CMS Issues ESRD Prospective Payment System Final Rule for 2023

Rule Addresses Rate Increases, Outlier, Add-On and ETC Model Payments, Oral-Only Drugs and QIP Reporting

November 7, 2022

On Oct. 31, 2022, the Centers for Medicare & Medicaid Services issued a final rule implementing an increase in payments to End-Stage Renal Disease (ESRD) facilities in calendar year 2023. The ESRD Prospective Payment System (PPS) final rule also revises outlier policies, the definition of “oral-only drug,” certain ESRD Quality Incentive Program (QIP) requirements and aspects of the ESRD Treatment Choices model.

The 2023 final rule continues 2022 final rule trends by increasing ESRD PPS base rates, decreasing fixed-dollar loss (FDL) amounts and suspending QIP data metrics due to the COVID-19 pandemic.

Pursuant to the final rule, the CY 2022 ESRD PPS base rate of $257.90 will increase by $7.67 to $265.57 in CY 2023. Similarly, the CY 2022 base rate of $257.90 for acute kidney injury patients will increase by $7.67 to $265.57 in CY 2023. Based on these upward adjustments, CMS projects that payments to hospital-based ESRD facilities and freestanding facilities will increase by 3.1% and 3% respectively, from CY 2022 to CY 2023, and total disbursements in 2023 will equal approximately $7.9 billion to 7,800 ESRD facilities.

While these adjustments increase payments to ESRD facilities, the final rule did not satisfactorily address concerns raised by many industry participants regarding significant increases in wage costs. The final rule increases the wage index floor from .5 to .6 and institutes a 5% permanent cap on any ESRD facility’s wage index decrease from its wage index in the prior year, but did not adopt changes to the calculation methodology for the wage index, which many ESRD facilities believe are necessary to account for actual changes to labor costs. The wage index is applied to the labor-related share of the base rate (55.2% of the base rate for 2023) and is calculated based on historical hospital cost report wage data in the area of an ESRD facility. Accordingly, changes to the wage index lag behind actual labor cost changes and do not account for differences in labor costs between ESRD facilities and hospitals.

In addition, the FDL amount for pediatric beneficiaries will decrease from $26.02 to $23.29 while the FDL amount for adult beneficiaries will decrease from $75.39 to $73.19. The FDL amount is added to a patient’s predicted Medicare allowable payment to create a benchmark that is compared to a patient’s actual imputed Medicare allowable payment (e.g., a measure of incurred dialysis costs eligible for outlier treatment) to determine whether a facility is eligible for an outlier payment, i.e., a payment to cover excess costs incurred by a facility. Accordingly, these FDL reductions will result in increased outlier payments. For several years, outlier payments have comprised less than CMS’ target of 1% of all ESRD payments. CMS is updating its methodology for calculating the adult FDL amount with the goal of reaching the 1% target. In CY 2021, outlier payments represented only 0.5% of total payments.

Starting Jan. 1, 2025, the scheduled date for when renal dialysis oral-only drugs will be covered by the ESRD PPS, an “oral-only drug” will be defined as “a drug or biological product with no injectable functional equivalent or other form of administration other than an oral form.” CMS added the word “functional” to the definition at 42 C.F.R. § 413.234(a) to, among other purposes, ensure that new oral-only drugs will be covered under the ESRD PPS bundled payment. CMS believes that the definition change will promote access to these drugs for ESRD patients that lack Medicare Part D coverage by ensuring that these drugs are properly incorporated into the ESRD PPS rather than remaining reimbursable under Medicare Part D. Once incorporated into the ESRD PPS, oral-only drugs will also be eligible for outlier payments if they were or would have been covered under Medicare Part D prior to Jan. 1, 2011.

CMS also addressed three product applications that were submitted under the Transitional Add-on-Payment Adjustment for New and Innovative Equipment and Supplies (TPNIES) Program for CY 2023. ESRD facilities that furnish products covered under TPNIES receive an add-on payment adjustment to facilitate beneficiary access to the products. CMS determined that all three products did not meet the new and innovative eligibility criteria for the program. This included a post-dialysis compression sleeve, a single-use dialyzer that removes harmful proteins during hemodialysis and a drainage system that monitors dialysate effluent during peritoneal dialysis treatments.

With regard to ESRD QIP changes, CMS will suspend some measurement data for scoring and payment adjustment purposes in payment year 2023 due to data validity concerns caused by the COVID-19 pandemic. Suspended measures will include the Percentage of Prevalent Patients Waitlisted (PPPW), Standardized Hospitalization Ratio and Standardized Readmission Ratio. However, CMS will still provide confidential QIP feedback reports to ESRD facilities while publicly reporting ESRD QIP data. Ultimately, CMS will use PY 2019 data to calculate PY 2023 performance standards, again due to data accuracy concerns resulting from COVID-19.

The ESRD PPS final rule closes with updates to the ESRD Treatment Choices (ETC) model. Notably, the rule will not limit billing for kidney disease patient education services to ETC participant clinical staff. Furthermore, in CY 2023, an ETC participant’s aggregation group must have a home dialysis rate or a transplant rate greater than zero to obtain an achievement score for the rate. Higher achievement scores give ETC participants a positive adjustment to dialysis and dialysis-related Medicare payments.

Additional details on the final rule, such as finalized ESRD policies for PY 2025 and 2026 and discussions regarding quality indicators for home dialysis patients, can be found in the CMS ESRD PPS Final Rule and Fact Sheet.