Medicare Program; End-Stage Renal Disease Prospective Payment System and Quality Incentive Program; Ambulance Fee Schedule; Durable Medical Equipment; and Competitive Acquisition of Certain Durable Medical Equipment, Prosthetics, Orthotics and Supplies, 70228-70316 [2011-28606]

Agencies

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

[Federal Register Volume 76, Number 218 (Thursday, November 10, 2011)]
[Rules and Regulations]
[Pages 70228-70316]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28606]



[[Page 70227]]

Vol. 76

Thursday,

No. 218

November 10, 2011

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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 42 CFR Parts 413 and 414





Medicare Program; End-Stage Renal Disease Prospective Payment System 
and Quality Incentive Program; Ambulance Fee Schedule; Durable Medical 
Equipment; and Competitive Acquisition of Certain Durable Medical 
Equipment, Prosthetics, Orthotics and Supplies; Final Rule

Federal Register / Vol. 76 , No. 218 / Thursday, November 10, 2011 / 
Rules and Regulations

[[Page 70228]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413 and 414

[CMS-1577-F]
RIN 0938-AQ27


Medicare Program; End-Stage Renal Disease Prospective Payment 
System and Quality Incentive Program; Ambulance Fee Schedule; Durable 
Medical Equipment; and Competitive Acquisition of Certain Durable 
Medical Equipment, Prosthetics, Orthotics and Supplies

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

ACTION: Final rule.

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SUMMARY: This final rule updates and makes certain revisions to the 
End-Stage Renal Disease (ESRD) prospective payment system (PPS) for 
calendar year (CY) 2012. We are also finalizing the interim final rule 
with comment period published on April 6, 2011, regarding the 
transition budget-neutrality adjustment under the ESRD PPS,. This final 
rule also sets forth requirements for the ESRD quality incentive 
program (QIP) for payment years (PYs) 2013 and 2014. In addition, this 
final rule revises the ambulance fee schedule regulations to conform to 
statutory changes. This final rule also revises the definition of 
durable medical equipment (DME) by adding a 3-year minimum lifetime 
requirement (MLR) that must be met by an item or device in order to be 
considered durable for the purpose of classifying the item under the 
Medicare benefit category for DME. Finally, this final rule implements 
certain provisions of section 154 of the Medicare Improvements for 
Patients and Providers Act of 2008 (MIPPA) related to the durable 
medical equipment, prosthetics, orthotics and supplies (DMEPOS) 
Competitive Acquisition Program and responds to comments received on an 
interim final rule published January 16, 2009, that implemented these 
provisions of MIPPA effective April 18, 2009. (See the Table of 
Contents for a listing of the specific issues addressed in this final 
rule.)

DATES: Effective dates: These regulations are effective on January 1, 
2012. Also, effective January 1, 2012, we are finalizing the interim 
final rule with comment (``Medicare Programs: Changes to the End-Stage 
Renal Disease Prospective Payment System Transition Budget-Neutrality 
Adjustment'') published on April 6, 2011 (76 FR 18930). Additionally, 
effective January 12, 2012 the interim rule amending 42 CFR Part 414, 
published on January 16, 2009 (74 FR 2873), is confirmed as final.

FOR FURTHER INFORMATION CONTACT: 
    Terri Deutsch, (410) 786-4533, for issues related to ESRD.
    Roechel Kujawa, (410) 786-9111, for issues related to ambulance 
services.
    Heidi Oumarou, (410) 786-7942, for issues related to the ESRD 
market basket.
    Shannon Kerr, (410) 786-3039, for issues related to the quality 
incentive program.
    Sandhya Gilkerson, (410) 786-4085, for issues related to DME MLR.
    Hafsa Bora, (410) 786-7899 or Iffat Fatima, (410) 786-6709, for 
DMEPOS Competitive Acquisition Program issues related to comments 
received on an interim final rule that implemented provisions of MIPPA 
effective April 18, 2009.

SUPPLEMENTARY INFORMATION:

Addenda Are Only Available Through the Internet on the CMS Web Site

    In the past, a majority of the Addenda referred to throughout the 
preamble of our proposed and final rules were available in the Federal 
Register. However, the Addenda of the annual proposed and final rules 
will no longer be available in the Federal Register. Instead, these 
Addenda to the annual proposed and final rules will be available only 
through the Internet on the CMS Web site. The Addenda to the End-Stage 
Renal Disease (ESRD) Prospective Payment System (PPS) rules are 
available at: https://www.cms.gov/ESRDPayment/PAY/list.asp. Readers who 
experience any problems accessing any of the Addenda to the proposed 
and final rules that are posted on the CMS Web site identified above 
should contact Lisa Hubbard at (410) 786-4533.

Table of Contents

    To assist readers in referencing sections contained in this 
preamble, we are providing a Table of Contents. Some of the issues 
discussed in this preamble affect the payment policies, but do not 
require changes to the regulations in the Code of Federal Regulations 
(CFR).

I. Calendar Year (CY) 2012 End-Stage Renal Disease (ESRD) 
Prospective Payment System (PPS)
    A. Background on the End-Stage Renal Disease Prospective Payment 
System
    B. Summary of the Proposed Provisions and Responses to Comments 
on the CY 2012 ESRD PPS
    1. Updates to the Composite Rate and ESRD PPS Base Rate
    a. Composite Rate
    b. ESRD PPS Base Rate
    2. ESRD Bundled Market Basket
    a. Overview and Background
    b. Final Market Basket Update Increase Factor and Labor-Related 
Share for ESRD Facilities for CY 2012
    c. Productivity Adjustment
    d. Calculation of the ESRDB Market Basket Update, Adjusted for 
Multifactor Productivity for CY 2012
    3. Transition Budget-Neutrality Adjustment for CY 2011
    4. Transition Budget-Neutrality Adjustment for CY 2012
    5. Low-Volume Facility Provisions
    6. Update to the Drug Add-On to the Composite Rate Portion of 
the ESRD Blended Payment Rate
    a. Estimating Growth in Expenditures for Drugs and Biologicals 
in CY 2012
    b. Estimating per Patient Growth
    c. Applying the Growth Update to the Drug Add-On Adjustment
    d. Update to the Drug Add-On Adjustment for CY 2012
    7. Updates to the Wage Index Values and Wage Index Floor for the 
Composite Rate Portion of the Blended Payment and the ESRD PPS 
Payment
    a. Reduction to the ESRD Wage Index Floor
    b. Policies for Areas with no Hospital Data
    c. Wage Index Budget-Neutrality Adjustment
    d. ESRD PPS Wage Index Tables
    8. Drugs
    a. Vancomycin
    b. Drug Overfill
    9. Revisions to Patient-Level Adjustment for Body Surface Area 
(BSA)
    10. Revisions to the Outlier Policy
    a. Revisions Related to Outlier ESRD Drugs and Biologicals
    b. Exclusion of Automated Multi-Channel Chemistry (AMCC) 
Laboratory Tests From the Outlier Calculation
    c. Impact of Final Changes to the Outlier Policy
    D. Technical Corrections
    1. Training Add-On
    2. ESRD-Related Laboratory Test
    E. Clarifications to the CY 2011 ESRD PPS
    1. ICD-9-CM Diagnosis Codes
    2. Emergency Services to ESRD Beneficiaries
    F. Miscellaneous Comments
II. End-Stage Renal Disease Quality Incentive Program for Payment 
Years (PYs) 2013 and 2014
    A. Background for the End-Stage Renal Disease Quality Incentive 
Program for PY 2013 and PY 2014
    B. Summary of the Proposed Provisions and Responses to Comments 
on the End-Stage Renal Disease (ESRD) Quality Incentive Program 
(QIP) for PY 2013 and PY 2014
    1. PY 2013 ESRD QIP Requirements
    a. Performance Measures for the PY 2013 ESRD QIP
    b. Performance Period and Case Minimum for the PY 2013 ESRD QIP
    c. Performance Standards for the PY 2013 ESRD QIP
    d. Methodology for Calculating the Total Performance Score and 
Payment Reduction for the PY 2013 ESRD QIP

[[Page 70229]]

    2. PY 2014 ESRD QIP
    a. Performance Measures for the PY 2014 ESRD QIP
    i. Anemia Management Measure
    ii. Dialysis Adequacy Measure
    iii. Vascular Access Type (VAT) Measure
    iv. Vascular Access Infections Measure
    v. Standardized Hospitalization Ratio (SHR)-Admissions Measure
    vi. Minimum Case Number for Clinical Measures and Other 
Considerations
    vii. National Healthcare Safety Network (NHSN) Dialysis Event 
Reporting Measure
    viii. Patient Experience of Care Survey Usage Measure
    ix. Mineral Metabolism Reporting Measure
    3. Performance Period for the PY 2014 ESRD QIP
    4. Performance Standards and the Methodology for Calculating the 
Total Performance Score for the PY 2014 ESRD QIP
    i. Performance Standards for the PY 2014 ESRD QIP
    ii. Setting Performance Benchmarks and Thresholds
    iii. Scoring Provider and Facility Performance on Clinical 
Measures Based on Achievement
    iv. Scoring Provider/Facility Performance on Clinical Measures 
Based on Improvement
    v. Calculating the VAT Measure Score
    vi. Calculating the NHSN Dialysis Event Reporting Measure, 
Patient Experience Survey Usage Reporting Measure and Mineral 
Metabolism Reporting Measure Scores
    vii. Weighting of the PY 2014 ESRD QIP Measures and Calculation 
of the PY 2014 ESRD QIP
    viii. Examples for 2014 ESRD QIP Performance Scoring Model
    6. Payment Reductions for the PY 2014 ESRD QIP
    7. Public Reporting Requirements
    8. Future QIP Measures
    9. Process of Updating Measures
III. Ambulance Fee Schedule
    A. Summary of Proposed Provisions
    1. Section 106 of the Medicare and Medicaid Extenders Act of 
2010 (MMEA)
    a. Amendment to Section 1834(l)(13) of the Act
    b. Amendment to Section 146(b)(1) of MIPPA
    c. Amendment to Section 1834(l)(12) of the Act
    2. Technical Correction
    B. Response to Comments
IV. Durable Medical Equipment and Supplies
    A. Background for Durable Medical Equipment (DME) and Supplies
    B. Current Issues
    C. Overview of the Provisions of the Proposed Durable Medical 
Equipment (DME) Regulation
    D. Summary of the Proposed Provisions and Responses to Comments 
on the Definition of Durable Medical Equipment (DME) and the 3-Year 
Minimum Lifetime Requirement (MLR)
    1. Application of the 3-Year MLR to Items Currently Covered as 
DME and to Supplies and Accessories of Covered DME
    2. Application of the 3-Year MLR to Multi-Component Devices
V. Interim Final Rule Regarding the Competitive Acquisition Program 
for Certain Durable Medical Equipment, Prosthetics, Orthotics and 
Supplies (DMEPOS)
    A. Background
    1. Legislative and Regulatory History of the DMEPOS Competitive 
Bidding Program
    2. The MIPPA and the Medicare DMEPOS Competitive Bidding Program
    B. Overview of the Interim Final Rule
    C. Summary of the Interim Final Rule Provisions and Response to 
Comments on Changes to the Competitive Acquisition of Certain 
Durable Medical Equipment, Prosthetics, Orthotics and Supplies 
(DMEPOS) by Certain Provisions of the Medicare Improvements for 
Patients and Providers Act of 2008 (MIPPA)
    1. General Changes to the DMEPOS Competitive Bidding Program
    a. Temporary Delay of the Medicare DMEPOS Competitive Bidding 
Program
    b. Supplier Feedback on Missing Covered Documents
    c. Disclosure of Subcontractors and Their Accreditation Status 
Under the Competitive Bidding Program
    d. Exemption From Competitive Bidding for Certain DMEPOS
    e. Exclusion of Group 3 Complex Rehabilitative Power Wheelchairs
    2. Round 1 Changes to the Competitive Bidding Program
    a. Rebidding of the ``Same Areas'' as the Previous Round 1, 
Unless Otherwise Specified
    b. Rebidding of the ``Same Items and Services'' as the Previous 
Round 1, Unless Otherwise Specified
    D. Other Public Comments Received on the January 16, 2009 
Interim Final Rule
VI. Collection of Information Requirements
VII. Economic Analyses
VIII. Regulatory Flexibility Act Analysis
IX. Unfunded Mandates Reform Act Analysis
X. Federalism Analysis
XI. Files Available to the Public via the Internet
    Regulations Text

Acronyms

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

AMCC Automated Multi-Channel Chemistry
ASP Average Sales Price
AV Arteriovenous
BLS Bureau of Labor Statistics
BMI Body Mass Index
BSA Body Surface Area
CY Calendar Year
CBSA Core-Based Statistical Area
CDC Centers for Disease Control and Prevention
CLABSI Central Line Access Bloodstream Infections
CFR Code of Federal Regulations
CIP Core Indicators Project
CMS Centers for Medicare & Medicaid Services
CPM Clinical Performance Measure
CPT Current Procedural Terminology
CROWNWeb Consolidated Renal Operations in a Web-Enabled Network
DFC Dialysis Facility Compare
DFR Dialysis Facility Report
DME Durable Medical Equipment
ESA Erythropoiesis stimulating agent
ESRD End-Stage Renal Disease
ESRDB End-Stage Renal Disease Bundled
FDA Food and Drug Administration
FI/MAC Fiscal Intermediary/Medicare Administrative Contractor
FY Fiscal Year
GDP Gross Domestic Product
HAI Healthcare-associated Infections
HCPCS Healthcare Common Procedure Coding System
HD Hemodialysis
HHD Home Hemodialysis
ICD-9-CM International Classification of Diseases, 9th Edition, 
Clinical Modifications
ICH CAHPS In-Center Hemodialysis Consumer Assessment of Healthcare 
Advisors
IGI IHS Global Insight
IPPS Inpatient Prospective Payment System
KDIGO Kidney Disease: Improving Global Outcomes
KDOQI Kidney Disease Outcome Quality Initiative
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
MAP Medicare Allowable Payment
MCP Monthly Capitation Payment
MIPPA Medicare Improvements for Patients and Providers Act of 2008 
(Pub. L. 110-275)
MMA Medicare Prescription Drug, Improvement and Modernization Act of 
2003
MMEA Medicare and Medicaid Extenders Act of 2010 Public Law 111-309
MFP Multifactor Productivity
NHSN National Healthcare Safety Network
NQF National Quality Forum
PD Peritoneal Dialysis
PFS Physician Fee Schedule
PPS Prospective Payment System
PSR Performance Score Report
PY Payment Year
QIP Quality Incentive Program
REMIS Renal Management Information System
RFA Regulatory Flexibility Act
RUL Reasonable Useful Lifetime
SBA Small Business Administration
SIMS Standard Information Management System
SHR Standardized Hospitalization Ratio
SSA Social Security Administration
The Act Social Security Act
The Affordable Care Act The Patient Protections and Affordable Care 
Act
URR Urea reduction ratio
VBP Value Based Purchasing

[[Page 70230]]

I. Calendar Year (CY) 2012 End-Stage Renal Disease (ESRD) Prospective 
Payment System (PPS)

A. Background on the End-Stage Renal Disease Prospective Payment System

    On August 12, 2010, we published in the Federal Register, a final 
rule (75 FR 49030 through 49214), entitled, ``End-Stage Renal Disease 
Prospective Payment System'', hereinafter referred to as the CY 2011 
ESRD PPS final rule. In the CY 2011 ESRD PPS final rule, we implemented 
a case-mix adjusted bundled PPS for Medicare outpatient ESRD dialysis 
patients beginning January 1, 2011, in accordance with section 
1881(b)(14) of the Social Security Act (the Act), as added by section 
153(b) of the Medicare Improvements for Patients and Providers Act of 
2008 (MIPPA). The ESRD PPS replaced the basic case-mix adjusted 
composite payment system and the methodologies for the reimbursement of 
separately billable outpatient ESRD services.
    Also, section 1881(b)(14)(F) of the Act, as added by section 153(b) 
of MIPPA and amended by section 3401(h) of Public Law 111-148, the 
Affordable Care Act, established that beginning CY 2012, and each 
subsequent year, the Secretary shall reduce the market basket increase 
factor by a productivity adjustment described in section 
1886(b)(3)(B)(xi)(II) of the Act.
    In the CY 2011 ESRD PPS final rule (75 FR 49030), the Centers for 
Medicare & Medicaid Services (CMS) finalized the following:
     A base rate of $229.63 per treatment for renal dialysis 
services (but postponed payment for oral-only renal dialysis drugs 
under the ESRD PPS until January 1, 2014) that applies to both adult 
and pediatric dialysis patients prior to the application of any case-
mix adjustments. This amount included the 2 percent reduction for 
budget neutrality required by MIPPA, a one percent reduction for 
estimated outlier payments, and a reduction to account for estimated 
payments for case-mix and the low-volume payment adjustments.
     A 4-year transition period (for those ESRD facilities that 
elected to receive blended payments during the transition) during which 
ESRD facilities receive a blend of payments under the prior basic case-
mix adjusted composite payment system and the new ESRD PPS. Although 
the statute uses the term ``phase-in'', we use the term ``transition'' 
to be consistent with other Medicare payment systems.
     A -3.1 percent transition budget-neutrality adjustment to 
ensure that overall spending under the ESRD PPS did not increase as a 
result of the provision that permits ESRD facilities to be excluded 
from the 4-year transition.
     Payment adjustments for dialysis treatments furnished to 
adults for patient age, body surface area (BSA), low body mass index 
(BMI), onset of dialysis, and six specified co-morbidities.
     A home or self-care dialysis training payment adjustment 
of $33.44 per treatment paid in addition to the case-mix adjusted per 
treatment amount, which is wage adjusted and applies to claims for 
patients trained by ESRD facilities certified to provide home dialysis 
training.
     Payment adjustments for dialysis treatments furnished to 
pediatric patients for patient age and dialysis modality.
     A low-volume payment adjustment for adult patients of 18.9 
percent that applies to the otherwise applicable case-mix adjusted 
payment rate for facilities that qualify as low-volume ESRD facilities.
     An outlier payment policy that provides an additional 
payment to ESRD facilities treating high cost, resource-intensive 
patients.
     The wage index adjustment that is applied when calculating 
the ESRD PPS payment rates in order to account for geographic 
differences in area wage levels.
     An ESRD bundled (ESRDB) market basket index used to 
project prices in the costs of goods and services used to furnish 
outpatient maintenance dialysis.
    In addition, on April 6, 2011, we published an interim final rule 
with comment period in the Federal Register (76 FR 18930), entitled 
``Changes in the End-Stage Renal Disease Prospective Payment System 
Transition Budget-Neutrality Adjustment'', which revised the ESRD 
transition budget-neutrality adjustment for CY 2011. In the interim 
final rule, we revised the 3.1 percent transition budget-neutrality 
adjustment reduction to a zero percent transition budget-neutrality 
adjustment for renal dialysis services furnished on April 1, 2011 
through December 31, 2011.

B. Summary of the Proposed Provisions and Responses to Comments on the 
CY 2012 ESRD PPS

    The proposed rule entitled, ``Medicare Program; Changes to the End-
Stage Renal Disease Prospective Payment System for CY 2012, End-Stage 
Renal Disease Quality Incentive Program for PY 2013 and PY 2014; 
Ambulance Fee Schedule; and Durable Medical Equipment'' (76 FR 40498) 
(the ``proposed rule'') appeared in the Federal Register on July 8, 
2011, with a comment period that ended on August 30, 2011 (76 FR 
40498). In that proposed rule, for the ESRD PPS, we proposed to (1) 
make a number of routine updates for CY 2012, (2) implement the second 
year of the transition, (3) make several policy changes and 
clarifications, and (4) technical changes with regard to the CY 2011 
ESRD PPS final rule. We received approximately 40 public comments on 
the ESRD PPS proposals, including comments from dialysis facilities, 
the national organizations representing dialysis facilities, 
nephrologists, patients, pharmaceutical manufacturers, hospitals and 
their representatives, and MedPAC. In this final rule, we provide a 
summary of each proposed provision, a summary of the public comments 
received, our responses to them, and what we are finalizing for the CY 
2012 ESRD PPS in this final rule.
1. Updates to the Composite Rate and ESRD PPS Base Rate
a. Composite Rate
    Section 1881(b)(14)(E)(i) of the Act requires a 4-year transition 
under the ESRD PPS. For CY 2012, under 42 CFR 413.239(a)(2), ESRD 
facilities that receive payment through the transition receive a 
blended rate equal to the sum of 50 percent of the ESRD PPS amount and 
50 percent of the basic case-mix adjusted composite payment amount. 
Accordingly, we continue to update the composite rate portion of the 
blended payment during the 4-year transition (that is, CYs 2011 through 
2013). For a historical perspective of the basic case-mix adjusted 
composite payment system for ESRD facilities, including the CY 2011 
update to the composite rate portion of the blended rate, please see 
the CY 2011 Physician Fee Schedule (PFS) proposed rule, (75 FR 40164) 
and the CY 2011 PFS final rule (75 FR 49031 through 49033). In 
addition, we discuss the CY 2012 drug add-on and the updated wage index 
values for the composite rate portion of the blended payment in 
sections I.C.6 and I.C.7, respectively, of this final rule.
    Under section 1881(b)(14)(F)(ii) of the Act, for years during which 
the transition applies, the composite rate portion of the blend shall 
be annually increased by the ESRDB market basket, which for CY 2012 and 
each subsequent year, shall be reduced by the productivity adjustment 
described in section 1886(b)(3)(B)(xi)(II) of the Act. In section 
I.B.2.b of this final rule, we are finalizing the CY 2012 ESRDB market 
basket update of 3.0 percent, based on the third quarter 2011 IGI 
forecast of the ESRDB market basket. In

[[Page 70231]]

section I.B.2.c of this final rule, we are finalizing the CY 2012 MFP 
adjustment of 0.9 percent based on the third quarter 2011 IGI forecast 
of the MFP.
    We proposed to add the CY 2011 Part D per treatment amount (that 
is, $0.49) to the CY 2011 composite rate in order to update the Part D 
amount for CY 2012 using the ESRDB market basket minus the productivity 
adjustment (76 FR 40502). We believed this approach is preferable to 
applying a growth factor to the $0.49 that is based on the rates for 
overall prescription drug prices that were used in the National Health 
Expenditure Projections, as we did for the establishment of the CY 2011 
ESRD PPS base rate, because it is consistent with the update applied to 
the ESRD PPS base rate, which includes a per treatment amount for 
former part D drugs (that is, $0.49). We sought comment on our proposal 
to add the CY 2011 part D payment amount (that is, $0.49) to the 
composite rate portion of the blended payment and update it using the 
ESRDB market basket minus productivity adjustment. The basis for the 
first part of the transition budget-neutrality adjustment (that is, the 
calculation of the $0.49 part D amount) was set forth in the CY 2011 
ESRD PPS final rule at 75 FR 49082. The comments and our responses are 
set forth below.
    Comment: Several commenters expressed concerns about the proposed 
methodology to add the former Part D oral drug amount ($0.49) to the 
composite rate and then apply the market basket reduced by the 
productivity adjustment. Some commenters believe that updating the 
payment for oral equivalents of injectable drugs by the ESRD market 
basket minus productivity could set a precedent that might affect 
access to care for preferred agents when oral drugs are included in the 
bundle in 2014. One commenter stated that it is inappropriate to apply 
the productivity adjustment to full transition blended payment. 
Instead, they believe the blended payment amount, for CY 2012, should 
be split with 50 percent of it paid at the PPI-inflated market basket 
rates and 50 percent of it adjusted using the update factors because 
the transition blended payment rate is based on 50 percent of the PPS 
payment rate and 50 percent on the old composite rate plus drug add-on 
rate. One commenter acknowledged that by using the split methodology, 
ESRD PPS would be updated differently than other payment systems, but 
the commenter believed that this distinction was appropriate because of 
the unique nature of the program and because drugs represent such a 
large portion of the overall costs incurred by dialysis facilities.
    Response: Beginning in 2012, section 1881(b)(14)(F) of the Act, 
requires us to annually update the ESRD PPS payment amounts and the 
composite rate portion of the blended transition payment by an ESRD 
market basket increase that is reduced by the productivity adjustment 
described in section 1886(b)(3)(B)xi)(II) of the Act. Given that the 
same update is used for both ESRD PPS and transition blended payments, 
and given the ESRD PPS base rate includes a portion of former Part D 
drugs, we proposed to add the $0.49 part D drug amount to the composite 
rate portion of the blended payment because we wanted to update it 
consistent with how we update the ESRD PPS base rate. Further, because 
the statute requires an update using the ESRDB market basket less 
productivity and the ESRDB market basket is comprised of the Producer 
Price Index (PPI) for prescription drugs as a proxy for measuring price 
growth in ESRD-related drugs, we believe that our proposal to add the 
$0.49 to the composite rate and update it using the ESRDB market basket 
less productivity is appropriate. Therefore, for CY 2012, the composite 
rate payment, including the $0.49 Part D amount, will be updated by the 
ESRDB market basket less productivity. With regard to the commenter's 
concerns that the addition of $0.49 to the composite rate would set a 
precedent that might affect access to care for preferred agents when 
oral-only drugs are included in the bundle in 2014, we note that we did 
not propose any payment policies for the oral-only drugs in the 
proposed rule. We will address in future rulemaking oral-only drugs and 
the bundled amount established in CY 2011, and there will be an 
opportunity for public comment on any future proposals we may make.
    Consequently, for CY 2012, the composite rate portion of the ESRD 
PPS blended payment is $141.94. The $141.94 reflects the addition of 
the CY 2011 part D per treatment amount ($0.49) to the CY 2011 
composite rate of $138.53, and application of the ESRDB market basket 
minus productivity adjustment ($138.53 + 0.49 = $139.02; $139.02 x 
1.021 = $141.94).
b. ESRD PPS Base Rate
    We described the development of the ESRD PPS per-treatment base 
rate in the CY 2011 ESRD PPS final rule (75 FR 49071) and established 
Medicare regulations at 42 CFR 413.220 and 413.230. The CY 2011 ESRD 
PPS final rule also provides a detailed discussion of the methodology 
used to calculate the ESRD PPS base rate and the computation of factors 
used to adjust the ESRD PPS base rate for projected outlier payments 
and budget-neutrality in accordance with sections 1881(b)(14)(D)(ii) 
and 1881(b)(14)(A)(ii) of the Act, respectively (75 FR 49071 through 
49082). Specifically, the ESRD PPS base rate was developed from CY 2007 
claims (that is, the lowest per patient utilization year), updated to 
CY 2011, and represented the average per treatment Medicare allowable 
payment (MAP) for composite rate and separately billable services. In 
addition, in accordance with Sec.  413.230, the ESRD PPS base rate is 
adjusted for the patient-specific case-mix adjustments, applicable 
facility adjustments, geographic differences in area wage levels using 
an area wage index, as well as any outlier payment or training add-on 
adjustments. For CY 2011, the ESRD PPS base rate was $229.63 (75 FR 
49082).
    As required by section 1881(b)(14)(F) of the Act, in this final 
rule, for CY 2012, we applied the 2.1 percent increase (ESRDB market 
basket update less productivity) to the CY 2011 ESRD PPS base rate of 
$229.63, which results in an ESRD PPS base rate for CY 2012 of $234.45 
(229.63 x 1.021 = 234.45). The ESRD PPS base rate applies to the ESRD 
PPS portion of the blended payments under the transition and to the 
ESRD PPS payments. In addition, as discussed in section I.C.7.c of the 
proposed rule (76 FR 40509), we proposed to apply the wage index 
budget-neutrality adjustment factor to the ESRD PPS base rate in CY 
2012.
    We did not receive any comments on this proposal. Therefore, we are 
finalizing the policy to apply the wage index budget-neutrality 
adjustment to the ESRD PPS base rate. For CY 2012, we apply the wage 
index budget-neutrality adjustment factor of 1.001520 to the updated 
base rate (that is, $234.45), yielding an ESRD PPS wage-index budget-
neutrality adjusted base rate for CY 2012 of $234.81 ($234.45 x 
1.001520 = 234.81).
2. ESRD Bundled Market Basket
a. Overview and Background
    In accordance with section 1881(b)(14)(F)(i) of the Act, as added 
by section 153(b) of MIPPA and amended by section 3401(h) of the 
Affordable Care Act, beginning in 2012, the ESRD bundled payment 
amounts are required to be annually increased by an ESRD market basket 
increase factor that is reduced by the productivity adjustment 
described in section 1886(b)(3)(B)(xi)(II) of the Act. The statute 
further provides that the market basket increase factor

[[Page 70232]]

should reflect the changes over time in the prices of an appropriate 
mix of goods and services used to furnish renal dialysis services. 
Under section 1881(b)(14)(F)(ii) of the Act, as added by section 153(b) 
of MIPPA and amended by section 3401(h) of the Affordable Care Act, the 
ESRD bundled (ESRDB) rate market basket increase factor will also be 
used to update the composite rate portion of ESRD payments during the 
ESRD PPS transition period from 2011 through 2013; though beginning in 
2012, such market basket increase factor will be reduced by the 
productivity adjustment. As a result of amendments by section 3401(h) 
of the Affordable Care Act, a full market basket was applied to the 
composite rate portion of the blended payment in CY 2011 during the 
first year of the transition.
b. Final Market Basket Update Increase Factor and Labor-Related Share 
for ESRD facilities for CY 2012
    As required under section 1881(b)(14)(F) of the Act, CMS developed 
an all-inclusive ESRDB input price index (75 FR 49151 through 49162). 
Although ``market basket'' technically describes the mix of goods and 
services used to produce ESRD care, this term is also commonly used to 
denote the input price index (that is, cost categories, their 
respective weights, and price proxies combined) derived from that 
market basket. Accordingly, the term ``ESRDB market basket'', as used 
in this document, refers to the ESRDB input price index.
    We proposed to use the same methodology described in the CY 2011 
ESRD PPS final rule (75 FR 49151 through 49162) to compute the CY 2012 
ESRDB market basket increase factor and labor-related share based on 
the best available data (76 FR 40503). Consistent with historical 
practice, we estimate the ESRDB market basket update based on IHS 
Global Insight (IGI), Inc.'s forecast using the most recently available 
data. IGI is a nationally recognized economic and financial forecasting 
firm that contracts with CMS to forecast the components of the market 
baskets.
    Using this method and the IGI forecast for the first quarter of 
2011 of the CY 2008-based ESRDB market basket (with historical data 
through the fourth quarter of 2010), and consistent with our historical 
practice of estimating market basket increases based on the best 
available data, the proposed CY 2012 ESRDB market basket increase 
factor was 3.0 percent. We also proposed that if more recent data 
became subsequently available (for example, a more recent estimate of 
the market basket), we would use that data, if appropriate, to 
determine the CY 2012 update in the final rule. Therefore, we used the 
IGI's third quarter 2011 forecast with history through the second 
quarter of 2011, and as discussed below, the projected market basket 
update for CY 2012 that we are finalizing is 3.0 percent based on the 
2008-based ESRDB market basket.
    Additionally, we proposed to continue to use a labor-related share 
of 41.737 percent for CY 2012 for the ESRD PPS payment (76 FR 40503), 
which was finalized in the CY 2011 ESRD final rule (75 FR 49161). We 
also proposed to continue to use a labor-related share of 53.711 
percent for the ESRD composite rate portion of the blended payment for 
all years of the transition (76 FR 40503). This labor-related share was 
developed from the labor-related components of the 1997 ESRD composite 
rate market basket that was finalized in the 2005 PFS final rule (70 FR 
70168), and is consistent with the mix of labor-related services paid 
under the composite rate, as well as the method finalized in the CY 
2011 ESRD PPS final rule (75 FR 49116).
    The comments we received on these proposals and our responses are 
set forth below.
    Comment: Several commenters believe that there should be more 
transparency in the calculation of the market basket update and are 
concerned about the lack of data available to validate the 
calculations.
    Response: We agree that the public should be able to replicate the 
methodology used to construct the ESRDB market basket. We disagree, 
however, that CMS has not been fully transparent in the calculation of 
the market basket update. In the CY 2011 ESRD final rule (75 FR 49151 
through 49161), we provided the public with the cost shares for the 
ESRDB market basket and the data sources for the establishment of those 
cost shares. We also provided a detailed description of the data 
sources used to develop the ESRDB market basket cost weights and the 
price proxies used in the ESRDB market basket were listed for each cost 
category, which are based on data maintained and published by the 
Bureau of Labor Statistics (BLS). We refer the commenter to the BLS 
regarding any specific information on the detailed price proxies. In 
addition, to assist the commenter and other interested stakeholders in 
locating these price proxies on the BLS Web site, we have provided the 
individual BLS series codes for the indexes in the price proxy 
discussion of the final rule and the directions for obtaining the data 
through the BLS Web site. These two pieces of information, the cost 
weights and the price proxies, allow the public to replicate the 
historical time series of the ESRDB market basket.
    The forecasts of the individual price proxies used in a market 
basket are developed independently by IGI, a nationally recognized 
economic and financial forecasting firm. We purchase IGI's detailed 
price proxy projections for use in the Medicare market baskets. As a 
matter of practice, we publish all of the underlying detail for each 
price proxy for the historical period. However, because the projections 
of each individual price proxy are proprietary, we aggregate those 
projections into higher level categories and then publish the results 
with a one-quarter lag on the CMS Web site. This is consistent with the 
level of data provided for other PPS payment system market baskets. The 
ESRDB market basket data, including the detail as described above, is 
published on the CMS Web site at the following link: (https://www.cms.gov/MedicareProgramRatesStats/04_MarketBasketData.asp#TopOfPage).
    After considering the public comments received and for the reasons 
we previously articulated, we are finalizing our proposals to continue 
to use the ESRDB market basket forecasts for the ESRD PPS and 
transition payment updates. Therefore, we are finalizing the ESRDB 
market basket update of 3.0 percent, based on the IGI third quarter 
forecast of the ESRDB market basket. We did not receive any public 
comments regarding our proposal to continue to use the labor-related 
shares for the ESRD PPS portion and composite portion of the blended 
payment during the transition period. Therefore, we are also finalizing 
the proposal to continue to use the labor-related share of 41.737 
percent for the CY 2012 ESRD PPS payment and the labor-related share of 
53.711 percent for the CY 2012 ESRD composite rate portion of the 
blended payment, for those facilities that elected to transition to the 
bundled ESRD PPS.
c. Productivity Adjustment
    The ESRDB market basket must be annually adjusted by changes in 
economy-wide productivity. Specifically, under section 1881(b)(14)(F) 
of the Act, as amended by section 3401(h) of the Affordable Care Act, 
for CY 2012 and each subsequent year, the ESRD market basket percentage 
increase factor shall be reduced by the productivity adjustment 
described in section 1886(b)(3)(B)(xi)(II) of the Act. The statute 
defines the productivity

[[Page 70233]]

adjustment to be equal to the 10-year moving average of changes in 
annual economy-wide private nonfarm business multifactor productivity 
(MFP) (as projected by the Secretary for the 10-year period ending with 
the applicable fiscal year, year, cost reporting period, or other 
annual period) (the ``MFP adjustment''). The BLS is the agency that 
publishes the official measure of private nonfarm business MFP. Please 
see https://www.bls.gov/mfp to obtain the BLS historical published MFP 
data.
    CMS notes that the proposed and final methodology for calculating 
and applying the MFP adjustment to the ESRD payment update is similar 
to the methodology used in other payment systems, as required by 
section 3401 of the Affordable Care Act.
    The projection of MFP is currently produced by IGI, an economic 
forecasting firm. In order to generate a forecast of MFP, IGI 
replicated the MFP measure calculated by the BLS using a series of 
proxy variables derived from IGI's U.S. macroeconomic models. These 
models take into account a very broad range of factors that influence 
the total U.S. economy. IGI forecasts the underlying proxy components 
such as gross domestic product (GDP), capital, and labor inputs 
required to estimate MFP and then combines those projections according 
to the BLS methodology. In Table 1 below, we identify each of the major 
MFP component series employed by the BLS to measure MFP. We also 
provide the corresponding concepts forecasted by IGI and determined to 
be the best available proxies for the BLS series.
[GRAPHIC] [TIFF OMITTED] TR10NO11.000

IGI found that the historical growth rates of the BLS components used 
to calculate MFP and the IGI components identified are consistent 
across all series and therefore suitable proxies for calculating MFP. 
We have included below a more detailed description of the methodology 
used by IGI to construct a forecast of MFP, which is aligned closely 
with the methodology employed by the BLS. For more information 
regarding the BLS method for estimating productivity, please see the 
following link: https://www.bls.gov/mfp/mprtech.pdf.
    At the time of the development of this CY 2012 final rule, the BLS 
published a historical time series of private nonfarm business MFP for 
1987 through 2010, with 2010 being a preliminary value. Using this 
historical MFP series and the IGI forecasted series, IGI has developed 
a forecast of MFP for 2011 through 2021, as described below. We note 
that the historical MFP series and the IGI forcasted series are updates 
from those used at the time of the proposed rule (1987 through 2009, 
and 2010 through 2021, respectively).
    To create a forecast of BLS' MFP index, the forecasted annual 
growth rates of the ``non-housing, nongovernment, non-farm, real GDP,'' 
``hours of all persons in private nonfarm establishments adjusted for 
labor composition,'' and ``real effective capital stock'' series 
(ranging from 2011 to 2021) are used to ``grow'' the levels of the 
``real value-added output,'' ``private non-farm business sector labor 
input,'' and ``aggregate capital input'' series published by the BLS. 
Projections of the ``hours of all persons'' measure are calculated 
using the difference between the projected growth rates of real output 
per hour and real GDP. This difference is then adjusted to account for 
changes in labor composition in the forecast interval.
    Using these three key concepts, MFP is derived by subtracting the 
contribution of labor and capital inputs from output growth. However, 
in order to estimate MFP, we need to understand the relative 
contributions of labor and capital to total output growth. Therefore, 
two additional measures are needed to operationalize the estimation of 
the IGI MFP projection: Labor compensation and capital income. The sum 
of labor compensation and capital income represents total income. The 
BLS calculates labor compensation and capital income (in current dollar 
terms) to derive the nominal values of labor and capital inputs. IGI 
uses the ``nongovernment total compensation'' and ``flow of capital 
services from the total private non-residential capital stock'' series 
as proxies for the BLS' income measures. These two proxy measures for 
income are divided by total income to obtain the shares of labor 
compensation and capital income to total income. In order to estimate 
labor's contribution and capital's contribution to the growth in total 
output, the growth rates of the proxy variables for labor and capital 
inputs are multiplied by their respective shares of total income. These 
contributions of labor and capital to output growth is subtracted from 
total output growth to calculate the ``change in the growth rates of 
multifactor productivity:''

MFP = Total output growth - ((labor input growth * labor compensation 
share) + (capital input growth * capital income share))

    The change in the growth rates (also referred to as the compound 
growth rates) of the IGI MFP are multiplied by 100 in order to 
calculate the percent change in growth rates (the percent change in 
growth rates are published by

[[Page 70234]]

the BLS for its historical MFP measure). Finally, the growth rates of 
the IGI MFP are converted to index levels based to 2005 to be 
consistent with the BLS' methodology. For benchmarking purposes, the 
historical growth rates of IGI's proxy variables were used to estimate 
a historical measure of MFP, which was compared to the historical MFP 
estimate published by the BLS. The comparison revealed that the growth 
rates of the components were consistent across all series, and 
therefore validated the use of the proxy variables in generating the 
IGI MFP projections. The resulting MFP index was then interpolated to a 
quarterly frequency using the Bassie method for temporal 
disaggregation. The Bassie technique utilizes an indicator (pattern) 
series for its calculations. IGI uses the index of output per hour 
(published by the BLS) as an indicator when interpolating the MFP 
index.
    The comments we received on this proposal and our response are set 
forth below.
    Comment: One commenter stated that the factors used in the 
productivity adjustor, which are mostly derived from capital and labor 
related economic measures, are not appropriate for use to modify the 
market basket costs of drugs, which are consumable items. One commenter 
further believes that ESRD PPS should be treated differently than other 
PPS payment systems because drugs represent such a large portion of the 
overall costs incurred by dialysis services. One pharmaceutical company 
expressed concern about the proposal to apply the productivity 
adjustment to the Part D oral drug portion of the blended payment.
    Response: In accordance with section 1881(b)(14)(F)(i) of the Act, 
beginning in 2012, all renal dialysis services included in the ESRD 
bundle are required to be annually increased by an ESRD market basket 
increase factor that is reduced by the productivity adjustment 
described in section 1886(b)(3)(B)(xi)(II) of the Act. Therefore, CMS 
is statutorily required to update ESRD PPS payments by a market basket 
update less productivity. We also note that CMS is statutorily required 
to update the ESRD composite rate portion of the blended payment by the 
ESRDB market basket less productivity. During the transition, any items 
or services included in the bundle have been factored into the cost 
shares for the ESRDB market basket; as such, the costs associated with 
oral drugs that were formerly paid under Part D are included in the 
ESRDB market basket cost share weight for drugs. As finalized in the CY 
2011 ESRD final rule (75 FR 49156), the market basket drug cost share 
weight accounts for all drugs included in the ESRD bundled payment, 
including ESRD-related oral drugs with injectable equivalents that were 
formerly covered under Medicare Part D as well as the costs associated 
with any other drugs as reported on the ESRD Medicare Cost Report. In 
2014, any changes to the bundle will be factored into a revised ESRDB 
market basket and be subject to notice and comment rulemaking. 
Therefore, although drugs account for a larger proportion of expenses 
in the ESRDB market basket than in some other provider-type PPS market 
baskets, we will continue to update the ESRD payments as statutorily 
mandated by the Congress. As such, for CY 2012, the ESRD PPS payment 
rate and the composite portion of the blended payment will be increased 
by the estimated market basket update less productivity, 2.1 percent 
(3.0 percent ESRDB market basket less 0.9 percentage point MFP 
adjustment), which is described in more detail below.
    After careful consideration of the public comments and to satisfy 
the statutory requirement for ESRD payment updates mentioned above, we 
are finalizing our proposed method for calculating and applying the MFP 
adjustment to the ESRDB market basket.
d. Calculation of the ESRDB Market Basket Update, Adjusted for 
Multifactor Productivity for CY 2012
    Under section 1881(b)(14)(F)(i) of the Act, beginning in 2012, ESRD 
PPS payment amounts and the composite rate portion of the transition 
blended payment amounts shall be annually increased by an ESRD market 
basket percentage increase factor reduced by a productivity adjustment.
    We proposed to estimate the ESRDB market basket percentage for CY 
2012 based on the CY 2008-based ESRDB market basket (76 FR 40504). In 
order to calculate the MFP-adjusted update for the ESRDB market basket 
during the transition period, we proposed that the MFP percentage 
adjustment be subtracted from the CY 2012 market basket update 
calculated using the CY 2008-based ESRDB market basket (75 FR 40504). 
We proposed that the end of the 10-year moving average of changes in 
the MFP should coincide with the end of the appropriate CY update 
period. Since the market basket update is reduced by the MFP adjustment 
to determine the annual update for the ESRD PPS and the ESRD composite 
rate portions of the blended payment during the transition, we believe 
it is appropriate for the numbers associated with both components of 
the calculation (the market basket and the productivity adjustment) to 
coincide so that changes in market conditions are aligned. Therefore, 
for the CY 2012 update, we proposed that the MFP adjustment be 
calculated as the 10-year moving average of changes in MFP for the 
period ending December 31, 2012. We proposed to round the final annual 
adjustment to the one-tenth of one percentage point level up or down as 
applicable according to conventional rounding rules (that is, if the 
number we are rounding is followed by 5, 6, 7, 8, or 9, we will round 
the number up; if the number we are rounding is followed by 1, 2, 3, or 
4, we will round the number down).
    Thus, in accordance with section 1881(b)(14)(F)(i) of the Act, the 
proposed market basket increase factor for CY 2012 for the ESRDB market 
basket was based on the 1st quarter 2011 forecast of the CY 2008-based 
ESRDB market basket update, which was estimated to be 3.0 percent. This 
market basket percentage was then reduced by the MFP adjustment (the 
10-year moving average of MFP for the period ending CY 2012) of 1.2 
percent, which is calculated as described above and based on IGI's 1st 
quarter 2011 forecast. The resulting proposed MFP-adjusted ESRDB market 
basket update for CY 2012 was equal to 1.8 percent, or 3.0 percent less 
1.2 percent. We proposed that if more recent data were subsequently 
available (for example, a more recent estimate of the market basket and 
MFP adjustment), we would use such data, if appropriate, to determine 
the CY 2012 market basket update and MFP adjustment in the CY 2012 ESRD 
PPS final rule. Consistent with historical practice and our proposal, 
we update the market basket increase factor estimate and the MFP 
adjustment in this final rule to reflect the most recent available data 
(75 FR 40505).
    We received no public comments related to the proposed MFP-adjusted 
ESRDB market basket update for CY 2012. Therefore, we are finalizing 
our proposal to base the CY 2012 market basket update, which is used to 
determine the applicable percentage increase for the ESRD PPS and 
transition payments, on the most recent data available, which is the 
third quarter 2011 forecast of the CY 2008-based ESRDB market basket 
(estimated to be 3.0 percent). The MFP adjustment (the 10-year moving 
average of MFP for the period ending CY 2012) we are finalizing is 0.9 
percent, which was calculated as described above and based on IGI's 
third quarter 2011 forecast.

[[Page 70235]]

Therefore, the final MFP-adjusted ESRDB market basket update for CY 
2012 is 2.1 percent (3.0 percent ESRDB market basket less 0.9 
percentage point MFP adjustment).
3. Transition Budget-Neutrality Adjustment for CY 2011
    Section 1881(b)(14)(E)(iii) of the Act requires that an adjustment 
to payments be made for renal dialysis services provided by ESRD 
facilities during the transition so that the estimated total payments 
under the ESRD PPS, including payments under the transition, equal the 
estimated total amount of payments that would otherwise occur under the 
ESRD PPS without such a transition. In the CY 2011 ESRD PPS final rule, 
we explained that because we would not know the actual number of ESRD 
facilities that would elect to opt out of the transition prior to 
publishing the final rule, we would simulate payments under the 
existing basic case-mix adjusted composite payment system and under the 
ESRD PPS to determine how many ESRD facilities we believed would elect 
to receive payment under 100 percent ESRD PPS. Based on our simulations 
using 2007 data, we estimated that 43 percent of ESRD facilities would 
financially benefit from receiving full payment under the ESRD PPS. We 
indicated that based on the simulation of estimated payments, a 3.1 
percent reduction would be applied to all payments made to ESRD 
facilities for renal dialysis services furnished on January 1, 2011 
through December 31, 2011 (75 FR 49082 through 49083).
    On April 6, 2011, we published an interim final rule with comment 
period in the Federal Register (76 FR 18930), entitled ``Changes to the 
End-Stage Renal Disease Prospective Payment System Transition Budget-
Neutrality Adjustment'', which revised the ESRD transition budget-
neutrality adjustment finalized for CY 2011. In the interim final rule, 
we indicated that based upon the election data submitted by ESRD 
facilities, 87 percent of ESRD facilities elected to opt out of the 
transition. When we applied the actual number of ESRD facilities 
electing to receive payment under the ESRD PPS, the transition budget-
neutrality adjustment was determined to be zero rather than a 3.1 
reduction in payments. We revised the 3.1 percent transition budget-
neutrality adjustment reduction to a zero percent transition budget-
neutrality adjustment for renal dialysis services furnished on April 1, 
2011 through December 31, 2011. We also indicated that we would respond 
to comments submitted on the interim final rule in the CY 2012 ESRD PPS 
final rule.
    We received four comments during the IFC comment period and three 
comments in response to the CY 2012 ESRD PPS proposed rule. All 
comments were in support of the revised CY 2011 transition budget-
neutrality adjustment factor. Therefore, we are finalizing the revised 
CY 2011 transition budget-neutrality adjustment factor of zero for ESRD 
claims for renal dialysis services furnished on April 1, 2011 through 
December 31, 2011.
4. Transition Budget-Neutrality Adjustment for CY 2012
    Section 1881(b)(14)(E)(i) of the Act requires the Secretary to 
provide a four-year phase-in of the payments under the ESRD PPS for 
renal dialysis services furnished on or after January 1, 2011, with 
payments under the ESRD PPS fully implemented for renal dialysis 
services furnished on or after January 1, 2014. We use the term 
``transition'' rather than ``phase-in'' to be consistent with other 
Medicare payment systems.
    Section 1881(b)(14)(E)(ii) of the Act permitted ESRD facilities to 
make a one-time election to be excluded from the transition. An ESRD 
facility that elected to be excluded from the transition would receive 
payment for renal dialysis services provided on or after January 1, 
2011, based on 100 percent of the payment rate under the ESRD PPS 
rather than a blended payment based in part on the payment rate under 
the basic case-mix adjusted composite payment system and in part on the 
payment rate under the ESRD PPS. Section 1881(b)(14)(E)(iii) of the Act 
also requires that we make an adjustment to payments during the 
transition so that the estimated total amount of payments under the 
ESRD PPS, including payments under the transition, equals the estimated 
total amount of payments that would otherwise occur under the ESRD PPS 
without such a transition. We refer to this provision as the transition 
budget-neutrality adjustment.
    As described in the CY 2011 ESRD PPS final rule (75 FR 49082), the 
transition budget-neutrality adjustment is comprised of two parts. For 
the first part, we created a payment adjustment to the composite rate 
portion of the blended payment during the transition to account for the 
per treatment costs of drugs that were paid under Part D. For the 
second part, we computed a factor that would make the estimated total 
amount of payments under the ESRD PPS, including payments under the 
transition, equal to the estimated total amount of payments that would 
otherwise occur without such a transition. In the proposed rule, we 
addressed both parts of the transition budget-neutrality adjustment (76 
FR 40505 and 40506). The first part of the transition budget-neutrality 
adjustment was addressed in section I.C.1. of this final rule where we 
address updates to the composite rate and the ESRD PPS base rate.
    For the second part of the transition budget-neutrality factor, we 
first determined the estimated increase in payments under the 
transition and then determined an offset factor, based on estimates of 
which facilities would choose to opt out of the transition (for a 
detailed description, see the CY 2011 ESRD PPS proposed rule, 74 FR 
49946). We estimated the number of facilities that would choose to opt 
out of the transition by comparing payment under the transition to 
payment under the PPS and choosing the option that was financially 
beneficial to each facility. Using that approach, we estimated that 43 
percent of facilities would choose to opt out of the transition and 
determined the transition budget-neutrality adjustment to be a 
reduction of 3.1 percent. In the April 6, 2011 interim final rule with 
comment (76 FR 18930 through 18934), however, we updated the number of 
facilities that chose to opt out of the transition to 87 percent, based 
on actual election data that we received and recalculated a transition 
budget-neutrality adjustment of zero percent.
    Given that the transition budget-neutrality adjustment required 
under section 1881(b)(14)(A)(ii) of the Act applies in each year of the 
transition, we must update the transition budget-neutrality adjustment 
for CY 2012. In the proposed rule (76 FR 40506), we noted that we were 
not proposing for CY 2012 to change the methodology used to calculate 
the second part of the budget-neutrality adjustment. However, we 
proposed to use more updated data. In order to ensure that total 
payments under the transition equal total payment amounts without a 
transition, we would reduce all payments to ESRD facilities in CY 2012 
by a factor that is equal to 1 minus the ratio of estimated payments 
under the ESRD PPS if there were no transition to the total estimated 
payments under the transition.
    In the proposed rule, we explained that we started with 2009 
utilization data from claims, as 2009 was the latest complete year of 
claims data available of complete claims data. In this final rule, we 
used 2010 claims as it is the latest available year. Using price growth 
factors for CY 2011 and CY 2012 that are discussed in the impact 
analysis in section I.VII.B.1 of this final rule, we updated the CY 
2010 utilization data to

[[Page 70236]]

CY 2011 and CY 2012 payments. We then took the estimated CY 2012 
payments under the full ESRD PPS and the blended payments under the 
transition based on actual facility election data and compared these 
estimated payments to the total estimated payments in CY 2012 as if all 
facilities had elected to receive payment under the full ESRD PPS. We 
then calculated the transition budget-neutrality factor to be 1 minus 
the ratio of estimated payments under the ESRD PPS if there were no 
transition to the total estimated payments under the transition, which 
results in zero percent. Therefore, for CY 2012, we proposed that a 
zero percent reduction to all payments would be made to ESRD facilities 
(that is, the zero percent adjustment would be applied to both the 
blended payments under the transition and payments made under the 100 
percent ESRD PPS). We solicited comments on the proposed second part of 
CY 2012 transition budget-neutrality adjustment methodology. The 
comments and our responses are set forth below.
    Comment: Several national associations and one dialysis 
organization supported the zero percent transition budget-neutrality 
adjustment for CY 2012. One commenter indicated that the proposed rule 
appropriately reflected that a greater percentage of ESRD facilities 
than estimated elected to receive payment under the ESRD PPS.
    Response: We thank the commenters for their support. Therefore, in 
this final rule, we are finalizing the proposed second part of the 
transition budget-neutrality adjustment and the zero percent budget-
neutrality adjustment for CY 2012.
5. Low-Volume Facility Provisions
    Section 1881(b)(14)(D)(iii) of the Act requires a low-volume 
payment adjustment that ``reflects the extent to which costs incurred 
by low-volume facilities (as defined by the Secretary) in furnishing 
renal dialysis services exceed the costs incurred by other facilities 
in furnishing such services, and for payment for renal dialysis 
services furnished on or after January 1, 2011, and before January 1, 
2014, such payment adjustment shall not be less than 10 percent''. We 
established the low-volume payment adjustment, including the 
methodology we used to develop the low-volume treatment threshold in 
the CY 2011 ESRD PPS final rule (75 FR 49117 through 49125). Because 
the analysis included data that spanned a 3-year period, we defined a 
low-volume ESRD facility as a facility that is able to maintain its 
low-volume status each year of the 3-year period. This timeframe 
provided us with a sufficient span of time to view consistency in 
business operations through the data. Under 42 CFR 413.232(b), a low-
volume facility is an ESRD facility that: (1) Furnished less than 4,000 
dialysis treatments in each of the 3 years preceding the payment year 
and (2) has not opened, closed, or received a new provider number due 
to a change in ownership during the 3 years preceding the payment year. 
Under Sec.  413.232(c), the number of treatments shall be equal to the 
aggregate number of treatments furnished by other ESRD facilities that 
are both under common ownership and 25 road miles or less from the ESRD 
facility in question. This geographic proximity criterion is only 
applicable to ESRD facilities that are Medicare certified on or after 
January 1, 2011. Section 413.232(f) requires an ESRD facility to 
provide an attestation statement to their respective fiscal 
intermediary or Medicare administrative contractor (FI/MAC) that the 
facility meets all the criteria in order to receive the low-volume 
adjustment. We note that furnishing 4,000 treatments in a year equates 
to approximately 25 patients per year receiving three dialysis 
treatments a week (or hemo-equivalent treatments).
    In the proposed rule, we discussed Sec.  413.232 and clarified that 
the ``payment year'' is the period of time that we use for determining 
payment to ESRD facilities, which is a calendar year, and that 
eligibility years mean the 3 years preceding the payment year and are 
based on cost reporting years (76 FR 40506). We made this clarification 
to ensure that ESRD facilities and their respective FI/MACs understand 
the distinction between eligibility (which is based on cost reporting 
years) and the payment year (when ESRD facilities can begin to receive 
the low-volume payment adjustment).
    We did not seek comments on the clarifications of the payment and 
cost report years, however, we received three comments indicating the 
clarifications were helpful.
    In the proposed rule (76 FR 40506 and 40507), we proposed to 
establish the process for CY 2012 and each year thereafter, that an 
ESRD facility would be required to follow when submitting its 
attestation to notify its FI/MAC that it is eligible for the low-volume 
payment adjustment. We further explained that the attestation is 
required because: (1) ESRD facility's cost reporting periods vary and 
may not be based on the calendar year; and (2) the cost reports are due 
5 months after the close of the cost reporting period (that is, there 
is a lag in the cost reporting submission). Thus, the FI/MACS may not 
have the cost report for the third year to determine eligibility and 
would need to rely on the attestation for that year. We proposed that 
if an ESRD facility believes that it is eligible for the low-volume 
adjustment, the ESRD facility would be required to submit an 
attestation to its respective FI/MAC no later than November 1st of each 
year, and proposed to amend the regulation text at Sec.  413.232(f) (76 
FR 40507). We noted that this timeframe provides 60 days for a FI/MAC 
to verify the cost report information and update the systems (76 FR 
40507). We explained that if ESRD facilities are receiving the low-
volume adjustment for the CY 2011 payment year, those ESRD facilities 
should submit another attestation to their respective FI/MAC no later 
than November 1, 2011, to qualify for the low-volume adjustment for the 
CY 2012 payment year. An ESRD facility must continue to attest that it 
is a low-volume facility for each subsequent payment year it believes 
it is eligible for the low-volume facility adjustment.
    We explained that if the FI/MAC does not receive an ESRD facility's 
attestation stating that the ESRD facility is eligible for the low-
volume adjustment on or before November 1 prior to the payment year, 
the ESRD facility would not receive the low-volume adjustment for that 
payment year. We also noted that in the event a dialysis organization 
submits the low-volume attestation on behalf of its ESRD facilities, 
the dialysis organization will be required to identify each ESRD 
facility by name and provider number and submit them by the November 1 
deadline.
    We solicited comment on our proposal and the proposed regulation 
text changes at Sec.  413.232(f).
    We did not receive any comments and, therefore, in this final rule, 
we are finalizing a yearly November 1 deadline for attestation 
submission and we are revising the regulation at Sec.  413.232(f) to 
reflect this date for CY 2012 and each year thereafter. However, 
because the CY 2012 final rule will not be effective before November 1, 
2011, we are finalizing a later low-volume attestation submission