analysis
    c. Concerns With Available Race/Ethnicity Data
    d. CMS Initiative To Evaluate Healthcare Disparities Based on 
Race and Ethnicity
    7. Modality
    C. Proposed Facility-Level Adjustments
    1. Wage Index
    2. Low-Volume Adjustment
    a. Statutory Authority
    b. Defining a Low-Volume Facility
    c. Defining the Percent of Increase
    3. Alaska/Hawaii Facilities
    4. Rural
    5. Site Neutral ESRD PPS Rate
    D. Determination of ESRD PPS Payment Adjusters
IX. Pediatric Patients
    A. Current System
    B. Selection of a Pediatric Composite Rate Payment Adjustment
    C. Selection of a Pediatric Separately Billable Payment 
Adjustment
    D. A Combined Composite Rate and Separately Billable Payment 
Model for Pediatric Patients
X. Other Proposed Adjustments
    A. Outlier Policy
    1. Eligibility for Outlier Payment
    a. ESRD Outlier Services
    b. Predicted ESRD Outlier Services MAP Amounts
    c. Estimating the Imputed ESRD Outlier Services MAP Amounts
    i. Data Used To Estimate Imputed ESRD Outlier Services MAP 
Amounts
    ii. Determining Imputed per Treatment ESRD Outlier Services MAP 
Amount
    d. Outlier Percentage and Fixed Dollar Loss Amounts
    2. Outlier Payments
    3. Hypothetical Outlier Payment Examples
    4. Application of Outlier Policy During the Transition and in 
Relation to the ESA Monitoring Policy
XI. Comprehensive Payment Model Examples
XII. ESRD Market Basket
    A. Background
    B. Cost Category Weights
    C. Price Proxies
    D. ESRD Bundled Market Basket Increases
    E. ESRD Bundled Labor-Related Share
XIII. Proposed Implementation of the ESRD PPS
    A. Transition Period
    1. New ESRD Facilities
    2. Limitation on Beneficiary Charges Under the Proposed ESRD PPS 
and Beneficiary Deductible and Coinsurance Obligations
    B. Claims Processing
    1. Consolidated Billing
    a. Laboratory Tests
    b. Drugs and Biologicals
    c. Home Dialysis
    2. Expansion of the Data Elements Reported on Claims
    C. Operational Issues Surrounding Payment for Self Administered 
ESRD-related Drugs and Biologicals
    XIV. Evaluation of Existing Policies and Other Issues
    A. Exceptions Under the Case-Mix Adjusted Composite Payment 
System
    B. Erythropoiesis Stimulating Agent (ESAs) Monitoring Policy
    C. ESRD Facility Network Deduction
    D. Bad Debt
    E. Limitation on Review
    F. 50 Percent Rule Utilized in Laboratory Payments
    G. Medicare as a Secondary Payer
XV. Quality Incentives in the End-Stage Renal Disease (ESRD) Program
XVI. Collection of Information Requirements
XVII. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects
    1. Effects on ESRD Facilities
    2. Effects on Other Providers
    3. Effects on the Medicare & Medicaid Programs
    4. Effects on Medicare Beneficiaries
    C. Alternatives Considered
    D. Accounting Statement and Table
    E. Conclusion
Regulations Text
Addenda

Acronyms

    Because of the many terms to which we refer by acronym in this 
proposed rule, we are listing the acronyms used and their 
corresponding meanings in alphabetical order below:

Act The Social Security Act
BIPA Medicare, Medicaid, and SCHIP (State Children's Health 
Insurance Program) Benefits Improvement and Protection Act of 2000 
(Pub. L. 106-554)
BMI Body mass index
BN Budget neutrality
BSA Body surface area
CBSA Core-Based Statistical Area
CDC Centers for Disease Control and Prevention
CFR Code of Federal Regulations
CMS Centers for Medicare & Medicaid Services
CPM Clinical performance measure
CR Composite rate
CROWN Consolidated Renal Operations in a Web-Enabled Network
CY Calendar year
DME Durable medical equipment
EDB Enrollment Data Base
EPO Epoetin alfa
ESA Erythropoiesis stimulating agent
ESRD End stage renal disease
FI Fiscal intermediary
FY Fiscal year
GAO Government Accountability Office
HD Hemodialysis
IHS Indian Health Service
Kt/V A measure of dialysis adequacy where K is dialyzer clearance, t 
is dialysis time, and V is total body water volume
LDO Large dialysis organization
MAC Medicare Administrative Contractor
MAP Medicare allowable payment
MCP Monthly capitation payment
MedPAC Medicare Payment Advisory Commission
MIPPA Medicare Improvements for Patients and Providers Act of 2008 
(Pub. L. 110-275)
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173)
MSA Metropolitan Statistical Area
NEC Not elsewhere classified
NIH National Institutes of Health
NOS Not otherwise specified
NQF National Quality Forum
OMB Office of Management and Budget
OSCAR Online State Certification and Reporting System
PD Peritoneal dialysis
PFS Physician fee schedule
PPS Prospective payment system
PDE Prescription drug event
PVD Peripheral vascular disease
REMIS Renal Management Information System
RRB Railroad Retirement Board
RRT Renal replacement therapy
SB Separately billable
SIMS ESRD Standard Information Management System
SSA Social Security Administration
UM-KECC University of Michigan, Kidney Epidemiology & Cost Center
URR Urea reduction ratio

I. Background

A. Origins of the Composite Payment System

    Section 299I of the Social Security Amendments of 1972, Public Law 
92-603, established the end-stage renal disease (ESRD) program under 
Medicare. That law extended Medicare coverage to individuals regardless 
of age who have permanent kidney failure, requiring either dialysis or 
kidney transplantation to maintain life, and meet certain other 
eligibility criteria. On July 1, 1973, the Medicare program extended 
benefits to about 11,000 beneficiaries with ESRD. In calendar year 
1974, the program paid benefits of about $229 million for dialysis, 
transplant, and other services. By 1979, the number of beneficiaries 
had grown to 42,500, with payments reaching $985 million.
    Because of concern over the rapid escalation in expenditures for 
the ESRD program, the Congress enacted legislation in 1978 (Pub. L. 95-
292, ``ESRD Program Amendments of 1978''), which amended title XVIII of 
the Social Security Act (the Act) to add new section 1881, which 
governs Medicare payment for ESRD benefits. In particular, section 
1881(b)(2)(B) of the Act directed us to publish regulations 
establishing methods and procedures to determine the costs incurred by 
ESRD providers and renal dialysis facilities in

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furnishing covered services to individuals with ESRD, and to determine, 
on a cost-related or other equitable and economically efficient basis, 
payment amounts for part B services furnished by such providers and 
facilities to individuals with ESRD. Section 1881(b)(2)(B) of the Act 
also provided that we establish a prospective reimbursement method for 
those services with incentives for encouraging facilities to be more 
efficient and provide cost-effective care.
    The enactment of the Omnibus Budget Reconciliation Act of 1981, 
Public Law 97-35, resulted in a further directive for implementing 
changes to the ESRD payment system. Section 2145 of Public Law 97-35 
amended section 1881 of the Act by requiring the Secretary to provide 
by regulation a method for determining prospectively the amounts of 
payments for dialysis services furnished by providers of services and 
renal dialysis facilities to individuals in a facility, and to such 
individuals at home. In particular, the law required that such method 
be based on a single composite weighted formula (``composite rate'') 
(which takes into account the mix of patients who receive services at a 
facility or at home and the relative costs for furnishing such 
services) for hospital-based facilities and such a single composite 
rate for other renal dialysis facilities, or that payment be based on 
such other method or combination of methods which differentiate between 
hospital-based and other renal dialysis facilities, and which would 
more effectively encourage more efficient delivery of dialysis services 
and would provide greater incentives for increased use of home 
dialysis.
    As a result of these statutory requirements, on February 12, 1982, 
we published a proposed rule on reimbursement for outpatient dialysis 
services (47 FR 6556) to implement section 1881 of the Act, as amended 
by section 2145 of Public Law 97-35. The regulations provided that each 
facility would receive a payment rate per dialysis treatment 
(``composite rate''), that is adjusted for geographic differences in 
area wage levels for the treatment furnished in the facility or at 
home. We refer to the methodology for payment of outpatient maintenance 
dialysis services on a per-treatment basis as the ``composite payment 
system''.
    Final regulations implementing the composite payment system were 
published on May 11, 1983 (48 FR 21254). The initial payment rates, 
which were developed from Medicare cost reports for fiscal years ending 
in 1977, 1978, and 1979, were established at $127 per treatment for 
independent facilities and $131 for hospital-based facilities. The 
composite payment system was effective August 1, 1983. It was limited 
to payments for the costs incurred by dialysis facilities furnishing 
outpatient maintenance dialysis, including some routinely provided 
drugs, laboratory tests, and supplies, whether furnished by hospital-
based and independent facilities in a facility or at home. We 
established separate rates for hospital-based and independent dialysis 
facilities, and provided a process under which facilities with costs in 
excess of their payment rates could seek exceptions to those rates 
under specified circumstances.
    With regard to home dialysis, this system was the basis for 
reimbursing home dialysis furnished by hospital-based and independent 
facilities (``Method I''). (The other is ``Method II,'' under which the 
beneficiary works directly with a durable medical equipment supplier to 
obtain the supplies and equipment needed.) For further information on 
the distinctions between Method I and Method II, see section III.E of 
this proposed rule.
    The composite payment system implemented in 1983 was relatively 
comprehensive with respect to the renal dialysis services included as 
part of the composite payment bundle. However, a substantial portion of 
expenditures for renal dialysis services are excluded from the 
composite payment system and reimbursed in accordance with the 
respective fee schedules or other payment methodologies. For example, 
payment for erythropoiesis stimulating agents (ESAs) such as epoetin 
alfa (EPO, for example, Epogen[supreg]) and darbepoetin alfa 
(ARANESP[supreg]) used to treat anemia, and vitamin D analogues 
(paracalcitol, doxercalciferol, calcitriol), is made outside of the 
composite payment system as separately billable services. These 
separately billable services currently comprise about 40 percent of 
total spending for outpatient maintenance dialysis. The present payment 
for outpatient maintenance dialysis under Medicare represents a mix of 
prospective payment, fee-for-service, and other payment rules.
    Subsequent inflation increases to the composite payment system 
applied only in response to specific statutory directives. For example, 
between 1983 and 2001, the payment rates were increased only three 
times. A $1.00 increase per treatment was effective January 1, 1991 as 
a result of the enactment of the Omnibus Budget Reconciliation Act of 
1990, Public Law 101-508. The rates were not revised again until the 
enactment of the Medicare, Medicaid, and SCHIP Balanced Budget 
Refinement Act of 1999, Public Law 106-113, which increased the 
payments by 1.2 percent effective January 1, 2000 and January 1, 2001, 
respectively.
    During the last few years, policymakers and other interested 
parties, including the Medicare Payment Advisory Commission (MedPac) 
and the Government Accountability Office (GAO), have examined the 
Medicare outpatient maintenance dialysis payment system and suggested a 
bundled prospective payment approach. See Medicare Payment Advisory 
Commission (MedPAC): Report to the Congress: Medicare Payment Policy, 
March 2001, March 2005, and March 2007, and GAO Report GAO-07-77, End 
Stage Renal Disease: Bundling Medicare's Payment for Drugs with Payment 
for All ESRD Services Would Promote Efficiency and Clinical 
Flexibility, November 2006. We believe that a fully bundled PPS would 
combine composite rate dialysis services with separately billable 
services under a single payment, adjusted to reflect patient 
differences in resource needs or case-mix. As in any PPS, dialysis 
facilities would keep the difference if Medicare payments exceeded 
costs for the bundled services, and would be liable for the difference 
if costs exceeded Medicare payments.
    Aside from resulting in a single comprehensive payment for all 
services included in the bundle, we believe a bundled ESRD PPS would 
have several objectives. These include eliminating incentives to 
overuse profitable separately billable drugs, particularly EPO, the 
targeting of greater payments to ESRD facilities with more costly 
patients to promote both equitable payment and access to services, and 
the promotion of operational efficiency. Because of the increased 
flexibility a bundled PPS would provide in the delivery of outpatient 
maintenance dialysis services, we believe that it could also increase 
desirable clinical outcomes, resulting in an enhanced quality of care.

B. Statutory Authority for a Bundled ESRD PPS

1. BIPA
    The Congress has twice required studies on the bundling of 
additional services into the composite payment system. In section 
422(c)(2) of the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA), Public Law 106-554, the Congress 
required the Secretary

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to issue a report on a bundled system that would include separately 
billable drugs and clinical laboratory services routinely used in 
furnishing dialysis. The Secretary submitted this report, Toward a 
Bundled Outpatient Medicare End Stage Renal Disease Prospective Payment 
System, to Congress in May 2003. That report contained three major 
findings that would form the basis for the subsequent development of a 
bundled ESRD PPS:
    1. Currently available administrative data are adequate for 
proceeding with the development of an expanded outpatient ESRD PPS.
    2. Case-mix adjustment is potentially feasible based on available 
clinical information for ESRD patients in order to pay facilities 
appropriately for treating more costly resource intensive patients.
    3. Current quality review initiatives provide a basis for 
monitoring the impact of a bundled ESRD PPS after implementation, to 
ensure quality of care does not deteriorate in response to the system's 
efficiency incentives.
    The Secretary's May 2003 report contained recommendations and 
conclusions drawn from research, which CMS had initiated on its own 
prior to the enactment of the law. In September 2000, the Kidney 
Epidemiology and Cost Center of the University of Michigan (UM-KECC) 
was awarded a multi-phased research contract. That research led to UM-
KECC's August 2002 report, An Expanded Medicare Outpatient End Stage 
Renal Disease Prospective Payment System, Phase I Report. This report 
provided useful information on many of the issues that would need to be 
addressed before a bundled ESRD PPS could be implemented, and formed 
the foundation for the Secretary's May 2003 report.
2. MMA
    The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA), Public Law 108-173, also required the Secretary to 
submit to the Congress a report detailing the elements and features for 
the design and implementation of a bundled ESRD PPS. Section 623(f)(1) 
of the MMA specified that such a system should include the bundling of 
separately billed drugs, clinical laboratory tests, and other items 
``to the maximum extent feasible''. That section also required the 
report to include a description of the methodology to be used to 
establish payment rates and that the report, detailing the design of an 
appropriate bundled payment system, be submitted to the Congress by 
October 1, 2005. Section 623(e) of the MMA also required a 
demonstration project testing the feasibility of using a fully bundled 
case-mix adjusted ESRD PPS.
    In addition to requiring a report on a bundled ESRD PPS, section 
623 of the MMA amended section 1881(b) of the Act, by requiring 
significant revisions to the composite payment system. Specifically, 
section 623 of the MMA required:
     An increase of 1.6 percent to the composite payment rates 
effective January 1, 2005.
     An add-on to composite rate payments to account for the 
difference in payments for separately billable drugs based on a revised 
drug pricing methodology compared to the previous method.
     A ``basic'' case-mix adjustment to an ESRD facility's 
composite payment rate reflecting a ``limited number of patient 
characteristics.''
     That total payments under the basic case-mix adjusted 
composite payment system be budget neutral.
     An annual increase to the basic case mix adjusted payment 
amounts based on projected growth in expenditures for separately billed 
drugs (the ``growth update'').
     That payment rates be adjusted by a geographic index, as 
determined appropriate by the Secretary (and phased-in to the extent 
such index differed from the previous payment system).
     Reinstatement of the composite rate exceptions process, 
eliminated for most dialysis facilities beginning December 31, 2000 
under BIPA, for ESRD pediatric facilities, effective October 1, 2002.
    On August 5, 2004 and November 15, 2004, we published a proposed 
rule and final rule (69 FR 47487 through 47730 and 69 FR 66235 through 
66915), respectively, implementing the provisions affecting the 
composite payment system effective January 1, 2005, as set forth in 
section 623 of the MMA. We refer to the modified composite payment 
system as the ``basic case-mix adjusted composite payment system''. The 
development and application of the basic case-mix adjustments, using 
regression based adjustment factors for the patient variables of age, 
body surface area, and low body mass index, are explained in each of 
those rules. (For more information, we refer readers to 69 FR 47529 and 
69 FR 66323, respectively.) The product of the specific adjusters for 
each patient, multiplied by the otherwise applicable composite payment 
rate, yielded the basic case-mix adjustment required by the MMA. The 
basic case-mix adjusted composite payment system was effective April 1, 
2005, and was derived from UM-KECC's research summarized in its report, 
Methodology for Developing a Basic Case-Mix Adjustment for the Medicare 
ESRD Prospective Payment System (May 19, 2004 report and April 1, 2005 
addendum).
    Subsequent to our implementation of the MMA requirements discussed 
above, UM-KECC continued its research to develop a case-mix adjusted 
ESRD PPS that would combine composite rate and separately billable 
services. UM-KECC reported its findings and recommendations in a final 
report submitted to CMS in February 2008, End Stage Renal Disease 
Payment System: Results of Research on Case-Mix Adjustment for an 
Expanded Bundle. That report is available on the Internet at: https://www.sph.umich.edu/kecc/assets/documents/UM-KECC_Expanded_ESRD_Bundle.pdf. Individuals requiring special assistive technology may 
contact CMS at 410-786-4533 between the hours of 8:30 a.m. and 5 p.m. 
e.d.t. for assistance. UM-KECC's final report formed the basis for the 
Secretary's February 2008 Report to Congress, A Design for a Bundled 
End Stage Renal Disease Prospective Payment System, mandated under 
section 623(f)(1) of the MMA.
    The aspects of the basic case-mix adjusted composite payment system 
implemented as a result of section 1881(b)(12) of the Act, as added by 
section 623(d)(1) of the MMA, are important because they provide a 
foundation for the development of the case-mix adjusted bundled ESRD 
PPS required under Public Law 110-275, the Medicare Improvements for 
Patients and Providers Act of 2008 (MIPPA). Accordingly, we briefly 
describe below the basic case-mix adjustment under the current 
composite payment system before turning to the relevant provisions of 
MIPPA and the development of the proposed ESRD PPS.
3. The Basic Case-Mix Adjustment
    Resources required to furnish routine dialysis such as staff and 
equipment time vary by patient. For example, all other things being 
equal, larger patients cost more to deliver the same dose of dialysis 
than do smaller patients. Also, severely debilitated or aged patients 
may require more staff time than do younger healthier patients. Because 
of the variation in resources required to furnish routine dialysis to 
individuals with varying patient characteristics, facilities that treat 
a greater than average proportion of resource-intensive patients could 
be economically disadvantaged if they are paid a rate

[[Page 49926]]

based on average resources. In addition, patients who are costlier than 
average to dialyze may face difficulties gaining access to care because 
a fixed composite payment rate could create a disincentive to treat 
such patients. The purpose of a case-mix adjustment based on patient 
characteristics is to make higher payments to ESRD facilities treating 
more resource-intensive patients, according to objective quantifiable 
criteria. Such an adjustment also would reduce the disincentives to 
treat or provide the optimal dose of dialysis to such patients.
    The costs of providing the routine maintenance dialysis services 
that are paid under the composite rate are reported on the Medicare 
cost reports for hospital-based and independent ESRD facilities (Forms 
CMS 2552-96 and CMS 265-94, respectively). Patient-specific data 
related to the costs of furnishing composite rate services are not 
collected because these costs are included as part of the composite 
rate and are not separately billed. However, earlier UM-KECC research 
revealed considerable variability in costs and patient characteristics 
among dialysis facilities, and that several patient characteristics 
predicted facility costs. See Wolfe, R. et al., An expanded Medicare 
outpatient end stage renal disease prospective payment system, Phase I 
report, University of Michigan, Kidney Epidemiology and Cost Center, 
August 2002; Hirth, R.A., et al., Is case-mix adjustment necessary for 
an expanded dialysis bundle? Health Care Financing Review, Summer 2003, 
24, pp. 77-88; Kidney Epidemiology and Cost Center: Methodology for 
developing a basic case-mix adjustment for the Medicare ESRD 
prospective payment system, May 19, 2004 report and April 1, 2005 
addendum, prepared under contract no. N-12004-11-504200 for the Centers 
for Medicare and Medicaid Services.
    In order to determine a basic case-mix adjustment that could be 
applied to each ESRD facility's composite rate, UM-KECC further 
examined the relationship between facility-level costs for composite 
rate services based on the Medicare cost reports for hospital-based and 
independent facilities, and the average characteristics of patients 
treated by the facility. The research used data from Medicare cost 
reports for 3,254 independent and hospital-based ESRD facilities for 
2000 to 2002, patient characteristics/co-morbidity data from CMS's 
Medical Evidence Form 2728 for 1995 through 2002, and Medicare claims 
for approximately 360,000 ESRD patients. See Hirth, R.A., et al., 
Economic impact of case-mix adjusting the dialysis composite rate, 
Journal of the American Society of Nephrology, 16, 2005, pp. 1172-1176, 
and Wheeler, John R. C., et al., Understanding the basic case-mix 
adjustment for the composite rate, American Journal of Kidney Diseases, 
47, No. 4, April 2006, pp. 666-671. Based on standard techniques of 
multiple regression analysis, UM-KECC found that age and body size had 
significant relationships to composite rate costs. The body size 
variables were body surface area (BSA) and low body mass index (BMI), 
calculated based on a patient's height and weight.
    A BMI less than 18.5 kg/m\2\ is considered a clinical measure of 
underweight status and is an indicator of patients who are malnourished 
or suffering from co-morbidities such as wasting syndrome. BSA is 
closely associated with the duration and intensity of dialysis required 
to achieve targets for dialysis adequacy. Facilities with a larger 
proportion of patients with a greater than average BSA, or with a BMI 
lower than 18.5, were found to have greater composite rate costs. The 
research also revealed a U-shaped relationship between age and 
composite rate costs, with the youngest and oldest age groups incurring 
greater costs for composite rate services due to resource needs.
    Although several co-morbidities were found to have statistically 
significant relationships to composite rate costs, CMS did not adopt 
them to develop the basic case-mix system mandated by the MMA for a 
number of reasons. For instance, the relationship of some co-
morbidities to the composite rate costs was not stable over time. In 
addition, establishment of the diagnostic criteria used in connection 
with specific co-morbidities required further study.
    A few findings were surprising. For example, several patient 
characteristics, notably type 1 or type 2 diabetes, which generally are 
important with regard to the etiology of ESRD, did not show 
statistically significant relationships to composite rate costs for 
renal dialysis services. While the result that facilities with the 
greatest number of oldest patients incurred greater composite rate 
costs was expected, the finding that facilities with a higher 
proportion of patients in the youngest age group (a group that excludes 
pediatric patients or those less than age 18) incurred greater 
composite rate costs as well, was unexpected.
    The outcome of UM-KECC's research was a set of basic case-mix 
adjusters or multipliers for ESRD patients based on three variables. 
These variables were: (1) The patient's age (five groups), (2) BSA (a 
patient-specific value based on incremental differences from the 
national patient average), and (3) BMI category (two groups, value 
either less than, or equal to/greater than 18.5 kg/m\2\). CMS also 
developed a special adjuster for pediatric patients outside of UM-
KECC's research methodology based on analysis of a sample of Medicare 
cost reports. The adjuster for each of these three variables is 
multiplied by the facility's composite rate to yield the current 
``basic'' case-mix adjustment for each ESRD patient according to the 
specified patient characteristics.
    These adjusters were as follows:

------------------------------------------------------------------------
                                                          Composite rate
                        Age group                           multiplier
------------------------------------------------------------------------
< 18....................................................          *1.62
18-44...................................................           1.223
45-59...................................................           1.055
60-69 (reference group).................................           1.000
70-79...................................................           1.094
80+.....................................................           1.174
Body Surface Area (BSA):                                  ..............
  (per 0.1m\2\ change in BSA from national average of              1.037
   1.84)................................................
Low Body Mass Index (BMI):                                ..............
  (<18.5kg/m\2\)........................................           1.112
------------------------------------------------------------------------
* Developed by CMS. The age, BSA, and BMI multipliers do not apply under
  the basic case-mix adjustments for patients under age 18.

    The above multipliers were derived from the coefficients of the 
regression model used to predict facility differences in composite rate 
costs based on UM-KECC's research. For example, the case-mix adjuster 
for a 47 year old ESRD patient who is underweight (BMI < 18.5 kg/
m2) and has a BSA of 2.0 m2 would be calculated 
as follows:

Age Adjuster..............................  1.055
BSA Adjuster..............................  1.037 (2.0-1.84)/0.1 = 1.060
Low BMI Adjuster..........................  1.112
Case-Mix Adjuster.........................  1.055 x 1.060 x 1.112 =
                                             1.244
 

    The resulting case-mix adjustment factor of 1.244 for this patient 
would be multiplied by the facility's otherwise applicable wage 
adjusted composite payment rate.
    The basic case-mix adjustment mandated under the MMA only affects 
the composite rate. It does not reflect costs associated with 
separately billable services. Separately billable services, 
particularly injectable drugs, are a significant component of the total 
dialysis resources used for each patient. Prior to the enactment of 
MIPPA on July 15, 2008, however, CMS did not have authority to bundle 
those services into a case-mix adjusted PPS.

[[Page 49927]]

4. MIPPA
    The implementation of the basic case-mix adjustments to the 
composite payment system effective April 1, 2005, and the Secretary's 
February 2008 Report to Congress, suggested that an expanded or bundled 
ESRD PPS which combined composite rate and separately billable services 
to yield case-mix adjusted payments was technically feasible. The 
report defined a payment bundle of dialysis-related services, described 
the methodology used to develop the regression based case-mix adjusters 
and the base period payment rates to which the case-mix adjusters would 
be applied, and discussed numerous other issues relevant to the 
bundling of outpatient dialysis services under a system of prospective 
payments. As a result of the July 15, 2008 enactment of MIPPA, section 
153(b) of MIPPA amended section 1881(b) of the Act to require the 
implementation of an ESRD bundled payment system effective January 1, 
2011 (herein referred to as the ``ESRD PPS''). Consistent with the 
language under the statute, we will refer to hospital-based and 
independent renal dialysis facilities as ``providers'' and 
``facilities'', respectively, and when addressing both types of 
facilities, we will collectively refer to such entities as ``ESRD 
facilities'', as set forth in proposed Sec.  413.171. Section 153(b) of 
MIPPA specifies the following:
     The Secretary must implement a payment system under which 
a single payment is made to a provider of services or a renal dialysis 
facility for ``renal dialysis services'' in lieu of any other payment, 
and for such services and items furnished for home dialysis and self-
care home dialysis support services.
     A definition for the ``renal dialysis services'' that are 
included in the bundle.
     The estimated amount of total payments under the ESRD PPS 
for 2011 must be equal to 98 percent of the estimated total amount of 
payments for renal dialysis services paid under Medicare, including 
payments for drugs, that would have been made with regard to services 
in 2011 if the new system was not implemented. Such estimate must be 
made based on per patient utilization data from 2007, 2008, or 2009, 
whichever year has the lowest per patient utilization.
     The ESRD PPS must include adjustments for case-mix 
variables, high cost outlier payments, and low-volume facilities and 
provide for a four-year transition (phase-in) period, with all 
facilities transitioned into the bundled ESRD PPS on January 1, 2014. 
ESRD facilities may make a one-time election before January 1, 2011, to 
be paid under the ESRD PPS and not go through the transition period.
     The ESRD PPS may include other payment adjustments, as the 
Secretary determines appropriate, including the use of a geographic 
index, and potential adjustments for pediatric patients and rural 
dialysis centers, and may provide for a unit of payment as the 
Secretary specifies (for example, per treatment or per unit of time).
     The ESRD PPS payment amounts must be annually increased by 
an ESRD bundled market basket beginning in 2012, and during the 
transition.
     Section 623(e) of the MMA, which requires a demonstration 
project of the use of a case-mix adjusted bundled ESRD PPS, be 
repealed.
    Section 153(a)(1) of MIPPA also requires that the composite payment 
rates be increased by 1.0 percent effective for services furnished on 
or after January 1, 2009, and before January 1, 2010, and increased by 
1.0 percent for services furnished on or after January 1, 2010. In 
addition, section 153(a)(2) of MIPPA requires that the payment rate for 
dialysis services furnished on or after January 1, 2009, by ESRD 
providers of services, be the same as the payment rate for such 
services furnished by renal dialysis facilities. On November 19, 2008, 
we published the CY 2009 Physician Fee Schedule final rule (73 FR 
69754), implementing the site neutral composite rate for ESRD 
facilities, and the CY 2009 1.0 percent increase to the composite rate. 
We expect to publish the CY 2010 1.0 percent increase to the composite 
rate in the CY 2010 Physician Fee Schedule final rule.
    In the following sections of this notice of proposed rulemaking, we 
describe the ESRD PPS we are proposing to implement effective January 
1, 2011, in compliance with the statutory requirements of MIPPA.

II. Overview of the Proposed ESRD PPS

    This proposed rule would implement a case-mix adjusted bundled PPS 
for Medicare outpatient ESRD dialysis patients beginning January 1, 
2011, in accordance with the statutory provisions set forth in section 
153(b) of MIPPA. We propose to implement this new system as described 
in proposed Sec.  413.172 and Sec.  413.215. The proposed ESRD PPS 
would replace the current basic case-mix adjusted composite payment 
system and methodologies for the reimbursement of separately billable 
outpatient ESRD services. Specifically, we propose that the ESRD PPS 
would combine payments for composite rate and separately billable 
services into a single base rate of $198.64 developed from CY 2007 
claims data. Under the proposed rule, the base rate would be 
subsequently adjusted using patient-specific case-mix adjustment 
factors developed from separate equations for composite rate and 
separately billable services. The case-mix adjusters would include 
variables for age, body surface area (BSA), low body mass index (BMI), 
gender, eleven co-morbidity categories, and the onset of renal 
dialysis. These proposed adjustment factors were developed using 
standard techniques of multiple regression to yield case-mix adjusted 
payments per treatment. The per treatment payment amounts would also be 
adjusted to reflect urban and rural differences in area wage levels 
using an area wage index developed from Core Based Statistical Areas 
(CBSAs definitions). The proposed rule also provides that ESRD 
facilities treating patients with unusually high resource requirements 
as measured through their utilization of identified services beyond a 
specified threshold would be entitled to outlier payments, that is, 
additional payments beyond the otherwise applicable case-mix adjusted 
bundled prospective payment amount. The proposed ESRD PPS also provides 
for special adjustments for pediatric patients and for facilities 
treating a low volume of ESRD patients, as well as a 4-year transition 
(phase-in) period under which facilities would receive a blend of 
payments under the prior case-mix adjusted composite payment system and 
the new ESRD PPS.

III. The Proposed ESRD PPS Bundle

    Section 1881(b)(14)(A)(i) of the Act, as added by section 153(b) of 
MIPPA, specifies that the ESRD PPS must represent a single payment to 
ESRD facilities for ``renal dialysis services'' in lieu of any other 
payment, and home dialysis supplies, equipment, and support services 
furnished pursuant to section 1881(b)(4) of the Act. Section 
1881(b)(14)(B) of the Act, which identifies the renal dialysis services 
that are to be included in the ESRD PPS payment bundle, provides the 
following:

* * * the term ``renal dialysis services'' includes--
    (i) Items and services included in the composite rate for renal 
dialysis services as of December 31, 2010;
    (ii) Erythropoiesis stimulating agents and any oral form of such 
agents that are furnished to individuals for the treatment of end 
stage renal disease;
    (iii) Other drugs and biologicals that are furnished to 
individuals for the treatment of

[[Page 49928]]

end stage renal disease and for which payment was(before application 
of this [new ESRD PPS]) made separately under this title, and any 
oral equivalent form of such drug or biological; and
    (iv) Diagnostic laboratory tests and other items and services 
not described in clause (i) that are furnished to individuals for 
the treatment of end stage renal disease.

    The methodology, which we subsequently describe, for the 
development of the proposed ESRD PPS, generally identifies the renal 
dialysis services that we propose to include in the proposed payment 
bundle in accordance with our interpretation of the statute. We also 
discuss in more detail below the definition for renal dialysis services 
under section 1881(b)(14)(B) of the Act.

A. Composite Rate Services

    Section 1881(b)(14)(B)(i) of the Act requires that the ESRD PPS 
payment bundle include composite rate services. As we indicated 
previously, the current case-mix adjusted composite payment system 
represents a limited PPS for a bundle of outpatient renal dialysis 
services that includes maintenance dialysis treatments and all 
associated services including historically defined dialysis-related 
drugs, laboratory tests, equipment, supplies, and staff time. It 
applies to Medicare beneficiaries receiving dialysis in ESRD facilities 
and to patients who have elected Method I home dialysis. (Under Method 
I, the ESRD facility with which the home patient is associated assumes 
responsibility for furnishing all home dialysis equipment, supplies, 
and home support services included in the provision of composite rate 
services. (See section 2740 of CMS Pub. 15-1.)) The ESRD facility 
receives reimbursement under the current case-mix adjusted composite 
payment system. For all other ESRD outpatient services not included in 
the composite payment rate under the current system, such items and 
services are billed separately in accordance with Medicare fee 
schedules and other payment methodologies under Part B and Part D. We 
propose to include in the proposed ESRD PPS those items and services 
included in the composite rate for renal dialysis services as of 
December 31, 2010, including self-dialysis training services, such as 
labor, supplies, and equipment(for greater detail, see discussion on 
self-dialysis training sessions in section E.2). Therefore, these costs 
for such composite rate services would be included in our computation 
of the proposed ESRD PPS base rate as explained in section VII. of this 
proposed rule. This not only would include payments for the costs of 
services directly related to dialysis, including payments for the costs 
of self-dialysis training sessions, but also payments authorized in 
accordance with the composite payment rate exception provisions set 
forth in 42 CFR 413.180 through 413.186. The costs for composite rate 
services are also included in our development of the composite rate 
regression model used to create the two equation patient specific case-
mix adjusters that would be applied to the base rate. Composite rate 
services are defined in proposed Sec.  413.171.

B. ESAs and Their Oral Forms

    Section 1881(b)(14)(B)(ii) of the Act requires that ESAs and any 
oral form of such agents that are furnished to individuals for the 
treatment of ESRD be included in the ESRD PPS payment bundle. Epoetin 
alfa (EPO, for example, Epogen[reg]) and darbepoetin (ARANESP[reg]) are 
injectable ESAs, which are currently separately billable outside of the 
case-mix adjusted composite payment system. Payments for EPO[reg] and 
ARANESP[reg] would be included in the calculation of the proposed ESRD 
PPS base rate. These agents would also be included in the separately 
billable regression model used to create the two equation patient 
specific case-mix adjusters for the proposed ESRD PPS. We are currently 
unaware of any other injectable ESAs or oral forms of such ESAs used 
for the treatment of ESRD. However, should such agents become available 
subsequent to the implementation of the ESRD PPS on January 1, 2011, 
these agents would be considered renal dialysis services and subject to 
payment under the ESRD PPS. That is, consistent with the statute, we 
propose that no additional payment would be provided for such agents 
outside of the bundle of renal dialysis services included in the ESRD 
PPS. The inclusion of ESA's and their oral forms as renal dialysis 
services in the ESRD PPS payment bundle is set forth in proposed 
Medicare regulation 413.171.

C. Other Drugs and Biologicals and Their Oral Equivalents

    Section 1881(b)(14)(B)(iii) of the Act specifies that other drugs 
and biologicals that were furnished to individuals for the treatment of 
ESRD and for which payment was made separately under this title, prior 
to the implementation of the ESRD PPS, and their oral equivalent forms, 
must be included in the ESRD PPS payment bundle. Given the reference to 
``this title,'' we interpret clause (iii) as requiring the inclusion in 
the ESRD PPS payment bundle all drugs and biologicals that were 
separately billable prior to the implementation of MIPPA under title 
XVIII of the Act. Therefore, we believe the ESRD PPS payment bundle 
would include all drugs and biologicals formerly separately payable 
under Medicare Part B and Part D. We recognize that an alternative 
reading of the last part of clause (iii) with respect to the phrase 
``and any oral equivalent form of such drug or biological'' could be 
interpreted to limit the scope of the drugs and biologicals included in 
the bundle to only oral versions of injectables (or other non-oral 
routes of administration). However, we believe that this reading of the 
statute is unduly constrained. Therefore, our view is that the intent 
of clause (iii) is to include all drugs and biologicals formerly 
payable under either Medicare Part B or Part D used to treat ESRD, 
regardless of the route of administration.
    We believe that the exclusion of oral drugs and biologicals for 
which there is no injectable equivalent (or other non-oral form of 
administration) from the ESRD PPS would defeat one of the very purposes 
of the new system--the inclusion of all renal dialysis services 
furnished to ESRD patients in a comprehensive payment bundle to which a 
reasonable payment amount can be attached empirically. In addition, the 
exclusion of oral drugs and biologicals for which there is no 
injectable (or other non-oral) version does not make sense from a 
payment policy perspective. Such a policy would result in the gradual 
growth of excluded services from the ESRD PPS payment bundle, and the 
progressive erosion of the payment system, as new oral-only drugs and 
biologicals for the treatment of ESRD emerge. Moreover, we believe the 
inclusion of such drugs and biologicals is supportable under clause 
(iv). That is, we believe the language under clause (iv) addressing 
``other items and services not covered in clause (i),'' provides 
sufficient authority to include all drugs and biologicals, including 
oral-only drugs and biologicals, used to treat ESRD in the ESRD PPS 
payment bundle. Therefore, we are proposing that drugs and biologicals 
used to treat ESRD that were separately payable prior to January 1, 
2011, be included as part of the proposed ESRD PPS payment bundle. 
Accordingly, we propose to include such drugs and biologicals in the 
development of the proposed patient-specific case-mix adjusters and in 
the calculation of the proposed ESRD base rate to which the adjusters 
would be

[[Page 49929]]

applied. We identified specific National Drug Codes (NDCs) for drugs 
and biologicals previously payable under part D that we propose to 
include in the payment bundle. However, we propose that the ESRD PPS 
will apply, regardless of the emergence of new drugs or biologicals, or 
different NDCs for the classes of drugs and biologicals included in the 
ESRD PPS bundle. Finally, section 1881(b)(14)(B) of the Act 
specifically excludes vaccines from the payment bundle and, therefore, 
vaccines will not be included in the proposed ESRD PPS. We are seeking 
comments on our proposals above.
    We have found that eleven drugs and biologicals accounted for 99.7 
percent of the payments under Part B for all injectable drugs and 
biologicals that were furnished to outpatient ESRD patients in CY 2007. 
These drugs and biologicals are epoetin alfa (EPO[reg]), darbepoetin 
alfa (ARANESP[reg]), calcitriol, doxercalciferol, paracalcitol, iron 
sucrose, sodium ferric gluconate, levocarnitine, alteplase recombinant, 
vancomycin, and daptomycin. These drugs and biologicals, as well as the 
others comprising 0.3 percent of the total payments for drugs and 
biologicals under Part B in CY 2007, would be included in the proposed 
ESRD PPS payment bundle. Of the top eleven injectable drugs and 
biologicals, several have oral versions. For example, levocarnitine, 
and the vitamin D analogues calcitriol, doxercalciferol, and 
paricalcitol are also available in oral form. The oral versions of 
these drugs are currently covered under Medicare Part D. Other drugs 
used to treat ESRD are available only in oral form and are currently 
payable under Part D. These include cinacalcet hydrochloride, lanthanum 
carbonate, calcium acetate, sevelamer hydrochloride, and sevelamer 
carbonate. Consistent with our interpretation of section 
1881(b)(14)(B)(iii) of the Act, we propose that payments for all drugs 
and biologicals furnished to ESRD patients and separately billable 
prior to January 1, 2011, would be included under the proposed ESRD PPS 
payment bundle as renal dialysis services. Under this proposal, 
separate billing for these services would be prohibited. The proposed 
ESRD PPS methodology, both with respect to the computation of the case-
mix adjusters and the calculation of the proposed ESRD base rate to 
which the adjusters would be applied, includes payments for these 
services. The inclusion of other drugs and biologicals and their oral 
equivalents as renal dialysis services in the ESRD PPS payment bundle 
is set forth in proposed Sec.  413.171.

D. Diagnostic Laboratory Tests and Other Items and Services

    Section 1881(b)(14)(B)(iv) of the Act requires that diagnostic 
laboratory tests not included under the composite payment rate (that 
is, currently separately billable laboratory tests) must be included as 
part of the ESRD PPS payment bundle. We propose to define such 
laboratory tests as laboratory tests that are separately billed by ESRD 
facilities as of December 31, 2010, and laboratory tests ordered by a 
physician who receives monthly capitation payments (MCPs) for treating 
ESRD patients that are separately billed by independent laboratories. 
Because many of the same diagnostic laboratory tests can be performed 
for both ESRD and non-ESRD patients, we believe that this approach for 
including laboratory services appropriately captures tests for 
inclusion in the payment bundle. We propose that payments for these 
laboratory services would be included in the development of the 
proposed patient-specific case-mix adjusters and in the proposed ESRD 
base rate to which the adjusters would be applied.
    Section 1881(b)(14)(B)(iv) of the Act also requires that the ESRD 
PPS payment bundle include ``other items and services not described in 
clause (i)''. We believe that this language can be reasonably 
interpreted to include other separately billable items and services 
used in the treatment of ESRD, such as supplies. Examples of such items 
and services would include, but not be limited to, items such as 
syringes, specialized tubing, as well as blood and blood products, 
which facilities may furnish during the dialysis treatment. We also 
believe that the language also can be interpreted to include the cost 
of other self-dialysis training services in the ESRD PPS (for further 
detail on self-dialysis training, see section E.2. below). We propose 
that such items and services be included in the ESRD PPS bundle. The 
inclusion of diagnostic laboratory tests and other items and services 
as renal dialysis services in the ESRD PPS payment bundle is set forth 
in proposed Sec.  413.171.

E. Home Dialysis Patients (Method I and II) and Self-Dialysis Training

    Section 1881(b)(4) of the Act authorizes the Secretary to make 
payment to providers of services and renal dialysis facilities, and to 
suppliers of home dialysis supplies and equipment, for the cost of home 
dialysis supplies and equipment and self-care home dialysis support 
services furnished to patients for self-care home dialysis. As a result 
of section 153(b) of MIPPA, as explained above, section 
1881(b)(14)(A)(i) of the Act requires the Secretary to implement a 
payment system under which a single payment is made under this title to 
an ESRD facility for renal dialysis services and for such services and 
items furnished pursuant to section 1881(b)(4) of the Act. As we 
explained above, we also believe that self-dialysis training services 
would be considered renal dialysis services as defined in section 
1881(b)(14)(B) of the Act. As a result, we are proposing that the costs 
of home dialysis services furnished to both Method I and Method II home 
dialysis patients under the current basic case-mix adjusted payment 
system, as well as self-dialysis training services, must be combined 
into a single payment under the proposed ESRD PPS.
1. Payment for Home Dialysis
    Currently, Hemodialysis, Continuous Cycling Peritoneal Dialysis 
(CCPD), Intermittent Peritoneal Dialysis (IPD) and Continuous 
Ambulatory Peritoneal Dialysis (CAPD) treatment modalities may be 
performed at home by appropriately trained patients. Medicare 
beneficiaries dialyzing at home must complete a Medicare Beneficiary 
Form (CMS-382) selecting between two methods of payment (Method I or 
Method II) as described below.
a. Method I--The Composite Rate
    If a Medicare home dialysis patient chooses Method I, the ESRD 
facility with which the patient is associated must assume 
responsibility for providing all home dialysis equipment and supplies 
as well as providing home support services and receives the composite 
payment rate for such services. Support services needed to furnish home 
dialysis services include, but are not limited to: (1) Periodic 
monitoring of a patient's adaptation to home dialysis and performance 
of dialysis; (2) visits by trained technical personnel made in 
accordance with a plan prepared by a professional team; (3) unscheduled 
visits on an as needed basis; and (4) providing, installing, repairing, 
testing, and maintaining home dialysis equipment including appropriate 
water testing and treatment. For these services, the ESRD facility 
receives, in accordance with Sec.  414.330(a), the same Medicare 
dialysis payment rate as it would receive for an in-facility patient 
under the basic case-mix adjusted composite payment system. Under 
Method I, the ESRD facility bills the Medicare Administrative 
Contractor/Fiscal

[[Page 49930]]

Intermediary (MAC/FI) and the beneficiary is responsible for paying the 
Medicare Part B deductible and the 20 percent coinsurance on the 
Medicare rate to the facility.
b. Method II--Dealing Directly With Suppliers
    In accordance with regulations at Sec.  414.330(a)(2), a Medicare 
ESRD beneficiary can elect to obtain home dialysis equipment and 
supplies from a supplier, that is not a Medicare approved dialysis 
facility (Method II). If a beneficiary elects Method II, the 
beneficiary will deal directly with a single Medicare Durable Medical 
Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) supplier to 
secure the necessary supplies and equipment to dialyze at home. The 
selected DMEPOS supplier (not a dialysis facility) must accept 
assignment and bills the Durable Medical Equipment Medicare 
Administrative Contractor (DME MAC). The beneficiary is financially 
responsible to the supplier for any unmet Medicare Part B deductible 
and for the 20 percent Medicare Part B coinsurance requirement. The 
amount of Medicare payment under Method II for home dialysis equipment 
and supplies may not exceed $1,974.25 per month for CCPD and $1,490.85 
per month (57 FR 54186, published November 17, 1992) for all other 
modalities of home dialysis.
    For each beneficiary it serves, the supplier is required to 
maintain a written agreement with an approved ESRD facility to provide 
backup and support services. An ESRD facility that has a written 
agreement to supply backup and support services bills the MAC/FI for 
services provided under the agreement. Under Method II, an ESRD 
facility may be paid up to $121.15 (57 FR 54186, published November 17, 
1992) per month for home dialysis support services, such as arranging 
for the provision of all ESRD related laboratory tests and billing for 
the laboratory tests that are included in the composite payment rate. 
An ESRD facility may not be paid for home dialysis equipment or 
supplies under Method II.
    Based on 2004-2006 data, only 3.1 percent of renal facilities 
report support service costs furnished to Medicare Method II home 
dialysis patients. The data also show that the number of Method II 
patients is small and has significantly declined over the study period 
(that is, 2004-2006) as shown below.

------------------------------------------------------------------------
                           Patients                               Year
------------------------------------------------------------------------
5289.........................................................       2004
4465.........................................................       2005
2635.........................................................       2006
------------------------------------------------------------------------

    We are proposing that payment for all home dialysis services 
excluding physicians' services (See section III.F. below regarding the 
exclusion of physicians' services) would be included in the bundled 
payment to the ESRD facility, under the proposed ESRD PPS.
    In addition, as we indicated, section 1881(b)(14)(A)(i) of the Act 
requires that a single payment for renal dialysis services and items 
and services under section 1881(b)(4) be made to an ESRD facility. 
Therefore, since we are proposing that the costs of home dialysis 
services furnished under Method I and Method II (see section V Data 
Sources), regardless of home treatment modality, would be included in 
the proposed ESRD PPS, we also are proposing that the Method II home 
dialysis approach in its present form would no longer exist under the 
proposed ESRD PPS. With regard to payment limits for home dialysis 
services, in accordance with 6203(b) of Public Law 101-239, we 
published a final rule on November 17, 1992 implementing (57 FR 54179), 
Medicare program payment changes for home dialysis. In section 
413.330(c), we set payment limits on what Medicare would pay for home 
dialysis supplies, equipment, and home support services as explained 
above. Accordingly, effective January 1, 2011, we propose to revise 
Sec.  414.330 to reflect that payment as established in section 
1881(b)(14) of the Act will be the basis for home dialysis supplies, 
equipment, and home support services and therefore, Medicare would pay 
for home dialysis equipment, supplies and support services only under 
the prospective payment rate established in proposed 413.210 and 
payment limits previously established for such would no longer apply. 
We also note, that this proposal would not eliminate Method I in its 
present form. Therefore, effective January 1, 2011, a supplier could 
only furnish, under an arrangement with the ESRD facility, home 
dialysis equipment and supplies to a Medicare home dialysis 
beneficiary, and then the supplier would need to look to the ESRD 
facility for