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Daily Rules, Proposed Rules, and Notices of the Federal Government

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413 and 417

[CMS-1352-F]

RIN 0938-AR13

Medicare Program; End-Stage Renal Disease Prospective Payment System, Quality Incentive Program, and Bad Debt Reductions for All Medicare Providers

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
SUMMARY: This final rule updates and makes revisions to the end-stage renal disease (ESRD) prospective payment system (PPS) for calendar year (CY) 2013. This rule also sets forth requirements for the ESRD quality incentive program (QIP), including for payment year (PY) 2015 and beyond. In addition, this rule implements changes to bad debt reimbursement for all Medicare providers, suppliers, and other entities eligible to receive Medicare payment for bad debt and removes the cap on bad debt reimbursement to ESRD facilities. (See the Table of Contents for a listing of the specific issues addressed in this final rule.)
DATES: Effective Date:These regulations are effective on January 1, 2013.

Applicability Date:The regulations setting forth the reductions in Medicare bad debt pursuant to section 3201 of the Middle Class Tax Extension and Job Creation Act of 2012 (Pub. L. 112-96) are applicable for cost reporting periods beginning October 1, 2012.

FOR FURTHER INFORMATION CONTACT: Heidi Oumarou, (410) 786-7942, for issues related to the ESRD market basket.

Anita Segar, (410) 786-4614, for issues related to the QIP.

Kellie Shannon, (410) 786-0416 for information regarding Medicare bad debt. SUPPLEMENTARY INFORMATION:

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. Executive Summary A. Purpose 1. End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) 2. ESRD QIP 3. Reductions to Bad Debt Payments for All Medicare Providers and Elimination of the Cap on Bad Debt Reimbursement to ESRD Facilities B. Summary of Major Provisions 1. ESRD PPS 2. ESRD QIP 3. Reductions to Bad Debt Payments for All Medicare Providers and Elimination of the Cap on Bad Debt Reimbursement to ESRD Facilities C. Summary of Cost and Benefits 1. Impacts of the Final ESRD PPS 2. ESRD QIP 3. Impacts of Bad Debt Provisions II. Calendar Year (CY) 2013 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) A. Background on the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) B. Summary of the Proposed Provisions and Responses to Comments on the CY 2013 ESRD PPS C. Routine Updates and Proposed Policy Changes to the CY 2013 ESRD PPS 1. Composite Rate Portion of the ESRD PPS Blended Payment a. Update to the Drug Add-on to the Composite Rate Portion of the ESRD Blended Payment Rate i. Estimating Growth in Expenditures for Drugs and Biologicals in CY 2013 ii. Estimating Per Patient Growth iii. Applying the Growth Update to the Drug Add-On Adjustment iv. Update to the Drug Add-On Adjustment for CY 2013 2. ESRD PPS Base Rate 3. ESRD Bundled Market Basket a. Overview and Background b. Market Basket Update Increase Factor and Labor-Related Share for ESRD Facilities for CY 2013 c. Productivity Adjustment d. Calculation of the ESRDB Market Basket Update Adjusted for Multifactor Productivity for CY 2013 4. Transition Budget-Neutrality Adjustment for CY 2013 5. 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 Wage Data c. Wage Index Budget-Neutrality Adjustment d. ESRD PPS Wage Index Tables 6. Drug Policy Changes a. Daptomycin b. Alteplase and Other Thrombolytics c. Part B Drug Pricing 7. Revisions to the Outlier Policy a. Impact of Changes to the Outlier Policy b. Outlier Policy Percentage D. Clarifications Regarding the ESRD PPS 1. Reporting Composite Rate Items and Services 2. ESRD Facility Responsibilities for ESRD-Related Drugs and Biologicals 3. Use of AY Modifier E. Miscellaneous Comments III. End-Stage Renal Disease (ESRD) Quality Incentive Program (QIP) for Payment Year (PY) 2015 A. Background B. Summary of the Proposed Provisions and Responses to Comments on the ESRD QIP for PY 2015 C. Considerations in Updating and Expanding Quality Measures Under the ESRD QIP for PY 2015 and Subsequent PYs 1. Value-Based Purchasing (VBP) Overview 2. Brief Overview of Proposals 3. Measures Application Partnership Review 4. PY 2014 Mineral Metabolism Measure D. Proposed Measures for the PY 2015 ESRD QIP and Subsequent PYs of the ESRD QIP 1. PY 2014 Measures Continuing for PY 2015 and Subsequent PYs a. Hemoglobin Greater Than 12 g/dL b. Vascular Access Type (VAT) Measure Topic c. In-Center Hemodialysis Consumer Assessment of Healthcare Providers and Systems (ICH CAHPS) 2. Expansion of Two PY 2014 Measures for PY 2015 and Subsequent PYs a. Expanded National Healthcare Safety Network (NHSN) Dialysis Event Reporting Measure b. Expanded Mineral Metabolism Reporting Measure 3. New Measures for PY 2015 and Subsequent PYs of the ESRD QIP a. Kt/V Dialysis Adequacy Measure Topic i. Adult Hemodialysis Adequacy ii. Peritoneal Dialysis Adequacy iii. Pediatric, In-center Hemodialysis Adequacy b. Hypercalcemia c. Anemia Management Reporting Measure 4. Measures Under Consideration for Future PYs of the ESRD QIP a. Standardized Hospitalization Ratio (SHR) b. Standardized Mortality Ratio (SMR) c. Public Reporting of SHR and SMR Measures 5. Other Potential Future Measures Under Development a. Thirty-Day Hospital Readmissions b. Efficiency c. Population/Community Health 6. Scoring Background and General Considerations for the PY 2015 ESRD QIP 7. Performance Period for the PY 2015 ESRD QIP 8. Performance Standards for the PY 2015 ESRD QIP a. Clinical Measure Performance Standards b. Performance Standards c. Performance Standards for the PY 2015 Reporting Measures 9. Scoring for the PY 2015 ESRD QIP Measures a. Scoring Facility Performance on Clinical Measures Based on Achievement b. Scoring Facility Performance on Clinical Measures Based on Improvement c. Calculating the Reporting Measure Scores 10. Weighting the PY 2015 ESRD QIP Measures and Calculation of the PY 2015 ESRD QIP Total Performance Score a. Weighting Individual Measures To Compute Measure Topic Scores for the Kt/V Dialysis Adequacy Measure Topic and the Vascular Access Type Measure Topic b. Weighting the Total Performance Score c. Examples of the PY 2015 ESRD QIP Scoring Methodology 11. Minimum Data for Scoring Measures for the PY 2015 ESRD QIP a. Minimum Data for Scoring Clinical Measures for the PY 2015 ESRD QIP b. Minimum Data Requirements for Reporting Measures by New Facilities 12. Payment Reductions for the PY 2015 ESRD QIP 13. Data Validation 14. Scoring Facilities Whose Ownership has Changed 15. Public Reporting Requirements IV. Limitation on Payments to All Providers, Suppliers and Other Entities Entitled to Bad Debt A. Background B. Section 3201 of The Middle Class Tax Extension and Job Creation Act of 2012 (Pub. L. No. 112-96) C. Summary of Provisions of This Final Rule 1. Section 3201 of The Middle Class Tax Extension and Job Creation Act of 2012 (Pub. L. No. 112-96) 2. ESRD Bad Debt Cap and Remove and Reserve § 413.178 3. Technical Corrections D. Changes to Medicare Bad Debt Policy 1. Changes to 42 CFR 413.89(h) 2. Rationale for Removing 42 CFR 413.178 3. Technical Corrections to 42 CFR 417.536(f)(1) V. Collection of Information Requirements A. Legislative Requirement for Solicitation of Comments B. Requirements in the Regulation Text C. Additional Information Collection Requirements 1. ESRD QIP a. Display of Certificates for the PY 2015 ESRD QIP b. NHSN Dialysis Event Reporting Requirement for the PY 2015 ESRD QIP c. ICH CAHPS Survey Attestation Requirement for the PY 2015 ESRD QIP d. Data Validation Requirements 2. Reductions to Bad Debt Payments for All Medicare Providers VI. Economic Analyses A. Regulatory Impact Analysis 1. Introduction 2. Statement of Need 3. Overall Impact B. Detailed Economic Analysis 1. CY 2013 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) a. Effects on ESRD Facilities b. Effects on Other Providers c. Effects on the Medicare Program d. Effects on Medicare Beneficiaries e. Alternatives Considered 2. ESRD QIP a. Effects of the PY 2015 ESRD QIP b. Alternatives Considered for the PY 2015 ESRD QIP 3. Reductions to Bad Debt Payments for All Medicare Providers C. Accounting Statement VII. Regulatory Flexibility Act Analysis VIII. Unfunded Mandates Reform Act Analysis IX. Federalism Analysis X. 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:

AMCCAutomated Multi-Channel Chemistry ASPAverage Sales Price AVArteriovenous BLSBureau of Labor Statistics BMIBody Mass Index BSABody Surface Area CAHCritical Access Hospital CBSACore-Based Statistical Area CCNCMS Certification Number CDCCenters for Disease Control and Prevention CLABSICentral Line Access Bloodstream Infections CFRCode of Federal Regulations CIPCore Indicators Project CMHCCommunity Mental Health Center CMPCompetitive Medical Plans CMSCenters for Medicare & Medicaid Services CPMClinical Performance Measure CPTCurrent Procedural Terminology CROWNWebConsolidated Renal Operations in a Web-Enabled Network CYCalendar Year DFCDialysis Facility Compare DFRDialysis Facility Report DMEDurable Medical Equipment ESAErythropoiesis stimulating agent ESRDEnd-Stage Renal Disease ESRDBEnd-Stage Renal Disease Bundled FDAFood and Drug Administration FI/MACFiscal Intermediary/Medicare Administrative Contractor FQHCFederally Qualified Health Center FYFiscal Year GDPGross Domestic Product HAIHealthcare-associated Infections HCPCSHealthcare Common Procedure Coding System HCPPHealth Care Prepayment Plan HDHemodialysis HHDHome Hemodialysis HMOHealth Maintenance Organization ICD-9-CMInternational Classification of Diseases, 9th Edition, Clinical Modifications ICH CAHPSIn-Center Hemodialysis Consumer Assessment of Healthcare Providers and Systems IGI IHSGlobal Insight IPPSInpatient Prospective Payment System KDIGOKidney Disease: Improving Global Outcomes KDOQIKidney Disease Outcome Quality Initiative Kt/V Ameasure of dialysis adequacy where K is dialyzer clearance, t is dialysis time, and V is total body water volume LDOLarge Dialysis Organization MAPMedicare Allowable Payment MCPMonthly Capitation Payment MIPPAMedicare Improvements for Patients and Providers Act of 2008 (Pub. L. 110-275) MMAMedicare Prescription Drug, Improvement and Modernization Act of 2003 MMEAMedicare and Medicaid Extenders Act of 2010 Pub. L. 111-309 MFPMultifactor Productivity NHSNNational Healthcare Safety Network NQFNational Quality Forum PDPeritoneal Dialysis PFSPhysician Fee Schedule PPSProspective Payment System PSRPerformance Score Report PYPayment Year QIPQuality Incentive Program REMISRenal Management Information System RFARegulatory Flexibility Act RHCRural Health Clinic RRFResidual Renal Function RUL Reasonable Useful Lifetime SBASmall Business Administration SHRStandardized Hospitalization Ratio SIMS Standard Information Management System SMRStandardized Mortality Ratio SNFSkilled Nursing Facility SSASocial Security Administration TEPTechnical Expert Panel The ActSocial Security Act The Affordable Care ActThe Patient Protection and Affordable Care Act URRUrea Reduction Ratio VATVascular Access Type VBPValue Based Purchasing I. Executive Summary A. Purpose 1. End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

This final rule updates and makes revisions to the End-Stage Renal Disease (ESRD) prospective payment system (PPS) for calendar year (CY) 2013. 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) (Pub. L. 110-275), the Centers for Medicare & Medicaid Services (CMS) implemented a case-mix adjusted bundled PPS for Medicare outpatient ESRD dialysis services beginning January 1, 2011. 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 the Affordable Care Act (Pub. L. 111-148), established that beginning CY 2012, and each subsequent year, the Secretary shall reduce the market basket increase factor by a productivityadjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. In addition, the application of the productivity adjustment may result in the increase factor being less than 0.0 percent for a year.

2. End-Stage Renal Disease (ESRD) Quality Incentive Program (QIP)

This final rule also sets forth requirements for the ESRD quality incentive program (QIP), including for payment year (PY) 2015. The program is authorized under section 153(c) of MIPPA, which added section 1881(h) to the Social Security Act (the Act). The ESRD QIP is the most recent step in fostering improved patient outcomes by establishing incentives for dialysis facilities to meet performance standards established by CMS.

3. Reductions to Bad Debt Payments for all Medicare Providers and Elimination of the Cap on Bad Debt Reimbursement to ESRD Facilities

This final rule also implements the changes to the limitations on payments for bad debt reimbursement set forth in section 3201 of The Middle Class Tax Extension and Job Creation Act of 2012 (Pub. L. 112-96) by revising 42 CFR 413.89, Bad debts, charity, and courtesy allowances. Additionally, this rule will remove the cap on bad debt reimbursement to ESRD facilities.

B. Summary of the Major Provisions 1. ESRD PPS

Update to the composite and ESRD PPS base rate for CY 2013:For CY 2013, the ESRD PPS base rate is $240.36. This amount reflects the application of the ESRD bundled (ESRDB) market basket reduced by the productivity adjustment, or 2.3 percent, and the wage index budget-neutrality adjustment factor of 1.000613 to the CY 2012 ESRD PPS base rate of $234.81. The base rate is applicable to both the ESRD PPS portion of the blended payment under the transition and payments under the full PPS. During the transition, we are required to update the composite rate for ESRD facilities receiving a blended payment. For CY 2013, the composite base rate is $145.20. This amount reflects the CY 2012 composite rate of $141.94, increased by the ESRDB market basket reduced by the productivity adjustment.

Update to the composite rate drug add-on for CY 2013:There are no changes to the methodology used to compute the drug add-on for CY 2013; we are only updating the data used to calculate the drug add-on for CY 2013. Using 6 years of average sales price (ASP) drug expenditure data and other data, we estimate a 2.9 percent decrease in aggregate drug expenditures and a 4.0 percent increase in enrollment. Using these estimates, we project a 6.6 percent decrease in per patient growth of drug expenditures for CY 2013. Thus, we are projecting that the combined growth in per patient utilization and pricing for CY 2013 will result in a decrease to the drug add-on equal to 0.9 percentage points. We will apply a zero update to the drug add-on adjustment and maintain the $20.33 per treatment drug add-on amount for CY 2013. Because the market basket minus productivity that is applied to the composite rate increases the composite rate, the add-on adjustment of 14.3 percent is reduced to 14.0 percent to maintain the drug add-on at $20.33.

Market basket and productivity adjustment:Under section 1881(b)(14)(F) of the Act, beginning in CY 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 multi-factor productivity (MFP) adjustment. The CY 2013 ESRDB market basket increase factor is 2.9 percent. The current forecast of the CY 2013 MFP adjustment is 0.6 percent. The resulting final CY 2013 MFP-adjusted ESRDB market basket update is equal to 2.3 percent.

The transition budget-neutrality adjustment factor:For CY 2013, we are applying the transition budget-neutrality adjustment methodology established in CY 2011. This results in a 0.1 percent adjustment. Therefore, for CY 2013, a 0.1 percent increase will be applied to both the blended payments made under the transition and payments made under the full ESRD PPS for renal dialysis services furnished January 1, 2013 through December 31, 2013.

Updates to the wage index and wage index floor:We adjust wage indices on an annual basis using the most current hospital wage data to account for differing wage levels in areas in which ESRD facilities are located. In CY 2013, we are not making any changes to the application of the wage index budget-neutrality adjustment factor and will continue to apply the budget-neutrality adjustment to the pre-floor, pre-reclassified wage index values for the composite rate portion of the blended payment and to the base rate for the ESRD PPS. Over the past several years, we have been gradually decreasing the wage index floor by 0.05 in an effort to gradually phase out the floor, and in CY 2013 we will continue to do so. Therefore, in CY 2013, we are reducing the wage index floor from 0.550 to 0.500. We also applied the wage index budget-neutrality adjustment factor to the wage index floor of 0.500, which results in an adjusted wage index floor of 0.501 (0.500 × 1.001141) for CY 2013.

Update to the outlier policy:We are updating the outlier services fixed dollar loss amounts and Medicare Allowable Payments (MAPs) for CY 2013 using 2011 data. Based on the use of more current data, the fixed dollar loss amount for pediatric patients will decrease from $71.64 to $47.32 and the MAP amount will decrease from $45.44 to $41.39 as compared to CY 2012 values. For adult patients, the fixed-dollar loss amount drops from $141.21 to $110.22 and the MAP amount drops from $78.00 to $59.42. Because of the decline in utilization associated with the implementation of the expanded bundle, the 1 percent target for outlier payments was not achieved in CY 2011. Use of 2011 data to recalibrate the thresholds, reflecting lower utilization of epoetin and other outlier services, is expected to result in aggregate outlier payments close to the 1 percent target in CY 2013. We believe this update to the outlier MAPs and fixed dollar loss amounts for CY 2013 will increase payments for ESRD beneficiaries requiring higher resource utilization in accordance with a 1 percent outlier policy.

Policy reiteration (composite rate drugs and AY modifier):Under the composite and basic case-mix adjusted composite rate payment systems, certain drugs were included in the composite rate and were not eligible for separate payment. Our analyses of claims show that ESRD facilities are continuing to report composite rate drugs on ESRD claims. In this rule, we are reiterating that any item or service included in the composite rate should not be identified on ESRD claims. An AY modifier can be appended to claims for drugs and laboratory tests that are not ESRD-related to allow for separate payment. Our analyses of claims show that there are ESRD facilities and laboratories that are appending the AY modifier to drugs and laboratory tests that we believe are ESRD-related, resulting in separate payment. In this rule, we reiterate the purpose of the AY modifier and emphasize that we are continuing our monitoring efforts. We also indicate that we may consider eliminating the AY modifier in future rulemaking if we believe that the AY modifier is not being used for the purpose intended.

2. ESRD QIP

This final rule also implements new requirements for the ESRD QIP. It will continue some of the previous ESRD QIP measures, add new measures, and expand the scope of some of the existing measures to cover the measure topics as follows:

• To evaluate anemia management:

○ Hemoglobin Greater Than 12 g/dL, a clinical measure.

○ Anemia Management, a reporting measure.*

• To evaluate dialysis adequacy:

○ A clinical Kt/V measure for adult hemodialysis patients.*

○ A clinical Kt/V measure for adult peritoneal dialysis patients. *

○ A clinical Kt/V measure for pediatric in-center hemodialysis patients. *

• To determine whether patients are treated using the most beneficial type of vascular access:

○ Vascular Access Type, a clinical measure topic comprised of an arteriovenous fistula and a catheter measure.

• To address effective bone mineral metabolism management:

○ Mineral Metabolism, a reporting measure.

• To address safety:

○ National Healthcare Safety Network (NHSN) Dialysis Event reporting measure.

• To assess patient and caregiver experience:

○ In-Center Hemodialysis Consumer Assessment of Healthcare Providers and Systems (ICH CAHPS) survey reporting measure.

* Denotes that this measure is new to the ESRD QIP.

This final rule also establishes CY 2013 as the performance period for the PY 2015 ESRD QIP. It also establishes performance standards for each measure and adopts scoring and payment reduction methodologies that are similar to those finalized for the PY 2014 ESRD QIP.

3. Reductions to Bad Debt Payments for all Medicare Providers and Elimination of the Cap on Bad Debt Reimbursement to ESRD Facilities

This rule also implements the statutory changes to the limitations on payments for bad debt reimbursement by revising 42 CFR 413.89, Bad debts, charity, and courtesy allowances. We are also moving 42 CFR 413.178(a) to 42 CFR 413.89(h)(3), and moving 42 CFR 413.178(d)(2) to 42 CFR 413.89(i)(2) and removing and reserving the remainder of 42 CFR 413.178. Additionally, we are making a technical correction to the cross reference in 42 CFR 417.536(f)(1) to Medicare bad debt reimbursement policy. Finally, this final rule will eliminate the cap on bad debt reimbursement to an ESRD facility at its unrecovered costs.

C. Summary of Costs and Benefits

In section VI.B of this final rule, we set forth a detailed analysis of the impacts that the changes will have on affected entities and beneficiaries. The impacts include the following:

1. Impacts of the Final ESRD PPS

The impact chart in section VI.B of this final rule displays the estimated change in payments to ESRD facilities in CY 2013 as compared to estimated payments in CY 2012. The overall impact of the CY 2013 changes is projected to be a 3.0 percent increase in payments. Hospital-based ESRD facilities have an estimated 3.6 percent increase in payments compared with freestanding facilities with an estimated 2.9 percent increase. Urban facilities are expected to receive an estimated payment increase of 3.0 percent compared to an estimated 2.9 percent increase for rural facilities. We expect a 2.4 percent decrease in estimated payments as a result of wage index adjustments for Puerto Rico and the Virgin Islands. However, this decrease is offset primarily by the impact of the market basket increase, resulting in an estimated 0.6 percent increase in payment. The estimated 3.0 percent overall payment increase will result in a $250 million cost to Medicare and a $60 million cost to beneficiaries. In 2013, a 2.3 percent market basket increase will result in a $190 million cost to Medicare and a $50 million cost to beneficiaries. The outlier fixed dollar loss and MAP adjustments in CY 2013 will result in a $30 million cost to Medicare and a $10 million cost to beneficiaries. The difference in cost to Medicare is due to the effects of changing the blend of payments from 50/50 to 25/75 and the 0.1 percent transition budget-neutrality adjustment.

2. Impacts for ESRD QIP

The overall economic impact of the ESRD QIP is an estimated $24.6 million for PY 2015. We expect the total payment reductions to be approximately $12.1 million, and the costs associated with the collection of information requirements for certain measures to be approximately $12.4 million.

The estimated payment reduction will continue to incentivize facilities to provide higher quality care to beneficiaries. The reporting measures that result in costs associated with the collection of information are critical to better understanding the quality of care beneficiaries receive, particularly a patient's experience of care, and will be used to incentivize improvements in the quality of care provided.

3. Impacts of Bad Debt Provisions

We are codifying the provisions of section 3201 of The Middle Class Tax Extension and Job Creation Act of 2012 that requires reductions in bad debt reimbursement to all providers eligible to receive bad debt reimbursement; these provisions are specifically prescribed by statute and thus, are generally self-implementing. There will be a $10.92 billion savings to the program over 10 years resulting from these self-implementing reductions in bad debt reimbursement. We are also removing the cap on reimbursement for bad debt to ESRD facilities for cost reporting periods beginning on or after January 1, 2013, which will result in a cost to the Medicare program of $170 million over 10 years.

II. Calendar Year (CY) 2013 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) A. Background on the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

On August 12, 2010, we published in theFederal Registera final (75 FR 49030) titled, “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 services beginning January 1, 2011, in accordance with section 1881(b)(14) of the Act, as added by section 153(b) of MIPPA.

On April 6, 2011, we published in theFederal Registeran interim final rule with comment period (76 FR 18930) titled, “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 (76 FR 18933). On November 10, 2011, we published in theFederal Register, a final rule (76 FR 70228 through 70316) titled, “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 (hereinafter referred to as the CY 2012 ESRD PPS final rule). In that final rule, for the ESRD PPS, we made a number of routine updates for CY 2012, implemented the second year of the transition to the ESRD PPS, made several policy changes, clarifications, and technical changes. In the CY 2013 ESRD PPS proposed rule (77 FR 40956), we summarize the updates, changes, and clarifications that were finalized in the CY 2012 ESRD PPS final rule (76 FR 70228).

B. Summary of the Proposed Provisions and Responses to Comments on the CY 2013 ESRD PPS

The proposed rule, titled “Medicare Program; End-Stage Renal Disease Prospective Payment System, Quality Incentive Program, and Bad Debt Reductions for All Medicare Providers” (77 FR 40952), hereinafter referred to as the CY 2013 ESRD PPS proposed rule appeared in theFederal Registeron July 11, 2012, with a comment period that ended on August 31, 2012. In that proposed rule, for the ESRD PPS, we proposed to (1) make a number of routine updates for CY 2013, (2) implement the third year of the transition, and (3) make several policy changes and clarifications. We received approximately 40 public comments on the ESRD PPS proposals, including comments from ESRD facilities; national renal, nephrologist and patient organizations; patients; manufacturers; health care systems; and nurses. In this final rule, we provide a summary of each proposed provision, a summary of the public comments received and our responses to them, and the policies we are finalizing for the CY 2013 ESRD PPS.

C. Routine Updates and Proposed Policy Changes to the CY 2013 ESRD PPS 1. Composite Rate Portion of the ESRD PPS Blended Payment

Section 1881(b)(14)(E)(i) of the Act requires a 4-year transition under the ESRD PPS. This final rule implements the third year of the transition for those ESRD facilities that did not elect to receive 100 percent of the payment amount under the ESRD PPS. For CY 2013, under 42 CFR 413.239(a)(3), facilities that are transitioning will receive a blended rate equal to the sum of 75 percent of the full ESRD PPS amount and 25 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 transition, (that is, CY 2011 through 2013), which includes updates to the drug add-on adjustment required by section 1881(b)(12)(F) of the Act, discussed in section II.C.1.a of this final rule, as well as the wage index values (which includes a budget-neutrality factor) used to adjust the labor component of the composite rate discussed in section II.C.5 of this final rule. For CY 2013, we proposed to update the second part of the transition budget-neutrality adjustment to reflect updated data. The transition budget-neutrality adjustment is applied to both the blended payments under the transition and payments under the ESRD PPS. The discussion regarding the transition budget-neutrality adjustment can be found in section II.C.4 of this final rule.

As discussed in the CY 2013 ESRD PPS proposed rule (76 FR 40957), section II.C.3 of this final rule, and in 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, for the years in which the transition applies, the composite base rate shall be annually increased by the ESRDB market basket and, for CY 2012 and each subsequent year, the ESRDB market basket shall be reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. In the CY 2013 ESRD PPS proposed rule (77 FR 40957), we proposed for CY 2013 a composite rate of $145.49, which reflected the CY 2012 composite rate of $141.94 increased by an ESRDB market basket of 3.2 reduced by the productivity adjustment of 0.7 percent, resulting in an update of 2.5 percent, based on the first quarter 2012 IGI forecast of the ESRDB market basket.

We received four public comments supporting our proposal to increase the composite base rate by 2.5 percent for ESRD services furnished in CY 2013 and paid under the blended payment methodology during the transition period.

In section II.C.3.b of this final rule, we finalize the CY 2013 ESRDB market basket update of 2.9 percent, and the MFP adjustment of 0.6 percent, which results in a forecasted rate of increase to the base rate of 2.3 percent. This final update is based on the third quarter 2012 IGI forecast of the ESRDB market basket. Consequently for CY 2013, we are finalizing the composite base rate under the ESRD PPS payment of $145.20 for ESRD services furnished during CY 2013 and paid under the blended payment methodology. This amount reflects the CY 2012 composite rate of $141.94 increased by the CY 2013 ESRD market basket increase factor of 2.9 percent reduced by the productivity adjustment of 0.6 percent. The resulting CY 2013 MFP-adjusted ESRD market basket update is 2.3 percent ($141.94 × 1.023 = $ 145.20).

a. Update to the Drug Add-On to the Composite Rate Portion of the ESRD Blended Payment Rate

Section 1881(b)(14)(E)(i) of the Act requires a 4-year transition under the ESRD PPS. Under 42 CFR 413.239, ESRD facilities were permitted to make a one-time election by November 1, 2010, to be excluded from the transition and receive full payment under the ESRD PPS. Under § 413.239(a)(3), in CY 2013, ESRD facilities that elected to receive payment under the transition will be paid a blended amount consisting of 25 percent of the basic case-mix adjusted composite payment system payment and 75 percent of the ESRD PPS payment. Thus, we must continue to update the composite rate portion of the blended payment amount during the ESRD PPS transition (CY 2011 through 2013), which includes an update to the drug add-on.

As required under section 1881(b)(12) of the Act, the basic case-mix adjusted composite payment system includes the services in the composite rate and an add-on to the composite rate portion of the blended payment to account for the difference between pre-Medicare Modernization Act payments for separately billed drugs and the revised drug pricing specified in the statute. For the drug add-on for CY 2013 (77 FR 40957 through 40959), we did not propose any changes to the drug add-on methodology, but merely updated the data used in computing the drug add-on as described below.

i. Estimating Growth in Expenditures for Drugs and Biologicals in CY 2013

Section 1881(b)(12)(F) of the Act specifies that the drug add-on increase must reflect “the estimated growth in expenditures for drugs and biologicals (including erythropoietin) that are separately billable * * *”. By referring to “expenditures”, we believe the statute contemplates that the update would account for both increases in drug prices, as well as increases in utilization of those drugs.

As we indicated in the CY 2013 ESRD PPS proposed rule (77 FR 40957), we continue to estimate growth in drug expenditures based on the trends in available data. To account for increases in drug prices and utilization for CY 2013 we used the 6 years of available drug expenditure data based on ASP pricing. We then removed growth inenrollment for the same time period from the expenditure growth so that the residual reflects the per patient expenditure growth (which includes price and utilization combined).

To estimate drug expenditure growth using trend analysis, for CY 2013, we looked at the average annual growth in total drug expenditures between 2006 and 2011. First, we estimated the total drug expenditures for all ESRD facilities in CY 2011. We used the final CY 2006 through CY 2010 ESRD claims data and the latest available CY 2011 ESRD facility claims, updated through December 31, 2011 (that is, claims with dates of service from January 1 through December 31, 2011, that were received, processed, paid, and passed to the National Claims History File as of December 31, 2011). We indicated in the CY 2013 ESRD PPS proposed rule (77 FR 40958) that for the CY 2013 PPS final rule, we would use additional updated CY 2011 claims with dates of service for the same timeframe. This updated CY 2011 data file would include claims received, processed, paid, and passed to the National Claims History File as of June 30, 2012. We further stated that while the CY 2011 claims file used in the proposed rule was the most current available, we recognize that it does not reflect a complete year, as claims with dates of service towards the end of the year have not all been processed. To more accurately estimate the update to the drug add-on, completed aggregate drug expenditures are required.

In the CY 2013 ESRD PPS proposed rule (77 FR 40958), we inflated the CY 2011 drug expenditures to estimate the June 30, 2012 update of the 2011 claims file. We used the relationship between the December 2010 and the June 2011 versions of 2010 claims to estimate the more complete 2011 claims that were available in June 2012 and applied that ratio to the 2011 claims data from the December 2011 claims file. The net adjustment to the CY 2011 claims data was an increase of 9.7 percent to the 2011 expenditure data. This adjustment allows us to more accurately compare the 2010 and 2011 drug expenditure data to estimate per patient growth.

We further stated in the CY 2013 ESRD PPS proposed rule (77 FR 40958), that using the completed full-year 2011 drug expenditure figure, we calculated the average annual change in drug expenditures from 2006 through 2011. This average annual change showed a decrease of 3.0 percent in drug expenditures from 2006 through 2011. We used this 3.0 percent decrease to project drug expenditures for both 2012 and 2013.

For this CY 2013 final rule, using the full year 2011 drug expenditure figure based on the June 2012 update of the CY 2011 National Claims History File, we calculated the average annual change in drug expenditure from 2006 through 2011. This average annual change showed a decrease of 2.9 percent in drug expenditures from 2006 through 2011. We used this 2.9 decrease to project drug expenditures for both 2012 and 2013. We note that the decrease in the drug expenditures percentage is a result of our use of updated data.

ii. Estimating Per Patient Growth

In the CY 2013 ESRD PPS proposed rule (77 FR 40958), we explained that once we had the projected growth in drug expenditures from 2012 to 2013, we calculated per patient growth between CYs 2012 and 2013 by removing the estimated growth in enrollment data between CYs 2012 and 2013. We had estimated a 4.6 percent growth in fee-for-service Medicare dialysis beneficiary enrollment between CYs 2012 and 2013. To obtain the per-patient estimated growth in expenditures, we divided the total drug expenditure change of a 3 percent decrease between 2012 and 2013 (0.97) by enrollment growth of 4.6 percent (1.046) for the same timeframe. The result was a per-patient growth factor equal to 0.927 (0.97/1.046 = 0.927). Thus, we are projecting a 7.3 percent decrease (−7.3% = −.073 = 0.927 −1) in per patient growth in drug expenditures between CYs 2012 and 2013.

For this final rule, we estimate a 4.0 percent estimated growth in enrollment between CYs 2012 and 2013. To obtain the per-patient estimated growth in expenditures, we divided the total drug expenditure change of a 2.9 percent decrease between CYs 2012 and 2013 (0.971) by enrollment growth of 4.0 percent (1.04) for the same timeframe. The result is a per-patient growth factor equal to 0.934 (.971/1.04=.934). Thus, in this final rule, for CY 2013 we are projecting a 6.6 percent decrease (−6.6% percent =−.063=.934−1) in per patient growth in drug expenditures between CYs 2012 and 2013.

iii. Applying the Proposed Growth Update to the Drug Add-On Adjustment

We explained in the CY 2013 ESRD PPS proposed rule (77 FR 40958), that in the CY 2012 ESRD PPS proposed and final rules, we provided an incorrect citation to the CY 2006 PFS final rule with comment in the discussion of the application of the projected growth update percentages. The correct citation to this discussion in the CY 2006 PFS final rule with comment is 70 FR 70166 and 70167. In the CY 2006 rule, we applied the projected growth percentage to the total amount of drug add-on dollars established for CY 2005 to establish a dollar amount for the CY 2006 growth. In addition, we projected the growth in dialysis treatments for CY 2006 based on the projected growth in ESRD enrollment. We divided the projected total dollar amount of the CY 2006 growth by the projected total dialysis treatments to develop the per treatment growth update amount. This growth update amount, combined with the CY 2005 per treatment drug add-on amount, resulted in a 14.7 percent adjustment to the composite rate for CY 2006.

We further explained in the CY 2013 ESRD PPS proposed rule (77 FR 40958), that subsequent to the publication of the CY 2006 PFS final rule with comment, the Deficit Reduction Act (DRA) of 2005 (Pub. L. 109-171) was enacted on February 8, 2006. Section 5106 of the DRA amended section 1881(b)(12) of the Act to require the Secretary to increase the amount of the composite rate component of the basic case-mix adjusted system for dialysis services furnished on or after January 1, 2006 by 1.6 percent above the amount of the composite rate for such services furnished on December 31, 2005. We issued Change Request 4291, Transmittal 849, entitled, “Update to the ESRD Composite Payment Rates” on February 10, 2006 to instruct contractors to implement this change. We stated in Change Request 4291 that because the drug add-on adjustment is determined as a percentage of the composite rate, it was necessary to adjust the drug add-on percentage to account for the 1.6 percent increase in the composite payment rate. Therefore, the total drug add-on adjustment to the composite payment rate for 2006 was 14.5 percent instead of 14.7 percent.

Finally, we explained in the CY 2013 ESRD PPS proposed rule (77 FR 40958) that in the CY 2007 PFS final rule with comment period (71 FR 69683 and 69684), we revised our update methodology by applying the growth update to the per treatment drug add-on amount. That is, for CY 2007, we applied the growth update factor of 4.03 percent to the $18.88 per treatment drug add-on amount resulting in an updated per treatment drug add-on amount of $19.64 per treatment (71 FR 69684). For CY 2008, the per treatment drug add-on amount was updated to $20.33. In the CYs 2009, 2010, and 2011 PFS final rule with comment period (73 FR 69755 through 69757, 74 FR 61923, and 75 FR 73485, respectively) and the CY 2012ESRD PPS final rule (76 FR 70239), we applied a zero update to the per treatment drug add-on amount resulting in a per treatment drug add-on amount of $20.33. For CY 2013, we did not make any update to the per treatment drug add-on amount of $20.33 established in CY 2008.

As discussed in detail below, in this final rule, for CY 2013, we are finalizing a zero update to the per treatment drug add-on amount of $20.33 established in CY 2008.

iv. Update to the Drug Add-On Adjustment for CY 2013

As discussed above, in the CY 2013 ESRD PPS proposed rule (77 FR 40958), we estimated a 3.0 percent decrease in drug expenditures between CYs 2012 and 2013. Combining this decrease with a 4.6 percent increase in enrollment, as described above, we projected a 7.3 percent decrease in per patient growth of drug expenditures between CYs 2012 and CY 2013. Therefore, in the CY 2013 ESRD PPS proposed rule, we projected that the combined growth in per patient utilization and pricing for CY 2013 would result in a decrease to the drug add-on equal to 1.0 percentage points (out of the revised 14.0 percent add-on for 2013). This figure was derived by applying the 7.3 percent decrease to the CY 2012 drug add-on of $20.33. This resulted in a revised drug add-on of $18.85, which is 13.0 percent of the proposed CY 2013 base composite rate of $145.49. We indicated that if we were to apply no decrease to the drug add-on of $20.33, this would result in a 14.0 percent drug add-on. However, similar to last year and as indicated above, we proposed a zero update to the drug add-on adjustment. We believe this approach is consistent with the language under section 1881(b)(12)(F) of the Act, which states in part that “the Secretary shall annually increase” the drug add-on amount based on the growth in expenditures for separately billed ESRD drugs. Therefore, we proposed to apply a zero update and maintain the $20.33 per treatment drug add-on amount for CY 2013. We sought comment on our proposed zero update to the drug add-on.

We further stated in the CY 2013 ESRD PPS proposed rule (77 FR 40959), that the current $20.33 per treatment drug add-on reflected a 14.3 percent drug add-on adjustment to the composite rate in effect for CY 2012. As discussed in section II.3.a of the CY 2013 ESRD PPS proposed rule, section 1881(b)(14)(F) of the Act requires that an ESRDB market basket minus productivity adjustment be used to update the composite rate portion of the ESRD PPS payment resulting in a decrease to the CY 2013 drug add-on adjustment from 14.3 to 14.0 percent, to maintain the drug add-on at $20.33. This decrease occurs because the drug add-on adjustment is a percentage of the composite rate. Since the proposed CY 2013 composite rate is higher than the CY 2012 composite rate and since the drug add-on remains at $20.33, the percentage decreases. Therefore, we proposed a drug add-on adjustment to the composite rate for CY 2013 of 14.0 percent.

We did not receive any comments on our proposals to use a zero update to the drug add-on or on the proposed drug-add on adjustment to the composite rate for CY 2013 of 14.0 percent.

In this final rule, for CY 2013, we estimate a 2.9 percent decrease in drug expenditures between CYs 2012 and 2013. Combining this increase with a 4.0 percent increase in enrollment, we project a 6.6 percent decrease in per patient growth of drug expenditures between CYs 2012 and 2013. Therefore, we project that the combined growth in per patient utilization and pricing for CY 2013 results in a decrease to the drug add-on equal to 0.9 percentage points. This figure is derived by applying the 6.6 percent decrease to the CY 2012 drug add-on of $20.33. This results in a revised drug add-on of $18.98, which is 13.1 percent of the final CY 2013 base composite rate of $145.20. Applying no decrease to the drug add-on of $20.33 results in a 14.0 percent drug add-on. Similar to last year and as discussed above, for CY 2013, we are finalizing a zero update to the drug add-on and maintaining the $20.33 per treatment drug add-on amount.

The current $20.33 per treatment drug add-on reflected a 14.3 percent drug add-on adjustment to the composite rate in effect for CY 2012. Using the latest ESRDB market basket minus productivity adjustments to update the composite rate portion of the ESRD PPS payment (forecast of 2.3 percent in CY 2013 effective January 1, 2013, as discussed in section II.C.3 of this final rule), results in a decrease to the CY 2013 drug add-on adjustment from 14.3 to 14.0 percent in order to maintain the drug add-on amount of $20.33. This decrease occurs because the drug add-on adjustment is a percentage of the composite rate. Because the final CY 2013 composite rate is higher than CY 2012 composite rate, and since the drug add-on remains at $20.33, the percentage decreases. Therefore, we are finalizing for CY 2013 the drug add-on adjustment of 14.0 to the composite rate.

2. ESRD PPS Base Rate

In the CY 2013 ESRD PPS proposed rule (77 FR 40959) and CY 2012 ESRD PPS final rule (76 FR 70231), we discussed the development of the ESRD PPS per treatment base rate that is codified in the Medicare regulations at 42 CFR 413.220 and 413.230. We explained that the CY 2011 ESRD PPS final rule (75 FR 49071 through 49082) 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. 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. We further explained that in accordance with 42 CFR 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 payments (if applicable). For CY 2012, the ESRD PPS base rate was $234.81 (76 FR 70231).

We also indicated in the CY 2013 ESRD PPS proposed rule (77 FR 40959) that 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, provides that, beginning in 2012, the ESRD PPS payment amounts are required to be annually adjusted by the rate of increase in the ESRD market basket, reduced by the productivity adjustment. Accordingly, in the CY 2013 ESRD PPS proposed rule, we applied the 2.5 percent increase to the CY 2012 ESRD PPS base rate of $234.81, which resulted in a proposed CY 2013 ESRD PPS base rate of $240.68 ($234.81 × 1.025 = $240.68). The ESRD PPS base rate is applicable to both the ESRD PPS portion of the blended payment under the transition and payments under the full ESRD PPS.

In addition, for CY 2013, we proposed a wage index budget-neutrality adjustment factor of 1.000826 to be applied to the CY 2013 ESRD PPS base rate (that is, $240.68), which yielded a proposed CY 2013 ESRD PPS wage index budget-neutrality adjusted base rate of $240.88 ($240.68 × 1.000826 = $240.88).

Comment:All commenters supported our CY 2013 ESRD PPS wage index budget-neutrality adjusted base rate. Two commenters thanked CMS for providing an update to the base rate, and one commenter specifically appreciated the base rate increase at a time when the Medicare ESRD program is undergoing significant changes and noted that it is important to retain savings where applicable.

Response:We thank the commenters for their support. In this final rule, using updated data for CY 2013, we applied the 2.3 percent increase (ESRDB market basket update less productivity) to the CY 2012 ESRD PPS base rate of $234.81, which results in an ESRD PPS base rate for CY 2013 of $240.21 ($234.81 × 1.023 = $240.21). In addition, we applied the wage index budget-neutrality adjustment factor of 1.000613 to the updated base rate of $240.21, yielding an ESRD PPS wage index budget-neutrality adjusted base rate for CY 2013 of $240.36 ($240.21 × 1.000613 = $240.36).

3. 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 application of the productivity adjustment described may result in the increase factor being less than 0.0 for a year and may result in payment rates for a year being less than the payment rates for the preceding year. The statute further provides that the market basket increase factor 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 ESRDB market basket increase factor will also be used to update the composite rate portion of ESRD payments during the ESRD PPS transition period from CYs 2011 through 2013; though beginning in CY 2012, such market basket increase factor will be reduced by the productivity adjustment. Therefore, 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. Market Basket Update Increase Factor and Labor-related Share for ESRD Facilities for CY 2013

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 2013 ESRDB market basket increase factor and labor-related share based on the best available data (76 FR 40503). Consistent with historical practice, we estimated 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 methodology and the IGI forecast for the third quarter of 2012 of the CY 2008-based ESRDB market basket (with historical data through the second quarter of 2012), and consistent with our historical practice of estimating market basket increases based on the best available data, the CY 2013 ESRDB market basket increase factor is 2.9 percent.

For the CY 2013 ESRD payment update, we will continue to use a labor-related share of 41.737 percent for the ESRD PPS payment and the ESRD PPS portion of the blended payment, which was finalized in the CY 2011 ESRD final rule (75 FR 49161). We will also 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. This labor-related share was developed from the labor-related components of the 1997 ESRD composite rate market basket that was finalized in the CY 2006 Physician Fee Schedule (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).

c. Productivity Adjustment

The ESRDB market basket must be annually adjusted by changes in economy-wide productivity. Specifically, under section 1881(b)(14)(F)(i) 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 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 Bureau of Labor Statistics (BLS) is the agency that publishes the official measure of private nonfarm business MFP. Please seehttp://www.bls.gov/mfpto obtain the BLS historical published MFP data.

CMS notes that the 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. The details regarding the methodology for forecasting MFP and how it is applied to the market basket was finalized in the CY 2012 ESRD PPS final rule (76 FR 70232 through 70234). Using this method and the IGI forecast for the third quarter of 2012 of the 10-year moving average of MFP, the CY 2013 MFP factor is 0.6 percent.

d. Calculation of the ESRDB Market Basket Update, Adjusted for Multifactor Productivity for CY 2013

Under section 1881(b)(14)(F) of the Act, beginning in CY 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 follow the same methodology for calculating the ESRDB market basket updates adjusted for MFP that was finalized in the CY 2012 ESRD PPS final rule (76 FR 70234).

Thus, in accordance with section 1881(b)(14)(F)(i) of the Act, the market basket increase factor for CY 2013 for the ESRDB market basket is based on the 3rd quarter 2012 forecast of the CY 2008-based ESRDB market basketupdate, which is estimated to be 2.9 percent. This market basket percentage is then reduced by the MFP adjustment (the 10-year moving average of MFP for the period ending CY 2013) of 0.6 percent, which is based on IGI's 3rd quarter 2012 forecast. The resulting MFP-adjus