CMS Releases Final Rule for End-Stage Renal Disease Prospective Payment System (Effective January 2011)

10 August 2010 Publication
Authors: Judith A. Waltz

American Health Lawyers Association

On July 26, 2010, the Centers for Medicare & Medicaid Services (CMS) posted the display copy (CMS 1481-F) of the Final Rule (Final Rule), which implements a case-mix adjusted bundled prospective payment system (PPS) for Medicare outpatient end-stage renal disease (ESRD) dialysis facilities beginning January 1, 2011 (ESRD PPS), as required by the 2008 Medicare Improvements for Patients and Providers Act (MIPPA), which amended Section 1881(b)(14)(A)(i) of the Social Security Act. The revised payment methodology replaces the current composite payment system and includes bundling for the reimbursement of previously separately billable outpatient ESRD items and services, including laboratory tests and drugs. CMS promised in the Final Rule that sub-regulatory guidance and educational efforts will follow the Final Rule's issuance.

Dialysis facilities should review the Final Rule quickly, as most provisions take effect on January 1, 2011. Facilities are being given a one-time option to skip the four-year transition period to ESRD PPS (during which payment will be based in part on ESRD PPS and in part on existing reimbursement methodologies), but must notify their Medicare contractor of their option no later than November 1, 2010, to avoid the default blended rate. Some facilities may conclude that their data collection and documentation standards need review or revision before the January 2011 effective date. As discussed below, Method 2 home dialysis will no longer be an option, and some facilities may need to make contractual arrangements for items or supplies previously billed to Medicare by a durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) supplier that will now be billed under ESRD PPS. Facilities may need to contract with laboratories for the provision of necessary laboratory tests, as laboratories will no longer be able to directly bill Medicare for those ESRD lab tests that have previously been paid separately from the dialysis facility's composite rate.

The Final Rule, which in the display copy exceeds 900 pages and includes thirty-six illustrative tables in the preamble and Tables A through F to the regulations themselves, is scheduled to be published in the August 12, 2010, edition of the Federal Register. It follows and revises the proposed rule issued at 74 Fed. Reg. 49922 (September 29, 2009).

As summarized in the Final Rule, the objectives of ESRD PPS include: reducing incentives to over-utilize separately billable drugs; providing greater payments to ESRD facilities with more costly patients; and promoting operational efficiency. In crafting the various components of ESRD PPS, CMS relied inter alia upon claims data for dialysis patients, dialysis facility cost reports, some Part D data, and the CMS Form 2728 (Medical Evidence Form), as well as other data sources. There is extensive discussion reflecting CMS' long-standing concerns relating to the utilization of Erythropoiesis Stimulating Agents (ESAs) and anemia management. In addition, CMS confirms that it recognizes the potential that ESRD PPS may incentivize "cherry picking" to avoid unprofitable patients, and/or providing less-than-optimal patient treatment as a result of cost-cutting measures. CMS will monitor for the impact of ESRD PPS with respect to these and other issues, but believes that its quality incentives will help to mitigate against the incentive to improperly cut costs.

Among the most important changes of the Final Rule are the following:

"Renal dialysis services" subject to the ESRD PPS are defined in 42 C.F.R. § 413.171 (along with other key terms). These services will include services formerly paid under the composite rate, ESAs, other drugs and biologicals, and laboratory tests. See Tables C, D, and F.

Reimbursement will continue to be calculated on a per-treatment basis (CMS rejected other options, such as monthly payment), but CMS indicates that it may reconsider that unit selection after the transition period's completion.

Reimbursement for treatments in excess of three times per week will continue to require specific medical justification. Home dialysis will continue to be paid on the equivalent of three times per week.

CMS has postponed the effective date for inclusion in ESRD PPS of ESRD drugs only available in oral form to January 2014.

Drugs and biologicals are defined by categories to assist in the determination as to whether they are included as "renal dialysis services" subject to ESRD PPS. See Tables C and D.

Blood products will not be included in ESRD PPS.

There is no modification in the Final Rule as to how physicians' services are paid.

Nutritional therapies are not considered to be renal dialysis services.

Method 2 payments for home dialysis (an option in which the beneficiary deals directly with a DMEPOS supplier for dialysis supplies, and receives support services from a dialysis facility that contracts with the DMEPOS supplier) will be terminated effective January 1, 2011. Method 1 payments for home dialysis (in which the dialysis facility provides all items, supplies, and services) will continue, paid at the same base rate as in-facility services.

Outlier adjustments will be available for unusual variations in type or amount of medically necessary care, including ESAs. All services potentially impacting outlier payments must be identified on the monthly claim. CMS indicates its intent to publish a list of ESRD outlier services for implementation on January 1, 2011.

Patient-level case-mix adjustments will be made for co-morbidities (as well as other factors). See Table D.

Racial/ethnicity adjustments are not being implemented at this time, as CMS considers its data to be incomplete or unreliable.

Facility level adjustments will recognize the wage index and low-volume facilities (defined by number of treatments). CMS is not at this time implementing a facility-level adjustment based on rural location.

There will continue to be no distinction in payment on the basis of hospital-based versus freestanding status (this ended in January 2009).

Pediatric patients are recognized in two cost groups for payment adjustments: those under age thirteen; and those aged thirteen to seventeen.

The 50 Percent Rule applicable to dialysis laboratory services will become moot under ESRD PPS, but it is not being eliminated as it will continue to be used as part of the calculation for the blended payment payable during the transition period.

Beneficiaries will pay a 20% co-insurance for ESRD PPS, inclusive of all applicable payment adjustments.

Bad debt will continue to be recognized, but calculations will be impacted (and significantly complicated).

CMS included a "limitation of review" provision (42 C.F.R. § 413.195) that prohibits administrative or judicial review of: the determination of payment amounts under section 1881(b)(14)(A); the establishment of an appropriate unit of payment under section 1881(b)(14)(C); the identification of renal dialysis services included in the bundled payment; the adjustments under section 1881(b)(14)(D); the application of the phase-in under section 1881(b)(14)(E); and the establishment of the market basket percentage increase factors under section 1881(b)(14)(F).

Concurrently with the ESRD PPS Rule, CMS also issued a proposed rule that would establish a new quality incentive program (QIP) to promote high-quality services in dialysis facilities by linking a facility's payments to performance standards.

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