ESRD PPS Drug Designation Process

On January 1, 2011, CMS implemented the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS), a case-mix adjusted bundled prospective payment system for renal dialysis services furnished by ESRD facilities. The ESRD PPS includes specific functional categories, which CMS has used since 2011 to identify drugs and biological products that are renal dialysis services paid for under the ESRD PPS. An ESRD PPS functional category is a distinct grouping of drugs or biological products, as determined by CMS, whose end action effect is the treatment or management of a condition or conditions associated with ESRD. 

In the Calendar Year (CY) 2011 ESRD PPS final rule, CMS established that new drugs and biological products approved after the initial implementation of the ESRD PPS that meet the definition of a renal dialysis service would be included in the bundled payment.  To determine if a new drug or biological product is a renal dialysis service, we review the information in the FDA-approved labeling, the Healthcare Common Procedure Coding System (HCPCS) application information, and an analysis by CMS medical officers and medical personnel, in addition to reviewing clinical studies submitted (see the CY 2016 ESRD PPS final rule, 80 FR 37832). In all of these steps, CMS physicians assist in the determination as to whether a new drug is a renal dialysis service as well as whether the new drug fits into one of the functional categories.

To add new renal dialysis drugs and biological products to the ESRD PPS bundled payment, CMS uses a drug designation process (DDP) that is based on the ESRD PPS functional categories. In general, drugs and biological products are considered included in the ESRD PPS base rate if they fit within one of the ESRD PPS functional categories, which are listed in the table below. Under current law, certain oral-only drugs are paid separately under Medicare Part D until January 1, 2025.

Section 217(c) of the Protecting Access to Medicare Act of 2014 (PAMA) required CMS to establish a process to: (1) determine when a product would no longer be considered an oral-only drug; and (2) include new injectable and intravenous products into the ESRD PPS bundled payment. In the CY 2016 ESRD PPS final rule, we implemented this provision and finalized a DDP based on our longstanding process for identifying renal dialysis service drugs and biological products that fit into ESRD PPS functional categories. We codified this DDP in regulation at 42 C.F.R. § 413.234. We later revised the regulation to reflect that the DDP applies to all new renal dialysis drugs and biological products in the CY 2019 ESRD PPS final rule.   

(1) Determination of When an Oral-Only Drug is No Longer Oral-Only

Under our current regulation, an “oral-only drug” is a drug or biological product with no injectable equivalent or other form of administration other than an oral form. An oral-only drug is no longer considered oral-only if an injectable or other form of administration of the oral-only is approved by the FDA.

In the CY 2023 ESRD PPS final rule, CMS revised the regulation to include the word “functional” in the definition of oral-only drug at 42 C.F.R. § 413.234(a), effective January 1, 2025. Under the revised definition, an oral-only drug is a drug or biological product with no injectable functional equivalent or other form of administration other than an oral form (87 FR 67179 through 67186). The change to the definition of oral-only drug to specify “functional” equivalence is consistent with the current policy for oral-only drugs and the ESRD PPS functional category framework, helps ensure that new renal dialysis drugs and biological products are paid for under the ESRD PPS without delay, and continues to support health care practitioners’ decision-making to meet the clinical needs of their patients. Additionally, the modification promotes health equity and supports proper financial incentives for ESRD facilities, in keeping with our fiduciary responsibility to the Medicare Trust Funds.

(2) Inclusion of New Renal Dialysis Drugs or Biological Products into the ESRD PPS Bundled Payment

Under 42 C.F.R. § 413.234(a), a “new renal dialysis drug or biological product” is an injectable, intravenous, oral or other form of drug or biological product that is used to treat or manage a condition(s) associated with ESRD. It must be: (1) approved by the Food and Drug Administration (FDA) on or after January 1, 2020, under section 505 of the Federal Food, Drug, and Cosmetic Act or section 351 of the Public Health Service Act; (2) commercially available; (3) have an HCPCS application submitted in accordance with the official Level II HCPCS coding procedures, and; (4) designated by CMS as a renal dialysis service under § 413.171. As part of the DDP, CMS stated that it considered a new injectable or intravenous drug to be included in the ESRD PPS bundled payment (with no separate payment available) if the drug is used to treat or manage a condition for which there is an ESRD PPS functional category. At that time, CMS further stated that it would apply the transitional drug add-on payment adjustment (TDAPA) to new injectable or intravenous drugs used to treat or manage a condition for which there is not an existing ESRD PPS functional category (80 FR 69013 through 69023).

In the CY 2019 ESRD PPS final rule, CMS updated and revised the DDP regulations and expanded the TDAPA to all new renal dialysis drugs and biological products that are FDA approved, regardless of the form or route of administration (new injectable, IV, oral, or other form or route of administration) or whether the drug or biological product fell in an existing ESRD PPS functional category (83 FR 56929 through 56932). 

In the CY 2020 ESRD PPS final rule, CMS revised the eligibility criteria for the TDAPA for drugs in existing functional categories to exclude certain drugs approved by the FDA under section 505(j) of the Federal Food, Drug, and Cosmetic Act (FD&C Act) and drugs for which the new drug application (NDA) is classified by the FDA as Type 3, 5, 7 or 8, Type 3 in combination with Type 2 or Type 4, or Type 5 in combination with Type 2, or Type 9 when the ‘‘parent NDA’’ is a Type 3, 5, 7 or 8 (84 FR 60656 through 60672). This change helped to ensure that our TDAPA policy for new renal dialysis drugs and biological products in existing functional categories is focused on products that we consider to be truly innovative for purposes of the ESRD PPS.

Renal dialysis drugs and biological products in existing ESRD PPS functional categories that fall under any of the above exclusions are incorporated into the ESRD PPS bundled payment, as long as the drug or biological product does not meet the definition of an oral-only drug.  The following process applies:

• CMS uses the information that is available to determine whether the drug or biological product is a renal dialysis service, as discussed above.
• Payment is made under Part B through the ESRD PPS bundled payment, including the ESRD PPS outlier payment adjustment as applicable.  HCPCS codes and National Drug Codes for outlier-eligible drugs are added to the ESRD PPS Outlier Services List on a quarterly basis.  No TDAPA payment is made for these drugs or biological products.
• For oral drugs and biological products, CMS coordinates with Part D plan sponsors and, when necessary, issues clarifying guidance to Part D sponsors, typically via Health Plan Management System memoranda.

ESRD PPS Functional Categories*

 *87 FR 67188