On July 8, 2011, CMS issued a proposed rule ("Proposed Rule") for the calendar year ("CY") 2012 updates to the end stage renal disease ("ESRD") prospective payment system ("PPS") and the ESRD quality incentive program ("QIP"). The changes to the ESRD payment system will become effective on January 1, 2012, while the requirements for the ESRD QIP would be effective for payment years 2013 and 2014. Comments on the Proposed Rule are due by August 30, 2011.

The Proposed Rule marks the halfway point in a four-year transition to bundled payments for certain ESRD facilities. Facilities that did not elect to be paid entirely under the new ESRD PPS receive transition blended payments. These payments are based in part (50 percent) on the previous composite payment system and items and services paid separately under Medicare Part B, and in part (50 percent) on the new ESRD PPS amount. The vast majority of dialysis facilities, approximately 92 percent, opted to receive payments entirely under the ESRD PPS starting with CY 2011.

ESRD Payment Update

CMS is proposing a 1.8 percent increase in payment rates for services provided to ESRD patients under the PPS. This reflects a 3.0 percentage point increase for inflation, less a 1.2 percentage productivity adjustment required by the Affordable Care Act. Applying the various adjustments results in a proposed base payment of $234.02 per dialysis session, up from the $229.63 in CY 2011. This rate would go into effect on January 1, 2012.

Wage Index

The Proposed Rule would update the wage index values using more recent wage data. CMS proposes to establish a wage index budget-neutrality adjustment of 1.001126 that would be applied to the ESRD PPS base rate. For the eight percent of facilities that are in the process of transitioning to ESRD PPS, CMS proposes a wage index budget-neutrality adjustment factor of 1.002096 to the wage index values.

Outlier Payments

The ESRD PPS provides for outlier payments (or, payments in addition to the bundled PPS amount) to dialysis facilities where the cost of treatment exceeds a predetermined threshold. Under the Proposed Rule, CMS would no longer issue a list of drugs that constitute ESRD outlier services, because such a list is difficult to keep current. Additionally, CMS would eliminate the "50 percent rule," under which combinations of laboratory tests — called test panels — are paid as part of the composite rate if 50 percent of the tests in the panel are composite rate tests. Under the Proposed Rule, no test panels would be considered ESRD outlier services, and such tests would be excluded from the outlier computation. Finally, certain drugs that prevent clotting during dialysis would not be a factor in whether a dialysis facility would be eligible to receive outlier payments. However, certain drugs for managing anemia would be included in the computation.

ESRD QIP

The Social Security Act requires HHS to develop an ESRD QIP that will result in payment reductions to providers of services and dialysis facilities that do not meet or exceed a total score with respect to performance standards established for certain specified measures. The law authorizes payment reductions of up to two percent of the payments otherwise made to providers and facilities for renal dialysis services furnished on or after January 1, 2012. The initial ESRD QIP, which affects payments in 2012 includes standards for two anemia management measures and one measure of dialysis adequacy. The Proposed Rule would change the performance measures for payment year 2013 by retiring the hemoglobin level less than 10g/dL measure from the measure set (based on changes in scientific evidence), and equally weighting the two remaining measures (hemoglobin levels greater than 12g/dL and the hemodialysis adequacy measure). For 2014 payment determination, CMS would retain the anemia management measure (hemoglobin level greater than 12g/dL) and adopt seven new measures, four of which are additional clinical measures and three of which are quality of care measures, bringing to eight the total measures for payment determinations in 2014.

Low Volume Facilities

The Proposed Rule clarifies that, as used in connection with determining whether a facility qualifies for a low volume adjustment, the term ‘‘payment year’’ is the period of time used for determining payment to ESRD facilities, which is a calendar year, and the term "eligibility years" means the three years preceding the payment year, based on cost reporting years. For CY 2012 and beyond, CMS would establish a process for an ESRD facility to follow when submitting its attestation to notify its FI/MAC that it is eligible for the low-volume payment adjustment. CMS explains that the attestation is required because (1) the ESRD facility’s cost reporting periods vary and may not be based on the calendar year; and (2) the cost reports are due five months after the close of the cost reporting period (that is, there is a lag in the cost reporting submission). Consequently, the FI/MACs may not have the cost report for the third year to determine eligibility and thus would need to rely on the attestation for that year. Under the Proposed Rule, 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 1 of each year. This timeframe provides 60 days for an FI/MAC to verify the cost report information and update the systems.