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Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Proposed Rules c. Adjustments
G. Modifying the ESRD PPS and Hospital Cost Reports 1. Special Audit Adjustment Summary a. Background Throughout the years, we have received comments about updating the Medicare Renal Cost Reports CMSForm-26511. Data from the Medicare Renal Cost Reports is received by the Hospital Cost Report Information System HCRIS. Stakeholders have asserted that the cost reports need more granularity to align resource use with payment. In addition, section 217e of PAMA mandated an audit of Medicare cost reports beginning during 2012 for a representative sample of providers of services and renal dialysis facilities furnishing renal dialysis services. The following discusses CMSs audit process and findings.
Organizations that consist of multiple ESRD facilities or business entities may have Home Offices that furnish central management and administrative services for example, centralized accounting, purchasing, personnel services, and management to other organizations within the chain. To the extent that the Home Office furnishes services related to patient care to a provider, the reasonable costs of such services are included in the ESRD
facilitys cost report and are reimbursable as part of the ESRD
facilitys costs. The CMS Office of the Actuary OACT selected a sample of 1,479 freestanding ESRD facilities from five Home Offices of large dialysis organizations for the cost audit. A
contractor performed cost audits of these ESRD facilities in September of 2015. All audits were completed by September of 2018.
Upon completion of the audits, adjustments for unallowable costs were made by CMSs Office of Financial Management to the ESRD cost reports and reflected in the HCRIS data. As of March 2020, 1,395 of the 1,479 ESRD
facilities had complete HCRIS data that is, containing both pre-and post-audit information. A summary of the audit adjustments include Home Office costs, drugs, and treatments, which are discussed in this section.
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b. Home Office Cost Of the ESRD facilities sampled, 1,278
of 1,479 received an allocation of Home Office costs from the five Home Offices selected for review. Any adjustments of unallowable Home Office costs would flow down and be reflected in the ESRD
facilities cost reports.

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Using the HCRIS data, of the 1,395
ESRD freestanding facilities analyzed, a total of $147.5 million of unallowable costs were removed from the total costs reported on Worksheet A. Noteworthy adjustment areas included $136.5
million of the unallowable costs initially reported in the administrative and general cost center on Worksheet A, with $75 million of this $136.5 million pertaining to related-party adjustments recorded on Worksheet A3. Of the $75
million, $72 million were for Home Office costs, including disallowed related party costs associated with Home Office and management fee adjustments. Some of the major adjustments noted at the Home Office level reviews included the following:
Unsupported documentation; relatedparty management fees; lobbying expense; taxes for items not related to patient care; executive compensation in excess of reasonable guidelines, and related party laboratory costs, which were reduced to cost. Other certain nonallowable items included: Advertising, legal fees interest expense and financing fees, corporate travel/lodging/relocation, various consulting fees, business development expenses; insurance settlement payments; insurance expenses malpractice, etc..
d. Drugs In general, there were minimal adjustments to drugs cost and these were made to both drug expense and drug rebates <1.0 percent in aggregate.
The top five ESRD dialysis organizations were examined based on total reimbursable cost and average cost per treatment for adult hemodialysis the most common treatment type. No material adjustment was made to total number of treatments. However, there was a significant decrease in the average cost per treatment because of material adjustments made to the total allowable costs. The number of Epoetin Units furnished during the Cost Reporting Period reported on Worksheet S1, Line 14 was reduced by approximately 13 percent in aggregate. However, the majority of these adjustments related to two specific facilities, with one of the facilities having the total amount reported reduced to zero. The number of Aranesp Units furnished during the cost reporting period reported on Worksheet S1, Line 15 was reduced by approximately 18 percent in aggregate.
However, the majority of these adjustments related to two specific facilities, both of which were reduced to zero.

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e. Treatments The total number of treatments not billed to Medicare and furnished directly Worksheet S1, Line 1
decreased by an average of 2.6 percent.
However, the total number of treatments not billed to Medicare and Furnished under Arrangement Worksheet S1, Line 2 had no change. The average cost per treatment among the various types of treatments and categories appears to have decreased by an average of 1.75
percent. However, some of the adult average costs per treatment related to home program continuous ambulatory peritoneal dialysis increased after the audit by an average of 1.5 percent.
Based on this audit, our cost report data was corrected.
2. Suggestions for Modifying the ESRD
PPS and Hospital Cost Reports a. Independent Dialysis Facility Cost Report During the 2020 ESRD PPS TEP, the data contractor engaged the panelists in a discussion regarding potential revisions to the Independent Dialysis Facility Cost Report CMS Form 265
11. See https www.cms.gov/
Research-Statistics-Data-and-Systems/
Downloadable-Public-Use-Files/CostReports/Renal-Facility-265-2011-form.
These potential revisions, which would support the efforts to develop a refined case-mix model for the ESRD PPS, are described in this section. CMS seeks input from the public on the feasibility of implementing these suggestions in freestanding ESRD facilities. These potential reporting changes would require facilities to allocate composite rate costs across settings and modalities.
Taken together, the resulting cost report data would enable the determination of variation in costs across patient types by risk groups and dialysis modalities.
In the CY 2020 ESRD PPS proposed rule 84 FR 38396 through 38400 CMS
sought input on identifying components of composite rate costs, including specific facility-level costs that, in combination with treatment-level data, could be used to understand variation in dialysis treatment costs across patients.
While composite rate costs constitute nearly 90 percent of total treatment costs, they are not itemized on claims, leaving facility cost reports as the only source of information on these costs.
Commenters suggestions included adding detail and stratifying the reporting detail of selected composite rate costs by setting and modality and providing additional data to determine variation in treatment costs across patient risk groups and treatment modalities.

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