Medicare Program; CY 2027 Changes to the End-Stage Renal Disease (ESRD) Prospective Payment System, Acute Kidney Injury Dialysis (AKI) Payment, and ESRD Quality Incentive Program

DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Part 413 [CMS-1846-P] RIN 0938-AV81 Medicare Program; CY 2027 Changes to the End-Stage Renal Disease (ESRD) Prospective Payment System, Acute Kidney Injury Dialysis (AKI) Payment, and ESRD Quality Incentive Program AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of Health and Human Services (HHS). ACTION: Proposed rule. SUMMARY: This proposed rule would update and revise the End-Stage Renal Disease (ESRD) Prospective Payment System for calendar year 2027. This rule also proposes to update the payment rate for renal dialysis services furnished by an ESRD facility to individuals with acute kidney injury. In addition, this rule proposes to update the requirements for the ESRD Quality Incentive Program. DATES: To be assured consideration, comments must be received at one of the addresses provided below, by August 24, 2026. ADDRESSES: In commenting, please refer to file code CMS-1846-P. Comments, including mass comment submissions, must be submitted in one of the following three ways (please choose only one of the ways listed): 1. Electronically. You may submit electronic comments on this regulation to https://www.regulations.gov/docket/CMS-2026-2245. Follow the “Submit a comment” instructions. 2. By regular mail. You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1846-P, P.O. Box 8010, Baltimore, MD 21244-8010. Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. By express or overnight mail. You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1846-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section. FOR FURTHER INFORMATION CONTACT: ESRDPayment@cms.hhs.gov or Abigail Ryan (410) 786-4343, for issues related to the ESRD Prospective Payment System (PPS) and coverage and payment for renal dialysis services furnished to individuals with acute kidney injury (AKI). ESRDApplications@cms.hhs.gov, for issues related to applications for the Transitional Drug Add-on Payment Adjustment (TDAPA) or Transitional Add-On Payment Adjustment for New and Innovative Equipment and Supplies (TPNIES). QNETSUPPORT-ESRD@cms.hhs.gov, for issues related to the ESRD Quality Incentive Program (QIP). SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following website as soon as possible after they have been received: https://www.regulations.gov. Follow the search instructions on that website to view public comments. CMS will not post on Regulations.gov public comments that make threats to individuals or institutions or suggest that the commenter will take actions to harm an individual. CMS continues to encourage individuals not to submit duplicative comments. We will post acceptable comments from multiple unique commenters even if the content is identical or nearly identical to other comments. Plain Language Summary: In accordance with 5 U.S.C. 553(b)(4), a plain language summary of this rule may be found at https://www.regulations.gov/. Current Procedural Terminology (CPT) Copyright Notice: Throughout this proposed rule, we use CPT® codes and descriptions to refer to a variety of services. We note that CPT® codes and descriptions are copyright 2020 American Medical Association (AMA). All Rights Reserved. CPT® is a registered trademark of the AMA. Applicable Federal Acquisition Regulations (FAR) and Defense Federal Acquisition Regulations (DFAR) apply. I. Executive Summary A. Purpose This rule proposes changes related to the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) and payment for renal dialysis services furnished to individuals with acute kidney injury (AKI). This rule also proposes to update requirements for the ESRD Quality Incentive Program (QIP). 1. End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) On January 1, 2011, we implemented the ESRD PPS, a case-mix adjusted, bundled PPS for renal dialysis services furnished by ESRD facilities as required by 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). Section 1881(b)(14)(F) of the Act, as added by section 153(b) of MIPPA, and amended by section 3401(h) of the Patient Protection and Affordable Care Act (the Affordable Care Act) (Pub. L. 111-148), established that beginning calendar year (CY) 2012, and each subsequent year, the Secretary of the Department of Health and Human Services (the Secretary) shall annually increase payment amounts by an ESRD market basket percentage increase, reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. This rule proposes updates to the ESRD PPS for CY 2027, including a routine proposal to rebase and revise the ESRD Bundled (ESRDB) market basket. This rule also proposes to modify the ESRD PPS base rate to reflect the incorporation of phosphate binders  1 into the ESRD PPS bundled payment and to make budget neutral changes to certain ESRD PPS payment adjustments, including proposed changes to the case mix adjusters for pediatric ESRD patients, changes to the low-volume payment adjustment (LVPA), and modifications to the TDAPA and post-TDAPA add-on payment adjustment. 1  We note that all currently available phosphate binders are oral. Throughout this rule, we use the term “oral phosphate binders” when specifically discussing these drugs in certain contexts, such as the TDAPA or historical payment policies. The proposed CY 2027 ESRD PPS base rate increase would encompass all current and future phosphate binders, including a hypothetical future injectable phosphate binder or other form of administration. 2. Coverage and Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury (AKI) On June 29, 2015, the President signed the Trade Preferences Extension Act of 2015 (TPEA) (Pub. L. 114-27). Section 808(a) of the TPEA amended section 1861(s)(2)(F) of the Act to provide coverage for renal dialysis services furnished on or after January 1, 2017, by a renal dialysis facility or a provider of services paid under section 1881(b)(14) of the Act to an individual with AKI. Section 808(b) of the TPEA amended section 1834 of the Act by adding a new subsection (r) that provides for payment for renal dialysis services furnished by renal dialysis facilities or providers of services paid under section 1881(b)(14) of the Act to individuals with AKI at the ESRD PPS base rate beginning January 1, 2017. This rule proposes updates to the AKI dialysis payment rate for CY 2027. The AKI dialysis payment rate update would be indirectly affected by the proposed rebasing and revision of the ESRDB market basket under the ESRD PPS because the AKI dialysis payment rate is the ESRD PPS base rate, which is annually updated by the ESRDB market basket percentage increase factor minus a productivity adjustment, adjusted by the wage index. The proposed change to the ESRD PPS case mix adjusters for pediatric ESRD patients, the proposed expansion of the LVPA, and the proposed technical changes to the TDAPA and post-TDAPA add-on payment adjustment would not directly affect the CY 2027 AKI dialysis payment rate update. 3. End-Stage Renal Disease Quality Incentive Program (ESRD QIP) The ESRD QIP is authorized by section 1881(h) of the Act. The Program establishes incentives for facilities to achieve high quality performance on measures with the goal of improving outcomes for ESRD beneficiaries. This proposed rule proposes the following changes to the ESRD QIP measure set beginning with PY 2029: replace the Hypercalcemia reporting measure with the Facility-Level Percentage of Chronic Hyperphosphatemia in Dialysis Patients (Hyperphosphatemia) clinical measure, update the National Healthcare Safety Network Bloodstream Infection (NHSN BSI) clinical measure, remove the Medication Reconciliation (MedRec) reporting measure, and remove the COVID-19 Vaccination Coverage Among Healthcare Personnel (HCP) reporting measure. Finally, this proposed rule requests public comment on the inclusion of the Dialysis Facility Discussion of Patient Life Goals (D-PaLS) Patient-Reported Outcome Performance Measure (PRO-PM) in the ESRD QIP. 4. Requests for Information (RFIs) on Advancing Dialysis Care This proposed rule includes RFIs to solicit public input to inform potential future policy development related to increasing home dialysis uptake, improving palliative dialysis, and supporting alternative dialysis schedules. We seek to better understand how Medicare payment policy may support care for ESRD beneficiaries while maintaining the integrity of existing prospective payment systems, including the ESRD PPS, AKI dialysis payment, the Hospice benefit (section 1814(i) of the Act), and the Home Health PPS (section 1895 of the Act). B. Summary of the Major Provisions 1. ESRD PPS • Proposed rebasing and revising of the End-Stage Renal Disease Bundled (ESRDB) market basket for CY 2027: We are proposing to rebase and revise the ESRDB market basket to a 2024 base year, reflecting the most recent and complete set of Medicare cost report data as well as other publicly available data. In addition, we are proposing to update the labor-related share of the ESRD PPS base rate to reflect the proposed 2024 base year labor-related cost share weights designated in the ESRDB market basket. • Proposed update to the ESRD PPS base rate for CY 2027: The proposed CY 2027 ESRD PPS base rate is $299.55, an increase from the CY 2026 ESRD PPS base rate of $281.71. This proposed amount reflects the application of the proposed wage index budget neutrality adjustment factor (1.00267), the proposed addition to the base rate of $15.96 to include phosphate binders, the budget neutrality factor for the proposed budget neutral changes to several payment adjustments (0.98783), and a proposed ESRDB market basket update of 1.6 percent as required by section 1881(b)(14)(F)(i)(I) of the Act, equaling $299.55 ((($281.71 + $15.96) × 1.00267 × 0.98783) × 1.016 = $299.55). • Proposed annual update to the wage index: We adjust the ESRD PPS wage index on an annual basis using the most current mean hourly wage data for occupations related to the furnishing of renal dialysis services from the Bureau of Labor Statistics (BLS) Occupational Employment and Wage Statistics (OEWS) program and occupational mix data from the most recent full CY of freestanding ESRD facility Medicare cost reports. This wage index uses the latest core-based statistical area (CBSA) delineations to account for differing wage levels in areas in which ESRD facilities are located. For CY 2027, we are proposing to update the wage index based on this methodology and the latest available data. • Proposed annual update to the outlier policy: We are proposing to update the outlier policy based on the most current data and established methodology. Accordingly, we are proposing to update the Medicare allowable payment (MAP) amounts for adult and pediatric patients for CY 2027 using the latest available CY 2025 claims data. We are proposing to update the ESRD outlier services fixed dollar loss (FDL) amount for pediatric patients using the latest available CY 2025 claims data and update the FDL amount for adult patients using the latest available claims data from CY 2023, CY 2024, and CY 2025. For pediatric beneficiaries, the FDL amount would increase from $162.43 to $206.43, and the MAP amount would increase from $50.19 to $60.86, as compared to CY 2026 values. For adult beneficiaries, the FDL amount would increase from $14.80 to $114.98, and the MAP amount would increase from $23.68 to $41.28, as compared to CY 2026 values. The 1.0 percent target for outlier payments was not achieved in CY 2025, as outlier payments represented approximately 0.9 percent of total Medicare payments. Our current estimates indicate outlier payments are above the 1.0 percent target for CY 2026, which also reflects the underlying utilization and cost trends that are contributing to increases in the MAP and FDL amounts. • Proposed update to the offset amount for the transitional add-on payment adjustment for new and innovative equipment and supplies (TPNIES) for CY 2027: The proposed CY 2027 average per treatment offset amount for the TPNIES for capital-related assets that are home dialysis machines is $10.60. This proposed offset amount reflects the application of the proposed ESRDB market basket update of 1.6 percent ($10.43 × 1.016 = $10.60). There are no capital-related assets set to receive the TPNIES in CY 2027 for which this offset would apply. • Proposed update to the post-TDAPA add-on payment adjustment amounts: We calculate the post-TDAPA add-on payment adjustment in accordance with 42 CFR 413.234(g). We are proposing modifications to the post-TDAPA add-on payment adjustment to calculate the adjustment quarterly and publish the post-TDAPA add-on payment adjustment amount via Change Request (CR). The estimated post-TDAPA add-on payment adjustment amount for Korsuva® is $0.1068 per treatment, which would be included in the calculation of the total post-TDAPA add-on payment adjustment for only the first quarter of CY 2027. Accordingly, for the first quarter of CY 2027, this amount would be incorporated into ESRD PPS payments for all dialysis treatments and adjusted by applicable patient-level adjustment factors. The estimated post-TDAPA add-on payment adjustment amount for DefenCath® is $5.5951 per treatment, which would be included in the calculation for each quarter of CY 2027. The estimated post-TDAPA add-on payment adjustment amount for Vafseo® is $0.9437 per treatment, which would be included in the calculation for each quarter of CY 2027. We would finalize the post-TDAPA add-on payment adjustment amounts for each of these drugs, conditional on the continued receipt of ASP data, in the final rule. Should the proposal to update the post-TDAPA add-on payment adjustment amounts quarterly be finalized, we would only finalize the post-TDAPA add-on payment adjustment amount for the first quarter of CY 2027 in that final rule and would publish the amounts for the other quarters in CRs published after that final rule. The final post-TDAPA add-on payment adjustment amount for a given quarter would be added to ESRD PPS payments for all dialysis treatments furnished during that quarter and would be adjusted by applicable patient level adjustment factors. • Proposed incorporation of phosphate binders into the base rate: We are proposing to incorporate phosphate binders into the ESRD PPS base rate at the end of the TDAPA period for the drugs, for CY 2027 and beyond. We are proposing to increase the ESRD PPS base rate by $15.96. This proposed amount would include an increase to account for operational costs, as discussed in section II.B.7. of this proposed rule. • Proposed expansion of the LVPA: We are proposing to expand the LVPA to ESRD facilities which furnish up to 8,000 treatments per year. We are proposing to make payments based on 6 tiers of volume. We are proposing that this change be budget neutral with a budget neutrality factor of 0.98898. • Proposed modifications to certain adjustments for pediatric ESRD patients: We are proposing to modify the case mix adjusters for pediatric ESRD patients. Additionally, we are proposing to allow ESRD facilities to receive the LVPA for pediatric ESRD patients. These proposals coincide with the end of the Transitional Pediatric ESRD Add-on Payment Adjustment (TPEAPA) as of December 31, 2026. We are proposing permanent policies to address payment for pediatric ESRD patients after the temporary increase through TPEAPA is no longer available. • Proposed modifications to the home and self-dialysis training add-on: We are proposing to increase the home and self-dialysis training add-on payment adjustment to $138.22 from the current amount of $95.60. We are also proposing to allow training sessions during the onset period (the first 120 days of ESRD dialysis). For the reasons discussed in section II.B.10. of this proposed rule, we are proposing that this change be budget neutral with a budget neutrality factor of 0.99884. • Proposed modifications to the TDAPA and post-TDAPA add-on payment adjustment: We are proposing that, when Average Sales Price (ASP) data is not usable because ASP is zero or negative, we would use the most recent usable quarter of ASP data, if available, as the basis for the TDAPA and the post-TDAPA add-on payment adjustment. 2. Payment for Renal Dialysis Services Furnished to Individuals With AKI • Proposed update to the dialysis payment rate for individuals with AKI: We are proposing to update the AKI dialysis payment rate for CY 2027. The proposed CY 2027 payment rate is $299.55, which is the same as the proposed CY 2027 ESRD PPS base rate. 3. ESRD QIP We are proposing to replace the Hypercalcemia reporting measure with the Hyperphosphatemia clinical measure beginning with PY 2029. Beginning with PY 2029, we are proposing to update the NHSN BSI clinical measure to use the most recently available national baseline data and to update the risk adjustment methodology. We are proposing to remove the MedRec reporting measure and the COVID-19 Vaccination Coverage Among HCP reporting measure from the ESRD QIP measure set beginning with PY 2029. We are also including an RFI on the potential inclusion of the Dialysis Facility Discussion of Patient Life Goals Patient-Reported Outcome Performance measure (D-PaLS PRO-PM) in the ESRD QIP. 4. RFIs on Advancing Dialysis Care These RFIs solicit comments on increasing home dialysis uptake, improving palliative dialysis care, and supporting alternative dialysis schedules. C. Summary of Costs and Transfers In section VIII.C.5. of this proposed rule, we set forth a detailed analysis of the impacts that the proposed changes would have on affected entities and beneficiaries. Table 1 summarizes the impacts of each proposed change in this proposed rule. EP26JN26.016 1. Impacts of the Proposed Updates to the ESRD PPS The impact table in section VIII.C.5.a. of this proposed rule displays the estimated change in Medicare payments to ESRD facilities in CY 2027 compared to estimated Medicare payments in CY 2026. The overall impact of the proposed CY 2027 payment changes is projected to be a 1.1 percent increase in Medicare payments. Hospital-based ESRD facilities would have an estimated 2.0 percent increase in Medicare payments compared with freestanding ESRD facilities with an estimated 1.1 percent increase. We estimate that the aggregate Medicare program payments under the ESRD PPS would increase by approximately $70 million in CY 2027 compared to CY 2026 because of the proposed payment policies in this rule. Because of the projected 1.1 percent overall payment increase, we estimate there would be an increase in beneficiary coinsurance payments of 1.1 percent in CY 2027, which translates to approximately $20 million. This overall $90 million estimated increase, or 1.1 percent, includes the estimated impact of the proposed ESRD PPS market basket update of 1.6 percent ($130 million), as well as the estimated changes in payments associated with several proposed changes that are expected between CY 2026 and 2027. First, as discussed in section II.B.3.b. of this proposed rule, we estimate that outlier payments in CY 2026 will be approximately 3.0 percent of total ESRD PPS payments. Accordingly, the proposed increases to the FDL and MAP amounts for CY 2027 are projected to reduce ESRD PPS payments by approximately 1.9 percent ($150 million). At the same time, we estimate that approximately $430 million will be paid through the TDAPA for DefenCath®, Vafseo®, and phosphate binders in CY 2026. The end of the TDAPA periods for these drugs is projected to result in a corresponding decrease to CY 2027 payments of $430 million (5.5 percent), which is offset by the proposed 5.3 percent increase to the ESRD PPS base rate for phosphate binders and the estimated 2.0 percent increase in payments under the post-TDAPA add-on payment adjustment in CY 2027. The net difference between estimated CY 2026 TDAPA payments and estimated CY 2027 payments through the post-TDAPA add-on payment adjustment and the ESRD PPS base rate, including the incorporation of phosphate binders, is a 1.5 percent increase in payments to ESRD facilities. For CY 2027, we estimate total payments associated with the post-TDAPA add-on payment adjustment would be approximately $170 million. Section 1881(b)(14)(D)(iv) of the Act provides that the ESRD PPS may include such other payment adjustments as the Secretary determines appropriate. Under this authority, CMS implemented § 413.234(c) to establish the TDAPA, a transitional drug add-on payment adjustment for certain new renal dialysis drugs and biological products; § 413.236 to establish the TPNIES, a transitional add-on payment adjustment for certain new and innovative equipment and supplies; and § 413.234(g) to establish the post-TDAPA add-on payment adjustment. The TDAPA, the TPNIES, and the post-TDAPA add-on payment adjustment are not budget neutral. As discussed in section II.D. of this proposed rule, there will be no new or continuing TPNIES payments for CY 2027. As discussed in section II.E. of this proposed rule, there are currently no continuing TDAPA payments in CY 2027. 2. Impacts of the Proposed Payment Rate for Renal Dialysis Services Furnished to Individuals With AKI The impact table in section VIII.C.5.c. of this proposed rule displays the estimated change in Medicare payments to ESRD facilities for renal dialysis services furnished to individuals with AKI for CY 2027 compared to estimated Medicare payments for such services in CY 2026. The overall impact of the proposed CY 2027 changes is projected to be a 6.0 percent increase in Medicare payments for individuals with AKI. Hospital-based ESRD facilities would have an estimated 5.9 percent increase in Medicare payments compared with freestanding ESRD facilities that would have an estimated 6.0 percent increase. The overall impact reflects the effects of the proposed Medicare ESRD PPS payment rate update and the proposed CY 2027 ESRD PPS wage index and proposed labor related share of 63.5 percent. We estimate that the aggregate Medicare payments made to ESRD facilities for renal dialysis services furnished to individuals with AKI, at the proposed CY 2027 ESRD PPS base rate, would increase by approximately $5 million in CY 2027 compared to CY 2026. 3. Impacts of the PY 2029 ESRD QIP We estimate that, as a result of previously finalized policies and changes to the ESRD QIP that we are proposing, the overall economic impact of the PY 2029 ESRD QIP would be approximately $125.4 million. The $125.4 million estimate for PY 2029 includes $102.1 million in costs associated with the collection of information requirements and approximately $23.3 million in payment reductions across all facilities. 4. RFIs on Advancing Dialysis Care These RFIs do not propose any policy changes and therefore do not have a direct economic impact under Executive Order 12866. II. Calendar Year (CY) 2027 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) A. Background 1. Statutory Background On January 1, 2011, CMS implemented the ESRD PPS, a case-mix adjusted bundled PPS for renal dialysis services furnished by ESRD facilities, as required by section 1881(b)(14) of the Act, as added by section 153(b) of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275). Section 1881(b)(14)(F) of the Act, as added by section 153(b) of MIPPA and amended by section 3401(h) of the Patient Protection and Affordable Care Act (Affordable Care Act) (Pub. L. 111-148), established that beginning with CY 2012, and each subsequent year, the Secretary shall annually increase payment amounts by an ESRD market basket percentage increase reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. Section 632 of the American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240) included several provisions that apply to the ESRD PPS. Section 632(a) of ATRA added section 1881(b)(14)(I) to the Act, which required the Secretary, by comparing per patient utilization data from 2007 with such data from 2012, to reduce the single payment for renal dialysis services furnished on or after January 1, 2014, to reflect the Secretary's estimate of the change in the utilization of ESRD-related drugs and biologicals  2 (excluding oral-only ESRD-related drugs). Consistent with this requirement, in the CY 2014 ESRD PPS final rule, we finalized $29.93 as the total drug utilization reduction and finalized a policy to implement the amount over a 3- to 4-year transition period (78 FR 72161 through 72170). 2  As discussed in the CY 2019 ESRD PPS final rule (83 FR 56922), we began using the term “biological products” instead of “biologicals” under the ESRD PPS to be consistent with FDA nomenclature. We use the term “biological products” in this proposed rule except when referencing specific language in the Act or regulations. Section 632(b) of ATRA prohibited the Secretary from paying for oral-only ESRD-related drugs and biologicals under the ESRD PPS prior to January 1, 2016. Section 632(c) of ATRA required the Secretary, by no later than January 1, 2016, to analyze the case-mix payment adjustments under section 1881(b)(14)(D)(i) of the Act and make appropriate revisions to those adjustments. On April 1, 2014, the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. 113-93) was enacted. Section 217 of PAMA included several provisions that apply to the ESRD PPS. Specifically, sections 217(b)(1) and (2) of PAMA amended sections 1881(b)(14)(F) and (I) of the Act and replaced the drug utilization adjustment that was finalized in the CY 2014 ESRD PPS final rule (78 FR 72161 through 72170) with specific provisions that dictated the market basket update for CY 2015 (0.0 percent) and how the market basket percentage increase should be reduced in CY 2016 through CY 2018. Section 217(a)(1) of PAMA amended section 632(b)(1) of ATRA to provide that the Secretary may not pay for oral-only ESRD-related drugs under the ESRD PPS prior to January 1, 2024. Section 217(a)(2) of PAMA further amended section 632(b)(1) of ATRA by requiring that in establishing payment for oral-only drugs under the ESRD PPS, the Secretary must use data from the most recent year available. Section 217(c) of PAMA provided that as part of the CY 2016 ESRD PPS rulemaking, the Secretary shall establish a process for (1) determining when a product is no longer an oral-only drug; and (2) including new injectable and intravenous products into the ESRD PPS bundled payment. Section 204 of the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE) (Pub. L. 113-295) amended section 632(b)(1) of ATRA, as amended by section 217(a)(1) of PAMA, to provide that payment for oral-only renal dialysis drugs and biological products cannot be made under the ESRD PPS bundled payment prior to January 1, 2025. Effective January 1, 2025, all oral-only renal dialysis drugs and biological products are paid for under the ESRD PPS. 2. System for Payment of Renal Dialysis Services Under the ESRD PPS, a single per-treatment payment is made to an ESRD facility for all the renal dialysis services defined in section 1881(b)(14)(B) of the Act and furnished to an individual for the treatment of ESRD in the ESRD facility or in a patient's home. We have codified our definition of renal dialysis services at § 413.171, which is in 42 CFR part 413, subpart H, along with other ESRD PPS payment policies. The ESRD PPS base rate is adjusted for characteristics of both adult and pediatric patients and accounts for patient case-mix variability. The adult case-mix adjusters include five categories of age, body surface area, low body mass index, onset of dialysis, and four comorbidity categories (that is, pericarditis, gastrointestinal tract bleeding, hereditary hemolytic or sickle cell anemia, and myelodysplastic syndrome). A different set of case-mix adjusters are applied for the pediatric population. Pediatric patient-level adjusters include two age categories (under age 13, or age 13 to 17) and two dialysis modalities (that is, peritoneal dialysis (PD) or hemodialysis (HD) (§ 413.235(a) and (b)(1)). The ESRD PPS provides four facility-level adjustments. The first payment adjustment reflects differences in area wage levels developed from core-based statistical areas (CBSAs) (§ 413.231). The second payment adjustment, the low volume payment adjustment (LVPA), accounts for ESRD facilities furnishing a low volume of dialysis treatments, with two tiers such that smaller low-volume facilities receive a higher payment adjustment (§ 413.232). The third payment adjustment accounts for ESRD facilities furnishing renal dialysis services in a rural area (§ 413.233(a)). The fourth payment adjustment, the non-contiguous areas payment adjustment (NAPA), accounts for non-labor costs for ESRD facilities in certain non-contiguous areas of the U.S. (§ 413.233(b)). There are six additional payment adjustments under the ESRD PPS. The ESRD PPS provides adjustments, when applicable, for: (1) a training add-on for home and self-dialysis modalities (§ 413.235(c)); (2) an additional payment for high cost outliers due to unusual variations in the type or amount of medically necessary care (§ 413.237); (3) a TDAPA for certain new renal dialysis drugs and biological products (§ 413.234(c)); (4) a TPNIES for certain new and innovative renal dialysis equipment and supplies (§ 413.236(d)); (5) a transitional pediatric ESRD add-on payment adjustment (TPEAPA) of 30 percent of the per-treatment payment amount for renal dialysis services furnished to pediatric ESRD patients for CYs 2024 through 2026 (§ 413.235(b)(2));  3 and (6) a post-TDAPA add-on payment adjustment for certain new renal dialysis drugs and biological products after the end of the TDAPA period (§ 413.234(g)). 3  As the TPEAPA only applies for CYs 2024, 2025, and 2026, it will not apply for the CY 2027 payment year. 3. Updates to the ESRD PPS Policy changes to the ESRD PPS are proposed and finalized annually in the Federal Register . The CY 2011 ESRD PPS final rule appeared in the August 12, 2010, issue of the Federal Register (75 FR 49030 through 49214). That rule implemented the ESRD PPS beginning on January 1, 2011, in accordance with section 1881(b)(14) of the Act, as added by section 153(b) of MIPPA, over a 4-year transition period. Since the implementation of the ESRD PPS, we have published annual rules to make routine updates, policy changes, and clarifications. Most recently, we published a final rule, which appeared in the November 24, 2025, issue of the Federal Register , titled “Medicare Program; End-Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis Services Furnished to Individuals with Acute Kidney Injury, and End-Stage Renal Disease Quality Incentive Program, and End-Stage Renal Disease Treatment Choices Model,” referred to herein as the “CY 2026 ESRD PPS final rule.” In that rule (90 FR 53068 through 53142), we updated the ESRD PPS base rate, wage index, and outlier policy for CY 2026. This rule also finalized modifications to the eligibility timeframe for the TDAPA and established a new payment adjustment for ESRD facilities in certain non-contiguous areas, the NAPA. For further detailed information regarding the CY 2026 updates and policy changes, see 90 FR 53068. B. Proposed Provisions of the CY 2027 ESRD PPS Update 1. Proposed Rebasing and Revising of the ESRD Bundled (ESRDB) Market Basket; and Proposed CY 2027 Market Basket Percentage Increase, Productivity Adjustment, and Labor-Related Share (LRS) a. 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 PPS payment amounts are required to be annually increased by an ESRD market basket increase factor and reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. The application of the productivity adjustment 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. Section 1881(b)(14)(F)(i) of the Act also provides that the market basket increase factor should reflect the changes over time in the prices of an appropriate mix of goods and services included in renal dialysis services. As required under section 1881(b)(14)(F)(i) of the Act, CMS developed an all-inclusive ESRD Bundled (ESRDB) input price index using CY 2008 as the base year effective for CY 2012 (75 FR 49151 through 49162). We subsequently rebased and revised the ESRDB input price index to a base year of CY 2012 in the CY 2015 ESRD PPS final rule (79 FR 66129 through 66136), and to a base year of CY 2016 in the CY 2019 ESRD PPS final rule (83 FR 56951 through 56964). In the CY 2023 ESRD PPS final rule (87 FR 67141 through 67157), we finalized a rebased ESRDB input price index to reflect a CY 2020 base year. Effective for CY 2027, we are proposing to rebase and revise the ESRDB market basket to a 2024 base year. The ESRDB market basket is a fixed-weight, Laspeyres-type price index. A Laspeyres-type price index measures the change in price, over time, of the same mix of goods and services purchased in the base period. Any changes in the quantity or mix of goods and services (that is, intensity) purchased over time are not measured. The index itself is constructed in three steps. First, a base period is selected (in this proposed rule, we propose to use 2024 as the base period) and total base period costs are estimated for a set of mutually exclusive and exhaustive spending categories, with the proportion of total costs that each category represents being calculated. These proportions are called cost weights. Second, each cost category is matched to an appropriate price or wage variable, referred to as a “price proxy.” In almost every instance, these price proxies are derived from publicly available statistical series that are published on a consistent schedule (preferably at least on a quarterly basis). Finally, the cost weight for each cost category is multiplied by the level of its respective price proxy. The sum of these products (that is, the cost weights multiplied by their price index levels) for all cost categories yields the composite index level of the market basket in a given period. Repeating this step for other periods produces a series of market basket levels over time. Dividing an index level for a given period by an index level for an earlier period produces a rate of growth in the input price index over that timeframe. As previously noted, the market basket is described as a fixed-weight index because it represents the change in price over time of a constant mix (quantity and intensity) of goods and services needed to provide renal dialysis services. The effects on total costs resulting from changes in the mix of goods and services purchased after the base period are not measured. For example, an ESRD facility hiring more staff to accommodate the needs of patients would increase the volume of goods and services purchased by the ESRD facility but would not be factored into the price change measured by a fixed-weight ESRDB market basket. Only when the index is rebased would changes in the quantity and intensity be captured, with those changes being reflected in the cost weights. Therefore, we rebase the market basket periodically so that the cost weights reflect changes between base periods in the mix of goods and services that ESRD facilities purchase to furnish ESRD treatment. We last rebased the ESRDB market basket cost weights effective for CY 2023 (87 FR 67141 through 67157), with 2020 data used as the base period for the construction of the market basket cost weights. For this CY 2027 ESRD PPS proposed rule, we propose to rebase the ESRDB market basket to reflect the 2024 cost structure for ESRD facilities and to revise applicable cost categories and price proxies used to determine the ESRDB market basket, as discussed in this proposed rule. We refer to the proposed market basket as a CY market basket because the base period for all price proxies and weights is set to CY 2024 (that is, the average index level for CY 2024 is equal to 100). The major source data for the proposed ESRDB market basket is the 2024 Medicare cost reports (Form CMS-265-11, OMB No. 0938-0236), supplemented with 2022 data from the United States (U.S.) Census Bureau's Services Annual Survey (SAS) inflated to 2024 levels and the Bureau of Economic Analysis's (BEA) 2017 Benchmark Input-Output (I-O) data, inflated to 2024. The 2022 SAS data and 2017 Benchmark I-O data are the most recent year of detailed cost data published by the Census Bureau and the BEA for North American Industry Classification System (NAICS) Code 6214: Outpatient Care Centers, which is the 4-digit industry code that Kidney Dialysis Centers are classified within. We also are proposing to use May 2024 OEWS data from BLS for NAICS 6214 to further disaggregate the Wages and Salaries and Employee Benefits cost weights into occupational categories. We provide more detail on our proposed methodology in section II.B.1.b. of this proposed rule. In the following section, we provide an overview of the proposed ESRDB market basket, describe the proposed methodologies for developing the cost weights, and provide information on the proposed price proxies. Then, we present the proposed CY 2027 market basket update and labor-related share based on the proposed 2024-based ESRDB market basket. b. Proposed Rebasing and Revising of the ESRDB Market Basket The terms “rebasing” and “revising,” while often used interchangeably, denote different activities. “Rebasing” means moving the base year for the structure of costs of an input price index (for example, in this proposed rule, we propose to shift the base year cost structure from 2020 to 2024). “Revising” means changing data sources or price proxies used in the input price index. For CY 2027, we are proposing to rebase the ESRDB market basket to reflect the 2024 cost structure of ESRD facilities and to revise the index, that is, make changes to cost categories or price proxies used in the index. We invite public comments on our proposed methodology for deriving the proposed 2024-based ESRDB market basket discussed in this section of the proposed rule. (1) Development of Cost Categories and Weights (a) Use of Medicare Cost Report Data The major source of cost data for developing the proposed rebased and revised ESRDB market basket cost weights is the 2024 Medicare cost reports. The 2024 Medicare cost reports are for those freestanding ESRD facilities whose cost reporting period began on or after October 1, 2023, and before October 1, 2024 (approximately 95 percent of freestanding ESRD facilities had a begin date on January 1, 2024, approximately 4 percent had a begin date prior to January 1, 2024, and approximately 1 percent had a begin date after January 1, 2024). Using this methodology allowed our sample to include ESRD facilities with varying cost report years including, but not limited to, the federal fiscal year (FY) or CY. We propose to use 2024 as the base year because we believe that the 2024 Medicare cost reports represent the most recent, complete set of Medicare cost report data available to develop cost weights for ESRD facilities at the time of rulemaking. We are proposing to maintain our policy of using data from freestanding ESRD facilities (which account for over 95 percent of total ESRD facilities in CY 2024) because freestanding ESRD facility data reflects only the cost structure faced by the ESRD facility itself. In contrast, cost data for hospital-based ESRD facilities reflect the allocation of overhead from the entire institution. The current set of instructions and associated forms for the Medicare cost reports for ESRD facilities (Form 265-11, OMB No. 0938-0236) can be found in Chapter 42 of the Provider Reimbursement Manual at the following website ( https://www.cms.gov/regulations-and-guidance/guidance/manuals/paper-based-manuals-items/cms021935 ). We reviewed cost data from freestanding ESRD Medicare cost reports (CMS Form 265-11, OMB No. 0938-0236) for 2024 for each facility that reported costs and payments. The major types of costs underlying the proposed 2024-based ESRDB market basket are derived from the Medicare cost reports (Form 265-11, OMB No. 0938-0236). Specifically, we propose to use the Medicare cost reports for eleven specific types of costs: Wages and Salaries; Employee Benefits; Pharmaceuticals (both Erythropoiesis Stimulating Agents (ESAs) and All Other Drugs in the ESRDB PPS bundled payment); Supplies; Laboratories; Housekeeping; Operations & Maintenance; Capital-related: Buildings and Fixtures; Capital-related: Moveable Equipment; Professional Liability Insurance; and Administrative & Other. Total Costs are defined as the sum of the eleven cost categories and associated costs identified previously. To create a market basket that is representative of ESRDB facilities and to help ensure the major cost weights accurately reflect the percentage of total costs for furnishing ESRD treatment, we propose to apply edits to remove reporting errors and outliers. Specifically, edits were applied to include only Medicare cost reports that had total costs greater than zero. Total costs as reported on the Medicare cost report include those costs reimbursable under the ESRD PPS. For example, we excluded costs related to vaccines from total expenditures since these are not paid for under the ESRD PPS. Next, to reduce potential distortions from outliers in the calculation of the individual cost weights for the major expenditure categories for each cost category, values less than the 5th percentile or greater than the 95th percentile were excluded from the major cost weight computations. The resulting 2024 data set, after removing cost reports with total costs equal to or less than zero and excluding outliers, included information from approximately 6,514 independent ESRD facilities' cost reports from an available pool of 7,297 cost reports (roughly 89 percent of the universe). This sample of ESRD facilities is representative of the national universe of providers by ownership-type (proprietary, nonprofit, and government) and by urban/rural status. Since each cost weight is determined independently, that is, the 5 percent trim is applied to each cost category, the resulting weights may not sum to 100.0. We propose normalizing the results proportionally so that the sum of each of the cost category weights will equal 100.0. A similar methodology was used to derive the major cost weights in the 2020-based ESRDB market basket. We note that for the 2024 Medicare cost reports, a discrepancy was found with most Medicare cost reports submitted by a major large dialysis organization (LDO) where the Medicare cost report field designating the facility as a chain was completed incorrectly. Worksheet S, Part II, column 1, line 19 states “Are you part of a chain organization? Enter “Y” for yes or “N” for no. If yes, complete lines 20 through 22.” Many of these facilities entered “N”; however, they provided the location of the chain organization in lines Worksheet S, Part II, lines 20 through 22, indicating that the correct response to line 19 should have been “Y”. (We note that these facilities had also indicated being part of a chain organization in their prior year's cost report.) This led to reporting of Administrative & Other net expenses that was inconsistent with the chain designation. Worksheet A-3 provides for the computation of any needed adjustments to costs applicable to services, facilities, and supplies furnished to the facility by a related organization (by common ownership or control). This worksheet is potentially completed when a facility answers `Y' to Worksheet S, Part II. These adjustments to costs are transferred to Worksheet A, column 7 (to be reflected in Worksheet A, column 8) and, therefore, would then be reflected in the Administrative & Other net expenses. To correct this misreporting, we first checked if the value reported on Worksheet A-3, Part B, column 1, line 1 was missing or 0, and whether the value reported on Worksheet A-3, Part B, column 6, line 1 was greater than zero. If these conditions were satisfied, we added the dollar ($) value of the related organization adjustment (Worksheet A-3, Part B, column 6, line 1) to the Administrative & Other cost center net expenses reported on Worksheet B, column 9, line 8.01. For any facility that didn't have a discrepancy, no adjustment was required to the Administrative & Other net expenses. (i) Wages and Salaries Costs We propose to determine Wages and Salaries costs as the sum of (1) direct patient care wages and salaries costs and (2) non-direct patient care wages and salaries costs. Direct patient care wages and salaries for 2024 are equal to the sum of costs from Worksheet B, column 4.01 (salaries for dialysis equipment technicians) and column 5 (direct patient care salaries), lines 8.01 through 17.03 (reimbursable cost centers) of the Medicare cost reports. Non-direct patient care wages and salaries are equal to the sum of all other wages and salaries costs for non-health workers, which we are proposing to derive using the following steps: Step 1: To capture the salary costs associated with non-direct patient care cost centers, we calculated salary percentages for non-direct patient care from Worksheet A of the Medicare cost reports. The estimated ratios were calculated as the ratio of salary costs (Worksheet A, columns 1 and 2) to total costs (Worksheet A, column 4). The salary percentages were calculated for seven distinct groups of cost centers: `Operations & Maintenance of Plant' combined with `Capital Related Costs-Renal Dialysis Equipment' (line 3 and 6), Housekeeping (line 4), Employee Health and Wellness (EH&W) Benefits for Direct Patient Care (line 8), Supplies (line 9 and 9.01), Laboratory (line 10), Administrative & General (line 11), and Drugs (line 12). Step 2: We then multiplied the salary percentages computed in step 1 by the total net costs for each corresponding reimbursable cost center as reported on Worksheet B. The Worksheet B totals are based on the sum of reimbursable costs reported on lines 8.01 through 17.03. For example, the salary percentage for Supplies (as measured by line 9 and 9.01 on Worksheet A) was applied to the total net costs for the Supplies cost center (the sum of costs reported on Worksheet B, column 7, lines 8.01 through 17.03). We complete this calculation for each of the seven groups of cost centers listed in step 1. Step 3: The estimated wages and salaries for each of the non-direct patient cost centers in step 2 were summed and then added to the direct patient care wages and salaries costs to calculate total Wages and Salaries costs. (ii) Employee Benefits Costs We propose to determine the Employee Benefits costs as the sum of direct patient care EH&W benefits (which we will refer to as direct patient care employee benefit costs) and estimated non-direct patient care employee benefit costs. Direct patient care employee benefit costs are reported on Worksheet B, column 6, lines 8.01 through 17.03 of the Medicare cost reports. Non-direct patient care employee benefit costs are not reported separately but are included in Worksheet A, column 3 (“Other”). We propose to derive the non-direct patient care benefit costs using the following steps: Step 1: We calculated the ratio of direct patient care employee benefit costs to direct patient care salaries for each facility. This ratio is calculated as direct patient care employee benefit costs (Worksheet B, column 6, lines 8.01 through 17.03) divided by the direct patient care wages and salaries costs (Worksheet B, columns 4.01 and 5, lines 8.01 through 17.03). Step 2: We estimate total salaries for all non-direct patient care cost centers except Administrative & Other. This would be the sum of direct patient care salaries plus estimated salaries for the non-direct patient care cost centers: EH&W benefits, pharmaceuticals, supplies, laboratory, housekeeping, and operation and maintenance of plant and equipment. Step 3: To determine estimated non-direct patient care employee benefit costs for all cost centers other than Administrative & Other we multiply the costs from step 2 by the ratio determined in step 1. Step 4: To calculate the employee benefit costs for Administrative & Other cost centers, we first estimate adjusted Administrative & Other costs by subtracting Professional Liability Insurance costs,