Published January 31, 2024

Medicare Payment Primer: End-Stage Renal Disease Prospective Payment System

This Insight is part of our Medicare Payment Primers series.

End-Stage Renal Disease (ESRD) is the final, permanent stage of chronic kidney disease, where the kidneys can no longer function on their own requiring the patient to receive dialysis or kidney transplantation to survive for more than a few weeks. ESRD patients are eligible for Medicare coverage regardless of their age. Such coverage extends to all services, not just those related to treatment for ESRD.

Medicare covers both hemodialysis (typically performed at a dialysis center) and peritoneal dialysis (typically performed at home) furnished by ESRD facilities under the ESRD Prospective Payment System (PPS). Certain laboratory services, drugs and biologicals, equipment, and supplies are subject to consolidated billing and are not separately payable when provided to ESRD beneficiaries by providers other than the ESRD facility. These providers must look to the ESRD facility for payment.

Base Rate 

Medicare pays ESRD facilities for services under the ESRD PPS using a per case bundled methodology with a single dialysis treatment as the unit of payment. Medicare pays for up to three dialysis treatments per week unless additional treatments are shown to be reasonable and medically necessary.

The base rate includes drugs, laboratory services, supplies, and capital-related costs related to furnishing maintenance dialysis (except for oral-only ESRD drugs until 2025). Like other PPS base rates, the ESRD base rate includes both a labor-related amount and a non-labor-related amount. This base rate is updated annually by the ESRD market basket, which considers the increased costs of goods and services and reflects input price inflation from one year to the next.

Medicare applies facility-specific and patient/case-specific adjustments to the base rate to determine the actual payment rate to an ESRD facility for goods and services furnished to a specific ESRD beneficiary.

Facility-Specific Adjustments

Differences in Area Wages: The ESRD PPS uses the same area wage index established for a market under the inpatient prospective payment system (IPPS), excluding any adjustments due to geographic reclassification or the rural floor. (See our article, Medicare Payment Primers: The Fundamentals of Prospective Payment Systems, for additional information.)

Low-Volume Facility Adjustment:  An ESRD facility that furnished fewer than 4,000 treatments in each of the three cost report years preceding the payment year and has not opened, closed, or received a new provider number due to a change in ownership during the three years preceding the payment year receives a low-volume facility adjustment. To be considered for this adjustment, an ESRD facility must submit an attestation to its Medicare contractor by November 1, prior to the calendar year in which the adjustment would be effective. The low-volume facility adjustment is not applied to payments for services furnished to pediatric beneficiaries. 

Rural Adjustment: An adjustment to the base rate is made for ESRD facilities located in rural areas. Again, this adjustment is not applied to payments for services furnished to pediatric beneficiaries. 

Self-dialysis Training Add-On: Certified ESRD facilities receive a wage-adjusted training add-on to cover the costs associated with an hour of nursing time for each training treatment furnished. The training add-on payment is available for adult and pediatric beneficiaries. This add-on payment is available for up to 15 training sessions for peritoneal dialysis and 25 sessions for hemodialysis.

End-Stage Renal Disease Quality Incentive Program (QIP): The Centers for Medicare & Medicaid Services (CMS) evaluates the total performance of each facility on specific quality measures. A facility that fails to meet certain performance standards on specified quality measures during a performance year will receive a payment reduction of up to 2% to all Medicare payments during the payment year. Read the current ESRD QIP measures and performance standards.

Patient/Case-Specific Adjustments

Service Complexity/Case Mix – Adult: For adult beneficiaries, the base payment rate is adjusted by the following patient-level characteristics (in addition to the facility-specific adjustments): 

  • Age: Each of the five age categories (18-44; 45-59; 60-69; 70-79; 80+) has a separate case-mix adjuster. These adjusters are updated as needed and published in the annual ESRD PPS proposed and final rules.
  • Body measurement characteristics: Body surface area (BSA) and low body mass index (BMI) are associated with higher costs for care. BSA impacts the time needed on the dialysis machine, and low BMI could result in additional resources needed to address malnutrition or frailty.
  • Selected acute and chronic comorbidities: A comorbidity is a condition that is secondary to the patient’s principal diagnosis necessitating the need for dialysis yet has a significant direct impact on the resources used during the dialysis treatment. Read information regarding the selected comorbidities.  
  • Onset of dialysis: An onset of dialysis adjustment is provided for the patient’s first 120 Medicare-eligible days after the start of chronic renal dialysis. During the period that this adjustment is made, additional adjustments for comorbid conditions and training are not made.

Service Complexity/Case Mix – Pediatric: Age (less than 13 and 13-17) and modality (peritoneal dialysis and hemodialysis) are the only adjusters applied to claims for pediatric patients.

Outliers: Additional payments are made to facilities for those cases with unusually high resource requirements when compared to the typical case and requiring unusual variations in the type or amount of medically necessary care for the services included in the ESRD payment bundle covered by the base rate.

Transitional Add-On Payment for New and Innovative Equipment and Supplies (TPNIES): To facilitate beneficiary access to new and innovative renal dialysis equipment and supplies that are expected to show a substantial clinical improvement over existing products, an add-on payment is made available to support ESRD facilities using these new products. New TPNIES are announced annually as part of the annual ESRD PPS rulemaking and remain payable for two calendar years. After this period, these items are included in the PPS bundle without any change to the ESRD PPS base rate.

Transitional Add-On Payment for Drugs (TDAPA): Like TPNIES, this designation enables additional payment for facilities using new ESRD-related therapies until sufficient claims data is gathered to incorporate the new therapy into the bundle and adjust the base rate.


Centers for Medicare & Medicaid Services End-Stage Renal Disease Prospective Payment System

This Insight is part of our Medicare Payment Primers series. If you have questions about reimbursement, strategy and transactions, compliance, or valuation, our executive contacts are happy to assist. Please contact them via email or by calling (800) 270-9629.

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