[Federal Register Volume 90, Number 147 (Monday, August 4, 2025)]
[Rules and Regulations]
[Pages 36536-37308]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-14681]
[[Page 36535]]
Vol. 90
Monday,
No. 147
August 4, 2025
Part II
Department of Health and Human Services
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45 CFR Part 170
Centers for Medicare & Medicaid Services
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42 CFR Parts 412, 495, and 512
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Medicare Program; Hospital Inpatient Prospective Payment Systems for
Acute Care Hospitals (IPPS) and the Long-Term Care Hospital Prospective
Payment System and Policy Changes and Fiscal Year (FY) 2026 Rates;
Changes to the FY 2025 IPPS Rates Due to Court Decision; Requirements
for Quality Programs; and Other Policy Changes; Health Data,
Technology, and Interoperability: Electronic Prescribing, Real-Time
Prescription Benefit and Electronic Prior Authorization; Direct-
Interim-Final Rule
Federal Register / Vol. 90 , No. 147 / Monday, August 4, 2025 / Rules
and Regulations
[[Page 36536]]
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 412, 495, and 512
Office of the Secretary
45 CFR Part 170
[CMS-1833-F and CMS-1808-F] RINs 0938-AV45, 0938-AV34, and 0955-AA06
Medicare Program; Hospital Inpatient Prospective Payment Systems
for Acute Care Hospitals (IPPS) and the Long-Term Care Hospital
Prospective Payment System and Policy Changes and Fiscal Year (FY) 2026
Rates; Changes to the FY 2025 IPPS Rates Due to Court Decision;
Requirements for Quality Programs; and Other Policy Changes; Health
Data, Technology, and Interoperability: Electronic Prescribing, Real-
Time Prescription Benefit and Electronic Prior Authorization
AGENCY: Centers for Medicare & Medicaid Services (CMS) and Assistant
Secretary for Technology Policy (ASTP)/Office of the National
Coordinator for Health Information Technology (ONC) (collectively,
ASTP/ONC), Department of Health and Human Services (HHS).
ACTION: Final rules.
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SUMMARY: This final rule revises the Medicare hospital inpatient
prospective payment systems (IPPS) for operating and capital-related
costs of acute care hospitals; makes changes relating to Medicare
graduate medical education (GME) for teaching hospitals; updates the
payment policies and the annual payment rates for the Medicare
prospective payment system (PPS) for inpatient hospital services
provided by long-term care hospitals (LTCHs); updates and makes changes
to requirements for certain quality programs; and makes other policy-
related changes. We are also finalizing the provisions of the interim
final action with comment period regarding the changes to the FY 2025
IPPS rates due to the court decision in Bridgeport Hosp. v. Becerra.
Lastly, it finalizes certain updates to the ONC Health Information
Technology (IT) Certification Program.
DATES: These final rules are effective on October 1, 2025. The
incorporation by reference of certain material listed in this document
is approved by the Director of the Federal Register as of October 1,
2025.
FOR FURTHER INFORMATION CONTACT: Donald Thompson, and Michele Hudson,
(410) 786-4487 or [email protected], Operating Prospective Payment, MS-
DRG Relative Weights, Wage Index, Hospital Geographic
Reclassifications, Graduate Medical Education, Capital Prospective
Payment, Excluded Hospitals, Medicare Disproportionate Share Hospital
(DSH) Payment Adjustment, Sole Community Hospitals (SCHs), Medicare-
Dependent Small Rural Hospital (MDH) Program, Low-Volume Hospital
Payment Adjustment, and Inpatient Critical Access Hospital (CAH)
Issues.
Emily Lipkin, Jim Mildenberger and Hyeyoung Kim, [email protected],
Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG
Relative Weights Issues.
Lily Yuan, [email protected], New Technology Add-On Payments
Issues.
Mady Hue, [email protected], and Andrea Hazeley,
[email protected], MS-DRG Classifications Issues.
Radhika Puri, [email protected], Rural Community Hospital
Demonstration Program Issues.
Jeris Smith, [email protected], Frontier Community Health
Integration Project (FCHIP) Demonstration Issues.
Lang Le, [email protected], Hospital Readmissions Reduction
Program--Administration Issues.
Ngozi Uzokwe, [email protected], Hospital Readmissions
Reduction Program--Measures Issues.
Jennifer Tate, [email protected], Hospital-Acquired
Condition Reduction Program--Administration Issues.
Ngozi Uzokwe, [email protected], Hospital-Acquired Condition
Reduction Program--Measures Issues.
Julia Venanzi, [email protected], Hospital Inpatient
Quality Reporting Program and Hospital Value-Based Purchasing Program--
Administration Issues.
Melissa Hager, [email protected], and Ngozi Uzokwe,
[email protected]--Hospital Inpatient Quality Reporting Program
and Hospital Value-Based Purchasing Program--Measures Issues Except
Hospital Consumer Assessment of Healthcare Providers and Systems
Issues.
Elizabeth Goldstein, [email protected], Hospital
Inpatient Quality Reporting and Hospital Value-Based Purchasing--
Hospital Consumer Assessment of Healthcare Providers and Systems
Measures Issues.
Jennifer Tate, [email protected], PPS-Exempt Cancer
Hospital Quality Reporting--Administration Issues.
Kristina Rabarison, [email protected], PPS-Exempt
Cancer Hospital Quality Reporting Program--Measure Issues
Ariel Cress, [email protected], Long-Term Care Hospital
Quality Reporting Program--Administration Issues.
Jessica Warren, [email protected], and Lisa Marie Gomez,
[email protected], Medicare Promoting Interoperability
Program.
Bridget Dickensheets, [email protected] and Mollie
Knight, [email protected], IPPS Market Basket Rebasing.
[email protected], Transforming Episode Accountability Model
(TEAM)
Michael Lipinski, Office of Policy, Assistant Secretary for
Technology Policy (ASTP)/Office of the National Coordinator for Health
Information Technology (ASTP/ONC), 202-690-7151.
SUPPLEMENTARY INFORMATION:
Tables Available on the CMS Website
The IPPS tables for this fiscal year (FY) 2026 final rule are
available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html. Click on the link
on the left side of the screen titled ``FY 2026 IPPS Final Rule Home
Page'' or ``Acute Inpatient--Files for Download.'' The LTCH PPS tables
for this FY 2026 final rule are available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/LongTermCareHospitalPPS/index.html under the list item for Regulation
Number CMS-1833-F. For further details on the contents of the tables
referenced in this final rule, we refer readers to section VI. of the
Addendum to this FY 2026 IPPS/LTCH PPS final rule.
Readers who experience any problems accessing any of the tables
that are posted on the CMS websites, as previously identified, should
contact Michael Treitel, [email protected].
I. Executive Summary and Background
A. Executive Summary
1. Purpose and Legal Authority
This FY 2026 IPPS/LTCH PPS final rule will make payment and policy
changes under the Medicare inpatient
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prospective payment system (IPPS) for operating and capital-related
costs of acute care hospitals as well as for certain hospitals and
hospital units excluded from the IPPS. In addition, it makes payment
and policy changes for inpatient hospital services provided by long-
term care hospitals (LTCHs) under the long-term care hospital
prospective payment system (LTCH PPS). This final rule also makes
policy changes to programs associated with Medicare IPPS hospitals,
IPPS-excluded hospitals, and LTCHs. We are also making changes relating
to Medicare graduate medical education (GME) for teaching hospitals.
In the Hospital Value-Based Purchasing (VBP) Program, we are
finalizing modifications to the Hospital-Level Total Hip Arthroplasty/
Total Knee Arthroplasty (THA/TKA) Complications measure beginning with
the FY 2033 program year. We also provide notice of the technical
update to the five National Healthcare Safety Network (NHSN) Healthcare
Associated Infection (HAI) measures beginning with the FY 2029 program
year, and the technical update to the six measures in the Clinical
Outcomes domain beginning with the FY 2027 program year. We are
finalizing removal of the Health Equity Adjustment (HEA) from the
program's scoring calculations in the FY 2026 program year. We provide
previously and newly established performance standards for FY 2027
through FY 2031 program years for the Hospital VBP Program.
In the Hospital-Acquired Condition (HAC) Reduction Program, we are
also providing notice of the technical update to the five Centers for
Disease Control and Prevention's (CDC) NHSN healthcare-associated
infection (HAI) measures.
In the Hospital Readmissions Reduction Program, we are finalizing
our proposal to add Medicare Advantage (MA) beneficiaries to the six
Hospital Readmissions Reduction Program (HRRP) measures beginning with
the FY 2027 program year; however, we are not finalizing our proposal
to include payment data for MA beneficiaries in the calculation of
aggregate payments for excess readmissions. We also are finalizing our
proposal to reduce the applicable period from 3-years to 2-years
beginning with the FY 2027 program year. We also provide notice of the
technical update to remove the COVID-19 exclusion from all six
readmission measures.
In the PPS-Exempt Cancer Hospital Quality Reporting Program
(PCHQR), we are finalizing our proposals to modify the public reporting
requirements and remove three existing measures.
In the Hospital Inpatient Quality Reporting (IQR) Program, we are
finalizing our proposals to modify four existing quality measures and
to remove four existing measures. We also are finalizing our proposal,
with modification, to update and codify the Extraordinary Circumstances
Exception (ECE) policy to clarify that CMS has the discretion to grant
an extension in response to an ECE request from a hospital in the
Hospital IQR, Hospital Readmissions Reduction, PCHQR, HAC Reduction,
and Hospital VBP Programs with a modification.
In the Medicare Promoting Interoperability Program, we are
finalizing our proposal to define the electronic health record (EHR)
reporting period in CY 2026 and subsequent years as a minimum of any
continuous 180-day period within that calendar year for eligible
hospitals and CAHs participating in the Medicare Promoting
Interoperability Program and to make corresponding revisions at 42 CFR
495.4. We are finalizing our proposal, with modifications, to revise
the Security Risk Analysis measure beginning with the EHR reporting
period in CY 2026. We are finalizing our proposal to modify the Safety
Assurance Factors for EHR Resilience (SAFER) Guides measure beginning
with the EHR reporting period in CY 2026. We are finalizing our
proposal to add an optional bonus measure under the Public Health and
Clinical Data Exchange objective for reporting data to a public health
agency (PHA) using the Trusted Exchange Framework and Common Agreement
(TEFCA) beginning with the EHR reporting period in CY 2026.
For the LTCH Quality Reporting Program (QRP), we are finalizing our
proposal to remove one item from the LTCH Continuity Assessment Record
and Evaluation (CARE) Data Set (LCDS) with respect to patients who have
expired in the LTCH. We also are finalizing our proposal to remove four
Social Determinant of Health (SDOH) standardized patient assessment
data elements from the LCDS. Next, we are finalizing our proposal to
amend the reconsideration request process in the LTCH QRP. Finally, we
include summaries of comments received in response to Requests for
Information (RFIs) on: (1) future measure concepts for the LTCH QRP;
(2) revisions to the data submission deadlines for assessment data
collected for the LTCH QRP; and (3) advancing digital quality
measurement (dQM) in the LTCH QRP.
The Transforming Episode Accountability Model (TEAM), a mandatory
alternative payment model that was finalized in the FY 2025 IPPS/LTCH
PPS final rule (89 FR 68986), aims to improve beneficiary care through
financial accountability for episodes categories that begin with one of
the following procedures: coronary artery bypass graft (CABG), lower
extremity joint replacement (LEJR), major bowel procedure, surgical
hip/femur fracture treatment (SHFFT), and spinal fusion. TEAM will test
whether financial accountability for these episode categories reduces
Medicare expenditures while preserving or enhancing the quality of care
for Medicare beneficiaries. In this final rule, we finalizing updates
to TEAM that would modify policies affecting participation of new
hospitals, quality measure and assessment, the construction of target
prices, the removal of certain health reporting elements, the
broadening of the Skilled Nursing Facility (SNF) 3-Day Rule, and the
removal of the Decarbonization and Resilience Initiative (DRI).
Additionally, the policies in this final rule reflect our commitment to
ensuring TEAM's incentives help to drive beneficiary quality of care
improvements and reductions in Medicare spending.
The Secretary of Health and Human Services has delegated
responsibilities to the Assistant Secretary for Technology Policy
(ASTP)/Office of the National Coordinator for Health Information
Technology (ONC) (collectively, ASTP/ONC \1\) for the implementation of
certain provisions in Title IV of the 21st Century Cures Act (Public
Law (Pub. L.)) 114-255, December 13, 2016) (Cures Act) that are
designed to: advance interoperability; support the access, exchange,
and use of electronic health information (EHI); and identify reasonable
and necessary activities that do not constitute information
blocking.\2\ ASTP/ONC is also responsible for implementation of certain
provisions of the Health Information Technology for Economic and
Clinical Health Act (Pub. L. 111-5, Feb. 17. 2009) (HITECH Act)
including: requirements that the National Coordinator perform duties
consistent with the development of a nationwide
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health information technology infrastructure that allows for the
electronic use and exchange of information and that promotes a more
effective marketplace, greater competition, and increased consumer
choice, among other goals; and requirements to keep or recognize a
program or programs for the voluntary certification of health
information technology.
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\1\ On July 29, 2024, notice was posted in the Federal Register
that ONC would be dually titled to the Assistant Secretary for
Technology Policy and Office of the National Coordinator for Health
Information Technology (89 FR 60903).
\2\ Reasonable and necessary activities that do not constitute
information blocking, also known as information blocking exceptions,
are identified in 45 CFR part 171 subparts B, C and D. ONC's
official website, HealthIT.gov, offers a variety of resources on the
topic of Information Blocking, including fact sheets, recorded
webinars, and frequently asked questions. To learn more, please
visit: https://www.healthit.gov/topic/information-blocking/.
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Under various statutory authorities, we either discuss continued
program implementation or make changes to the Medicare IPPS, the LTCH
PPS, other related payment methodologies and programs for FY 2026 and
subsequent fiscal years, and other policies and provisions included in
this final rule. These statutory authorities include, but are not
limited to, the following:
Section 1886(d) of the Social Security Act (the Act),
which sets forth a system of payment for the operating costs of acute
care hospital inpatient stays under Medicare Part A (Hospital
Insurance) based on prospectively set rates. Section 1886(g) of the Act
requires that, instead of paying for capital-related costs of inpatient
hospital services on a reasonable cost basis, the Secretary use a
prospective payment system (PPS).
Section 1886(d)(1)(B) of the Act, which specifies that
certain hospitals and hospital units are excluded from the IPPS. These
hospitals and units are: rehabilitation hospitals and units; LTCHs;
psychiatric hospitals and units; children's hospitals; cancer
hospitals; extended neoplastic disease care hospitals; and hospitals
located outside the 50 States, the District of Columbia, and Puerto
Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the
Northern Mariana Islands, and American Samoa). Religious nonmedical
health care institutions (RNHCIs) are also excluded from the IPPS.
Sections 123(a) and (c) of the Balanced Budget Refinement
Act of 1999 (BBRA) (Public Law (Pub. L.) 106-113) and section 307(b)(1)
of the Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L.
106-554) (as codified under section 1886(m)(1) of the Act), which
provide for the development and implementation of a prospective payment
system for payment for inpatient hospital services of LTCHs described
in section 1886(d)(1)(B)(iv) of the Act.
Section 1814(l)(4) of the Act requires, beginning with FY 2017,
that CAHs that do not successfully demonstrate meaningful use of
certified electronic health record technology (CEHRT) for an EHR
reporting period for a cost reporting period shall be paid 100 percent
of reasonable costs rather than 101 percent of reasonable costs.
Section 1886(a)(4) of the Act, which specifies that costs
of approved educational activities are excluded from the operating
costs of inpatient hospital services. Hospitals with approved graduate
medical education (GME) programs are paid for the direct costs of GME
in accordance with section 1886(h) of the Act. Hospitals paid under the
IPPS with approved GME programs are paid for the indirect costs of
training residents in accordance with section 1886(d)(5)(B) of the Act.
Section 1886(d)(5)(F) of the Act provides for additional
Medicare IPPS payments to subsection (d) hospitals that serve a
significantly disproportionate number of low-income patients. These
payments are known as the Medicare disproportionate share hospital
(DSH) adjustment. Section 1886(d)(5)(F) of the Act specifies the
methods under which a hospital may qualify for the DSH payment
adjustment.
Section 1886(b)(3)(B)(viii) of the Act, which requires the
Secretary to reduce the applicable percentage increase that would
otherwise apply to the standardized amount applicable to a subsection
(d) hospital for discharges occurring in a fiscal year if the hospital
does not submit data on measures in a form and manner, and at a time,
specified by the Secretary.
Section 1886(b)(3)(B)(ix) of the Act, which requires
downward adjustments to the applicable percentage increase, beginning
with FY 2015 (and beginning with FY 2022 for subsection (d) Puerto Rico
hospitals), for eligible hospitals that do not successfully demonstrate
meaningful use of CEHRT for an EHR reporting period for a payment
adjustment year.
Section 1866(k) of the Act, which provides for the
establishment of a quality reporting program for hospitals described in
section 1886(d)(1)(B)(v) of the Act, referred to as ``PPS-exempt cancer
hospitals.''
Section 1886(n) of the Act, which establishes the
requirements for an eligible hospital to be treated as a meaningful EHR
user for an EHR reporting period for a payment year or, for purposes of
subsection (b)(3)(B)(ix) of the Act, for a fiscal year.
Section 1886(o) of the Act, which requires the Secretary
to establish a Hospital Value-Based Purchasing (VBP) Program, under
which value-based incentive payments are made in a fiscal year to
hospitals based on their performance on measures established for a
performance period for such fiscal year.
Section 1886(p) of the Act, which establishes a Hospital-
Acquired Condition (HAC) Reduction Program, under which payments to
applicable hospitals are adjusted to provide an incentive to reduce
hospital-acquired conditions.
Section 1886(q) of the Act, as amended by section 15002 of
the 21st Century Cures Act, which establishes the Hospital Readmissions
Reduction Program. Under the program, payments for discharges from an
applicable hospital as defined under section 1886(d) of the Act will be
reduced to account for certain excess readmissions. Section 15002 of
the 21st Century Cures Act directs the Secretary to assess a hospital's
performance relative to other hospitals with a similar proportion of
beneficiaries who are dually eligible for both Medicare and full
Medicaid benefits.
Section 1886(r) of the Act, as added by section 3133 of
the Affordable Care Act, which provides for a reduction to
disproportionate share hospital (DSH) payments under section
1886(d)(5)(F) of the Act and for an additional uncompensated care
payment to eligible hospitals. Specifically, section 1886(r) of the Act
requires that, for fiscal year 2014 and each subsequent fiscal year,
subsection (d) hospitals that would otherwise receive a DSH payment
made under section 1886(d)(5)(F) of the Act will receive two separate
payments: (1) 25 percent of the amount they previously would have
received under the statutory formula for Medicare DSH payments in
section 1886(d)(5)(F) of the Act if subsection (r) did not apply (``the
empirically justified amount''), and (2) an additional payment for the
DSH hospital's proportion of uncompensated care, determined as the
product of three factors. These three factors are: (1) 75 percent of
the payments that would otherwise be made under section 1886(d)(5)(F)
of the Act, in the absence of section 1886(r) of the Act; (2) 1 minus
the percent change in the percent of individuals who are uninsured; and
(3) the hospital's uncompensated care amount relative to the
uncompensated care amount of all DSH hospitals expressed as a
percentage.
Section 1886(m)(5) of the Act, which requires the
Secretary to reduce by 2 percentage points the annual update to the
standard Federal rate for discharges for a long-term care hospital
(LTCH) during the rate year for LTCHs that do not submit data on
quality measures in the form, manner, and at a time, specified by the
Secretary.
Section 1886(m)(6) of the Act, as added by section
1206(a)(1) of the Pathway for Sustainable Growth Rate
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(SGR) Reform Act of 2013 (Pub. L. 113-67) and amended by section
51005(a) of the Bipartisan Budget Act of 2018 (Pub. L. 115-123), which
provided for the establishment of site neutral payment rate criteria
under the LTCH PPS, with implementation beginning in FY 2016. Section
51005(b) of the Bipartisan Budget Act of 2018 amended section
1886(m)(6)(B) by adding new clause (iv), which specifies that the IPPS
comparable amount defined in clause (ii)(I) shall be reduced by 4.6
percent for FYs 2018 through 2026.
Section 1899B of the Act, which provides for the
establishment of standardized data reporting for certain post-acute
care providers, including LTCHs.
Section 1115A of the Act authorizes the testing of
innovative payment and service delivery models that preserve or enhance
the quality of care furnished to Medicare, Medicaid, and Children's
Health Insurance Program (CHIP) beneficiaries while reducing program
expenditures.
2. Summary of the Major Provisions
The following is a summary of the major provisions in this final
rule. In general, these major provisions are being finalized as part of
the annual update to the payment policies and payment rates, consistent
with the applicable statutory provisions. A general summary of the
changes in this final rule is presented in section I.D. of the preamble
of this final rule.
a. Transition for the Discontinuation of the Low Wage Index Hospital
Policy
To help mitigate growing wage index disparities between high wage
and low wage hospitals, in the FY 2020 IPPS/LTCH PPS rule (84 FR 42326
through 42332), we adopted a policy to increase the wage index values
for certain hospitals with low wage index values (the low wage index
hospital policy). This policy was adopted in a budget neutral manner
through an adjustment applied to the standardized amounts for all
hospitals. We indicated our intention that this policy would be
effective for at least 4 years, beginning in FY 2020, in order to allow
employee compensation increases implemented by these hospitals
sufficient time to be reflected in the wage index calculation. We also
stated we intended to revisit the issue of the duration of this policy
in future rulemaking as we gained experience under the policy. In the
FY 2025 IPPS/LTCH PPS final rule (89 FR 69301 through 69308), we
adopted an extension of the low wage index hospital policy and the
related budget neutrality adjustment effective for at least three more
years, beginning in FY 2025, in order for sufficient wage data from
after the end of the COVID-19 Public Health Emergency to become
available.
As discussed in section III.F.5. of the preamble of this final
rule, on July 23, 2024, the Court of Appeals for the D.C. Circuit held
that the Secretary lacked authority under section 1886(d)(3)(E) of the
Act or under the ``adjustments'' language of section 1886(d)(5)(I)(i)
of the Act to adopt the low wage index hospital policy for FY 2020, and
that the policy and related budget neutrality adjustment must be
vacated. Bridgeport Hosp. v. Becerra, 108 F.4th 882, 887-91 & n.6 (D.C.
Cir. 2024). After considering the D.C. Circuit's decision in Bridgeport
Hosp. v. Becerra, in the FY 2025 IFC (89 FR 80405 through 80421), we
recalculated the FY 2025 IPPS hospital wage index to remove the low
wage index hospital policy for FY 2025. We also removed the low wage
index budget neutrality factor from the FY 2025 standardized amounts.
In addition, we established an interim transition policy for hospitals
significantly impacted by the removal of the FY 2025 low wage index
hospital policy using our authority under section 1886(d)(5)(I) of the
Act. We note, as discussed elsewhere, in this final rule we are
finalizing the provisions of the interim final action with comment
period (IFC) (89 FR 80405) (hereinafter referred to as the FY 2025
IFC), that implemented revised Medicare wage index values for FY 2025,
established a transitional payment exception for low wage hospitals
significantly impacted by those revisions, and made conforming changes
to the hospital IPPS and LTCH PPS payment rates for FY 2025 to reflect
the removal of the low wage index hospital policy following the
appellate court decision in Bridgeport Hosp. v. Becerra.
For FY 2026 and subsequent fiscal years, after considering the D.C.
Circuit's decision in Bridgeport Hosp. v. Becerra, we are discontinuing
the low wage index hospital policy and will no longer apply a low wage
index budget neutrality factor to the standardized amounts. As
discussed in section III.F.7. of the preamble of this final rule, we
are using our authority under section 1886(d)(5)(I)(i) of the Act to
adopt a narrow transitional exception to the calculation of FY 2026
IPPS payments for low wage index hospitals significantly impacted by
the discontinuation of the low wage index hospital policy, that will be
implemented in a budget neutral manner. This transitional exception
policy will apply to hospitals that benefitted from the FY 2024 low
wage index hospital policy and compares the hospital's FY 2026 wage
index to the hospital's FY 2024 wage index. If the hospital's FY 2026
wage index is decreasing by more than 9.75 percent from the hospital's
FY 2024 wage index, then the transitional payment exception for FY 2026
for that hospital is equal to the additional FY 2026 amount the
hospital would be paid under the IPPS if its FY 2026 wage index were
equal to 90.25 percent of its FY 2024 wage index. We are making this
policy budget neutral through an adjustment applied to the standardized
amounts for all hospitals.
b. Update to the IPPS Labor-Related Share
As discussed in section IV. of the preamble of this final rule, we
are finalizing our proposal to rebase and revise the 2018-based IPPS
market basket to reflect a 2023 base year. In addition, using the cost
category weights from the 2023-based IPPS market basket, we calculated
a labor-related share of 66.0 percent, which we will use for discharges
occurring on or after October 1, 2025. The labor-related share of 66.0
percent is 1.6 percentage points lower than the current labor-related
share of 67.6 percent. As discussed in section IV.B.3. of the preamble
of this final rule, this downward revision to the labor-related share
is primarily the result of incorporating the more recent 2023 Medicare
cost report data for Wages and Salaries, Employee Benefits, and
Contract Labor costs. This is partially offset by an increase in the
Professional Fees: Labor-Related cost weight.
c. Hospital Readmissions Reduction Program
The Hospital Readmissions Reduction Program was established under
section 1886(q) of the Act, as amended by section 15002 of the Cures
Act. The Hospital Readmissions Reduction Program requires a reduction
to a hospital's base operating DRG payment to account for excess
readmissions of selected applicable conditions or procedures. In this
final rule, we are finalizing the following proposals, beginning with
the FY 2027 program year: (1) Refine all six readmission measures to
add Medicare Advantage patient cohort data; (2) reduce the applicable
period from 3-years to 2-years and update codified regulation language;
and (4) update and codify the ECE policy to clarify that CMS has the
discretion to grant an extension in response to an ECE request from a
hospital with a modification. We also
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provide notice of the technical update to remove the COVID-19 exclusion
from all six readmission measures. We are not finalizing the proposal
to include payment data for MA beneficiaries in the calculation of
aggregate payments for excess readmissions..
d. Hospital Acquired Condition (HAC) Reduction Program
Section 1886(p) of the Act establishes the HAC Reduction Program
under which payments to applicable hospitals are adjusted to provide an
incentive to reduce hospital-acquired conditions. In this final rule,
we are making a technical update to the NHSN Healthcare Associated
Infection (HAI) measures baseline. We are also finalizing our proposal
to update and codify the ECE policy to clarify that CMS has the
discretion to grant an extension in response to an ECE request from a
hospital with a modification.
e. Hospital Value-Based Purchasing (VBP) Program
Section 1886(o) of the Act requires the Secretary to establish a
Hospital VBP Program under which value-based incentive payments are
made in a fiscal year to hospitals based on their performance on
measures established for a performance period for such fiscal year. In
this final rule, we are finalizing modifications to the THA/TKA
Complications measure beginning with the FY 2033 program year. We also
provide notice of the technical update to remove the COVID-19 exclusion
from the six measures in the Clinical Outcomes domain beginning with
the FY 2027 program year and the technical update to the five NHSN
Healthcare Associated Infection (HAI) measures beginning with the FY
2029 program year. We also are finalizing our proposal to update and
codify the ECE policy to clarify that CMS has the discretion to grant
an extension in response to an ECE request from a hospital with a
modification. We are also finalizing our proposal to remove the
Program's HEA adjustment in the FY 2026 program year. Lastly, we
provide previously and newly established performance standards for FY
2027 through FY 2031 program years for the Hospital VBP Program.
f. Hospital Inpatient Quality Reporting (IQR) Program
Under section 1886(b)(3)(B)(viii) of the Act, subsection (d)
hospitals are required to report data on measures selected by the
Secretary for a fiscal year in order to receive the full annual
percentage increase. In this FY 2026 IPPS/LTCH PPS final rule, we are
finalizing several changes to the Hospital IQR Program. We are
finalizing modifications to four measures currently in the Hospital IQR
Program measure set: (1) Hospital-Level, Risk-Standardized Complication
Rate (RSCR) Following Elective Primary Total Hip Arthroplasty (THA)
and/or Total Knee Arthroplasty (TKA) beginning with the April 1, 2023-
March 30, 2025 reporting period/2027 payment determination; (2)
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate (RSMR)
Following Acute Ischemic Stroke Hospitalization with Claims-Based Risk
Adjustment for Stroke Severity beginning with the July 1, 2023-June 30,
2025 reporting period/2027 payment determination; (3) the Hybrid
Hospital-Wide Readmission (HWR) measure beginning with the July 1,
2025, through June 30, 2026 Reporting Period/FY 2028 payment
determination; and (4) the Hybrid Hospital-Wide All-Cause Risk
Standardized Mortality (HWM) measure beginning with the July 1, 2025,
through June 30, 2026 reporting period/FY 2028 payment determination.
We are also finalizing the removal of four measures: (1) the Hospital
Commitment to Health Equity measure beginning with the CY 2024
reporting period/FY 2026 payment determination; (2) the COVID-19
Vaccination Coverage among HCP measure beginning with the CY 2024
reporting period/FY 2026 payment determination; (3) the Screening for
Social Drivers of Health measure beginning with the CY 2024 reporting
period/FY 2026 payment determination; and (4) the Screen Positive Rate
for Social Drivers of Health measure beginning with the CY 2024
reporting period/FY 2026 payment determination. We are finalizing our
proposal to update and codify the ECE policy to clarify that CMS has
the discretion to grant an extension in response to an ECE request from
a hospital with a modification. Additionally, we sought comments
regarding measure concepts related to well-being and nutrition for
future consideration. We also sought comments on the path forward for
digital quality measurement and use of Fast Healthcare Interoperability
Resources (FHIR).
g. PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program
Section 1866(k)(1) of the Act requires, for purposes of FY 2014 and
each subsequent fiscal year, that a hospital described in section
1886(d)(1)(B)(v) of the Act (a PPS-exempt cancer hospital, or a PCH)
submit data in accordance with section 1866(k)(2) of the Act with
respect to such fiscal year. In this final rule, we are finalizing our
proposal to publicly report PCH data on both the Provider Data Catalog
and on Care Compare and to make corresponding changes to regulatory
text to replace references to ``Provider Data Catalog'' with ``CMS
website''. We are also finalizing our proposals to remove the (1)
Hospital Commitment to Health Equity, (2) the Screening for Social
Drivers of Health measure; and (3) the Screen Positive Rate for Social
Drivers of Health measure beginning with the CY 2024 reporting period/
FY 2026 program year. Lastly, we are finalizing our proposal to update
and codify the ECE policy to clarify that CMS has the discretion to
grant an extension in response to an ECE request from a hospital with a
modification.
h. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
For the LTCH QRP, we are finalizing our proposal to remove one item
from the LCDS with respect to patients who have expired in the LTCH. We
also are finalizing our proposal to removal of four SDOH standardized
patient assessment data elements from the LCDS. We are finalizing our
proposal to amend the reconsideration request process in the LTCH QRP.
Finally, we include a summary of comments received in response to
Requests for Information (RFIs) on: (1) future measure concepts for the
LTCH QRP; (2) revisions to the data submission deadlines for assessment
data collected for the LTCH QRP; and (3) advancing digital quality
measurement (dQM) in the LTCH QRP.
i. Medicare Promoting Interoperability Program
Under sections 1886(b)(3)(B)(ix) and 1814(l)(4) of the Act,
respectively, eligible hospitals and CAHs are required to submit data
in accordance with section 1886(n) to successfully demonstrate
meaningful use of CEHRT for an EHR reporting period to avoid a downward
payment adjustment under Medicare for the associated fiscal year. In
this final rule, we are finalizing several changes to the Medicare
Promoting Interoperability Program. Specifically, we are finalizing our
proposals: (1) to amend the definition of ``EHR reporting period for a
payment adjustment year'' at 42 CFR 495.4 for eligible hospitals and
CAHs participating in the Medicare Promoting Interoperability Program
to define the EHR reporting period in CY 2026 and subsequent years as a
minimum of any continuous 180-day period within that calendar year; (2)
to modify the Security Risk Analysis measure to require eligible
hospitals and CAHs to attest
[[Page 36541]]
``yes'' to having conducted security risk management in addition to the
existing measure requirement to attest ``yes'' to having conducted
security risk analysis, beginning with the EHR reporting period in CY
2026; (3) to modify the SAFER Guides measure by requiring eligible
hospitals and CAHs to attest ``yes'' to completing an annual self-
assessment using the eight SAFER Guides published in January 2025,
beginning with the EHR reporting period in CY 2026; and (4) to add an
optional bonus measure to the Public Health and Clinical Data Exchange
objective for eligible hospitals and CAHs that submit health
information to a public health agency (PHA) using the Trusted Exchange
Framework and Common Agreement \TM\ (TEFCA), and consistent with other
measure requirements, beginning with the EHR reporting period in CY
2026.
j. Transforming Episode Accountability Model (TEAM)
In section XI.A. of the preamble of this final rule, we discuss the
changes we finalized and considered for the Transforming Episode
Accountability Model (TEAM). TEAM is a 5-year mandatory model that will
be tested under the authority of section 1115A of the Act, beginning on
January 1, 2026, and ending on December 31, 2030. We finalized changes
to multiple areas of the model, including: (1) a limited deferment
period for certain hospitals; (2) addressing the expiration of the
Medicare Dependent Hospital program; (3) excluding Indian Health
Service (IHS) hospitals from TEAM participation; (4) adding the
Information Transfer Patient Reported Outcome-based Performance Measure
(Information Transfer PRO-PM); (5) applying a neutral quality measure
score for TEAM participants with insufficient quality data; (6) a
methodology to construct target prices when there are coding changes;
(7) reconstructing the normalization factor and prospective trend
factor; (8) replacing the Area Deprivation Index (ADI) with the
Community Deprivation Index (CDI); (9) using a 180-day lookback period
and Hierarchical Condition Categories (HCC) version 28 for beneficiary
risk adjustment; (10) eliminating downside financial risk for low
volume hospitals; (11) aligning the date range used for episode
attribution; (12) removing health equity plans and health related
social needs data reporting; (13) broadening the Skilled Nursing
Facility (SNF) 3-day rule waiver; (14) modifying the referral to
primary care services requirement; and (15) removing the
Decarbonization and Resilience Initiative (DRI).
k. ONC Health IT Certification Program Updates
In the Health Data, Technology, and Interoperability: Patient
Engagement, Information Sharing, and Public Health Interoperability
proposed rule (HTI-2 Proposed Rule) (89 FR 63498), which appeared in
the Federal Register on August 5, 2024, ASTP/ONC proposed a wide-
ranging set of updates to the ONC Health IT Certification Program. In
the Health Data, Technology, and Interoperability: Electronic
Prescribing, Real-Time Prescription Benefit and Electronic Prior
Authorization (HTI-4 final rule), which is being published as part of
the FY 2026 IPPS/LTCH final rule, ASTP/ONC is finalizing a limited
subset of the proposals in the HTI-2 proposed rule. In this section,
ASTP/ONC describes the HTI-2 proposals it is finalizing in this rule.
(1) New and Revised Standards and Certification Criteria
(a) Minimum Standards Code Sets Updates
In section III.B.5 of the preamble of the HTI-2 Proposed Rule,
ASTP/ONC proposed to adopt an updated baseline version of RxNorm,
identified as a minimum standard code set, in 45 CFR 170.207(d)
(Medications), and to reorganize the text of the regulation in 45 CFR
170.207(d). RxNorm is referenced in the ``electronic prescribing'' and
``real-time prescription benefit'' health IT certification criteria
ASTP/ONC is also finalizing in this final rule. ASTP/ONC is finalizing
these proposals in section XI.B.4.b.(2) of the preamble of this final
rule, with modifications. Consistent with 45 CFR 170.555, health IT
developers may use newer versions of the adopted baseline version of a
standard identified as a minimum standard on a voluntary basis.
(b) Revised Electronic Prescribing Certification Criterion
As discussed in section XI.B.4.b.(3) of the preamble of this final
rule, ASTP/ONC is finalizing proposed updates in the HTI-2 Proposed
Rule to the ``electronic prescribing'' criterion in 45 CFR
170.315(b)(3), with modifications. ASTP/ONC is finalizing that, for
technology certified to the criterion in 45 CFR 170.315(b)(3)
subsequent to June 30, 2020, health IT developers must update the
Health IT Module to use the National Council for Prescription Drug
Programs (NCPDP) SCRIPT standard version 2023011 and provide that
update to their customers in order to maintain certification of the
Health IT Module, by January 1, 2028. For the time period up to and
including December 31, 2027, ASTP/ONC is finalizing that developers
certifying a Health IT Module to 45 CFR 170.315(b)(3) may use either
the updated NCPDP SCRIPT standard version 2023011 or the NCPDP SCRIPT
standard version 2017071. ASTP/ONC is also finalizing that any Health
IT Modules for which a health IT developer seeks certification to the
updated criterion using NCPDP SCRIPT standard version 2023011 would
need to support electronic prior authorization transactions in
accordance with the standard. Finally, ASTP/ONC is finalizing a series
of additional updates to 45 CFR[thinsp]170.315(b)(3)(ii), including
removing transactions currently identified as optional for the
certification criterion.
(c) New Real-Time Prescription Benefit Criterion
As discussed in section XI.B.4.b.(4) of the preamble of this final
rule, ASTP/ONC is finalizing the proposal in the HTI-2 Proposed Rule to
adopt a ``real-time prescription benefit'' certification criterion in
45 CFR[thinsp]170.315(b)(4), with modifications. Real-time prescription
benefit tools empower providers and their patients to compare the
patient-specific cost of a drug to the cost of a suitable alternative,
compare prescription costs at different pharmacies, view information
about out-of-pocket costs, and learn whether prior authorization for a
specific drug is required. The certification criterion ASTP/ONC is
finalizing is based on the NCPDP Real-Time Prescription Benefit (RTPB)
standard version 13. ASTP/ONC is also finalizing a proposal to include
this certification criterion in the Base EHR definition in 45
CFR[thinsp]170.102 after January 1, 2028. ASTP/ONC is finalizing these
policies in order to implement section 119(b)(3) of Title I of the
Consolidated Appropriations Act, 2021 (Pub. L. 116-260).
(d) New Certification Criteria for Modular API Capabilities
As discussed in section XI.B.4.b.(5) of the preamble of this final
rule, ASTP/ONC is finalizing two health IT certification criteria for
``modular API capabilities'' proposed in the HTI-2 Proposed Rule.
Specifically, ASTP/ONC is finalizing certification criteria in 45 CFR
170.315(j)(20), ``Workflow triggers for decision support
interventions,'' and 45 CFR 170.315(j)(21), ``Subscriptions--client,''
both of which are cross-referenced by other certification criteria
ASTP/ONC is finalizing to support electronic prior authorization.
[[Page 36542]]
(e) New Certification Criteria for Electronic Prior Authorization
In section III.B.20 of the preamble of the HTI-2 Proposed Rule,
ASTP/ONC proposed to adopt a ``prior authorization API--provider''
criterion in 45 CFR 170.315(g)(34). ASTP/ONC also proposed to adopt a
set of HL7[supreg] FHIR[supreg] implementation guides (IGs) in 45 CFR
170.215 for HHS use, including IGs referenced as part of the proposed
criterion for electronic prior authorization and other IGs that support
interoperable exchange of information between payers, providers, and
patients.
In section XI.B.4.b.(5) of the preamble of this final rule, ASTP/
ONC is finalizing three certification criteria in 45 CFR
170.315(g)(31), (32), and (33) for electronic prior authorization that
are based on the requirements originally proposed in 45 CFR
170.315(g)(34), with modifications. ASTP/ONC is also finalizing
adoption of the IGs proposed in section III.B.20 and incorporating
these specifications by reference in 45 CFR 170.299.
ASTP/ONC is finalizing these criteria to make available Health IT
Modules that can enable health care providers to conduct prior
authorization transactions using payer APIs established by CMS in the
Interoperability and Prior Authorization rule (89 FR 8758). Use of
these Health IT Modules will also support providers and clinicians
participating in the Promoting Interoperability programs and MIPS
Promoting Interoperability performance category required to report on
Electronic Prior Authorization measures.
3. Summary of Costs and Benefits
The following table provides a summary of the costs, savings, and
benefits associated with the major provisions described in section
I.A.2. of the preamble of this final rule.
BILLING CODE 4120-01-P
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[GRAPHIC] [TIFF OMITTED] TR04AU25.037
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[GRAPHIC] [TIFF OMITTED] TR04AU25.038
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BILLING CODE 4120-01-C
B. Background Summary
1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
Section 1886(d) of the Act sets forth a system of payment for the
operating costs of acute care hospital inpatient stays under Medicare
Part A (Hospital Insurance) based on prospectively set rates. Section
1886(g) of the Act requires the Secretary to use a prospective payment
system (PPS) to pay for the capital-related costs of inpatient hospital
services for these ``subsection (d) hospitals.'' Under these PPSs,
Medicare payment for hospital inpatient operating and capital-related
costs is made at predetermined, specific rates for each hospital
discharge. Discharges are classified according to a list of diagnosis-
related groups (DRGs).
The base payment rate is comprised of a standardized amount that is
divided into a labor-related share and a nonlabor-related share. The
labor-related share is adjusted by the wage index applicable to the
area where the hospital is located. If the hospital is located in
Alaska or Hawaii, the nonlabor-related share is adjusted by a cost-of-
living adjustment (COLA) factor. This base payment rate is multiplied
by the DRG relative weight.
If the hospital treats a high percentage of certain low-income
patients, it receives a percentage add-on payment applied to the DRG-
adjusted base payment rate. This add-on payment, known as the
disproportionate share hospital (DSH) adjustment, provides for a
percentage increase in Medicare payments to hospitals that qualify
under either of two statutory formulas designed to identify hospitals
that serve a disproportionate share of low-income patients. For
qualifying hospitals, the amount of this adjustment varies based on the
outcome of the statutory calculations. The Affordable Care Act revised
the Medicare DSH payment methodology and provides for an additional
Medicare payment beginning on October 1, 2013, that considers the
amount of uncompensated care furnished by the hospital relative to all
other qualifying hospitals.
If the hospital is training residents in an approved residency
program(s), it receives a percentage add-on payment for each case paid
under the IPPS, known as the indirect medical education (IME)
adjustment. This percentage varies, depending on the ratio of residents
to beds.
Additional payments may be made for cases that involve new
technologies or medical services that have been approved for special
add-on payments. In general, to qualify, a new technology or medical
service must demonstrate that it is a substantial clinical improvement
over technologies or services otherwise available, and that, absent an
add-on payment, it would be inadequately paid under the regular DRG
payment. In addition, certain transformative new devices and certain
antimicrobial products may qualify under an alternative inpatient new
technology add-on payment pathway by demonstrating that, absent an add-
on payment, they would be inadequately paid under the regular DRG
payment.
The costs incurred by the hospital for a case are evaluated to
determine whether the hospital is eligible for an additional payment as
an outlier case. This additional payment is designed to protect the
hospital from large financial losses due to unusually expensive cases.
Any eligible outlier payment is added to the DRG-adjusted base payment
rate, plus any DSH, IME, and new technology or medical service add-on
adjustments and, beginning in FY 2023 for IHS and Tribal hospitals and
hospitals located in Puerto Rico, the new supplemental payment.
Although payments to most hospitals under the IPPS are made on the
basis of the standardized amounts, some categories of hospitals are
paid in whole or in part based on their hospital-specific rate, which
is determined from their costs in a base year. For example, sole
community hospitals (SCHs) receive the higher of a hospital-specific
rate based on their costs in a base year (the highest of FY 1982, FY
1987, FY 1996, or FY 2006) or the IPPS Federal rate based on the
standardized amount. SCHs are the sole source of care in their areas.
Specifically, section 1886(d)(5)(D)(iii) of the Act defines an SCH as a
hospital that is located more than 35 road miles from another hospital
or that, by reason of factors such as an isolated location, weather
conditions, travel conditions, or absence of other like hospitals (as
determined by the Secretary), is the sole source of hospital inpatient
services reasonably available to Medicare beneficiaries. In addition,
certain rural hospitals previously designated by the Secretary as
essential access community hospitals are considered SCHs.
With the recent enactment of section 2202 of the Full-Year
Continuing Appropriations and Extensions Act, 2025, under current law,
the Medicare-dependent, small rural hospital (MDH) program is effective
through September 30, 2025. For discharges occurring on or after
October 1, 2007, but before October 1, 2025, an MDH receives the higher
of the Federal rate or the Federal rate plus 75 percent of the amount
by which the Federal rate is exceeded by the highest of its FY 1982, FY
1987, or FY 2002 hospital-specific rate. MDHs are a major source of
care for Medicare beneficiaries in their areas. Section
1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is
located in a rural area (or, as amended by the Bipartisan Budget Act of
2018, a hospital located in a State with no rural area that meets
certain statutory criteria), has not more than 100 beds, is not an SCH,
and has a high percentage of Medicare discharges (not less than 60
percent of its inpatient days or discharges in its cost reporting year
beginning in FY 1987 or in two of its three most recently settled
Medicare cost reporting years). As section 2202 of the Full-Year
Continuing Appropriations and Extensions Act, 2025 extended the MDH
program through FY 2025 only, beginning on October 1, 2025, the MDH
program will no longer be in effect absent a change in law. Because the
MDH program is not authorized by statute beyond September 30, 2025,
beginning October 1, 2025, all hospitals that previously qualified for
MDH status under section 1886(d)(5)(G) of the Act will no longer have
MDH status and will be paid based on the IPPS Federal rate.
Section 1886(g) of the Act requires the Secretary to pay for the
capital-related costs of inpatient hospital services in accordance with
a prospective payment system established by the Secretary. The basic
methodology for determining capital prospective payments is set forth
in our regulations at 42 CFR 412.308 and 412.312. Under the capital
IPPS, payments are adjusted by the same DRG for the case as they are
under the operating IPPS. Capital IPPS payments are also adjusted for
IME and DSH, similar to the adjustments made under the operating IPPS.
In addition, hospitals may receive outlier payments for those cases
that have unusually high costs.
The existing regulations governing payments to hospitals under the
IPPS are located in 42 CFR part 412, subparts A through M.
2. Hospitals and Hospital Units Excluded From the IPPS
Under section 1886(d)(1)(B) of the Act, as amended, certain
hospitals and hospital units are excluded from the IPPS. These
hospitals and units are: Inpatient rehabilitation facility (IRF)
hospitals and units; long-term care hospitals (LTCHs); Inpatient
psychiatric hospitals (IPF) and units; children's hospitals; cancer
hospitals; extended neoplastic disease care hospitals, and hospitals
located outside the 50 States,
[[Page 36546]]
the District of Columbia, and Puerto Rico (that is, hospitals located
in the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and
American Samoa). Religious nonmedical health care institutions (RNHCIs)
are also excluded from the IPPS. Various sections of the Balanced
Budget Act of 1997 (BBA) (Pub. L. 105-33), the Medicare, Medicaid and
SCHIP [State Children's Health Insurance Program] Balanced Budget
Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000
(BIPA, Pub. L. 106-554) provide for the implementation of PPSs for IRF
hospitals and units, LTCHs, and psychiatric hospitals and units
(referred to as inpatient psychiatric facilities (IPFs)). (We note that
the annual updates to the LTCH PPS are included along with the IPPS
annual update in this document. Updates to the IRF PPS and IPF PPS are
issued as separate documents.) Children's hospitals, cancer hospitals,
hospitals located outside the 50 States, the District of Columbia, and
Puerto Rico (that is, hospitals located in the U.S. Virgin Islands,
Guam, the Northern Mariana Islands, and American Samoa), and RNHCIs
continue to be paid solely under a reasonable cost-based system,
subject to a rate-of-increase ceiling on inpatient operating costs.
Similarly, extended neoplastic disease care hospitals are paid on a
reasonable cost basis, subject to a rate-of-increase ceiling on
inpatient operating costs.
The existing regulations governing payments to excluded hospitals
and hospital units are located in 42 CFR parts 412 and 413.
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
The Medicare prospective payment system (PPS) for LTCHs applies to
hospitals described in section 1886(d)(1)(B)(iv) of the Act, effective
for cost reporting periods beginning on or after October 1, 2002. The
LTCH PPS was established under the authority of sections 123 of the
BBRA and section 307(b) of the BIPA (as codified under section
1886(m)(1) of the Act). Section 1206(a) of the Pathway for SGR Reform
Act of 2013 (Pub. L. 113-67) established the site neutral payment rate
under the LTCH PPS, which made the LTCH PPS a dual rate payment system
beginning in FY 2016. Under this statute, effective for LTCH's cost
reporting periods beginning in FY 2016 cost reporting period, LTCHs are
generally paid for discharges at the site neutral payment rate unless
the discharge meets the patient criteria for payment at the LTCH PPS
standard Federal payment rate. The existing regulations governing
payment under the LTCH PPS are located in 42 CFR part 412, subpart O.
Beginning October 1, 2009, we issue the annual updates to the LTCH PPS
in the same documents that update the IPPS.
4. Critical Access Hospitals (CAHs)
Under sections 1814(l), 1820, and 1834(g) of the Act, payments made
to critical access hospitals (CAHs) (that is, rural hospitals or
facilities that meet certain statutory requirements) for inpatient and
outpatient services are generally based on 101 percent of reasonable
cost. Reasonable cost is determined under the provisions of section
1861(v) of the Act and existing regulations under 42 CFR part 413.
5. Payments for Graduate Medical Education (GME)
Under section 1886(a)(4) of the Act, costs of approved educational
activities are excluded from the operating costs of inpatient hospital
services. Hospitals with approved graduate medical education (GME)
programs are paid for the direct costs of GME in accordance with
section 1886(h) of the Act. The amount of payment for direct GME costs
for a cost reporting period is based on the hospital's number of
residents in that period and the hospital's costs per resident in a
base year. The existing regulations governing payments to the various
types of hospitals are located in 42 CFR part 413. Section
1886(d)(5)(B) of the Act provides that prospective payment hospitals
that have residents in an approved GME program receive an additional
payment for each Medicare discharge to reflect the higher patient care
costs of teaching hospitals relative to non-teaching hospitals. The
additional payment is based on the indirect medical education (IME)
adjustment factor, which is calculated using a hospital's ratio of
residents to beds and a multiplier, which is set by Congress. Section
1886(d)(5)(B)(ii)(XII) of the Act provides that, for discharges
occurring during FY 2008 and fiscal years thereafter, the IME formula
multiplier is 1.35. The regulations regarding the indirect medical
education (IME) adjustment are located at 42 CFR 412.105.
C. Summary of Provisions of Recent Legislation That Are Implemented in
This Final Rule
1. The Full-Year Continuing Appropriations and Extensions Act, 2025
(Pub. L. 119-4)
Section 2201 of the Full-Year Continuing Appropriations and
Extensions Act, 2025 extended through FY 2025 the modified definition
of a low-volume hospital and the methodology for calculating the
payment adjustment for low-volume hospitals that had been in effect for
FYs 2019 through 2024. Specifically, under section 1886(d)(12)(C)(i) of
the Act, as amended, for FYs 2019 through 2025, a subsection (d)
hospital qualifies as a low-volume hospital if it is more than 15 road
miles from another subsection (d) hospital and has less than 3,800
total discharges during the fiscal year. Under section 1886(d)(12)(D)
of the Act, as amended, for discharges occurring in FYs 2019 through
September 30, 2025, the Secretary determines the applicable percentage
increase using a continuous, linear sliding scale ranging from an
additional 25 percent payment adjustment for low-volume hospitals with
500 or fewer discharges to a zero percent additional payment for low-
volume hospitals with more than 3,800 discharges in the fiscal year.
Section 2202 of the Full-Year Continuing Appropriations and
Extensions Act, 2025 amended sections 1886(d)(5)(G)(i) and
1886(d)(5)(G)(ii)(II) of the Act to provide for an extension of the MDH
program through FY 2025 (that is, through September 30, 2025).
D. Issuance of a Notice of Proposed Rulemaking and Summary of the
Proposed Provisions
The FY 2026 IPPS/LTCH PPS proposed rule appeared in the April 30,
2025, Federal Register (90 FR 18002). In the proposed rule, we set
forth proposed payment and policy changes to the Medicare IPPS for FY
2026 operating costs and capital-related costs of acute care hospitals
and certain hospitals and hospital units that are excluded from IPPS.
In addition, we set forth proposed changes to the payment rates,
factors, and other payment and policy-related changes to programs
associated with payment rate policies under the LTCH PPS for FY 2026.
The following is a general summary of the changes that we proposed
to make.
1. Proposed Changes to MS-DRG Classifications and Recalibrations of
Relative Weights
In section II. of the preamble of the proposed rule, we included
the following:
Proposed changes to MS-DRG classifications based on our
yearly review for FY 2026.
Proposed recalibration of the MS-DRG relative weights.
A discussion of the proposed FY 2026 status of new
technologies approved for add-on payments for FY
[[Page 36547]]
2025, a presentation of our evaluation and analysis of the FY 2026
applicants for add-on payments for high-cost new medical services and
technologies (including public input, as directed by the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)
Public Law 108-173, obtained in a town hall meeting for applications
not submitted under an alternative pathway), and a discussion of the
proposed status of FY 2026 new technology applicants under the
alternative pathways for certain medical devices and certain
antimicrobial products.
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
In section III. of the preamble of the proposed rule, we proposed
revisions to the wage index for acute care hospitals and the annual
update of the wage data. Specific issues addressed include, but are not
limited to, the following:
The proposed FY 2026 wage index update using wage data
from cost reporting periods beginning in FY 2022.
Calculation, analysis, and implementation of the proposed
occupational mix adjustment to the wage index for acute care hospitals
for FY 2026 based on the 2022 Occupational Mix Survey.
Proposed application of the rural, imputed and frontier
State floors, and proposed transition for the discontinuation of the
low wage index hospital policy.
Proposed revisions to the wage index for acute care
hospitals, based on hospital redesignations and reclassifications under
sections 1886(d)(8)(B), (d)(8)(E), and (d)(10) of the Act.
Proposed adjustment to the wage index for acute care
hospitals for FY 2026 based on commuting patterns of hospital employees
who reside in a county and work in a different area with a higher wage
index.
Proposed labor-related share for applying the FY 2026 wage
index.
3. Proposed Rebasing and Revising of the IPPS Market Baskets
In section IV. of the preamble of the proposed rule, we proposed to
rebase and revise the IPPS market baskets to reflect a 2023 base year.
In section IV.B.3. of the preamble of the proposed rule, using the cost
category weights from the proposed 2023-based IPPS market basket, we
proposed to use a labor-related share of 66.0 percent for the national
standardized amounts for all IPPS hospitals (including hospitals in
Puerto Rico) that have a wage index value that is greater than 1.0000.
4. Payment Adjustment for Medicare Disproportionate Share Hospitals
(DSHs) for FY 2026
In section V. of the preamble of the proposed rule, we discussed
the following:
Proposed calculation of Factor 1 and Factor 2 of the
uncompensated care payment methodology.
Proposed methodological approach for determining Factor 3
of the uncompensated care payment for FY 2026, which is the same
methodology that was used for FY 2025.
Proposed methodological approach for determining the
amount of interim uncompensated care payments, using the average of the
most recent 3 years of discharge data.
5. Other Decisions and Proposed Changes to the IPPS for Operating Costs
In section VI. of the preamble of the proposed rule, we discussed
proposed changes or clarifications of a number of the provisions of the
regulations in 42 CFR parts 412 and 413, including the following:
Proposed inpatient hospital market basket update for FY
2026.
Proposed updated national and regional case-mix values and
discharges for purposes of determining RRC status.
Proposed conforming amendments to reflect the statutory
extension of the temporary changes to the low-volume hospital payment
adjustment through September 30, 2025.
Proposed conforming amendments to reflect the statutory
extension of the MDH program through September 30, 2025.
A direct graduate medical education (GME) and indirect
medical education (IME) policy proposal for calculating full-time
equivalent counts and caps for cost reporting periods other than 12
months; and a notice of closure of two teaching hospitals and
opportunities to apply for available slots.
Proposed nursing and allied health education (NAHE)
program Medicare Advantage (MA) add-on rates and direct GME MA percent
reductions for CY 2024; and proposed regulatory changes regarding the
calculation of net cost of NAHE.
Proposed update to and revision to the payment adjustment
for certain immunotherapy cases.
Proposed changes to the requirements of the Hospital
Readmissions Reduction Program--Updating the proposed estimate of the
financial impacts for the FY 2026 Hospital Readmissions Reduction
Program.
Proposed changes to the requirements of the Hospital
Value-Based Purchasing Program--Updating the proposed estimate of the
financial impacts for the FY 2026 Hospital Value-Based Purchasing
Program.
Proposed changes to the requirements of the Hospital-
Acquired Conditions Reduction Program--Updating the proposed estimate
of the financial impacts for the FY 2026 Hospital-Acquired Conditions
Reduction Program.
Discussion of and proposed changes relating to the
implementation of the Rural Community Hospital Demonstration Program in
FY 2025.
6. Proposed FY 2026 Policy Governing the IPPS for Capital-Related Costs
In section VII. of the preamble of the proposed rule, we discussed
the proposed payment policy requirements for capital-related costs and
capital payments to hospitals for FY 2026.
7. Proposed Changes to the Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages
In section VIII. of the preamble of the proposed rule, we discussed
the following:
Proposed changes to payments to certain excluded hospitals
for FY 2026.
Proposed continued implementation of the Frontier
Community Health Integration Project (FCHIP) Demonstration.
8. Proposed Changes to the LTCH PPS
In section IX. of the preamble of the proposed rule, we set forth
proposed changes to the LTCH PPS Federal payment rates, factors, and
other payment rate policies under the LTCH PPS for FY 2026.
9. Proposed Changes Relating to Quality Data Reporting for Specific
Providers and Suppliers
In section X. of the preamble of the proposed rule, we addressed
the following:
Solicitation of comment on adopting measures across the
hospital quality reporting and value-based purchasing programs which
capture more forms of unplanned post-acute care and encourage hospitals
to improve discharge processes.
Proposed changes to the requirements for the Hospital IQR
Program.
Proposed changes to the requirements for the PCHQR
Program.
Proposed changes to the requirements for the LTCH QRP, and
requests for information on future measure concepts, revisions to the
data
[[Page 36548]]
submission deadlines for assessment data collection, and advancing
digital quality measurement (dQM) in the LTCH QRP.
Proposed changes to requirements pertaining to eligible
hospitals and CAHs participating in the Medicare Promoting
Interoperability Program.
10. Other Proposals and Comment Solicitations Included in the Proposed
Rule
Section XI. of the preamble of the proposed rule included proposed
changes to TEAM that would affect participation, quality measure and
assessment, pricing methodology, health data reporting, waivers of
Medicare Program requirements, and the Decarbonization and Resilience
Initiative.
11. Other Provisions of the Proposed Rule
Section XII.A. of the preamble of the proposed rule includes our
discussion of the MedPAC Recommendations.
Section XII.B. of the preamble of the proposed rule includes a
descriptive listing of the public use files associated with the
proposed rule.
Section XIII. of the preamble of the proposed rule includes the
collection of information requirements for entities based on our
proposals.
Section XIV. of the preamble of the proposed rule includes
information regarding our responses to public comments.
12. Determining Prospective Payment Operating and Capital Rates and
Rate-of-Increase Limits for Acute Care Hospitals
In sections II. and III. of the Addendum of the proposed rule, we
set forth proposed changes to the amounts and factors for determining
the proposed FY 2026 prospective payment rates for operating costs and
capital-related costs for acute care hospitals, including cost-of-
living adjustment (COLA) factors for IPPS hospitals located in Alaska
and Hawaii. We proposed to establish the threshold amounts for outlier
cases. In addition, in section IV. of the Addendum of the proposed
rule, we addressed the proposed update factors for determining the
rate-of-increase limits for cost reporting periods beginning in FY 2026
for certain hospitals excluded from the IPPS.
13. Determining Prospective Payment Rates for LTCHs
In section V. of the Addendum of the proposed rule, we set forth
proposed changes to the amounts and factors for determining the
proposed FY 2026 LTCH PPS standard Federal payment rate and other
factors used to determine LTCH PPS payments under both the LTCH PPS
standard Federal payment rate and the site neutral payment rate in FY
2026. We proposed to establish the adjustments for the wage index,
labor-related share, the cost-of-living adjustment, and high-cost
outliers, including the applicable fixed-loss amounts and the LTCH
cost-to-charge ratios (CCRs) for both payment rates.
14. Impact Analysis
In Appendix A of the proposed rule, we set forth an analysis of the
impact the proposed changes would have on affected acute care
hospitals, LTCHs, and other entities.
15. Recommendation of Update Factors for Operating Cost Rates of
Payment for Hospital Inpatient Services
In Appendix B of the proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provided our recommendations of
the appropriate percentage changes for FY 2026 for the following:
A single average standardized amount for all areas for
hospital inpatient services paid under the IPPS for operating costs of
acute care hospitals (and hospital-specific rates applicable to SCHs
and MDHs).
Target rate-of-increase limits to the allowable operating
costs of hospital inpatient services furnished by certain hospitals
excluded from the IPPS.
The LTCH PPS standard Federal payment rate and the site
neutral payment rate for hospital inpatient services provided for LTCH
PPS discharges.
16. Discussion of Medicare Payment Advisory Commission Recommendations
Under section 1805(b) of the Act, MedPAC is required to submit a
report to Congress, no later than March 15 of each year, in which
MedPAC reviews and makes recommendations on Medicare payment policies.
MedPAC's March 2025 recommendations concerning hospital inpatient
payment policies address the update factor for hospital inpatient
operating costs and capital-related costs for hospitals under the IPPS.
We addressed these recommendations in Appendix B of the proposed rule.
For further information relating specifically to the MedPAC March 2025
report or to obtain a copy of the report, contact MedPAC at (202) 220-
3700 or visit MedPAC's website at https://www.medpac.gov.
E. Public Comments Received in Response to the FY 2026 IPPS/LTCH PPS
Proposed Rule
We received approximately 5,409 timely pieces of correspondence
containing multiple comments on the proposed rule that appeared in the
April 30, 2025 Federal Register (89 FR 18002) titled ``Medicare
Program; Hospital Inpatient Prospective Payment Systems for Acute Care
Hospitals and the Long- Term Care Hospital Prospective Payment System
and Policy Changes and Fiscal Year 2026 Rates; Requirements for Quality
Programs; and Other Policy Changes'' (hereinafter referred to as the FY
2026 IPPS/LTCH PPS proposed rule). We note that some of these public
comments were outside of the scope of the proposed rule. These out-of-
scope public comments are not addressed with policy responses in this
final rule. Summaries of the public comments that are within the scope
of the proposed rule and our responses to those public comments are set
forth in the various sections of this final rule under the appropriate
heading.
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG)
Classifications and Relative Weights
A. Background
Section 1886(d) of the Act specifies that the Secretary shall
establish a classification system (referred to as diagnosis-related
groups (DRGs)) for inpatient discharges and adjust payments under the
IPPS based on appropriate weighting factors assigned to each DRG.
Therefore, under the IPPS, Medicare pays for inpatient hospital
services on a rate per discharge basis that varies according to the DRG
to which a beneficiary's stay is assigned. The formula used to
calculate payment for a specific case multiplies an individual
hospital's payment rate per case by the weight of the DRG to which the
case is assigned. Each DRG weight represents the average resources
required to care for cases in that particular DRG, relative to the
average resources used to treat cases in all DRGs.
Section 1886(d)(4)(C) of the Act requires that the Secretary adjust
the DRG classifications and relative weights at least annually to
account for changes in resource consumption. These adjustments are made
to reflect changes in treatment patterns, technology, and any other
factors that may change the relative use of hospital resources.
[[Page 36549]]
B. Adoption of the MS-DRGs and MS-DRG Reclassifications
For information on the adoption of the MS-DRGs in FY 2008, we refer
readers to the FY 2008 IPPS final rule with comment period (72 FR 47140
through 47189).
For general information about the MS-DRG system, including yearly
reviews and changes to the MS-DRGs, we refer readers to the previous
discussions in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR
43764 through 43766) and the FYs 2011 through 2025 IPPS/LTCH PPS final
rules (75 FR 50053 through 50055; 76 FR 51485 through 51487; 77 FR
53273; 78 FR 50512; 79 FR 49871; 80 FR 49342; 81 FR 56787 through
56872; 82 FR 38010 through 38085; 83 FR 41158 through 41258; 84 FR
42058 through 42165; 85 FR 58445 through 58596; 86 FR 44795 through
44961; 87 FR 48800 through 48891; 88 FR 58654 through 58787; and 89 FR
69000 through 69109, respectively). For discussion regarding our
previously finalized policies (including our historical adjustments to
the payment rates) relating to the effect of changes in documentation
and coding that do not reflect real changes in case mix, we refer
readers to the FY 2023 IPPS/LTCH PPS final rule (87 FR 48799 through
48800).
Comment: A commenter summarized the statutory and regulatory
history regarding the documentation and coding recoupment adjustments
required under section (7)(b) of the TMA, Abstinence Education, and QI
Programs Extension Act of 2007 (Pub. L. 110-90), as amended. The
commenter reiterated its position that the total level of adjustments
made by CMS under this section took back more than was authorized by
Congress and stated that section 7(b)(2) of Public Law 110-90 requires
CMS to increase the standardized amount by 0.9412% to avoid carrying
over into FY 2026 the -3.9% reduction to the standardized amount that
law required between FY 2013 and FY 2017.
Response: As of FY 2023, CMS completed the statutory requirements
of section 7(b)(1)(B) of Public Law 110-90 as amended by section 631 of
the American Taxpayer Relief Act of 2012 (ATRA, Pub. L. 112-240),
section 404 of the Medicare Access and CHIP Reauthorization Act of 2015
(MACRA) (Pub. L. 114-10), and section 15005 of the 21st Century Cures
Act (Pub. L. 114-255). As we discussed in the FY 2022 IPPS/LTCH PPS
final rule (86 FR 44794 through 44795), the FY 2021 IPPS/LTCH PPS final
rule (85 FR 58444 through 58445) and in prior rules, we believe section
414 of the MACRA and section 15005 of the 21st Century Cures Act set
forth the levels of positive adjustments for FYs 2018 through 2023.
Those adjustments added up to +2.9488 percentage points, not +3.9
percentage points, and we see no evidence that Congress enacted that
smaller adjustment schedule with the silent intent that CMS would later
make a permanent 0.9412% payment adjustment to reach a total +3.9
percentage point adjustment. To the contrary, section 414 of MACRA
instructs the agency to ``not make the adjustment (estimated to be an
increase of 3.2 percent) that would otherwise apply for discharges
occurring during fiscal year 2018 by reason of the completion of the
adjustments required under clause (ii).'' Because the adjustment ``that
would otherwise apply'' in fiscal year 2018 but for clause (1)(B)(iii)
was +3.9%, the commenter's suggestion to complete making that
adjustment now is inconsistent with the statute's text.
Subparagraph (b)(2) of Public Law 110-90 does not compel a contrary
result. As the U.S. Court of Appeals for the D.C. Circuit has
explained, that provision simply requires CMS ``to ignore recoupment
adjustments'' when ``calculat[ing] and apply[ing] the annual
`percentage increase' '' to base rates provided for in the Medicare
statute to account for inflation. Fresno Community Hospital & Medical
Center v. Cochran, 987 F.3d 158, 163 (D.C. Cir. 2021). The Secretary
has complied with that instruction. Similarly, the commenter's
citations to statements the agency made in the Federal Register about
its intent to unwind the reductions to the standardized amount the
agency made between FY 2013 and FY 2017 were made before Congress
passed clause (1)(B)(iii) and have been countermanded by that
provision. We therefore decline the commenter's suggestion to read into
section 7(b) of Public Law 110-90 implied authority to increase the
standardized payment amount by 0.9412%.
C. Changes to Specific MS-DRG Classifications
1. Discussion of Changes to Coding System and Basis for FY 2026 MS-DRG
Updates
a. International Classification of Diseases, 10th Revision (ICD-10)
Providers use the International Classification of Diseases, 10th
Revision (ICD-10) coding system to report diagnoses and procedures for
Medicare hospital inpatient services under the MS-DRG system. The ICD-
10 coding system includes the International Classification of Diseases,
10th Revision, Clinical Modification (ICD-10-CM) for diagnosis coding
and the International Classification of Diseases, 10th Revision,
Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure
coding, as well as the ICD-10-CM and ICD-10-PCS Official Guidelines for
Coding and Reporting.
b. Basis for FY 2026 MS-DRG Updates
The deadline for interested parties to submit MS-DRG classification
change requests for FY 2026 was October 20, 2024. All requests are
submitted to CMS via Medicare Electronic Application Request
Information SystemTM (MEARISTM), accessed at
https://mearis.cms.gov. Specifically, as indicated on the
MEARISTM site, the MS-DRG classification change request
process may be used for requests to create, modify, or delete MS-DRGs,
change ICD-10-CM diagnosis code(s) severity level designations, change
ICD-10-PCS procedure code(s) Operating Room (O.R.) designations, or to
review the CC Exclusions List or the surgical hierarchy.
Within MEARISTM, we have built in several resources to
support users, including a ``Resources'' section available at https://mearis.cms.gov/public/resources with technical support available under
``Useful Links'' at the bottom of the MEARISTM site.
Questions regarding the MEARISTM system can be submitted to
CMS using the form available under ``Contact'', also at the bottom of
the MEARISTM site.
We note that the burden associated with this information collection
requirement is the time and effort required to collect and submit the
data in the request for MS-DRG classification changes to CMS. The
aforementioned burden is subject to the Paperwork Reduction Act (PRA)
of 1995 and approved under OMB control number 0938-1431 and has an
expiration date of 09/30/2025.
Interested parties should submit any MS-DRG classification change
requests, including any comments and suggestions for FY 2027
consideration by October 20, 2025 via MEARISTM at: https://mearis.cms.gov/public/home. As we have discussed in prior rulemaking,
we may not be able to fully consider all of the requests that we
receive for the upcoming fiscal year. We have found that, with the
implementation of ICD 10, some types of requested changes to the MS-DRG
classifications require more extensive research to identify and analyze
all of the data that are relevant to evaluating the potential change.
[[Page 36550]]
Beginning with the MS-DRG classification change requests that are
submitted for FY 2027 consideration, we plan to inform requestors via
MEARISTM if the MS-DRG classification change request is not
able to be considered with the upcoming fiscal year rulemaking cycle.
As in prior years, requests that may require more extensive analysis
may include those involving multiple MS-DRGs, overlapping logic across
multiple Major Diagnostic Categories (MDCs), special logic such as
diagnosis codes combined with procedure codes, and/or complex logic
including code clusters or multiple logic lists. Beginning with FY 2027
rulemaking, we will no longer summarize in the proposed and final rules
those requests that are not able to be considered for the upcoming FY.
As noted previously, interested parties had to submit MS-DRG
classification change requests for FY 2026 by October 20, 2024. As we
have discussed in prior rulemaking and as previously noted, we may not
be able to fully consider all of the requests that we receive for the
upcoming fiscal year. In the proposed rule, we noted those topics for
which further research and analysis are required, and which we will
continue to consider in connection with future rulemaking as summarized
in the discussion that follows. We further noted that we also received
recommendations and feedback that did not involve requests to create,
modify, or delete MS-DRGs, change code designations, or to review the
CC Exclusions List or the surgical hierarchy, which therefore were not
summarized or addressed in the discussion of the MS-DRG classification
change requests received for FY 2026.
As discussed in the proposed rule, we received requests to modify
the GROUPER logic in several MS-DRGs under MDC 08 (Diseases and
Disorders of the Musculoskeletal System and Connective Tissue) and a
request to modify the GROUPER logic for MS-DRG 794 (Neonate with Other
Significant Problems) under MDC 15 (Newborns and Other Neonates with
Conditions Originating in Perinatal Period). Specifically, we received
requests to do the following:
Modify the GROUPER logic of new MS-DRG 426 (Multiple Level
Combined Anterior and Posterior Spinal Fusion Except Cervical with MCC
or Custom-Made Anatomically Designed Interbody Fusion Device), new MS-
DRG 427 (Multiple Level Combined Anterior and Posterior Spinal Fusion
Except Cervical with CC), and new MS-DRG 428 (Multiple Level Combined
Anterior and Posterior Spinal Fusion Except Cervical without CC/MCC);
new MS-DRG 447 (Multiple Level Spinal Fusion Except Cervical with MCC
or Custom-Made Anatomically Designed Interbody Fusion Device) and new
MS-DRG 448 (Multiple Level Spinal Fusion Except Cervical without MCC);
and MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with
Spinal Curvature, Malignancy, Infection or Extensive Fusions with MCC,
with CC, and without CC/MCC, respectively) by reassigning cases with an
ICD-10-PCS code that describes fusion of a sacroiliac joint using an
internal fixation device with tulip connector or insertion of an
internal fixation device with tulip connector into a pelvic bone with
another spinal fusion procedure code that currently map to the lower
severity level MS-DRG to the highest severity level (with MCC) MS-DRG.
Modify the GROUPER logic of MS-DRGs 463, 464, and 465
(Wound Debridement and Skin Graft Except Hand for Musculoskeletal and
Connective Tissue Disorders with MCC, with CC, and without CC/MCC,
respectively); MS-DRGs 466, 467, and 468 (Revision of Hip or Knee
Replacement with MCC, with CC, and without CC/MCC, respectively); and
MS-DRGs 492, 493, and 494 (Lower Extremity and Humerus Procedures
Except Hip, Foot and Femur with MCC, with CC, and without CC/MCC,
respectively) by reassigning cases with ICD-10-PCS code XW0V0P7
(Introduction of antibiotic-eluting bone void filler into bones, open
approach, new technology group 7) that currently map to the lower
severity level MS-DRG to the highest severity level (with MCC) MS-DRG.
Modify the GROUPER logic of MS-DRG 794. The requestor
recommended that ICD-10-CM diagnosis codes P09.6 (Abnormal findings on
neonatal screening for neonatal hearing loss), Z13.0 (Encounter for
screening for diseases of the blood and blood-forming organs and
certain disorders involving the immune mechanism), Z82.5 (Family
history of asthma and other chronic lower respiratory diseases) and
Z82.79 (Family history of other congenital malformations, deformations
and chromosomal abnormalities), be added to the MS-DRG 795 (Normal
Newborn) ``only secondary diagnosis'' list so that they would result in
assignment to MS-DRG 795 when coded with a principal diagnosis code
from ICD-10-CM category Z38 (Liveborn infants according to place of
birth and type of delivery) instead of MS-DRG 794.
In the proposed rule, we stated that we appreciated the submissions
and related analyses provided by the requestors for our consideration
as we review MS-DRG classification change requests for FY 2026;
however, we also noted the complexity of the GROUPER logic for these
MS-DRGs in connection with these requests requires more extensive
analyses to identify and evaluate all the data relevant to assessing
these potential modifications. Specifically, we noted that MS-DRGs 426,
427, 428, 447, and 448 recently became effective October 1, 2024 (FY
2025) and as discussed in the FY 2025 IPPS/LTCH PPS proposed rule (89
FR 35982 through 35983) and final rule (89 FR 69049 through 69053) in
consideration of any future modifications to the current structure of
the logic for case assignment to MS-DRGs 456, 457, and 458 we noted
that additional analysis would be needed because the logic is also
defined by diagnosis code logic as well as extensive fusions. We also
noted that, as discussed further in section II.C.5.c. of the preamble
of the FY 2026 IPPS/LTCH PPS proposed rule, we identified additional
inconsistencies related to the diagnosis code logic for MS-DRGs 456,
457, and 458 for which we proposed modifications. In addition, we
stated that analyzing the impact of restructuring the logic in these
MS-DRGs with respect to procedure codes describing fusion of a
sacroiliac joint using an internal fixation device with tulip connector
necessitates evaluating the impact across numerous other MS-DRGs in MDC
08, as well as MS-DRG 028 (Spinal Procedures with MCC), MS-DRG 029
(Spinal Procedures with CC or Spinal Neurostimulators), and MS-DRG 030
(Spinal Procedures without CC/MCC) under MDC 01 (Diseases and Disorders
of the Nervous System) since the procedure codes describing fusion of a
sacroiliac joint using an internal fixation device with tulip connector
also map to these MS-DRGs.
With respect to the request to reassign cases reporting procedure
code XW0V0P7 from the lower severity level to the highest (with MCC)
severity level in the previously listed MS-DRGs, we noted in the
proposed rule that the procedure to insert a bone void filler is
designated as a non-operating room (Non-O.R.) procedure and believe
that the key factor that would contribute to resource utilization in
these cases is the fact that the patients have an infection(s) which
require additional resources. As discussed in section II.C.5.a. of the
preamble of the FY 2026 IPPS/LTCH PPS proposed rule, we also noted that
we received an MS-DRG request related to cases reporting a hip or knee
procedure with a diagnosis of
[[Page 36551]]
periprosthetic joint infection (PJI) in MS-DRGs 463, 464, and 465. We
stated that in our review of the claims data to address that request we
noted that a subset of the cases also reported procedure code XW0V0P7.
As discussed in the proposed rule, consistent with our established
process, we must also consider if there are additional factors, such as
the severity of illness with other secondary CC/MCC conditions reported
and any other O.R. procedures or services provided, such as mechanical
ventilation, that may be contributing to the consumption of resources
for these cases. We stated that, for these reasons and those previously
described, we believed additional time was needed to review and
evaluate potential extensive modifications to the structure of these
MS-DRGs.
In the proposed rule, we noted that with respect to the request to
modify the GROUPER logic of MS-DRG 794, as discussed in the FY 2025
IPPS/LTCH PPS final rule (89 FR 69061 through 69065), we acknowledged
that MS-DRG 794 utilizes ``fall-through'' logic, meaning if a diagnosis
code is not assigned to any of the other MS-DRGs, then assignment
``falls-through'' to MS-DRG 794. As discussed in the FY 2025 IPPS/LTCH
PPS rule, we stated we have started to examine the GROUPER logic that
would determine the assignment of cases to the MS-DRGs in MDC 15,
including MS-DRGs 794 and 795, to determine where further refinements
could potentially be made to better account for differences in clinical
complexity and resource utilization. However, as we have noted in prior
rulemaking (72 FR 47152), we stated we cannot adopt the same approach
to refine the newborn MS-DRGs because of the extremely low volume of
Medicare patients there are in these MS-DRGs. We stated we believe it
is appropriate to consider the request to add ICD-10-CM diagnosis codes
P09.6 (Abnormal findings on neonatal screening for neonatal hearing
loss), Z13.0 (Encounter for screening for diseases of the blood and
blood-forming organs and certain disorders involving the immune
mechanism), Z82.5 (Family history of asthma and other chronic lower
respiratory diseases) and Z82.79 (Family history of other congenital
malformations, deformations and chromosomal abnormalities) to the MS-
DRG 795 (Normal Newborn) ``only secondary diagnosis'' list in
connection with our continued examination of the GROUPER logic that
would determine the assignment of cases to the MS-DRGs in MDC 15 in
future rulemaking, rather than proposing to change the MS-DRG
assignment of individual ICD-10-CM diagnosis codes at this time. We
stated that additional time is needed to fully and accurately evaluate
cases currently grouping to the MS-DRGs in MDC 15 to consider if
restructuring the current MS-DRGs would better recognize the clinical
distinctions of these patient populations.
Comment: A commenter (the manufacturer) thanked CMS for
consideration of its request to reassign cases with an ICD-10-PCS code
that describes fusion of a sacroiliac joint using an internal fixation
device with tulip connector or insertion of an internal fixation device
with tulip connector into a pelvic bone with another spinal fusion
procedure code that currently map to the lower severity level MS-DRG to
the highest severity level (with MCC) MS-DRG and expressed their
understanding that resources are limited such that not every request
may be considered each cycle. However, the commenter stated they were
hopeful that CMS would move forward with their recommendations, so that
hospitals supporting these case types in FY 2026 would be compensated
appropriately. The commenter provided additional information and
analyses for CMS' consideration, including analyses with the proposed
diagnosis code logic changes for MS-DRGs 456, 457, and 458, and stated
its findings reinforce that the reassignment request for FY 2026
involving MS-DRGs 426, 427, and 428; MS-DRGs 456, 457, and 458; and MS-
DRGs 447 and 448 to maintain payment accuracy and protect access to
care for Medicare beneficiaries requiring advanced sacropelvic fixation
is warranted, given the significant cost differences reported for these
cases compared to all other cases in related MS-DRGs.
Several commenters (members of an international society for spine
surgery) suggested that CMS finalize the requested reassignment of
cases reporting a sacroiliac joint fusion or pelvic fixation procedure
with another spinal fusion procedure code from the lower severity level
to the higher severity level spinal fusion MS-DRG in FY 2026 IPPS
rulemaking. The commenters stated that in comparison to standard spinal
fusion cases, procedures that include sacroiliac joint fusion and
pelvic fixation represent a substantial increase in surgical
complexity, operative time, and instrumentation cost. According to the
commenters, the addition of both sacroiliac joint fusion and pelvic
fixation adjunctive to spinal fusion introduces a level of surgical
intensity that is not currently accounted for in the existing MS-DRG
assignments. The commenters encouraged CMS to recognize the added
clinical burden and cost associated with these cases and assign them to
MS-DRGs that appropriately reflect their complexity.
A commenter stated that CMS should reconsider its rejection of the
request to reassign cases reporting procedures describing sacroiliac
joint and pelvic internal fixation devices using a tulip connector.
Another commenter stated that while there is an increased cost in
performing pelvic fixation, its use dramatically lowers the risk of
failure and reoperation, both of which lead to extraordinary cost
escalation for care of these patients. The commenter also stated that
long-term sustainability of the health care landscape depends on CMS
incentivizing and supporting better care for these spinal patients
through reassigning these higher cost cases to the higher paying MCC
MS-DRG in the relevant MS-DRG grouping.
In response to the discussion regarding the request to reassign
cases reporting procedure code XW0V0P7 (Introduction of antibiotic-
eluting bone void filler into bones, open approach, new technology
group 7) from the lower severity level to the highest (with MCC)
severity level MS-DRG among MS-DRGs 463, 464, and 465; MS-DRGs 466,
467, and 468; and MS-DRGs 492, 493, and 494, a commenter (the
manufacturer) expressed concern that CMS did not act on its request and
deferred the requested changes. The commenter stated its belief that
without action on its request, the payment outlook for cases reporting
procedure code XW0V0P7 for bone infection will result in underpayment
and suppress hospital adoption and patient access to improved clinical
outcomes. Additionally, the commenter stated that CMS' reasoning to
defer decision making on claims reporting procedure code XW0V0P7 was
based on the procedures non-O.R. designation and it was confusing to
them as most treatments of bone infection with the antibiotic-eluting
bone void filler (code XW0V0P7) are performed in the O.R. The commenter
further stated that CMS should reconsider its FY 2026 decision to
postpone action on the MS-DRG modification request to reassign cases
reporting procedure code XW0V0P7 and clarify the criteria for how
procedures are assigned O.R. versus non-O.R. status, as well as whether
having O.R. status for a procedure code is essential for the code to
potentially influence the MS-DRG assignment in the GROUPER. The
commenter provided additional information and analyses for CMS'
consideration and stated that cases
[[Page 36552]]
reporting procedure code XW0V0P7 show a compelling discrepancy in
resource use that should not be ignored.
With respect to our discussion regarding the request to modify the
GROUPER logic of MS-DRG 794, a commenter specifically stated they
appreciate CMS' ongoing examination of the GROUPER logic for the MS-
DRGs in MDC 15 (Newborns and Other Neonates with Conditions Originating
in Perinatal Period) to determine if restructuring the current MS-DRGs
would better recognize the clinical distinctions of these patient
populations.
Response: We thank the commenters for sharing their feedback on
these requests. As discussed in the proposed rule, we have found that
with the implementation of ICD-10, some types of requested changes to
the MS-DRG classifications require more extensive research to identify
and analyze the relevant data for evaluating a potential change.
With respect to the comments received in response to our proposed
rule discussion of the request to modify the GROUPER logic of MS-DRGs
426, 427, and 428, MS-DRGs 456, 457, and 458, and MS-DRGs 447 and 448,
while many commenters stated their belief that a modification to the
logic of these MS-DRGs is warranted for FY 2026, we note that we did
not propose a change to the logic for FY 2026, nor did we state the
request was specifically rejected. Rather, we noted in the proposed
rule that we will continue to consider this request in connection with
future rulemaking. We appreciate the analysis that the commenter (the
manufacturer) performed and the findings it shared, including with the
proposed changes to the diagnosis code logic for MS-DRGs 456, 457, and
458; however, as discussed in the proposed rule, the proposed changes
for MS-DRGs 456, 457, and 458 involving diagnosis code logic were only
one of several considerations as to why additional time is needed to
evaluate the reassignment request (90 FR 18012). We note that the logic
for case assignment to MS-DRGs 456, 457, and 458 is also defined by
extensive fusions. In addition, MS-DRGs 426, 427, 428, 447, and 448
(that is, multiple level spinal fusions) recently became effective
October 1, 2024 which we are continuing to monitor. The data analysis
necessary to examine the intricate logic within the spinal fusion MS-
DRGs outlined in the request is complex and requires additional time
for careful consideration of case redistribution and potential relative
weight impacts, in connection with other related spinal fusion
procedure requests that may be discussed in future rulemaking.
With respect to the comment we received in response to our proposed
rule discussion of the request to reassign cases with ICD-10-PCS code
XW0V0P7 (Introduction of antibiotic-eluting bone void filler into
bones, open approach, new technology group 7) among MS-DRGs 463, 464,
and 465; MS-DRGs 466, 467, and 468; and MS-DRGs 492, 493, and 494,
while the commenter stated that CMS should reconsider the decision to
postpone action on the request to modify the MS-DRG logic for the
aforementioned MS-DRGs for FY 2026, we note that we did not propose a
change to the logic for FY 2026. Rather, we noted in the proposed rule
that we will continue to consider this request in connection with
future rulemaking. We appreciate the analysis that the commenter (the
manufacturer) performed and the findings it shared; however, we note
that in addition to assessing impacts in association with other MS-DRG
requests being considered, there are various types of bone void fillers
and additional data analysis would also need to be performed to assess
cases reporting the procedure codes describing those alternative
products for comparison. While we did not propose a change to the
assignment of these cases for FY 2026, we noted in our proposed rule
discussion that we will continue to consider this request in connection
with future rulemaking.
As previously discussed, we will continue to consider these issues
in connection with future rulemaking. As we develop and refine our
analysis of the claims data with respect to MS-DRGs in MDC 01, MDC 08,
and MDC 15, we welcome feedback on other factors that should be
considered in the potential restructuring of these MS-DRGs. Feedback
and other suggestions may be directed to MEARISTM at:
https://mearis.cms.gov/public/home. As noted, interested parties should
submit any MS-DRG classification change requests, including any
comments and suggestions for FY 2027 consideration by October 20, 2025
via MEARISTM at: https://mearis.cms.gov/public/home.
As we did for the FY 2025 IPPS/LTCH PPS proposed rule, for the FY
2026 IPPS/LTCH PPS proposed rule we provided a test version of the ICD-
10 MS-DRG GROUPER Software, Version 43, so that the public can better
analyze and understand the impact of the proposals included in the
proposed rule. We noted that this test software reflected the proposed
GROUPER logic for FY 2026. Therefore, it included the new diagnosis and
procedure codes that are effective for FY 2026 as reflected in Table
6A.--New Diagnosis Codes--FY 2026 and Table 6B.--New Procedure Codes--
FY 2026 associated with the proposed rule and does not include the
diagnosis codes that are invalid beginning in FY 2026 as reflected in
Table 6C.--Invalid Diagnosis Codes--FY 2026 and Table 6D.--Invalid
Procedure Codes--FY 2026 associated with the proposed rule. Those
tables were not published in the Addendum to the FY 2026 IPPS/LTCH PPS
proposed rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the
Addendum to the FY 2026 IPPS/LTCH PPS proposed rule. Because the
diagnosis and procedure codes no longer valid for FY 2026 are not
reflected in the test software, we made available a supplemental file
in Table 6P.1a that includes the mapped Version 43 FY 2026 ICD-10-CM
codes and the deleted Version 42 FY 2025 ICD-10-CM codes and Table
6P.1b that includes the mapped Version 43 FY 2026 ICD-10-PCS codes and
the deleted Version 42.1 FY 2025 ICD-10-PCS codes that should be used
for testing purposes with users' available claims data. Therefore,
users had access to the test software allowing them to build case
examples that reflect the proposals that were included in the proposed
rule. In addition, users were able to view the draft version of the
ICD-10 MS-DRG Definitions Manual, Version 43 that contains the
documentation for proposed FY 2026 ICD-10 MS-DRG GROUPER Version 43
logic changes and were also able to view a draft version of the
Definitions of Medicare Code Edits (MCE) Manual to review any changes
that will become effective October 1 for FY 2026. In the proposed rule
we also noted that, as a result of new and modified code updates
approved after the annual spring ICD-10 Coordination and Maintenance
Committee meeting, any further changes to the MCE will be reflected in
the finalized Definitions of Medicare Code Edits (MCE) Manual, made
available in association with the annual IPPS/LTCH PPS final rule. As
such, we made available the draft FY 2026 ICD-10 MCE Version 43 Manual
file on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.
We noted in the proposed rule that the MCE manual is comprised of
two chapters: Chapter 1: Edit code lists provides a listing of each
edit, an
[[Page 36553]]
explanation of each edit, and as applicable, the diagnosis and/or
procedure codes for each edit, and Chapter 2: Code list changes
summarizes the changes in the edit code lists (for example, additions
and deletions) from the prior release of the MCE software. We also
stated that the public may submit any questions, comments, concerns, or
recommendations regarding the MCE to the CMS mailbox at
[email protected] for our review and consideration.
In association with the proposed rule, we made available the test
version of the ICD-10 MS-DRG GROUPER Software, Version 43, the draft
version of the ICD-10 MS-DRG Definitions Manual, Version 43, the draft
version of the Definitions of Medicare Code Edits Manual, Version 43,
and the supplemental mapping files in Tables 6P.1a and 6P.1b of the FY
2025 and FY 2026 ICD-10-CM diagnosis codes and ICD-10-PCS procedure
codes which are available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.
Comment: Commenters expressed appreciation that we provided a test
version of the ICD-10 MS-DRG GROUPER Software, Version 43, along with
mapping files to assist with analysis, however, the commenters stated
that this version essentially only allows for a case-by-case analysis
and a minimal batch analysis. The commenters stated that it would be
more beneficial to have a Batch z/OS version of the test GROUPER so
that it could be better utilized for broader and more meaningful
analysis purposes. The commenters requested that availability of a
Batch z/OS version of the test GROUPER be made publicly available for
all future rulemaking.
Response: We appreciate the commenters' feedback and will take the
suggestion into consideration.
Following are the changes that we proposed to the MS-DRGs for FY
2026. We invited public comments on each of the MS-DRG classification
proposed changes, as well as our proposals to maintain certain existing
MS-DRG classifications discussed in the FY 2026 IPPS/LTCH PPS proposed
rule. In some cases, we proposed changes to the MS-DRG classifications
based on our analysis of claims data and clinical appropriateness. In
other cases, we proposed to maintain the existing MS-DRG
classifications based on our analysis of claims data and clinical
appropriateness. As discussed in the FY 2026 IPPS/LTCH PPS proposed
rule, our MS-DRG analysis was based on ICD-10 claims data from the
September 2024 update of the FY 2024 MedPAR file, which contains
hospital bills received from October 1, 2023 through September 30,
2024. In our discussion of the proposed MS-DRG reclassification
changes, we referred to these claims data as the ``September 2024
update of the FY 2024 MedPAR file.''
As explained in previous rulemaking (76 FR 51487), in deciding
whether to propose to make further modifications to the MS-DRGs for
particular circumstances brought to our attention, we consider whether
the resource consumption and clinical characteristics of the patients
with a given set of conditions are significantly different than the
remaining patients represented in the MS-DRG. We evaluate patient care
costs using average costs and lengths of stay and rely on clinical
factors to determine whether patients are clinically distinct or
similar to other patients represented in the MS-DRG. In evaluating
resource costs, we consider both the absolute and percentage
differences in average costs between the cases we select for review and
the remainder of cases in the MS-DRG. We also consider variation in
costs within these groups; that is, whether observed average
differences are consistent across patients or attributable to cases
that are extreme in terms of costs or length of stay, or both. Further,
we consider the number of patients who will have a given set of
characteristics and generally prefer not to create a new MS-DRG unless
it would include a substantial number of cases.
In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58448), we finalized
our proposal to expand our existing criteria to create a new
complication or comorbidity (CC) or major complication or comorbidity
(MCC) subgroup within a base MS-DRG. Specifically, we finalized the
expansion of the criteria to include the NonCC subgroup for a three-way
severity level split. We stated we believed that applying these
criteria to the NonCC subgroup would better reflect resource
stratification as well as promote stability in the relative weights by
avoiding low volume counts for the NonCC level MS-DRGs. We noted that
in our analysis of MS-DRG classification requests for FY 2021 that were
received by November 1, 2019, as well as any additional analyses that
were conducted in connection with those requests, we applied these
criteria to each of the MCC, CC, and NonCC subgroups.
As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58661),
we continue to apply the criteria to create subgroups, including
application of the NonCC subgroup criteria, in our annual analysis of
MS-DRG classification requests, consistent with our approach since FY
2021 when we finalized the expansion of the criteria to include the
NonCC subgroup for a three-way severity level split. Accordingly, in
our analysis of the MS-DRG classification requests for FY 2026 that we
received by October 20, 2024, as well as any additional analyses that
were conducted in connection with those requests, we applied these
criteria to each of the MCC, CC, and NonCC subgroups, as described in
the following table.
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[GRAPHIC] [TIFF OMITTED] TR04AU25.039
In general, once the decision has been made to propose to make
further modifications to the MS-DRGs as described previously, such as
creating a new base MS-DRG, or in our evaluation of a specific MS-DRG
classification request to split (or subdivide) an existing base MS-DRG
into severity levels, all five criteria must be met for the base MS-DRG
to be split (or subdivided) by a CC subgroup. We note that in our
analysis of requests to create a new MS-DRG, we typically evaluate the
most recent year of MedPAR claims data available. For example, we
stated earlier that for the FY 2026 IPPS/LTCH PPS proposed rule, our
MS-DRG analysis was based on ICD-10 claims data from the September 2024
update of the FY 2024 MedPAR file. However, in our evaluation of
requests to split an existing base MS-DRG into severity levels, as
noted in prior rulemaking (80 FR 49368), we typically analyze the most
recent 2 years of data. This analysis includes 2 years of MedPAR claims
data to compare the data results from one year to the next to avoid
making determinations about whether additional severity levels are
warranted based on an isolated year's data fluctuation and also, to
validate that the established severity levels within a base MS-DRG are
supported. The first step in our process of evaluating if the creation
of a new CC subgroup within a base MS-DRG is warranted is to determine
if all the criteria is satisfied for a three-way split. In applying the
criteria for a three-way split, a base MS-DRG is initially subdivided
into the three subgroups: MCC, CC, and NonCC. Each subgroup is then
analyzed in relation to the other two subgroups using the volume
(Criteria 1 and 2), average cost (Criteria 3 and 4), and reduction in
variance (Criteria 5). If the criteria fail, the next step is to
determine if the criteria are satisfied for a two-way split. In
applying the criteria for a two-way split, a base MS-DRG is initially
subdivided into two subgroups: ``with MCC'' and ``without MCC'' (1_23)
or ``with CC/MCC'' and ``without CC/MCC'' (12_3). Each subgroup is then
analyzed in relation to the other using the volume (Criteria 1 and 2),
average cost (Criteria 3 and 4), and reduction in variance (Criteria
5). If the criteria for both of the two-way splits fail, then a split
(or CC subgroup) would generally not be warranted for that base MS-DRG.
If the three-way split fails on any one of the five criteria and all
five criteria for both two-way splits (1_23 and 12_3) are met, we would
apply the two-way split with the highest R2 value. We note that if the
request to split (or subdivide) an existing base MS-DRG into severity
levels specifies the request is for either one of the two-way splits
(1_23 or 12_3), in response to the specific request, we will evaluate
the criteria for both of the two-way splits; however, we do not also
evaluate the criteria for a three-way split.
We are making the FY 2026 ICD-10 MS-DRG GROUPER and Medicare Code
Editor (MCE) Software Version 43, the ICD-10 MS-DRG Definitions Manual
files Version 43 and the Definitions of Medicare Code Edits Manual
Version 43 available to the public on our CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.
2. Pre-MDC MS-DRG 018 Chimeric Antigen Receptor (CAR) T-Cell and Other
Immunotherapies
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18015 through
18017), we discussed a request we received to review the recent MS-DRG
assignments to Pre-MDC MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-
cell and Other Immunotherapies) and to clarify how decisions for the
assignment of cell and gene therapies will be made moving forward.
According to the requestor, for FY 2025, CMS did not assign prademagene
zamikeracel (PZ), an autologous genetically engineered cell-based gene
therapy, to MS-DRGs that would create clinical homogeneity and
therefore, the mapping of these cases to MS-DRG 018 instead implied
that estimated post-approval product pricing takes precedent for cell
and gene therapies over clinical homogeneity principles. The requestor
acknowledged that CMS has previously clarified that therapies mapped to
Pre-MDC MS-DRG 018 do not need to be CAR T-cell products or utilized in
the treatment of cancer and stated it concurs with that approach.
However, the requestor indicated that the mapping of PZ to Pre-MDC MS-
DRG 018 for FY 2025 also raised the following questions:
Why was PZ mapped to Pre-MDC MS-DRG 018 when a different
product (eladocagene exuparvovec) that is also delivered via operating
room administration methods was mapped to other non-pre-MDC MS-DRGs?
Why did CMS indicate that Lantidra, a recently approved
cellular therapy, would map to the same MS-DRGs as existing insulin
delivery therapies and technologies used to treat the subset of
patients with hard-to-control Type 1 diabetes complicated by severe
hypoglycemia who cannot receive a whole pancreas transplant instead of
to Pre-MDC MS-DRG 018?
Does CMS intend a future split of Pre-MDC MS-DRG 018
between medical and surgical cell and gene therapies to recognize the
clinical resource
[[Page 36555]]
differential between the two modalities, even if the 500 case volume
threshold is not reached?
Why was a product delivered via allogeneic stem cell
transplant procedure (Orca-T) mapped to Pre-MDC MS-DRG 018 instead of
Pre-MDC MS-DRG 014 (Allogeneic Bone Marrow Transplant)?
If products delivered via stem cell transplant should be
mapped to Pre-MDC MS-DRG 018 based on resource use, per the Orca-T
example, why are multiple gene therapy products delivered via stem cell
transplant instead mapped to Pre-MDC MS-DRGs 016 and 017 (Autologous
Bone Marrow Transplant with CC/MCC and without CC/MCC, respectively)?
The requestor stated the previously listed questions illustrate
examples of inconsistencies with the MS-DRG mappings of cell and gene
therapy products in recent years. The requestor recommended that CMS
review recent MS-DRG assignments for these products and consider
refinements to the approach. The requestor also urged CMS to clarify
how decisions for cell and gene therapies will be made in the future.
The requestor stated that if the intent of CMS is for Pre-MDC MS-DRG
018 to be a broad cell and gene therapy MS-DRG then a modification to
the title of Pre-MDC MS-DRG 018 should be proposed and therapies
currently assigned to other MS-DRGs should be re-mapped.
The requestor also suggested that CMS clarify the process by which
interested parties can submit comments on potential or proposed
procedure code mappings to the MS-DRGs for code proposals discussed at
the Spring ICD-10 Coordination and Maintenance (C&M) Committee meeting
since, given the timing, proposed code assignments are not published in
association with the annual IPPS/LTCH PPS proposed rule. Specifically,
the requestor stated there is no opportunity for interested parties to
provide feedback to CMS about the assignment of new codes to Pre-MDC
MS-DRG 018. The requestor stated that because MS-DRG 018 is a Pre-MDC
MS-DRG with a limited number of procedure codes mapping to it, it is
important for interested parties to have the ability to preview
potential assignments to this MS-DRG and provide feedback to CMS prior
to any final mapping decisions being made. The requestor acknowledged
that CMS previously responded to prior comments regarding the process
of commenting on the assignment of newly created codes; however, the
requestor suggested that CMS provide additional clarification.
Specifically, the requestor stated that the primary comment period with
respect to the Spring procedure code requests is the timeframe
following the ICD-10 C&M Committee meeting and that the materials
provided in association with the meeting do not contain mapping
requests submitted by the code requestor. The requestor indicated that
if it is to assume any new procedure code request could potentially be
mapped to Pre-MDC MS-DRG 018 and submits comments accordingly, that
would create an undue burden. The requestor submitted the following
questions regarding the process by which interested parties may submit
comments on potential procedure code mappings to MS-DRGs:
Can mapping requests be submitted as part of the request
for a new ICD-10-PCS procedure code or do mapping requests need to go
through the MS-DRG modification process with an annual October
deadline?
Can CMS provide information on mapping requests as part of
the ICD-10 C&M Committee meeting materials?
Will comments submitted to the ICD-10 C&M Committee about
potential mappings be shared with the CMS teams associated with MS-DRG
mapping decisions?
Should interested parties include the same comments that
are submitted to the ICD-10 C&M Committee in their proposed rule
comments?
Will comments submitted as part of the proposed rule be
considered within scope for proposed codes presented during the spring
meeting that are subsequently finalized but not listed in Table 6A.--
New Diagnosis codes and Table 6B.--New Procedure Codes with proposed
mappings?
Do CMS' prior responses indicate that interested parties
who submit comments on procedure code mappings should request code
proposals presented at the spring meeting be delayed until the fall
meeting?
The requestor recommended that CMS address the previously listed
questions and seek input on the process by which interested parties may
submit comments on potential procedure code mappings.
We stated in the proposed rule that we appreciated the requestor's
feedback and suggestions regarding the classification of therapies to
Pre-MDC MS-DRG 018 and the broader topic of MS-DRG mappings of cell and
gene therapy products for the future. As discussed in the FY 2025 IPPS/
LTCH PPS final rule (89 FR 69008 through 69010), we summarized and
responded to comments regarding the mapping of procedure codes
describing the application of PZ and other newly established procedure
codes to Pre-MDC MS-DRG 018. We noted that we previously addressed
similar comments in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48806
through 48807), and we also noted that we provided detailed summaries
and responses to these same or similar comments in the FY 2022 IPPS/
LTCH PPS final rule (86 FR 44798 through 44806). We also referred the
reader to the discussion in section II.D. of the FY 2026 IPPS/LTCH PPS
proposed rule, regarding the proposed relative weight methodology for
cases mapping to Pre-MDC MS-DRG 018 effective October 1, 2025, for FY
2026.
As discussed in the proposed rule, with respect to the requestor's
suggestion that a modification to the title of Pre-MDC MS-DRG 018 be
proposed, we noted that the requestor did not provide a specific
recommendation for FY 2026 consideration; however, we acknowledged that
there has been discussion related to requests to revise the title to
Pre-MDC MS-DRG 018 in prior rulemaking, most recently in the FY 2025
IPPS/LTCH PPS final rule (89 FR 69008 through 69010), and we stated
that we continue to be interested in obtaining input from members of
the public on options to consider, recognizing there are additional
types of cell and gene therapies now mapping to Pre-MDC MS-DRG 018. We
stated we will continue to review additional feedback and suggestions
in connection with future rulemaking.
In response to the requestor's assertion that there is no
opportunity for interested parties to submit feedback about MS-DRG
assignments, as we have discussed in prior rulemaking (87 FR 48807
through 48808) and as noted in the proposed rule discussion, interested
parties may use current coding information as shown in the ICD-10 C&M
Committee meeting materials to consider the potential MS-DRG
assignments for any procedure codes that may be finalized after the
Spring meeting and submit public comments for consideration. As we have
noted in prior rulemaking, because the diagnosis and procedure code
proposals that are presented at the Spring ICD-10-CM C&M Committee
meeting for an October 1 implementation (upcoming FY) are not finalized
in time to include in Table 6A.--New Diagnosis Codes and Table 6B.--New
Procedure Codes in association with the proposed rule, we use our
established process to examine the MS-DRG assignment for the
predecessor codes to determine the most appropriate MS-DRG assignment.
Specifically, we review the predecessor code and MS-DRG assignment most
[[Page 36556]]
closely associated with the new procedure code, and in the absence of
claims data, we consider other factors that may be relevant to the MS-
DRG assignment, including the severity of illness, treatment
difficulty, complexity of service and the resources utilized in the
diagnosis and/or treatment of the condition. We have noted in prior
rulemaking that this process does not automatically result in the new
procedure code being assigned to the same MS-DRG or to have the same
designation (O.R. versus Non-O.R.) as the predecessor code. In response
to the question regarding the inclusion of information on mapping
requests as part of the ICD-10 C&M Committee meeting materials, we
noted in the proposed rule that, as announced at each ICD-10 C&M
Committee meeting, there is no discussion of MS-DRGs, payment,
coverage, or billing at the ICD-10 C&M Committee meetings; therefore,
we do not include such information in the meeting materials made
publicly available in association with the meeting. Rather, we state
that any issues related to MS-DRGs or payment are addressed through
IPPS rulemaking. We noted that the purpose of the ICD-10 C&M Committee
meeting is to present code proposals based on requests received
regarding coding updates (that is, additions, deletions, or revisions).
Therefore, while mapping requests may be included in the submission of
an ICD-10-PCS procedure code request, that information is not included
in the meeting materials, nor is there any discussion about any mapping
request(s) during the meeting.
In response to the requestor's question regarding whether comments
submitted to the ICD-10 C&M Committee about potential mappings are
shared with the CMS staff associated with MS-DRG mapping decisions, we
noted in the proposed rule that the comments are shared. With respect
to whether interested parties should include the same comments
submitted to the ICD-10 C&M Committee in the comments submitted in
response to the proposed rule, we noted in the proposed rule that what
comments to include and submit for each process is up to the commenter.
In response to the question of whether comments submitted in response
to the proposed rule would be considered within scope for proposed
codes presented during the Spring meeting that are subsequently
finalized but not listed in Table 6A.--New Diagnosis codes and Table
6B.--New Procedure Codes with proposed mappings, we noted in the
proposed rule that the procedure code update files reflecting the newly
finalized codes are made publicly available following the receipt and
review of public comments received by the established deadline for the
Spring coding topics, and that interested parties may choose to submit
public comments on MS-DRG assignment for the agency's consideration.
Lastly, in response to the question of whether interested parties
considering submitting comments on procedure code mappings should
request code proposals associated with the Spring meeting be delayed
until the Fall meeting, we similarly noted in the proposed rule that
the decision on what comments a commenter decides to include and submit
in response to a code proposal is up to the commenter. We referred the
reader to section II.C.11. of the preamble of the FY 2026 IPPS/LTCH PPS
proposed rule for additional information regarding the ICD-10 C&M
Committee meeting process.
As discussed in the proposed rule, in connection with the comments
and questions about how products are grouped under the IPPS MS-DRGs,
specifically with respect to cell and gene therapies under Pre-MDC MS-
DRG 018, for FY 2026, we also received a request to create a new
neurosurgical gene therapy MS-DRG to more accurately reflect the
clinical characteristics and resource intensity required for the
administration of neurosurgical gene therapies, including eladocagene
exuparvovec, for patients diagnosed with Aromatic L-amino acid
decarboxylase (AADC) deficiency. We referred the reader to the FY 2022
IPPS/LTCH PPS final rule (86 FR 44895) and the FY 2023 IPPS/LTCH PPS
final rule (87 FR 48853 through 48854) for discussion regarding
eladocagene exuparvovec.
We stated that the requestor (the manufacturer), expressed its
appreciation for CMS' efforts to reassign cases reporting procedure
code XW0Q316 (Introduction of eladocagene exuparvovec into cranial
cavity and brain, percutaneous approach, new technology group 6) to a
surgical MS-DRG as discussed in the FY 2022 IPPS/LTCH PPS final rule
(86 FR 44895). According to the requestor, the decision appropriately
reclassified cases involving eladocagene exuparvovec from a Non-O.R.
procedure to an operating room (O.R.) procedure due to the requirement
for intraputaminal administration via a burr hole in the skull.
However, the requestor did not agree with the current assignment to MS-
DRGs 628, 629, and 630 (Other Endocrine, Nutritional and Metabolic O.R.
Procedures with MCC, with CC, and without CC/MCC, respectively) in MDC
10, or MS-DRGs 987, 988, and 989 (Non-Extensive O.R. Procedure
Unrelated to Principal Diagnosis with MCC, with CC, and without MCC/CC,
respectively). According to the requestor, the clinical characteristics
and average costs of the cases currently assigned to MS-DRGs 628, 629,
and 630 are significantly different from those associated with
eladocagene exuparvovec neurosurgical gene therapy for rare disease.
The requestor stated that CMS denied the request to create a new
MS-DRG for FY 2023, stating that it would continue to explore
appropriate mechanisms to address low volume MS-DRGs indicated for rare
diseases; however, after receiving responses to the Request for
Information (RFI), the requestor stated that there have not been any
changes proposed to the IPPS. The requestor stated its belief that
assigning cases for this gene therapy and the rare disease indicated to
a new MS-DRG is both appropriate and warranted. According to the
requestor, the current MS-DRGs that eladocagene exuparvovec cases group
to do not adequately reflect the clinical characteristics or resource
needs associated with treatment which may deter hospitals from
providing this therapy.
The requestor also stated there are approximately 68 gene therapy
trials in the U.S. for central nervous system disorders for which over
30 of the 68 trials involve the gene therapy being administered
directly into the brain parenchyma. According to the requestor, gene
therapies administered surgically, including with neurosurgery, are
extremely complicated, resource-intensive procedures for hospitals to
undertake. These procedures require highly specialized surgeons,
surgical equipment, and staff. Patients undergoing these procedures may
also require continuous monitoring and longer hospital stays. The
requestor stated the more intensive needs of these patients are not
adequately captured in existing MS-DRGs and the creation of a new MS-
DRG for neurosurgical gene therapy would help CMS proactively shape
payment policy for this evolving class of therapies, thus allowing
appropriate payment to support patient access to these treatments.
We stated that our analysis of the September 2024 update of the FY
2024 MedPAR file yielded zero cases reporting the administration of
eladocagene exuparvovec; therefore, we believed it would be premature
to consider the creation of a new neurosurgical gene therapy MS-DRG at
this time. We also stated we appreciated
[[Page 36557]]
the detailed clinical information that the requestor provided and
acknowledged that cases involving neurosurgery are technically complex
and that patients undergoing these procedures tend to be critically
ill, many with rare diseases.
We noted that we did receive a new procedure code request to
identify and describe the Smartflow[supreg] Neuro Cannula as the
delivery mechanism to administer eladocagene exuparvovec that was
included as a topic in the Spring 2025 ICD-10 Coordination and
Maintenance Committee Update materials. We refer the reader to the CMS
website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials for additional detailed information regarding the request,
and the related materials. We note that procedure code 00H033J
(Insertion of infusion device into brain, temporary, percutaneous
approach) that describes the procedure that uses the Smartflow[supreg]
Neuro Cannula was approved and finalized as reflected in the FY 2026
ICD-10-PCS code update files that were made publicly available on the
CMS website on June 6, 2025 at: https://www.cms.gov/medicare/coding-billing/icd-10-codes.
We also noted, as discussed in prior rulemaking, that this category
of therapies continues to evolve, and we are in the process of
carefully considering the feedback we have previously received about
ways in which we can continue to appropriately reflect resource
utilization while maintaining clinical coherence and stability in the
relative weights under the IPPS MS-DRGs. We appreciate the
recommendations and suggestions for consideration we have received and
will continue to examine these complex issues in connection with future
rulemaking. We acknowledge that there may be distinctions to account
for as we continue to gain more experience in the use of these
therapies and have additional claims data to analyze.
Comment: A commenter (the requestor) expressed appreciation for the
clarification CMS provided regarding the submission of comments related
to coding requests presented during the Spring ICD-10 Coordination and
Maintenance Committee Meeting and that comments submitted after the
Spring meeting will be shared with the groups responsible for
considering MS-DRG mappings. The commenter stated that while some
stakeholders may have the resources and expertise to review meeting
materials, infer potential requested mappings for all therapies
requesting new codes and submit mapping comments accordingly, many
stakeholders will not. The commenter stated that if an applicant is
requesting an MS-DRG mapping as part of the ICD-10-PCS process, this
should be made explicitly public in the meeting materials, even if it
is not discussed in the meeting itself. The commenter also stated that
CMS should not ask or expect all stakeholders to know enough about
clinical care and CMS' mapping processes to be able to suggest an
alternative mapping for a code, if required. The commenter reiterated
its request for CMS to introduce a process by which stakeholders can
review requested MS-DRG mappings as part of, or in parallel to, the
ICD-10-PCS code request process. The commenter also requested that CMS
utilize its established process to review and reconsider MS-DRG
assignment when stakeholders raise concerns about CMS' assignment
instead of expecting stakeholders to propose alternative mappings.
Response: We thank the commenter for the feedback. In response to
the commenter's assertion that not all stakeholders may have the
resources and expertise to review meeting materials, infer potential
requested mappings for all therapies requesting new codes and submit
mapping comments accordingly, we note that we have made all of the
information and materials necessary to conduct those actions publicly
available via the CMS website. Specifically, the ICD-10 Coordination
and Maintenance Committee Meeting materials are available at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials, and the meeting process is summarized
in the annual rulemakings available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. In addition,
the ICD-10 MS-DRG Definitions Manual is made publicly available via the
CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.
In response to the commenter's statement that if an applicant is
requesting an MS-DRG mapping as part of the ICD-10-PCS process it
should be made public in the meeting materials even if it is not
discussed in the meeting itself, we note that, as discussed in the
preamble of the proposed rule (90 FR 18016) and this final rule, the
purpose of the ICD-10 Coordination and Maintenance Committee meeting is
to present code proposals based on requests received regarding coding
updates (that is, additions, deletions, or revisions). Therefore, while
mapping requests may be included in the submission of an ICD-10-PCS
procedure code request, we disagree that the information should be
included in the meeting materials. We underscore that the focus of the
ICD-10 Coordination and Maintenance Committee meetings is on updates
and maintenance to the ICD-10 code sets and not about how a potential
new code may be designated or assigned under the IPPS, which is
addressed through rulemaking. These are two separate and distinct
processes, each with their own objectives and timelines.
In response to the commenter's statement that CMS should not ask or
expect all stakeholders to know enough about clinical care and CMS'
mapping processes to be able to suggest an alternative mapping for a
code, if required, we note that under our established process, we
consider requests for MS-DRG classification changes on an annual basis
that are submitted via MEARISTM at: https://mearis.cms.gov/public/home by the designated October 20 deadline for the upcoming
fiscal year. If a proposal is subsequently put forth in rulemaking and
members of the public submit comments expressing disagreement with that
proposal (for example, proposed new MS-DRG(s), proposed reassignment of
diagnosis and/or procedure codes, or their designation), the public
comments routinely provide the rationale behind the disagreement as
well as alternative suggestions) for our consideration, which we may be
able to further evaluate. With respect to the mapping process, as
discussed in the preamble of the proposed rule (90 FR 18016) and this
final rule, under our established process, when a new procedure code is
finalized, we review the predecessor code and MS-DRG assignment most
closely associated with the new procedure code, and in the absence of
claims data, we consider other factors that may be relevant to the MS-
DRG assignment, including the severity of illness, treatment
difficulty, complexity of service and the resources utilized in the
diagnosis and/or treatment of the condition. We have noted in prior
rulemaking that this process does not automatically result in the new
procedure code being assigned to the same MS-DRG or to have the same
designation (O.R. versus Non-O.R.) as the predecessor code.
Comment: A commenter (the requestor) expressed appreciation that
CMS shared the types of concerns and questions raised by stakeholders
about the rationale for mapping new ICD-10-PCS codes for novel
therapies into Pre-MDC MS-DRG 018; however, the commenter requested
that CMS discuss
[[Page 36558]]
the rationale for mapping Orca-T allogeneic T-cell immunotherapy to
Pre-MDC MS-DRG 018.
Response: We thank the commenter for the feedback. The procedure
code proposal for Orca-T allogeneic T-cell immunotherapy was discussed
at the March 19-20, 2024 ICD-10 Coordination and Maintenance Committee
meeting. We refer the reader to the meeting materials on the CMS
website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials for additional
information regarding the request. ICD-10-PCS codes XW033BA
(Introduction of Orca-T allogeneic T-cell immunotherapy into peripheral
vein, percutaneous approach, new technology group 10) and XW043BA
(Introduction of Orca-T allogeneic T-cell immunotherapy into central
vein, percutaneous approach, new technology group 10) became effective
October 1, 2024, for FY 2025. Under our established process, we
reviewed the predecessor code assignments. The predecessor codes for
Orca-T allogeneic T-cell immunotherapy (hereafter referred to as Orca-
T) are procedure codes 3E033GC (Introduction of other therapeutic
substance into peripheral vein, percutaneous approach) and 3E043GC
(Introduction of other therapeutic substance into central vein,
percutaneous approach) that are designated as non-O.R. and do not
affect MS-DRG assignment. We then reviewed other factors associated
with Orca-T. Notably, Orca-T is a precision-engineered allogeneic stem
cell and T-cell immunotherapy biologic (that is, a combination therapy
comprised of immune cells, including regulatory T-cells (Tregs) and
conventional T-cells (Tcons), and stem cells) that is in clinical
trials and regulated under FDA section 351 of the Public Health Service
Act (PHSA) as a biologic.
Allogeneic hematopoietic stem cell transplant (alloHSCT) can
provide a curative therapy for many patients with advanced hematologic
malignancies. Unfortunately, despite advancements in identifying
matching donors and medical care, patients can experience a variety of
post-transplant complications including Graft Versus Host Disease
(GvHD), infection and organ failure. GvHD is a condition in which the
donated cells attack the recipient's tissues which can lead to end
organ damage.
Orca-T is derived from an HLA matched donor and combines progenitor
stem cells along with highly purified T-cells in the form of regulatory
T-cells (Tregs, a specialized CD4+ T cell subset) and conventional T-
cells (Tcons). Because of its purified nature, the Tregs can
proliferate and exist in a patient's tissues in a fashion not normally
possible. While the stem cells serve to build a long term immune system
in the recipient, the Tregs act to protect the patient's tissues and
organs from GvHD and other toxicities. The Tcons component is designed
to accelerate the reconstitution of a patient's immune system,
mediating the graft-versus-leukemic effect, graft-versus-infection and
the inflammatory responses, providing protection against infection.
Establishment of a successful allograft requires an approach that
balances an enhancement of the graft-vs-tumor and graft-vs-infection
effects while avoiding or limiting GvHD. While some immunotherapeutic
agents treat an active disease process, the specialized cells in Orca-T
are intended to immunologically mitigate significant post allograft
complications such as GvHD and infection.
We note that both CAR T-cell therapy and Orca T-cell therapy are
forms of immunotherapies that are indicated for patients diagnosed with
acute lymphoblastic leukemia (ALL), among other types of cancer. One of
the challenges experienced to date with the treatment of ALL is GvHD,
which is what Orca-T is formulated to address. We also note that there
are other procedure codes describing both allogeneic CAR T-cell and
non-CAR T-cell immunotherapy currently assigned to MS-DRG 018.
Therefore, we believe the assignment of Orca T-cell immunotherapy to
Pre-MDC MS-DRG 018 is appropriate.
Comment: A commenter stated that the procedure code describing
valoctocogene roxaparvovec is listed in Table 6B in association with
the proposed rule and a proposed mapping to Pre-MDC MS-DRG 018, but CMS
did not discuss any rationale for this proposal in the rule text. The
commenter stated that the title of Pre-MDC MS-DRG 018 is Chimeric
Antigen Receptor (CAR) T-Cell and Other Immunotherapies, and
valoctocogene roxaparvovec is an off-the-shelf in vivo gene therapy
that is neither a CAR-T nor an immunotherapy. Additionally, according
to the commenter, it does not require the same types of complex and
specialized clinical resources to administer as the other therapies
assigned to Pre-MDC MS-DRG 018. The commenter further stated that, as a
result, and without any discussion or explanation from CMS about why
its medical advisors have proposed this, they assume that this proposed
assignment is simply based on the manufacturer's request to assign its
product to Pre-MDC MS-DRG 018 as part of the ICD-10-PCS code request
application. The commenter stated that CMS' acceptance of this
requested mapping is concerning as it seems that resource homogeneity
is the only factor being relied upon. The commenter stated its
understanding is that CMS has always discussed the importance of
balancing both clinical and resource homogeneity when considering MS-
DRG assignments for new therapies. The commenter provided an example
stating that CMS assigned several hematopoietic stem cell gene
therapies to autologous transplant MS-DRGs 016 and 017 (Autologous Bone
Marrow Transplant with CC/MCC and without CC/MCC, respectively) based
on the clinical similarity of the services being provided to the
patient, rather than basing assignment on price point. According to the
commenter, if the latter had been deemed more critical at the time of
those assignments, then CMS would have assigned the therapies to Pre-
MDC MS-DRG 018 as well. The commenter also stated that CMS did not
propose to map eladocagene exuparvovec to MS-DRG 018 after denying its
request for a new MS-DRG (as discussed later in this section), though
eladocagene exuparvovec has a similar price point. The commenter stated
it cannot determine any consistent logic guiding the variation in
recent mapping proposals and decisions.
The commenter requested that CMS not finalize the proposed mapping
of valoctocogene roxaparvovec to Pre-MDC MS-DRG 018 due to differences
in clinical complexity and resource use. The commenter stated that CMS
should use its established mapping process and input from its clinical
advisors to assign valoctocogene roxaparvovec to a more clinically
appropriate MS-DRG.
Response: In response to the commenter's request that CMS not
finalize the proposed mapping of valoctocogene roxaparvovec to Pre-MDC
MS-DRG 018 because it is neither a CAR-T nor an immunotherapy and does
not require the same types of complex and specialized clinical
resources to administer as the other therapies assigned to Pre-MDC MS-
DRG 018, we note that, as discussed in prior rulemaking, consideration
is given to the similarities and differences in resource utilization
among patients in each MS-DRG and we strive to ensure that resource
utilization is relatively consistent across patients in each MS-DRG.
However, some variation in resource intensity will remain among the
patients in each MS-DRG because
[[Page 36559]]
the definition of the MS-DRG is not so specific that every patient is
identical, rather the average pattern of resource intensity of a group
of patients in an MS-DRG can be predicted. We note that historically,
in the development of the DRGs, the initial step in the determination
of the DRG had been the assignment of the appropriate MDC based on the
principal diagnosis, however, beginning with the eighth version of the
GROUPER (CMS 8.0), the initial step in DRG assignment was based on the
procedure being performed, thus the creation of the Pre-MDC DRGs, where
the patient is assigned to these DRGs independent of the MDC of the
principal diagnosis. Therefore, the logic for case assignment to Pre-
MDC MS-DRG 018 does not preclude the assignment of other therapies
indicated in the treatment of patients with different diagnoses. In our
review of the MS-DRG assignment of valoctocogene roxaparvovec, we
recognized that this technology is defined as a gene therapy. We also
note that similar to the discussions in prior rulemaking with respect
to the difficulty in predicting what the associated costs will be in
the future for CAR T-cell and other immunotherapies that remain under
development (87 FR 48806), it is also difficult to predict what the
associated costs will be in the future for cell and gene therapies that
remain under development or in clinical trials.
In response to the commenter's assertion that CMS did not use its
established mapping process and input from its clinical advisors to
assign valoctocogene roxaparvovec to a more clinically appropriate MS-
DRG, as discussed in the preamble of the proposed rule (90 FR 18016)
and this final rule, and as noted in prior rulemaking, we use our
established process to examine the MS-DRG assignment for the
predecessor codes to determine the most appropriate MS-DRG assignment.
Specifically, we review the predecessor code and MS-DRG assignment most
closely associated with the new procedure code, and in the absence of
claims data, we consider other factors that may be relevant to the MS-
DRG assignment, including the severity of illness, treatment
difficulty, complexity of service and the resources utilized in the
diagnosis and/or treatment of the condition. As noted previously and in
prior rulemaking, this process does not automatically result in the new
procedure code being assigned to the same MS-DRG or to have the same
designation (O.R. versus Non-O.R.). We note that the proposal to create
new procedure codes that describe the administration of valoctocogene
roxaparvovec was discussed at the September 10, 2024 ICD-10
Coordination and Maintenance Committee meeting. The predecessor codes
to describe the administration of valoctocogene roxaparvovec are ICD-
10-PCS codes 3E033GC (Introduction of other therapeutic substance into
peripheral vein, percutaneous approach) and 3E043GC (Introduction of
other therapeutic substance into central vein, percutaneous approach)
which are designated as non-O.R. and do not impact MS-DRG assignment.
We refer the reader to the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials for additional detailed
information regarding the code request, including a recording of the
discussion and the related meeting materials. We also note that the
procedure codes to describe the administration of valoctocogene
roxaparvovec were approved and finalized as reflected in Table 6B.--New
Procedure Codes associated with the proposed rule and this final rule
(and available via the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) as well as
reflected in the FY 2026 ICD-10-PCS code update files that were made
publicly available on the CMS website on June 6, 2025 at: https://www.cms.gov/medicare/coding-billing/icd-10-codes. As discussed in
section II.C.11. of the preamble of the FY 2026 IPPS/LTCH PPS proposed
rule and this final rule, the code titles are adopted as part of the
ICD-10 Coordination and Maintenance Committee meeting process that have
been finalized after the review of public comments. As also discussed
in the preamble of the proposed rule (90 FR 18067) and this final rule,
we proposed the MDC and MS-DRG assignments for the new diagnosis codes
and procedure codes as set forth in Table 6A.--New Diagnosis Codes and
Table 6B.--New Procedure Codes associated with the proposed rule.
Therefore, the public has the opportunity to comment and provide
feedback on the proposed assignments for CMS' consideration, which is
subsequently included in the final rule with a summary of the comments
and feedback and CMS' response, as is reflected in the discussion in
this section of this final rule.
In response to the commenter's statement that valoctocogene
roxaparvovec does not require the same types of complex and specialized
clinical resources to administer as other therapies assigned to Pre-MDC
MS-DRG 018, we note that valoctocogene roxaparvovec is indicated in the
treatment of Hemophilia A, an X-linked genetic disorder that results in
a dysfunction in the gene encoding for Factor VIII which is essential
for proper coagulation. Patients may have varying degrees of functional
activity of Factor VIII with severe activity (< 1IU per deciliter)
resulting in spontaneous hemorrhage. This can result in life
threatening hemorrhages into the brain or lead to debilitating
hemorrhages in the soft tissues or joints leading to chronic pain or
arthropathy. While prophylactic regimens may improve outcomes, they do
not address the underlying dysfunctional gene encoding for Factor VIII.
Valoctocogene roxaparvovec is a one-time therapy that uses an adeno-
associated virus (AAV5) to deliver a functional copy of the F8 gene
which is responsible for the production of Factor VIII.
Valoctocogene roxaparvovec is similar to other gene based therapies
currently assigned to Pre-MDC MS-DRG 18 such as prademagene zamikeracel
(ZevaskynTM) and CAR T-cell therapy in that these treatments
involve introduction of genetic material into a patient's cells to
treat a disease process. CAR T-cell therapy uses a patient's
genetically modified T-cells to treat cancer while prademagene
zamikeracel and valoctocogene roxaparvovec introduce functional
deoxyribonucleic acid (DNA) copies into a patient's skin and liver,
respectively, to correct an inherited genetic dysfunction. While they
are similar in character to the hematopoietic stem cell gene therapies
assigned to autologous transplant MS-DRGs 016 and 017 (Autologous Bone
Marrow Transplant with CC/MCC and without CC/MCC, respectively),
resource utilization differs. Prademagene zamikeracel and valoctocogene
roxaparvovec involve introduction of genetic material into mature cells
while hematopoietic gene therapy involves introduction of genetic
material into stem cells which require a level of resource utilization
more akin to other therapies in MS-DRGs 016 and 017.
In response to the commenter's assumption that the manufacturer
requested assignment to Pre-MDC MS-DRG 018 in association with its
procedure code request, we note that it did not. We also take this
opportunity to emphasize that, as has been discussed in prior
rulemaking with respect to gene therapies, this category of therapies
continues to evolve, and we are in the process of carefully considering
the feedback we have previously received about ways in which we can
continue
[[Page 36560]]
to appropriately reflect resource utilization while maintaining
clinical coherence and stability in the relative weights under the IPPS
MS-DRGs. We also note that valoctogene roxaparvovec is primarily
administered in the outpatient setting (for example, hemophilia
treatment centers). However, in rare instances when the therapy is
administered in the inpatient setting or the patient must be
transferred to the inpatient setting, providers are equipped with a
specific procedure code to report its use in connection with a
predictable payment mechanism under the IPPS.
Comment: A commenter stated they support appropriate and ongoing
refinement of the MS-DRG system and greater clarity with respect to how
CMS renders decisions regarding ICD-10-PCS codes mapped to Pre-MDC MS-
DRG 018. Another commenter recommended that CMS dedicate space in each
IPPS proposed rule to identify relevant ICD-10-PCS codes that might be
assigned to Pre-MS-DRG 018, along with preliminary rationales for these
potential assignments.
Response: We appreciate the commenters' feedback. We note that
while the establishment of Pre-MDC MS-DRG 018 has presented unique
operational considerations under the IPPS, there are also over 700
other MS-DRGs that warrant continued review for ongoing refinements. In
response to how CMS renders decisions regarding the mapping of
procedure codes to a Pre-MDC MS-DRG, as discussed in the preamble of
the proposed rule (90 FR 18068) and in this final rule, we review the
predecessor code and MS-DRG assignment most closely associated with the
new diagnosis or procedure code, and in the absence of claims data, we
consider other factors that may be relevant to the MS-DRG assignment,
including the severity of illness, treatment difficulty, complexity of
service and the resources utilized in the diagnosis or treatment of the
condition. As previously noted, this process does not automatically
result in the new diagnosis or procedure code being proposed for
assignment to the same MS-DRG or to have the same designation as the
predecessor code.
Comment: A commenter stated it is unclear why discussion of the
request to create a new MS-DRG to describe neurosurgical gene therapies
was included under the Pre-MDC MS-DRG 018 section of the proposed rule
instead of under MDC 10 (Endocrine, Nutritional and Metabolic Diseases
and Disorders) where prior discussions of eladocagene exuparvovec have
been included. The commenter indicated that if CMS placed this
discussion in the Pre-MDC MS-DRG 018 section in an effort to seek
comments about whether Pre-MDC MS-DRG 018 should be broadened to
include eladocagene exuparvovec and other gene therapies that it be
made explicit what information the agency is seeking from stakeholders
in advance of the FY 2027 IPPS/LTCH PPS rulemaking cycle. The commenter
also stated that if CMS intends for Pre-MDC MS-DRG 018 to be the
primary Pre-MDC MS-DRG for all cell and gene therapies until further
modifications can be made, the agency should propose to rename the MS-
DRG and be consistent with mapping practices and rationale. The
commenter further remarked that CMS' proposed rule analysis stated no
cases reporting eladocagene exuparvovec were found, however, according
to the commenter, because the product was not approved until November
2024, cases would not be expected to appear in the data.
Response: As stated in the preamble of the proposed rule (90 FR
18016), in connection with the comments and questions about how
products are grouped under the IPPS MS-DRGs, specifically with respect
to cell and gene therapies under Pre-MDC MS-DRG 018, for FY 2026, we
also received a request to create a new neurosurgical gene therapy MS-
DRG, which we believe was appropriately placed and discussed in that
section of the preamble of the proposed rule. As also explicitly stated
in the preamble of the proposed rule (90 FR 18017), we continue to
welcome additional feedback and comments on other options to consider
on how to appropriately address low volume, high-cost treatments for
rare diseases, therefore, we believe that our intentions were clearly
stated. In response to the commenter's suggestion that a proposal to
revise the title for Pre-MDC MS-DRG 018 should be put forth if CMS aims
to temporarily designate Pre-MDC MS-DRG 018 as the primary Pre-MDC MS-
DRG for all cell and gene therapies, we note that, as also stated in
the preamble of the proposed rule, (90 FR 18016), there has been
discussion related to requests to revise the title to Pre-MDC MS-DRG
018 in prior rulemaking, most recently in the FY 2025 IPPS/LTCH PPS
final rule (89 FR 69008 through 69010), and we continue to be
interested in obtaining input from members of the public on options to
consider, recognizing there are additional types of cell and gene
therapies now mapping to Pre-MDC MS-DRG 018. We stated we will continue
to review additional feedback and suggestions in connection with future
rulemaking. In response to the commenter's remarks that CMS' proposed
rule analysis stated no cases were found to report the administration
of eladocagene exuparvovec and because the product was not approved
until November 2024, cases would not be expected to appear in the data,
we note that procedure code XW0Q316 (Introduction of eladocagene
exuparvovec into cranial cavity and brain, percutaneous approach, new
technology group 6) that describes the administration of eladocagene
exuparvovec became effective October 1, 2020 (FY 2021) and a single
case was previously identified in the data in MS-DRG 829
(Myeloproliferative Disorders or Poorly Differentiated Neoplasms with
Other Procedures with CC/MCC) with an average length of stay of 2 days
and average costs of $1,544, as discussed in the FY 2023 IPPS/LTCH PPS
final rule (87 FR 48854). We further note that, as also discussed in
prior rulemaking, the creation of a code to describe a technology that
is utilized in the performance of a procedure or service does not
require FDA approval of the technology nor is the proposed and final
assignment of a procedure code to an MS-DRG dependent upon a product's
FDA approval (86 FR 44806).
Several commenters provided general feedback on the subject of cell
and gene therapies for CMS' consideration in association with the Pre-
MDC MS-DRG 018 proposed rule discussion. Notably, commenters suggested
that CMS: (1) issue a Request for Information (RFI) to obtain
additional insight on provider experiences, including information on
the therapies under development and expected to become available in the
near future, as well as features of their administration and the
affected patient populations, (2) develop a payment model or long-term
solution for appropriate payment that also accounts for products whose
new technology add-on payment is expiring, and (3) ensure transparency
in the refinement process by collaborating with stakeholders.
We appreciate the commenters' recommendations and feedback as we
continue to examine the complexities involved with these therapies
under the IPPS. We intend to address any potential modifications to the
MS-DRGs through future notice and comment rulemaking.
3. MDC 01 (Diseases and Disorders of the Nervous System)
a. Logic for MS-DRGs 023 Through 027
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18017
[[Page 36561]]
through 18025), we received three separate but related requests to
review the MS-DRG assignments for a subset of procedures assigned to
MS-DRGs 023 through 027. In this section of the preamble of this FY
2026 IPPS/LTCH PPS final rule, we discuss each of these separate, but
related requests.
The first request was to create a new MS-DRG for cases involving
``chemotherapy implants'' and cases involving ``epilepsy with
neurostimulator.'' The requestor noted chemotherapy implants are used
to treat patients with brain tumors. They are implanted into the brain
during the craniotomy procedure at the time of tumor resection. Upon
implantation, these devices immediately release radiation or
chemotherapeutic agents. This approach enables treatment to be
initiated at the time of tumor resection without undue delay.
``Epilepsy with neurostimulator'' cases involve devices used in the
treatment of medically intractable epilepsy. The neurostimulator is
implanted in the skull via a craniotomy and is connected to electrodes
that are implanted on the surface of the brain or in the brain through
either a craniotomy or a burr hole(s). According to the requestor, like
the procedure to insert a chemotherapy implant, the craniotomy
procedure to insert the neurostimulator lead is performed under general
anesthesia and the procedure typically takes four hours.
We noted in the proposed rule that the requestor performed their
own analysis of Medicare claims data and stated they found that the
average costs of cases involving chemotherapy implants and cases
involving epilepsy with neurostimulators are significantly higher than
the average costs of other procedures currently grouped within MS-DRG
023 (Craniotomy with Acute Complex CNS Principal Diagnosis with MCC or
Antineoplastic Implant). The requestor asserted that as a result, these
cases are not being adequately paid under the current MS-DRG.
Therefore, given the limited options within the existing MS-DRG
structure, the requestor recommended that CMS extract cases reporting
the insertion of a chemotherapy implant and cases reporting a
neurostimulator generator inserted into the skull with the insertion of
a neurostimulator lead into the brain, and a principal diagnosis of
epilepsy from MS-DRG 023 and create a new MS-DRG for these cases with a
payment rate that better aligns with the resource utilization
associated with these procedures. The requestor stated that this
recommendation appeared to be reasonable, given that CMS has already
determined that these two subsets of cases are clinically coherent by
virtue of them being currently assigned to the same MS-DRG.
To begin our analysis, as discussed in the proposed rule, we
reviewed the GROUPER logic for MS-DRGs 023 and 024 (Craniotomy with
Acute Complex CNS Principal Diagnosis without MCC). We noted in the
proposed rule that the requestor is correct that currently, cases
involving ``chemotherapy implants'' and cases involving ``epilepsy with
neurostimulator'' are assigned to the higher severity level MS-DRG 023.
MS-DRGs 023 and 024 contain a logic list referred to as ``Chemotherapy
Implant.'' This logic list includes the following four ICD-10-PCS
codes:
[GRAPHIC] [TIFF OMITTED] TR04AU25.040
We stated that the ``Chemotherapy Implant'' logic list was created
for cases reporting the implantation of a chemotherapeutic agent and
devices implanted in the brain, such as implantable chemotherapeutic
wafers. Additionally, we noted MS-DRGs 023 and 024 contain a logic list
referred to as ``Epilepsy Principal Diagnosis'' that includes 58 ICD-
10-CM diagnosis codes that describe epilepsy, and a logic list referred
to as ``Neurostimulator'' that includes the following three ICD-10-PCS
procedure code combinations:
0NH00NZ (Insertion of neurostimulator generator into
skull, open approach), in combination with 00H00MZ (Insertion of
neurostimulator lead into brain, open approach);
0NH00NZ (Insertion of neurostimulator generator into
skull, open approach), in combination with 00H03MZ (Insertion of
neurostimulator lead into brain, percutaneous approach); and
0NH00NZ (Insertion of neurostimulator generator into
skull, open approach), in combination with 00H04MZ (Insertion of
neurostimulator lead into brain, percutaneous endoscopic approach).
These two logic lists were created to capture cases involving the
use of the Responsive Neurostimulation (RNS)[supreg] neurostimulator, a
treatment option for persons diagnosed with medically intractable
epilepsy. The RNS[supreg] neurostimulator includes a cranially
implanted programmable neurostimulator connected to one or two depth
and/or subdural cortical strip leads that are surgically placed in or
on the brain at the seizure focus. The implanted neurostimulator
continuously monitors brain electrical activity and is programmed by a
physician to detect abnormal patterns of electrical activity that the
physician believes may lead to seizures (epileptiform activity).
We refer the reader to the ICD-10 MS-DRG Definitions Manual,
Version 42.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the
GROUPER logic for MS-DRGs 023 and 024.
As discussed in the preamble of the proposed rule, we then examined
claims data from the September 2024 update of the FY 2024 MedPAR file
for all cases in MS-DRG 023 and compared the results to cases reporting
one of the four procedure codes that appear under the logic list
referred to as ``Chemotherapy Implant'' in MS-DRG 023 and for all cases
reporting a neurostimulator generator inserted into the skull with the
insertion of a neurostimulator lead into the brain (including cases
involving the use of the RNS[supreg] neurostimulator), and a principal
diagnosis of epilepsy. The following table shows our findings:
[[Page 36562]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.041
As shown in the table, for MS-DRG 023, we identified a total of
12,136 cases, with an average length of stay of 10 days and average
costs of $51,132. Of the 12,136 cases in MS-DRG 023, there were 176
cases reporting the insertion of a chemotherapy implant with an average
length of stay of 6.4 days and average costs of $49,743. Additionally,
there were 68 cases describing a neurostimulator generator inserted
into the skull with the insertion of a neurostimulator lead into the
brain (including cases involving the use of the RNS[supreg]
neurostimulator) that had a principal diagnosis of epilepsy with an
average length of stay of 2.4 days and average costs of $66,303.
As the data show, the 68 cases in MS-DRG 023 describing a
neurostimulator generator inserted into the skull with the insertion of
a neurostimulator lead into the brain (including cases involving the
use of the RNS[supreg] neurostimulator) and a principal diagnosis of
epilepsy have average costs that are higher than the average costs of
all cases in MS-DRG 023 ($66,303 compared to $51,132), and they have an
average length of stay that is shorter (2.4 days compared to 10 days).
The 176 cases in MS-DRG 023 reporting the insertion of a chemotherapy
implant have average costs that are lower than the average costs of all
cases in MS-DRG 023 ($49,743 compared to $51,132), and they have an
average length of stay that is shorter (6.4 days compared to 10 days).
We stated we reviewed the claims data, and did not believe the data
support creating a new MS-DRG for cases reporting the insertion of a
chemotherapy implant and cases describing a neurostimulator generator
inserted into the skull with the insertion of a neurostimulator lead
into the brain (including cases involving the use of the RNS[supreg]
neurostimulator) and a principal diagnosis of epilepsy. We stated that
the results of the claims analysis as previously summarized indicate
the cases reporting the insertion of a chemotherapy implant demonstrate
comparable resource utilization with other cases in their currently
assigned MS-DRG. Further, the claims data analysis indicates that these
two subsets of cases, that is cases reporting the insertion of a
chemotherapy implant and cases describing a neurostimulator generator
inserted into the skull with the insertion of a neurostimulator lead
into the brain (including cases involving the use of the RNS[supreg]
neurostimulator) and a principal diagnosis of epilepsy, do not
demonstrate comparable resource utilization. The cases in MS-DRG 023
reporting the insertion of a chemotherapy implant have average costs
that are lower than the average costs of cases describing a
neurostimulator generator inserted into the skull with the insertion of
a neurostimulator lead into the brain and a principal diagnosis of
epilepsy ($49,743 compared to $66,303), and they have an average length
of stay that is longer (6.4 days compared to 2.4 days).
Therefore, based on review of the claims data, we did not propose
to create a new MS-DRG for cases reporting the insertion of a
chemotherapy implant and cases describing a neurostimulator generator
inserted into the skull with the insertion of a neurostimulator lead
into the brain (including cases involving the use of the RNS[supreg]
neurostimulator) and a principal diagnosis of epilepsy for FY 2026.
However, while our analysis of the claims data did not support creating
a new MS-DRG for cases reporting the insertion of a chemotherapy
implant and cases describing a neurostimulator generator inserted into
the skull with the insertion of a neurostimulator lead into the brain
(including cases involving the use of the RNS[supreg] neurostimulator)
and a principal diagnosis of epilepsy, as discussed in the proposed
rule, cases describing a neurostimulator generator inserted into the
skull with the insertion of a neurostimulator lead into the brain
(including cases involving the use of the RNS[supreg] neurostimulator)
and a principal diagnosis of epilepsy have average costs that are
higher than the average costs of all cases in MS-DRG 023, with a
shorter average length of stay. Accordingly, in the proposed rule we
stated we determined that further analysis of cases reporting a
neurostimulator generator inserted into the skull with the insertion of
a neurostimulator lead into the brain (including cases involving the
use of the RNS[supreg] neurostimulator), and a principal diagnosis of
epilepsy was needed in conjunction with the separate but related
requests we received to review the MS-DRG assignments for a subset of
procedures also assigned to MS-DRGs 023 through 027 for the FY 2026
IPPS/LTCH PPS proposed rule to ensure clinical coherence between these
cases and the other cases with which they would potentially be grouped,
as discussed later in this section.
As noted previously, MS-DRGs 023 and 024 contain a logic list
referred to as ``Chemotherapy Implant'' that includes the following
four ICD-10-PCS codes:
[GRAPHIC] [TIFF OMITTED] TR04AU25.042
[[Page 36563]]
In the proposed rule we stated that during our review of the
GROUPER logic for MS-DRGs 023 and 024, we identified that the following
four ICD-10-PCS procedure codes describing the insertion of a
radioactive element were inadvertently excluded from the ``Chemotherapy
Implant'' logic list:
[GRAPHIC] [TIFF OMITTED] TR04AU25.043
In review of this finding, we stated we analyzed claims data from
the September 2024 update of the FY 2024 MedPAR file for MS-DRGs 023,
024, 025, 026, and 027 for all cases and for cases reporting procedure
codes 00H001Z, 00H005Z, 00H031Z, or 00H041Z. The findings from our
analysis are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.044
As the data show, we found four cases reporting procedure code
00H001Z, 00H005Z, 00H031Z, or 00H041Z in MS-DRG 025, with average costs
of $40,199 and an average length of stay of 3.8 days. We reviewed this
issue and noted in the proposed rule radioactive elements are inserted
into the brain to deliver a targeted concentrated dose of radiation
directly to a brain tumor or tumor bed. They are primarily used to
treat recurrent brain metastases or other aggressive brain cancers, as
it allows for high-dose radiation delivery specifically to the tumor
site while minimizing damage to surrounding healthy brain tissue.
Although we did not identify many cases, we stated we believe the four
procedure codes describing the insertion of a radioactive element into
the brain are clinically aligned with the procedure codes currently
included in the ``Chemotherapy Implant'' logic list in MS-DRGs 023 and
024.
Therefore, for clinical consistency we proposed to add procedure
codes 00H001Z, 00H005Z, 00H031Z, and 00H041Z to the ``Chemotherapy
Implant'' logic list in MS-DRGs 023 and 024, effective October 1, 2025,
for FY 2026. We also proposed to change the description of the logic
list in MS-DRGs 023 and 024 from ``Chemotherapy Implant'' to
``Antineoplastic Implant'' to better reflect the GROUPER logic that
includes ICD-10-PCS procedure codes describing antineoplastic agents
implanted in the brain.
Comment: Commenters supported the proposals to add procedure codes
00H001Z, 00H005Z, 00H031Z, and 00H041Z to the ``Chemotherapy Implant''
logic list in MS-DRGs 023 and 024 and to change the description of the
logic list in MS-DRGs 023 and 024 from ``Chemotherapy Implant'' to
``Antineoplastic Implant'', effective October 1, 2025, for FY 2026.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal to add procedure codes 00H001Z, 00H005Z,
00H031Z, and 00H041Z to the ``Chemotherapy Implant'' logic list in MS-
DRGs 023 and 024, without modification, effective October 1, 2025, for
FY 2026. We are also finalizing the change of the description of the
logic list in MS-DRGs 023 and 024 from ``Chemotherapy Implant'' to
``Antineoplastic Implant''.
As mentioned previously, and as discussed in the FY 2026 IPPS/LTCH
PPS proposed rule, we received three separate but related requests to
review and reconsider the MS-DRG assignments for a subset of procedures
assigned to MS-DRGs 023 through 027. The second and third request
involve the MS-DRG assignment of cases reporting procedure codes
describing the insertion of deep brain stimulators (DBS). Deep brain
stimulation is a surgical treatment that involves the implantation of a
neurostimulator, used in the treatment of essential tremor, Parkinson's
disease, dystonia, epilepsy, obsessive-compulsive disorder and chronic
pain. A DBS system consists of one or two leads that are placed
stereotactically at defined targets deep within the brain via one or
two burr holes created in the skull. The lead is then connected to an
extension that is tunneled under the skin, down the neck, and connected
to a programmable neurostimulator generator that is placed under the
skin.
[[Page 36564]]
The second request we received was to reassign cases reporting the
implantation of a DBS system from the lower (without MCC) severity
level MS-DRG 024 to the higher (MCC) severity level MS-DRG 023, even if
there is no MCC reported. The requestor suggested that if finalized,
the title for MS-DRG 023 should be revised to reflect ``Craniotomy with
Acute Complex Central Nervous System Principal Diagnosis with MCC or
Chemotherapy Implant or Major Device Implant or Epilepsy with
Neurostimulator.''
We stated in the proposed rule that the requestor performed their
own analysis and stated they found that the majority of cases reporting
the implantation of a DBS system are assigned to the lower severity
level MS-DRG 024. The requestor also stated that in their analysis, the
cases reporting the implantation of a DBS system assigned to MS-DRG 024
have average costs that are 20 percent greater than all cases in MS-DRG
024. The requestor asserted that reassigning cases reporting the
implantation of a DBS system from the lower (without MCC) severity
level MS-DRG 024 to the higher (with MCC) severity level MS-DRG 023,
even if there is no MCC reported, would better recognize hospital
resource utilization when the DBS systems are inserted.
We stated in the proposed rule that the requestor identified cases
reporting the implantation of a DBS system by the presence of the
following procedure code combinations:
0JH60DZ (Insertion of multiple array stimulator generator
into chest subcutaneous tissue and fascia, open approach), in
combination with 00H00MZ (Insertion of neurostimulator lead into brain,
open approach);
0JH60DZ (Insertion of multiple array stimulator generator
into chest subcutaneous tissue and fascia, open approach), in
combination with 00H03MZ (Insertion of neurostimulator lead into brain,
percutaneous approach);
0JH60EZ (Insertion of multiple array rechargeable
stimulator generator into chest subcutaneous tissue and fascia, open
approach), in combination with 00H00MZ (Insertion of neurostimulator
lead into brain, open approach); and
0JH60EZ (Insertion of multiple array rechargeable
stimulator generator into chest subcutaneous tissue and fascia, open
approach), in combination with 00H03MZ (Insertion of neurostimulator
lead into brain, percutaneous approach).
To begin our analysis, as discussed in the proposed rule, we again
reviewed the GROUPER logic for MS-DRGs 023 and 024. The GROUPER logic
for MS-DRGs 023 and 024 also contains 78 procedure code combinations
representing the insertion of neurostimulator generator and a
neurostimulator lead that are captured under a list referred to as
``Major Device Implant.'' The procedure codes describing the insertion
of a neurostimulator generator on this list describe insertion of the
neurostimulator generator into the subcutaneous areas of the chest,
back, or abdomen, as well as into the skull. The procedure codes
describing the insertion of a neurostimulator lead describe the
insertion of the lead into the brain or the cerebral ventricle. We
refer the reader to the ICD-10 MS-DRG Definitions Manual, Version 42.1
(available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-
DRGs 023 and 024.
In our analysis of this issue, we stated that we agree that the
four procedure code combinations discussed previously that were
identified by this requestor are included in the ``Major Device
Implant'' logic list of MS-DRGs 023 and 024, but we noted in the
proposed rule that 32 additional procedure code combinations exist on
the ``Major Device Implant'' logic list that also describe the
implantation of a DBS system by describing the insertion of a
neurostimulator generator into the subcutaneous areas of the chest,
back, or abdomen in combination with a code describing the insertion of
a neurostimulator lead into the brain. We refer the reader to Table
6P.2a associated with the FY 2026 IPPS/LTCH PPS proposed rule (and
available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for the list of the 36 ICD-10-PCS
procedure code combinations in the logic of MS-DRGs 023 and 024 in the
``Major Device Implant'' logic list that we identified that describe
the implantation of a DBS system and therefore were included in our
analysis.
We stated we then examined claims data from the September 2024
update of the FY 2024 MedPAR file for all cases in MS-DRGs 023 and 024
and compared the results to cases reporting the implantation of a DBS
system by reporting a procedure code combination that describes the
insertion of a neurostimulator generator into the subcutaneous areas of
the chest, back, or abdomen in combination with a code describing the
insertion of a neurostimulator lead into the brain. The following table
shows our findings:
[GRAPHIC] [TIFF OMITTED] TR04AU25.045
As shown in the table, for MS-DRG 023, we identified a total of
12,136 cases, with an average length of stay of 10 days and average
costs of $51,132. Of the 12,136 cases in MS-DRG 023, there were 26
cases reporting the implantation of a DBS system with an average length
of stay of 8.3 days and average costs of $81,947. For MS-DRG 024, we
identified a total of 4,624 cases, with an average length of stay of 5
days and average costs of $35,516. Of the 4,624 cases in MS-DRG 024,
there were 432 cases reporting the implantation of a DBS system with an
average length of stay of 1.7 days and average costs of $43,032.
In the proposed rule, we stated we reviewed the claims data, and
the data did not support reassignment of the cases reporting the
implantation of a DBS system from MS-DRG 024 to MS-DRG 023 even if
there is no MCC
[[Page 36565]]
reported. We stated the results of the claims analysis as previously
summarized indicate the cases reporting the implantation of a DBS
system, without reporting a secondary diagnosis designated as an MCC,
that are currently assigned to MS-DRG 024, have average costs that are
lower than the average costs of all cases in MS-DRG 023 ($43,032
compared to $51,132), and they have an average length of stay that is
shorter (1.7 days compared to 10 days). While the average costs of
these cases are higher than the average costs of all cases in MS-DRG
024 ($43,032 compared to $35,516), we stated we believe it would not be
appropriate to reassign these cases into the higher severity level MS-
DRG 023, even if there is no MCC reported, because the cases would not
be coherent with regard to resource utilization. The cases reporting
the implantation of a DBS system, without reporting a secondary
diagnosis designated as an MCC, that are currently assigned to MS-DRG
024 have average costs that are $8,100 lower than the average costs of
all cases in MS-DRG 023. Therefore, we did not propose to reassign
cases reporting the implantation of a DBS system from the lower
(without MCC) severity level MS-DRG 024 to the higher (with MCC)
severity level MS-DRG 023, even if there is no MCC reported. However,
while the analysis of the claims data did not support reassigning the
cases reporting the implantation of a DBS system from the lower
(without MCC) severity level MS-DRG 024 to the higher (MCC) severity
level MS-DRG 023 even if there is no MCC reported, as discussed, we
stated our analysis of the claims data found the average costs of the
cases reporting the implantation of a DBS system are higher than all
cases in their respective MS-DRGs, while the average lengths of stay
are shorter. Accordingly, and as discussed later in this section, we
stated we determined that further analysis of cases reporting the
implantation of a DBS system is needed in conjunction with the separate
but related requests we received to review the MS-DRG assignments for a
subset of procedures also assigned to MS-DRGs 023 through 027 for the
FY 2026 IPPS/LTCH PPS proposed rule to ensure clinical coherence
between these cases and the other cases with which they may potentially
be grouped.
The third request we received, as discussed in the proposed rule,
was to have all cases reporting the concomitant insertion of a DBS
generator and lead assigned to MS-DRGs 023 and 024. This requestor
performed their own analysis and stated they found 76 claims reporting
procedure codes describing the insertion of a DBS generator and a lead
assigned to MS-DRGs 026 and 027 (Craniotomy and Endovascular
Intracranial Procedures with CC, and without CC/MCC, respectively) and
found that the average costs of these cases were 54% and 63% higher
than the average of all cases in MS-DRGs 026 and 027, respectively. The
requestor stated that placement of a complete DBS system, which
requires placement of both the generator and the lead, during a single
procedure, appears to be an efficacious and well-tolerated procedure.
The requestor asserted that the relatively low reimbursement in MS-DRGs
026 and 027 can limit patient access to a single stage procedure.
This requestor identified cases reporting the implantation of a DBS
system by the presence of the following procedure code combinations:
0JH60DZ (Insertion of multiple array stimulator generator
into chest subcutaneous tissue and fascia, open approach), in
combination with 00H00MZ (Insertion of neurostimulator lead into brain,
open approach);
0JH60DZ (Insertion of multiple array stimulator generator
into chest subcutaneous tissue and fascia, open approach), in
combination with 00H03MZ (Insertion of neurostimulator lead into brain,
percutaneous approach);
0JH60EZ (Insertion of multiple array rechargeable
stimulator generator into chest subcutaneous tissue and fascia, open
approach), in combination with 00H00MZ (Insertion of neurostimulator
lead into brain, open approach); and
0JH60EZ (Insertion of multiple array rechargeable
stimulator generator into chest subcutaneous tissue and fascia, open
approach), in combination with 00H03MZ (Insertion of neurostimulator
lead into brain, percutaneous approach);
0JH60BZ (Insertion of single array stimulator generator
into chest subcutaneous tissue and fascia, open approach), in
combination with 00H00MZ (Insertion of neurostimulator lead into brain,
open approach); and
0JH60BZ (Insertion of single array stimulator generator
into chest subcutaneous tissue and fascia, open approach), in
combination with 00H03MZ (Insertion of neurostimulator lead into brain,
percutaneous approach).
In the proposed rule, we stated to begin our analysis, we again
reviewed the GROUPER logic for MS-DRG 023 and 024. As mentioned
previously, the GROUPER logic for MS-DRGs 023 and 024 contains 78
procedure code combinations representing the insertion of
neurostimulator generator and a neurostimulator lead that are captured
under a list referred to as ``Major Device Implant.'' The procedure
codes describing the insertion of a neurostimulator generator on this
list describe insertion of the neurostimulator generator into the
subcutaneous areas of the chest, back, or abdomen, as well as into the
skull.
In reviewing this request, we noted in the proposed rule that the
procedure code combinations in MS-DRG 023 and 024 captured under the
``Major Device Implant'' logic list that describe the insertion of a
neurostimulator generator into the subcutaneous areas of the chest,
back, or abdomen, all describe the insertion of a multiple array
stimulator generator or a rechargeable multiple array stimulator
generator. We further noted that procedure code combinations describing
the insertion of a single array stimulator generator or a rechargeable
single array stimulator generator into the subcutaneous areas of the
chest, back, or abdomen and a neurostimulator lead are not captured
under the ``Major Device Implant'' logic list, therefore MS-DRGs 025,
026, and 027 (Craniotomy and Endovascular Intracranial Procedures with
MCC, with CC, and without CC/MCC, respectively) are assigned based on
the reporting of the ICD-10-PCS procedure code describing the insertion
of the neurostimulator into the brain. We refer the reader to the ICD-
10 MS-DRG Definitions Manual, Version 42.1 (available on the CMS
website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for
complete documentation of the GROUPER logic for MS-DRGs 023, 024, 025,
026, and 027.
In the proposed rule, we stated we identified 36 ICD-10-PCS
procedure code combinations that would describe the implantation of a
DBS system with a single array stimulator generator or a rechargeable
single array stimulator generator and the insertion of a
neurostimulator lead into the brain. We refer the reader to Table 6P.2b
associated with the FY 2026 IPPS/LTCH PPS proposed rule and this final
rule (available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for the list of the 36 ICD-10-PCS
procedure code combinations we identified that describe the
implantation of a DBS system with a single array stimulator generator
or a rechargeable single array stimulator generator and the insertion
of a neurostimulator lead into the brain.
[[Page 36566]]
As discussed in the proposed rule, we then examined claims data
from the September 2024 update of the FY 2024 MedPAR file for all cases
in MS-DRGs 025, 026, and 027 and compared the results to cases
reporting a procedure code combination that describes the insertion of
a single array stimulator generator or a rechargeable single array
stimulator generator into the subcutaneous areas of the chest, back, or
abdomen in combination with a code describing the insertion of a
neurostimulator lead into the brain. The following table shows our
findings:
[GRAPHIC] [TIFF OMITTED] TR04AU25.046
As shown in the table, for MS-DRG 025, we identified a total of
21,059 cases, with an average length of stay of 8.6 days and average
costs of $40,215. Of those 21,059 cases, there were 5 cases reporting
the insertion of a single array generator and insertion of
neurostimulator lead into brain with average costs higher than the
average costs in the FY 2024 MedPAR file for MS-DRG 025 ($73,168
compared to $40,215) and a shorter average length of stay (5 days
compared to 8.6 days). In MS-DRG 026, we identified a total of 5,833
cases, with an average length of stay of 4.1 days and average costs of
$28,404. Of the 5,833 cases in MS-DRG 026, there were 25 cases
reporting the insertion of a single array generator and insertion of
neurostimulator lead into brain with average costs higher than the
average costs in the FY 2024 MedPAR file for MS-DRG 026 ($42,002
compared to $28,404) and a shorter average length of stay (2.3 days
compared to 4.1 days). In MS-DRG 027, we identified a total of 7,049
cases, with an average length of stay of 1.9 days and average costs of
$23,059. Of the 7,049 cases in MS-DRG 027, there were 78 cases
reporting the insertion of a single array generator and insertion of
neurostimulator lead into brain with average costs higher than the
average costs in the FY 2024 MedPAR file for MS-DRG 027 ($39,381
compared to $23,059) and a shorter average length of stay (1.4 days
compared to 1.9 days). As the data show, the cases in MS-DRGs 025, 026,
and 027 reporting the insertion of a single array generator and
insertion of neurostimulator lead into brain have average costs that
are higher than the average costs of all cases in their respective MS-
DRGs.
We reviewed the clinical issues and noted in the proposed rule a
deep brain stimulator typically has one or two leads implanted in the
brain, depending on whether one or both sides of the brain need
treatment. A single array stimulator generator has one port where one
lead can be connected. A multiple array stimulator generator has two or
more ports where two or more leads can be connected. We stated we
believe the procedure code combinations that describe the insertion of
a single array stimulator generator or a rechargeable single array
stimulator generator into the subcutaneous areas of the chest, back, or
abdomen in combination with a code describing the insertion of a
neurostimulator lead into the brain are clinically coherent with the
procedure code combinations in MS-DRG 023 and 024 captured under the
``Major Device Implant'' logic list that describe the insertion of a
multiple array stimulator generator or a rechargeable multiple array
stimulator generator into the subcutaneous areas of the chest, back, or
abdomen in combination with a code describing the insertion of a
neurostimulator lead into the brain.
As discussed in the proposed rule, to determine how the resources
for this subset of cases compared to cases in MS-DRGs 023 and 024 as a
whole, we examined the average costs and length of stay for cases in
MS-DRGs 023 and 024. Our findings are shown in this table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.047
We reviewed the data and noted in the proposed rule the cases in
MS-DRGs 025, 026, and 027 reporting the insertion of a single array
generator and insertion of neurostimulator lead into brain have average
costs that are higher and the average length of stay is shorter than
all cases in MS-DRGs 023 and 024. We stated we agree with the requestor
that cases reporting the insertion of a single array generator and
insertion of neurostimulator lead into brain are more resource
intensive and are clinically distinct from other cases currently
assigned to MS-DRGs 025, 026, and 027. However, we stated we did not
believe proposing to reassign all cases reporting the procedure code
combination describing a single array generator and insertion of
neurostimulator lead into brain to MS-DRGs 023 and 024 would fully
address the difference in resource utilization in these cases.
To explore other mechanisms to address this request, we stated we
then reexamined the separate but related requests discussed previously
to review the MS-DRG assignments for a subset of procedures assigned to
MS-DRGs 023
[[Page 36567]]
through 027. In examining these requests, we noted in the proposed rule
that the first request was to reassign cases involving ``chemotherapy
implants'' and cases involving ``epilepsy with neurostimulator'' from
MS-DRG 023 and to create a new MS-DRG for these cases. While analysis
of the claims data did not support creating a new MS-DRG for cases
reporting the insertion of a chemotherapy implant and cases describing
a neurostimulator generator inserted into the skull with the insertion
of a neurostimulator lead into the brain (including cases involving the
use of the RNS[supreg] neurostimulator) and a principal diagnosis of
epilepsy, we stated in the proposed rule that our analysis of that
request found cases describing a neurostimulator generator inserted
into the skull with the insertion of a neurostimulator lead into the
brain (including cases involving the use of the RNS[supreg]
neurostimulator) and a principal diagnosis of epilepsy have average
costs that are higher than the average costs of all cases in MS-DRG
023, with a shorter average length of stay.
The second request we received was to reassign cases reporting the
implantation of a DBS system from the lower (without MCC) severity
level MS-DRG 024 to the higher (MCC) severity level MS-DRG 023 even if
there is no MCC reported. While analysis of the claims data did not
support reassigning the cases reporting the implantation of a DBS
system from the lower (without MCC) severity level MS-DRG 024 to the
higher (MCC) severity level MS-DRG 023 even if there is no MCC
reported, we stated our analysis of that request found the average
costs of the cases reporting the implantation of a DBS system are
higher than all cases in their respective MS-DRGs, while the average
lengths of stay are shorter. Lastly, our analysis of the third request
demonstrates the cases reporting the insertion of a single array
generator and insertion of neurostimulator lead into brain have average
costs that are higher than the average costs of all cases in their
respective MS-DRGs, while the average lengths of stay are shorter.
As discussed in the proposed rule, we reviewed these issues and
noted intracranial neurostimulator implants, such as deep brain
stimulators and RNS[supreg] neurostimulators, are similar in that these
intracranial neurostimulators are implanted surgically and include
placement of a neurostimulator generator and insertion of leads into
specific brain regions to deliver electrical stimulation. Additionally,
we stated that based on our data analysis, cases reporting the
insertion of intracranial neurostimulator implants are clinically
coherent in that they are similar in terms of technical complexity and
hospital resource use as reflected by the similarity in average costs
and average lengths of stay.
We stated we explored creating a new base MS-DRG for cases
reporting the insertion of an intracranial neurostimulator implant and
compared the analysis discussed previously using the claims data from
the September 2024 update of the FY 2024 MedPAR file. The following
table illustrates our findings for all 654 cases reporting procedure
codes describing the insertion of an intracranial neurostimulator
implant.
[GRAPHIC] [TIFF OMITTED] TR04AU25.048
In the proposed rule we stated we reviewed these data and did not
believe proposing a new base MS-DRG for these cases would better
reflect hospital resource use. Because there were only 654 cases
identified, the analysis demonstrates both a three-way and a two-way
split of a new base MS-DRG would fail the criterion that there be at
least 500 cases for each subgroup. The analysis also demonstrates the
cases reporting a principal diagnosis of epilepsy with neurostimulator
generator inserted into the skull and insertion of a neurostimulator
lead into brain, and cases reporting the insertion of a single or
multiple array generator with a secondary diagnosis designated as an
[[Page 36568]]
MCC, would continue to have average costs that are higher when compared
to all other cases reporting the insertion of an intracranial
neurostimulator implant in a new MS-DRG. We therefore explored an
alternative mechanism to address these requests.
We noted in the proposed rule that in the FY 2018 IPPS/LTCH PPS
final rule (82 FR 38015 through 38019), the FY 2021 IPPS/LTCH PPS final
rule (85 FR 58459 through 58462) and the FY 2024 IPPS/LTCH PPS final
rule (88 FR 58661 through 58667), we discussed requests we received to
reassign cases describing the insertion of a neurostimulator generator
into the skull in combination with the insertion of a neurostimulator
lead into the brain from MS-DRG 023 to MS-DRG 021 (Intracranial
Vascular Procedures with Principal Diagnosis Hemorrhage with CC). While
acknowledging the cases in MS-DRG 023 describing a neurostimulator
generator inserted into the skull with the insertion of a
neurostimulator lead into the brain (including cases involving the use
of the RNS[supreg] neurostimulators) and a principal diagnosis of
epilepsy have average costs that are similar to the average costs of
cases in MS-DRG 021, we have stated we did not support reassigning the
cases describing a neurostimulator generator inserted into the skull
with the insertion of a neurostimulator lead into the brain (including
cases involving the use of the RNS[supreg] neurostimulators) and a
principal diagnosis of epilepsy from MS-DRG 023 to MS-DRGs 020, 021,
and 022 (Intracranial Vascular Procedures with Principal Diagnosis
Hemorrhage, with MCC, with CC, without CC/MCC, respectively), as the
cases in MS-DRGs 020, 021, and 022 are defined by a principal diagnosis
of a hemorrhage. We stated that RNS[supreg] neurostimulators are not
used to treat patients with diagnosis of hemorrhage and that we believe
that it is inappropriate to reassign cases representing a principal
diagnosis of epilepsy to a MS-DRG that contains cases that represent
the treatment of intracranial hemorrhage.
However, after further consideration, to explore other mechanisms
to address this request, we stated in the proposed rule we examined MS-
DRGs 020, 021, and 022 to reconsider the possibility of reassigning the
cases reporting the insertion of an intracranial neurostimulator
implant as we have been unable to identify another MS-DRG in MDC 01
that would be a more appropriate MS-DRG assignment for these cases
based on the indication for and complexity of the procedures.
As discussed in the proposed rule, the GROUPER logic for MS-DRGs
020, 021, and 022 contains a list of procedure codes describing
intracranial vascular procedures that are captured under a logic list
referred to as ``Intracranial Vascular Procedures'' and a list of
diagnosis codes describing a diagnosis of a hemorrhage that are
captured under a logic list referred to as ``Hemorrhage Principal
Diagnosis.'' We noted in the proposed rule that during our review of
MS-DRGs 020, 021, and 022, we identified 57 ICD-10-PCS procedure codes
describing the intracranial vascular procedures and 66 diagnosis codes
describing a diagnosis of intracranial hemorrhage that were
inadvertently excluded from these logic lists. We refer the reader to
Table 6P.2c and Table 6P.2d associated with the FY 2026 IPPS/LTCH PPS
proposed rule (and available at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps) for the lists of the 57 ICD-
10-PCS procedure codes and 66 ICD-10-CM diagnosis codes that we
identified.
As these 57 procedure codes describe intracranial vascular
procedures and the 66 diagnosis codes describe a diagnosis of
intracranial hemorrhage, in the proposed rule we stated we believe
these codes are clinically aligned with the codes currently included in
the ``Intracranial Vascular Procedures'' and the ``Hemorrhage Principal
Diagnosis'' logic lists, respectively in MS-DRGs 020, 021, and 022.
Therefore, for clinical consistency we proposed to add the 57 procedure
codes to the ``Intracranial Vascular Procedures'' logic list, and the
66 diagnosis codes to the ``Hemorrhage Principal Diagnosis'' logic list
of MS-DRGs 020, 021, and 022, effective October 1, 2025, for FY 2026.
As discussed in the proposed rule, in reviewing the claims data
from the September 2024 update of the FY 2024 MedPAR file and examining
the clinical considerations, we stated we believe that the cases
reporting the insertion of an intracranial neurostimulator implant
could more suitably group to MS-DRGs 020, 021, and 022 and would lead
to a grouping that is more coherent and better reflects the clinical
severity and resource use involved in these cases. While we previously
have stated that we believe it would be inappropriate to reassign cases
representing a principal diagnosis of epilepsy to a MS-DRG that
contains cases that represent the treatment of intracranial hemorrhage,
after further consideration, we stated we no longer believe maintaining
a difference in assignment based on the indication is warranted in this
subset of cases based on the fact that both treatments involve
intracranial procedures and demonstrate comparable resource
utilization.
In the proposed rule, we stated we also believe that cases
reporting the insertion of an intracranial neurostimulator implant,
regardless of principal diagnosis, share similar resource utilization
such that it is no longer necessary to subdivide these cases based on
the diagnosis codes reported. Accordingly, we stated that we believe it
is appropriate to remove the special logic defined as ``Epilepsy
Principal Diagnosis'' from the definition for assignment to the
proposed modified MS-DRGs, as the cases can be appropriately grouped
along with cases reporting any MDC 01 diagnosis when reported with
qualifying procedures, as part of the proposed restructured MS-DRGs.
Therefore, we proposed to add 114 procedure code combinations to a
new ``Intracranial Neurostimulator Implant'' logic list in MS-DRGs 020,
021, and 022 that describe (1) the insertion of multiple or single
array neurostimulator generators with the insertion of a
neurostimulator lead into the brain or the cerebral ventricle and (2)
the insertion of neurostimulator generator inserted into the skull with
the insertion of a neurostimulator lead into the brain. We also
proposed to delete the ``Major Device Implant,'' ``Epilepsy Principal
Diagnosis,'' ``Neurostimulator'' logic lists from MS-DRGs 023 and 024.
We refer the reader to Table 6P.2e associated with the FY 2026 IPPS/
LTCH PPS proposed rule (and available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for the list
of the 114 ICD-10-PCS procedure code combinations we proposed to add to
a new ``Intracranial Neurostimulator Implant'' logic list in MS-DRGs
020, 021, and 022.
To compare and analyze the impact of these potential modifications,
as discussed in the proposed rule, we ran a simulation using the claims
data from the September 2024 update of the FY 2024 MedPAR file. The
following table reflects the simulation of our proposed changes in MS-
DRGs 020, 021, and 022.
[[Page 36569]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.049
In the proposed rule, we stated we believe that this simulation
supports that the resulting MS-DRG assignments would be more clinically
homogeneous, coherent, and better reflect hospital resource use. As the
table shows, for MS-DRG 020, there were a total of 2,322 cases with an
average length of stay of 12.5 days and average costs of $71,916. For
MS-DRG 021, there were a total of 642 cases with an average length of
stay of 7.8 days and average costs of $48,421. For MS-DRG 022, there
were a total of 385 cases with an average length of stay of 2.4 days
and average costs of $28,243. We stated that a review of this
simulation shows that adding a new ``Intracranial Neurostimulator
Implant'' logic list, while also adding 57 procedure codes to the
``Intracranial Vascular Procedures'' logic list, and 66 diagnosis codes
to the ``Hemorrhage Principal Diagnosis'' logic list in MS-DRGs 020,
021 and 022 has a limited effect on the average costs of these MS-DRGs,
while leading to a grouping that is more coherent and better reflects
the clinical severity and resource use involved in these cases.
In summary, for FY 2026, to more appropriately reflect utilization
of resources for these procedures, we proposed to add 114 procedure
code combinations to a new ``Intracranial Neurostimulator Implant''
logic list in MS-DRGs 020, 021, and 022 that describe (1) the insertion
of multiple or single array neurostimulator generators with the
insertion of a neurostimulator lead into the brain or the cerebral
ventricle and (2) the insertion of neurostimulator generator inserted
into the skull with the insertion of a neurostimulator lead into the
brain. We also proposed to add 57 procedure codes to the ``Intracranial
Vascular Procedures'' logic list, and 66 diagnosis codes to the
``Hemorrhage Principal Diagnosis'' logic list of MS-DRGs 020, 021, and
022.
Additionally, we also proposed to delete the ``Major Device
Implant,'' ``Epilepsy Principal Diagnosis,'' ``Neurostimulator'' logic
lists from MS-DRGs 023 and 024. Lastly, for consistency, we proposed to
change the titles of MS-DRGs 020, 021, and 022 from ``Intracranial
Vascular Procedures with Principal Diagnosis Hemorrhage with MCC, with
CC, and without CC/MCC, respectively'' to ``Intracranial Vascular
Procedures with Principal Diagnosis Hemorrhage or Intracranial
Neurostimulator Implant with MCC, with CC, and without CC/MCC,
respectively,'' proposed to change the title of MS-DRG 023 from
``Craniotomy with Major Device Implant or Acute Complex Central Nervous
System Principal Diagnosis with MCC or Chemotherapy Implant or Epilepsy
with Neurostimulator'' to ``Craniotomy with Acute Complex Central
Nervous System Principal Diagnosis with MCC or Antineoplastic
Implant,'' and proposed to change the title of MS-DRG 024 from
``Craniotomy with Major Device Implant or Acute Complex Central Nervous
System Principal Diagnosis without MCC'' to ``Craniotomy with Acute
Complex Central Nervous System Principal Diagnosis without MCC'' to
better reflect the assigned procedures effective October 1, 2025, for
FY 2026.
Comment: Commenters supported the proposal to add the 57 procedure
codes to the ``Intracranial Vascular Procedures'' logic list, and the
66 diagnosis codes to the ``Hemorrhage Principal Diagnosis'' logic list
of MS-DRGs 020, 021, and 022, effective October 1, 2025, for FY 2026.
Response: We appreciate the commenters' support.
Comment: Several commenters supported our proposal to add 114
procedure code combinations to a new ``Intracranial Neurostimulator
Implant'' logic list in MS-DRGs 020, 021, and 022 that describe (1) the
insertion of multiple or single array neurostimulator generators with
the insertion of a neurostimulator lead into the brain or the cerebral
ventricle and (2) the insertion of neurostimulator generator inserted
into the skull with the insertion of a neurostimulator lead into the
brain. A few commenters expressed gratitude to CMS for its thorough
analysis and fully supported the proposal, urging CMS to finalize it in
its current form. A
[[Page 36570]]
commenter specifically stated that this proposal supports their
longstanding goal of providing more appropriate payment levels for
hospitals furnishing intracranial vascular procedures that are assigned
to MS-DRGs 020, 021, and 022 after multiple years of payment declines.
Another commenter stated that the proposal recognizes the similarities
in clinical characteristics associated with deep brain stimulators for
Parkinson's disease, essential tremor, epilepsy, and dystonia and
stated that the proposed reassignments better represent the resource
utilization associated with inserting a full deep brain stimulator
system.
Many other commenters expressed their concerns with the proposals.
Some commenters noted that procedure code 00H004Z (Insertion of
radioactive element, cesium-131 collagen implant into brain, open
approach) is included in the Chemotherapy Implant logic list of MS-DRG
023 and suggested that this assignment does not accurately reflect the
increased resources required to perform procedures involving the
insertion of radioactive implants. Several commenters stated that with
CMS' proposed reassignment of neurostimulator cases out of MS-DRG 023,
these procedures involving the insertion of radioactive implants will
be grouped with acute complex central nervous system (CNS) procedures,
and this grouping is clinically inconsistent, as the majority of acute
CNS cases describe conditions treated without implanted devices. Other
commenters stated that while procedures involving the insertion of
radioactive implants and procedures involving the introduction of
chemotherapy both involve the delivery of either radiation or
chemotherapy directly after tumor resection, the overall care pathway
and resources associated with the episodes of care are dramatically
different. These commenters stated that procedures involving the
insertion of radioactive implants are more aligned with major device
implant procedures than with the acute complex CNS cases that will
remain in MS-DRG 023. Another commenter stated they performed their own
analysis and stated that they found that procedures involving the
insertion of radioactive implants have consistently demonstrated higher
resource use than antineoplastic chemotherapy implant cases across two
consecutive years of MedPAR data and are more closely aligned with
cases assigned to MS-DRGs 020, 021 and 022. These commenters
recommended that cases reporting procedure code 00H004Z, such as cases
involving GammaTile[supreg], which is a surgically implanted
brachytherapy device used to treat patients with malignant brain
tumors, be assigned to MS-DRGs 020, 021, and 022.
Other commenters expressed concerns with the proposal to reassign
cases describing a neurostimulator generator inserted into the skull
with the insertion of a neurostimulator lead into the brain (including
cases involving the use of the RNS[supreg] neurostimulator) with a
principal diagnosis of epilepsy from MS-DRG 023 to MS-DRGs 020, 021,
and 022. These commenters stated that this proposal would have
devastating impacts on hospital payment, which in turn would impact the
ability of hospitals to continue to offer the RNS[supreg]
neurostimulator to Medicare beneficiaries. While thanking CMS for
continuing to explore solutions to better align the resource
utilization of epilepsy with neurostimulator cases, some commenters
stated the proposed reassignment would result in a greater misalignment
of hospital costs, resulting in a significant reduction in hospital
payment for the vast majority of epilepsy with neurostimulator cases. A
commenter specifically stated that they performed their own analysis
and found that most epilepsy with neurostimulator cases do not report a
secondary diagnosis designated as an MCC, therefore reassigning these
cases to MS-DRGs 020, 021, and 022 without maintaining the ``Epilepsy
Principal Diagnosis,'' ``Neurostimulator'' logic lists in these MS-DRGs
will have the opposite effect and will decrease hospital payments even
further. Many commenters requested that CMS modify its current proposal
and assign all cases describing a neurostimulator generator inserted
into the skull with the insertion of a neurostimulator lead into the
brain (including cases involving the use of the RNS[supreg]
neurostimulator) with a principal diagnosis of epilepsy to MS-DRG 020
even if there is no MCC reported.
Response: We appreciate the commenters' feedback and thank the
commenters for sharing their concerns.
In response to the commenters' concerns that finalizing our
proposal could adversely affect cases reporting procedure code 00H004Z
and cases reporting a neurostimulator generator inserted into the skull
with the insertion of a neurostimulator lead into the brain (including
cases involving the use of the RNS[supreg] neurostimulator) and a
principal diagnosis of epilepsy, we performed additional analysis of
these cases. As discussed in the preamble of the proposed rule, MS-DRGs
023 and 024 contain a logic list referred to as ``Chemotherapy
Implant.'' This logic list includes four ICD-10-PCS codes: 00H004Z
(Insertion of radioactive element, cesium-131 collagen implant into
brain, open approach), 3E0Q005 (Introduction of other antineoplastic
into cranial cavity and brain, open approach), 3E0Q305 (Introduction of
other antineoplastic into cranial cavity and brain, percutaneous
approach), and 3E0Q705 (Introduction of other antineoplastic into
cranial cavity and brain, via natural or artificial opening). In our
analysis discussed in the proposed rule, we examined claims data from
the September 2024 update of the FY 2024 MedPAR file for all cases in
MS-DRG 023 and compared the results to cases reporting one of the four
procedure codes that appear under the ``Chemotherapy Implant'' logic
list in MS-DRG 023.
To evaluate the commenters' concerns regarding cases involving the
insertion of radioactive implants, we further examined claims data from
the September 2024 update of the FY 2024 MedPAR file for all cases in
MS-DRG 023 and compared the results to cases reporting procedure code
00H004Z specifically. The following table shows our findings:
[GRAPHIC] [TIFF OMITTED] TR04AU25.050
As shown in the table, for MS-DRG 023, we identified a total of
12,136 cases, with an average length of stay of 10 days and average
costs of $51,132. Of the 12,136 cases in MS DRG 023, there were 111
cases reporting procedure
[[Page 36571]]
code 00H004Z with an average length of stay of 5.5 days and average
costs of $53,666.
Because all cases reporting a procedure code included in the logic
list referred to as ``Chemotherapy Implant'' are assigned to the higher
severity level (with MCC) MS-DRG 023 and there is a three-way split
within MS-DRGs 020, 021, and 022, we next analyzed the 111 cases
reporting a procedure code 00H004Z in MS-DRG 023 for the presence or
absence of a secondary diagnosis designated as a complication or
comorbidity (CC) or a major complication or comorbidity (MCC).
[GRAPHIC] [TIFF OMITTED] TR04AU25.051
We then examined claims data from the September 2024 update of the
FY 2024 MedPAR file for MS-DRGs 020, 021, and 022. Our findings are
shown in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.052
As shown in the table, the data analysis performed indicates that
the 77 cases in MS-DRG 023 reporting procedure code 00H004Z with a
secondary diagnosis code designated as an MCC have a shorter average
length of stay (6.5 days versus 12.5 days) and lower average costs
($57,820 versus $71,916) when compared to all the cases in MS-DRG 020.
The 23 cases in MS-DRG 023 reporting procedure code 00H004Z with a
secondary diagnosis code designated as an CC have a shorter average
length of stay (3.5 days versus 7.8 days) and lower average costs
($46,741 versus $48,421) when compared to all the cases in MS-DRG 021.
The 11 cases in MS-DRG 023 reporting procedure code 00H004Z without a
secondary diagnosis code designated as an CC or an MCC have a shorter
average length of stay (2.1 days versus 2.4 days) and higher average
costs ($39,075 versus $28,243) when compared to all the cases in MS-DRG
022. These data reflect when distributed based on the presence or
absence of a secondary diagnosis designated as a CC or an MCC, the 111
cases in MS-DRG 023 reporting procedure code 00H004Z have lower average
costs and shorter lengths of stay than the cases in the FY 2024 MedPAR
file for MS-DRGs 020 and 021 while having higher average costs and
shorter lengths of stay than the cases in MS-DRG 022.
While the 111 cases reporting procedure code 00H004Z have average
costs that are higher than the average costs of all cases in their
currently assigned MS-DRG 023 ($53,666 versus $51,132), we do not
believe it would be appropriate to reassign the cases reporting
procedure code 00H004Z to MS-DRG 020, 021, and 022 as the cases are not
clinically coherent with regard to resource utilization as reflected in
the difference in average costs when distributed based on the presence
or absence of a secondary diagnosis designated as a CC or an MCC.
We then performed a similar analysis for the cases describing a
neurostimulator generator inserted into the skull with the insertion of
a neurostimulator lead into the brain (including cases involving the
use of the RNS[supreg] neurostimulator) and a principal diagnosis of
epilepsy. As discussed in the proposed rule, for MS-DRG 023, there were
68 cases describing a neurostimulator generator inserted into the skull
with the insertion of a neurostimulator lead into the brain (including
cases involving the use of the RNS[supreg] neurostimulator) and a
principal diagnosis of epilepsy with an average length of stay of 2.4
days and average costs of $66,303. Because all cases describing a
neurostimulator generator inserted into the skull with the insertion of
a neurostimulator lead into the brain (including cases involving the
use of the RNS[supreg] neurostimulator) and a principal diagnosis of
epilepsy are assigned to the higher severity level (with MCC) MS-DRG
023 and there is a three-way split within MS-DRGs 020, 021, and 022,
next we analyzed the 68 cases describing a neurostimulator generator
inserted into the skull with the insertion of a neurostimulator lead
into the brain (including cases involving the use of the RNS[supreg]
neurostimulator) and a principal diagnosis of epilepsy in MS-DRG 023
for the presence or absence of a secondary diagnosis designated as a
complication or comorbidity (CC) or a major complication or comorbidity
(MCC).
[[Page 36572]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.053
The data analysis performed indicates that the 9 cases in MS-DRG
023 reporting a principal diagnosis of epilepsy and a secondary
diagnosis code designated as an MCC with a neurostimulator generator
inserted into the skull and insertion of a neurostimulator lead into
brain have a shorter average length of stay (4.6 days versus 12.5 days)
and lower average costs ($66,945 versus $71,916) when compared to all
the cases in MS-DRG 020. The 23 cases in MS-DRG 023 reporting a
principal diagnosis of epilepsy and a secondary diagnosis code
designated as a CC with a neurostimulator generator inserted into the
skull and insertion of a neurostimulator lead into brain have a shorter
average length of stay (2.6 days versus 7.8 days) and higher average
costs ($76,648 versus $48,421) when compared to all the cases in MS-DRG
021. The 36 cases in MS-DRG 023 reporting a principal diagnosis of
epilepsy without a secondary diagnosis code designated as a CC or an
MCC with a neurostimulator generator inserted into the skull and
insertion of a neurostimulator lead into brain have a shorter average
length of stay (1.8 days versus 2.4 days) and higher average costs
($59,534 versus $28,243) when compared to all the cases in MS-DRG 022.
As shown in the table, when distributed based on the presence or
absence of a secondary diagnosis designated as a CC or an MCC, the 68
cases in MS-DRG 023 reporting a principal diagnosis of epilepsy with a
neurostimulator generator inserted into the skull and insertion of a
neurostimulator lead into brain have higher average costs and shorter
lengths of stay than the cases in the FY 2024 MedPAR file for MS-DRGs
021 and 022 while having lower average costs and shorter lengths of
stay than the cases in MS-DRG 020. We note, similar to the commenters'
analysis, our analysis using the September 2024 update of the FY 2024
MedPAR file reflects that the majority of the cases (36) describing a
neurostimulator generator inserted into the skull with the insertion of
a neurostimulator lead into the brain (including cases involving the
use of the RNS[supreg] neurostimulator) and a principal diagnosis of
epilepsy do not also report secondary diagnoses designated as CCs or
MCCs.
While the 68 cases reporting a principal diagnosis of epilepsy with
a neurostimulator generator inserted into the skull and insertion of a
neurostimulator lead into brain have average costs that are higher than
the average costs of all cases in their currently assigned MS-DRG 023
($66,303 versus $51,132), the data indicate that the difference in
average costs is $12,382 ($71,916-$59,534 = $12,382) for the majority
of the cases which describe a neurostimulator generator inserted into
the skull with the insertion of a neurostimulator lead into the brain
(including cases involving the use of the RNS[supreg] neurostimulator)
and a principal diagnosis of epilepsy without reporting a secondary
diagnosis code designated as a CC or an MCC in MS-DRG 023 when compared
to all the cases in MS-DRG 020. We do not believe it would be
appropriate to reassign all cases reporting a principal diagnosis of
epilepsy with a neurostimulator generator inserted into the skull and
insertion of a neurostimulator lead into the brain to the highest
severity level (with MCC) MS DRG 020 as the majority of the cases are
not clinically coherent with regard to resource utilization as
reflected in the difference in average costs.
After consideration of the public comments we received, and for the
reasons discussed, we believe that further analysis of cases reporting
the insertion of a radioactive element into the brain and cases
reporting a neurostimulator generator inserted into the skull with the
insertion of a neurostimulator lead into the brain (including cases
involving the use of the RNS[supreg] neurostimulator) and a principal
diagnosis of epilepsy is needed prior to generally finalizing further
reassignment of these cases to ensure clinical and resource coherence
between these cases and the other cases with which they may potentially
be grouped. Accordingly, we believe it would be appropriate to take
additional time to examine the relevant clinical factors and
similarities in resource consumption in order to best represent these
subsets of patients within the MS-DRG classification and improve the
overall accuracy of the IPPS payments.
CMS appreciates the comments submitted in response to our proposal
as discussed in the FY 2026 IPPS/LTCH PPS proposed rule. We continue to
be attuned to the requestors' and the commenters' concerns about
payment for cases reporting procedure codes describing the insertion of
the RNS[supreg] neurostimulator, the implantation of a DBS system, or
the insertion of antineoplastic implants and note that our work in this
area is ongoing. As stated in prior rulemaking, we recognize the logic
for MS-DRGs 020 through 027 has grown more complex over the years and
continue to believe there is an opportunity for further refinement. As
discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58661 through
58667), we have begun to analyze the ICD-10 coded claims data to
determine if the patients' diagnoses, the objective of the procedure
performed, the specific anatomical site where the procedure is
performed or the surgical approach used (for example, open,
percutaneous, percutaneous endoscopic, among others) demonstrates a
greater severity of illness and/or increased treatment difficulty as we
consider where further refinements could potentially be made to better
account for differences in the technical complexity and resource
utilization among the procedures that are currently assigned to MS-DRGs
020 through 027, including how to better
[[Page 36573]]
align the clinical indications with the performance of specific
intracranial procedures. CMS will continue to monitor and analyze the
claims data with respect to MS-DRGs 020 through 027 as we further
examine the logic for case assignment to the craniotomy MS-DRGs and we
will continue to consider these issues as we develop potential future
rulemaking proposals. Feedback and other suggestions on what other
factors should be considered in a potential restructuring of these MS-
DRGs may continue to be directed to MEARISTM, discussed in
section II.C.1.b. of the preamble of this final rule at: https://mearis.cms.gov/public/home.
In summary, for FY 2026, after consideration of the public comments
we received and for the reasons discussed, we are generally not
finalizing our proposed changes to the assignment of the cases
reporting the insertion of an intracranial neurostimulator implant,
other than the changes described in more detail in the discussion that
follows.
For FY 2026, cases reporting a neurostimulator generator inserted
into the skull with the insertion of a neurostimulator lead into the
brain (including cases involving the use of the RNS[supreg]
neurostimulator) and a principal diagnosis of epilepsy will be
maintained in MS-DRG 023. We are not finalizing our proposal to add 114
procedure code combinations to a ``Intracranial Neurostimulator
Implant'' logic list in MS-DRGs 020, 021, and 022 that describe (1) the
insertion of multiple or single array neurostimulator generators with
the insertion of a neurostimulator lead into the brain or the cerebral
ventricle and (2) the insertion of neurostimulator generator inserted
into the skull with the insertion of a neurostimulator lead into the
brain. Accordingly, the ``Major Device Implant,'' ``Epilepsy Principal
Diagnosis,'' ``Neurostimulator'' logic lists will be maintained in MS-
DRGs 023 and 024 for FY 2026.
We are also not finalizing our proposals to change the titles of
MS-DRGs 020, 021, and 022 from ``Intracranial Vascular Procedures with
Principal Diagnosis Hemorrhage with MCC, with CC, and without CC/MCC,
respectively'' to ``Intracranial Vascular Procedures with Principal
Diagnosis Hemorrhage or Intracranial Neurostimulator Implant with MCC,
with CC, and without CC/MCC, respectively,'' to change the title of MS-
DRG 023 from ``Craniotomy with Major Device Implant or Acute Complex
Central Nervous System Principal Diagnosis with MCC or Chemotherapy
Implant or Epilepsy with Neurostimulator'' to ``Craniotomy with Acute
Complex Central Nervous System Principal Diagnosis with MCC or
Antineoplastic Implant,'' or to change the title of MS-DRG 024 from
``Craniotomy with Major Device Implant or Acute Complex Central Nervous
System Principal Diagnosis without MCC'' to ``Craniotomy with Acute
Complex Central Nervous System Principal Diagnosis without MCC.''
As discussed earlier in this section, we noted that 36 procedure
code combinations describing the insertion of a single array stimulator
generator or a rechargeable single array stimulator generator into the
subcutaneous areas of the chest, back, or abdomen and a neurostimulator
lead are not captured under the ``Major Device Implant'' logic list, in
MS-DRG 023 and 024, therefore MS-DRGs 025, 026, and 027 (Craniotomy and
Endovascular Intracranial Procedures with MCC, with CC, and without CC/
MCC, respectively) are assigned based on the reporting of the ICD-10-
PCS procedure code describing the insertion of the neurostimulator into
the brain. As discussed in the proposed rule, our analysis indicated
the cases in MS-DRGs 025, 026, and 027 reporting the insertion of a
single array generator and insertion of neurostimulator lead into brain
have average costs that are higher than the average costs of all cases
in their respective MS-DRGs. We then examined the data to determine how
the resources for the subset of cases reporting the insertion of a
single array generator and insertion of neurostimulator lead into brain
compared to cases in MS-DRGs 023 and 024, and similarly found that the
cases reporting the insertion of a single array generator and insertion
of neurostimulator lead into brain have average costs that are higher
and an average length of stay that is shorter than all cases in MS-DRGs
023 and 024. In the FY 2026 proposed rule we stated we believe the
procedure code combinations that describe the insertion of a single
array stimulator generator or a rechargeable single array stimulator
generator into the subcutaneous areas of the chest, back, or abdomen in
combination with a code describing the insertion of a neurostimulator
lead into the brain are clinically coherent with the procedure code
combinations in MS-DRG 023 and 024 captured under the ``Major Device
Implant'' logic list that describe the insertion of a multiple array
stimulator generator or a rechargeable multiple array stimulator
generator into the subcutaneous areas of the chest, back, or abdomen in
combination with a code describing the insertion of a neurostimulator
lead into the brain. While we continue to believe that reassigning all
cases reporting the procedure code combination describing a single
array generator and insertion of neurostimulator lead into brain to MS-
DRGs 023 and 024 would not fully address the difference in resource
utilization in these cases, we believe that adding the 36 procedure
code combinations describing the insertion of a single array stimulator
generator or a rechargeable single array stimulator generator into the
subcutaneous areas of the chest, back, or abdomen and a neurostimulator
lead to the ``Major Device Implant'' logic list under MS-DRGs 023 and
024 for FY 2026 would better reflect hospital resource utilization and
appropriately group these cases describing single array stimulator
generator combinations with those cases describing multiple array
generator combinations consistent with our proposal. Therefore, for the
reasons discussed, we are finalizing the addition of the 36 ICD-10-PCS
procedure code combinations that describe the implantation of a DBS
system with a single array stimulator generator or a rechargeable
single array stimulator generator and the insertion of a
neurostimulator lead into the brain to the ``Major Device Implant''
logic list in MS-DRGs 023 and 024. We refer the reader to Table 6P.2b
associated with this FY 2026 IPPS/LTCH PPS final rule (available at:
https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for the list of the 36 ICD-10-PCS procedure code
combinations that describe the implantation of a DBS system with a
single array stimulator generator or a rechargeable single array
stimulator generator and the insertion of a neurostimulator lead into
the brain that are being added to the ``Major Device Implant'' logic
list in MS-DRGs 023 and 024.
We also note that as discussed earlier in this section, after
consideration of the public comments we received, we are finalizing our
proposal to add procedure codes 00H001Z, 00H005Z, 00H031Z, and 00H041Z
to the ``Chemotherapy Implant'' logic list in MS-DRGs 023 and 024,
without modification, effective October 1, 2025, for FY 2026. We are
also finalizing the change of the description of the logic list in MS-
DRGs 023 and 024 from ``Chemotherapy Implant'' to ``Antineoplastic
Implant''. Therefore, for consistency with our finalized changes to the
logic list, we are finalizing a change to the title of MS-DRG 023 from
``Craniotomy with Major
[[Page 36574]]
Device Implant or Acute Complex Central Nervous System Principal
Diagnosis with MCC or Chemotherapy Implant or Epilepsy with
Neurostimulator'' to ``Craniotomy with Major Device Implant or Acute
Complex Central Nervous System Principal Diagnosis with MCC or
Antineoplastic Implant or Epilepsy with Neurostimulator.''
Comment: Several commenters noted that in Table 6P.2c associated
with the FY 2026 IPPS/LTCH PPS proposed rule, which contains the list
of the 57 ICD-10-PCS procedure codes that were inadvertently excluded
from the ``Intracranial Vascular Procedures'' logic list of MS-DRGs
020, 021, and 022, ICD-10-PCS codes 057L3DZ (Dilation of intracranial
vein with intraluminal device, percutaneous approach) and 057L4DZ
(Dilation of intracranial vein with intraluminal device, percutaneous
endoscopic approach) were included. These commenters noted that ICD-10-
PCS code 057L0DZ (Dilation of intracranial vein with intraluminal
device, open approach) was not also included in the list and
recommended CMS consider also adding procedure code 057L0DZ to the
``Intracranial Vascular Procedures'' logic list of MS-DRGs 020, 021,
and 022, as this code also describes dilation of an intracranial vein
with an intraluminal device, differing only in approach. Several
commenters specifically stated that they were unclear on the rationale
for not including ICD-10-PCS code 057L0DZ (Dilation of Intracranial
Vein with Intraluminal Device, Open Approach) to the logic list of MS-
DRGs 020, 021, and 022.
Response: We appreciate the commenters' feedback. In the ICD-10 MS-
DRGs Version 42.1, ICD-10-PCS procedure codes 057L3DZ and 057L4DZ are
currently assigned to MS-DRGs 023, 024, 025, 026, and 027. As we noted
in the proposed rule, during our review of MS-DRGs 020, 021, and 022,
we identified 57 ICD-10-PCS procedure codes describing intracranial
vascular procedures that were inadvertently excluded from the
``Intracranial Vascular Procedures'' logic list of MS-DRGs 020, 021,
and 022. We note that we identified the 57 procedure codes by comparing
the logic lists in MS-DRGs 023, 024, 025, 026, and 027 to the logic
list of MS-DRGs 020, 021, and 022.
ICD-10-PCS procedure code 057L0DZ (Dilation of intracranial vein
with intraluminal device, open approach) is currently assigned to MDC
05 (Diseases and Disorders of the Circulatory System) MS-DRGs 252, 253
and 254 (Other Vascular Procedures with MCC, with CC, without MCC
respectively) and therefore was not identified in our initial review.
We agree with the commenters that ICD-10-PCS code 057L0DZ describes an
intracranial vascular procedure and should be added to the
``Intracranial Vascular Procedures'' logic list of MS-DRGs 020, 021,
and 022, consistent with our proposal to add the ICD-10-PCS procedure
codes describing intracranial vascular procedures that were
inadvertently excluded from the ``Intracranial Vascular Procedures''
logic list.
During our review of this issue identified by the commenters, we
further examined the GROUPER logic that would determine the assignment
of a case to MS-DRGs 020, 021, and 022. Specifically, we reviewed the
ICD-10-PCS classification to determine if there were other ICD-10-PCS
codes describing dilation of an intracranial vein that were not listed
in the logic for MS-DRGs 020, 021, and 022. We identified the following
three procedure codes.
[GRAPHIC] [TIFF OMITTED] TR04AU25.054
ICD-10-PCS codes 057L0ZZ, 057L3ZZ, and 057L4ZZ are also currently
assigned to MS-DRGs 252, 253 and 254 in the ICD-10 MS-DRGs Version
42.1. In response to the commenters that stated they were unclear on
the rationale for not including ICD-10-PCS code 057L0DZ in the list of
procedure codes proposed to be added to the ``Intracranial Vascular
Procedures'' logic list of MS-DRGs 020, 021, and 022, we have
identified that the disparate MS-DRG assignments of the six ICD-10-PCS
procedure codes that describe the dilation of an intracranial vein are
a result of a replication error in transitioning to ICD-10. We
determined it may be helpful to provide the comparable translations
under ICD-9-CM for commenters to better understand how these six
procedures were initially grouped to the ICD-10 MS-DRGs as a result of
replication during the conversion from ICD-9 to ICD-10 based MS-DRGs.
We refer the reader to Table 6P.2f associated with this FY 2026 IPPS/
LTCH PPS final rule (which is available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) for the findings from our analysis of the six
procedure codes, which indicates how these procedures were classified
under ICD-10-PCS based on the comparable translations under ICD-9-CM
resulting in the current MS-DRG assignments.
We reviewed ICD-10-PCS codes 057L0DZ, 057L0ZZ, 057L3ZZ, and 057L4ZZ
and note these codes describe intracranial vascular procedures that are
consistent with the existing procedure codes included in the logic for
case assignment to MS-DRGs 020, 021, 022, 023, 024, 025, 026, and 027.
Accordingly, because procedure codes 057L0DZ, 057L0ZZ, 057L3ZZ, and
057L4ZZ that describe dilation of an intracranial vein were not
assigned to MS-DRGs 020, 021, 022, 023, 024, 025, 026, and 027 as a
result of replication in the transition from ICD-9 to ICD-10 based MS-
DRGs, and are consistent with the existing procedure codes that also
describe dilation of an intracranial vein currently included in the
logic for these MS-DRGs, we believe that consistent with our proposal
to add the other ICD-10-PCS procedure codes describing intracranial
vascular procedures that were inadvertently excluded from the
``Intracranial Vascular Procedures'' logic list, procedure codes
057L0DZ, 057L0ZZ, 057L3ZZ, and 057L4ZZ should be assigned to MS-DRGs
020, 021, 022, 023, 024, 025, 026, and 027 in MDC 01, effective FY
2026.
Therefore, after consideration of the public comments we received,
and for the reasons discussed, we are finalizing our proposal to add
the 57 procedure codes to the ``Intracranial Vascular Procedures''
logic list, and the 66 diagnosis codes to the ``Hemorrhage
[[Page 36575]]
Principal Diagnosis'' logic list of MS-DRGs 020, 021, and 022, with
modification, effective October 1, 2025, for FY 2026. Specifically, we
are also adding ICD-10-PCS codes 057L0DZ, 057L0ZZ, 057L3ZZ, and 057L4ZZ
that also describe dilation of an intracranial vein to the list of
procedure codes in the ``Intracranial Vascular Procedures'' logic list
of MS-DRGs 020, 021, and 022. The list of ICD-10-PCS procedure codes
describing intracranial vascular procedures that we are finalizing to
add to the ``Intracranial Vascular Procedures'' logic list of MS-DRGs
020, 021, and 022 are shown in Table 6P.2c associated with this final
rule and available on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. In addition,
we are also finalizing the assignment of ICD-10-PCS codes 057L0DZ,
057L0ZZ, 057L3ZZ, and 057L4ZZ to MS-DRGs 023, 024, 025, 026, and 027 in
MDC 01 effective FY 2026.
These finalizations as discussed are reflected in the final version
of ICD-10 MS-DRG Definitions Manual, Version 43 that contains the
complete documentation of the GROUPER logic for MS-DRGs 020 through 027
for FY 2026 and is available via the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.
b. Hypertensive Encephalopathy
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18026 through 18028, we received a request to delete MS-DRGs 077, 078,
and 079 (Hypertensive Encephalopathy with MCC, with CC, and without CC/
MCC, respectively). Hypertensive encephalopathy refers to brain
dysfunction that occurs when the brain's blood vessels can no longer
regulate blood flow due to severe or sudden rises in blood pressure,
causing brain swelling and damage. It is characterized by the insidious
onset of headache, nausea, and vomiting, followed by non-localizing
neurologic symptoms such as restlessness, confusion, and, if the
hypertension is not treated, seizures and coma. The diagnosis is based
on clinical presentation, elevated blood pressure, and neurological
examination, often supported by brain imaging like CT or MRI. The
treatment involves immediate and rapid lowering of blood pressure with
appropriate medications administered in a controlled setting. ICD-10-CM
diagnosis code I67.4 (Hypertensive encephalopathy) is used to report
this diagnosis.
The requestor noted that effective FY 2025, a ``use additional
code'' instructional note was added under diagnosis code I16.1
(Hypertensive emergency) in the ICD-10-CM Tabular List of Diseases and
Injuries. Specifically, the instructional note states, ``use additional
code, if applicable, to identify specific organ dysfunction, such as:''
and lists I67.4 as well as eight other ICD-10-CM diagnosis codes. The
requestor stated that the addition of this ``use additional code''
instructional note has sequencing implications and requires I67.4 to be
sequenced as a secondary diagnosis when hypertensive emergency and
hypertensive encephalopathy are documented. As the GROUPER logic for
MS-DRGs 077, 078, and 079 is defined by only diagnosis code I67.4, the
requestor stated there will no longer be cases grouping to medical MS-
DRGs 077, 078, and 079 because I67.4 will only be sequenced as a
secondary diagnosis and I16.1 will have to be sequenced as the
principal diagnosis. Instead, these cases will group to MDC 05
(Diseases and Disorders of the Circulatory System) medical MS-DRGs 304
and 305 (Hypertension with MCC and without MCC, respectively) since
I16.1 is assigned to those MS-DRGs.
To begin our analysis, as discussed in the proposed rule, we
reviewed the ICD-10-CM Tabular List of Diseases and Injuries. We stated
that the requestor is correct a ``use additional code'' instructional
note was added under diagnosis code I16.1 (Hypertensive emergency) in
the ICD-10-CM Tabular List of Diseases and Injuries, effective FY 2025.
According to the ICD-10-CM Official Guidelines for Coding and
Reporting, ``certain conditions have both an underlying etiology and
multiple body system manifestations due to the underlying etiology. For
such conditions the ICD-10-CM has a coding convention that requires the
underlying condition to be sequenced first followed by the
manifestation. Wherever such a combination exists there is an `use
additional code' note at the etiology code, and a `code first' note at
the manifestation code. These instructional notes indicate the proper
sequencing order of the codes, etiology followed by manifestation.'' We
noted in the proposed rule that no such ``code first'' note appears at
ICD-10-CM diagnosis code I67.4 (Hypertensive encephalopathy) in the
ICD-10-CM Tabular List of Diseases and Injuries meaning the sequencing
depends on the circumstances of the encounter when hypertensive
emergency and hypertensive encephalopathy are documented. If providers
have cases involving hypertensive emergency and hypertensive
encephalopathy for which they need ICD-10 coding assistance, we
encourage them to submit their questions to the American Hospital
Association's Central Office on ICD-10 at https://www.codingclinicadvisor.com/.
We then reviewed the GROUPER logic. We stated the requestor is
correct that diagnosis code I67.4 is the only diagnosis code listed
under the heading of ``Principal Diagnosis'' in the ICD-10 MS-DRG
Definitions Manual for MS-DRGs 077, 078, and 079. We refer the reader
to the ICD-10 MS-DRG Definitions Manual Version 42.1, which is
available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete documentation of the GROUPER logic for MS-
DRGs 077, 078, and 079. We noted in the proposed rule that a DRG for a
principal diagnosis of hypertensive encephalopathy (48 FR 39876) has
existed since 1983 when Congress amended the Social Security Act to
include a national DRG-based hospital prospective payment system for
all Medicare patients.
We then examined claims data from the September 2024 update of the
FY 2024 MedPAR file for all cases in MS-DRGs 077, 078, and 079 to
consider the resources involved in the cases reporting a principal
diagnosis of hypertensive encephalopathy. Our findings are shown in
this table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.055
[[Page 36576]]
We stated in the proposed rule the data reflect a moderately low
volume of cases in MS-DRGs 077, 078, and 079, relatively. We then
evaluated the reporting of hypertensive encephalopathy in the inpatient
setting over the past few years in medical MS-DRGs 077, 078, and 079.
We analyzed claims data for MS-DRGs 077, 078, and 079 from the FY 2020
through the FY 2024 MedPAR files, which were used in our analysis of
claims data for MS-DRG reclassification requests effective for FY 2022
through FY 2026 to trend the number of cases assigned to these MS-DRGs
over time. Our findings are shown in the following graph:
[GRAPHIC] [TIFF OMITTED] TR04AU25.056
The data show a general decline in the number of cases reporting
hypertensive encephalopathy as a principal diagnosis in medical MS-DRGs
077, 078, and 079 for the past 5 years. We noted in the proposed rule
that as discussed in prior rulemaking, the MS-DRGs are a classification
system intended to group together diagnoses and procedures with similar
clinical characteristics and utilization of resources. We generally
seek to identify sufficient sets of claims data with demonstrated
clinical similarity in developing diagnosis related groups rather than
subsets based on single diagnoses. After review of the findings
indicating a general decline in the number of cases reporting
hypertensive encephalopathy as a principal diagnosis, and consideration
of the intent of the MS-DRGs, we stated we believe that there is no
longer a clinical reason to maintain the MS-DRGs for hypertensive
encephalopathy (MS-DRGs 077, 078, and 079) as they are defined by the
reporting of one principal diagnosis code.
As discussed in the proposed rule, to explore mechanisms to ensure
clinical coherence between cases reporting hypertensive encephalopathy
as a principal diagnosis and the other cases with which they may
potentially be grouped, we then conducted an examination of all the MS-
DRGs where I67.4 was also reported as principal diagnosis to determine
if the diagnosis was included in any other MS-DRGs outside of MDC 01,
to assess the current MS-DRG assignment of this diagnosis code. Our
findings are shown in the following table.
[[Page 36577]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.057
As shown in the table, we found 35 cases reporting hypertensive
encephalopathy as the principal diagnosis in MS-DRGs other than MS-DRGs
077, 078, and 079. We noted in the proposed rule that the majority of
the listed MS-DRGs are assigned to MDC 01 with one exception: Pre-MDC
MS-DRG 004 (Tracheostomy with MV >96 Hours or Principal Diagnosis
Except Face, Mouth and Neck without Major O.R. Procedures).
Additionally, there were 11 cases that grouped to MS-DRGs 981, and 982
(Extensive O.R. Procedure Unrelated to Principal Diagnosis with MCC,
and with CC, respectively) and two cases that grouped to MS-DRG 987
(Non-Extensive O.R. Procedures Unrelated to Principal Diagnosis with
MCC). After review of these data, we stated we believe it would not be
appropriate to reassign diagnosis code I67.4 to another MDC because it
could inadvertently cause cases reporting a principal diagnosis of
hypertensive encephalopathy with a nervous system procedure to be
assigned to an unrelated MS-DRG. Further, we stated we believe it is
clinically appropriate to maintain the assignment of I67.4 in MDC 01 as
the condition is consistent with other conditions reported by diagnosis
codes assigned to MDC 01.
We then examined the MS-DRGs within MDC 01 to consider the
possibility of reassigning the cases with a principal diagnosis of
hypertensive encephalopathy to other MS-DRGs within MDC 01. In
reviewing the claims data from the September 2024 update of the FY 2024
MedPAR file, and examining the clinical considerations, we stated we
believe that the cases reporting a principal diagnosis of hypertensive
encephalopathy could suitably group to MS-DRGs 070, 071, and 072
(Nonspecific Cerebrovascular Disorders with MCC, with CC and, without
CC/MCC, respectively), which contain other cerebrovascular diagnoses
under the heading of ``Principal Diagnosis'' in the GROUPER logic list,
noting in the proposed rule that hypertensive encephalopathy is
considered a cerebrovascular disorder, as it is a neurological
condition directly caused by a sudden, severe elevation in blood
pressure. We refer the reader to the ICD-10 MS-DRG Definitions Manual
Version 42.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete
documentation of the GROUPER logic for MS-DRGs 070, 071, and 072.
To determine how the resources for the cases in MS-DRGs 077, 078,
and 079 compared to cases in MS-DRGs 070, 071, and 072, we examined the
average costs and length of stay for cases in MS-DRGs 070, 071, and
072. Our findings are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.058
As reflected and discussed in the proposed rule, the average costs
of the 1,488 cases reporting a principal diagnosis of I67.4 with a
secondary diagnosis designated as a MCC in MS-DRG 077 are slightly
lower ($13,176 compared to $14,771) and the average length of stay is
shorter (5 days compared to 6.4 days) than for all cases in MS-DRGs
070. The average costs of the 1,846 cases reporting a principal
diagnosis of I67.4 with a secondary diagnosis designated as a CC in MS-
DRG 078 are slightly lower ($8,591 compared to $9,381) and the average
length of stay is shorter (3.3 days compared to 4.5 days) than for all
cases in MS-DRGs 071. The average costs of the 243 cases reporting a
principal diagnosis of I67.4 without reporting a secondary diagnosis
designated as a CC or a MCC in MS-DRG 079 are slightly lower ($6,729
compared to $7,047) and the average length of stay is shorter (2.4
[[Page 36578]]
days compared to 2.9 days) than for all cases in MS-DRGs 072.
We stated in the proposed rule our analysis demonstrates that the
cases reporting a principal diagnosis of I67.4 currently grouping to
medical MS-DRGs 077, 078, and 079 are generally aligned with the
average costs for the cases currently grouping to MS-DRGs 070, 071, and
072. While the cases reporting a principal diagnosis code describing
hypertensive encephalopathy have slightly lower costs and a shorter
average length of stay than for cases in MS-DRGs 070, 071, and 072, we
stated we believe reassigning diagnosis code I67.4 to MS-DRGs 070, 071,
and 072 will account for the subset of patients reporting this
principal diagnosis and will appropriately reflect the resources
involved in evaluating and treating these patients.
As discussed in the proposed rule, during our review of this issue
and the examination of the MS-DRGs within MDC 01, we noted that the
title of MS-DRGs 067, 068, and 069 is ``Nonspecific CVA and Precerebral
Occlusion without Infarction with MCC, with CC, and without CC/MCC,
respectively'' and the title of MS-DRGs 070, 071, and 072 is
``Nonspecific Cerebrovascular Disorders, with MCC, with CC, and without
CC/MCC, respectively.'' In examining the GROUPER logic for these MS-
DRGs and reviewing the diagnoses listed under the heading of
``Principal Diagnosis'' in the ICD-10 MS-DRG Definitions Manual, we
stated we believe the titles for these MS-DRGs no longer accurately
reflects the assigned diagnoses. Like MS-DRGs 077, 078, and 079, the
titles of MS-DRGs 067, 068, 069, 070, 071, and 072 were established
prior to the transition to ICD-10-CM. The terminology ``nonspecific''
in the titles for these MS-DRGs was appropriate to describe the ICD-9-
CM diagnosis codes that were previously assigned to these DRGs, but as
discussed in the HIPAA Administrative Simplification: Modification to
Medical Data Code Set Standards To Adopt ICD-10-CM and ICD-10-PCS
proposed rule (73 FR 49796 through 49803), in comparison to ICD-9-CM,
ICD-10-CM diagnosis codes are very specific and that this specificity
improves the richness of data for analysis and improves the accuracy of
data used for medical research. Therefore, we stated we believe it is
appropriate to propose to revise the titles of these MS-DRGs for
consistency.
In this final rule, we are amending our previous statement as the
titles of MS-DRGs 067 and 068 are ``Nonspecific CVA and Precerebral
Occlusion without Infarction with MCC and without MCC'', respectively,
in the ICD-10 MS-DRG Definitions Manual Version 42.1. The title of MS-
DRG 069 is ``Transient Ischemia without Thrombolytic'' and was
inadvertently referenced in our proposed rule discussion in connection
with MS-DRGs 067 and 068.
In summary, for FY 2026, we proposed to delete MS-DRGs 077, 078,
and 079. Additionally, we proposed to reassign ICD-10-CM diagnosis code
I67.4 (Hypertensive encephalopathy) from MDC 01 MS-DRGs 077, 078, and
079 to MS-DRGs 070, 071, and 072. Lastly, for consistency, we also
proposed to change the titles of MS-DRGs 067, 068, and 069 from
``Nonspecific CVA and Precerebral Occlusion without Infarction with
MCC, with CC, and without CC/MCC, respectively'' to ``Precerebral
Occlusion without Infarction with MCC, with CC, and without CC/MCC,
respectively'' and to change the titles of MS-DRGs 070, 071, and 072
from ``Nonspecific Cerebrovascular Disorders, with MCC, with CC, and
without CC/MCC, respectively'' to ``Other Cerebrovascular Disorders
with MCC, with CC, and without CC/MCC, respectively'' to better reflect
the assigned diagnoses.
Comment: Commenters supported the proposals to delete MS-DRGs 077,
078, and 079, to reassign ICD-10-CM diagnosis code I67.4 (Hypertensive
encephalopathy) from MDC 01 MS-DRGs 077, 078, and 079 to MS-DRGs 070,
071, and 072, to change the titles of MS-DRGs 067, 068, and 069 to
``Precerebral Occlusion without Infarction with MCC, with CC, and
without CC/MCC, respectively'' and to change the titles of MS-DRGs 070,
071, and 072 to ``Other Cerebrovascular Disorders with MCC, with CC,
and without CC/MCC, respectively''. Some commenters stated that they
supported the proposal based on CMS' data analysis, which indicates a
general decline in the number of cases reporting hypertensive
encephalopathy as a principal diagnosis in these MS-DRGs over the past
5 years.
Several commenters, while supporting the proposals, stated that
they disagree with CMS' statement that since no ``code first'' note
appears at ICD-10-CM diagnosis code I67.4 (Hypertensive encephalopathy)
in the ICD-10-CM Tabular List of Diseases and Injuries, the sequencing
of the diagnosis codes depends on the circumstances of the encounter
when hypertensive emergency and hypertensive encephalopathy are
documented. These commenters stated that they do not believe this is a
correct interpretation of the ICD-10-CM instructional notes. In their
interpretation, when both an etiology and manifestation are documented,
and a ``use additional code'' note appears at the ICD-10-CM code for
the etiology, the manifestations listed in that note must be sequenced
as secondary diagnosis codes, regardless of whether a corresponding
``code first'' note appears at the codes listed in the ``use additional
code'' note. A commenter stated that since they question the
interpretation of the instructional notes as discussed in the proposed
rule, additional data analysis should be performed based on the ICD-10-
CM Tabular List instructions.
Response: We appreciate the commenters' support and thank them for
sharing their interpretation of the ICD-10-CM instructional notes. As
noted in section II.C.11. of the preamble of this final rule, the
Centers for Disease Control and Prevention's (CDC's) National Center
for Health Statistics (NCHS) has lead responsibility for the diagnosis
codes and CMS has lead responsibility for the ICD-10-PCS procedure
codes. We note that after review of the commenters' interpretation of
the ICD-10-CM Tabular List instructions, we consulted with the staff at
the CDC/NCHS and NCHS confirmed that they would consider further review
of the classification, including review of the Tabular List
instructions for hypertensive emergency and hypertensive encephalopathy
and other instances in the classification where a ``code first'' note
does not appear at the manifestation code. Additionally, as we noted in
the FY 2018 IPPS/LTCH PPS final rule (82 FR 38012), coding advice is
issued independently from payment policy. While we collaborate with the
American Hospital Association (AHA) through the Coding Clinic for ICD-
10-CM and ICD-10-PCS to promote proper coding as one of the Cooperating
Parties for ICD-10, the AHA is the official U.S. clearinghouse on
medical coding. We recommend that an entity seeking coding guidance on
reporting hypertensive emergency and hypertensive encephalopathy submit
any questions to the AHA's Central Office on ICD-10 at https://www.codingclinicadvisor.com/.
In response to the suggestion that CMS perform additional analysis
based on the commenters' interpretation of the ICD-10-CM Tabular List
instructions, we note that as discussed in the proposed rule, the
GROUPER logic for MS-DRGs 077, 078, and 079 is defined by only
diagnosis code I67.4 listed under the heading of ``Principal
Diagnosis'' in the ICD-10 MS-DRG Definitions Manual. As the GROUPER
logic for MS-DRGs 077, 078, and 079 is
[[Page 36579]]
defined by only one diagnosis code, it is unclear how the
interpretation of the ICD-10-CM Tabular List instructions would factor
into our data analysis, as cases reporting a different principal
diagnosis code would not be assigned to MS-DRGs 077, 078, and 079. We
further note our proposal to delete MS-DRGs 077, 078, and 079 was based
on our review of the findings indicating a general decline in the
number of cases reporting hypertensive encephalopathy as a principal
diagnosis in the inpatient setting over the past few years and in
consideration of the intent of the MS-DRGs.
Therefore, after consideration of the public comments we received,
we are finalizing our proposal to delete MS-DRGs 077, 078, and 079.
Additionally, we are finalizing our proposal to reassign ICD-10-CM
diagnosis code I67.4 (Hypertensive encephalopathy) from MDC 01 MS-DRGs
077, 078, and 079 to MS-DRGs 070, 071, and 072. We are also finalizing
our proposal to change the titles of MS-DRGs 070, 071, and 072 from
``Nonspecific Cerebrovascular Disorders, with MCC, with CC, and without
CC/MCC, respectively'' to ``Other Cerebrovascular Disorders with MCC,
with CC, and without CC/MCC, respectively'', without modification,
effective October 1, 2025, for FY 2026.
Lastly, as discussed previously, in the ICD-10 MS-DRG Definitions
Manual Version 42.1, the titles of MS-DRGs 067 and 068 are
``Nonspecific CVA and Precerebral Occlusion without Infarction with MCC
and without MCC'', respectively, and MS-DRG 069 was inadvertently
referenced in our discussion in the proposed rule. Therefore, after
consideration of the public comments we received, for the reasons
discussed, we are finalizing our proposal with modification.
Specifically, we are finalizing our proposal to change the titles of
MS-DRGs 067 and 068 from ``Nonspecific CVA and Precerebral Occlusion
without Infarction with MCC and without MCC'', respectively, to
``Precerebral Occlusion without Infarction with MCC and without MCC'',
respectively, effective October 1, 2025. Under this finalization, the
title of MS-DRG 069 will be maintained as ``Transient Ischemia without
Thrombolytic'' for FY 2026.
c. Encounter for Adjustment and Management of Implanted Devices of the
Special Senses
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18028 through 18029), we identified a replication issue from the ICD-9
based MS-DRGs to the ICD-10 based MS-DRGs regarding the assignment of
four ICD-10-CM diagnosis codes that describe encounters for adjustment
and management of implanted devices of the special senses. Under the
Version 32 ICD-9-CM based MS-DRGs, ICD-9-CM diagnosis code V53.09
(Fitting and adjustment of other devices related to nervous system and
special senses), as shown in the following table, was assigned medical
MS-DRGs 091, 092, and 093 (Other Disorders of Nervous System with MCC,
with CC, and without CC/MCC, respectively) in MDC 01 (Diseases and
Disorders of the Nervous System). The four ICD-10-CM code translations
also shown in the following table, that provide more detailed and
specific information, also currently group to MS-DRGs 091, 092, and 093
in the ICD-10 MS-DRGs Version 42.1. We refer the reader to the ICD-10
MS-DRG Definitions Manual Version 42.1 (available on the CMS website
at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete
documentation of the GROUPER logic for MS-DRGs 091, 092, and 093.
[GRAPHIC] [TIFF OMITTED] TR04AU25.059
As discussed in the proposed rule, during our review of this issue,
we noted that under ICD-9-CM, diagnosis code V53.09 (Fitting and
adjustment of other devices related to nervous system and special
senses) did not further describe the type of device related to nervous
system and special senses. This is in contrast to its four comparable
ICD-10-CM code translations listed in the previous table that provide
more detailed and specific information than the ICD-9-CM diagnosis code
and do specify the type of device.
In reviewing the four ICD-10-CM diagnosis codes listed in the
previous table and the devices they describe, we stated we believe that
code Z45.31 is more appropriately assigned to MDC 02 (Diseases and
Disorders of the Eye) and codes Z45.320, Z45.321, and Z45.328 are more
appropriately assigned to MDC 03 (Diseases and Disorders of the Ear,
Nose, Mouth and Throat). We noted in the proposed rule that an
``implanted visual substitution device,'' also known as a ``visual
prosthesis,'' is a medical implant designed to partially restore vision
to a patient who is blind by directly stimulating the visual pathway in
the retina or brain, essentially bypassing damaged photoreceptor cells
in the eye and providing a basic visual perception through electrical
stimulation. Bone conduction devices, also known as bone conduction
hearing aids, amplify sound via bone conduction, or vibrations through
the bones of the skull which directly stimulate a functioning cochlea.
Cochlear devices and other implanted hearing devices are small
electronic devices designed for patients with moderate to severe
hearing loss caused by damage to the inner ear to help perceive sounds.
We analyzed claims data from the September 2024 update of the FY
2024 MedPAR file to determine if there were any cases reported with
diagnosis codes Z45.31, Z45.320, Z45.321, or Z45.328. One case was
found in MS-DRG 983 (Extensive O.R. Procedures Unrelated to Principal
Diagnosis without CC/MCC) reporting principal diagnosis Z45.321 and
procedure code 09PE0SZ (Removal of hearing device from left inner ear,
open approach) with costs of $5,530 and a length of stay of one day.
In the proposed rule we stated we recognize that the volume of
inpatient cases for patients with a principal diagnosis of Z45.31,
Z45.320, Z45.321,
[[Page 36580]]
or Z45.328 is low, however we believe that for clinical consistency, it
is more appropriate for these cases to be assigned to MDCs that better
describe the indication of the implanted devices of the special senses
the codes describe. Accordingly, because the cases reporting principal
diagnoses describing encounters for adjustment and management of
implanted devices of the special senses are more clinically consistent
in MDC 02 or MDC 03 depending on the type of device, and the diagnosis
codes were initially assigned to MDC 01 MS-DRGs 091, 092, and 093 as a
result of replication in the transition from ICD-9 to ICD-10 based MS-
DRGs, we proposed to reassign ICD-10-CM diagnosis code Z45.31 from MS-
DRGs 091, 092, and 093 to MDC 02 MS-DRG 123 (Neurological Eye
Disorders). We also proposed to reassign ICD-10-CM diagnosis codes
Z45.320, Z45.321, and Z45.328 from MS-DRGs 091, 092, and 093 to MDC 03
MS-DRGs 154, 155, and 156 (Other Ear, Nose, Mouth and Throat Diagnoses
with MCC, with CC, and without CC/MCC, respectively).
Comment: Commenters supported the proposal to assign ICD-10-CM
codes Z45.31, Z45.320, Z45.321, and Z45.328 to MDCs that better
describe the indication of the implanted devices of the special senses
the diagnosis codes describe.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing, without modification, our proposal to reassign ICD-10-CM
diagnosis code Z45.31 from MDC 01 MS-DRGs 091, 092, and 093 to MDC 02
MS-DRG 123 (Neurological Eye Disorders). We are also finalizing our
proposal to reassign ICD-10-CM diagnosis codes Z45.320, Z45.321, and
Z45.328 from MS-DRGs 091, 092, and 093 to MDC 03 MS-DRGs 154, 155, and
156 (Other Ear, Nose, Mouth and Throat Diagnoses with MCC, with CC, and
without CC/MCC, respectively).
4. MDC 05 (Diseases and Disorders of the Circulatory System)
a. Endovascular Aneurysm Repair (EVAR) With Iliac Branch Procedures
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18029 through
18032), we discussed a request we received to create a new MS-DRG for
cases reporting endovascular repair of abdominal aortic aneurysms that
extend into at least one iliac artery to preserve blood flow to the
external or internal iliac arteries. According to the requestor, aortic
aneurysms extend into at least one of the iliac arteries in
approximately 25% of patients with abdominal aortic aneurysms. The
requestor (the manufacturer), stated that the GORE[supreg]
EXCLUDER[supreg] Iliac Branch Endoprosthesis was approved by the Food
and Drug Administration (FDA) in March of 2016 to be used exclusively
with the GORE[supreg] EXCLUDER[supreg] Abdominal Aortic Aneurysm
Endoprosthesis to isolate the common iliac artery from systemic blood
flow and preserve blood flow in the external iliac and internal iliac
arteries in patients with a common iliac or aortoiliac aneurysm, who
have appropriate anatomy.\3\ According to the requestor, maintaining
flow to the internal iliac artery and pelvic circulation using iliac
branch devices or alternative techniques aims to decrease complications
associated with artery occlusion.4 5 6 The requestor also
stated that occluding the internal iliac artery can result in
significant hip and/or buttock claudication, erectile dysfunction, and
colonic and spinal cord ischemia.
---------------------------------------------------------------------------
\3\ van der Veen D, Holewijn S, Bellosta R, van Sterkenburg SMM,
Heyligers JMM, Ficarelli I, G[oacute]mez Palon[eacute]s FJ,
Mangialardi N, Mosquera NJ, Holden A, Reijnen MMPJ; IceBERG Study
Collaboration. One Year Outcomes of an International Multicentre
Prospective Cohort Study on the Gore Excluder Iliac Branch
Endoprosthesis for Aorto-Iliac Aneurysms. Eur J Vasc Endovasc Surg.
2021 Aug;62(2):177-185. doi: 10.1016/j.ejvs.2021.04.006. Epub 2021
Jun 16. PMID: 34144884.
\4\ Sousa LHDG, Baptista-Silva JCC, Vasconcelos V, Flumignan
RLG, Nakano LCU. Internal iliac artery revascularisation versus
internal iliac artery occlusion for endovascular treatment of aorto-
iliac aneurysms. Cochrane Database of Systematic Reviews 2020, Issue
7. Art. No.: CD013168. DOI: 10.1002/14651858.CD013168.pub2.
\5\ Parlani G, Verzini F, De Rango P, Brambilla D, Coscarella C,
Ferrer C, Cao P. Long-term results of iliac aneurysm repair with
iliac branched endograft: a 5-year experience on 100 consecutive
cases. Eur J Vasc Endovasc Surg. 2012 Mar;43(3):287-92. doi:
10.1016/j.ejvs.2011.12.011. Epub 2012 Jan 10. PMID: 22240335.
\6\ Taudorf M, Gr[oslash]nvall J, Schroeder TV, L[ouml]nn L.
Endovascular Aneurysm Repair Treatment of Aortoiliac Aneurysms: Can
Iliac Branched Devices Prevent Gluteal Claudication? J Vasc Interv
Radiol. 2016 Feb;27(2):174-80. doi: 10.1016/j.jvir.2015.11.031. Epub
2015 Dec 22. PMID: 26706185.
---------------------------------------------------------------------------
According to the requestor, endovascular aneurysm repair (EVAR)
procedures that preserve blood flow to the iliac arteries are
technically more challenging than conventional EVAR of the abdominal
aorta, and they require increased procedure time, fluoroscopy time, and
anesthesia time. The requestor stated that tortuosity and/or stenosis
in the iliac territory may increase the complexity or even prevent the
deployment of devices, leading to treatment failure or causing early
occlusion of the branches. In such cases, some patients may develop
symptoms of pelvic ischaemia.7 8 The requestor stated that
current guidelines advocate the preservation of at least one internal
iliac artery in patients with common iliac artery aneurysms, and iliac
branched devices were developed to preserve the perfusion in the
internal iliac artery.\9\
---------------------------------------------------------------------------
\7\ Donas KP, Criado FJ, Torsello G, Veith FJ, Minion DJ;
PERICLES Registry Collaborators. Classification of Chimney EVAR-
Related Endoleaks: Insights From the PERICLES Registry. J Endovasc
Ther. 2017 Feb 1;24(1):72-74. doi: 10.1177/1526602816678994. Epub
2016 Nov 21. PMID: 27872319.
\8\ Ghosh J, Murray D, Paravastu S, Farquharson F, Walker MG,
Serracino-Inglott F. Contemporary management of aorto-iliac
aneurysms in the endovascular era. Eur J Vasc Endovasc Surg. 2009
Feb;37(2):182-8. doi: 10.1016/j.ejvs.2008.11.001. Epub 2008 Nov 29.
PMID: 19046903.
\9\ van der Veen D, Holewijn S, Bellosta R, van Sterkenburg SMM,
Heyligers JMM, Ficarelli I, G[oacute]mez Palon[eacute]s FJ,
Mangialardi N, Mosquera NJ, Holden A, Reijnen MMPJ; IceBERG Study
Collaboration. One Year Outcomes of an International Multicentre
Prospective Cohort Study on the Gore Excluder Iliac Branch
Endoprosthesis for Aorto-Iliac Aneurysms. Eur J Vasc Endovasc Surg.
2021 Aug;62(2):177-185. doi: 10.1016/j.ejvs.2021.04.006. Epub 2021
Jun 16. PMID: 34144884.
---------------------------------------------------------------------------
The requestor also expressed concern that hospitals who treat
Medicare patients with aortoiliac and common iliac aneurysms using
endovascular procedures with endoprostheses are not classified
appropriately based on the current MS-DRG assignment and the resources
required. The requestor performed its own data analysis and indicated
it found differences in resource utilization when comparing cases
reporting standard EVAR of the abdominal aorta to cases reporting EVAR
of the abdominal aorta combined with procedures to preserve flow to an
iliac branch. According to the requestor, the disparity in resource
coherency under the current MS-DRG assignment may reduce access to
Medicare beneficiaries who could benefit from these procedures. The
requestor stated a new MS-DRG would enable more precise payments and
better resource coherency under the MS-DRGs.
The procedure codes that describe EVAR using an abdominal aortic
aneurysm (AAA) endoprosthesis and the procedure codes that describe
EVAR using an iliac branch endoprosthesis (IBE) that are used to treat
aortoiliac and iliac artery aneurysms, respectively, are listed in the
following tables.
[[Page 36581]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.060
[GRAPHIC] [TIFF OMITTED] TR04AU25.061
Cases reporting a combination of these procedure codes (that is,
any one procedure code from each list) for the endovascular treatment
of aortoiliac and iliac artery aneurysms are currently assigned to MS-
DRGs 268 and 269 (Aortic and Heart Assist Procedures Except Pulsation
Balloon with MCC and without MCC, respectively). Based on its analysis
of Medicare claims data using the previously listed codes in MS-DRGs
268 and 269, and to facilitate more precise payments for these
procedures, the requestor recommended that CMS assign cases reporting a
procedure code describing EVAR using an AAA endoprosthesis with a
procedure code describing EVAR using an IBE to a proposed new MS-DRG
titled, ``Concomitant Endovascular Abdominal Aorta and Iliac Branch
Procedures''.
In review of this request, as discussed in the proposed rule, we
analyzed claims data from the September 2024 update of the FY 2024
MedPAR file for MS-DRGs 268 and 269 and for cases reporting standard
EVAR using an AAA endoprosthesis compared to cases reporting EVAR using
an AAA endoprosthesis with an IBE that are used to treat aortoiliac and
iliac artery aneurysms with the previously listed procedure codes. The
findings from our analysis are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.062
As shown in the table, we identified a total of 2,519 cases within
MS-DRG 268 with an average length of stay of 9.1 days and average costs
of $62,984. Of the 2,519 cases, we found 1,500 cases reporting standard
EVAR using an AAA endoprosthesis with an average length of stay of 7.4
days and average costs of $63,877 and 193 cases reporting EVAR using an
AAA endoprosthesis with an IBE with an average length of stay of 8.2
days and average costs of $68,145. The data show that the cases
reporting standard EVAR using an AAA endoprosthesis have a shorter
average length of stay (7.4 days versus 8.2 days) and lower average
costs ($63,877 versus $68,145) compared to the average costs of the
cases reporting EVAR using an AAA endoprosthesis with an IBE. The data
further show that the 193 cases reporting EVAR using an AAA
endoprosthesis with an IBE have a shorter average length of stay (8.2
days versus 9.1 days) and higher average costs ($68,145 versus $62,984)
compared to the average length of stay and average costs of all the
cases in MS-DRG 268.
For MS-DRG 269, we identified a total of 10,108 cases with an
average length of stay of 2.0 days and average costs of $39,165. Of the
10,108 cases, we found 8,655 cases reporting standard EVAR using an AAA
endoprosthesis with an average length of stay of 1.8 days and average
costs of $38,562 and 871 cases reporting EVAR using an AAA
endoprosthesis with an IBE with an average length of stay of 1.8 days
and average costs of $48,159. The data show that the cases reporting
standard EVAR using an AAA endoprosthesis have a comparable average
length of stay (1.8 days versus 1.8 days) and lower average costs
($38,562 versus $48,159) compared to the cases reporting EVAR using an
AAA endoprosthesis with an IBE. The data further show that the 871
cases reporting EVAR using an AAA endoprosthesis with an IBE have a
[[Page 36582]]
shorter average length of stay (1.8 days versus 2.0 days) and higher
average costs ($48,159 versus $39,165) compared to the average length
of stay and average costs of all the cases in MS-DRG 269.
We stated in the proposed rule that the findings suggest that the
cases reporting EVAR using an AAA endoprosthesis with an IBE utilize
greater resources compared to the cases reporting standard EVAR using
an AAA endoprosthesis. We agreed that patients who have aortoiliac and
iliac aneurysms are a more complex population to treat, contributing to
increased resource utilization.
Additionally, in the proposed rule we stated that, based on our
review and analysis of the cases reporting standard EVAR using an AAA
endoprosthesis compared to the cases reporting EVAR using an AAA
endoprosthesis with an IBE to treat aortoiliac and iliac artery
aneurysms in MS-DRGs 268 and 269, we believe new MS-DRGs are warranted
to differentiate the utilization of resources between standard EVAR to
treat AAA and EVAR to treat AAA extending into the iliac artery.
We stated we applied the criteria to create subgroups in a base MS-
DRG as discussed in section II.C.1.b. of the preamble of the FY 2026
IPPS/LTCH PPS proposed rule and this final rule. We noted that, as
shown in the table that follows, a three-way split of the proposed new
base MS-DRG failed to meet the criterion that at least 500 or more
cases are in each subgroup. It also failed to meet the criterion that
there be at least a 20 percent difference in average costs between the
CC and NonCC (without CC/MCC) subgroup and at least a $2,000 difference
in average costs between the CC and NonCC (without CC/MCC) subgroup.
The following table illustrates our findings.
[GRAPHIC] [TIFF OMITTED] TR04AU25.063
As discussed in section II.C.1.b. of the preamble of the FY 2026
IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a
three-way split fail, the next step is to determine if the criteria are
satisfied for a two-way split. In the proposed rule we stated we
applied the criteria for a two-way split for the ``with MCC'' and
``without MCC'' subgroups. We noted that, as shown in the table that
follows, a two-way split of this base MS-DRG failed to meet the
criterion that there be at least 500 cases in the ``with MCC''
subgroup.
[GRAPHIC] [TIFF OMITTED] TR04AU25.064
We then applied the criteria for a two-way split for the ``with CC/
MCC'' and ``without CC/MCC'' subgroups. As shown in the table that
follows, a two-way split of this base MS-DRG failed to meet the
criterion that there be at least 500 or more cases in the ``without CC/
MCC'' subgroup and at least a 20 percent difference in average costs
between the ``with CC/MCC'' and ``without CC/MCC'' subgroup.
[GRAPHIC] [TIFF OMITTED] TR04AU25.065
We noted that because the criteria for both of the two-way splits
failed, a split (or CC subgroup) is not warranted for the proposed new
base MS-DRG. As a result, for FY 2026, we proposed to create new base
MS-DRG 213 (Endovascular Abdominal Aorta and Iliac Branch Procedures).
The following table reflects a simulation of the proposed new base MS-
DRG.
[GRAPHIC] [TIFF OMITTED] TR04AU25.066
Comment: Commenters supported the proposal to create proposed new
MS-DRG 213 to differentiate resource use between standard EVAR to treat
AAA and EVAR to treat AAA extending into the iliac artery. The
commenters stated that they appreciated CMS' thorough analysis of the
request in exploring mechanisms to address resource use of these
procedures. The commenters agreed with CMS' findings that the cases
reporting EVAR using an abdominal aortic aneurysm (AAA) endoprosthesis
with an IBE utilize greater resources compared to the cases reporting
standard EVAR using an AAA endoprosthesis and that patients who have
aortoiliac and iliac aneurysms are a more complex population to treat,
contributing to increased resource utilization. The commenters also
acknowledged that the criteria were not met to subdivide the proposed
new MS-DRG 213 further. However, the commenters stated that given that
CMS' data support that patients who have EVAR procedures using an AAA
endoprosthesis with an IBE are a more complex population to treat and
contribute to increased resource utilization, they requested CMS
reconsider the proposed relative weight of proposed new MS-DRG 213. The
[[Page 36583]]
commenters stated that, as reflected in Table 5.--List of Medicare
Severity Diagnosis-Related Groups (MS-DRGs), Relative Weighting
Factors, and Geometric and Arithmetic Mean Length of Stay--FY 2026
Proposed Rule, the proposed new MS-DRG 213 relative weight of 5.7834 is
lower than the FY 2026 proposed relative weight of MS-DRG 268 (6.9027)
and that MS-DRG 268 is the ``with MCC'' MS-DRG. A commenter who
supported the proposal also encouraged CMS to continue to track the
costs of these cases in future years to assess if CC subgroups would be
supported.
Response: We thank the commenters for their support and feedback.
The commenters are correct that in Table 5., made publicly available in
association with the proposed rule at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps, the proposed
relative weight for MS-DRG 213 is shown as 5.7834 and the proposed
relative weight for MS-DRG 268 is shown as 6.9027. As summarized in the
analysis provided in the preamble of the proposed rule (90 FR 18031)
and this final rule, a total of 2,519 cases were identified in MS-DRG
268 and a total of 10,108 cases were identified in MS-DRG 269. Among
the 2,519 cases in MS-DRG 268, we found 193 cases that reported EVAR
using an AAA endoprosthesis with an IBE, with an average length of stay
of 8.2 days and average costs of $68,145. Of the 10,108 cases in MS-DRG
269, we found 871 cases that reported EVAR using an AAA endoprosthesis
with an IBE, with an average length of stay of 1.8 days and average
costs of $48,159. Because most of the cases reporting EVAR using an AAA
endoprosthesis with an IBE are derived from MS-DRG 269 compared to MS-
DRG 268 (871 versus 193), and the cases from MS-DRG 269 have lower
average costs compared to MS-DRG 268 ($48,159 versus $68,145), the data
from MS-DRG 269 have a greater influence on the structure and
composition of the proposed new MS-DRG 213. Alternatively, among the
2,519 cases found in MS-DRG 268, 1,500 cases reported standard EVAR
using an AAA endoprosthesis with average costs of $63,877, and among
the 10,108 cases in MS-DRG 269, we found 8,655 cases that reported
standard EVAR using an AAA endoprosthesis with average costs of
$38,562. Since the higher volume of cases in MS-DRG 268 is reflected by
the cases reporting standard EVAR using an AAA endoprosthesis compared
to the cases reporting EVAR using an AAA endoprosthesis with an IBE
(1,500 compared to 193), the cases reporting standard EVAR using an AAA
endoprosthesis have a greater influence on the revised structure and
composition of MS-DRG 268, thus, the higher proposed relative weight
for MS-DRG 268 compared to the proposed relative weight for the
proposed new MS-DRG 213.
After consideration of the public comments we received, we are
finalizing our proposal, without modification, to create new base MS-
DRG 213 (Endovascular Abdominal Aorta and Iliac Branch Procedures) for
FY 2026. We will continue to monitor the data for this new MS-DRG to
determine if future revisions are warranted.
b. Concomitant Single Valve Procedure With Open Surgical Ablation
In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44836 through
44848), we discussed a two-part request we received to review the MS-
DRG assignments for cases involving the surgical ablation procedure for
atrial fibrillation. The first part of the request was to create a new
classification of surgical ablation MS-DRGs to better accommodate the
costs of open concomitant surgical ablations. The second part of the
request was to reassign cases describing standalone percutaneous
endoscopic surgical ablation. In the part of the request relating to
the costs of open concomitant surgical ablations, the requestor
identified the following potential procedure combinations that would
comprise an ``open concomitant surgical ablation'' procedure.
Open coronary artery bypass graft (CABG) + open surgical
ablation.
Open mitral valve repair or mitral valve replacement (MVR)
+ open surgical ablation.
Open aortic valve repair or mitral valve replacement (AVR)
+ open surgical ablation.
Open MVR + open AVR + open surgical ablation.
Open MVR + open CABG + open surgical ablation.
Open MVR + open AVR + open CABG + open surgical ablation.
Open AVR + open CABG + open surgical ablation.
As discussed in the FY 2022 IPPS/LTCH PPS final rule, we examined
claims data from the March 2020 update of the FY 2019 MedPAR file and
the September 2020 update of the FY 2020 MedPAR file for cases
reporting procedure code combinations describing open concomitant
surgical ablations and stated our analysis showed while the average
lengths of stay and average costs of cases reporting procedure code
combinations describing open concomitant surgical ablations are higher
than all cases in their respective MS-DRG, we found variation in the
volume, length of stay, and average costs of the cases.
In the FY 2022 IPPS/LTCH PPS final rule, for the reasons discussed,
we finalized our proposal to revise the surgical hierarchy for the MS-
DRGs in MDC 05 (Diseases and Disorders of the Circulatory System) to
sequence MS-DRGs 231-236 (Coronary Bypass, with or without PTCA, with
or without Cardiac Catheterization or Open Ablation, with and without
MCC, respectively) above MS-DRGs 228 and 229 (Other Cardiothoracic
Procedures with and without MCC, respectively), effective October 1,
2021. In addition, we also finalized the assignment of cases with a
procedure code describing coronary bypass and a procedure code
describing open ablation to MS-DRGs 233 and 234 and changed the titles
of these MS-DRGs to ``Coronary Bypass with Cardiac Catheterization or
Open Ablation with and without MCC, respectively'' to reflect this
reassignment for FY 2022.
In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48845 through
48849), we discussed a request we received to again review the MS-DRG
assignment of cases involving open concomitant surgical ablation
procedures. The requestor stated they continue to believe that the
average hospital costs for surgical ablation for atrial fibrillation
demonstrates a cost disparity compared to all procedures within their
respective MS-DRGs. The requestor suggested that when open surgical
ablation is performed with MVR, or AVR or MVR/AVR + CABG that these
procedures are either (1) assigned to a different family of MS-DRGs or
(2) assigned to MS-DRGs 216 and 217 (Cardiac Valve and Other Major
Cardiothoracic Procedures with Cardiac Catheterization with MCC and
with CC, respectively) similar to what CMS did with CABG and open
ablation procedures in the FY 2022 rulemaking to better accommodate the
added cost of open concomitant surgical ablation.
We stated our analysis using the September 2021 update of the FY
2021 MedPAR file reflected that the cases reporting an open concomitant
surgical ablation code combination are predominately found in the
higher (CC or MCC) severity level MS-DRGs of their current base MS-DRG
assignment, suggesting that the patient's co-morbid conditions may also
be contributing to the higher costs of these cases. Secondly, for the
numerous procedure combinations that would comprise an
[[Page 36584]]
``open concomitant surgical ablation'' procedure, the increase in
average costs appeared to directly correlate with the number of
procedures performed. For example, cases that describe ``Open MVR +
Open surgical ablation'' generally demonstrated costs that were lower
than cases that describe ``Open MVR + Open AVR + Open CABG + Open
surgical ablation.''
Therefore, we stated we believe that additional time was needed to
allow for further analysis of the claims data to determine to what
extent the patient's co-morbid conditions are also contributing to
higher costs and to identify other contributing factors that might
exist with respect to the increased length of stay and costs of these
cases in these MS-DRGs. For the reasons summarized, and after
consideration of the public comments we received, we did not make any
MS-DRG changes for cases involving the open concomitant surgical
ablation procedures for FY 2023.
As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58681
through 58690), we again received a request to review the MS-DRG
assignment of cases involving open concomitant surgical ablation
procedures. The requestor recommended that CMS reassign open
concomitant surgical ablation procedures for atrial fibrillation (AF)
from MS-DRGs 219, 220, and 221 (Cardiac Valve and Other Major
Cardiothoracic Procedures without Cardiac Catheterization with MCC,
with CC, and without CC/MCC, respectively) to MS-DRGs 216, 217, and
218. The requestor further recommended that if CMS does not reassign
cases involving open concomitant surgical ablation procedures to MS-
DRGs 216, 217, and 218, in the alternative, CMS should create new MS-
DRGs for all open mitral or aortic valve repair or replacement
procedures with concomitant surgical ablation for AF to improve
clinical coherence when three to four open heart procedures are
performed in one setting.
The requestor stated that cases reporting open surgical ablation
procedures for AF performed during open valve repair/replacement
procedures are typically assigned to MS-DRGs 216, 217, 218, 219, 220,
and 221, with the majority of the cases being assigned to MS-DRGs 219,
220, and 221 because of the surgical hierarchy in MDC 05 and because
there is less of a need for cardiac catheterization in these cases. We
stated in the final rule that the requestor performed its own data
analysis, and stated their analysis showed that the data continue to
demonstrate that claims with open surgical ablation procedures for AF
are not clinically similar to the remaining cases in MS-DRGs 219, 220,
and 221, and there are significant differences in resource utilization
that reflect those clinical differences.
We noted in FY 2024 IPPS/LTCH PPS final rule that our analysis of
the claims data suggested that it is the performance of an aortic valve
repair or replacement procedure, a mitral valve repair or replacement
procedure plus another concomitant procedure that is associated with
increased hospital resource utilization, not solely the performance of
open surgical ablation as suggested by the requestor, when compared to
other cases in their respective MS-DRGs. Therefore, for the reasons
discussed, we finalized our proposal to create MS-DRG 212 (Concomitant
Aortic and Mitral Valve Procedures) in MDC 05 for cases reporting an
aortic valve repair or replacement procedure, a mitral valve repair or
replacement procedure, and another concomitant procedure.
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18032 through 18035), we again received a request to review the MS-DRG
assignment of cases involving a single open surgical valve procedure
with an open surgical ablation. The requestor recommended that CMS
reassign cases involving a single open surgical valve procedure with an
open surgical ablation from MS-DRGs 219, 220, and 221 (Cardiac Valve
and Other Major Cardiothoracic Procedures without Cardiac
Catheterization with MCC, with CC, and without CC/MCC, respectively) to
MS-DRGs 216, 217, and 218 (Cardiac Valve and Other Major Cardiothoracic
Procedures with Cardiac Catheterization with MCC, with CC, and without
CC/MCC, respectively). The requestor also suggested that if finalized,
the title for MS-DRGs 216, 217, and 218 should be revised to ``Cardiac
valve and Other Major Cardiothoracic Procedures with Cardiac
Catheterization or Open Ablation, with MCC, with CC or without CC/MCC,
respectively.''
As discussed in the proposed rule, the requestor stated MS-DRGs
primarily focus on the most resource intensive procedure, without fully
accounting for the overall resource intensity and complexity of all
procedures performed and stated treating AF as a secondary condition is
one such example. The requestor stated that AF, if not treated early
after diagnosis, continues to worsen and is associated with stroke and
mortality risk, and significantly higher healthcare spending. According
to the requestor, a majority of AF patients undergoing surgical
ablation procedures are older and frailer than non-surgical ablation
valvular patients, and these patients frequently require two or even
three procedures during one hospital visit to treat multiple conditions
(AF, valve disease, heart failure, blocked coronaries). The requestor
further stated patients undergoing multiple cardiac procedures,
including surgical ablation, typically require between two and four
hours of additional time in the operating room, a longer length of
stay, and are at an increased risk for adverse event in recovery and
noted that much like cardiac catheterization procedures, in many
instances adding surgical ablation to open valvular procedures also
requires an atriotomy to better visualize the mitral valve and complete
the surgical ablation, making these concomitant procedures
significantly more complex than single valve procedures performed on
their own. The requestor stated that the current MS-DRG assignments do
not adequately pay hospitals for the resources associated with
furnishing surgical ablation procedures and that therefore, it is
increasingly becoming financially unviable for hospitals to perform
these procedures to Medicare beneficiaries in a single admission.
The requestor asserted that reassigning cases involving a single
open surgical valve procedure with an open surgical ablation, which are
currently assigned in MS-DRGs 219, 220, and 221, to MS-DRGs 216, 217,
and 218 would accommodate the clinical complexity of performing two or
more open heart procedures, would enhance clinical coherence for
patients undergoing multiple procedures within MDC 05, would more
accurately reflect associated costs and resource utilization, and would
help minimize the need for multiple patient admissions. The requestor
performed its own data analysis of the Standard Analytical File (SAF)
FY 2022 Q1-Q3 report and stated they identified 1,938 cases involving a
single open surgical valve procedure with an open surgical ablation
that were assigned to MS-DRGs 219, 220, and 221. The requestor stated
their analysis showed that the impact of reassigning the 1,938 cases
would result in better resource alignment with minimal relative weight
changes. Specifically, the requestor stated that their analysis showed
that if the cases involving a single open surgical valve procedure with
an open surgical ablation that are currently assigned to MS-DRGs 219,
220, and 221 were reassigned to MS-DRGs 216, 217, and 218, the relative
weights of MS-DRGs
[[Page 36585]]
216, 217, 218, 219, 220, and 221 would change by -5.35%, -4.48%, -
2.59%, +0.47%, -0.93% and -0.12% respectively.
As previously noted, the requestor recommended that we consider
cases involving a single open surgical valve procedure with an open
surgical ablation; however, the requestor did not provide a specific
list of procedure codes for our consideration. Therefore, as discussed
in the proposed rule, we reviewed the ICD-10-PCS classification and
identified 81 procedure codes describing open surgical valve procedures
and eight procedure codes describing open surgical ablation procedures.
We refer readers to Table 6P.3a associated with the FY 2026 IPPS/LTCH
PPS proposed rule (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) which sets forth the list of ICD-10-PCS procedure codes
describing open surgical valve procedures and open surgical ablation
procedures that we examined.
To address this request and to understand the resource use for the
subset of cases reporting procedure codes describing a single open
surgical valve procedure with an open surgical ablation, without
reporting a procedure code describing the performance of a cardiac
catheterization, that are currently grouping to MS-DRGs 219, 220, and
221, we examined claims data from the September 2024 update of the FY
2024 MedPAR file for the average length of stay and average costs for
these cases. Our findings are shown in the following table:
[GRAPHIC] [TIFF OMITTED] TR04AU25.067
As shown in the table, the data analysis performed indicates that
the 1,657 cases in MS-DRG 219 reporting an open valve procedure and an
open surgical ablation procedure, without a procedure code describing
the performance of a cardiac catheterization, and with a secondary
diagnosis code designated as an MCC have an average length of stay that
is longer than the average length of stay for all the cases in MS-DRG
219 (10.1 days versus 10 days) and lower average costs when compared to
all the cases in MS-DRG 219 ($67,532 versus $69,728). The difference in
average costs is $2,196 ($69,728-$67,532 = $2,196) for the cases
reporting an open valve procedure and an open surgical ablation
procedure without a procedure code describing the performance of a
cardiac catheterization, and with a secondary diagnosis code designated
as a MCC in MS-DRG 219 when compared to all the cases in MS-DRG 219.
In MS-DRG 220, the 999 cases reporting an open valve procedure and
an open surgical ablation procedure without a procedure code describing
the performance of a cardiac catheterization, and with a secondary
diagnosis code designated as a CC have an average length of stay that
is longer than the average length of stay for all the cases in MS-DRG
220 (6.9 days versus 6.2 days) and higher average costs when compared
to all the cases in MS-DRG 220 ($53,603 versus $49,514). The difference
in average costs is $4,089 ($53,603-$49,514=$4,089) for the cases
reporting an open valve procedure and an open surgical ablation
procedure without a procedure code describing the performance of a
cardiac catheterization, and with a secondary diagnosis code designated
as a CC in MS-DRG 220 when compared to all the cases in MS-DRG 220.
In MS-DRG 221, the 41 cases reporting an open valve procedure and
an open surgical ablation procedure without a procedure code describing
the performance of a cardiac catheterization, and without a secondary
diagnosis code designated as a CC or MCC have an average length of stay
that is longer than the average length of stay for all the cases in MS-
DRG 221 (5.6 days versus 3.6 days) and higher average costs when
compared to all the cases in MS-DRG 221 ($48,353 versus $46,900). The
difference in average costs is $1,453 ($48,353-$46,900=$1,453) for the
cases reporting an open valve procedure and an open surgical ablation
procedure without a procedure code describing the performance of a
cardiac catheterization, and without a secondary diagnosis code
designated as a CC or MCC in MS-DRG 221 when compared to all the cases
in MS-DRG 221.
As discussed in the proposed rule, we then examined the data for
cases in MS-DRGs 216, 217, and 218, and our findings are shown in the
following table:
[[Page 36586]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.068
The data analysis performed indicates that the cases in MS-DRGs
219, 220, and 221 reporting an open valve procedure and an open
surgical ablation procedure without a procedure code describing the
performance of a cardiac catheterization have a generally longer
average length of stay and lower average costs when compared to all
cases in MS-DRGs 216, 217, and 218. As shown in the table, the data
analysis performed indicates that the 1,657 cases in MS-DRG 219
reporting an open valve procedure and an open surgical ablation
procedure without a procedure code describing the performance of a
cardiac catheterization, and with a secondary diagnosis code designated
as an MCC have a shorter average length of stay (10.1 days versus 13.6
days) and lower average costs ($67,532 versus $88,193) when compared to
all the cases in MS-DRG 216. The difference in average costs is $20,661
($88,193-$67,532=$20,661) for the cases reporting an open valve
procedure and an open surgical ablation procedure without a procedure
code describing the performance of a cardiac catheterization, and with
a secondary diagnosis code designated as a MCC in MS-DRG 219 when
compared to all the cases in MS-DRG 216.
The 999 cases in MS-DRG 220 reporting an open valve procedure and
an open surgical ablation procedure without a procedure code describing
the performance of a cardiac catheterization, and with a secondary
diagnosis code designated as a CC have a longer average length of stay
(6.9 days versus 6.8 days) and lower average costs ($53,603 versus
$59,943) when compared to all the cases in MS-DRG 217. The difference
in average costs is $6,340 ($59,943-$53,603=$6,340) for the cases
reporting an open valve procedure and an open surgical ablation
procedure without a procedure code describing the performance of a
cardiac catheterization, and with a secondary diagnosis code designated
as a CC in MS-DRG 220 when compared to all the cases in MS-DRG 217.
The 41 cases in MS-DRG 221 reporting an open valve procedure and an
open surgical ablation procedure without a procedure code describing
the performance of a cardiac catheterization, and without a secondary
diagnosis code designated as a CC or MCC have a longer average length
of stay (5.6 days versus 2.9 days) and lower average costs ($48,353
versus $61,733) when compared to all the cases in MS-DRG 218. The
difference in average costs is $13,380 ($61,733-$48,353=$13,380) for
the cases reporting an open valve procedure and an open surgical
ablation procedure without a procedure code describing the performance
of a cardiac catheterization, and without a secondary diagnosis code
designated as a CC or MCC in MS-DRG 221 when compared to all the cases
in MS-DRG 218.
While the data analysis reflects that cases that report an open
valve procedure and an open surgical ablation procedure without a
procedure code describing the performance of a cardiac catheterization
generally demonstrate slightly higher average costs in their respective
MS-DRGs, we stated we believe these cases are more suitably grouped to
MS-DRGs 219, 220, and 221 where they are currently assigned, based on
the closer similarities in resource utilization compared to all the
cases in their respective MS-DRG. As discussed in prior rulemaking (86
FR 44878), the MS-DRG system is a system of averages and it is expected
that within the diagnostic related groups, some cases may demonstrate
higher than average costs, while other cases may demonstrate lower than
average costs. We also provide outlier payments to mitigate extreme
loss on individual cases. Moreover, we stated that the data do not
indicate cases reporting an open valve procedure and an open surgical
ablation procedure without a procedure code describing the performance
of a cardiac catheterization utilize similar resources when compared to
the cases assigned to MS-DRGs 216, 217, and 218. We stated that the
cases are not clinically coherent with regard to resource utilization
as reflected in the greater differences in average costs.
Further, in examining this request, we noted in the proposed rule
that the requestor suggested that CMS reassign cases reporting an open
valve procedure and an open surgical ablation procedure without a
procedure code describing the performance of a cardiac catheterization
from MS-DRGs 219, 220, and 221 (Cardiac Valve and Other Major
Cardiothoracic Procedures without Cardiac Catheterization with MCC,
with CC, and without CC/MCC, respectively) to MS-DRGs 216, 217, and 218
for FY 2026, however, as discussed in prior rulemaking (86 FR 44830, 87
FR 48847, and 88 FR 58683), MS-DRGs 216, 217, and 218 are defined by
the performance of cardiac catheterization. We stated we continue to be
concerned about the effect on clinical coherence of assigning cases
reporting an open valve procedure and an open surgical ablation
procedure that do not also have a cardiac catheterization procedure
reported to MS-DRGs that are defined by the performance of that
procedure. We stated our claims analysis for the FY 2026 IPPS/LTCH PPS
proposed rule continues to reflect the difference in average costs
demonstrated by the two cohorts, as cases reporting the performance of
a cardiac catheterization in MS-DRGs 216, 217, and 218 continue to
demonstrate higher average costs.
We stated that our analysis of the claims data continues to reflect
that cases reporting an open valve procedure and an open surgical
ablation procedure without a procedure code describing the performance
of a cardiac catheterization are clinically coherent in their currently
assigned MS-DRGs. Therefore, we proposed to maintain the structure of
MS-DRGs 216, 217, and 218 for FY 2026. We also proposed to maintain the
title of MS-DRGs 216, 217, and 218 as ``Cardiac Valve and Other Major
Cardiothoracic Procedures with Cardiac Catheterization with MCC, with
CC, and without CC/MCC, respectively'' for FY 2026.
Comment: Commenters expressed support for the proposal to maintain
the structure of MS-DRGs 216, 217, and 218 in MDC 05 for FY 2026. A
commenter specifically stated that they support CMS' decision and
rationale for maintaining the current structure of MS-DRGs 216, 217,
and 218. Another commenter stated they acknowledge CMS' assessment that
current data do not support moving these cases for the upcoming fiscal
year and stated they believe that updated data will continue to reflect
the greater resource utilization
[[Page 36587]]
of cases reporting cardiac valve procedures with surgical ablation
compared to other cases in the respective MS-DRGs, and respectfully
requested that CMS continue to monitor the relevant data and reassess
the impact of concomitant surgical ablation in future rulemaking
cycles.
Some commenters stated while they appreciate CMS' continued review
of this issue and understand CMS' reasoning for proposing to maintain
the current structure of MS-DRGs 216, 217, and 218 for FY 2026, the
measures taken by CMS, such as revisions to the surgical hierarchy in
FY 2022 and the creation of MS-DRG 212 (Concomitant Aortic and Mitral
Valve Procedures) in FY 2024, have not effectively addressed the
increased resource demands of cases involving a single open surgical
valve procedure combined with open surgical ablation despite repeated
analyses over the years recognizing the higher costs associated with
these procedures. A few commenters suggested that CMS should consider
alternative methods of addressing the increased costs associated with
cases where a single open surgical valve procedure is performed with
any of the other concomitant procedures, such as the creation of new
MS-DRGs, to ensure clinical coherence and more accurately reflect
resource utilization. A commenter suggested that CMS amend the
definition of MS-DRG 212 to address cases where a single open surgical
valve procedure is performed with any of the other concomitant
procedures from MDC 05 that are included in the GROUPER logic of MS-DRG
212, while another commenter suggested that CMS carefully review all
concomitant procedures with higher hospital resource utilization, given
the important patient care benefits and efficiencies associated with
performing certain procedures concomitantly in a single encounter
rather than staging separate procedures.
Response: We thank the commenters for their support, and we
appreciate the commenters sharing their concerns and feedback on this
proposal. While the data do not support creating a new MS-DRG for cases
reporting an open valve procedure and an open surgical ablation
procedure and instead suggest that cases are suitably grouped to MS-
DRGs 216, 217, 218, 219, 220, and 221 where they are currently assigned
based on the similarities in resource utilization compared to all the
cases in their respective MS-DRG, we will continue to monitor the
claims data for cases reporting an open valve procedure and an open
surgical ablation procedure to determine if additional refinements may
be warranted in the future. We note that we would address any proposed
modifications to the existing logic in future rulemaking.
Comment: Another commenter suggested that if CMS finalizes its
proposal to maintain the structure of MS-DRGs 216, 217, and 218 for FY
2026, CMS should consider partially mitigating the impact of this
finalization on advanced AF patients by designating ICD-10-CM diagnosis
codes I48.11 (Longstanding persistent atrial fibrillation) and I48.21
(Permanent atrial fibrillation) as MCCs on its own initiative for FY
2026 to better align appropriate resources to treat the most complex
subset of patients with atrial fibrillation. This commenter stated they
performed their own analysis and found that data indicate that the
presence of longstanding persistent atrial fibrillation and permanent
atrial fibrillation results in significant costs differences compared
to other admissions.
Response: We appreciate the commenters' feedback. While we consider
this comment to be outside the scope of the proposal included in the FY
2026 IPPS/LTCH PPS proposed rule as we did not examine a potential
change to the severity level designations for the diagnosis codes that
describe longstanding persistent atrial fibrillation and permanent
atrial fibrillation, we encourage individuals with comments about the
severity level designations of ICD-10-CM diagnosis codes to submit
these comments no later than October 20th of each year, via
MEARISTM at: https://mearis.cms.gov/public/home, so that
they can be considered for possible inclusion in the annual proposed
rule. We refer the commenter to section II.C.8. of the preamble of this
FY 2026 IPPS/LTCH PPS final rule for discussion related to our plan to
continue a comprehensive CC/MCC analysis, using a combination of
mathematical analysis of claims data and the application of nine
guiding principles and plan to present the findings and proposals in
future rulemaking.
Therefore, after consideration of the public comments we received,
we are finalizing our proposal to maintain the structure of MS-DRGs
216, 217, and 218 for FY 2026, without modification. We are also
finalizing our proposal to maintain the title of MS-DRGs 216, 217, and
218 as ``Cardiac Valve and Other Major Cardiothoracic Procedures with
Cardiac Catheterization with MCC, with CC, and without CC/MCC,
respectively'' for FY 2026.
c. Transcatheter Aortic Valve Replacement Procedures for Aortic
Regurgitation
Transcatheter aortic valve replacement (TAVR) is a minimally
invasive procedure that involves a catheter being inserted into an
artery, without an incision for most cases, and then guided to the
heart. The catheter delivers the new valve without the need for the
chest or heart to be surgically opened. As discussed in the FY 2026
IPPS/LTCH PPS proposed rule (90 FR 18035 through 18038), we received a
request to reassign cases reporting TAVR procedures for aortic
regurgitation (AR) from MS-DRGs 266 and 267 (Endovascular Cardiac Valve
Replacement with or without MCC, respectively) to what the requester
described as a more clinically and cost cohesive MS-DRG such as MS-DRG
215 (Other Heart Assist System Implant) and to revise the title of MS-
DRG 215 to ``Other Heart Assist System Implant or Endovascular Cardiac
Regurgitant Valve Replacement Procedures.''
According to the requestor, Medicare patients with severe,
symptomatic AR often present with chronic, congestive heart failure,
which equates to significantly greater diastolic heart failure, atrial
fibrillation, and concomitant kidney, liver, and biventricular failure.
As a result, managing this systemic damage requires a multidisciplinary
care team, comprised of implanting physicians, cardiac surgeons,
imaging cardiologists, and heart failure specialists, similar to the
management required for cases currently assigned to MS-DRG 215.
Further, the requestor stated TAVR procedures for AR prevent patients
from devolving into heart failure and are clinically more comparable to
short term heart assist device support. The requestor stated
regurgitant valve disease, such as AR, is a whole-heart cardiac disease
that has systemic manifestations that leads to biventricular heart
failure and non-cardiac morbidity, while stenotic valve disease, such
as aortic stenosis (AS), is less often associated with non-cardiac
dysfunction. According to the requestor, managing a diagnosis of AR
leads to inpatient lengths of stay that are double the duration of the
length of stay of patients with AS, as management of AS only requires
the involvement of the implanting physician and the cardiac surgeon.
As discussed in the proposed rule, the requestor identified TAVR
for AR with ICD-10-CM diagnosis code I35.1 (Nonrheumatic aortic (valve)
insufficiency) and ICD-10-PCS
[[Page 36588]]
procedure code 02RF38Z (Replacement of aortic valve with zooplastic
tissue, percutaneous approach) and performed their own analysis of the
FY 2023 Final MedPAR data. The requestor stated they found the cases
reporting a diagnosis of aortic regurgitation in MS-DRG 266 and 267
have 20 percent higher average costs (AR = $54,425 versus AS =
$45,323), two times the length of stay (AR = 5 days versus AS = 2.5
days) and trigger outlier payments two times more often (AR = 11.43
percent versus AS = 5.82 percent) compared to the cases reporting a
diagnosis of aortic stenosis in MS-DRGs 266 and 267. The requestor
noted in order to perform their analysis, they excluded cases reporting
procedure codes describing the insertion of a percutaneous short-term
external heart assist device by removing cases that reported ICD-10-PCS
procedure codes 02HA3RZ (Insertion of short-term external heart assist
system into heart, percutaneous approach) and 5A0221D (Assistance with
cardiac output using impeller pump, continuous) from their analyses, as
the requestor asserted those procedure codes were reassigned to MS-DRGs
001 and 002 (Heart Transplant or Implant of Heart Assist System with
MCC and without MCC, respectively) in FY 2024.
As stated previously, the requestor identified TAVR procedures for
AR with ICD-10-CM diagnosis code I35.1 (Nonrheumatic aortic (valve)
insufficiency) and ICD-10-PCS procedure code 02RF38Z (Replacement of
aortic valve with zooplastic tissue, percutaneous approach). As we
discussed in the proposed rule, in reviewing this request, we
identified five additional ICD-10-CM diagnosis codes that also describe
aortic regurgitation and included these codes in our analysis. The five
ICD-10-CM diagnosis codes we identified are listed in the following
table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.069
Also, we noted in the proposed rule we identified eight additional
ICD-10-PCS procedure codes that describe TAVR procedures as well, and
similarly included these codes in our analysis. The eight ICD-10-PCS
procedure codes we identified are listed in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.070
To begin our analysis, we reviewed the GROUPER logic. We stated the
requestor is correct that nine ICD-10-PCS codes that describe TAVR
procedures mentioned previously are currently assigned to MS-DRGs 266
and 267. The requestor is also correct that in the FY 2024 IPPS/LTCH
PPS final rule (88 FR 58690 through 58696), we discussed a request we
received to reassign certain cases reporting procedure codes describing
the insertion of a short-term external heart assist device from MS-DRG
215 to MS-DRGs 001 and 002. We stated temporary heart assist devices
are intended to support blood pressure and provide increased blood flow
to critical organs in patients with cardiogenic shock, by drawing blood
out of the heart and pumping it into the aorta, partially or fully
bypassing the left ventricle to provide adequate circulation of blood
(replace or supplement left ventricle pumping) while also allowing
damaged heart muscle the opportunity to rest and recover in patients
who need short-term support.
In the FY 2024 IPPS/LTCH PPS final rule, we stated that we examined
the claims data and the data suggested that overall, cases reporting a
procedure code describing the open insertion of a short-term external
heart assist device may be more appropriately aligned with the average
costs of the cases in MS-DRGs 001 and 002 in comparison to MS-DRG 215,
even though the average length of stay is shorter. We also stated that
we reviewed the clinical considerations along with this data analysis
and agreed that cases reporting a procedure code that describes the
open insertion of a short-term external heart assist device are
generally more resource intensive and are clinically distinct from
other cases reporting procedure codes describing the insertion of
short-term external heart devices by other approaches currently
assigned to MS-DRG 215. Therefore, for the reasons discussed and after
consideration of the public comments we received, we finalized our
proposal to reassign ICD-10-PCS code 02HA0RZ (Insertion of short-term
external heart assist system into heart, open approach) from MS-DRG 215
in MDC 05 to Pre-MDC MS-DRGs 001 and 002 when reported as a standalone
procedure for FY 2024. Under this finalization, procedure code 02HA0RZ
no longer needs to be reported as part of a procedure code combination
or procedure code ``cluster'' to satisfy the logic for assignment to
MS-DRGs 001 and 002. We refer the reader to the ICD-10 MS-DRG
Definitions Manual, Version 42.1 (available on the CMS website at:
https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete
documentation of the
[[Page 36589]]
GROUPER logic for MS-DRGs 001, 002, 215, 266 and 267.
While the requestor stated that procedure code 02HA3RZ (Insertion
of short-term external heart assist system into heart, percutaneous
approach) and procedure code 5A0221D (Assistance with cardiac output
using impeller pump, continuous) were reassigned to MS-DRGs 001 and 002
(Heart Transplant or Implant of Heart Assist System with MCC and
without MCC, respectively) in FY 2024, we noted in the proposed rule
that our finalization in the FY 2024 IPPS/LTCH PPS final rule did not
involve modifying the MS-DRG assignment of procedure code 02HA3RZ or
procedure code 5A0221D. In Version 42.1, cases reporting procedure
codes 02HA3RZ and 5A0221D, continue to be assigned to MS-DRG 215. We
refer the reader to Appendix E of the ICD-10 MS-DRG Definitions Manual,
Version 42.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for the MS-DRG assignments of
procedure codes 02HA0RZ, 02HA3RZ, and 5A0221D.
Next, we examined claims data from the September 2024 update of the
FY 2024 MedPAR file for MS-DRG 266 and 267 to identify cases reporting
one of the six ICD-10-CM codes listed previously that describe aortic
regurgitation as a principal or a secondary diagnosis with one of the
nine procedure codes that describe a TAVR procedure. Our findings are
shown in the following table:
[GRAPHIC] [TIFF OMITTED] TR04AU25.071
As shown in the table, in MS-DRG 266, we identified a total of
22,083 cases with an average length of stay of 4.5 days and average
costs of $55,402. Of those 22,083 cases, there were 3,616 cases
reporting a procedure code describing TAVR with a principal or
secondary diagnosis of aortic regurgitation, with average costs higher
than the average costs in the FY 2024 MedPAR file for MS-DRG 266
($56,010 compared to $55,402) and a longer average length of stay (5.7
days compared to 4.5 days). In MS-DRG 267, we identified a total of
36,405 cases with an average length of stay of 1.5 days and average
costs of $43,282. Of those 36,405 cases, there were 3,616 cases
reporting a procedure code describing TAVR with a principal or
secondary diagnosis of aortic regurgitation, with average costs lower
than the average costs in the FY 2024 MedPAR file for MS-DRG 267
($41,189 compared to $43,282) and a longer average length of stay (1.6
days compared to 1.5 days).
As discussed in the proposed rule, we then examined claims data
from the September 2024 update of the FY 2024 MedPAR for MS-DRG 215.
Our findings are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.072
Our analysis indicates that the cases assigned to MS-DRG 215 have
much higher average costs ($87,701 versus $56,010 or $41,189) and a
much longer length of stay (8.2 days versus 5.7 days or 1.6 days) than
the cases reporting a procedure code describing TAVR with a principal
or secondary diagnosis of aortic regurgitation currently assigned to
MS-DRGs 266 or 267, respectively. Instead, we stated the average costs
and average length of stay for cases reporting a procedure code
describing TAVR with a principal or secondary diagnosis of aortic
regurgitation appear to be generally more aligned with the average
costs and average length of stay for all cases in MS-DRGs 266 and 267,
where they are currently assigned.
In addition, based on our review of the clinical considerations, in
the proposed rule we stated we do not believe the procedure codes
describing a TAVR are clinically coherent with the procedure codes
currently assigned to MS-DRG 215. Heart assist devices, such as
ventricular assist devices and artificial heart systems, provide
circulatory support by taking over most of the workload of the left
ventricle. Blood enters the pump through an inflow conduit connected to
the left ventricle and is ejected through an outflow conduit into the
body's arterial system. Heart assist devices can provide temporary
left, right, or biventricular support for patients whose hearts have
failed and can also be used as a bridge for patients who are awaiting a
heart transplant. We stated while we agree that TAVR can be a treatment
option for patients with severe AR who are at high risk for mortality
or complications due to advanced age and multiple comorbidities, we do
not believe the procedure codes describing TAVR should be assigned to
MS-DRG 215. AR is a condition where the aortic valve doesn't close
properly causing blood to leak back into the heart. While we
acknowledged that if not treated AR can gradually worsen and lead to
left ventricular enlargement and eventually heart failure, we stated we
believe that patients with indications for heart assist devices tend to
be more severely ill and these inpatient admissions are associated with
greater resource utilization as evidenced by the higher average costs
and longer lengths of stay. Therefore, for the reasons stated
previously, we proposed to maintain the GROUPER logic for MS-DRGs 266
and 267 for FY 2026. We also proposed to maintain the title of MS-DRGs
215 as ``Other Heart Assist System Implant'' for FY 2026.
Comment: Commenters supported the proposal to maintain the GROUPER
[[Page 36590]]
logic for MS-DRGs 266 and 267 for FY 2026. A commenter stated they
believe the request to reassign cases reporting TAVR procedures for
aortic regurgitation from MS-DRGs 266 and 267 was premature, as valve
treatments and the data associated with these procedures are limited.
This commenter further stated that as more data are available, CMS will
be better able to evaluate appropriate assignment of endovascular
cardiac valve therapies in the future. Another commenter stated that
patients requiring heart assist devices tend to present with more
severe illnesses and require greater resource utilization and longer
lengths of stay than those patients undergoing TAVR for aortic
regurgitation, therefore reassigning cases reporting TAVR procedures
for aortic regurgitation to MS-DRG 215 would not be clinically
coherent. Other commenters stated that upon review of the data analysis
that CMS described in the proposed rule, it appears the reassignment
may not be appropriate at this time and encouraged CMS to continue to
monitor the data for these cases and consider if any MS-DRG
modifications may be warranted in the future.
Response: We appreciate the commenters' support.
Comment: Other commenters stated CMS should reconsider its proposal
to maintain the GROUPER logic for MS-DRGs 266 and 267 for FY 2026 and
should reassign cases reporting TAVR procedures for aortic
regurgitation from MS-DRGs 266 and 267 to a more clinically and cost
cohesive MS-DRG. Several commenters noted that CMS' analysis of cases
reporting a procedure code describing TAVR with a principal or
secondary diagnosis of aortic regurgitation included ICD-10-CM
diagnosis code I35.2 (Nonrheumatic aortic (valve) stenosis with
insufficiency). These commenters stated that code I35.2 inadvertently
identifies patients with mixed valvular heart disease and predominant
aortic stenosis and including this code in the analysis does not allow
an understanding of the resource utilization required to treat patients
with predominant aortic regurgitation. These commenters encouraged CMS
to refine our analysis to exclude cases with aortic stenosis by
analyzing the cases reporting a principal or secondary diagnosis of
aortic regurgitation, without including ICD-10-CM code I35.2 and, if
the data supports, assign these cases to a more clinically and cost
cohesive MS-DRG. Another commenter (the requestor) stated the inclusion
of ICD-10-CM code I35.2 inadvertently analyzed a very different patient
population from the population they identified in their initial
request, which they asserted truly identified patients who were treated
with TAVR for aortic regurgitation. This commenter stated that it was
impossible for more than 8,000 TAVR procedures to have been performed
for patients with aortic regurgitation since there is no FDA-approved
valve for this indication and noted that the ALIGN-AR trial (a single-
arm, prospective, multicenter study designed to evaluate the efficacy
and safety of the JenaValve Trilogy transcatheter heart valve in
patients with symptomatic, greater-than-moderate native aortic
regurgitation who were deemed high risk for surgery) only treated 180
patients in 2023. The commenter requested that CMS analyze the MedPAR
data again using ICD-10-CM diagnosis codes I06.1 (Rheumatic aortic
insufficiency) or I35.1 (Nonrheumatic aortic (valve) insufficiency) as
principal or secondary diagnosis only, to accurately identify the costs
and lengths of stay for patients treated for aortic regurgitation.
Response: We appreciate the commenters sharing their concerns and
feedback. We agree with commenters that diagnosis code I35.2 describes
nonrheumatic mixed aortic valve disease (MAVD), a condition where the
aortic valve is affected by both aortic stenosis and aortic
regurgitation. As discussed in the proposed rule and earlier in this
section, the requestor identified TAVR for aortic regurgitation with
ICD-10-CM diagnosis code I35.1 (Nonrheumatic aortic (valve)
insufficiency) only. In reviewing this request, we identified five
additional diagnosis codes in the ICD-10-CM classification that also
describe aortic regurgitation, including code I35.2, and therefore
included these codes in our analysis to avoid unintended consequences
or missed opportunities in most appropriately capturing the resource
utilization and clinical coherence for cases reporting a procedure code
describing TAVR with a principal or secondary diagnosis of aortic
regurgitation.
To examine the recommendations that CMS (1) analyze cases reporting
a procedure code describing TAVR with a principal or secondary
diagnosis of aortic regurgitation, while excluding cases reporting a
principal or secondary diagnosis of ICD-10-CM code I35.2 (Nonrheumatic
aortic (valve) stenosis with insufficiency), and (2) analyze cases
reporting a procedure code describing TAVR with a principal or
secondary diagnosis of ICD-10-CM codes I06.1 (Rheumatic aortic
insufficiency) or I35.1 (Nonrheumatic aortic (valve) insufficiency)
only, we further examined claims data from the September 2024 update of
the FY 2024 MedPAR file for MS-DRG 266 and 267. Our findings are shown
in the following table:
[[Page 36591]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.073
As shown in the table, in MS-DRG 266, we identified a total of
22,083 cases with an average length of stay of 4.5 days and average
costs of $55,402. Of those 22,083 cases, there were 2,019 cases
reporting a procedure code describing TAVR with a principal or
secondary diagnosis of aortic regurgitation, excluding cases reporting
ICD-10-CM diagnosis code I35.2, with average costs higher than the
average costs in the FY 2024 MedPAR file for MS-DRG 266 ($57,724
compared to $55,402) and a longer average length of stay (6.5 days
compared to 4.5 days). Additionally, there were 264 cases reporting a
procedure code describing TAVR with a principal or secondary diagnosis
of aortic regurgitation by reporting ICD-10-CM diagnosis codes I06.1 or
I31.1 only, with average costs higher than the average costs in the FY
2024 MedPAR file for MS-DRG 266 ($61,433 compared to $55,402) and a
longer average length of stay (7.0 days compared to 4.5 days).
In MS-DRG 267, we identified a total of 36,405 cases with an
average length of stay of 1.5 days and average costs of $43,282. Of
those 36,405 cases, there were 2,038 cases reporting a procedure code
describing TAVR with a principal or secondary diagnosis of aortic
regurgitation, excluding cases reporting ICD-10-CM diagnosis code
I35.2, with average costs lower than the average costs in the FY 2024
MedPAR file for MS-DRG 267 ($40,153 compared to $43,282) and a longer
average length of stay (1.7 days compared to 1.5 days). Additionally,
there were 262 cases reporting a procedure code describing TAVR with a
principal or secondary diagnosis of aortic regurgitation by reporting
ICD-10-CM diagnosis codes I06.1 or I31.1 only, with average costs lower
than the average costs in the FY 2024 MedPAR file for MS-DRG 267
($40,937 compared to $43,282) and a longer average length of stay (1.6
days compared to 1.5 days).
We reviewed these data and note that the original request was to
reassign cases reporting TAVR procedures for aortic regurgitation from
MS-DRGs 266 and 267 to what the requester described as a more
clinically and cost cohesive MS-DRG such as MS-DRG 215 (Other Heart
Assist System Implant). We continue to believe that patients with
indications for heart assist devices tend to be more severely ill and
these inpatient admissions are associated with greater resource
utilization as evidenced by the higher average costs and longer lengths
of stay compared to cases reporting codes describing TAVR for aortic
regurgitation, even when excluding cases with a principal or secondary
diagnosis of ICD-10-CM code I35.2 or when considering cases reporting a
principal or secondary diagnosis of ICD-10-CM codes I06.1 or I35.1
only. We also note that the claims data reflect variance with regard to
average length of stay and average costs for these cases when
considering which principal or secondary ICD-10-CM diagnosis codes are
reported to describe aortic regurgitation. The claims data also clearly
show that the cases reporting secondary diagnoses designated as MCCs
are more resource intensive compared to other cases reporting codes
describing TAVR for aortic regurgitation. As such, we believe it is
premature to propose changes to the MS-DRG assignment of cases
reporting TAVR procedures for aortic regurgitation. Further analysis is
needed, particularly focusing on the diagnosis codes reported, and also
giving consideration as to whether other factors, such as the reporting
of secondary MCC and CC diagnoses, may be contributing to the average
costs prior to proposing any reassignment of these cases to ensure
clinical coherence between these cases and the other cases with which
they may potentially be grouped. Furthermore, it is also difficult to
predict what the associated costs and resource utilization will be in
the future for TAVR devices that remain under development or in
clinical trials as research continues to refine TAVR techniques,
evaluate long-term outcomes, develop new devices, and expand clinical
indications. We expect in future years we will have additional data
that can be used to evaluate the potential reassignment of cases
reporting TAVR procedures. We will continue to monitor the claims data
in consideration of any future modifications to the MS-DRGs for which
TAVR procedures may be reported.
Therefore, after consideration of the public comments we received,
we are finalizing our proposal to maintain the GROUPER logic for MS-
DRGs 266 and 267 for FY 2026, without modification. We are also
finalizing our proposal to maintain the title of MS-DRGs 215 as ``Other
Heart Assist System Implant'' for FY 2026.
d. Percutaneous Coronary Atherectomy
In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58704 through
58712), we discussed a request we received to
[[Page 36592]]
review the MS-DRG assignment of cases describing percutaneous coronary
intravascular lithotripsy (IVL). Coronary IVL is utilized in a subset
of percutaneous coronary intervention (PCI) procedures when the artery
is severely calcified. According to the requestor, PCIs involving
coronary IVL are clinically more complex because coronary IVL is a
therapy deployed exclusively in severely calcified coronary lesions,
and these lesion types are associated with longer procedure times and
increased utilization of hospital resources. In analyzing this request,
we stated in the FY 2024 IPPS/LTCH PPS final rule that the data
analysis showed that the average costs of cases reporting percutaneous
coronary IVL, with or without involving the insertion of an
intraluminal device, were higher than for all cases in their respective
MS-DRG. Therefore, for FY 2024, taking into consideration that it
clinically requires greater resources to perform coronary IVL, and
after consideration of the public comments we received, we finalized
our proposal to create MS-DRG 323 (Coronary Intravascular Lithotripsy
with Intraluminal Device with MCC), MS-DRG 324 (Coronary Intravascular
Lithotripsy with Intraluminal Device without MCC) and MS-DRG 325
(Coronary Intravascular Lithotripsy without Intraluminal Device) in MDC
05.
In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69000 through
69002), we discussed requests to modify the GROUPER logic in a number
of cardiac MS-DRGs under MDC 05 (Diseases and Disorders of the
Circulatory System) for which we stated further research and analysis
were required, and which we would continue to consider in connection
with future rulemaking. Specifically, we discussed requests we received
to modify the GROUPER logic of MS-DRGs 323, 324, and 325. In two
separate but related requests, the requestors suggested that we add
procedure codes that describe additional PCI procedures, such as
percutaneous coronary rotational, laser, and orbital atherectomy, to
the GROUPER logic of new MS-DRGs 323, 324, and 325.
In the FY 2025 IPPS/LTCH PPS final rule, we noted that as stated in
prior rulemaking (88 FR 58708), atherectomy is distinct from coronary
lithotripsy in that each of these procedures are defined by clinically
distinct definitions and objectives. We stated additional analysis to
assess for unintended consequences across the classification was needed
as we have made a distinction between the root operations used to
describe atherectomy (Extirpation) and the root operation used to
describe lithotripsy (Fragmentation) in evaluating other requests in
rulemaking. We stated we would need to consider the application of
these two root operations in other scenarios where we have also
specifically stated that Extirpation is not the same as Fragmentation
and do not warrant similar MS-DRG assignment (85 FR 58572 through
58573). Furthermore, as MS-DRGs 323, 324, and 325 had recently become
effective on October 1, 2023 (FY 2024), we stated additional time was
needed to review and evaluate extensive modifications to the structure
of these MS-DRGs.
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18038 through 18042), we received a request to reassign percutaneous
coronary atherectomy procedures from MS-DRGs 250 and 251 (Percutaneous
Cardiovascular Procedures without Intraluminal Device with MCC and
without MCC, respectively) and MS-DRGs 321 and 322 (Percutaneous
Cardiovascular Procedures with Intraluminal Device with MCC or 4+
Arteries/Intraluminal Devices and without MCC, respectively) to MS-DRGs
323, 324, and 325 where cases reporting percutaneous coronary IVL are
assigned. Atherectomy is a procedure used to remove plaque buildup from
the inside of arteries. The requestor stated that coronary atherectomy
and coronary IVL target the same step of the PCI treatment process
(that is, reducing the burden of calcium by preparing the vessel prior
to stent delivery). The requestor further stated that coronary
atherectomy is more clinically similar to coronary IVL than other
routine vessel preparation techniques (such as angioplasty) in that
both coronary atherectomy and coronary IVL are used to modify severe
coronary calcium, treat the same patient population, and have the same
intended clinical use for complex vessel preparation. Complex vessel
preparation is required to increase the diameter of an artery's lumen
in severely calcified lesions and improves revascularization by
debulking calcification which enables better intraluminal device
deployment and improved drug uptake into the vessel wall. Similar to
lithotripsy, after percutaneous atherectomy is performed, the provider
can implant an intraluminal device, also called a stent, to keep the
vessel open.
According to the requestor, removing percutaneous coronary
atherectomy procedures from their current MS-DRG assignments and
assigning them to MS-DRGs 323, 324, and 325 would reduce cost variance
and improve clinical coherence across all PCI MS-DRGs. The requestor
also stated that as atherectomy procedures involve more complex
calcified lesions and require greater resources, it is not clinically
or cost coherent to maintain their current MS-DRG assignments,
therefore creating a new MS-DRG for all cases involving percutaneous
coronary atherectomy procedures was a reasonable alternative option if
CMS did not agree with the reassignment of these cases to MS-DRGs 323,
324, and 325.
As discussed in the proposed rule, the requestor identified eight
ICD-10-PCS codes that they state describe percutaneous coronary
atherectomy. The eight codes the requestor identified are listed in the
following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.074
While we agree with the requestor that the eight procedure codes
listed in the previous table describe percutaneous coronary
atherectomy, we noted in the proposed rule there are additional ICD-10-
PCS codes that
[[Page 36593]]
describe percutaneous coronary atherectomy in the GROUPER logic for MS-
DRGs 250, 251, 321, and 322. Therefore, in reviewing this request, we
stated we identified 12 additional ICD-10-PCS procedure codes that also
describe percutaneous or percutaneous endoscopic coronary atherectomy
procedures and included these codes in our analysis. The 12 codes we
identified are listed in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.075
We refer the reader to the ICD-10 MS-DRG Definitions Manual,
Version 42.1 (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the
GROUPER logic for MS-DRGs 250, 251, 321, and 322.
To begin our analysis, we examined claims data from the September
2024 update of the FY 2024 MedPAR file for MS-DRGs 250, 251, 321, and
322 to identify cases reporting a procedure code describing
percutaneous or percutaneous endoscopic coronary atherectomy and
compared the results to all cases in their respective MS-DRG. Our
findings are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.076
As shown by the table, in MS-DRG 250, we identified a total of
3,047 cases, with an average length of stay of 4.4 days and average
costs of $21,383. Of those 3,047 cases, there were 493 cases reporting
percutaneous or percutaneous endoscopic coronary atherectomy without
reporting the insertion of an intraluminal device, with higher average
costs as compared to all cases in MS-DRG 250 ($25,139 compared to
$21,383), and a longer average length of stay (4.6 days compared to 4.4
days). In MS-DRG 251, we identified a total of 2,515 cases with an
average length of stay of 2.4 days and average costs of $14,521. Of
those 2,515 cases, there were 340 cases reporting percutaneous or
percutaneous endoscopic coronary atherectomy without reporting the
insertion of an intraluminal device, with higher average costs as
compared to all cases in MS-DRG 251 ($18,121 compared to $14,521), and
a longer average length of stay (2.5 days compared to 2.4 days).
In MS-DRG 321, we identified a total of 32,517 cases with an
average length of stay of 5.0 days and average costs of $26,309. Of
those 32,517 cases, there were 3,307 cases reporting percutaneous or
percutaneous endoscopic coronary atherectomy with the insertion of an
intraluminal device, with higher average costs as compared to all cases
in MS-DRG 321 ($31,886 compared to $26,309), and a longer average
length of stay (5.1 days compared to 5.0 days). In MS-DRG 322, we
identified a total of 46,600 cases with an average length of stay of
2.4 days and average costs of $16,792. Of those 46,600 cases, there
were 3,134 cases reporting percutaneous or percutaneous endoscopic
coronary atherectomy with the insertion of an intraluminal device, with
higher average costs as compared to all cases in MS-DRG 322 ($20,889
compared to $16,792), and a longer average length of stay (2.5 days
compared to 2.4 days). The data analysis shows that the average costs
of cases reporting percutaneous or percutaneous endoscopic coronary
atherectomy, with or without involving the insertion of an intraluminal
device, are higher than for all cases in their respective MS-DRG.
As discussed in the proposed rule, we then examined claims data
from the September 2024 update of the FY 2024 MedPAR file for MS-DRGs
323, 324, and 325. Our findings are shown in the following table.
[[Page 36594]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.077
In MS-DRG 323, we found a total of 4,429 cases with an average
length of stay of 6.0 days and average costs of $39,047. In MS-DRG 324,
we found a total of 4,877 cases with an average length of stay of 2.9
days and average costs of $28,809. In MS-DRG 325, we found a total of
646 cases with an average length of stay of 3.9 days and average costs
of $29,362.
The average costs of the 3,307 cases reporting percutaneous or
percutaneous endoscopic coronary atherectomy with the insertion of an
intraluminal device in MS-DRG 321 are $7,161 less than the average
costs of all cases in MS-DRG 323 ($39,047-$31,886 = $7,161) and have an
average length of stay that is less than the average length of stay of
all cases in MS-DRG 323 (5.1 days versus 6.0 days). The average costs
of the 3,134 cases reporting percutaneous or percutaneous endoscopic
coronary atherectomy with the insertion of an intraluminal device in
MS-DRG 322 are $7,920 less than the average costs of all cases in MS-
DRG 324 ($28,809-$20,899 = $7,920) and have an average length of stay
that is less than the average length of stay of all cases in MS-DRG 324
(2.5 days versus 2.9 days). The average costs of the 493 cases in MS-
DRG 250 and the 340 cases in MS-DRG 251 reporting percutaneous or
percutaneous endoscopic coronary atherectomy without reporting a
procedure code describing the insertion of an intraluminal device are
$4,223 and $11,241 less than the average costs of all cases in MS-DRG
325 ($29,362-$25,139 = $7,920; $29,362-$18,121 = $11,241),
respectively. These 493 cases in MS-DRG 250 have an average length of
stay that is more than the average length of stay of all cases in MS-
DRG 325 (4.6 days versus 3.9 days) while the 340 cases in MS-DRG 251
have an average length of stay that is less than the average length of
stay of all cases in MS-DRG 325 (2.5 days versus 3.9 days).
Upon analysis of the claims data and our review of the request, we
stated in the proposed rule we do not agree with reassigning cases
reporting percutaneous or percutaneous endoscopic coronary atherectomy
from MS-DRGs 250, 251, 321, and 322 to MS-DRGs 323, 324, and 325. We
stated that while we agree that the performance of percutaneous or
percutaneous endoscopic coronary atherectomy contributes to increased
resource consumption for these PCI procedures, as previously noted, the
data do not support that cases reporting percutaneous or percutaneous
endoscopic coronary atherectomy, with or without involving the
insertion of an intraluminal device, utilize similar resources when
compared to coronary IVL procedures currently assigned to MS-DRGs 323,
324, and 325. Additionally, as stated previously and in prior
rulemaking (88 FR 58708), coronary atherectomy is distinct from
coronary lithotripsy in that each of these procedures are defined by
clinically distinct definitions and objectives. We stated we continue
to believe that the root operation Extirpation is not the same as the
root operation Fragmentation and do not warrant similar MS-DRG
assignment (85 FR 58572 through 58573).
As discussed in the proposed rule, we then explored alternative
options, as was requested. As discussed in prior rulemaking (88 FR
58706), we continue to agree that clinically, the presence of severe
calcification can increase the treatment difficulty and complexity of
service. We stated the data analysis clearly shows that cases reporting
percutaneous or percutaneous endoscopic coronary atherectomy, with or
without involving the insertion of an intraluminal device, have higher
average costs and longer lengths of stay compared to all the cases in
their assigned MS-DRG. For these reasons, we proposed to create new MS-
DRGs for cases reporting procedure codes describing percutaneous or
percutaneous endoscopic coronary atherectomy involving the insertion of
an intraluminal device, as well as a new MS-DRG for cases reporting
procedure codes describing percutaneous or percutaneous endoscopic
coronary atherectomy without the insertion of an intraluminal device to
address the differential in resource consumption.
To compare and analyze the impact of our suggested modifications,
as discussed in the proposed rule, we ran a simulation using the most
recent claims data from the September 2024 update of the FY 2024 MedPAR
file. The following table illustrates our findings for all 6,441 cases
reporting procedure codes describing percutaneous or percutaneous
endoscopic atherectomy involving the insertion of an intraluminal
device.
[GRAPHIC] [TIFF OMITTED] TR04AU25.078
We applied the criteria to create subgroups in a base MS-DRG as
discussed in section II.C.1.b. of the preamble of the FY 2026 IPPS/LTCH
PPS proposed rule and this final rule. As shown, a three-way split of
the proposed new MS-DRG failed to meet the criterion that there be at
least a 20 percent difference in average costs between the CC and NonCC
subgroup.
[GRAPHIC] [TIFF OMITTED] TR04AU25.079
[[Page 36595]]
As discussed in section II.C.1.b. of the preamble of the FY 2026
IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a
three-way split fail, the next step is to determine if the criteria are
satisfied for a two-way split. We therefore applied the criteria for a
two-way split for the ``with MCC'' and ``without MCC'' subgroups and
found that all five criteria were met. The following table illustrates
our findings.
[GRAPHIC] [TIFF OMITTED] TR04AU25.080
As discussed in the proposed rule, for the proposed new MS-DRGs for
cases reporting procedure codes describing percutaneous or percutaneous
endoscopic atherectomy involving the insertion of an intraluminal
device, there is at least (1) 500 cases in the MCC subgroup and 500
cases in the without MCC subgroup; (2) 5 percent of the cases in the
MCC group and 5 percent in the without MCC subgroup; (3) a 20 percent
difference in average costs between the MCC group and the without MCC
group; (4) a $2,000 difference in average costs between the MCC group
and the without MCC group; and (5) a 3-percent reduction in cost
variance, indicating that the proposed severity level splits increase
the explanatory power of the base MS-DRG in capturing differences in
expected cost between the proposed MS-DRG severity level splits by at
least 3 percent and thus improve the overall accuracy of the IPPS
payment system.
We then ran a simulation using the most recent claims data from the
September 2024 update of the FY 2024 MedPAR file for all 833 cases
reporting procedure codes describing percutaneous or percutaneous
endoscopic atherectomy without the insertion of an intraluminal device.
The following table illustrates our findings.
[GRAPHIC] [TIFF OMITTED] TR04AU25.081
We applied the criteria to create subgroups in a base MS-DRG as
discussed in section II.C.1.b. of the preamble of the FY 2026 IPPS/LTCH
PPS proposed rule and this final rule. As shown, a three-way split of
the proposed new MS-DRG failed to meet the criterion that there be at
least 500 cases in the MCC subgroup, CC subgroup, and NonCC subgroup.
[GRAPHIC] [TIFF OMITTED] TR04AU25.082
As discussed in section II.C.1.b. of the preamble of the FY 2026
IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a
three-way split fail, the next step is to determine if the criteria are
satisfied for a two-way split. We therefore applied the criteria for a
two-way split for the ``with MCC'' and ``without MCC'' subgroups. We
note that, as shown in the table that follows, a two-way split of this
base MS-DRG failed to meet the criterion that there be at least 500
cases in the with MCC and the without MCC subgroups.
[GRAPHIC] [TIFF OMITTED] TR04AU25.083
We then applied the criteria for a two-way split for the ``with CC/
MCC'' and ``without CC/MCC'' subgroups. As shown in the table that
follows, a two-way split of this base MS-DRG also failed to meet the
criterion that there be at least 500 cases in the without CC/MCC
subgroup.
[GRAPHIC] [TIFF OMITTED] TR04AU25.084
We noted in the proposed rule that because the criteria for both of
the two-way splits failed, a split (or CC subgroup) is not warranted
for the proposed new base MS-DRG. As a result, for FY 2026, we proposed
to
[[Page 36596]]
create a base MS-DRG for cases reporting procedure codes describing
percutaneous or percutaneous endoscopic atherectomy without the
insertion of an intraluminal device.
In summary, for FY 2026, taking into consideration that it
clinically requires greater resources to perform percutaneous or
percutaneous endoscopic coronary atherectomy, we proposed to create two
new MS-DRGs with a two-way severity level split for cases describing
percutaneous or percutaneous endoscopic coronary atherectomy involving
the insertion of an intraluminal device in MDC 05. We also proposed to
create a new base MS-DRG for cases describing percutaneous or
percutaneous endoscopic coronary atherectomy without an intraluminal
device. The proposed new MS-DRGs are proposed new MS-DRG 359
(Percutaneous Coronary Atherectomy with Intraluminal Device with MCC),
proposed new MS-DRG 360 (Percutaneous Coronary Atherectomy with
Intraluminal Device without MCC) and proposed new MS-DRG 318
(Percutaneous Coronary Atherectomy without Intraluminal Device). We
refer the reader to Table 6P.4a and Table 6P.4b associated with the FY
2026 IPPS/LTCH PPS proposed rule (which is available on the CMS website
at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) for the list of procedure codes we proposed to
define in the logic for each of the proposed new MS-DRGs. We noted that
discussion of the surgical hierarchy for the proposed modification is
discussed in section II.C.10. of the preamble of the FY 2026 IPPS/LTCH
PPS proposed rule.
Comment: Many commenters expressed support for CMS' proposal to
create new MS-DRGs for cases describing percutaneous or percutaneous
endoscopic coronary atherectomy. Commenters stated they appreciate CMS'
recognition of the greater resources required to perform percutaneous
or percutaneous endoscopic coronary atherectomy. These commenters
stated that they agree that the new MS-DRGs will appropriately reflect
the higher resource use and longer hospital stays associated with these
complex procedures and applauded CMS for recognizing the increased
resources required and for undertaking the detailed analysis.
Response: We thank the commenters for their support.
After consideration of the public comments we received, we are
finalizing our proposal to create new MS-DRG 359 (Percutaneous Coronary
Atherectomy with Intraluminal Device with MCC), new MS-DRG 360
(Percutaneous Coronary Atherectomy with Intraluminal Device without
MCC) and new MS-DRG 318 (Percutaneous Coronary Atherectomy without
Intraluminal Device) for cases reporting percutaneous or percutaneous
endoscopic coronary atherectomy, without modification, for FY 2026.
We refer the reader to Table 6P.4a and Table 6P.4b associated with
this FY 2026 IPPS/LTCH PPS final rule (which is available on the CMS
website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index) for the list of procedure codes we are
finalizing to define in the logic for each of the new MS-DRGs. We note
that discussion of the surgical hierarchy for the finalized
modification is discussed in section II.C.10. of the preamble of this
FY 2026 IPPS/LTCH PPS final rule.
e. Complex Aortic Arch Procedures
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18042 through 18047), we received two separate but related requests to
review and reconsider the MS-DRG assignments for a subset of codes
describing aortic arch procedures assigned to MS DRGs 216, 217, 218,
219, 220, and 221 (Cardiac Valve & Other Major Cardiothoracic Procedure
with and without Cardiac Catheterization, with MCC, with CC, without
CC/MCC, respectively). In this section of the preamble of this FY 2026
IPPS/LTCH PPS final rule, we discuss each of these separate, but
related requests.
The first request was to reassign cases reporting a procedure code
describing endovascular restriction of the thoracic aorta with a
branched or fenestrated intraluminal device from MS-DRGs 219, 220, and
221 (Cardiac Valve and Other Major Cardiothoracic Procedures without
Cardiac Catheterization with MCC, with CC, and without CC/MCC,
respectively) to MS-DRG 216 (Cardiac Valve and Other Major
Cardiothoracic Procedures with Cardiac Catheterization with MCC).
Alternatively, the requestor stated CMS could consider reassigning
other similar complex aortic arch branch procedures to MS-DRG 216. The
requestor suggested that if finalized, the title for MS-DRG 216 should
be revised to reflect ``Cardiac Valve and Other Major Cardiothoracic
Procedures with Cardiac Catheterization with MCC or with Aortic Arch
Branch Intraluminal Device.''
According to the requestor, the manufacturer of the GORE[supreg]
TAG[supreg] Thoracic Branch Endoprosthesis (TBE), reassignment of the
procedure code describing endovascular restriction of the thoracic
aorta with a branched or fenestrated intraluminal device to MS-DRG 216
would result in higher payment and better account for the differences
in resource use of the cases reporting this procedure than other cases
in their respective MS-DRGs where they are currently assigned. The
GORE[supreg] TAG[supreg] TBE provides endovascular repair of
pathologies of the descending thoracic aorta requiring a proximal
landing zone including the left subclavian artery. It is a modular
device that consists of three implantable fabric tubes supported by a
nitinol framework. The GORE[supreg] TAG[supreg] TBE is indicated for
endovascular repair of lesions such as aortic aneurysms, traumatic
transections, and dissections of the descending thoracic aorta with
treatment extending to the aortic arch, while maintaining flow into the
left subclavian artery (Zone 2 of the aortic arch), in patients who are
at high risk for debranching subclavian procedures and who have
appropriate anatomy. According to the requestor, patients with lesions
in the aortic arch are often more clinically complex and more difficult
to treat than patients with lesions in lower parts of the aorta due to
vascular tortuosity, proximity to the heart, involvement of arch
vessels that feed into the head and brain, and risk of stroke and
paraplegia or paraparesis from emboli released into arteries that
provide blood flow to the left arm and head. The requestor stated that
for lesions involving the left subclavian artery, the only other
treatment options available today include open surgical repair with a
synthetic graft or a hybrid procedure which includes a non-branched
endovascular device and an open surgical bypass procedure of the head
vessels. Per the requestor, for arch lesions involving the
brachiocephalic and left common carotid arteries, a TBE device enables
hybrid treatment with one fewer bypass procedure.
The requestor identified cases reporting endovascular restriction
of the thoracic aorta with a branched or fenestrated intraluminal
device by the presence of ICD-10-PCS codes 02VX3EZ (Restriction of
thoracic aorta, ascending/arch with branched or fenestrated
intraluminal device, one or two arteries, percutaneous approach) and
02VW3DZ (Restriction of thoracic aorta, descending with intraluminal
device, percutaneous approach) on the same claim and performed its own
analysis of the claims data. The requestor stated they found 90 cases
reporting endovascular restriction of the thoracic aorta with a
branched or fenestrated intraluminal device, and
[[Page 36597]]
these cases are 49% (+$32,326), 60% (+$27,727), and 38% (+$15,432) more
costly compared to all cases in MS-DRGs 219, 220, and 221,
respectively. While acknowledging that cases reporting endovascular
restriction of the thoracic aorta with a branched or fenestrated
intraluminal device typically do not require a cardiac catheterization
procedure, the requestor asserted that this claims analysis
demonstrates cases reporting endovascular restriction of the thoracic
aorta with a branched or fenestrated intraluminal device require
resources similar to cases in MS-DRG 216.
As mentioned previously, the requestor stated we could also
consider reassigning cases reporting procedure codes describing other
complex aortic arch branch procedures to MS-DRG 216. The requestor
stated to be considered a similar ``complex aortic arch procedure'' the
case should report an ICD-10-PCS code describing the endovascular
restriction of the thoracic aorta with a branched or fenestrated
intraluminal device with an ICD-10-PCS code describing a Zone 0 or a
Zone 1 Bypass procedure. Zone 0 is in the ascending aorta, proximal to
the brachiocephalic artery and Zone 1 covers the portion of the aortic
arch between the brachiocephalic artery and the left common carotid
artery. The requestor identified cases reporting these ``other complex
aortic arch procedures'' as cases reporting ICD-10-PCS codes as
reflected in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.085
In analyzing this request, we noted in the proposed rule the
requestor is correct that the following ICD-10-PCS codes specifically
describe procedures involving the GORE[supreg] TAG[supreg] TBE: 02VX3EZ
(Restriction of thoracic aorta, ascending/arch with branched or
fenestrated intraluminal device, one or two arteries, percutaneous
approach), in combination with 02VW3DZ (Restriction of thoracic aorta,
descending with intraluminal device, percutaneous approach). The
requestor is also correct that procedure codes 02VX3EZ and 02VW3DZ are
assigned to MS-DRGs 216, 217, 218, 219, 220, and 221. Additionally, we
stated we agree that the ICD-10-PCS codes as reflected in the previous
table can describe other complex aortic arch procedures, and when
reported, MS-DRGs 216, 217, 218, 219, 220, and 221 would be assigned.
We refer the reader to the ICD-10 MS-DRG Definitions Manual Version
42.1, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete documentation of the
GROUPER logic for MS-DRGs 216, 217, 218, 219, 220, and 221. We noted in
the proposed rule that the GORE[supreg] TAG[supreg] TBE was approved
for new technology add-on payments for FY 2023 (87 FR 48966 through
48969), FY 2024 (88 FR 58800), and FY 2025 (89 FR 69124). We refer
readers to section II.E.5 of the preamble of this FY 2026 IPPS/LTCH PPS
final rule for a discussion regarding the FY 2026 status of
technologies approved for FY 2025 new technology add-on payments,
including the GORE[supreg] TAG[supreg] TBE.
To explore mechanisms to address this request and to understand the
resource use for the subset of cases reporting procedure codes 02VX3EZ
and 02VW3DZ, and cases reporting ``other complex aortic arch
procedures'', in the proposed rule we stated we began our analysis by
examining claims data from the September 2024 update of the FY 2024
MedPAR file for cases assigned to MS-DRGs 216, 217, 218, 219, 220, and
221. Our findings are shown in the following table:
[[Page 36598]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.086
As shown in the table, the data analysis performed indicates that
the 4 cases in MS-DRG 216 reporting procedure codes 02VX3EZ and 02VW3DZ
have an average length of stay that is longer than the average length
of stay for all the cases in MS-DRG 216 (25.3 days versus 13.6 days)
and higher average costs when compared to all the cases in MS-DRG 216
($156,361 versus $88,193). The difference in average costs is $68,168
($156,361-$88,193 = $68,168) for the cases reporting procedure codes
02VX3EZ and 02VW3DZ in MS-DRG 216 when compared to all the cases in MS-
DRG 216. There were zero cases reporting other complex aortic arch
procedures in MS-DRG 216. In MS-DRG 217, the one case reporting
procedure codes 02VX3EZ and 02VW3DZ has a length of stay that is
shorter than the average length of stay for all the cases in MS-DRG 217
(2 days versus 6.8 days) and lower costs when compared to all the cases
in MS-DRG 217 ($46,235 versus $59,943). The difference in average costs
is $13,708 ($59,943-$46,235 = $13,708) for the cases reporting
procedure codes 02VX3EZ and 02VW3DZ in MS-DRG 217 when compared to all
the cases in MS-DRG 217. There were zero cases reporting other complex
aortic arch procedures in MS-DRG 217. In MS-DRG 218, there were zero
cases reporting procedure codes 02VX3EZ and 02VW3DZ or other complex
aortic arch procedures.
The 81 cases in MS-DRG 219 reporting procedure codes 02VX3EZ and
02VW3DZ have an average length of stay that is longer than the average
length of stay for all the cases in MS-DRG 219 (11.4 days versus 10
days) and higher average costs when compared to all the cases in MS-DRG
219 ($97,336 versus $69,728). The difference in average costs is
$27,608 ($97,336-$69,728 = $27,608) for the cases reporting procedure
codes 02VX3EZ and 02VW3DZ in MS-DRG 219 when compared to all the cases
in MS-DRG 219. The 10 cases in MS-DRG 219 reporting procedure codes
describing other complex arch procedures have an average length of stay
that is longer than the average length of stay for all the cases in MS-
DRG 219 (20.7 days versus 10 days) and higher average costs when
compared to all the cases in MS-DRG 219 ($112,213 versus $69,728). The
difference in average costs is $42,485 ($112,213-$69,728 = $42,485) for
the cases reporting procedure codes describing other complex arch
procedures in MS-DRG 219 when compared to all the cases in MS-DRG 219.
In MS-DRG 220, the 64 cases reporting procedure codes 02VX3EZ and
02VW3DZ have an average length of stay that is shorter than the average
length of stay for all the cases in MS-DRG 220 (5.2 days versus 6.2
days) and higher average costs when compared to all the cases in MS-DRG
220 ($76,700 versus $49,514). The difference in average costs is
$27,186 ($76,700-$49,514 = $27,186) for the cases reporting procedure
codes 02VX3EZ and 02VW3DZ in MS-DRG 220 when compared to all the cases
in MS-DRG 220. The 10 cases reporting procedure codes describing other
complex arch procedures have an average length of stay that is longer
than the average length of stay for all the cases in MS-DRG 220 (6.9
days versus 6.2 days) and higher average costs when compared to all the
cases in MS-DRG 220 ($87,003 versus $49,514). The difference in average
costs is $37,489 ($87,003-$49,514 = $37,489) for the cases reporting
procedure codes describing other complex arch procedures in MS-DRG 220
when compared to all the cases in MS-DRG 220.
In MS-DRG 221, the 32 cases reporting procedure codes 02VX3EZ and
02VW3DZ have an average length of stay that is shorter than the average
length of stay for all the cases in MS-DRG 221 (1.9 days versus 3.6
days) and higher average costs when compared to all the cases in MS-DRG
221 ($56,765 versus $46,900). The difference in average costs is $9,865
($56,765-$46,900 = $9,865) for the cases reporting procedure codes
02VX3EZ and 02VW3DZ in MS-DRG 221 when compared to all the cases in MS-
DRG 221. There were zero cases reporting other complex aortic arch
procedures in MS-DRG 221.
As discussed in the proposed rule, our analysis of the claims data
for cases reporting procedure codes 02VX3EZ and 02VW3DZ and cases
reporting procedure codes describing other complex arch procedures
demonstrated a relatively low volume of cases in comparison to all the
cases in their respective MS-DRGs (that is, in 216, 217, 218, 219, 220,
and 221). Analysis of the claims data also demonstrates that the cases
had an average length of stay
[[Page 36599]]
generally longer than all the cases in their respective MS-DRGs. The
data analysis indicates that the average costs of the 182 cases
reporting procedure codes 02VX3EZ and 02VW3DZ and the 20 cases
reporting procedure codes describing other complex arch procedures are
generally higher when compared to the average costs of all cases in MS-
DRGs 216, 217, 218, 219, 220, and 221. Specifically, most of these
cases have average costs that are considerably higher than the average
costs of all cases in MS-DRG 216. We stated we reviewed these data and
do not believe that proposing to reassign the cases reporting procedure
codes 02VX3EZ and 02VW3DZ and the cases reporting procedure codes
describing other complex arch procedures to MS-DRG 216, even if there
is no cardiac catheterization procedure reported and no secondary
diagnosis designated as an MCC reported, would fully address the
difference in resource utilization in these cases. Accordingly, we
stated we do not believe the data adequately support a potential
reassignment of these cases to MS-DRG 216. Therefore, we decided to
further explore alternative options to ensure clinical coherence
between these cases and the other cases with which they may potentially
be grouped in conjunction with the separate but related request we
received to review and reconsider the MS-DRG assignments for another
subset of codes describing aortic arch procedures, as discussed later
in this section.
The second request we received, and discussed in the proposed rule,
was to reassign cases reporting thoracic aortic arch replacement
combined with restriction of the descending thoracic aorta from MS-DRGs
219, 220, and 221 (Cardiac Valve and Other Major Cardiothoracic
Procedures without Cardiac Catheterization with MCC, with CC, and
without CC/MCC, respectively) to MS-DRGs 216, 217, and 218 (Cardiac
Valve and Other Major Cardiothoracic Procedures with Cardiac
Catheterization with MCC, with CC, and without CC/MCC, respectively).
The requestor, the manufacturer of the ThoraflexTM
Hybrid device (also known as the Terumo Aortic Hybrid device), stated
that hospital resource utilization for cases involving the
ThoraflexTM Hybrid device is significantly higher compared
to all cases in MS-DRGs 216, 217, 218, 219, 220, and 221, creating
substantial financial loss for the hospitals that offer this
technology. The ThoraflexTM Hybrid device is a dual-purpose
medical device that replaces the ascending aorta and aortic arch while
also stabilizing and repairing the descending thoracic aorta in a
single procedure. It is indicated for the open surgical repair or
replacement of damaged or diseased vessels of the aortic arch and
descending aorta with or without involvement of the ascending aorta in
cases of aneurysm and/or dissection. According to the requestor, when
the ThoraflexTM Hybrid device is implanted within the aorta,
it creates a channel for the blood to bypass the damaged or diseased
part of the vessel and keep flowing as the graft and stented sections
of the implant replace the parts of the aorta that are not working
properly.
The requestor stated that aortic pathologies such as aneurysms and
dissections that involve the aortic arch and descending thoracic aorta
continue to present surgical challenges and carry risks such as stroke,
cerebral malperfusion, paralysis, and renal malperfusion. These risks
must be mitigated by intense and patient specific goal-oriented care.
According to the requestor, hospitals treating aortic arch pathologies
must be able to deploy rapid neurology, neurosurgery, and nephrology
all within hours to ensure a good patient outcome. According to the
requestor, all these attributes attest to the difficulty and complexity
of thoracic aortic arch replacement combined with restriction of the
descending thoracic aorta and care of the patient.
The requestor identified cases reporting thoracic aortic arch
replacement combined with restriction of the descending thoracic aorta
by the presence of ICD-10-PCS code X2RX0N7 (Replacement of thoracic
aorta, arch using branched synthetic substitute with intraluminal
device, open approach, new technology group 7) in combination with
X2VW0N7 (Restriction of thoracic aorta, descending using branched
synthetic substitute with intraluminal device, open approach, new
technology group 7) on the same claim and performed its own analysis of
the claims data. The requestor stated they found that while the volume
of cases reporting thoracic aortic arch replacement combined with
restriction of the descending thoracic aorta is <1% of total volume in
MS-DRGs 216, 217, 218, 219, 220, and 221, the average costs and average
lengths of stay of these cases are significantly greater than all other
cases in MS-DRG 216.
As discussed in the proposed rule, in analyzing this request, we
noted the requestor is correct that the following ICD-10-PCS codes
specifically describe procedures involving the ThoraflexTM
Hybrid device: X2RX0N7 (Replacement of thoracic aorta arch with
branched synthetic substitute with intraluminal device, new technology
group 7) in combination with X2VW0N7 (Restriction of thoracic
descending aorta with branched synthetic substitute with intraluminal
device, new technology group 7). We stated the requestor is also
correct that procedure codes X2RX0N7 and X2VW0N7 are assigned to MS-
DRGs 216, 217, 218, 219, 220, and 221. We refer the reader to the ICD-
10 MS-DRG Definitions Manual Version 42.1, which is available on the
CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, for complete documentation of the GROUPER logic for MS-DRGs
216, 217, 218, 219, 220, and 221. The ThoraflexTM Hybrid
device was approved for new technology add-on payments for FY 2023 (87
FR 48974 through 48976), FY 2024 (88 FR 58800), and FY 2025 (89 FR
69124). We refer readers to section II.E.5 of the preamble of this FY
2026 IPPS/LTCH PPS final rule for a discussion regarding the FY 2026
status of technologies approved for FY 2025 new technology add-on
payments, including the ThoraflexTM Hybrid device.
To explore mechanisms to address this request and to understand the
resource use for the subset of cases reporting procedure codes X2RX0N7
and X2VW0N7, we stated in the proposed rule that we began our analysis
by examining claims data from the September 2024 update of the FY 2024
MedPAR file for cases reporting the procedure code combination
describing thoracic aortic arch replacement combined with restriction
of the descending thoracic aorta assigned to MS-DRGs 216, 217, 218,
219, 220, and 221. Our findings are shown in the following table:
[[Page 36600]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.087
As shown in the table, the data analysis performed indicates that
the 20 cases in MS-DRG 216 reporting procedure codes X2RX0N7 and
X2VW0N7 have an average length of stay that is longer than the average
length of stay for all the cases in MS-DRG 216 (23 days versus 13.6
days) and higher average costs when compared to all the cases in MS-DRG
216 ($158,920 versus $88,193). The difference in average costs is
$70,727 ($158,920-$88,193 = $70,727) for the cases reporting procedure
codes X2RX0N7 and X2VW0N7 in MS-DRG 216 when compared to all the cases
in MS-DRG 216. In MS-DRG 217, the 2 cases reporting procedure codes
X2RX0N7 and X2VW0N7 have an average length of stay that is longer than
the average length of stay for all the cases in MS-DRG 217 (21.5 days
versus 6.8 days) and higher average costs when compared to all the
cases in MS-DRG 217 ($160,014 versus $59,943). The difference in
average costs is $100,071 ($160,014-$59,943 = $100,071) for the cases
reporting procedure codes X2RX0N7 and X2VW0N7 in MS-DRG 217 when
compared to all the cases in MS-DRG 217. In MS-DRG 218, there were zero
cases reporting procedure codes X2RX0N7 and X2VW0N7.
The 61 cases in MS-DRG 219 reporting procedure codes X2RX0N7 and
X2VW0N7 have an average length of stay that is longer than the average
length of stay for all the cases in MS-DRG 219 (16.9 days versus 10
days) and higher average costs when compared to all the cases in MS-DRG
219 ($154,134 versus $69,728). The difference in average costs is
$84,406 ($154,134-$69,728 = $84,406) for the cases reporting procedure
codes X2RX0N7 and X2VW0N7 in MS-DRG 219 when compared to all the cases
in MS-DRG 219. In MS-DRG 220, the 14 cases reporting procedure codes
X2RX0N7 and X2VW0N7 have an average length of stay that is longer than
the average length of stay for all the cases in MS-DRG 220 (8.9 days
versus 6.2 days) and higher average costs when compared to all the
cases in MS-DRG 220 ($84,004 versus $49,514). The difference in average
costs is $34,490 ($84,004-$49,514 = $34,490) for the cases reporting
procedure codes X2RX0N7 and X2VW0N7 in MS-DRG 220 when compared to all
the cases in MS-DRG 220. In MS-DRG 221, the one case reporting
procedure codes X2RX0N7 and X2VW0N7 has a length of stay that is
shorter than the average length of stay for all the cases in MS-DRG 221
(3 days versus 3.6 days) and higher average costs when compared to all
the cases in MS-DRG 221 ($97,825 versus $46,900). The difference in
average costs is $50,925 ($97,825-$46,900 = $50,925) for the cases
reporting procedure codes X2RX0N7 and X2VW0N7 in MS-DRG 221 when
compared to all the cases in MS-DRG 221.
In the proposed rule, we stated we reviewed these data and noted
the average costs of the 98 cases reporting the procedure code
combination describing thoracic aortic arch replacement combined with
restriction of the descending thoracic aorta are higher when compared
to the average costs of all cases in MS-DRGs 216, 217, 218, 219, 220,
and 221. The difference in average costs of the 98 cases reporting the
procedure code combination describing thoracic aortic arch replacement
combined with restriction of the descending thoracic aorta is $56,445
($144,638-$88,193 = $56,445) for the cases reporting procedure codes
X2RX0N7 and X2VW0N7 when compared to all the cases in MS-DRG 216, which
is the highest severity level ``with MCC'' MS-DRG. We reviewed these
data and stated we do not believe that proposing to reassign all cases
reporting the procedure code combination describing thoracic aortic
arch replacement combined with restriction of the descending thoracic
aorta to MS-DRGs 216, 217, and 218, even if there is no cardiac
catheterization procedure reported and no secondary diagnosis
designated as an MCC reported, would fully address the difference in
resource utilization in these cases as the average costs of the cases
reporting procedure codes X2RX0N7 and X2VW0N7 are much higher when
compared to all the cases in MS-DRG 216. Accordingly, we stated we do
not believe the data adequately supports a potential reassignment of
these cases to MS-DRGs 216, 217, and 218, respectively.
We also stated we do not believe that the small subset cases that
report the procedure code combination describing thoracic aortic arch
replacement combined with restriction of the descending thoracic aorta
warrants the creation of a new MS-DRG at this time. As stated in prior
rulemaking, the MS-DRGs are a classification system intended to group
together diagnoses and procedures with similar clinical characteristics
and utilization of resources. We generally seek to identify
sufficiently large sets of claims data with a resource/cost similarity
and clinical similarity in developing diagnosis related groups rather
than smaller subsets. Moreover, as stated in prior rulemaking (85 FR
58472), we have concerns regarding making proposed MS-DRG changes based
on a specific, single technology (the ThoraflexTM Hybrid
device) identified by only one unique procedure code combination versus
considering proposed changes based on a group of related procedure
codes that can be reported to describe the same type or class of
technology, which is more consistent with the intent of the MS-DRGs.
[[Page 36601]]
To explore other mechanisms to address this request, we then
reexamined the separate but related request discussed previously to
reassign cases reporting procedure codes describing endovascular
restriction of the thoracic aorta with a branched or fenestrated
intraluminal device and cases reporting other complex aortic arch
procedures. In examining these requests, we noted in the proposed rule
that the first requestor suggested that CMS reassign cases reporting
procedure codes describing endovascular restriction of the thoracic
aorta with a branched or fenestrated intraluminal device from MS-DRGs
219, 220, and 221 to MS-DRG 216 and the second requestor suggested that
CMS reassign cases reporting the procedure code combination describing
thoracic aortic arch replacement combined with restriction of the
descending thoracic aorta without a procedure code describing the
performance of a cardiac catheterization from MS-DRGs 219, 220, and 221
to MS-DRGs 216, 217, and 218 for FY 2026. As discussed in prior
rulemaking (86 FR 44830, 87 FR 48847, and 88 FR 58683), MS-DRGs 216,
217, and 218 are defined by the performance of cardiac catheterization.
We stated we are concerned about the effect on clinical coherence of
assigning cases that do not also have a cardiac catheterization
procedure reported to MS-DRGs that are defined by the performance of
that procedure.
However, we stated that in our examination of both requests, the
data analysis indicates that the average costs of these complex aortic
arch procedures, such as the cases reporting procedure codes describing
endovascular restriction of the thoracic aorta with a branched or
fenestrated intraluminal device, the cases reporting the procedure code
combination describing thoracic aortic arch replacement combined with
restriction of the descending thoracic aorta, and the cases reporting
other complex aortic arch procedures, are higher when compared to the
average costs of all cases in MS-DRGs 216, 217, 218, 219, 220, and 221.
Analysis of the claims data also suggests that these cases reporting
complex aortic arch procedures are associated with increased hospital
resource utilization.
We reviewed these data and noted in the proposed rule that,
clinically, aortic arch pathologies are serious clinical conditions
associated with an increased likelihood of death but also the potential
for significant functional limitations. The aortic arch is the segment
of the aorta that helps distribute blood to the head and upper
extremities via the brachiocephalic trunk, the left common carotid, and
the left subclavian artery. The aortic arch also plays a role in blood
pressure homeostasis via baroreceptors found within the walls of the
aortic arch that help prevent quick, drastic changes in blood pressure.
Aortic aneurysms and aortic dissection that involve the aortic arch are
associated with extremely high mortality and morbidity and the data
analysis clearly shows that cases reporting complex aortic arch
procedures have higher average costs and generally longer lengths of
stay compared to all the cases in their assigned MS-DRG.
Therefore, based on our review of the clinical issues and the
claims data, we proposed to create a new MS-DRG to better differentiate
these complex aortic arch procedures from other cases in their
respective MS-DRGs, based on treatment difficulty, clinical similarity,
and resource use. To compare and analyze the impact of our suggested
modifications, we ran a simulation using the claims data from the
September 2024 update of the FY 2024 MedPAR file.
[GRAPHIC] [TIFF OMITTED] TR04AU25.088
For the cases reporting complex aortic arch procedures, we
identified a total of 300 cases using the claims data from the
September 2024 update of the FY 2024 MedPAR file, so the criterion that
there are at least 500 or more cases in each subgroup could not be met.
Therefore, we did not propose to subdivide the proposed new MS-DRG for
complex aortic arch procedures into severity levels.
In summary, for FY 2026, taking into consideration that it
clinically requires greater resources to perform complex aortic arch
procedures, we proposed to create a new base MS-DRG for cases reporting
complex aortic arch procedures in MDC 05. The proposed new MS-DRG is
proposed new MS-DRG 209 (Complex Aortic Arch Procedures). We refer the
reader to Table 6P.5a associated with the FY 2026 IPPS/LTCH PPS
proposed rule (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for the list of
procedure codes we proposed to define in the logic for the proposed new
MS-DRG. We note that the surgical hierarchy for the proposed
modification is discussed in section II.C.10. of the preamble of the FY
2026 IPPS/LTCH PPS proposed rule.
Comment: Many commenters expressed support for the proposal to
create new base MS-DRG 209 for cases reporting complex aortic arch
procedures in MDC 05. Commenters stated that the creation of MS-DRG 209
would ensure better alignment with resource use and clinical needs,
allowing appropriate payment and improved access to care for patients
undergoing these complex surgeries. Several commenters agreed patients
undergoing complex aortic arch procedures reflect a complex patient
population that require increased resource utilization associated with
their care. A commenter stated that the new MS-DRG would account for
new technologies, resulting in a more tailored and appropriate payment
to providers, which will inevitably result in better patient care and
wider access to these complex aortic arch procedures. Another commenter
specifically stated they appreciate the creation of the new MS-DRG and
stated the proposed placement of MS-DRG 209 in the surgical hierarchy
of MDC 05 will ensure that this group of complex patients will be
clinically coherent and will appropriately account for the increased
resource use and complexity required to care for them.
Response: We appreciate the commenters' support.
Comment: Another commenter disagreed with the proposal to create
new MS-DRG 209 for cases reporting complex aortic arch procedures in
MDC 05 and suggested that CMS delay the creation of the new MS-DRG to
allow more time to analyze cost and length of stay data. This commenter
stated that the current volume of cases is too small to justify a new
MS-DRG and stated that more data is needed to assess the impact of
concomitant comorbidities on resource use. While acknowledging that
aortic arch repair procedures can be resource-intensive, the commenter
[[Page 36602]]
asserted that the impact of other concomitant comorbidities in
exacerbating resource use has not adequately been assessed, and these
cases should be more thoroughly evaluated before establishing a new MS-
DRG. This commenter performed their own analysis and stated that they
found that cases reporting a diagnosis of atrial fibrillation with
procedure codes describing complex aortic arch procedures have higher
average costs and longer average lengths of stay. The commenter stated
that the disparity of resource use for complex aortic procedures may
partially be due to the presence of comorbid diagnoses, such as atrial
fibrillation, and should be evaluated in further detail. Lastly, the
commenter expressed concern that the new MS-DRG could negatively affect
the surgical hierarchy in MDC 05, particularly with regard to MS-DRG
212 (Concomitant Aortic and Mitral Valve Procedures). Specifically, the
commenter noted that for FY 2026, CMS proposed to place new MS-DRG 209
in the highest position in the proposed Version 43 surgical hierarchy
for MDC 05, ahead of MS-DRG 212. The commenter stated that MS-DRG 212
is defined by the performance of three cardiac procedures and asserted
the complexity of performing three cardiac procedures is significant
and should be reflected in the surgical hierarchy.
Response: We thank the commenter for their feedback and for sharing
their concerns. In response to the suggestion that CMS delay
implementation of proposed new MS-DRG 209 for complex aortic arch
procedures, we reviewed the commenters' concern and do not agree that a
delay is necessary or appropriate. As stated earlier, the data analysis
clearly shows that when performed, complex aortic arch procedures are
clinically different when compared to all cases in MS-DRGs 216, 217,
218, 219, 220, and 221 in terms of technical complexity and hospital
resource use. For these reasons, we proposed to create a new MS-DRG for
cases reporting complex aortic arch procedures. We continue to believe
that a new base MS-DRG in MDC 05 will better differentiate these cases
reporting complex aortic arch procedures from other cases in their
currently assigned MS-DRGs.
In response to the commenters' concern that the disparity of
resource use for complex aortic procedures may partially be due to the
presence of comorbid diagnoses and therefore should be evaluated in
further detail, as discussed in the proposed rule and earlier in this
section, our data analysis indicated that the average costs of the
cases reporting procedure codes describing endovascular restriction of
the thoracic aorta with a branched or fenestrated intraluminal device,
the cases reporting the procedure code combination describing thoracic
aortic arch replacement combined with restriction of the descending
thoracic aorta, and the cases reporting other complex aortic arch
procedures are generally higher when compared to the average costs of
all cases in MS-DRGs 216, 217, 218, 219, 220, and 221. Specifically,
most of these cases have average costs that are higher than the average
costs of all cases in MS-DRG 216, which is the highest severity level
``with MCC'' MS-DRG. For the cases reporting these complex aortic arch
procedures, we identified a total of 300 cases using the claims data
from the September 2024 update of the FY 2024 MedPAR file, so the
criterion that there are at least 500 or more cases in each subgroup
could not be met. Therefore, we did not propose to subdivide the
proposed new MS DRG for complex aortic arch procedures into severity
levels for FY 2026. We believe that over time the volume of cases
reporting complex aortic arch procedures in MS-DRG 209 may increase and
we could consider subdividing the proposed new MS DRG for complex
aortic arch procedures into severity levels in the future.
In response to the concern regarding the surgical hierarchy for MDC
05, we continue to believe our proposed revisions to the surgical
hierarchy account for the resources expended to address these complex
procedures and do not believe any modifications are warranted at this
time. We believe the sequencing as discussed in the proposed rule
appropriately reflects resource utilization when the assigned cardiac
procedures are performed and will result in the most suitable MS-DRG
assignments. We will continue to review the surgical hierarchy,
consistent with our annual rulemaking, to determine if other
modifications are warranted in the future.
Comment: A commenter (the manufacturer of the GORE[supreg]
TAG[supreg] TBE) stated they reviewed the ICD-10-PCS classification for
other procedure code combinations that would describe a ``complex
aortic arch procedure'' by reporting a procedure code reporting the
endovascular restriction of the thoracic aorta with a branched or
fenestrated intraluminal device with an ICD-10-PCS code describing a
Zone 0 (innominate artery), Zone 1 (left common carotid), or Zone 2
(left subclavian artery) aortic arch procedure to ensure continued
access to care for Medicare beneficiaries undergoing this treatment and
better alignment of resource use, costs, and clinical complexity of
these aortic arch procedures. This commenter identified the following
nine ICD-10-PCS codes and requested that these codes be added to
definition (logic) of new MS-DRG 209 when reported with code 02VX3EZ
(Restriction of thoracic aorta, ascending/arch with branched or
fenestrated intraluminal device, one or two arteries, percutaneous
approach).
[GRAPHIC] [TIFF OMITTED] TR04AU25.089
Response: We appreciate the commenters' feedback. As discussed
previously and in the proposed rule, Zone 0 of the aortic arch is in
the ascending aorta, proximal to the brachiocephalic artery and Zone 1
covers the portion of the aortic arch between the brachiocephalic
artery and the left common carotid artery. We note
[[Page 36603]]
that Zone 2 of the aortic arch refers to the segment of the aortic arch
located between the left common carotid artery and the left subclavian
artery. This zone is a common location for aortic tears, aneurysms, and
dissections and is a critical area for surgical and endovascular
interventions. We agree with the commenter that the nine ICD-10-PCS
codes as reflected in the previous table describe Zone 0, Zone 1, or
Zone 2 aortic arch procedures, and when reported with code 02VX3EZ
(Restriction of thoracic aorta, ascending/arch with branched or
fenestrated intraluminal device, one or two arteries, percutaneous
approach), would describe complex aortic arch procedures and should be
added to the list of ICD-10-PCS procedure codes in the logic for
assignment of cases for the proposed new MS-DRG that describe complex
aortic arch procedures when reported with code 02VX3EZ.
During our review of this issue, we further examined the GROUPER
logic that would determine assignment of a case to proposed new MS-DRG
209. Specifically, we reviewed the ICD-10-PCS classification to
determine if there were other ICD-10-PCS codes describing Zone 0, Zone
1 or Zone 2 aortic arch procedures that could describe complex aortic
arch procedures when reported with code 02VX3EZ that were inadvertently
not listed in the proposed GROUPER logic for MS-DRG 209. We identified
the following 11 procedure codes.
[GRAPHIC] [TIFF OMITTED] TR04AU25.090
We reviewed the 11 ICD-10-PCS codes as reflected in the previous
table and note that when reported with code 02VX3EZ (Restriction of
thoracic aorta, ascending/arch with branched or fenestrated
intraluminal device, one or two arteries, percutaneous approach), these
procedure code combinations also describe complex aortic arch
procedures. As these procedure code combinations also describe complex
aortic arch procedures, we believe these 11 ICD-10-PCS procedure codes
should also be added to the list of ICD-10-PCS procedure codes that
describe complex aortic arch procedures when reported with code 02VX3EZ
in the logic for assignment of cases for proposed new MS-DRG 209.
Therefore, after consideration of the public comments received, and
for the reasons discussed, we are finalizing our proposal to create new
MS-DRG 209 (Complex Aortic Arch Procedures), with modification,
effective October 1, 2025, for FY 2026. Specifically, we are adding the
20 ICD-10-PCS codes listed previously to the list of procedure codes
that describe other complex aortic arch procedures when reported with
ICD-10-PCS code 02VX3EZ in the logic for the new MS-DRG 209. Conforming
changes to the GROUPER logic are also are shown in Table 6P.5a
associated with this final rule and available on the CMS website at
https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps and also as reflected in the final version of ICD-10 MS-
DRG Definitions Manual, version 43, available in association with this
final rule and available via the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. We note that discussion of the
surgical hierarchy for the finalized modification is discussed in
section II.C.10. of the preamble of this FY 2026 IPPS/LTCH PPS final
rule.
Comment: A commenter noted that a code proposal requesting new
procedure codes to identify bypass procedures from the innominate
artery to a subclavian artery or an axillary artery was displayed in
association with the Spring 2025 ICD-10 Coordination and Maintenance
Committee Update. The commenter suggested that any new procedure codes
finalized in association with the Spring 2025 ICD-10 Coordination and
Maintenance Committee Update that identify bypass procedures from the
innominate artery to a subclavian artery or an axillary artery should
be assigned to the GROUPER logic of MS-DRG 209 when coded with
procedure code 02VX3EZ, as these procedure code combinations would
describe ``complex aortic arch procedures'' as well.
Response: We thank the commenter for their feedback. We note that
the proposal requesting new procedure codes to identify bypass
procedures from the innominate artery to a subclavian artery or an
axillary artery that was displayed in association with the Spring 2025
ICD-10 Coordination and Maintenance Committee Update was approved and
five new procedure codes to identify bypass procedures from the
innominate artery to a subclavian artery or an axillary artery were
finalized as reflected in the FY 2026 ICD-10-PCS Code Update files that
were made publicly available on the CMS website at https://www.cms.gov/Medicare/Coding/ICD10 on June 6, 2025. We note that the new procedure
codes are also reflected in Table 6B.--New Procedure Codes, in
association with this final rule and available on the CMS website at
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS, including the MS-DRG assignments for these new codes
for FY 2026.
We agree that when coded with procedure code 02VX3EZ, these
procedure code combinations would also describe complex aortic arch
procedures and therefore should be assigned to new MS-DRG 209 along
with other procedure codes describing complex aortic arch procedures.
As reflected in Table 6B.--New Procedure Codes in association with this
final rule, we note that the five procedure codes describing bypass
procedures from the innominate artery to a subclavian artery or an
axillary artery are assigned to new MDC 05 MS-DRG 209 and MS-DRGs
[[Page 36604]]
252, 253, and 254 (Other Vascular Procedures with MCC, with CC, and
without CC/MCC, respectively) for FY 2026. This assignment is reflected
in the final V43 GROUPER logic. We refer the reader to section II.C.13.
of the preamble of this final rule for further information regarding
the table.
f. Deep Vein Thrombophlebitis
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18047), we stated
that consistent with our annual review of the MS-DRGs, we consider
changes in resource consumption, treatment patterns, technology, and
any other factors that may change the relative use of hospital
resources. We noted that in our review of the claims data from the
September 2024 update of the FY 2024 MedPAR file, we identified a low
volume of cases for MS-DRGs 294 and 295 (Deep Vein Thrombophlebitis
with CC/MCC and without CC/MCC, respectively). Our findings are shown
in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.091
A deep vein thrombophlebitis (DVT) is a blood clot that forms in
one of the deep veins of the body, most commonly occurring in the veins
of the pelvis, calf, or thigh. The 35 ICD-10-CM diagnosis codes
describing deep vein thrombophlebitis currently assigned to MS-DRGs 294
and 295 are shown in the following table.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR04AU25.147
BILLING CODE 4120-01-C
In light of the initial findings of only 146 cases for MS-DRG 294
and zero cases in MS-DRG 295, we further reviewed the MedPAR claims
data for cases assigned to MS-DRGs 294 and 295 for the past 5 fiscal
years. As reflected in the following tables, the data indicate that the
number of cases grouping to MS-DRGs 294 and 295 has declined.
[[Page 36605]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.092
[GRAPHIC] [TIFF OMITTED] TR04AU25.093
We noted in the proposed rule that, if, during our annual MS-DRG
analysis we identify that there are only a few patients in a respective
MS-DRG, consistent with our established process in deciding whether to
propose to make further modifications, we consider if there have been
potential changes in the clinical characteristics of the patients,
treatment patterns, or resource utilization. A principle of the MS-DRGs
and the characteristics of a meaningful DRG classification scheme is
the ability to detect such changes and accordingly, propose clinically
appropriate modifications that are also consistent with resource
utilization. We have noted in prior rulemaking that we prefer to have a
substantial number of cases in an MS-DRG because having larger clinical
cohesive groups within an MS-DRG provides greater stability for annual
updates to the relative payment weights. In light of these
considerations, and the low volume of cases in MS-DRGs 294 and 295, we
believed it was appropriate to further analyze how to potentially
reclassify these cases.
Accordingly, using the September 2024 update of the FY 2024 MedPAR
file, we examined whether there were other MS-DRGs to which these cases
could appropriately be reassigned. As part of this analysis, we also
reviewed the base DRG by severity claims data for MS-DRG 294 because
the MS-DRG includes cases reporting an MCC as well as cases reporting a
CC. As previously noted, there were zero cases identified in MS-DRG
295, which would only consist of NonCC cases. Therefore, we analyzed
the claims data to determine the number of cases, the average length of
stay, and average costs for the 146 cases in MS-DRG 294 by severity
level (1=MCC and 2=CC). Our findings are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.094
We note that medical MS-DRGs 299, 300, and 301 (Peripheral Vascular
Disorders with MCC, with CC, and without CC/MCC, respectively) also
include diagnoses describing other types of phlebitis and
thrombophlebitis in the logic for case assignment, consistent with the
diagnosis codes in the logic for case assignment to MS-DRGs 294 and
295. As such, we reviewed the claims data from the September 2024
update of the FY 2024 MedPAR file for MS-DRGs 299, 300, and 301 to
examine the resource utilization associated with cases assigned to
these MS-DRGs. Our findings are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.095
As shown in the data, the 45 cases reporting an MCC in MS-DRG 294
have an average length of stay of 5.4 days with average costs of
$14,085, which is comparable to the cases in MS-DRG 299 reporting an
MCC that have an average length of stay of 5.5 days with average costs
of $14,742. The 101 cases reporting a CC in MS-DRG 294 have an average
length of stay of 3.5 days with average costs of $9,348, which is
comparable to the cases in MS-DRG 300 reporting an CC that have an
average length of stay of 3.9 days with average costs of $9,757.
We stated in the proposed rule that based on our analysis and
review of the cases grouping to MS-DRGs 294 and 295, we believed it is
appropriate to delete these MS-DRGs and reassign the cases currently
assigned to MS-DRGs 294 and 295 to MS-DRGs 299, 300, and 301, which are
clinically consistent and also align with the resource utilization for
these cases. Accordingly, for FY 2026, we proposed to delete MS-DRGs
294 and 295 and reassign the previously listed 35 diagnosis codes
describing deep vein thrombophlebitis to MS-DRGs 299, 300, and 301. We
refer the reader to the ICD-10 MS-DRG Version 42.1 Definitions Manual
(which is available via the internet on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software for complete
documentation of the
[[Page 36606]]
GROUPER logic for MS-DRGs 299, 300, and 301.
Comment: Several commenters supported the proposal to delete MS-
DRGs 294 and 295 and reassign the previously listed 35 diagnosis codes
describing deep vein thrombophlebitis to MS-DRGs 299, 300, and 301.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing, without modification, our proposal to delete MS-DRGs 294
and 295 and reassign the 35 diagnosis codes describing deep vein
thrombophlebitis listed previously that are currently assigned to MS-
DRGs 294 and 295 to MS-DRGs 299, 300, and 301 for FY 2026.
5. MDC 08 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue)
a. Hip or Knee Procedures With Periprosthetic Joint Infection
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18049 through
18052), we discussed a request we received to reassign cases reporting
a hip or knee procedure with a principal diagnosis of periprosthetic
joint infection (PJI) from the lower severity level ``without CC/MCC''
MS-DRG to the higher severity level ``with CC'' MS-DRG when there is no
major complication or comorbidity (MCC) or complication or comorbidity
(CC) reported. According to the requestor, PJI is a devastating
healthcare condition that occurs in one percent to two percent (1% to
2%) of primary joint replacements.\10\ PJI is also the primary cause
for revision arthroplasty in most developed markets. The requestor
stated that patients undergoing revision for PJI experience higher
mortality rates ranging from 0.8 to 4 percent at 1 year and 12.9 to
25.9 percent at 5 years following revision surgery.
---------------------------------------------------------------------------
\10\ Corvec S, Portillo ME, Pasticci BM, Borens O, Trampuz A.
Epidemiology and new developments in the diagnosis of prosthetic
joint infection. Int J Artif Organs 2012;35:923-934.
---------------------------------------------------------------------------
According to the requestor, management of PJI requires complex
treatment strategies including multiple surgical revisions and long-
term antimicrobial treatment, leading to substantially higher costs
versus aseptic revision arthroplasty. The requestor asserted that when
missed or undertreated, PJI leads to persistence of infection and
multiple surgical revisions causing poor function or disability,
considerably impairing quality of life.
The requestor stated that current treatment options for PJI include
chronic suppressive antibiotics; debridement, antibiotics, and implant
retention (DAIR); one-stage revision; two-stage revision; and
amputation. According to the requestor, regardless of the treatment
option selected for the knee or hip, the presence of PJI as the
principal diagnosis appears to significantly increase the length of
stay and the resource utilization of these cases in comparison to all
other cases assigned to the respective MS-DRGs.
Using the FY 2023 MedPAR file that informed FY 2025 rulemaking, the
requestor stated it performed its own analysis of cases reporting PJI
as the principal diagnosis. The requestor provided the following list
of ICD-10-CM diagnosis codes it used to identify the presence of a PJI
in the hip or knee joint.
[GRAPHIC] [TIFF OMITTED] TR04AU25.096
The requestor stated that cases involving the DAIR procedure are
commonly assigned to MS-DRGs 463, 464, and 465 (Wound Debridement and
Skin Graft Except Hand for Musculoskeletal and Connective Tissue
Disorders with MCC, with CC, and without CC/MCC, respectively), MS-DRGs
480, 481, and 482 (Hip and Femur Procedures Except Major Joint with
MCC, with CC, and without CC/MCC, respectively) or MS-DRG 485, 486, and
487 (Knee Procedures with Principal Diagnosis of Infection with MCC,
with CC, and without CC/MCC, respectively). According to the requestor,
in each of the scenarios reviewed, the average cost and average length
of stay for cases with a principal diagnosis of PJI that grouped to the
``with CC'' or ``without CC/MCC'' MS-DRG are similar or higher and
longer than the other cases assigned to the same MS-DRGs.
The requestor also stated that one-stage hip or knee revision
procedures are typically assigned to MS-DRGs 466, 467, and 468 and the
findings from their analysis showed the presence of a PJI as the
principal diagnosis with a hip or knee revision procedure show a longer
length of stay and a similar or higher average cost than for the other
aseptic revision arthroplasties.
In addition, the requestor stated that its analysis of cases
reporting PJI with the last treatment option, amputation, assigned to
MS-DRGs 474, 475, and 476 (Amputation for Musculoskeletal System and
Connective Tissue Disorders with MCC, with CC, and without CC/MCC,
respectively) also showed a longer average length of stay and higher
average costs compared to all other non-PJI cases in MS-DRGs 474, 475,
and 476, further supporting the request to reassign cases to the ``with
CC'' severity level MS-DRG.
In summary, the requestor specifically recommended the following
modifications to the listed MS-DRGs for cases reporting a hip or knee
procedure with a principal diagnosis of PJI:
[[Page 36607]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.097
We reviewed claims data from the September 2024 update of the FY
2024 MedPAR file for MS-DRGs 463, 464, 465, 466, 467, 468, 474, 475,
476, 480, 481, 482, 485, 486, and 487 and for cases reporting a
principal diagnosis of PJI with a hip or knee procedure. We refer the
reader to Table 6P. 6a that was made publicly available in association
with the proposed rule and is available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps for
the list of diagnosis codes we analyzed to identify a PJI and for the
list of procedure codes we analyzed from the previously listed MS-DRGs
to identify a hip or knee procedure. Findings from our analysis are
shown in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.098
The findings show that the cases reporting a PJI with a hip or knee
procedure in MS-DRGs 466, 467, and 468 have a slightly longer average
length of stay and lower average costs compared to the average length
of stay and average costs of all the cases in their respective MS-DRGs.
Therefore, because the resource utilization of these cases is generally
comparable to all the cases in their respective MS-DRGs, we believe the
cases reporting a PJI in MS-DRGs 466, 467, and 468 appear to be
grouping appropriately in their current MS-DRG assignment.
The findings show that for the cases reporting a PJI with a hip or
knee procedure in MS-DRGs 463, 464, 465, 474, 475, 476, 485, 486, and
487, the average length of stay is comparable to the average length of
stay of all the cases in their respective MS-DRGs, however, the average
length of stay for the cases reporting a PJI with a hip or knee
procedure in MS-DRGs 480, 481, and 482 are notably longer compared to
the average length of stay of all the cases in their respective MS-
DRGs. Findings from our analysis also show that the average costs of
the cases reporting a PJI with a hip or knee procedure in MS-DRGs 463,
464, 465, 474, 475, 476, 480, 481, and 482 are higher compared to the
average costs of all the cases in their respective MS-DRGs with a
difference in average costs of approximately $5,459 for cases reporting
a PJI with a hip or knee procedure across MS-DRGs 463, 464, and 465, a
difference in average costs of approximately $5,190 for cases reporting
a PJI with a hip or knee procedure across MS-DRGs 474, 475, and 476,
and a difference in average costs of approximately $7,306 for cases
reporting a PJI with a hip or knee procedure across MS-DRGs 480, 481
and 482. However, because MS-DRGs
[[Page 36608]]
485, 486, and 487 currently include a principal diagnosis of infection
in the logic for case assignment to these MS-DRGs, the difference in
average costs for the cases reporting a PJI with a hip or knee
procedure compared to the average costs of all the cases in their
respective MS-DRG is minimal ($2,018, $1,697, and $2,001,
respectively).
We stated in the proposed rule that, based on our review and
analysis of the data, we disagreed with the request to reassign PJI
cases from the lower severity ``without CC/MCC'' level MS-DRG to the
higher severity ``with CC'' level MS-DRG suggested by the requestor as
the average costs of the PJI cases in the ``without CC/MCC'' level are
not comparable and do not align with the average costs of all the cases
at the ``with CC'' level. In addition, our findings show that other
than for MS-DRGs 466, 467, and 468, the cases reporting a PJI with a
hip or knee procedure at the higher ``with CC'' level and the highest
``with MCC'' level have higher average costs compared to all the cases
in their respective MS-DRG. For example, as reflected in the findings
of our analysis for MS-DRGs 463, 464, and 465, if we were to reassign
the 237 cases reporting a PJI with a hip or knee procedure with an
average length of stay of 4.3 days and average costs of $22,689 from
MS-DRG 465 to MS-DRG 464 where we found a total of 5,775 cases with an
average length of stay of 7.3 days and average costs of $26,757, the
1,358 cases reporting a PJI with a hip or knee procedure with an
average length of stay of 7.7 days and average costs of $32,474 in MS-
DRG 464 and the 804 cases reporting a PJI with a hip or knee procedure
with an average length of stay of 13.9 days and average costs of
$50,127 in MS-DRG 463 would continue to not be comparable from a
resource perspective as compared to all the cases in their assigned MS-
DRGs. We stated we believe the data support proposing a new base MS-DRG
for the cases reporting a PJI with a hip or knee procedure in MS-DRGs
463, 464, 465, 474, 475, 476, 480, 481, and 482 to better reflect the
complexity of services, resource utilization, and severity of illness
of these patients.
We stated we applied the criteria to create subgroups in a base MS-
DRG as discussed in section II.C.1.b. of the preamble of the FY 2026
IPPS/LTCH PPS proposed rule and this final rule. We noted that, as
shown in the table that follows, a three-way split of this proposed new
base MS-DRG failed to meet the criterion that at least 500 or more
cases are in the ``without CC/MCC'' subgroup. The following table
illustrates our findings.
[GRAPHIC] [TIFF OMITTED] TR04AU25.099
As discussed in section II.C.1.b. of the preamble of the FY 2026
IPPS/LTCH PPS proposed rule and this final rule, if the criteria for a
three-way split fail, the next step is to determine if the criteria are
satisfied for a two-way split. Therefore, we applied the criteria for a
two-way split for the ``with MCC and without MCC'' subgroups and found
that all five criteria were met. The following table illustrates our
findings.
[GRAPHIC] [TIFF OMITTED] TR04AU25.100
For the proposed new MS-DRGs for cases reporting a PJI with a hip
or knee procedure, there is at least: (1) 500 cases in the MCC subgroup
and 500 cases in the without MCC subgroup; (2) 5 percent of the cases
in the MCC group and 5 percent in the without MCC subgroup; (3) a 20
percent difference in average costs between the MCC group and the
without MCC group; (4) a $2,000 difference in average costs between the
MCC group and the without MCC group; and (5) a 3-percent reduction in
cost variance, indicating that the proposed severity level splits
increase the explanatory power of the base MS-DRG in capturing
differences in expected cost between the proposed MS-DRG severity level
splits by at least 3 percent and thus improve the overall accuracy of
the IPPS payment system.
As a result, for FY 2026, we proposed to create new MS-DRGs 403 and
404 (Hip or Knee Procedures with Principal Diagnosis of Periprosthetic
Joint Infection with MCC and without MCC, respectively). The following
table reflects a simulation of the proposed new MS-DRGs.
[GRAPHIC] [TIFF OMITTED] TR04AU25.101
Comment: Several commenters supported the proposal to create
proposed new MS-DRGs 403 and 404. A commenter stated it was pleased
that CMS is taking note of the resource intensiveness required to
thoroughly treat periprosthetic joint infections (PJI). According to
the commenter, PJIs have become more prevalent in recent years and are
now the leading cause of revision surgery in both Total Knee
Arthroplasty (TKA) and Total Hip Arthroplasty (THA) procedures. The
commenter stated that according to the American Joint Replacement
Registry, PJIs account for over 20 percent of hip revisions and 28
percent of knee revisions annually. The commenter expressed agreement
with CMS' statement in the proposed rule that there are multiple MS-
DRGs to which these cases are assigned dependent on treatment type. The
commenter stated that given the wide variability of cost among the
cases in the MS-DRGs analyzed, they appreciate that CMS proposed to
assign these cases to
[[Page 36609]]
proposed new MS-DRGs based on a principal diagnosis of PJI. The
commenter stated its belief that these proposed new MS-DRGs will
provide more accurate and appropriate payment for the treatment of PJI
commensurate with the complexity of these cases. The commenter also
stated that as this epidemic of PJI is growing, they want to ensure
that individuals facing challenges with treatment of PJI have access to
a quality health care system which is primarily based on a set of
organizational structures to ensure rapid diagnosis and appropriate
treatment, and this proposed change is a significant positive step in
that direction. Another commenter who expressed support for the
proposal recommended that CMS and other stakeholders take caution and
closely monitor these proposed new MS-DRGs if finalized, to observe how
the proposed new structure may alter referral patterns, utilization, or
site of service for unanticipated effects. This commenter also
suggested that CMS identify the party requesting reassignment and
stated that in the interest of transparency in public programs, when
CMS addresses a reclassification request in the annual proposed
rulemakings, it should be clear to the public which parties are
requesting the changes so that stakeholders can take that into account
when commenting to CMS.
Response: We appreciate the commenters' support. In response to the
commenter's recommendation that any finalized policy should continue to
be closely monitored, we thank the commenter for the feedback and note
that we review the MS-DRGs for changes in treatment patterns and
resource utilization on an annual basis. With respect to the request
that CMS identify the party requesting reassignment for transparency,
we will consider this suggestion for future rulemaking.
Comment: A commenter who expressed support for the creation of
proposed new MS-DRGs 403 and 404 stated it encountered inconsistencies
with case volumes when grouping cases using the Version 43 test GROUPER
that was made publicly available in association with the FY 2026 IPPS/
LTCH PPS proposed rule on the CMS website: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. The commenter stated it reviewed CMS'
analysis findings summarized in the proposed rule and the accompanying
After Outliers Removed and Before Outliers Removed (AOR/BOR) file that
shows the case volume and MS-DRG shifts between the Version 42.1
GROUPER and Version 43 test GROUPER and identified differences in case
volume shifts among the MS-DRGs that were analyzed for proposed new MS-
DRGs 403 and 404. The commenter indicated that it was challenging to
understand the rationale for some of the shifts in case volume among
the MS-DRGs when comparing the AOR/BOR file to the proposed rule
findings. The commenter stated it validated that the data appropriately
reflected declining volume in MS-DRGs 463, 464, 465, 474, 475, 476,
480, 481, and 482 as CMS outlined in the analysis as the cases shifted
to proposed new MS-DRGs 403 and 404. The commenter also validated that
CMS' analysis excluded MS-DRGs 485, 486, and 487 and these MS-DRGs
reflected zero cases shifting as CMS outlined in the preamble of the
proposed rule (90 FR 18051) and in the AOR/BOR file that was made
publicly available in association with the proposed rule at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. However, the commenter stated that the AOR/BOR file
shows a decline (that is, shift) in case volume for MS-DRG 466 (243
cases), MS-DRG 467 (406 cases), and MS-DRG 468 (48 cases), resulting in
a total decline of 699 cases while the proposed rule analysis
identified a total of 1,567 cases reporting a principal diagnosis of
PJI with a hip or knee procedure among those MS-DRGs (MS-DRG 466 (460
cases); MS-DRG 467 (947 cases); and MS-DRG 468 (160 cases)). The
commenter also stated that in the proposed rule analysis, CMS noted
that it excluded MS-DRGs 466, 467, and 468 from further consideration
because it believed those cases were grouping appropriately in their
current MS-DRG assignment.
The commenter stated that they reviewed the list of procedure codes
analyzed by CMS, which was made publicly available in Table 6P.6a in
connection with the proposed rule, as well as the list of procedure
codes in the logic for MS-DRGs 466, 467, and 468 included in the Draft
Version 43 ICD-10 MS-DRG Definitions Manual and noted an overlap of
approximately 52 procedure codes. The commenter provided the example of
procedure code 0SRB0EZ (Replacement of left hip joint with articulating
spacer, open approach) and stated this procedure code is included in
both lists. The commenter stated it recognized that logically the
surgical hierarchy would result in the assignment of MS-DRG 403 or 404
versus MS-DRGs 466, 467, or 468, however, the commenter expressed
concern regarding the case shift for 699 of the 1,567 cases from MS-
DRGs 466, 467, and 468 into the proposed new MS-DRGs 403 and 404 and
that the shift was not acknowledged nor explained in the proposed rule.
The commenter stated their belief that the shifts should have been
included within the proposed rule and explained for data transparency.
According to the commenter, the lack of detail in the proposed rule
made it unclear if the cases shifted because of the procedure code
overlap or because of programming within the Version 43 test GROUPER.
The commenter requested CMS provide an explanation for the decline in
case volume among MS-DRGs 466, 467, and 468.
The commenter stated that during its review of the shift in case
volume among MS-DRGs 466, 467, and 468, it identified inconsistencies
in the assignment of cases to proposed new MS-DRGs 403 and 404
utilizing the Version 43 test GROUPER. The commenter provided examples
of eight different test cases that included procedure codes from the
list in Table 6P.6a that was made available in association with the
proposed rule. According to the commenter's review, all eight cases
should have resulted in assignment to the proposed new MS-DRGs 403 and
404; however, using the Version 43 test GROUPER, only four of the test
cases grouped to proposed new MS-DRGs 403 and 404 while the remaining
four test cases grouped to current MS-DRGs 463 or 464. The commenter
stated that proposed new MS-DRGs 403 and 404 are proposed to be
sequenced higher in the surgical hierarchy than existing MS-DRGs 463
and 464, therefore, the commenter requested an explanation regarding
the accuracy of the Version 43 test GROUPER and the impact on the AOR/
BOR file. The commenter requested additional transparency with regard
to the MS-DRG groupings, the Version 43 test GROUPER, and the AOR/BOR
file. Additionally, the commenter stated that if the findings
demonstrate inaccuracies, corrected versions should be made available.
The commenter suggested that for future rulemaking CMS consider
including further insight, rationale and transparency regarding any
shifts in volume that may result from proposed changes to MS-DRG logic.
Response: We appreciate the commenter's support and feedback. The
commenter is correct that there is a redistribution (or shift) in cases
among the MS-DRGs that were analyzed and discussed in the proposed rule
(466, 467, and 468). We note that under the
[[Page 36610]]
GROUPER software program some collections of ICD-10-PCS procedure codes
have a different set of attributes, independent of those of the codes
that make them up (that is, their ``components''). These collections of
ICD-10-PCS procedure codes are called clusters. A routine program in
the GROUPER, upstream of the MS-DRG assignment logic, searches the
claim for clusters. When a cluster is found, it is added to the list of
procedures found on the claim. Clusters may be ``restricted'' by Major
Diagnostic Category (MDC) and a restricted cluster inhibits the use of
its procedure code component attributes for the MDC's MS-DRG assignment
logic. For example, procedure code cluster 0SPC0JZ (Removal of
synthetic substitute from right knee joint, open approach) and 0SRT0JZ
(Replacement of right knee joint, femoral surface with synthetic
substitute, open approach) may be recognized on a claim if both codes
appear (in any order). The reporting of these codes creates a new
procedure code cluster ``@0045''. The cluster @0045 has a different set
of attributes than either code 0SPC0JZ or 0SRT0JZ by itself and is
further ``restricted'' for MDC 08. When the GROUPER logic determines
that the MDC is 08, it ignores the attributes of procedure codes
0SPC0JZ and 0SRT0JZ individually, only using those of @0045. This logic
results in assignment of the claim to MS-DRGs 466, 467, and 468
(Revision of Hip or Knee Replacement with MCC, with CC, and without CC/
MCC, respectively) rather than MS-DRGs 463, 464, and 465 (Wound
Debridement and Skin Graft Except Hand for Musculoskeletal and
Connective Tissue Disorders with MCC, with CC, and without CC/MCC,
respectively). If the principal diagnosis reported is not assigned
under MDC 08, the cluster would not restrict the interpretation of the
component codes and their individual attributes could be relevant as
well as those of @0045.
Following publication of the proposed rule, we identified that the
intended grouping of cases to the proposed new MS-DRGs was impacted
because of these cluster restrictions under MDC 08, therefore we
removed the restrictions and performed additional analysis. As a result
of removing the restrictions, and due to the existing overlapping
procedure code logic among a subset of the MDC 08 MS-DRGs, our analysis
showed that further redistribution of the cases under MDC 08 occurs,
impacting the remaining number of cases in MS-DRGs 466, 467, and 468
and MS-DRGs 485, 486, and 487, such that, those MS-DRGs no longer
satisfy the criteria for a 3-way split. Under our established process
for applying the criteria to create subgroups within a base MS-DRG,
existing MS-DRGs 466, 467, and 468 would be deleted and a new base MS-
DRG for Revision of Hip or Knee Replacement would be established.
Additionally, under this established process, existing MS-DRGs 485,
486, and 487 would be deleted and new MS-DRGs (2-way split) for Knee
Procedures with Principal Diagnosis of Infection with and without MCC,
respectively, would be established. Because these findings were not
identified until after publication of the proposed rule, we believe it
is appropriate to further consider the creation of proposed new MS-DRGs
403 and 404, along with the removal of the MDC 08 restrictions on the
procedure code clusters and the potential implications for existing MS-
DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487, as well as the
creation of new MS-DRGs, in addition to having an updated test Grouper
that reflects these potential changes. We also note that any future
proposed MS-DRG changes may also impact the surgical hierarchy.
After consideration of the public comments we received, and for the
reasons described, we are not finalizing our proposal to create new MS-
DRGs 403 and 404 (Hip or Knee Procedures with Principal Diagnosis of
Periprosthetic Joint Infection with MCC and without MCC, respectively)
for FY 2026. As noted, we may further consider these potential MS-DRG
changes for future rulemaking.
b. Arthroscopy
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18052 through
18054), we stated that consistent with our annual review of the MS-
DRGs, we consider changes in resource consumption, treatment patterns,
technology, and any other factors that may change the relative use of
hospital resources. We noted that in our review of the claims data from
the September 2024 update of the FY 2024 MedPAR file, we identified an
extremely low volume of cases for MS-DRG 509 (Arthroscopy).
Specifically, we found 16 cases with an average length of stay of 5.2
days and average costs of $18,239.
An arthroscopy is a surgical procedure that allows orthopedic
surgeons to see the inside of a joint through a small incision and with
specialized instruments (for example, arthroscope). The ICD-10-PCS
codes describing arthroscopy and currently assigned to MS-DRG 509 are
shown in the following table.
BILLING CODE 4120-01-P
[[Page 36611]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.102
BILLING CODE 4120-01-C
In light of our initial findings of 16 cases for MS-DRG 509, we
further reviewed the MedPAR claims data for cases assigned to MS-DRG
509 for the past 5 fiscal years. As reflected in the following table,
the data indicate that the number of cases grouping to MS-DRG 509 has
steadily declined.
[GRAPHIC] [TIFF OMITTED] TR04AU25.103
[[Page 36612]]
We noted that, if, during our annual MS-DRG analysis we identify
that there are only a few patients in a respective MS-DRG, consistent
with our established process, we consider if there have been potential
changes in the clinical characteristics of the patients, treatment
patterns, or resource utilization. A principle of the MS-DRGs and the
characteristics of a meaningful DRG classification scheme is the
ability to detect such changes and accordingly, propose clinically
appropriate modifications that are also consistent with resource
utilization.
We stated we believe that the volume of cases reporting the
arthroscopy procedures in the inpatient setting has shifted to the
outpatient setting over the years; it is usually performed as an
outpatient procedure. Of the 16 cases found to report an arthroscopy
procedure in the FY 2024 MedPAR data, 13 cases also reported another
procedure. For example, one case that reported procedure code 0RJK4ZZ
(Inspection of left shoulder joint, percutaneous endoscopic approach)
also reported procedure code 0RBK4ZZ (Excision of left shoulder joint,
percutaneous endoscopic approach). Procedure code 0RBK4ZZ is assigned
to MS-DRGs 510, 511, and 512 (Shoulder, Elbow or Forearm Procedures,
Except Major Joint Procedures with MCC, with CC, and without CC/MCC,
respectively). However, because of the surgical hierarchy, the
resulting assignment is MS-DRG 509.
Using the September 2024 update of the FY 2024 MedPAR file, we also
reviewed the base DRG by severity claims data for MS-DRG 509 to
determine the number of cases, average length of stay and average costs
for the 16 cases by severity level (1=MCC, 2=CC and 3=NonCC). Our
findings are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.104
Next, we reviewed the claims data from the September 2024 update of
the FY 2024 MedPAR file for MS-DRGs 510, 511, and 512 (Shoulder, Elbow
or Forearm Procedures, Except Major Joint Procedures with MCC, with CC,
and without CC/MCC, respectively); MS-DRGs 513 and 514 (Hand or Wrist
Procedures, Except Major Thumb or Joint Procedures with CC/MCC and
without CC/MCC, respectively); and MS-DRGs 515, 516, and 517 (Other
Musculoskeletal System and Connective Tissue O.R. Procedures with MCC,
with CC, and without CC/MCC, respectively) because these MS-DRGs are
considered to be clinically appropriate and consistent with the
arthroscopy procedure code descriptions in MS-DRG 509 previously listed
that specify the anatomic site. Our findings are shown in the following
tables.
[GRAPHIC] [TIFF OMITTED] TR04AU25.105
Based on our analysis and review of the cases grouping to MS-DRG
509, we stated that we believe it is appropriate to delete MS-DRG 509
and reassign the 47 procedure codes describing arthroscopy of various
anatomic sites to clinically appropriate MS-DRGs that also align with
the resource utilization for these cases. For example, of the 16 cases
found to group to MS-DRG 509, in addition to identifying 13 cases
reporting additional procedures as previously discussed, we also
identified 11 cases reporting diagnosis codes designated as a CC or MCC
where the average length of stay and average costs of those cases are
comparable with the average length of stay and average costs of the
cases in the MS-DRGs considered clinically appropriate for their
reassignment. Therefore, for FY 2026, of the 47 procedure codes
previously listed describing arthroscopy of various anatomic sites, we
proposed to do the following:
Reassign the 8 procedure codes describing arthroscopy of
the shoulder or elbow joint to MS-DRGs 510, 511, and 512 (Shoulder,
Elbow or Forearm Procedures, Except Major Joint Procedures with MCC,
with CC, and without CC/MCC, respectively).
Reassign the 10 procedure codes describing arthroscopy of
the hand or wrist joint to MS-DRGs 513 and 514 (Hand or Wrist
Procedures, Except Major Thumb or Joint Procedures with CC/MCC and
without CC/MCC, respectively).
Reassign the 29 procedure codes describing arthroscopy of
various vertebral joints and other
[[Page 36613]]
musculoskeletal joints to MS-DRGs 515, 516, and 517 (Other
Musculoskeletal System and Connective Tissue O.R. Procedures with MCC,
with CC, and without CC/MCC, respectively).
We refer the reader to Table 6P.7a made publicly available in
association with the proposed rule and available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps for the detailed list of procedure codes with the
proposed MS-DRG reassignments.
Comment: Commenters supported our proposal to delete MS-DRG 509 and
to reassign the 47 procedure codes describing arthroscopy of various
anatomic sites to the proposed clinically appropriate MS-DRGs.
Response: We thank the commenters for their support.
After consideration of the public comments we received, we are
finalizing, without modification, our proposal to delete MS-DRG 509 and
to reassign the 47 procedure codes describing arthroscopy of various
anatomic sites to clinically appropriate MS-DRGs, as reflected in Table
6P.7a in association with this final rule and available at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.
c. MS-DRG Logic for MS-DRGs 456, 457, and 458
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18054 through 18056), we identified an inconsistency in the GROUPER
logic for MS-DRGs 456, 457, and 458 (Spinal Fusion Except Cervical with
Spinal Curvature, Malignancy, Infection or Extensive Fusions with MCC,
with CC, and without CC/MCC, respectively) related to the ICD-10-CM
diagnosis codes describing a principal diagnosis of infection. The
logic for case assignment to MS-DRGs 456, 457, and 458 as displayed in
the ICD-10 MS-DRG Definitions Manual Version 42.1 (which is available
on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software)
is comprised of four logic lists. The first logic list is titled
``Spinal Fusion Except Cervical'' and is defined by a list of procedure
codes designated as O.R. procedures that describe spinal fusion
procedures of the thoracic, thoracolumbar, lumbar, lumbosacral,
sacrococcygeal, and sacroiliac joint. (We note that 12 procedure codes
describing Fusion of coccygeal joint were deleted effective with
discharges beginning April 1, 2025 in version 42.1). The second logic
list is titled ``Spinal Curvature/Malignancy/Infection'' and is defined
by a list of diagnosis codes describing spinal curvature, spinal
malignancy, and spinal infection that are used to define the logic for
case assignment when any one of the listed diagnosis codes is reported
as the principal diagnosis. The third logic list is titled ``OR
Secondary Diagnosis'' and is defined by a list of diagnosis codes
describing curvature of the spine that are used to define the logic for
case assignment when any one of the listed codes is reported as a
secondary diagnosis. The fourth logic list is titled ``Extensive
Fusions'' and is defined by a list of procedure codes designated as
O.R. procedures that describe extensive spinal fusion procedures. We
refer the reader to the ICD-10 MS-DRG Definitions Manual Version 42.1,
(available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) for complete documentation of the GROUPER logic for MS-
DRGs 456, 457, and 458.
In the second logic list titled ``Spinal Curvature/Malignancy/
Infection'' there are a subset of diagnosis codes describing spinal
infections. We stated in the proposed rule that in our review and
analysis of MS-DRGs 456, 457, and 458, we identified additional
diagnosis codes within the ICD-10-CM classification describing spinal
infections that are not currently listed in the logic for case
assignment to MS-DRGs 456, 457, and 458. Specifically, we identified
the following 47 diagnoses that we believe are clinically appropriate
to add to the existing diagnosis codes describing spinal infections in
MS-DRGs 456, 457, and 458.
BILLING CODE 4120-01-P
[[Page 36614]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.106
BILLING CODE 4120-01-C
Therefore, for clinical consistency and because these codes
describe spinal infections that could reasonably require a spinal
fusion procedure, we proposed to add the previously listed diagnosis
codes to the logic list titled ``Spinal Curvature/Malignancy/
Infection'' in MS-DRGs 456, 457, and 458, effective October 1, 2025 for
FY 2026.
We also identified eight diagnosis codes currently listed in the
second logic list titled ``Spinal Curvature/Malignancy/Infection'' for
case assignment to MS-DRGs 456, 457, and 458 that we believe are not
clinically appropriate to maintain in the list. Specifically, we
identified the following diagnoses.
[[Page 36615]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.107
The previously listed diagnosis codes do not describe a spinal
curvature, malignancy or infection, rather they describe compression
fractures of various anatomic sites (for example, collapsed vertebra)
and osteoporosis is a condition where the bones become weakened leading
to an increased risk of bone fracture. Therefore, for clinical
consistency and to ensure accuracy in the logic for case assignment, we
proposed to remove the eight previously listed diagnosis codes from the
logic list titled ``Spinal Curvature/Malignancy/Infection'' in MS-DRGs
456, 457, and 458, effective October 1, 2025 for FY 2026.
Comment: Commenters supported our proposal to add the previously
listed 47 diagnosis codes to the logic list titled ``Spinal Curvature/
Malignancy/Infection'' in MS-DRGs 456, 457, and 458, and our proposal
to delete the eight previously listed diagnosis codes from the logic
list titled ``Spinal Curvature/Malignancy/Infection'' in MS-DRGs 456,
457, and 458.
Response: We thank the commenters for their support.
After consideration of the public comments we received, we are
finalizing, without modification, our proposal to add the previously
listed 47 diagnosis codes to the logic list titled ``Spinal Curvature/
Malignancy/Infection'' in MS-DRGs 456, 457, and 458, effective October
1, 2025 for FY 2026. We are also finalizing, without modification, our
proposal to remove the eight previously listed diagnosis codes from the
logic list titled ``Spinal Curvature/Malignancy/Infection'' in MS-DRGs
456, 457, and 458, effective October 1, 2025 for FY 2026.
6. Review of Procedure Codes in MS-DRGs 981 Through 983 and 987 Through
989
We annually conduct a review of procedures producing assignment to
MS-DRGs 981 through 983 (Extensive O.R. Procedure Unrelated to
Principal Diagnosis with MCC, with CC, and without CC/MCC,
respectively) or MS-DRGs 987 through 989 (Non-Extensive O.R. Procedure
Unrelated to Principal Diagnosis with MCC, with CC, and without CC/MCC,
respectively) on the basis of volume, by procedure, to see if it would
be appropriate to move cases reporting these procedure codes out of
these MS-DRGs into one of the surgical MS-DRGs for the MDC into which
the principal diagnosis falls. The data are arrayed in two ways for
comparison purposes. We look at a frequency count of each major
operative procedure code. We also compare procedures across MDCs by
volume of procedure codes within each MDC. We use this information to
determine which procedure codes and diagnosis codes to examine.
We identify those procedures occurring in conjunction with certain
principal diagnoses with sufficient frequency to justify adding them to
one of the surgical MS-DRGs for the MDC in which the diagnosis falls.
We also consider whether it would be more appropriate to move the
principal diagnosis codes into the MDC to which the procedure is
currently assigned.
Based on the results of our review of the claims data from the
September 2024 update of the FY 2024 MedPAR file of cases found to
group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989, we
proposed to move the cases reporting the procedures and/or principal
diagnosis codes described in this section of this rule from MS-DRGs 981
through 983 or MS-DRGs 987 through 989 into one of the surgical MS-DRGs
for the MDC into which the principal diagnosis or procedure is
assigned.
a. Control of Bleeding in the Genitourinary Tract
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18056 through 18057), during the review of the cases that group to MS-
DRGs 981 through 983, we noted that when ICD-10-PCS procedure codes
describing the control of bleeding in the genitourinary tract are
reported in conjunction with ICD-10-CM diagnosis codes in MDC 16
(Diseases and Disorders of Blood, Blood Forming Organs, and Immunologic
Disorders), the cases group to MS-DRGs 981 through 983. The five ICD-
10-CM procedure codes reviewed, as well as their current MDC
assignments, are found in the table:
[GRAPHIC] [TIFF OMITTED] TR04AU25.108
We refer the reader to Appendix E of the ICD-10 MS-DRG Version 42.1
Definitions Manual, which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.html, for the MS-DRG assignment for each procedure code
listed and further discussion of how each procedure code may be
assigned to multiple MDCs and MS-DRGs under the IPPS.
The principal diagnosis most frequently reported with the five ICD-
10-PCS procedure codes describing the control of bleeding in the
genitourinary tract in MDC 16 is ICD-10-CM code D68.32 (Hemorrhagic
disorder due to extrinsic circulating anticoagulants). Hemorrhagic
disorder due to extrinsic circulating anticoagulants is a condition
[[Page 36616]]
that occurs when bleeding is caused by anticoagulants or
antithrombotics, which are medicines commonly used to treat or prevent
blood clots by decreasing the amount of clotting proteins in the blood.
As noted in the proposed rule, we examined claims data from the
September 2024 update of the FY 2024 MedPAR file to identify the
average length of stay and average costs for cases reporting a
procedure code describing the control of bleeding in the genitourinary
tract with a principal diagnosis in MDC 16, which are currently
grouping to MS-DRGs 981 through 983, as well as all cases in MS-DRGs
981 through 983. Our findings are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.109
We then examined the MS-DRGs within MDC 16 and determined that the
cases reporting procedure codes describing the control of bleeding in
the genitourinary tract with a principal diagnosis in MDC 16 would most
suitably group to MS-DRGs 802, 803, and 804 (Other O.R. Procedures of
the Blood and Blood Forming Organs with MCC, with CC, and without CC/
MCC, respectively), which contains a group of procedures that are only
infrequently related to the diagnoses in the MDC, but are still
occasionally performed on patients with cases assigned to the MDC with
these diagnoses.
To determine how the resources for this subset of cases compared to
cases in MS-DRGs 802, 803, and 804 as a whole, we stated in the
proposed rule we examined the average costs and length of stay for
cases in MS-DRGs 802, 803, and 804. Our findings are shown in this
table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.110
We reviewed the data and noted in the proposed rule that for this
subset of cases, the average costs are lower and the average length of
stays are generally shorter than for cases in MS-DRGs 802, 803, and
804. However, we stated we believe that when an ICD-10-PCS procedure
code describing the control of bleeding in the genitourinary tract is
reported with a principal diagnosis in MDC 16 (typically hemorrhagic
disorder due to extrinsic circulating anticoagulants), the procedure is
related to the principal diagnosis. Because a procedure code describing
the control of bleeding in the genitourinary tract would be expected to
be related to a principal diagnosis describing a hemorrhagic disorder
due to extrinsic circulating anticoagulants, it is clinically
appropriate for the procedures to group to the same MS-DRGs as the
principal diagnoses. Therefore, we proposed to add the five procedure
codes listed previously to MDC 16. Under this proposal, cases reporting
a procedure code describing the control of bleeding in the
genitourinary tract with a principal diagnosis of a hemorrhagic
disorder due to extrinsic circulating anticoagulants (diagnosis code
D68.32) in MDC 16 would group to MS-DRGs 802, 803, and 804.
Comment: Commenters supported the proposal to add ICD-10-PCS
procedure codes 0W3R0ZZ, 0W3R3ZZ, 0W3R4ZZ, 0W3R7ZZ, and 0W3R8ZZ to MDC
16 (Diseases and Disorders of Blood, Blood Forming Organs and
Immunologic Disorders).
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal to add ICD-10-PCS procedure codes 0W3R0ZZ,
0W3R3ZZ, 0W3R4ZZ, 0W3R7ZZ, and 0W3R8ZZ to MDC 16, without modification,
for FY 2026. Under this finalization, cases reporting a procedure code
describing the control of bleeding in the genitourinary tract with a
principal diagnosis of a hemorrhagic disorder due to extrinsic
circulating anticoagulants (diagnosis code D68.32) in MDC 16 would
group to MS-DRGs 802, 803, and 804.
b. Removal of Infusion Device From Peritoneal Cavity
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18057 through 18058), during the review of the
[[Page 36617]]
cases that group to MS-DRGs 981 through 983, we noted that when ICD-10-
PCS procedure codes describing the removal of an infusion device from
the peritoneal cavity are reported in conjunction with ICD-10-CM
diagnosis codes in MDC 21 (Injuries, Poisonings and Toxic Effects of
Drugs), the cases group to MS-DRGs 981 through 983. In the proposed
rule, we included the following table, listing the three ICD-10-PCS
procedure codes reviewed, and indicating current assignment to MDCs 06
and 21:
[GRAPHIC] [TIFF OMITTED] TR04AU25.111
In this final rule, we are correcting this display to reflect that
ICD-10-PCS code 0WPG33Z is not currently assigned to MDC 21. We note
that, in ICD-10 MS-DRGs Definitions Manual Version 42.1, ICD-10-PCS
codes 0WPG03Z and 0WPG43Z are assigned to MDC 21 MS-DRGs 907, 908, and
909 (Other O.R. Procedures for Injuries with MCC, with CC, and without
CC/MCC, respectively). ICD-10-PCS code 0WPG33Z is assigned to MDC 06
MS-DRGs 356, 357 and 358 (Other Digestive System O.R. Procedures with
MCC, with CC, and without CC/MCC, respectively). We list in the
following table the ICD-10-PCS procedure codes describing the removal
of an infusion device from the peritoneal cavity and their
corresponding MS-DRG assignments in the ICD-10 MS-DRGs Definitions
Manual Version 42.1.
[GRAPHIC] [TIFF OMITTED] TR04AU25.112
We refer the reader to Appendix E of the ICD-10 MS-DRG Version 42.1
Definitions Manual (which is available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.html) for the MS-DRG assignment for each procedure code
listed and further discussion of how each procedure code may be
assigned to multiple MDCs and MS-DRGs under the IPPS.
As discussed in the proposed rule, the principal diagnosis most
frequently reported with the three ICD-10-PCS procedure codes
describing the removal of an infusion device from the peritoneal cavity
in MDC 21 is ICD-10-CM code T85.71XA (Infection and inflammatory
reaction due to peritoneal dialysis catheter, initial encounter).
We stated we examined claims data from the September 2024 update of
the FY 2024 MedPAR file to identify the average length of stay and
average costs for cases reporting a procedure code describing the
removal of an infusion device from the peritoneal cavity with a
principal diagnosis in MDC 21, which are currently grouping to MS-DRGs
981 through 983, as well as all cases in MS-DRGs 981 through 983. Our
findings are shown in the following table.
[[Page 36618]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.113
We then examined the MS-DRGs within MDC 21 and determined that the
cases reporting procedure codes describing the removal of an infusion
device from the peritoneal cavity with a principal diagnosis in MDC 21
would most suitably group to MS-DRGs 907, 908, and 909 (Other O.R.
Procedures for Injuries with MCC, with CC, and without CC/MCC,
respectively), which contains other operating room procedures performed
for injuries as further detailed later in this section.
To determine how the resources for this subset of cases compared to
cases in MS-DRGs 907, 908, and 909 as a whole, we examined the average
costs and length of stay for cases in MS-DRGs 907, 908, and 909. Our
findings are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.114
As discussed in the proposed rule, we reviewed the data and noted
for the subset of cases reporting procedure codes describing the
removal of an infusion device from the peritoneal cavity with a
principal diagnosis in MDC 21, the average costs are lower and the
average lengths of stay are shorter than for cases in MS-DRGs 907, 908,
and 909. However, we stated we believe that when an ICD-10-PCS
procedure code describing the removal of an infusion device from the
peritoneal cavity is reported with a principal diagnosis in MDC 21
(typically infection and inflammatory reaction due to peritoneal
dialysis catheter), the procedure is related to the principal
diagnosis. Because a procedure code describing the removal of an
infusion device from the peritoneal cavity would be expected to be
related to a principal diagnosis describing an infected catheter used
for peritoneal dialysis causing inflammation in the surrounding tissue,
we stated it is clinically appropriate for the procedures to group to
the same MS-DRGs as the principal diagnoses. Therefore, we proposed to
add the three procedure codes listed previously to MDC 21. We stated
that under this proposal, cases reporting a procedure code describing
the removal of an infusion device from the peritoneal cavity with a
principal diagnosis of an infection and inflammatory reaction due to
peritoneal dialysis catheter, initial encounter (diagnosis code
T85.71XA) in MDC 21 would group to MS-DRGs 907, 908, and 909.
Comment: Commenters supported the proposal to add procedure codes
describing the removal of an infusion device from the peritoneal cavity
to MDC 21 (Injuries, Poisonings and Toxic Effects of Drugs).
Response: We appreciate the commenters' support.
As discussed previously, in ICD-10 MS-DRGs Definitions Manual
Version 42.1, ICD-10-PCS codes 0WPG03Z and 0WPG43Z are already assigned
to MDC 21 MS-DRGs 907, 908, and 909 (Other O.R. Procedures for Injuries
with MCC, with CC, and without CC/MCC, respectively). Therefore, after
consideration of the public comments we received, for the reasons
discussed, we are finalizing our proposal with modification.
Specifically, we are finalizing our proposal to add ICD-10-PCS code
0WPG33Z to MDC 21 for FY 2026. Under this finalization, cases reporting
procedure code 0WPG33Z (Removal of infusion device from peritoneal
cavity, percutaneous approach) with a principal diagnosis of an
infection and inflammatory reaction due to peritoneal dialysis
catheter, initial encounter (diagnosis code T85.71XA) in MDC 21 would
group to MS-DRGs 907, 908, and 909.
In addition to the internal review of procedures producing
assignment to MS-DRGs 981 through 983 or MS-DRGs 987 through 989, as
discussed in the proposed rule, we also consider requests that we
receive to examine cases found to group to MS-DRGs 981 through 983 or
MS-DRGs 987 through 989 to determine if it would be appropriate to add
procedure codes to one of the surgical MS-DRGs for the MDC into which
the principal diagnosis falls or to move the principal diagnosis to the
surgical MS-DRGs to which the procedure codes are assigned. We stated
we did not receive any requests suggesting reassignment.
We also review the list of ICD-10-PCS procedures that, when in
combination with their principal diagnosis code, result in assignment
to MS DRGs 981 through 983, or 987 through 989, to ascertain whether
any of those procedures should be reassigned from one of those two
groups of MS-DRGs to the other group of MS-DRGs
[[Page 36619]]
based on average costs and the average length of stay. We look at the
data for trends such as shifts in treatment practice or reporting
practice that would make the resulting MS-DRG assignment illogical. If
we find these shifts, we will propose to move cases to keep the MS-DRGs
clinically similar or to propose MS-DRG assignments for the cases in a
similar manner. Generally, we propose to move only those procedures for
which we have an adequate number of discharges to analyze the data.
Additionally, we also consider requests that we receive to examine
cases found to group to MS-DRGs 981 through 983 or MS-DRGs 987 through
989 to determine if it would be appropriate for the cases to be
reassigned from one of the MS-DRG groups to the other. We stated we did
not receive any requests suggesting reassignment. Further, based on the
results of our review of the claims data from the September 2024 update
of the FY 2024 MedPAR file we stated we did not identify any cases for
reassignment. Therefore, for FY 2026 we did not propose to move any
cases reporting procedure codes from MS-DRGs 981 through 983 to MS-DRGs
987 through 989 or vice versa.
Comment: Commenters expressed support for CMS' proposal to not move
any cases reporting procedure codes from MS-DRGs 981 through 983 to MS-
DRGs 987 through 989 or vice versa.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing, without modification, our proposal to not move any cases
reporting procedure codes from MS-DRGs 981 through 983 to MS-DRGs 987
through 989 or vice versa.
7. Operating Room (O.R.) and Non-O.R. Procedures
a. Background
Under the IPPS MS-DRGs (and former CMS MS-DRGs), we have a list of
procedure codes that are considered operating room (O.R.) procedures.
Historically, we developed this list using physician panels that
classified each procedure code based on the procedure and its effect on
consumption of hospital resources. For example, generally the presence
of a surgical procedure which required the use of the operating room
would be expected to have a significant effect on the type of hospital
resources (for example, operating room, recovery room, and anesthesia)
used by a patient, and therefore, these patients were considered
surgical. Because the claims data generally available do not precisely
indicate whether a patient was taken to the operating room, surgical
patients were identified based on the procedures that were performed.
Generally, if the procedure was not expected to require the use of
the operating room, the patient would be considered medical (non-O.R.).
Currently, each ICD-10-PCS procedure code has designations that
determine whether and in what way the presence of that procedure on a
claim impacts the MS-DRG assignment. First, each ICD-10-PCS procedure
code is either designated as an O.R. procedure for purposes of MS-DRG
assignment (``O.R. procedures'') or is not designated as an O.R.
procedure for purposes of MS-DRG assignment (``non-O.R. procedures'').
Second, for each procedure that is designated as an O.R. procedure,
that O.R. procedure is further classified as either extensive or non-
extensive. Third, for each procedure that is designated as a non-O.R.
procedure, that non-O.R. procedure is further classified as either
affecting the MS-DRG assignment or not affecting the MS-DRG assignment.
We refer to these designations that do affect MS-DRG assignment as
``non O.R. affecting the MS-DRG.'' For new procedure codes that have
been finalized through the ICD-10 Coordination and Maintenance
Committee meeting process and are proposed to be classified as O.R.
procedures or non-O.R. procedures affecting the MS-DRG, we recommend
the MS-DRG assignment which is then made available in association with
the proposed rule (Table 6B.--New Procedure Codes) and subject to
public comment. These proposed assignments are generally based on the
assignment of predecessor codes or the assignment of similar codes. For
example, we generally examine the MS-DRG assignment for similar
procedures, such as the other approaches for that procedure, to
determine the most appropriate MS-DRG assignment for procedures
proposed to be newly designated as O.R. procedures. As discussed in
section II.C.13 of the preamble of this FY 2026 IPPS/LTCH PPS final
rule, we are making Table 6B.--New Procedure Codes--FY 2026 available
on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.html. We also refer
readers to the ICD-10 MS-DRG Version 42.1 Definitions Manual at:
https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.html for detailed
information regarding the designation of procedures as O.R. or non-O.R.
(affecting the M-DRG) in Appendix E--Operating Room Procedures and
Procedure Code/MS-DRG Index.
In the FY 2020 IPPS/LTCH PPS proposed rule, we stated that, given
the long period of time that has elapsed since the original O.R.
(extensive and non-extensive) and non-O.R. designations were
established, the incremental changes that have occurred to these O.R.
and non-O.R. procedure code lists, and changes in the way inpatient
care is delivered, we plan to conduct a comprehensive, systematic
review of the ICD-10-PCS procedure codes. This will be a multiyear
project during which we will also review the process for determining
when a procedure is considered an operating room procedure. For
example, we may restructure the current O.R. and non-O.R. designations
for procedures by leveraging the detail that is now available in the
ICD-10 claims data. We refer readers to the discussion regarding the
designation of procedure codes in the FY 2018 IPPS/LTCH PPS final rule
(82 FR 38066) where we stated that the determination of when a
procedure code should be designated as an O.R. procedure has become a
much more complex task. This is, in part, due to the number of various
approaches available in the ICD-10-PCS classification, as well as
changes in medical practice. While we have typically evaluated
procedures on the basis of whether or not they would be performed in an
operating room, we believe that there may be other factors to consider
with regard to resource utilization, particularly with the
implementation of ICD-10.
We discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR
19230) that, as a result of this planned review and potential
restructuring, procedures that are currently designated as O.R.
procedures may no longer warrant that designation, and conversely,
procedures that are currently designated as non-O.R. procedures may
warrant an O.R. designation. We intend to consider the resources used
and how a procedure should affect the MS-DRG assignment. We may also
consider the effect of certain surgical approaches to evaluate whether
to subdivide a subset of MS-DRGs based on a specific surgical approach.
We stated we plan to utilize our available MedPAR claims data as a
basis for this review and the input of our clinical advisors. As part
of this comprehensive review of the procedure codes, we also intend to
evaluate the MS-DRG assignment of the procedures and the current
surgical hierarchy
[[Page 36620]]
because both of these factor into the process of refining the ICD-10
MS-DRGs to better recognize complexity of service and resource
utilization.
In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58540 through
58541), we provided a summary of the comments we had received in
response to our request for feedback on what factors or criteria to
consider in determining whether a procedure is designated as an O.R.
procedure in the ICD-10-PCS classification system for future
consideration. We also stated that in consideration of the PHE, we
believed it may be appropriate to allow additional time for the claims
data to stabilize prior to selecting the timeframe to analyze for this
review.
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18059 through 18060), we stated we continue to believe additional time
is necessary as we continue to develop our process and methodology. As
discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58749), we
have signaled in prior rulemaking that the designation of an O.R.
procedure encompasses more than the physical location of the hospital
room in which the procedure may be performed; in other words, the
performance of a procedure in an operating room is not the sole
determining factor we will consider as we examine the designation of a
procedure in the ICD-10-PCS classification system. We stated we are
exploring alternatives on how we may restructure the current O.R. and
non-O.R. designations for procedures by leveraging the detail that is
available in the ICD-10 claims data. We are considering the feedback
received on what factors and/or criteria to consider in determining
whether a procedure is designated as an O.R. procedure in the ICD-10-
PCS classification system as we continue to develop our process and
methodology and will provide more detail on this analysis and the
methodology for conducting this comprehensive review in future
rulemaking. We encourage the public to continue to submit feedback and
comments on any other factors in consideration of our refinement
efforts to recognize and differentiate consumption of resources under
the ICD-10 MS-DRGs.
Comment: Commenters supported CMS' plan to continue to conduct the
comprehensive, systematic review of the ICD-10-PCS codes and to
evaluate their current O.R. and non-O.R. designations. These commenters
expressed that they were supportive of CMS' decision to continue to
develop our process and methodology. A commenter stated they agreed
that the revolution in medical procedures in recent years may render
the performance of a procedure in an O.R. a less critical distinction
in driving payment policy and stated that because of technological
advances, sophisticated, resource-intensive procedures are no longer
confined to the O.R. setting and noted that in their observation, bi-
plane radiology interventional suites and cardiac catheterization labs
used for procedures such as mechanical thrombectomy or endovascular
coiling for aneurysms can utilize more advanced equipment and supplies
than a basic operating room with minimal installed equipment. This
commenter recommended that CMS provide detailed impact files prior to
the adoption of changes to the designation of procedure codes in the
ICD-10-PCS classification and stated that they look forward to
commenting on CMS' data analysis and methodology in the future.
As part of the broader and continuing conversation about the
designations of procedures in the ICD-10-PCS classification system, a
commenter recommended that CMS work closely with physician specialty
societies and industry stakeholders to identify the most important
drivers of complexity and resource use in the hospital setting. Another
commenter specifically recommended that CMS include nurse
representatives when reviewing methodologies for determining the
designation of procedure codes in the ICD-10-PCS classification system
and noted that nurses are an integral part of the healthcare team, work
closely with physicians in the operating room and have firsthand
knowledge and experience to know what hospital resources are needed for
procedures. This commenter further stated that omitting nurses only
serves to discount their perspectives and could result in decision
making that does not fully capture the hospital resources needed.
Response: We thank the commenters for their support. We also thank
commenters for sharing their views and their willingness to provide
feedback and recommendations as to what factors to consider in
evaluating O.R. versus non-O.R. designations. We agree with commenters
and believe that there may be other factors to consider with regard to
resource utilization, particularly with the implementation of ICD-10.
While CMS has already convened an internal team comprised of
clinicians, consultants, coding specialists and other policy analysts,
as well as provided the opportunity for interested parties to provide
feedback as to what factors to consider in evaluating O.R. versus non-
O.R. designations, we look forward to further input and feedback from
interested parties, including nurses. As discussed in the proposed
rule, we are considering the feedback received to date on what factors
and/or criteria to consider in determining whether a procedure is
designated as an O.R. procedure in the ICD-10-PCS classification system
as we continue to develop our process and methodology and will provide
more detail on this analysis and the methodology for conducting this
comprehensive review in future rulemaking. As part of this
comprehensive review of the procedure codes, we are also considering
renaming the designations that determine whether and in what way the
presence of that procedure on a claim impacts the MS-DRG assignment
(that is, ``O.R. procedures'', ``non-O.R. procedures'', or ``non O.R.
affecting the MS-DRG'') for consistency. As discussed in prior
rulemaking and earlier in this section of the preamble of this final
rule, we have signaled that the performance of a procedure in an
operating room is not the sole determining factor we will consider as
we examine the designation of a procedure in the ICD-10-PCS
classification system. We encourage the public to continue to submit
comments and feedback on any other factors to consider in our
refinement efforts to recognize and differentiate consumption of
resources for procedures within the ICD-10 MS-DRGs under the IPPS.
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule, we
received requests regarding changing the designation of specific ICD-
10-PCS procedure codes from non-O.R. to O.R. procedures. In this
section of the preamble of this FY 2026 IPPS/LTCH PPS final rule, as we
did in the proposed rule, we summarize and respond to those requests.
In this section of the preamble of this final rule, we also discuss the
proposal we made based on our internal review and analysis and the
process that was utilized for evaluating each procedure code. For each
procedure, we considered--
Whether the procedure would typically require the
resources of an operating room;
Whether it is an extensive or a non-extensive procedure;
and
To which MS-DRGs the procedure should be assigned.
We note that many MS-DRGs require the presence of any O.R.
procedure. As a result, cases with a principal diagnosis associated
with a particular MS-DRG would, by default, be grouped to that MS-DRG.
Therefore, we do not list these MS-DRGs in our discussion in this
section of the preamble of this FY
[[Page 36621]]
2026 IPPS/LTCH PPS final rule. Instead, we only discuss MS-DRGs that
require explicitly adding the relevant procedure codes to the GROUPER
logic in order for those procedure codes to affect the MS-DRG
assignment as intended.
For procedures that would not typically require the resources of an
operating room, we determined if the procedure should affect the MS-DRG
assignment. In cases where we proposed to change the designation of
procedure codes from non-O.R. procedures to O.R. procedures, we also
proposed one or more MS-DRGs with which these procedures are clinically
aligned and to which the procedure code would be assigned.
In addition, cases that contain O.R. procedures will map to MS-DRGs
981, 982, or 983 (Extensive O.R. Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and without CC/MCC, respectively) or MS-
DRGs 987, 988, or 989 (Non-Extensive O.R. Procedure Unrelated to
Principal Diagnosis with MCC, with CC, and without CC/MCC,
respectively) when they do not contain a principal diagnosis that
corresponds to one of the MDCs to which that procedure is assigned.
These procedures need not be assigned to MS-DRGs 981 through 989 in
order for this to occur. Therefore, we did not specifically address
that aspect in summarizing the request and our response to that request
or the proposal we made based on our internal review and analysis in
the proposed rule and in this section of the preamble of this FY 2026
IPPS/LTCH PPS final rule.
b. Non-O.R. Procedures to O.R. Procedures
(1) Open Drainage of the Mandible
In the FY 2022 IPPS/LTCH PPS final rule (86 FR 44895 through
44896), we discussed a request we received to change the designation of
procedure codes 0N9R0ZZ (Drainage of maxilla, open approach), 0N9T0ZZ
(Drainage of right mandible, open approach), and 0N9V0ZZ (Drainage of
left mandible, open approach), from non-O.R. to O.R. procedures. In the
FY 2022 final rule, we stated that we disagreed that the procedures
describing the open drainage of the maxilla or mandible typically
require the resources of an operating room. We stated that if admission
is required for the treatment of a jaw infection, the admission is
quite likely due to the need for IV antibiotics as opposed to the need
for operating room resources in an inpatient setting. After
consideration of the public comments we received, we finalized our
proposal to maintain the non-O.R. designation of ICD-10-PCS procedure
codes 0N9R0ZZ, 0N9T0ZZ, and 0N9V0ZZ, without modification, for FY 2022.
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18060 through 18061), we again received a request to change the
designation of ICD-10-PCS codes 0N9T0ZZ (Drainage of right mandible,
open approach), and 0N9V0ZZ (Drainage of left mandible, open approach),
from non-O.R. to O.R. The requestor identified procedure code 0W950ZZ
(Drainage of lower jaw, open approach) that is currently designated as
an O.R. procedure and stated that the body part value of mandible is
more specific than the body part value of lower jaw. The requestor also
stated that in the ICD-10-PCS classification, other procedure codes
that describe drainage procedures performed on body parts deeper than
subcutaneous tissue, such as muscles, tendons, and bone, are designated
as O.R. procedures. Therefore, the requestor stated that procedure
codes 0N9T0ZZ and 0N9V0ZZ should also be recognized as O.R. procedures
for purposes of MS-DRG assignment. The requestor did not provide a
specific list of the procedure codes that describe drainage procedures
performed on body parts deeper than subcutaneous tissue, such as
muscles, tendons, and bone, that are currently designated as O.R.
procedures for CMS to review.
In the ICD-10 MS-DRGs Definitions Manual Version 42.1, procedure
codes 0N9T0ZZ and 0N9V0ZZ are currently designated as non-O.R.
procedures for purposes of MS-DRG assignment. We reviewed this issue
and in the proposed rule, we stated we continue to disagree that the
procedures describing the open drainage of the mandible are typically
performed in the operating room under general anesthesia. As discussed
in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44896), these procedures
can be done in an oral surgeon's office, or an outpatient setting and
are rarely performed in the inpatient setting. Therefore, we proposed
to maintain the current non-O.R. designation of ICD-10-PCS procedure
codes 0N9T0ZZ and 0N9V0ZZ.
Comment: A commenter opposed CMS' proposal to maintain the current
non-O.R. designation of ICD-10-PCS procedure codes 0N9T0ZZ (Drainage of
right mandible, open approach), and 0N9V0ZZ (Drainage of left mandible,
open approach) and stated when performed in the inpatient setting,
these procedures often involve complex infectious disease cases
requiring significant resources. This commenter stated that their
analysis and clinical experience suggest that these procedures, when
performed on hospitalized patients, are substantially different and
more complex when compared to routine outpatient drainage procedures
and more closely align with other O.R.-designated procedures in terms
of resource utilization. The commenter further stated that the
infectious nature of these cases specifically requires additional
resources beyond the procedure itself, including extended antimicrobial
therapy, infectious diseases consultation and potential management of
sepsis or other systemic complications.
Response: We thank the commenter for their feedback.
We reviewed the commenter's concerns and continue to support
maintaining the current non-O.R. designation of the procedure codes
describing open drainage of the mandible and disagree that the
procedures describing the open drainage of the mandible typically
require the resources of an operating room. We continue to believe if
admission is required for the treatment of a jaw infection, the
admission is quite likely due to the need for IV antibiotics as opposed
to the need for operating room resources in an inpatient setting.
In response to the issues raised by this commenter, we examined
claims data from the September 2024 update of the FY 2024 MedPAR file
for cases reporting 0N9T0ZZ or 0N9V0ZZ. Our findings are shown in the
following table.
BILLING CODE 4120-01-P
[[Page 36622]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.115
BILLING CODE 4120-01-C
As shown in the table, we found a total of 29 cases reporting
procedure codes 0N9T0ZZ or 0N9V0ZZ across the MS-DRGs, demonstrating
that procedures that describe open drainage of the mandible are
infrequently performed in the inpatient setting. Our data findings also
demonstrate, generally, the cases reporting procedures describing the
open drainage of the mandible have average costs that are lower than
the average costs of all cases in their respective MS-DRGs, while the
average lengths of stay are shorter.
Therefore, after consideration of the public comments we received,
for the reasons stated, we are finalizing our proposal to maintain the
current non-O.R. designation of ICD-10-PCS procedure codes 0N9T0ZZ and
0N9V0ZZ, without modification, for FY 2026.
In our review of this issue, in the proposed rule, we stated we
agree with the requestor that in the ICD-10 MS-DRGs Definitions Manual
Version 42.1, procedure code 0W950ZZ (Drainage of lower jaw, open
approach) is currently designated as an O.R. procedure for purposes of
MS-DRG assignment. While we have stated in prior rulemaking that a
correlation cannot be made between procedures performed in general
anatomic regions and procedures performed in specific body parts
because these procedures coded with the general anatomic regions body
part represent a broader range of procedures that cannot be coded to a
specific body part, we stated we continue to believe if admission is
required for the treatment of a jaw infection, the admission is quite
likely due to the need for IV antibiotics as opposed to the need for
operating room resources in an inpatient setting. Like procedures that
describe open drainage of the mandible, procedures to drain the lower
jaw can also be done in an oral surgeon's office or an outpatient
setting and are rarely performed in the inpatient setting. In the
proposed rule we stated we agree that procedures that describe open
drainage of the mandible consume resources comparable to the related
ICD-10-PCS procedure code that describes the open drainage of the jaw.
These procedures do not typically require the resources of an operating
room and are not surgical in nature. Therefore, for clinical
consistency, we proposed to remove procedure code 0W950ZZ (Drainage of
lower jaw, open approach) from the FY 2026 ICD-10 MS-DRGs Version 43
Definitions Manual in Appendix E--Operating Room Procedures and
Procedure Code/MS-DRG Index as an O.R. procedure. Under this proposal,
this procedure
[[Page 36623]]
would no longer impact MS-DRG assignment.
Comment: Commenters supported CMS' proposal to remove procedure
code 0W950ZZ from the FY 2026 ICD-10 MS-DRGs Version 43 Definitions
Manual in Appendix E--Operating Room Procedures and Procedure Code/MS-
DRG Index as an O.R. procedure.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of procedure code
0W950ZZ (Drainage of lower jaw, open approach) from O.R. procedure to
non-O.R. procedure, without modification, effective October 1, 2025.
Under this finalization, this procedure code would no longer impact MS-
DRG assignment.
(2) Introduction of Paclitaxel-Coated Balloon Catheter Technology
In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69094 through
69096), we summarized and responded to comments we received regarding
the O.R. designation and MS-DRG assignment of 16 procedure codes that
describe introduction of the AGENTTM Paclitaxel-Coated
Balloon Catheter technology that is indicated to treat coronary in-
stent restenosis (ISR) in patients with coronary artery disease. The
following procedure codes describing use of the AGENTTM
Paclitaxel-Coated Balloon Catheter technology were finalized following
the March 19, 2024, ICD-10 Coordination and Maintenance Committee
meeting and made available via the CMS website on June 5, 2024, at
https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. We refer the reader to the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials for
additional detailed information regarding the request, including a
recording of the discussion and the related meeting materials.
[GRAPHIC] [TIFF OMITTED] TR04AU25.116
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18061 through 18062), we again received a request to reconsider the
designation and MS-DRG assignment of the previously listed 16 procedure
codes. Specifically, the requestor (the manufacturer) requested that
the procedure codes be designated as O.R. procedures and assigned to
the following surgical MS-DRGs:
MS-DRG 250 Percutaneous Cardiovascular Procedures without
Intraluminal Device with MCC
MS-DRG 251 Percutaneous Cardiovascular Procedures without
Intraluminal Device without MCC
MS-DRG 321 Percutaneous Cardiovascular Procedures with
Intraluminal Device with MCC or 4+ Arteries/Intraluminal Devices
MS-DRG 322 Percutaneous Cardiovascular Procedures with
Intraluminal Device without MCC
MS-DRG 323 Coronary Intravascular Lithotripsy with
Intraluminal Device with MCC
MS-DRG 324 Coronary Intravascular Lithotripsy with
Intraluminal Device without MCC
MS-DRG 325 Coronary Intravascular Lithotripsy without
Intraluminal Device
[[Page 36624]]
According to the requestor, the root operation CMS identified as
the most appropriate (that is, Introduction in the Administration
section), and the predecessor code selected, (procedure code 3E073GC
(Introduction of other therapeutic substance into coronary artery,
percutaneous approach)), only involves a therapeutic substance being
delivered via infusion or injection. The requestor stated that the
procedure to administer the paclitaxel via the drug coated balloon
(DCB) catheter is a surgical procedure as described in the instructions
for use, with the drug delivery occurring using controlled prolonged
balloon inflation during which the patient is monitored for signs of
ischemia or arrythmia. The requestor stated that the procedure to
deliver the paclitaxel is more appropriate as an O.R. procedure than a
non-O.R. procedure. The requestor acknowledged that while the MS-DRG
assignment for existing percutaneous coronary intervention (PCI)
procedures is driven by vessel preparation or the use of an
intraluminal device, it should not preclude the designation of the
procedure codes identifying use of an AGENTTM Paclitaxel-
Coated Balloon Catheter technology that describes the delivery of the
paclitaxel to the coronary vessel(s) as O.R. procedures.
In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69095 through
69096), we stated that under our established process, we reviewed the
predecessor code and MS-DRG assignment most closely associated with the
new procedure codes. We noted that because the procedure codes
describing the use of an AGENTTM Paclitaxel-Coated Balloon
Catheter are describing delivery of the paclitaxel to the coronary
vessel(s), the predecessor code is 3E073GC, which is designated as a
non-O.R. procedure and does not affect MS-DRG assignment. We also
stated that, as discussed at the March 19, 2024, ICD-10 Coordination
and Maintenance Committee meeting and in the commenters' feedback, a
preparatory step (that is, vessel preparation by either angioplasty,
atherectomy, or lithotripsy) is required to be performed first, before
the AGENTTM Paclitaxel-Coated Balloon Catheter is deployed.
We noted that each type of vessel preparation procedure is designated
as an O.R. procedure and maps to one of the previously listed surgical
MS-DRGs. We also noted that based on the surgical hierarchy, the
reporting of one of the vessel preparation steps (that is, angioplasty,
atherectomy, or lithotripsy), or placement of a new stent in connection
with the use of the AGENTTM Paclitaxel-Coated Balloon
Catheter would result in assignment to one of the previously listed
surgical MS-DRGs. We noted that use of the AGENTTM
Paclitaxel-Coated Balloon Catheter to deliver the paclitaxel to the
coronary vessel(s) cannot occur in the absence of a surgical vessel
preparation and therefore, it is the vessel preparation procedure that
will determine the surgical MS-DRG assignment to one of the previously
listed surgical MS-DRGs.
In the proposed rule, we noted that we reviewed the instructions
for use submitted by the requestor regarding the procedure to insert
the drug-coated balloon catheter. The instructions for use state:
``Note: For optimal DCB results, adequate lesion preparation is
essential. This should include predilatation with a non-coated coronary
balloon. Intravascular imaging to guide lesion preparation and to
assess the adequacy of the final result is strongly recommended.
Caution: Lesion preparation is necessary to prevent delamination of
the balloon's drug coating while traversing patient anatomy. The
TransPax coating is designed to facilitate drug transfer into the
vessel wall upon contact. Do not use the AGENT Drug-Coated Balloon
Catheter for lesion preparation.''
We also noted that the FDA-approved indication states, ``The
AGENTTM Paclitaxel-Coated Balloon Catheter is intended to be
used after appropriate vessel preparation in adult patients undergoing
percutaneous coronary intervention (PCI) in coronary arteries 2.0 mm to
4.0 mm in diameter and lesions up to 26 mm in length for the purpose of
improving myocardial perfusion when treating in-stent restenosis
(ISR).'' We further noted that, as reflected in the March 19, 2024 ICD-
10 Coordination and Maintenance Committee meeting materials, ``The
AGENTTM Drug-Coated Balloon (DCB) has been designated by the
FDA as an implant for PMA purposes. Per FDA guidance, the drug
component is considered a permanent implant because it remains in the
body for greater than 30 days.''
As such, we stated in the proposed rule that we continue to
disagree with designating the procedure to deliver paclitaxel to a
coronary vessel as identified by any one of the previously listed 16
procedure codes as O.R. procedures. As stated earlier in this section,
the MS-DRG assignment is dependent on the surgical vessel preparation
procedure that would be reported when the AGENTTM
Paclitaxel-Coated Balloon Catheter technology is used to deliver the
paclitaxel to the coronary vessel(s) and result in assignment to one of
the previously listed surgical MS-DRGs. We referred the reader to the
ICD-10 MS-DRG Definitions Manual, Version 42.1 available in association
with the FY 2026 IPPS/LTCH PPS proposed rule on the CMS website at
https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps for complete documentation of the GROUPER logic for the
previously listed surgical MS-DRGs under MDC 05. For the reasons
discussed, we proposed to maintain the designation of the 16 procedure
codes describing use of the AGENTTM Paclitaxel-Coated
Balloon Catheter technology as non-O.R. for FY 2026.
Comment: Some commenters agreed with the proposal to maintain the
designation of the 16 procedure codes describing use of the
AGENTTM Paclitaxel-Coated Balloon Catheter technology as
non-O.R. for FY 2026.
Response: We thank the commenters for their support.
Comment: A commenter (the manufacturer) urged CMS to change the
designation of the procedure codes that describe the AGENTTM
Paclitaxel-Coated Balloon Catheter technology from non-O.R. to O.R. for
FY 2026. The commenter stated that patients scheduled for a procedure
that uses the AGENTTM Paclitaxel-Coated Balloon Catheter
technology have a principal diagnosis of ISR, and introduction of the
AGENTTM implant is the principal procedure to address the
ISR. The commenter stated that the AGENTTM implant
represents the therapeutic intent of the intervention, drives
associated resource requirements, and is not performed incident to
vessel preparation. The commenter stated that other services provided
during the same operative session as the AGENTTM implant are
for the purpose of vessel dilation or plaque modification in
preparation for effective therapeutic drug delivery. According to the
commenter, the specific approach and rigor to vessel preparation
technique(s) are dictated by the physician's decision to treat the
lesion with the AGENTTM implant and are therefore secondary
to the AGENTTM implant. The commenter stated the secondary
procedures may include balloon angioplasty for vessel dilation, and
atherectomy, lithotripsy, and/or cutting balloon for plaque
modification. In addition, the commenter stated that intravascular
ultrasound (IVUS) and/or optical coherence tomography (OCT) may be used
for enhanced vessel visualization.
[[Page 36625]]
The commenter provided a table comparing clinical functions associated
with percutaneous coronary interventions as follows:
[GRAPHIC] [TIFF OMITTED] TR04AU25.117
The commenter also stated that the primary role of the
AGENTTM implant is supported by ICD-10-PCS Guidelines which
instruct to sequence the procedure performed for definitive treatment
most related to the principal diagnosis as principal procedure. The
commenter included the FDA labeling language that was referenced in the
preamble of the proposed rule (90 FR 18062) and stated that because
patients who are admitted for a procedure to deliver the
AGENTTM implant have a principal diagnosis of ISR, the
AGENTTM implant is the principal procedure from a coding
perspective and is the primary procedure that represents the
therapeutic intent of the intervention.
The commenter asserted that the AGENTTM DCB therapy is
consistent with drug-eluting stent (DES) therapy in terms of diagnostic
methods, intra-operative procedure steps, complexity and risk,
therefore, consistent with DES and other procedure codes for
percutaneous coronary interventions (PCI), the codes for the
AGENTTM DCB should be designated as O.R. codes. The
commenter stated that the procedure involving the AGENTTM
implant is most clinically similar to a DES procedure because both are
PCI procedures, performed only by physicians experienced in PCI,
involve a surgical implant within the coronary artery, involve the
transfer of therapeutic substances to a lesion and are targeted
localized therapies as opposed to systemic treatments. The commenter
added that the procedural steps to prepare a vessel for the
AGENTTM implant is consistent with that required for a DES
including obtaining percutaneous arterial access, positioning a guide
catheter in the heart, advancing a guide wire across the coronary
artery stenosis, preparing the vessel for the AGENTTM
implant using specialized catheters and devices as needed (for example,
angioplasty balloon, cutting balloon, lithotripsy, atherectomy), and
using angiographic imaging to visualize the heart and IVUS or OCT to
guide the procedure.
The commenter stated that in addition to the clinical similarities
between the AGENTTM DCB and a DES, the procedure codes
describing use of the AGENTTM Paclitaxel-Coated Balloon
Catheter technology in ICD-10-PCS Table XW0 (Introduction, Anatomical
Regions) closely mirror the procedure codes describing use of a DES, in
ICD-10-PCS Table 027, Dilation of Heart and Great Vessels because both
sets of codes account for treatment of multiple coronary arteries and
the use of multiple devices. The commenter asserted that since the
procedure codes describing a DES and all other PCI procedure codes are
classified as surgical, the AGENTTM Paclitaxel-Coated
Balloon Catheter technology should be similarly classified as surgical.
The commenter stated that the 16 procedure codes describing use of the
AGENTTM Paclitaxel-Coated Balloon Catheter technology should
be designated as O.R. procedures regardless of whether there is
immediate impact to the MS-DRG assignment.
Other commenters expressed appreciation that CMS reviewed the
request to reconsider the MS-DRG assignment of the sixteen procedure
codes describing use of the AGENTTM Paclitaxel-Coated
Balloon Catheter technology from non-O.R. to O.R. however, the
commenters disagreed with the proposal to maintain the DCB placement as
a non-O.R. procedure. According to the commenters, because the vessel
preparation techniques discussed to allow placement of the
AGENTTM Paclitaxel-Coated Balloon Catheter are O.R.
services, it would only be consistent for the AGENTTM
Paclitaxel-Coated Balloon Catheter service itself to also be designated
as an O.R. service. The commenters stated that, from a similar
perspective, just as drug-eluting intraluminal device procedures (drug-
eluting stents) are considered alongside non-drug-eluting intraluminal
devices (stents); the AGENTTM Paclitaxel-Coated Balloon
Catheter service should be categorized in the same manner as other
dilation of coronary artery procedures (that is, angioplasty).
Response: We appreciate the commenters' feedback. We disagree with
the commenter's (the manufacturer) statement that the vessel
preparation technique(s) are secondary to delivery of the
AGENTTM implant (that is, paclitaxel). While the delivery of
paclitaxel via the AGENTTM Paclitaxel-Coated Balloon
Catheter is the intended therapeutic intervention to treat ISR, it
cannot occur in the absence of the initial vessel preparation procedure
(for example, angioplasty for vessel dilation, and atherectomy,
lithotripsy, and/or cutting balloon for plaque modification). In
response to the commenter's statement that the primary role of the
AGENTTM implant is supported by ICD-10-PCS sequencing
guidelines for the principal procedure, we note that the ICD-10-PCS
Guidelines regarding sequencing of the principal procedure have no
direct correlation on MS-DRG assignment or whether a procedure code is
designated as O.R. or non-O.R. We also note that the sequencing of the
procedure on the claim does not have an effect on MS-DRG assignment.
Rather, the MS-DRG assignment is based on the O.R. or non-O.R.
designation of the procedure code.
While we agree that there are some procedural similarities between
delivery of the AGENTTM implant and the insertion of a DES,
we note that a major distinction is that the objective of the
AGENTTM Paclitaxel-Coated Balloon Catheter is to deliver a
targeted anti-proliferative drug dose, without introducing an extra
layer of metal that is intended to remain permanently. We disagree with
the commenter that the procedure involving the AGENTTM
implant should be designated as an O.R. procedure. Although the FDA
[[Page 36626]]
designated the AGENTTM Paclitaxel-Coated Balloon as an
implant for Pre-Market Approval (PMA) purposes, (that is, per FDA
guidance, the drug component is considered a permanent implant because
it remains in the body for greater than 30 days), delivery of a drug
(or therapeutic agent) is not equivalent to the insertion of an
intraluminal device (that is, stent) under the ICD-10-PCS
classification. Notably, unlike a device, a drug cannot become
dislodged from its location nor can it be removed.
Designating a procedure code that is identified as one component of
a multi-component procedure, service, or therapy as O.R. when that
component would not be performed independently and is not FDA approved
to be performed independently in the absence of another component (that
is, two components are necessary for reporting to accurately reflect
the entire procedure) would not be appropriate and is also not
necessary when the other component has an existing O.R. designation.
Specifically, it would not be appropriate to only report a procedure
code describing the introduction of the AGENTTM Paclitaxel-
Coated Balloon Catheter technology and arrive at one of the requested
MS-DRG assignments in the absence of a procedure code describing an
angioplasty, lithotripsy, or atherectomy procedure being reported. To
encourage proper coding and reporting, as well as to ensure appropriate
MS-DRG assignment, both the AGENTTM Paclitaxel-Coated
Balloon Catheter technology and one of the procedure codes describing
an angioplasty, lithotripsy, or atherectomy must be reported. We also
note that under ICD-10-PCS, PCI procedures such as angioplasty
performed for the treatment of blocked arteries with one or more
intraluminal devices (that is, stents) that remain in the patient are
coded to ``Dilation with intraluminal device''. The AGENTTM
Paclitaxel-Coated Balloon Catheter technology does not involve a stent;
rather, the drug (paclitaxel) is deployed and the balloon catheter is
removed. The procedure codes describe the administration or transfer of
the drug via the delivery mechanism of the balloon catheter. The
intended outcomes or benefits of altering the designation of the
procedure codes for the AGENTTM Paclitaxel-Coated Balloon
Catheter technology from non-O.R. to O.R. remain unclear, as the MS-DRG
assignment is determined by the vessel preparation procedure, which is
classified as an O.R. procedure. As discussed in section II.C.7 of the
preamble of the proposed rule (90 FR 18059) and this final rule, each
ICD-10-PCS procedure code has a designation that determines whether and
in what way the presence of that procedure on a claim impacts the MS-
DRG assignment.
After consideration of the public comments received and for the
reasons previously described, we are finalizing our proposal to
maintain the designation of the 16 procedure codes describing use of
the AGENTTM Paclitaxel-Coated Balloon Catheter technology as
non-O.R. for FY 2026.
(3) Endoscopic Drainage of the Ureter With Drainage Device
As discussed in the proposed rule (90 FR 18062 through 18063),
during our internal review, we noted that procedure codes that describe
drainage of the ureter with a drainage device, via a natural or
artificial opening endoscopic approach, are not recognized as O.R.
procedures for purposes of MS-DRG assignment. We identified the
following three related codes:
[GRAPHIC] [TIFF OMITTED] TR04AU25.118
Upon further review and consideration, we stated we believe that
procedure codes 0T9680Z, 0T9780Z, and 0T9880Z that describe the
drainage of the ureter with a drainage device via a natural or
artificial opening endoscopic approach warrant designation as O.R.
procedures. These procedures involve the use of a cystoscope and
include the insertion of a small tube (called a ureteral stent or
drainage tube) into one or both of the ureters (the tubes that carry
urine from the kidneys to the bladder) to drain urine from a blocked or
partially blocked ureter and must be performed by a urologist who
specializes in diagnosing and treating conditions of the urinary tract,
genitals, and adrenal glands through surgery. These procedures are
typically performed in an operating room under anesthesia, can take
about 30 minutes or more, including preparation time, and require that
a patient's vital signs be monitored by the health care team for the
duration of the procedure.
Therefore, we proposed to add procedure codes 0T9680Z, 0T9780Z, and
0T9880Z to the FY 2026 ICD-10 MS-DRG Version 43 Definitions Manual in
Appendix E--Operating Room Procedures and Procedure Code/MS-DRG Index
as O.R. procedures assigned to MS-DRG 264 (Other Circulatory System
O.R. Procedures) in MDC 05 (Diseases and Disorders of the Circulatory
System); MS-DRGs 656, 657, and 658 (Kidney and Ureter Procedures for
Neoplasm, with MCC, with CC, and without CC/MCC, respectively) and MS-
DRGs 659, 660, and 661 (Kidney and Ureter Procedures for Non-Neoplasm,
with MCC, with CC, and without CC/MCC, respectively) in MDC 11
(Diseases and Disorders of the Kidney and Urinary Tract); MS-DRGs 907,
908, and 909 (Other O.R. Procedures for Injuries with MCC, with CC, and
without CC/MCC, respectively) in MDC 21 (Injuries, Poisonings and Toxic
Effects of Drugs); and MS-DRGs 957, 958, and 959 (Other O.R. Procedures
for Multiple Significant Trauma with MCC, with CC, and without CC/MCC,
respectively) in MDC 24 (Multiple Significant Trauma).
Comment: Commenters supported the proposal to change the
designation of procedure codes 0T9680Z, 0T9780Z, and 0T9880Z from non-
O.R. procedures to O.R. procedures.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal to change the designation of procedure codes
0T9680Z, 0T9780Z, and 0T9880Z from non-O.R. procedures to O.R.
procedures, without modification, effective October 1, 2025.
8. Changes to the MS-DRG Diagnosis Codes for FY 2026
a. Background of the CC List and the CC Exclusions List
Under the IPPS MS-DRG classification system, we have developed a
standard list of diagnoses that are considered CCs. Historically, we
[[Page 36627]]
developed this list using physician panels that classified each
diagnosis code based on whether the diagnosis, when present as a
secondary condition, would be considered a substantial complication or
comorbidity. A substantial complication or comorbidity was defined as a
condition that, because of its presence with a specific principal
diagnosis, would cause an increase in the length-of-stay by at least 1
day in at least 75 percent of the patients. However, depending on the
principal diagnosis of the patient, some diagnoses on the basic list of
complications and comorbidities may be excluded if they are closely
related to the principal diagnosis. In FY 2008, we evaluated each
diagnosis code to determine its impact on resource use and to determine
the most appropriate CC subclassification (NonCC, CC, or MCC)
assignment. We refer readers to sections II.D.2. and 3. of the preamble
of the FY 2008 IPPS final rule with comment period for a discussion of
the refinement of CCs in relation to the MS DRGs we adopted for FY 2008
(72 FR 47152 through 47171).
b. Overview of Comprehensive CC/MCC Analysis
In the FY 2008 IPPS/LTCH PPS final rule (72 FR 47159), we described
our process for establishing three different levels of CC severity into
which we would subdivide the diagnosis codes. The categorization of
diagnoses as an MCC, a CC, or a NonCC was accomplished using an
iterative approach in which each diagnosis was evaluated to determine
the extent to which its presence as a secondary diagnosis resulted in
increased hospital resource use. We refer readers to the FY 2008 IPPS/
LTCH PPS final rule (72 FR 47159) for a complete discussion of our
approach. Since the comprehensive analysis was completed for FY 2008,
we have evaluated diagnosis codes individually when assigning severity
levels to new codes and when receiving requests to change the severity
level of specific diagnosis codes.
We noted in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235
through 19246) that with the transition to ICD-10-CM and the
significant changes that have occurred to diagnosis codes since the FY
2008 review, we believed it was necessary to conduct a comprehensive
analysis once again. Based on this analysis, we proposed changes to the
severity level designations for 1,492 ICD-10-CM diagnosis codes and
invited public comments on those proposals. As summarized in the FY
2020 IPPS/LTCH PPS final rule, many commenters expressed concern with
the proposed severity level designation changes overall and recommended
that CMS conduct further analysis prior to finalizing any proposals.
After careful consideration of the public comments we received, as
discussed further in the FY 2020 IPPS/LTCH PPS final rule, we generally
did not finalize our proposed changes to the severity designations for
the ICD-10-CM diagnosis codes, other than the changes to the severity
level designations for the diagnosis codes in category Z16 (Resistance
to antimicrobial drugs) from a NonCC to a CC. We stated that postponing
adoption of the proposed comprehensive changes in the severity level
designations would allow further opportunity to provide additional
background to the public on the methodology utilized and clinical
rationale applied across diagnostic categories to assist the public in
its review. We refer readers to the FY 2020 IPPS/LTCH PPS final rule
(84 FR 42150 through 42152) for a complete discussion of our response
to public comments regarding the proposed severity level designation
changes for FY 2020.
As discussed in the FY 2021 IPPS/LTCH PPS proposed rule (85 FR
32550); to provide the public with more information on the CC/MCC
comprehensive analysis discussed in the FY 2020 IPPS/LTCH PPS proposed
and final rules, CMS hosted a listening session on October 8, 2019. The
listening session included a review of this methodology utilized to
mathematically measure the impact on resource use. We refer readers to
https://www.cms.gov/Outreach-and-Education/Outreach/OpenDoorForums/Downloads/10082019ListingSessionTrasncriptandQandAsandAudioFile.zip for
the transcript and audio file of the listening session. We also refer
readers to https://www.cms.gov/Medicare/MedicareFee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.html for
the supplementary file containing the mathematical data generated using
claims from the FY 2018 MedPAR file describing the impact on resource
use of specific ICD-10-CM diagnosis codes when reported as a secondary
diagnosis that was made available for the listening session.
In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58550 through
58554), we discussed our plan to continue a comprehensive CC/MCC
analysis, using a combination of mathematical analysis of claims data
as discussed in the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235)
and the application of nine guiding principles and plan to present the
findings and proposals in future rulemaking. The nine guiding
principles are as follows:
Represents end of life/near death or has reached an
advanced stage associated with systemic physiologic decompensation and
debility.
Denotes organ system instability or failure.
Involves a chronic illness with susceptibility to
exacerbations or abrupt decline.
Serves as a marker for advanced disease states across
multiple different comorbid conditions.
Reflects systemic impact.
Post-operative/post-procedure condition/complication
impacting recovery.
Typically requires higher level of care (that is,
intensive monitoring, greater number of caregivers, additional testing,
intensive care unit care, extended length of stay).
Impedes patient cooperation or management of care or both.
Recent (last 10 years) change in best practice, or in
practice guidelines and review of the extent to which these changes
have led to concomitant changes in expected resource use.
We refer readers to the FY 2021 IPPS/LTCH PPS final rule for a
complete summation of the comments we received for each of the nine
guiding principles and our responses to those comments.
In the FY 2022 IPPS/LTCH PPS proposed rule (86 FR 25175 through
25180), as another interval step in our comprehensive review of the
severity designations of ICD-10-CM diagnosis codes, we requested public
comments on a potential change to the severity level designations for
``unspecified'' ICD-10-CM diagnosis codes that we were considering
adopting for FY 2022. Specifically, we noted we were considering
changing the severity level designation of ``unspecified'' diagnosis
codes to a NonCC where there are other codes available in that code
subcategory that further specify the anatomic site. As summarized in
the FY 2022 IPPS/LTCH PPS final rule, many commenters expressed concern
with the potential severity level designation changes overall and
recommended that CMS delay any possible change to the designation of
these codes to give hospitals and their physicians time to prepare.
After careful consideration of the public comments we received, we
maintained the severity level designation of the ``unspecified''
diagnosis codes currently designated as a CC or MCC where there are
other codes available in that code subcategory that further specify the
anatomic site for
[[Page 36628]]
FY 2022. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86
FR 44916 through 44926) for a complete discussion of our response to
public comments regarding the potential severity level designation
changes. Instead, for FY 2022, we finalized a new Medicare Code Editor
(MCE) code edit for ``unspecified'' codes, effective with discharges on
and after April 1, 2022. We stated we believed finalizing this new edit
would provide additional time for providers to be educated while not
affecting the payment the provider is eligible to receive. We refer the
reader to section II.D.14.e. of the preamble of the FY 2022 IPPS/LTCH
PPS final rule (86 FR 44940 through 44943) for the complete discussion.
As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48866),
we stated that as the new unspecified edit became effective beginning
with discharges on and after April 1, 2022, we believed it was
appropriate to not propose to change the designation of any ICD-10-CM
diagnosis codes, including the unspecified codes that are subject to
the ``Unspecified Code'' edit, as we continue our comprehensive CC/MCC
analysis to allow interested parties the time needed to become
acclimated to the new edit.
In the FY 2023 IPPS/LTCH proposed rule (87 FR 28177 through 28181),
we also requested public comments on how the reporting of diagnosis
codes in categories Z55-Z65 might improve our ability to recognize
severity of illness, complexity of illness, and/or utilization of
resources under the MS-DRGs. We stated we were also interested in
receiving feedback on how we might otherwise foster the documentation
and reporting of the diagnosis codes describing social and economic
circumstances to more accurately reflect each health care encounter and
improve the reliability and validity of the coded data.
In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58755 through
58759), based on our analysis of the impact on resource use for the
ICD-10-CM Z codes that describe homelessness and after consideration of
public comments, we finalized changes to the severity levels for
diagnosis codes Z59.00 (Homelessness, unspecified), Z59.01 (Sheltered
homelessness), and Z59.02 (Unsheltered homelessness), from NonCC to CC.
In the FY 2025 proposed rule (89 FR 35995), we noted that since the
FY 2021 IPPS/LTCH PPS final rule we have continued to solicit feedback
regarding the nine guiding principles, as well as other possible ways
we can incorporate meaningful indicators of clinical severity. We
stated we had encouraged the public to provide a detailed explanation
of how applying a suggested concept or principle would ensure that the
severity designation appropriately reflects resource use for any
diagnosis code when providing feedback or comments. We also noted in
the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26748 through 26750) we
illustrated how the nine guiding principles might be applied in
evaluating changes to the severity designations of diagnosis codes in
our discussion of our proposed changes to the severity level
designation for certain diagnosis codes that describe homelessness.
After consideration of the ongoing feedback and comments we had
received, we proposed to finalize the nine guiding principles. After
consideration of the public comments received, and for the reasons
discussed, we finalized the nine guiding principles as listed
previously in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69076 through
69078). Accordingly, we stated that our evaluations to determine the
extent to which the presence of a diagnosis code as a secondary
diagnosis results in increased hospital resource use will include a
combination of mathematical analysis of claims data as discussed in the
FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19235) and the application
of the nine guiding principles.
Comment: A commenter stated that they applaud the inclusion of the
guiding principles that recognize organ system instability or failure,
chronic illness with susceptibility to exacerbations, conditions
requiring higher levels of care, and systemic impact. This commenter
stated that these principles appropriately capture the resource
intensity associated with managing complex infectious diseases. This
commenter also urged CMS to expedite the comprehensive CC/MCC analysis,
paying particular attention to diagnoses that describe infectious
conditions, and recommended that CMS consider additional factors
specific to infectious disease management such as antimicrobial
resistances, factors related to immunocompromised hosts and the role of
antimicrobial stewardship when reviewing these conditions.
Response: We thank the commenter for their support and appreciate
their feedback. We continue to welcome feedback regarding the guiding
principles, as well as other possible ways we can incorporate
meaningful indicators of clinical severity. We will examine these
suggestions as we continue the comprehensive CC/MCC analysis and will
provide more detail in future rulemaking.
Additionally, in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69079
through 69084), based on our analysis of the impact on resource use for
the ICD-10-CM diagnosis codes that describe inadequate housing and
housing instability, and after consideration of public comments, we
finalized changes to the severity levels for seven diagnosis codes for
FY 2025.
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18064), we did not receive any requests to change the severity level
designations of specific ICD-10-CM diagnosis codes. We stated at this
time, we believe it is appropriate to continue to formulate future next
steps in our comprehensive review of the severity designations of ICD-
10-CM diagnosis codes, rather than proposing to change the designation
of individual ICD-10-CM diagnosis codes. Therefore, we did not propose
any severity designation changes for FY 2026.
Comment: Commenters supported the decision to not propose any
severity designation changes for FY 2026. A commenter stated that they
appreciate CMS' commitment to refining the MS-DRG system to better
reflect hospital resource use.
Response: We appreciate the commenters' support.
Comment: Several commenters stated that they appreciate that CMS
finalized changes to the severity level designations for the diagnosis
codes in category Z16 (Resistance to antimicrobial drugs) from a NonCC
to a CC in the FY 2020 IPPS/LTCH PPS final rule. These commenters
stated that they continue to support these designations and encouraged
CMS to clarify that all current and future ICD-10-CM diagnosis codes
describing antimicrobial resistance will be appropriately designated as
CCs.
Other commenters encouraged CMS to examine the ICD-10-CM diagnosis
codes that describe longstanding persistent and permanent atrial
fibrillation to determine the hospital resource utilization related to
addressing these diagnoses and to analyze whether these codes should be
considered for severity designation changes. These commenters stated
that from a resource perspective, patients with longstanding persistent
atrial fibrillation or permanent atrial fibrillation require markedly
more intensive management and typically face longer operative times,
higher complication rates, prolonged hospital stays, and increased
readmission risk.
[[Page 36629]]
Response: We appreciate the feedback.
In response to the request that CMS clarify that all future ICD-10-
CM diagnosis codes describing antimicrobial resistance will be
designated as CCs, as discussed in prior rulemaking and in section
II.C.9 of this final rule, consistent with our established process for
assigning new diagnosis or new procedure codes to MDCs, MS-DRGs, and
the associated attributes (severity level and O.R. status), we examine
the MDCs, MS-DRG assignment and severity level designation of the
predecessor diagnosis codes to inform our assignments and designations.
We review the predecessor code and MS-DRG assignment most closely
associated with the new diagnosis or procedure code, and in the absence
of claims data, we consider other factors that may be relevant to the
MS-DRG assignment, including the severity of illness, treatment
difficulty, complexity of service and the resources utilized in the
diagnosis and/or treatment of the condition. As we have previously
noted, this process does not automatically result in the new diagnosis
or procedure code being assigned to the same MS-DRG or to have the same
designation as the predecessor code.
As we continue our comprehensive CC/MCC analysis, we may consider
proposing changes for other diagnosis codes in the future based on our
analysis of the impact on resource use, per our methodology, as
previously described, and consideration of the guiding principles
consistent with our annual process and will provide more detail in
future rulemaking. We have updated the Impact on Resource Use Files on
the CMS website so that the public can review the mathematical data for
the impact on resource use generated using claims from the FY 2019
through the FY 2024 MedPAR files. These files are posted on the CMS
website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.
We encourage individuals with comments about the severity level
designations of ICD-10-CM diagnosis codes to submit these comments no
later than October 20th of each year, via the Medicare Electronic
Application Request Information SystemTM
(MEARISTM) at: https://mearis.cms.gov/public/home, so that
they can be considered for possible inclusion in the annual proposed
rule. When submitting requests to change the severity level designation
of an ICD-10-CM diagnosis code when reported as a secondary diagnosis,
we encourage the public to review the mathematical data for the impact
on resource use generated using claims from the FY 2019 through the FY
2024 MedPAR files as well as to provide a detailed explanation of how
applying a suggested guiding principle would ensure that the severity
designation appropriately reflects resource use for any diagnosis code.
For new diagnosis codes approved for FY 2026, consistent with our
annual process for designating a severity level (MCC, CC, or NonCC) for
new diagnosis codes, we first review the predecessor code designation,
followed by review and consideration of other factors that may be
relevant to the severity level designation, including the severity of
illness, treatment difficulty, complexity of service and the resources
utilized in the diagnosis or treatment of the condition. We note that
this process does not automatically result in the new diagnosis code
having the same designation as the predecessor code. We refer the
reader to section II.C.9 of the preamble of this FY 2026 IPPS/LTCH PPS
final rule for the discussion of the finalized changes to the ICD-10-CM
and ICD-10-PCS coding systems for FY 2026.
c. Additions and Deletions to the Diagnosis Code Severity Levels for FY
2026
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18065), we stated
that the following tables identify the proposed additions and deletions
to the diagnosis code MCC and CC severity levels list for FY 2026 and
are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html
Table 6I.1--Proposed Additions to the MCC List--FY 2026;
Table 6I.2--Proposed Deletions to the MCC List--FY 2026;
Table 6J.1--Proposed Additions to the CC List--FY 2026; and
Table 6J.2--Proposed Deletions to the CC List--FY 2026.
We note that there was an inadvertent error in the listing of Table
6I.2 in the preamble of the proposed rule as there were no proposed
deletions to the MCC list for FY 2026 and Table 6I.2 was not developed
in association with the proposed rule.
Comment: Commenters agreed with the proposed additions and
deletions to the MCC and CC lists as shown in tables 6I.1, 6J.1, and
6J.2 associated with the proposed rule.
Response: We appreciate the commenters' support.
The following tables associated with this final rule reflect the
finalized severity levels under Version 43 of the ICD-10 MS-DRGs for FY
2026 and are available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps; Table
6I.--Complete MCC List--FY 2026; Table 6I.1--Additions to the MCC
List--FY 2026; Table 6J.--Complete CC List--FY 2026; Table 6J.1--
Additions to the CC List--FY 2026; and Table 6J.2--Deletions to the CC
List--FY 2026.
d. CC Exclusions List for FY 2026
In the September 1, 1987 final notice (52 FR 33143) concerning
changes to the DRG classification system, we modified the GROUPER logic
so that certain diagnoses included on the standard list of CCs would
not be considered valid CCs in combination with a particular principal
diagnosis. We created the CC Exclusions List for the following reasons:
(1) to preclude coding of CCs for closely related conditions; (2) to
preclude duplicative or inconsistent coding from being treated as CCs;
and (3) to ensure that cases are appropriately classified between the
complicated and uncomplicated DRGs in a pair.
In the May 19, 1987 proposed notice (52 FR 18886) and the September
1, 1987 final notice (52 FR 33154), we explained that the excluded
secondary diagnoses were established using the following five
principles:
Chronic and acute manifestations of the same condition
should not be considered CCs for one another;
Specific and nonspecific (that is, not otherwise specified
(NOS)) diagnosis codes for the same condition should not be considered
CCs for one another;
Codes for the same condition that cannot coexist, such as
partial/total, unilateral/bilateral, obstructed/unobstructed, and
benign/malignant, should not be considered CCs for one another;
Codes for the same condition in anatomically proximal
sites should not be considered CCs for one another; and
Closely related conditions should not be considered CCs
for one another.
The creation of the CC Exclusions List was a major project
involving hundreds of codes. We have continued to review the remaining
CCs to identify additional exclusions and to remove diagnoses from the
master list that have been shown not to meet the definition of a CC. We
refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR 50541
through 50544) for detailed information regarding revisions that were
made to
[[Page 36630]]
the CC and CC Exclusion Lists under the ICD-9-CM MS-DRGs.
The ICD-10 MS-DRGs Version 42.1 CC Exclusion List is included as
Appendix C in the ICD-10 MS-DRG Definitions Manual (available on the
CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) and includes three lists identified as Part 1, Part 2 and
Part 3. Part 1 is the list of all diagnosis codes that are defined as a
CC or MCC when reported as a secondary diagnosis. For all diagnosis
codes on the list, a link is provided to a collection of diagnosis
codes which, when reported as the principal diagnosis, would cause the
CC or MCC diagnosis to be considered as a NonCC. Part 2 is the list of
diagnosis codes designated as an MCC only for patients discharged
alive; otherwise, they are assigned as a NonCC. Part 3 is the list of
diagnosis codes that are designated as a CC or MCC and included in the
definition of the logic for the listed MS-DRGs. When reported as a
secondary diagnosis and grouped to one of the listed MS-DRGs, the
diagnosis is excluded from acting as a CC/MCC for severity in DRG
assignment (that is, suppression logic).
In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69093), we stated
that, because commenters had raised concerns regarding the principal
diagnoses listed under Part 1 of Appendix C-CC Exclusions List in
Principal Diagnosis Collection Lists 1379 and 1380 that exclude
diagnosis codes N18.5 (Chronic kidney disease, stage 5) and N18.6 (End
stage renal disease) from acting as a CC or MCC under the CC exclusion
logic in accordance with the list of five principles established in
1987, we intended to perform a broad review of the conditions in these
lists to determine if any modifications are warranted and to ensure
they continue to be clinically appropriate. In the FY 2026 IPPS/LTCH
PPS proposed rule (90 FR 18065), we noted that the Principal Diagnosis
Collection List numbers may change because of updates that are made to
the list annually through rulemaking. Therefore, while under Version
41.1 the principal diagnoses listed in Principal Diagnosis Collection
List numbers 1379 and 1380 exclude diagnosis codes N18.5 and N18.6 from
acting as a CC or MCC, under Version 42.1, the principal diagnoses
listed in Principal Diagnosis Collection List numbers 1330 and 1331
exclude diagnosis codes N18.5 and N18.6 from acting as a CC or MCC.
Accordingly, we reviewed the list of principal diagnosis codes listed
in Principal Diagnosis Collection List numbers 1330 and 1331 that
exclude diagnosis codes N18.5 and N18.6 from acting as a CC or MCC to
assess clinical appropriateness.
As discussed in the preamble of the FY 2026 IPPS/LTCH PPS proposed
rule, the findings from our review indicated several of the listed
conditions, when reported as a principal diagnosis, are not applicable
to exclude the designated N18.5 or N18.6 secondary CC/MCC diagnosis
code under application of our five established principles finalized in
the September 1, 1987 final notice (52 FR 33154) previously discussed.
For example, diagnosis codes describing diabetes with other specified
complications such as arthropathy, periodontal disease, or a foot
ulcer, and diagnosis codes describing endometriosis, are not chronic
and acute manifestations of, or closely related conditions to, chronic
kidney disease, stage 5 (code N18.5) or end stage renal disease (code
N18.6), nor are they describing codes for the same condition that
cannot coexist.
As previously described, the Principal Diagnosis Collection List
numbers may change because of updates that are made to the list
annually through rulemaking. We noted that, under proposed Version 43,
the proposed Principal Diagnosis Collection List number to exclude
diagnosis codes N18.5 and N18.6 from acting as a CC or MCC is 1335. We
therefore proposed to remove the diagnosis codes listed in Table 6P.8a
associated with the FY 2026 IPPS/LTCH PPS proposed rule and available
via the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps from Principal
Diagnosis Collection List number 1335 under proposed Version 43. In the
proposed rule (90 FR 18065), we stated that findings from our internal
review also indicated that diagnosis code I12.9 (Hypertensive chronic
kidney disease with stage 1 through stage 4 chronic kidney disease, or
unspecified chronic kidney disease) is currently listed in Principal
Diagnosis Collection List number 1331 and excludes diagnosis code N18.6
from acting as an MCC; however, diagnosis code I12.9 is not currently
listed in the Principal Diagnosis Collection List number 1330 to
exclude diagnosis code N18.5. We stated we believe it is clinically
appropriate to add diagnosis code I12.9 to Principal Diagnosis
Collection List number 1335 under Version 43 because it would not be
expected that a secondary diagnosis of N18.5 would be reported with a
principal diagnosis of I12.9. As also discussed in the proposed rule,
during our internal review we identified diagnosis code I13.0
(Hypertensive heart and chronic kidney disease with heart failure and
stage 1 through stage 4 chronic kidney disease, or unspecified chronic
kidney disease) and diagnosis code I13.10 (Hypertensive heart and
chronic kidney disease without heart failure, with stage 1 through
stage 4 chronic kidney disease, or unspecified chronic kidney disease)
that we believe are appropriate to add to Principal Diagnosis
Collection List number 1335 to exclude diagnosis codes N18.5 and N18.6
from acting as a CC/MCC when reported because the conditions describe
chronic kidney disease, stage 5 and end stage renal disease (ESRD) and
it would not be clinically appropriate to have a principal diagnosis
describing stage 1 through stage 4 chronic kidney disease reported with
chronic kidney disease, stage 5 or ESRD.
In summary, we proposed to add diagnosis code I12.9 to Principal
Diagnosis Collection List number 1335 to exclude diagnosis code N18.5
from acting as a CC, proposed to remove the diagnosis codes listed in
Table 6P.8a associated with the FY 2026 IPPS/LTCH PPS proposed rule and
available via the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps from Principal
Diagnosis Collection List number 1335, and proposed to add diagnosis
codes I13.0 and I13.10 to Principal Diagnosis Collection List number
1335 to exclude diagnosis codes N18.5 and N18.6 from acting as a CC/
MCC.
Comment: Several commenters agreed with our proposals to add
diagnosis code I12.9 to Principal Diagnosis Collection List number 1335
to exclude diagnosis code N18.5 from acting as a CC, remove the
diagnosis codes listed in Table 6P.8a associated with the FY 2026 IPPS/
LTCH PPS proposed rule and available via the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps from Principal Diagnosis Collection List number 1335, and
to add diagnosis codes I13.0 and I13.10 to Principal Diagnosis
Collection List number 1335 to exclude diagnosis codes N18.5 and N18.6
from acting as a CC/MCC. However, a commenter disagreed with the
proposed addition of diagnosis codes I13.0 and I13.10 to principal
diagnosis collection list number 1335 to exclude diagnosis codes N18.5
and N18.6 from acting as a CC/MCC. According to the commenter,
diagnosis codes I13.0 and I13.10 are combination codes and do not
differentiate between a patient that is being admitted for congestive
heart failure (CHF) or
[[Page 36631]]
chronic kidney disease (CKD). The commenter stated that the exclusion
of codes N18.5 and N18.6 eliminates the complexity of these patients
and the additional resources in management of their renal function when
admitted for cardiogenic related conditions.
Response: We appreciate the commenters' support and feedback. In
response to the commenter who disagreed with the proposal to exclude
diagnosis codes N18.5 and N18.6 from acting as a CC/MCC when diagnosis
code I13.0 or I13.10 is assigned as the principal diagnosis, we note
that, as discussed in the FY 2026 IPPS/LTCH PPS proposed rule, the
conditions described by diagnosis codes N18.5 and N18.6 describe
chronic kidney disease, stage 5 and end stage renal disease (ESRD),
respectively, and it would not be clinically appropriate to have a
principal diagnosis describing stage 1 through stage 4 chronic kidney
disease reported with chronic kidney disease, stage 5 or ESRD. We also
note that in the ICD-10-CM Tabular List of Diseases, there are
instructional notes at diagnosis codes I13.0 and I13.10 that
specifically direct the user to ``Use additional code to identify the
stage of chronic kidney disease (N18.1-N18.4, N18.9)''. The
instructional note does not list diagnosis codes N18.5 or N18.6 because
they are not clinically applicable, as previously described. There is
also another instructional note in the ICD-10-CM Tabular List of
Diseases at diagnosis code I13.0 that specifically directs the user to
``Use additional code to identify the type of heart failure (I50.-)''
because diagnosis code I13.0 describes ``with heart failure'' (while
diagnosis code I13.10 describes ``without heart failure''). With
respect to the commenter's statement that the combination codes (I13.0
and I13.10) do not differentiate between a patient that is being
admitted for CHF or CKD, we note that because these codes are
classified as combination codes, they include both a CHF and CKD
component. Therefore, the appropriate combination code (I13.0 or
I13.10) is assigned on a claim to accurately reflect the conditions
documented, and any additional codes would be assigned based on the
Tabular instructions.
After consideration of the public comments we received, we are
finalizing our proposals to add diagnosis code I12.9 to Principal
Diagnosis Collection List number 1335 to exclude diagnosis code N18.5
from acting as a CC, remove the diagnosis codes listed in Table 6P.8a
associated with this FY 2026 IPPS/LTCH PPS final rule and available via
the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps from Principal Diagnosis Collection
List number 1335, and to add diagnosis codes I13.0 and I13.10 to
Principal Diagnosis Collection List number 1335 to exclude diagnosis
codes N18.5 and N18.6 from acting as a CC/MCC, effective October 1,
2025 for FY 2026.
We intend to continue this type of internal review to ensure all
the other Principal Diagnosis Collection lists reflect the appropriate
codes in connection with the CC/MCC secondary diagnosis code that is
excluded from acting as a CC/MCC. Any proposed changes to the lists
will be discussed in future rulemaking. To inform future rulemaking,
feedback and other suggestions may be submitted by October 20, 2025,
and directed to MEARISTM at: https://mearis.cms.gov/public/home.
As discussed in the proposed rule (90 FR 18066 through 18067), we
also performed an internal review of the diagnoses listed in Appendix
C--Part 2: Codes That are Major CC Only if Patient Discharged Alive.
The diagnoses listed in Part 2 of Appendix C are assigned as an MCC
only for patients discharged alive, otherwise the codes are assigned as
a NonCC. The diagnoses listed in Part 2 in Version 42.1 are shown in
the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.119
In developing Appendix C--Part 2: Codes That are Major CC Only if
Patient Discharged Alive (72 FR 47161 through 47168), the claims data
were evaluated to determine if there was a difference in resource use
between cases in which the patient was discharged alive or died during
the hospital stay. For most secondary diagnoses, the charges were
similar for the two groups. However, there were a few diagnoses where
the difference in charges and clinical considerations supported a
different CC designation for patients who died before discharge. For
these diagnoses, the patients who were discharged alive required
significantly more hospital resources than the patients who died.
Therefore, when reported as a secondary diagnosis, each of the
diagnoses is designated as an MCC in cases where the patient is
discharged alive and as a NonCC in cases where the patient died.
As discussed in the preamble of the FY 2026 IPPS/LTCH PPS proposed
rule, we analyzed claims data from the September 2024 update of the FY
2024 MedPAR file for the diagnoses currently listed in Appendix C--Part
2. Our findings are reflected in the following table:
[[Page 36632]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.120
As shown in the table, the data reflect that most of the conditions
currently listed in Appendix C--Part 2, utilize hospital resources as
expected, with the patients who were discharged alive (without
discharge status 20) requiring significantly more hospital resources
than the patients who expired (with discharge status 20), as
demonstrated by the longer lengths of stay and higher average costs of
these cases. However, we noted in the proposed rule that the resource
utilization for cases reporting R57.1 (Hypovolemic shock) as a
secondary diagnosis appear to be comparable whether the patient was
discharged alive or the patient expired. As reflected in the table, the
claims data from the September 2024 update of the FY 2024 MedPAR file
reflect that code R57.1 was reported as a secondary diagnosis in 32,614
cases where the patient was discharged alive. These cases had average
costs of $39,051 and an average length of stay of 10.8 days. In the
6,476 cases where R57.1 was reported as a secondary diagnosis and the
patient expired, the average costs were slightly lower ($38,697 versus
$39,051) and the average length of stay was slightly shorter (8.3 days
versus 10.8 days). We reviewed this issue and noted clinically, the
recommended treatment for hypovolemic shock is immediate intervention
with fluid resuscitation with intravenous (IV) fluids, blood
transfusions, and vasoactive drugs. Hypovolemic shock generally has a
lower mortality rate and responds to timely treatment. As the claims
data no longer reflect that patients reporting hypovolemic shock as
secondary diagnosis that are discharged alive require significantly
more hospital resources than the patients who expire, we proposed to
remove code R57.1 from the list found in Appendix C--Part 2: Codes That
are Major CC Only if Patient Discharged Alive. We noted that under this
proposal, when reported as a secondary diagnosis, R57.1 (Hypovolemic
shock) will be assigned as an MCC when the patient is discharged alive
or if the patient expires.
Comment: Commenters expressed support for our proposal to remove
code R57.1 from the list found in Appendix C--Part 2: Codes That are
Major CC Only if Patient Discharged Alive.
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal to remove code R57.1 (Hypovolemic shock) from
the list found in Appendix C--Part 2: Codes That are Major CC Only if
Patient Discharged Alive, without modification, effective October 1,
2025. Under this finalization, when reported as a secondary diagnosis,
R57.1 will be assigned as an MCC when the patient is discharged alive
or if the patient expires.
Based on our review, we considered if it was appropriate to add
other diagnosis codes describing shock to Appendix C--Part 2.
Specifically, we considered code T79.4XXA (Traumatic shock, initial
encounter). ICD-10-CM diagnosis code T79.4XXA is currently designated
as an MCC when reported as secondary diagnoses. Traumatic shock
represents a unique pathological condition that begins with multiple,
usually blunt, trauma and may conclude with acute respiratory distress
syndrome, coagulopathy, sepsis, multiple organ dysfunction syndrome and
death.
As discussed in the proposed rule, we analyzed claims data from the
September 2024 update of the FY 2024 MedPAR file for cases reporting
T79.4XXA as a secondary diagnosis and our findings are reflected in the
following table:
[GRAPHIC] [TIFF OMITTED] TR04AU25.121
As reflected in the table, the claims data from the September 2024
update of the FY 2024 MedPAR file indicate that T79.4XXA was reported
as a secondary diagnosis in 1,187 cases where the patient was
discharged alive. These cases had average costs of $79,218 and an
average length of stay of 16.1 days. In the 553 cases where T79.4XXA
was reported as a secondary diagnosis and the patient expired, the
average costs were considerably lower ($48,880 versus $79,218) and the
average length of stay was much shorter (6.5 days versus 16.1 days).
As the data reflect that cases reporting traumatic shock, initial
encounter, as a secondary diagnosis for patients that are discharged
alive require significantly more hospital resources than the patients
who expire, we proposed to add code T79.4XXA to the list found in
Appendix C--Part 2: Codes That are Major CC Only if Patient Discharged
Alive. We noted that under this proposal, when reported as a secondary
diagnosis, T79.4XXA (Traumatic shock, initial encounter) would be
assigned as an MCC only when the patient is discharged alive.
Comment: Commenters expressed support for our proposal to add code
T79.4XXA to the list found in Appendix C--Part 2: Codes That are Major
CC Only if Patient Discharged Alive.
[[Page 36633]]
Response: We appreciate the commenters' support.
After consideration of the public comments we received, we are
finalizing our proposal to add code T79.4XXA (Traumatic shock, initial
encounter) to the list found in Appendix C--Part 2: Codes That are
Major CC Only if Patient Discharged Alive, without modification,
effective October 1, 2025. Under this finalization, when reported as a
secondary diagnosis, T79.4XXA would be assigned as an MCC only when the
patient is discharged alive.
In summary, the proposals and related findings discussed in
connection with Appendix C and finalized in this section of the
preamble of this final rule are reflected in the Version 43 ICD-10 MS-
DRG Definitions Manual, which is available in association with this
final rule at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18067), we
proposed additional changes to the ICD-10 MS-DRGs Version 43 CC
Exclusion List based on the diagnosis code updates as discussed in
section II.C.13. of the preamble of the proposed rule and set forth in
Tables 6G.1, 6G.2, 6H.1, and 6H.2 associated with the proposed rule and
available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.
We did not receive any public comments opposing the proposed CC
Exclusions List.
The finalized CC Exclusions List as displayed in Tables 6G.1, 6G.2,
6H.1, 6H.2, and 6K, associated with this final rule reflect the
additions, deletions, and complete list of CC exclusions under Version
43 of the ICD-10 MS-DRGs. We have developed Table 6G.1.--Secondary
Diagnosis Order Additions to the CC Exclusions List--FY 2026; Table
6G.2.--Principal Diagnosis Order Additions to the CC Exclusions List--
FY 2026; Table 6H.1.--Secondary Diagnosis Order Deletions to the CC
Exclusions List--FY 2026; and Table 6H.2.--Principal Diagnosis Order
Deletions to the CC Exclusions List--FY 2026; and Table 6K. Complete
List of CC Exclusions--FY 2026. Tables 6G.1., 6G.2., 6H.1., 6H.2., and
6K associated with this FY 2026 IPPS/LTCH PPS final rule are available
on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
For Table 6G.1, each secondary diagnosis code finalized for
addition to the CC Exclusion List is shown with an asterisk and the
principal diagnoses that exclude the secondary diagnosis code are
provided in the indented column immediately following it. For Table
6G.2, each of the principal diagnosis codes for which there is a CC
exclusion is shown with an asterisk and the conditions finalized for
addition to the CC Exclusion List that will not count as a CC are
provided in an indented column immediately following the affected
principal diagnosis. For Table 6H.1, each secondary diagnosis code
finalized for deletion from the CC Exclusion List is shown with an
asterisk followed by the principal diagnosis codes that exclude it. For
Table 6H.2, each of the principal diagnosis codes is shown with an
asterisk and the finalized deletions to the CC Exclusions List are
provided in an indented column immediately following the affected
principal diagnosis. Table 6K contains a list of all of the codes that
are defined as either a CC or MCC when assigned as a secondary
diagnosis. Each CC or MCC secondary diagnosis code is assigned to a
principal diagnosis number that reflects a collection of diagnosis
codes which, when reported as the principal diagnosis, will cause the
CC or MCC secondary diagnosis to be considered as only a non-CC
secondary diagnosis.
9. Changes to the ICD-10-CM and ICD-10-PCS Coding Systems
To identify new, revised, and deleted diagnosis and procedure
codes, for FY 2026, we have developed Table 6A.--New Diagnosis Codes,
Table 6B.--New Procedure Codes, Table 6C.--Invalid Diagnosis Codes,
Table 6D.--Invalid Procedure Codes, Table 6E.--Revised Diagnosis Code
Titles, and Table 6F.--Revised Procedure Code Titles for this FY 2026
IPPS/LTCH PPS final rule.
These tables are not published in the Addendum to the proposed rule
or final rule, but are available on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html as described in section VI. of the
Addendum to this FY 2026 IPPS/LTCH PPS final rule. As discussed in
section II.C.11. of the preamble of this FY 2026 IPPS/LTCH PPS final
rule, the code titles are adopted as part of the ICD-10 Coordination
and Maintenance Committee meeting process. Therefore, although we
publish the code titles in the IPPS proposed and final rules, they are
not subject to comment in the proposed or final rules.
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18067 through
18068), we proposed the MDC and MS-DRG assignments for the new
diagnosis codes and procedure codes as set forth in Table 6A.--New
Diagnosis Codes and Table 6B.--New Procedure Codes. We also stated that
the proposed severity level designations for the new diagnosis codes
are set forth in Table 6A. and the proposed O.R. status for the new
procedure codes are set forth in Table 6B. Consistent with our
established process, we examined the MS-DRG assignment and the
attributes (severity level and O.R. status) of the predecessor
diagnosis or procedure code, as applicable, to inform our proposed
assignments and designations.
Specifically, we reviewed the predecessor code and MS-DRG
assignment most closely associated with the new diagnosis or procedure
code, and in the absence of claims data, we considered other factors
that may be relevant to the MS-DRG assignment, including the severity
of illness, treatment difficulty, complexity of service and the
resources utilized in the diagnosis and/or treatment of the condition.
We noted that this process does not automatically result in the new
diagnosis or procedure code being proposed for assignment to the same
MS-DRG or to have the same designation as the predecessor code.
In this FY 2026 IPPS/LTCH PPS final rule, we present a summation of
the comments we received in response to the proposed assignments, our
responses to those comments, and our finalized policies.
Comment: Several commenters supported the proposed MDC and MS-DRG
assignments for the new diagnosis codes and procedure codes as set
forth in Table 6A.--New Diagnosis Codes and Table 6B.--New Procedure
Codes. A commenter expressed appreciation for the new diagnosis codes
finalized that describe ``Fontan physiology'' (I27.840, Fontan-
associated liver disease [FALD]; I27.841, Fontan-associated lymphatic
dysfunction; I27.848, Other Fontan-associated condition; and I27.849,
Fontan related circulation, unspecified) and stated they are needed.
The commenter also stated they were thankful for the work the Committee
and the submitters do to keep the code set current and accurate.
Another commenter expressed strong support for the new diagnosis codes
finalized related to pyrophosphate metabolism (E83.82, ENPP1 deficiency
causing generalized arterial calcification of infancy; E83.822, ENPP1
deficiency causing autosomal recessive hypophosphatemic rickets type 2;
E83.823, ABCC6 deficiency causing generalized arterial calcification of
infancy; and E83.824, ABCC6 deficiency causing pseudoxanthoma
elasticum) and stated providers and medical coders
[[Page 36634]]
will now be better equipped to more specifically document and report,
which will be very useful for tracking patients diagnosed with these
rare conditions and help to improve patient outcomes.
Response: We appreciate the commenters' support and feedback.
Comment: A commenter (the manufacturer) requested that CMS assign
procedure code X2H13XB (Insertion of temporary phrenic nerve/diaphragm
stimulation electrodes into superior vena cava, percutaneous approach,
new technology group 11) that can be reported to describe use of the
AeroPace[supreg] System, to MS-DRG 003 (ECMO or Tracheostomy with MV
>96 Hours or Principal Diagnosis Except Face, Mouth and Neck with Major
O.R. Procedures), MS-DRG 004 (Tracheostomy with MV >96 Hours or
Principal Diagnosis Except Face, Mouth and Neck without Major O.R.
Procedures), MS-DRG 207 (Respiratory System Diagnosis with Ventilator
Support >96 Hours), and MS-DRG 870 (Septicemia or Severe Sepsis with MV
>96 Hours). The commenter stated that based on the predecessor code,
CMS assigned this new procedure code to MS-DRG 264 (Other Circulatory
System O.R. Procedures) under MDC 05 (Diseases and Disorders of the
Circulatory System) and to MS-DRGs 981, 982, and 983 (Extensive O.R.
Procedures Unrelated to Principal Diagnosis with MCC, with CC, and
without CC/MCC, respectively) as reflected in Table 6B.--New Procedure
Codes. The commenter also stated that it understands these are
preliminary MS-DRG assignments and do not limit the MS-DRGs to which a
case may group.
According to the commenter, because the Food and Drug
Administration (FDA) indication for use of the technology is in
patients ages 18 years or older on mechanical ventilation
96 hours and who have not weaned, procedure code X2H13XB will be
reported on claims that also report procedure code 5A1955Z (Respiratory
ventilation, greater than 96 consecutive hours). The commenter stated
that the data described in the new technology add-on payment
application demonstrate that over 60 percent of beneficiaries who have
received greater than 96 hours of mechanical ventilation are assigned
to MS-DRGs 003, 004, 207, and 870.
Response: We thank the commenter for their feedback. We note that
procedure code X2H13XB may be reported to describe the use of the
AeroPace[supreg] System and was finalized following the September 10-
11, 2024 ICD-10 Coordination and Maintenance Committee meeting. The
materials for the discussion related to this topic are located on the
CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials.
Under our established process, we reviewed the predecessor code and
MS-DRG assignment most closely associated with the new procedure code.
We note that because the procedure code that identifies use of the
AeroPace[supreg] System is describing temporary transvenous diaphragm
activation via stimulation of the phrenic nerve(s), the predecessor
code is 02HV3YZ (Insertion of other device into superior vena cava,
percutaneous approach), which is designated as an O.R. procedure and
assigned to MS-DRG 264 under MDC 05.
The logic for case assignment to Pre-MDC MS-DRG 003 (ECMO or
Tracheostomy with MV >96 Hours or Principal Diagnosis Except Face,
Mouth and Neck with Major O.R. Procedures) requires that either a
procedure code describing extracorporeal membrane oxygenation (ECMO) or
a procedure code describing a tracheostomy procedure with procedure
code 5A1955Z is reported with any principal diagnosis that is not
assigned to MS-DRGs 011, 012, or 013 (Tracheostomy for Face, Mouth and
Neck Diagnoses or Laryngectomy with MCC, with CC, and without CC/MCC,
respectively) and with a procedure code that is designated as a major
operating room (O.R.) procedure. Accordingly, the appropriate MS-DRG
assignment to Pre-MDC MS-DRG 003 or to Pre-MDC MS-DRG 004 would be
determined when procedure code X2H13XB is reported on a claim with
procedure codes that satisfy the logic for case assignment to the
respective Pre-MDC MS-DRG.
We note that when procedure code X2H13XB is reported on a claim
with procedure code 5A1955Z and a principal diagnosis from MDC 04
(Diseases and Disorders of the Respiratory System), the MS-DRG
assignment will result in MS-DRG 207 (Respiratory System Diagnosis with
Ventilator Support >96 Hours). Specifically, the logic for case
assignment to MS-DRG 207 requires any principal diagnosis from MDC 04
with procedure code 5A1955Z. When procedure code X2H13XB is reported on
a claim with procedure code 5A1955Z and a principal diagnosis
describing septicemia, the MS-DRG assignment will result in MS-DRG 870
(Septicemia or Severe Sepsis with MV >96 Hours). In those scenarios, it
is the respiratory ventilation procedure code and the principal
diagnosis that will determine the MS-DRG assignment. We refer the
reader to the ICD-10 MS-DRG Definitions Manual, Version 43 available in
association with this final rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for complete
documentation of the GROUPER logic.
Comment: Commenters expressed support for the seven new diagnosis
codes describing various types of hyperoxaluria and the proposed CC
severity level designation for three of the new codes as reflected in
Table 6A.--New Diagnosis Codes that was made publicly available in
association with the proposed rule. However, the commenters stated that
the remaining four new codes were not proposed to be designated as CCs
and recommended that CMS reconsider the proposed designations. A
commenter stated that each hyperoxaluria type involves the excessive
excretion of oxalate in urine that can lead to kidney stones and
therefore, all seven codes should be considered for a CC designation.
Response: We appreciate the commenters' feedback. The seven new
diagnosis codes describing various types of hyperoxaluria and their
proposed severity level designation are shown in the following table:
[[Page 36635]]
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Consistent with our established process, we identified diagnosis
code E72.53 (Primary hyperoxaluria) which is designated as a CC, as the
predecessor code for the three diagnosis codes describing a specified
type of primary hyperoxaluria (E72.530, E72.538, and E72.539). We
identified diagnosis code R82.992 (Hyperoxaluria) which is designated
as a NonCC, as the predecessor code for the four diagnosis codes
proposed to be designated as NonCC (E72.540, E72.541, E72.548, and
E72.549). We also reviewed the FY 2024 Impact on Resource Use file
available via the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software for the predecessor codes and the C1, C2, and C3 counts
reflected in the following table. We refer readers to the FY 2008 IPPS/
LTCH PPS final rule (72 FR 47159) for a complete discussion of our
historical approach to mathematically evaluate the extent to which the
presence of an ICD-10-CM code as a secondary diagnosis resulted in
increased hospital resource use, and a more detailed explanation of the
columns in the table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.123
The table shows that for diagnosis code E72.53 the C1 finding is
1.19 and the C2 finding is 2.90, and for diagnosis code R82.992, the C1
finding is 1.06 and the C2 finding is 2.10. A higher value in the C1
(or C2 and C3) field suggests more resource usage is associated with
the diagnosis and an increased likelihood that it is more like a CC or
MCC than a NonCC. Thus, a value close to 2.0 suggests the condition is
more like a CC than a NonCC but not as significant in resource usage as
an MCC. A value close to 3.0 suggests the condition is expected to
consume resources more similar to an MCC than a CC or NonCC. The data
suggest that when diagnosis code E72.53 is reported as a secondary
diagnosis the resources involved in caring for a patient diagnosed with
primary hyperoxaluria are aligned with a CC and may also consume
resources more similar to an MCC. The data suggest that when diagnosis
code R82.992 is reported as a secondary diagnosis that the resources
involved in caring for a patient diagnosed with hyperoxaluria are more
aligned with a NonCC.
Comment: Several commenters indicated their support for the
initiative to refine ICD-10 coding for immune complex
membranoproliferative glomerulonephritis (IC-MPGN), though they also
expressed concerns regarding the finalized new diagnosis codes.
Specifically, a commenter stated that historically, IC-MPGN and C3
glomerulonephritis (C3G) (code N00.A, acute nephritic syndrome with C3
glomerulonephritis) were two distinct but related conditions, and based
on that understanding, the proposed codes make sense. However, the
commenter reported that new evidence has emerged suggesting that IC-
MPGN and C3G may actually be a spectrum of the same condition and some
patients can present with IC-MPGN initially and a repeat kidney biopsy
might show C3G or the opposite (that is, some patients can present with
C3G initially and a repeat kidney biopsy might show IC-MPGN). According
to the commenter, the true distinction between these two diagnoses is
currently uncertain. The commenter suggested that new codes be
developed to address circumstances where the distinction between IC-
MPGN and C3G cannot be determined. Other commenters stated similar
concerns and suggested that reconsideration be given to the
implementation of these new codes, including postponement, until
treatment pathways for these conditions become more distinctly defined.
Response: We appreciate the commenters' feedback. We note that the
Centers for Disease Control and Prevention's National Center for Health
Statistics (CDC/NCHS) has lead responsibility for updates and
maintenance to the ICD-10-CM diagnosis code set and the code proposal
for Immune Complex-mediated Membranoproliferative Glomerulonephritis
(IC-MPGN) was discussed at the September 10-11, 2024 ICD-10
Coordination and Maintenance Committee meeting. The materials for the
discussion relating to this topic are located on the CDC website at:
https://www.cdc.gov/nchs/icd/icd-10-maintenance/meetings.html.
The finalized diagnosis codes describing IC-MPGN are:
[[Page 36636]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.124
We communicated with the CDC/NCHS staff regarding the feedback and
concerns expressed by the commenters with respect to the new codes and
they indicated that the public comments received in response to the
code proposal were all in support.
Comment: A commenter stated that CMS proposed to assign ICD-10-PCS
code D228DZZ (Stereotactic other photon radiosurgery of conduction
mechanism) to MS-DRG 317 (Concomitant Left Atrial Appendage Closure and
Cardiac Ablation). The commenter indicated that the ICD-10 meeting
materials describe the code proposal as enabling the capture of
procedures such as cardiac stereotactic body radiotherapy (SBRT).
Additionally, the commenter stated the meeting materials reflect that
cardiac SBRT, also called cardiac radioablation, is a non-invasive
procedure to treat ventricular tachycardia (VT) that allows for the
precise delivery of high-dose radiation to target tissue to any desired
area within the body, including areas that may be inaccessible in
traditional catheter ablation while also minimizing radiation exposure
to adjacent anatomic structures. Alternatively, the commenter reported
that intracardiac catheter ablation procedures are either percutaneous
or surgical procedures, often involving femoral access and transeptal
puncture to access the left atrium and ablate electrical irregularities
causing atrial fibrillation. According to the commenter, because of the
non-invasive nature of the cardiac SBRT procedure, its application to
the treatment of VT, and the lack of identifiable current clinical
concomitant performance with left atrial appendage closure (LAAC)
during the same operative session, they stated their belief that the
new procedure code (D228DZZ) is inappropriately proposed for assignment
to MS-DRG 317. The commenter requested that CMS reconsider the
appropriateness of this proposed assignment as well as the potential
need for a different assignment when cardiac SBRT is performed without
percutaneous LAAC.
Response: We appreciate the commenter's feedback. The proposal for
a new procedure code to describe SBRT was discussed at the September
10, 2024 ICD-10 Coordination and Maintenance Committee meeting. We
refer the reader to the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials for additional detailed
information regarding the code request, including a recording of the
discussion and the related meeting materials.
Procedure code D228DZZ was approved and finalized following the
review and consideration of public comments effective with discharges
on and after April 1, 2025, as reflected in Table 6B associated with
the proposed rule (and available via the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps).
Under our established process, we reviewed the predecessor code.
The predecessor code for SBRT is 02583ZZ (Destruction of conduction
mechanism, percutaneous approach) which is designated as an O.R.
procedure and is assigned to MS-DRGs 273 and 274 (Percutaneous and
Other Intracardiac Procedures with MCC and without MCC, respectively)
in addition to MS-DRG 317. Because SBRT is not considered an
intracardiac catheter ablation procedure we did not propose assignment
to MS-DRGs 273 and 274.
We acknowledge that SBRT and LAAC procedures may be performed for
separate and distinct cardiac conditions (that is, ventricular
tachycardia and atrial fibrillation, respectively) as reflected in the
September 10, 2024 ICD-10 Coordination and Maintenance Committee
meeting materials, however, recent studies also suggest that SBRT or
stereotactic arrhythmia radioablation (STAR) may be indicated as a non-
invasive treatment option for atrial fibrillation. Although studies are
ongoing, we believe the assignment of SBRT to MS-DRG 317 is appropriate
at this time. We note that if there is a lack of concomitant LAAC and
SBRT procedures performed, there is no significant impact since, as
previously stated, the designation of the procedure code that describes
SBRT is designated as non-O.R. Specifically, in response to the
commenter's request that CMS consider the potential need for a
different assignment when cardiac SBRT is performed without
percutaneous LAAC, we note that because the designation of procedure
code D228DZZ is non-O.R., the reporting of procedure code D228DZZ only
impacts the MS-DRG assignment when reported with a LAAC procedure as
listed in the logic for case assignment to MS-DRG 317. Accordingly,
when procedure code D228DZZ is reported in the absence of an LAAC
procedure, the MS-DRG assignment is dependent on the reported principal
diagnosis, any secondary diagnoses defined as a CC or MCC, other
procedures or services performed, age, sex, and discharge status.
Comment: A commenter stated that the proposed MS-DRG assignment for
new diagnosis code E11.A (Type 2 diabetes mellitus without
complications in remission) to MDC 10 (Endocrine, Nutritional and
Metabolic Diseases and Disorders) in MS-DRGs 637, 638, and 639
(Diabetes with MCC, with CC, and without CC/MCC, respectively) as
listed in Table 6A in association with the FY 2026 IPPS/LTCH PPS
proposed rule is not entirely consistent with the MS-DRG assignments of
the predecessor code, E11.9 (Type 2 diabetes mellitus without
complications). According to the commenter, in addition to MDC 10,
diagnosis code E11.9 is also currently mapped to Pre-MDC MS-DRG 008
(Simultaneous Pancreas and Kidney Transplant), Pre-MDC MS-DRG 010
(Pancreas Transplant), and Pre-MDC MS-DRG 019 (Simultaneous Pancreas
and Kidney Transplant with Hemodialysis), as are diagnosis codes E08.9
(Diabetes mellitus due to underlying condition without complications),
E09.9 (Drug or chemical induced diabetes mellitus without
complications), E10.9 (Type 1 diabetes mellitus without complications),
and E13.9 (Other specified diabetes mellitus without complications. The
commenter stated that each of these five diagnoses describes a specific
type of diabetes ``without complications''. However, the commenter also
indicated that the five diagnosis codes do not appear to be clinically
appropriate to be listed in the logic for Pre-MDC MS-DRGs 008, 010, and
019 because these MS-DRGs are defined by transplant procedures that are
indicated for the treatment of diabetes ``with complications''.
According to the commenter, a transplant procedure that is assigned to
any one of the previously listed Pre-
[[Page 36637]]
MDC MS-DRGs would not be indicated for a patient diagnosed with
diabetes that does not have any associated complications of the
diabetes. The commenter suggested that CMS review the clinical
appropriateness for assignment of these five diagnosis codes and
consider removing them from the logic for Pre-MDC MS-DRGs 008, 010, and
019 and only maintaining assignment to MS-DRGs 637, 638, and 639 under
MDC 10 for FY 2026.
Response: We thank the commenter for the feedback. The commenter is
correct that the predecessor code E11.9 (as reflected in the FY 2026
ICD-10-CM Conversion Table available via the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes) for new diagnosis
code E11.A currently maps to Pre-MDC MS-DRGs 008, 010, and 019, in
addition to MDC 10 MS-DRGs 637, 638, and 639. The commenter is also
correct that diagnosis codes E08.9, E09.9, E10.9, and E13.9 describe
specific types of diabetes ``without complications''. We agree with the
commenter that these codes are not clinically appropriate to be listed
in the logic for case assignment to Pre-MDC MS-DRGs 008, 010, and 019
because as the commenter noted, these MS-DRGs are defined by transplant
procedures that are indicated for the treatment of diabetes ``with
complications''. In light of these findings, we examined claims data
from the September 2024 update of the FY 2024 MedPAR file for Pre-MDC
MS-DRGs 008, 010, and 019 and for cases reporting any one of the five
listed diagnoses. Our analysis yielded zero cases reporting any one of
the five diagnoses describing a type of diabetes ``without
complications''. For clinical appropriateness and because the diagnoses
are not indicated for a pancreatic or kidney transplant procedure, we
are removing diagnosis codes E08.9, E09.9, E10.9, E11.9, and E13.9 from
the logic lists in Pre-MDC MS-DRGs 008, 010, and 019. We are
maintaining the assignment of the diagnosis codes to MDC 10 in MS-DRGs
637, 638, and 639 effective October 1, 2025, for FY 2026.
After consideration of the public comments received, we are
finalizing the MDC and MS-DRG assignments for the new diagnosis codes
and procedure codes as set forth in Table 6A.--New Diagnosis Codes and
Table 6B.--New Procedure Codes associated with this final rule. In
addition, the finalized severity level designations for the new
diagnosis codes are set forth in Table 6A. and the finalized O.R.
status for the new procedure codes are set forth in Table 6B associated
with this final rule.
In association with this FY 2026 IPPS/LTCH PPS final rule, we are
making the following tables available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html:
Table 6A.--New Diagnosis Codes--FY 2026;
Table 6B.--New Procedure Codes--FY 2026;
Table 6C.--Invalid Diagnosis Codes--FY 2026;
Table 6D.--Invalid Procedure Codes--FY 2026;
Table 6E.--Revised Diagnosis Code Titles--FY 2026;
Table 6F.--Revised Procedure Code Titles--FY 2026;
Table 6G.1.--Secondary Diagnosis Order Additions to the CC
Exclusions List--FY 2026;
Table 6G.2.--Principal Diagnosis Order Additions to the CC
Exclusions List--FY 2026;
Table 6H.1.--Secondary Diagnosis Order Deletions to the CC
Exclusions List--FY 2026;
Table 6H.2.--Principal Diagnosis Order Deletions to the CC
Exclusions List--FY 2026;
Table 6I.--Complete MCC List--FY 2026;
Table 6I.1.--Additions to the MCC List--FY 2026;
Table 6J.--Complete CC List--FY 2026;
Table 6J.1.--Additions to the CC List--FY 2026;
Table 6J.2.--Deletions to the CC List--FY 2026; and
Table 6K.--Complete List of CC Exclusions--FY 2026.
10. Changes to the Surgical Hierarchies
Some inpatient stays entail multiple surgical procedures, each one
of which, occurring by itself, could result in assignment of the case
to a different MS-DRG within the MDC to which the principal diagnosis
is assigned. Therefore, it is necessary to have a decision rule within
the GROUPER by which these cases are assigned to a single MS-DRG. The
surgical hierarchy, an ordering of surgical classes from most resource-
intensive to least resource-intensive, performs that function.
Application of this hierarchy ensures that cases involving multiple
surgical procedures are assigned to the MS-DRG associated with the most
resource-intensive surgical class.
A surgical class can be composed of one or more MS-DRGs. For
example, in MDC 11, the surgical class ``kidney transplant'' consists
of a single MS-DRG (MS-DRG 652) and the class ``major bladder
procedures'' consists of three MS-DRGs (MS-DRGs 653, 654, and 655).
Consequently, in many cases, the surgical hierarchy has an impact
on more than one MS-DRG. The methodology for determining the most
resource-intensive surgical class involves weighting the average
resources for each MS-DRG by frequency to determine the weighted
average resources for each surgical class. For example, assume surgical
class A includes MS-DRGs 001 and 002 and surgical class B includes MS-
DRGs 003, 004, and 005. Assume also that the average costs of MS-DRG
001 are higher than that of MS-DRG 003, but the average costs of MS-
DRGs 004 and 005 are higher than the average costs of MS-DRG 002. To
determine whether surgical class A should be higher or lower than
surgical class B in the surgical hierarchy, we would weigh the average
costs of each MS-DRG in the class by frequency (that is, by the number
of cases in the MS-DRG) to determine average resource consumption for
the surgical class. The surgical classes would then be ordered from the
class with the highest average resource utilization to that with the
lowest, with the exception of ``other O.R. procedures'' as discussed in
this FY 2026 IPPS/LTCH PPS final rule.
This methodology may occasionally result in assignment of a case
involving multiple procedures to the lower-weighted MS-DRG (in the
highest, most resource-intensive surgical class) of the available
alternatives. However, given that the logic underlying the surgical
hierarchy provides that the GROUPER search for the procedure in the
most resource-intensive surgical class, in cases involving multiple
procedures, this result is sometimes unavoidable.
We note that, notwithstanding the foregoing discussion, there are a
few instances when a surgical class with a lower average cost is
ordered above a surgical class with a higher average cost. For example,
the ``other O.R. procedures'' surgical class is uniformly ordered last
in the surgical hierarchy of each MDC in which it occurs, regardless of
the fact that the average costs for the MS-DRG or MS-DRGs in that
surgical class may be higher than those for other surgical classes in
the MDC. The ``other O.R. procedures'' class is a group of procedures
that are only infrequently related to the diagnoses in the MDC but are
still occasionally performed on patients with cases assigned to the MDC
with these diagnoses. Therefore, assignment to these surgical classes
should only occur if no other surgical class more closely related to
the diagnoses in the MDC is appropriate.
[[Page 36638]]
A second example occurs when the difference between the average
costs for two surgical classes is very small. We have found that small
differences generally do not warrant reordering of the hierarchy
because, as a result of reassigning cases on the basis of the hierarchy
change, the average costs are likely to shift such that the higher-
ordered surgical class has lower average costs than the class ordered
below it.
In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69100), we stated
our intent to consider if the development of evaluation criteria would
be useful for future proposed modifications to the surgical hierarchy
for MS-DRGs that have meaningful changes to the clinical logic. We are
continuing to examine what factors should be taken into account as we
consider any future proposals. We welcome feedback and other
suggestions to be submitted via MEARISTM at https://mearis.cms.gov/public/home by October 20, 2025.
Based on the changes that we proposed to make for FY 2026, as
discussed in section II.C. of the preamble of the FY 2026 IPPS/LTCH PPS
proposed rule and this final rule, we proposed to modify the existing
surgical hierarchy for FY 2026 as illustrated in the following tables.
We noted in the proposed rule that because the current methodology
involves weighing the average costs of each MS-DRG in the surgical
class by frequency (that is, by the number of cases in the MS-DRG) to
determine average resource consumption for the surgical class, that the
surgical hierarchy of other MS-DRGs in the MDC may need to be adjusted
based on the MS-DRG classification changes that are proposed to ensure
that the average weighted cost for each base MS-DRG in each MDC are
monotonically decreasing. We further noted that the proposed Version 43
surgical hierarchy as illustrated in the following tables may be
subject to further modifications based on the finalized changes to the
MS-DRG classifications for FY 2026.
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Comment: Several commenters expressed support for the proposed
changes to the surgical hierarchy for MDC 05 and MDC 08.
Response: We thank the commenters for their support.
Therefore, after consideration of the public comments we received,
and based on the changes that we are finalizing for FY 2026, as
discussed in section II.C. of the preamble of this final rule, we are
finalizing our proposals to modify the existing surgical hierarchy
under MDC 05 and MDC 08, effective with the ICD-10 MS-DRGs Version 43,
with modification. As discussed in section II.C.4., we are creating MS-
DRG 209, MS-DRG 213, MS-DRG 218, and MS-DRGs 359 and 360. As discussed
in section II.C.5., we are not finalizing the creation of proposed new
MS-DRGs 403 and 404 for FY 2026.
The finalized surgical hierarchy for MDC 05 and MDC 08 is shown in
the following tables. These changes are also reflected in Appendix D
MS-DRG Surgical Hierarchy by MDC and MS-DRG of the ICD-10 MS-DRG
Definitions Manual, Version 43 available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software, effective October 1,
2025, for FY 2026.
[[Page 36640]]
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[[Page 36641]]
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BILLING CODE 4120-01-C
For issues pertaining to the surgical hierarchy, as with other MS-
DRG related requests, we encourage interested parties to submit
comments no later than October 20, 2025, via MEARISTM at
https://mearis.cms.gov/public/home, so that they can be considered for
possible inclusion in the annual proposed rule. We will consider these
public comments for possible proposals in future rulemaking as part of
our annual review process.
11. Maintenance of the ICD-10-CM and ICD-10-PCS Coding Systems
In September 1985, the ICD-9-CM Coordination and Maintenance
Committee was formed. This is a Federal interdepartmental committee,
co-chaired by the Centers for Disease Control and Prevention's (CDC)
National Center for Health Statistics (NCHS) and CMS, charged with
maintaining and updating the ICD-9-CM system. The final update to ICD-
9-CM codes was made on October 1, 2013. Thereafter, the name of the
Committee was changed to the ICD-10 Coordination and Maintenance
Committee, effective with the March 19-20, 2014 meeting. The ICD-10
Coordination and Maintenance Committee addresses updates to the ICD-10-
CM and ICD-10-PCS coding systems. The Committee is jointly responsible
for approving coding changes, and developing errata, addenda, and other
modifications to the coding systems to reflect newly developed
procedures and technologies and newly identified diseases. The
Committee is also responsible for promoting the use of Federal and non-
Federal educational programs and other communication techniques with a
view toward standardizing coding applications and upgrading the quality
of the classification system.
The official list of ICD-9-CM diagnosis and procedure codes by
fiscal year can be found on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-9-cm-diagnosis-procedure-codes-abbreviated-and-full-code-titles.
The official list of ICD-10-CM and ICD-10-PCS codes can be found on
the CMS website at: http://www.cms.gov/Medicare/Coding/ICD10/index.html.
The NCHS has lead responsibility for the ICD-10-CM and ICD-9-CM
diagnosis codes included in the Tabular List and Alphabetic Index for
Diseases, while CMS has lead responsibility for the ICD-10-PCS and ICD-
9-CM procedure codes included in the Tabular List and Alphabetic Index
for Procedures.
The Committee encourages participation in the previously mentioned
process by health-related organizations. In this regard, the Committee
holds public meetings for discussion of educational issues and proposed
coding changes. These meetings provide an opportunity for
representatives of recognized organizations in the coding field, such
as the American Health Information Management Association (AHIMA), the
American Hospital Association (AHA), and various physician specialty
groups, as well as individual physicians, health information management
professionals, and other members of the public, to contribute ideas on
coding matters. Members of the public may submit comments on the
proposed procedure code topics to CMS at:
[email protected] and may submit comments on the
proposed diagnosis code topics to the CDC/NCHS at: [email protected].
After considering the opinions expressed during the public meetings and
in writing, the Committee formulates recommendations, which then must
be approved by the agencies.
The Committee presented proposals for coding changes for
implementation in FY 2026 at a public meeting held on September 10-11,
2024 and finalized
[[Page 36642]]
the coding changes after consideration of comments received at the
meetings and in writing by November 15, 2024.
In lieu of holding its Spring 2025 meeting, the Committee solicited
comments on the Spring 2025 ICD-10-PCS procedure code topics. The
deadline for submitting comments on these code proposals was April 18,
2025. Any new diagnosis and procedure codes for which there was
consensus of public support, and for which complete tabular and
indexing changes would be made by June 2025 are included in the October
1, 2025 update to the ICD-10-CM diagnosis and ICD-10-PCS procedure code
sets. As discussed in earlier sections of the preamble of this FY 2026
IPPS/LTCH PPS final rule, there are new, revised, and deleted ICD-10-CM
diagnosis codes and ICD-10-PCS procedure codes that are captured in
Table 6A.--New Diagnosis Codes, Table 6B.--New Procedure Codes, Table
6C.--Invalid Diagnosis Codes, Table 6D.--Invalid Procedure Codes, Table
6E.--Revised Diagnosis Code Titles, and Table 6F.--Revised Procedure
Code Titles for this FY 2026 IPPS/LTCH PPS final rule, which are
available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps.
The code titles are adopted as part of the ICD-10 Coordination and
Maintenance Committee process. Therefore, although we make the code
titles available for the IPPS proposed and final rules, they are not
subject to comment in the proposed or final rule. Because of the length
of these tables, they are not published in the Addendum to the proposed
or final rule. Rather, they are available on the CMS website as
discussed in section VI. of the Addendum to the proposed rule and this
final rule.
Recordings for the virtual meeting discussions of the procedure
codes at the Committee's September 10-11, 2024 meeting and the
materials for the Spring 2025 ICD-10-PCS procedure code topics can be
obtained from the CMS website at: https://www.cms.gov/Medicare/Coding/ICD10/C-and-M-Meeting-Materials. The materials for the topics relating
to diagnosis codes discussed at the September 10-11, 2024 meeting can
be found at: https://www.cdc.gov/nchs/icd/icd-10-maintenance/meetings.html. These websites also provide detailed information about
the Committee, including information on requesting a new code,
participating in a Committee meeting, timeline requirements, submitting
comments, and meeting dates.
Comment: A commenter stated that in March 2025, CMS decided to not
present the Spring 2025 ICD-10-PCS procedure code topics during a
public meeting. Instead, CMS posted the meeting materials on the CMS
website and solicited public comments with a 30-day comment period. The
commenter requested clarification from CMS regarding its plans for
future ICD-10-PCS procedure code topics. Specifically, whether CMS
intends to resume its previous practice of hosting a public meeting
twice annually, in March and September, or if CMS plans to permanently
discontinue these meetings. The commenter stated they do not oppose the
current approach; however, appreciate any insight into CMS' intention
for future code proposals.
Response: CMS will share any updates to our approach for upcoming
ICD-10 Coordination and Maintenance Committee meetings through the CMS
website and our Subscriber List. To sign up for ICD-10 Coordination and
Maintenance Committee meeting and related updates, members of the
public may join the ICD-10 Coordination and Maintenance Committee
Meetings Subscriber List. Instructions are located in the Downloads
section on the following CMS website: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-meetings.
We encourage commenters to submit questions and comments on coding
issues involving diagnosis codes via email to: [email protected].
Questions and comments concerning the procedure codes should be
submitted via email to: [email protected].
As discussed in the proposed rule (90 FR 18071), CMS implemented 50
new procedure codes including cardiac stereotactic body radiotherapy
(SBRT), transplantation of the larynx, repositioning of long bones
using a ring external fixation device with automated strut adjustment,
supplementing the right atrium with heterotopic bioprosthetic valve(s),
the administration of emapalumab-Izsg anti-IFNy monoclonal antibody,
and the administration of tarlatamab-dlle antineoplastic into the ICD-
10-PCS classification effective with discharges on and after April 1,
2025. The procedure codes are as follows:
BILLING CODE 4120-01-P
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[[Page 36644]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.130
[[Page 36645]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.131
BILLING CODE 4120-01-C
The 50 procedure codes are also reflected in Table 6B.--New
Procedure Codes, in association with the proposed rule and available on
the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-
Service-Payment/AcuteInpatientPPS. As with the other new procedure
codes and MS-DRG assignments included in Table 6B. in association with
the FY 2026 IPPS/LTCH PPS proposed rule, we solicited public comments
on the most appropriate MDC, MS-DRG, and operating room status
assignments for these codes for FY 2026, as well as any other options
for the GROUPER logic. We discuss the comments we received on these
assignments in section II.C.9. of this final rule as well as our
finalized assignments, as reflected in Table 6B.--New Procedure Codes
in association with this final rule.
In the proposed rule, we also noted that Change Request (CR) 13917,
Transmittal 12995, titled ``April 2025 Update to the Medicare Severity-
Diagnosis Related Group (MS-DRG) Grouper and Medicare Code Editor (MCE)
Version 42.1'' was issued on December 12, 2024 (available on the CMS
website at: https://www.cms.gov/medicare/regulations-guidance/transmittals/2024-transmittals/r12995cp) regarding the release of an
updated version of the ICD-10 MS-DRG GROUPER and Medicare Code Editor
software, Version 42.1, effective with discharges on and after April 1,
2025, reflecting the new procedure codes. The updated software, along
with the updated ICD-10 MS-DRG Version 42.1 Definitions Manual and the
Definitions of Medicare Code Edits Version 42.1 manual is available at:
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.
In the September 7, 2001 final rule implementing the IPPS new
technology add-on payments (66 FR 46906), we indicated we would attempt
to include proposals for procedure codes that
[[Page 36646]]
would describe new technology discussed and approved at the Spring
meeting as part of the code revisions effective the following October.
Section 503(a) of the Medicare Modernization Act (Pub. L. 108-173)
included a requirement for updating diagnosis and procedure codes twice
a year instead of a single update on October 1 of each year. This
requirement was included as part of the amendments to the Act relating
to recognition of new technology under the IPPS. Section 503(a) of
Public Law 108-173 amended section 1886(d)(5)(K) of the Act by adding a
clause (vii) which states that the Secretary shall provide for the
addition of new diagnosis and procedure codes on April 1 of each year,
but the addition of such codes shall not require the Secretary to
adjust the payment (or diagnosis-related group classification) until
the fiscal year that begins after such date. This requirement improves
the recognition of new technologies under the IPPS by providing
information on these new technologies at an earlier date. Data will be
available 6 months earlier than would be possible with updates
occurring only once a year on October 1.
In the FY 2005 IPPS final rule, we implemented section
1886(d)(5)(K)(vii) of the Act, as added by section 503(a) of Public Law
108-173, by developing a mechanism for approving, in time for the April
update, diagnosis and procedure code revisions needed to describe new
technologies and medical services for purposes of the new technology
add-on payment process. We also established the following process for
making these determinations. Topics considered during the Fall ICD-10
(previously ICD-9-CM) Coordination and Maintenance Committee meeting
were considered for an April 1 update if a strong and convincing case
was made by the requestor during the Committee's public meeting. The
request needed to identify the reason why a new code was needed in
April for purposes of the new technology process. Meeting participants
and those reviewing the Committee meeting materials were provided the
opportunity to comment on the expedited request. We refer the reader to
the FY 2022 IPPS/LTCH PPS final rule (86 FR 44950) for further
discussion of the implementation of this prior April 1 update for
purposes of the new technology add-on payment process.
However, as discussed in the FY 2022 IPPS/LTCH PPS final rule (86
FR 44950 through 44956), we adopted an April 1 implementation date, in
addition to the annual October 1 update, beginning with April 1, 2022.
We noted that the intent of this April 1 implementation date is to
allow flexibility in the ICD-10 code update process. With this new
April 1 update, CMS now uses the same process for consideration of all
requests for an April 1 implementation date, including for purposes of
the new technology add-on payment process (that is, the prior process
for consideration of an April 1 implementation date only if a strong
and convincing case was made by the requestor during the meeting no
longer applies). We are continuing to use several aspects of our
existing established process to implement new codes through the April 1
code update, which includes presenting proposals for April 1
consideration at the September ICD-10 Coordination and Maintenance
Committee meeting, requesting public comments, reviewing the public
comments, finalizing codes, and announcing the new codes with their
assignments consistent with the new GROUPER release information. We
note that under our established process, requestors indicate whether
they are submitting their code request for consideration for an April 1
implementation date or an October 1 implementation date. The ICD-10
Coordination and Maintenance Committee makes efforts to accommodate the
requested implementation date for each request submitted. However, the
Committee determines which requests are to be presented for
consideration for an April 1 implementation date or an October 1
implementation date. As discussed earlier in this section of the
preamble of this FY 2026 IPPS/LTCH PPS final rule, there were code
proposals presented for an April 1, 2025 implementation at the
September 10-11, 2024 Committee meetings. Following the receipt of
public comments, the code proposals were approved and finalized,
therefore, there were new codes implemented April 1, 2025.
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule, consistent
with the process we outlined for the April 1 implementation date, we
announced the new codes in November 2024 and provided the updated code
files in December 2024. The NCHS provided the ICD-10-CM Official
Guidelines for Coding and Reporting in January 2025. By February 27,
2025, we made available the updated Version 42.1 ICD-10 MS-DRG GROUPER
software and related materials on the CMS web page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.
ICD-9-CM addendum and code title information are published on the
CMS website at https://www.cms.gov/Medicare/Coding/ICD9ProviderDiagnosticCodes/addendum. ICD-10-CM and ICD-10-PCS addendum
and code title information are published on the CMS website at https://www.cms.gov/Medicare/Coding/ICD10. CMS also sends electronic files
containing all ICD-10-CM and ICD-10-PCS coding changes to its Medicare
contractors for use in updating their systems and providing education
to providers. Information on ICD-10-CM diagnosis codes, along with the
Official ICD-10-CM Coding Guidelines, can be found on the CDC website
at https://www.cdc.gov/nchs/icd/icd-10-cm/files.html. Additionally,
information on new, revised, and deleted ICD-10-CM diagnosis and ICD-
10-PCS procedure codes is provided to the AHA for publication in the
Coding Clinic for ICD-10. The AHA also distributes coding update
information to publishers and software vendors.
In the proposed rule (90 FR 18074), we noted that for FY 2025,
there are currently 74,044 diagnosis codes and 78,986 procedure codes.
We also noted as displayed in Table 6A.--New Diagnosis Codes and in
Table 6B.--New Procedure Codes associated with the FY 2026 IPPS/LTCH
PPS proposed rule (and available on the CMS website at https://
www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS), there are 487 new diagnosis codes and 14 new
procedure codes that had been finalized for FY 2026 at the time of the
development of the FY 2026 IPPS/LTCH PPS proposed rule and 50 new
procedure codes that were effective with discharges on and after April
1, 2025. The code titles are adopted as part of the ICD-10 Coordination
and Maintenance Committee process. Thus, although we publish the code
titles in the IPPS proposed and final rules, they are not subject to
comment in the proposed or final rules.
As discussed in section II.C.13 of the preamble of this final rule,
we are making Table 6A.--New Diagnosis Codes, Table 6B.--New Procedure
Codes, Table 6C.--Invalid Diagnosis Codes, Table 6D.--Invalid Procedure
Codes, Table 6E.--Revised Diagnosis Code Titles and Table 6F.--Revised
Procedure Code Titles available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps in association with this final rule. As shown in Table
6B.--New Procedure
[[Page 36647]]
Codes, there were procedure codes proposed for the Spring 2025 ICD-10
Coordination and Maintenance Committee Update that were not finalized
in time to include in the proposed rule and are identified with an
asterisk. We refer the reader to Table 6B.--New Procedure Codes
associated with this final rule and available on the CMS website at:
https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps for the detailed list of these 142 new procedure codes
finalized for FY 2026.
We also note, as reflected in Table 6C.--Invalid Diagnosis Codes
and in Table 6D.--Invalid Procedure Codes, there are a total of 28
diagnosis codes and 27 procedure codes that will become invalid
effective October 1, 2025. Based on these code updates, effective
October 1, 2025, there are a total of 74,719 ICD-10-CM diagnosis codes
and 79,115 ICD-10-PCS procedure codes for FY 2026 as shown in the
following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.132
As stated previously, the public is provided the opportunity to
comment on any requests for new diagnosis or procedure codes discussed
during the ICD-10 Coordination and Maintenance Committee meeting. The
code titles are adopted as part of the ICD-10 Coordination and
Maintenance Committee process. Thus, although we publish the code
titles in the IPPS proposed and final rules, they are not subject to
comment in the proposed or final rules.
12. Replaced Devices Offered Without Cost or With a Credit
a. Background
In the FY 2008 IPPS final rule with comment period (72 FR 47246
through 47251), we discussed the topic of Medicare payment for devices
that are replaced without cost or where credit for a replaced device is
furnished to the hospital. We implemented a policy to reduce a
hospital's IPPS payment for certain MS-DRGs where the implantation of a
device that subsequently failed or was recalled determined the base MS-
DRG assignment. At that time, we specified that we will reduce a
hospital's IPPS payment for those MS-DRGs where the hospital received a
credit for a replaced device equal to 50 percent or more of the cost of
the device.
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51556 through
51557), we clarified this policy to state that the policy applies if
the hospital received a credit equal to 50 percent or more of the cost
of the replacement device and issued instructions to hospitals
accordingly.
b. Changes for FY 2026
As discussed in section II.C.3a. of the preamble of the FY 2026
IPPS/LTCH PPS proposed rule and this final rule, for FY 2026, under MDC
01, we proposed to add procedure code combinations that describe the
insertion of multiple or single array generators and the insertion of
neurostimulator lead into the brain or cerebral ventricle and the
procedure code combinations that describe the insertion of a
neurostimulator generator into the skull and the insertion of a
neurostimulator lead into the brain to a new ``intracranial
neurostimulator implant'' logic list in MS-DRGs 020, 021, and 022. A
subset of the procedures currently assigned to MS-DRGs 023 and 024 were
proposed for reassignment to MS-DRGs 020, 021, and 022. We also
proposed to revise the title of MS-DRG 020 from ``Intracranial Vascular
Procedures with Principal Diagnosis Hemorrhage with MCC'' to
``Intracranial Vascular Procedures with Principal Diagnosis Hemorrhage
or Intracranial Neurostimulator Implant with MCC''; revise the title of
MS-DRG 021 from ``Intracranial Vascular Procedures with Principal
Diagnosis Hemorrhage with CC'' to ``Intracranial Vascular Procedures
with Principal Diagnosis Hemorrhage or Intracranial Neurostimulator
Implant with CC''; revise the title of MS-DRG 022 from ``Intracranial
Vascular Procedures with Principal Diagnosis Hemorrhage without CC/
MCC'' to ``Intracranial Vascular Procedures with Principal Diagnosis
Hemorrhage or Intracranial Neurostimulator Implant without CC/MCC'';
revise the title of MS-DRG 023 from ``Craniotomy with Major Device
Implant or Acute Complex CNS Principal Diagnosis with MCC or
Chemotherapy Implant or Epilepsy with Neurostimulator'' to ``Craniotomy
with Acute Complex CNS Principal Diagnosis with MCC or Antineoplastic
Implant''; and revise the title of MS-DRG 024 from ``Craniotomy with
Major Device Implant or Acute Complex CNS Principal Diagnosis without
MCC'' to ``Craniotomy with Acute Complex CNS Principal Diagnosis
without MCC''.
Additionally, as discussed in section II.C.4. of the preamble of
the FY 2026 IPPS/LTCH PPS proposed rule and this final rule, for FY
2026, under MDC 05, we proposed new MS-DRG 209 (Complex Aortic Arch
Procedures) and new MS-DRG 213 (Endovascular Abdominal Aorta with Iliac
Branch Procedures). A subset of the procedures currently assigned to
MS-DRGs 216, 217, 218, 219, 220, and 221 were proposed for assignment
to proposed new MS-DRG 209 and a subset of the procedures currently
assigned to MS-DRGs 268, 269, 270, 271, and 272 were proposed for
assignment to proposed new MS-DRG 213.
As stated in the FY 2016 IPPS/LTCH PPS proposed rule (80 FR 24409),
we generally map new MS-DRGs onto the list when they are formed from
procedures previously assigned to MS-DRGs that are already on the list.
Currently, MS-DRGs 023, 024, 216, 217, 218, 219, 220, 221, 268, 269,
270, 271, and 272 are on the list of MS-DRGs subject to the policy for
payment under the IPPS for replaced devices offered without cost or
with a credit as shown in the following table. Therefore, we proposed
that if the applicable proposed MS-DRG changes are finalized, we also
would add MS-DRGs 020, 021, and 022 and proposed new MS-DRGs 209 and
213 to the list of MS-DRGs subject to the policy for payment under the
IPPS for replaced devices offered without cost or with a credit and
make conforming changes to the titles of MS-DRGs 023 and 024 in the
list of MS-DRGs subject to the policy as reflected in the following
table. We also proposed to continue to include the existing MS-DRGs
currently subject to the policy.
As discussed in section II.C.3a of the preamble of this FY 2026
IPPS/LTCH PPS final rule, we are not finalizing our proposal to add
procedure code combinations that describe the insertion of multiple or
single array generators and the insertion of neurostimulator lead into
the brain or cerebral ventricle and the procedure code combinations
[[Page 36648]]
that describe the insertion of a neurostimulator generator into the
skull and the insertion of a neurostimulator lead into the brain to a
new ``intracranial neurostimulator implant'' logic list in MS-DRGs 020,
021, and 022. Consequently, a subset of the procedures currently
assigned to MS-DRGs 023 and 024 will not be reassigned to MS-DRGs 020,
021, and 022. Therefore, we are not finalizing our proposal to add MS-
DRGs 020, 021, and 022 to the list of MS-DRGs subject to the policy for
payment under the IPPS for replaced devices offered without cost or
with a credit for FY 2026. We are finalizing our proposal to make
conforming changes to the titles of MS-DRGs 023 and 024 in the list of
MS-DRGs subject to the policy, with modification. As discussed in
section II.C.3a, we are finalizing the change of the description of the
logic list in MS-DRG 023 from ``Chemotherapy Implant'' to
``Antineoplastic Implant''. Therefore, for consistency, we are
finalizing a change to the title of MS-DRG 023 from ``Craniotomy with
Major Device Implant or Acute Complex Central Nervous System Principal
Diagnosis with MCC or Chemotherapy Implant or Epilepsy with
Neurostimulator'' to ``Craniotomy with Major Device Implant or Acute
Complex Central Nervous System Principal Diagnosis with MCC or
Antineoplastic Implant or Epilepsy with Neurostimulator'' in the list
of MS-DRGs subject to the policy. We are not finalizing a change to the
title of MS-DRG 024 in the list of MS-DRGs subject to the policy for
payment under the IPPS for replaced devices offered without cost or
with a credit for FY 2026.
As discussed in section II.C.4 of the preamble of this FY 2026
IPPS/LTCH PPS final rule, we are finalizing our proposals to create new
MS-DRGs 209 and 213. We did not receive any public comments opposing
our proposal to add proposed new MS-DRGs 209 and 213 to the list of MS-
DRGs that will be subject to the replaced devices offered without cost
or with a credit policy effective October 1, 2025. Therefore, we are
finalizing our proposal to add new MS-DRGs 209 and 213 to the list of
MS-DRGs subject to the policy for payment under the IPPS for replaced
devices offered without cost or with a credit for FY 2026.
We also note that under the current MS-DRGs version 42.1, MS-DRGs
466, 467, and 468 are on the list of MS-DRGs subject to the policy for
payment under the IPPS for replaced devices offered without cost or
with a credit as shown in the table that was made available in
association with the proposed rule (90 FR 18075 through 18076). As
previously discussed in this section of this final rule, we generally
map new MS-DRGs onto the list when they are formed from procedures
previously assigned to MS-DRGs that are already on the list. As
discussed in section II.C.5. of the preamble of the FY 2026 IPPS/LTCH
PPS proposed rule and this final rule, for FY 2026, under MDC 08, we
proposed to create new MS-DRGs 403 and 404 (Hip or Knee Procedures with
Principal Diagnosis of Periprosthetic Joint Infection with MCC and
without MCC, respectively). A subset of the procedures currently
assigned to MS-DRGs 466, 467, and 468 were proposed for assignment to
proposed new MS-DRGs 403 and 404, however, we inadvertently omitted
listing MS-DRGs 403 and 404 in the proposed list of MS-DRGs subject to
the policy for payment under the IPPS for replaced devices offered
without cost or with a credit in the proposed rule. As discussed in
section II.C.5. of the preamble of this final rule, we are not
finalizing our proposal to create new MS-DRGs 403 and 404 for FY 2026.
Therefore, MS-DRGs 403 and 404 are not reflected in the table of MS-
DRGs that will be subject to the policy for FY 2026.
We did not receive any public comments opposing our proposal to
continue to include the existing MS-DRGs currently subject to the
policy. Therefore, for the reasons summarized, we are finalizing the
list of MS-DRGs in the following table that will be subject to the
replaced devices offered without cost or with a credit policy effective
October 1, 2025.
BILLING CODE 4120-01-P
[[Page 36649]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.133
BILLING CODE 4120-01-C
The final list of MS-DRGs subject to the IPPS policy for replaced
devices offered without cost or with a credit will be issued to
providers in the form of a Change Request (CR).
13. Out of Scope Public Comments Received
We received public comments on MS-DRG related issues that were
outside the scope of the proposals included in the FY 2026 IPPS/LTCH
PPS proposed rule.
Because we consider these public comments to be outside the scope
of the proposed rule, we are not addressing them in this final rule. As
stated in section II.C.1.b. of the preamble of this final rule, we
encourage individuals with comments about MS-DRG classifications to
submit these comments no later than October 20, 2025, via
MEARISTM at: https://mearis.cms.gov/public/home, so that
they can be considered for possible inclusion in the annual proposed
rule. We will consider these public comments for possible proposals in
future rulemaking as part of our annual review process.
[[Page 36650]]
D. Recalibration of the FY 2026 MS-DRG Relative Weights
1. Data Sources for Developing the Relative Weights
Consistent with our established policy, in developing the MS-DRG
relative weights for FY 2026, we proposed to use two data sources:
claims data and cost report data. The claims data source is the MedPAR
file, which includes fully coded diagnostic and procedure data for all
Medicare inpatient hospital bills. The FY 2024 MedPAR data used in this
final rule includes discharges occurring on October 1, 2023, through
September 30, 2024, based on bills received by CMS through March 31,
2025, from all hospitals subject to the IPPS and short-term, acute care
hospitals in Maryland (which at that time were under a waiver from the
IPPS).
The FY 2024 MedPAR file used in calculating the relative weights
includes data for approximately 6,899,914 Medicare discharges from IPPS
providers. Discharges for Medicare beneficiaries enrolled in a Medicare
Advantage managed care plan are excluded from this analysis. These
discharges are excluded when the MedPAR ``GHO Paid'' indicator field on
the claim record is equal to ``1'' or when the MedPAR DRG payment
field, which represents the total payment for the claim, is equal to
the MedPAR ``Indirect Medical Education (IME)'' payment field,
indicating that the claim was an ``IME only'' claim submitted by a
teaching hospital on behalf of a beneficiary enrolled in a Medicare
Advantage managed care plan. In addition, the March 2025 update of the
FY 2024 MedPAR file complies with version 5010 of the X12 HIPAA
Transaction and Code Set Standards, and includes a variable called
``claim type.'' Claim type ``60'' indicates that the claim was an
inpatient claim paid as fee-for-service. Claim types ``61,'' ``62,''
``63,'' and ``64'' relate to encounter claims, Medicare Advantage IME
claims, and HMO no-pay claims. Therefore, the calculation of the
relative weights for FY 2026 also excludes claims with claim type
values not equal to ``60.'' The data exclude CAHs, including hospitals
that subsequently became CAHs after the period from which the data were
taken. In addition, the data exclude Rural Emergency Hospitals (REHs),
including hospitals that subsequently became REHs after the period from
which the data were taken. We note that the FY 2026 relative weights
are based on the ICD-10-CM diagnosis codes and ICD-10-PCS procedure
codes from the FY 2024 MedPAR claims data, grouped through the ICD-10
version of the FY 2026 GROUPER (Version 43).
The second data source used in the cost-based relative weighting
methodology is the Medicare cost report data files from the Healthcare
Cost Report Information System (HCRIS). In general, we use the HCRIS
dataset that is 3 years prior to the IPPS fiscal year. Specifically,
for this final rule, we used the March 2025 update of the FY 2023 HCRIS
for calculating the FY 2026 cost-based relative weights. Consistent
with our historical practice, for this FY 2026 final rule, we are
providing the version of the HCRIS from which we calculated these 19
cost-to charge-ratios (CCRs) on the CMS website at https://www.cms.gov/
Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS. Click on
the link on the left side of the screen titled ``FY 2026 IPPS Final
Rule Home Page'' or ``Acute Inpatient Files for Download.''
2. Methodology for Calculation of the Relative Weights
a. General
We calculated the FY 2026 relative weights based on 19 CCRs. The
methodology we proposed to use to calculate the FY 2026 MS-DRG cost-
based relative weights based on claims data in the FY 2024 MedPAR file
and data from the FY 2023 Medicare cost reports is as follows:
To the extent possible, all the claims were regrouped
using the FY 2026 MS-DRG classifications discussed in sections II.B.
and II.C. of the preamble of this final rule.
The transplant cases that were used to establish the
relative weights for heart and heart-lung, liver and/or intestinal, and
lung transplants (MS-DRGs 001, 002, 005, 006, and 007, respectively)
were limited to those Medicare-approved transplant centers that have
cases in the FY 2024 MedPAR file. (Medicare coverage for heart, heart-
lung, liver and/or intestinal, and lung transplants is limited to those
facilities that have received approval from CMS as transplant centers.)
Organ acquisition costs for kidney, heart, heart-lung,
liver, lung, pancreas, and intestinal (or multivisceral organs)
transplants continue to be paid on a reasonable cost basis.
Because these acquisition costs are paid separately from the
prospective payment rate, it is necessary to subtract the acquisition
charges from the total charges on each transplant bill that showed
acquisition charges before computing the average cost for each MS-DRG
and before eliminating statistical outliers.
Section 108 of the Further Consolidated Appropriations Act, 2020
provides that, for cost reporting periods beginning on or after October
1, 2020, costs related to hematopoietic stem cell acquisition for the
purpose of an allogeneic hematopoietic stem cell transplant shall be
paid on a reasonable cost basis. We refer the reader to the FY 2021
IPPS/LTCH PPS final rule for further discussion of the reasonable cost
basis payment for cost reporting periods beginning on or after October
1, 2020 (85 FR 58835 through 58842). For FY 2022 and subsequent years,
we subtract the hematopoietic stem cell acquisition charges from the
total charges on each transplant bill that showed hematopoietic stem
cell acquisition charges before computing the average cost for each MS-
DRG and before eliminating statistical outliers.
Claims with total charges or total lengths of stay less
than or equal to zero were deleted. Claims that had an amount in the
total charge field that differed by more than $30.00 from the sum of
the routine day charges, intensive care charges, pharmacy charges,
implantable devices charges, supplies and equipment charges, therapy
services charges, operating room charges, cardiology charges,
laboratory charges, radiology charges, other service charges, labor and
delivery charges, inhalation therapy charges, emergency room charges,
blood and blood products charges, anesthesia charges, cardiac
catheterization charges, CT scan charges, and MRI charges were also
deleted.
At least 92.7 percent of the providers in the MedPAR file
had charges for 14 of the 19 cost centers. All claims of providers that
did not have charges greater than zero for at least 14 of the 19 cost
centers were deleted. In other words, a provider must have no more than
five blank cost centers. If a provider did not have charges greater
than zero in more than five cost centers, the claims for the provider
were deleted.
Statistical outliers were eliminated by removing all cases
that were beyond 3.0 standard deviations from the geometric mean of the
log distribution of both the total charges per case and the total
charges per day for each MS-DRG.
Effective October 1, 2008, because hospital inpatient
claims include a Present on Admission (POA) field for each diagnosis
present on the claim, only for purposes of relative weight-setting, the
POA indicator field was reset to ``Y'' for ``Yes'' for all claims that
otherwise have an ``N'' (No) or a ``U'' (documentation insufficient to
determine if the condition was present
[[Page 36651]]
at the time of inpatient admission) in the POA field.
Under current payment policy, the presence of specific HAC codes,
as indicated by the POA field values, can generate a lower payment for
the claim. Specifically, if the particular condition is present on
admission (that is, a ``Y'' indicator is associated with the diagnosis
on the claim), it is not a HAC, and the hospital is paid for the higher
severity (and, therefore, the higher weighted MS-DRG). If the
particular condition is not present on admission (that is, an ``N''
indicator is associated with the diagnosis on the claim) and there are
no other complicating conditions, the DRG GROUPER assigns the claim to
a lower severity (and, therefore, the lower weighted MS-DRG) as a
penalty for allowing a Medicare inpatient to contract a HAC. While the
POA reporting meets policy goals of encouraging quality care and
generates program savings, it presents an issue for the relative
weight-setting process. Because cases identified as HACs are likely to
be more complex than similar cases that are not identified as HACs, the
charges associated with HAC cases are likely to be higher as well.
Therefore, if the higher charges of these HAC claims are grouped into
lower severity MS-DRGs prior to the relative weight-setting process,
the relative weights of these particular MS-DRGs would become
artificially inflated, potentially skewing the relative weights. In
addition, we want to protect the integrity of the budget neutrality
process by ensuring that, in estimating payments, no increase to the
standardized amount occurs as a result of lower overall payments in a
previous year that stem from using weights and case-mix that are based
on lower severity MS-DRG assignments. If this would occur, the
anticipated cost savings from the HAC policy would be lost.
To avoid these problems, we reset the POA indicator field to ``Y''
only for relative weight-setting purposes for all claims that otherwise
have an ``N'' or a ``U'' in the POA field. This resetting ``forced''
the more costly HAC claims into the higher severity MS-DRGs as
appropriate, and the relative weights calculated for each MS-DRG more
closely reflect the true costs of those cases.
In addition, in the FY 2013 IPPS/LTCH PPS final rule, for FY 2013
and subsequent fiscal years, we finalized a policy to treat hospitals
that participate in the Bundled Payments for Care Improvement (BPCI)
initiative the same as prior fiscal years for the IPPS payment modeling
and ratesetting process without regard to hospitals' participation
within these bundled payment models (77 FR 53341 through 53343).
Specifically, because acute care hospitals participating in the BPCI
Initiative still receive IPPS payments under section 1886(d) of the
Act, we include all applicable data from these subsection (d) hospitals
in our IPPS payment modeling and ratesetting calculations as if the
hospitals were not participating in those models under the BPCI
initiative. We refer readers to the FY 2013 IPPS/LTCH PPS final rule
for a complete discussion on our final policy for the treatment of
hospitals participating in the BPCI initiative in our ratesetting
process. For additional information on the BPCI initiative, we refer
readers to the CMS' Center for Medicare and Medicaid Innovation's
website at https://innovation.cms.gov/initiatives/Bundled-Payments/index.html and to section IV.H.4. of the preamble of the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53341 through 53343).
The participation of hospitals in the BPCI initiative concluded on
September 30, 2018. The participation of hospitals in the BPCI Advanced
model started on October 1, 2018. The BPCI Advanced model, tested under
the authority of section 1115A of the Act, is comprised of a single
payment and risk track, which bundles payments for multiple services
that beneficiaries receive during a Clinical Episode. Acute care
hospitals may participate in BPCI Advanced in one of two capacities: as
a model Participant or as a downstream Episode Initiator. Regardless of
the capacity in which they participate in the BPCI Advanced model,
participating acute care hospitals will continue to receive IPPS
payments under section 1886(d) of the Act. Acute care hospitals that
are Participants also assume financial and quality performance
accountability for Clinical Episodes in the form of a reconciliation
payment. For additional information on the BPCI Advanced model, we
refer readers to the BPCI Advanced web page on the CMS Center for
Medicare and Medicaid Innovation's website at https://innovation.cms.gov/initiatives/bpci-advanced. Consistent with our
policy for FY 2025, and consistent with how we have treated hospitals
that participated in the BPCI Initiative, for FY 2026, we continue to
believe it is appropriate to include all applicable data from the
subsection (d) hospitals participating in the BPCI Advanced model in
our IPPS payment modeling and ratesetting calculations because, as
noted previously, these hospitals are still receiving IPPS payments
under section 1886(d) of the Act. Consistent with the FY 2025 IPPS/LTCH
PPS final rule, we also proposed to include all applicable data from
subsection (d) hospitals participating in the Comprehensive Care for
Joint Replacement (CJR) Model in our IPPS payment modeling and
ratesetting calculations.
The charges for each of the 19 cost groups for each claim were
standardized to remove the effects of differences in area wage levels,
IME and DSH payments, and for hospitals located in Alaska and Hawaii,
the applicable cost-of-living adjustment. Because hospital charges
include charges for both operating and capital costs, we standardized
total charges to remove the effects of differences in geographic
adjustment factors, cost-of-living adjustments, and DSH payments under
the capital IPPS as well. Charges were then summed by MS-DRG for each
of the 19 cost groups so that each MS-DRG had 19 standardized charge
totals. Statistical outliers were then removed. These charges were then
adjusted to cost by applying the national average CCRs developed from
the FY 2023 cost report data.
The 19 cost centers that we used in the relative weight calculation
are shown in a supplemental data file, Cost Center HCRIS Lines
Supplemental Data File, posted via the internet on the CMS website for
this final rule and available at https://www.cms.gov/Medicare/Medicare-
Fee-for-Service-Payment/AcuteInpatientPPS. The supplemental data file
shows the lines on the cost report and the corresponding revenue codes
that we used to create the 19 national cost center CCRs. In the
proposed rule, we stated that if we receive comments about the
groupings in this supplemental data file, we may consider these
comments as we finalize our policy. We did not receive any comments on
the groupings in this table and are finalizing the groupings as
proposed.
Consistent with historical practice, we account for rare situations
of non-monotonicity in a base MS-DRG and its severity levels, where the
mean cost in the higher severity level is less than the mean cost in
the lower severity level, in determining the relative weights for the
different severity levels. If there are initially non-monotonic
relative weights in the same base DRG and its severity levels, then we
combine the cases that group to the specific non-monotonic MS-DRGs for
purposes of relative weight calculations. For example, if there are two
non-monotonic MS-DRGs, combining the cases across those two
[[Page 36652]]
MS-DRGs results in the same relative weight for both MS-DRGs. The
relative weight calculated using the combined cases for those severity
levels is monotonic, effectively removing any non-monotonicity with the
base DRG and its severity levels. In the FY 2026 proposed rule, we
stated that this calculation was applied to address non-monotonicity
for cases that grouped to the following: MS-DRG 016 and MS-DRG 017, MS-
DRG 095 and MS-DRG 096, MS-DRG 504 and MS-DRG 505, MS-DRG 797 and MS-
DRG 798. In the supplemental file titled AOR/BOR File, we include
statistics for the affected MS-DRGs both separately and with cases
combined.
We invited public comments on our proposals related to
recalibration of the proposed FY 2026 relative weights and the changes
in relative weights from FY 2025.
Comment: A commenter requested that CMS clarify whether MS-DRGs 016
and 017 were non-monotonic.
Response: The proposed rule inadvertently included an incorrect
list of MS-DRGs where a calculation was applied to address non-
monotonicity. This list should have been MS-DRG 095 and MS-DRG 096, MS-
DRG 217 and MS-DRG 218.
After consideration of the comments received, we are finalizing our
proposals without modifications related to the recalibration of the FY
2026 relative weights. We summarize and respond to comments relating to
the methodology for calculating the relative weight for MS-DRG 018 in
the next section of this final rule.
b. Relative Weight Calculation for MS-DRG 018
In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58451 through
58453), we created MS-DRG 018 for cases that include procedures
describing CAR T-cell therapies. We also finalized our proposal to
modify our existing relative weight methodology to ensure that the
relative weight for MS-DRG 018 appropriately reflects the relative
resources required for providing CAR T-cell therapy outside of a
clinical trial, while still accounting for the clinical trial cases in
the overall average cost for all MS-DRGs (85 FR 58599 through 58600).
Specifically, we stated that clinical trial claims that group to new
MS-DRG 018 would not be included when calculating the average cost for
MS-DRG 018 that is used to calculate the relative weight for this MS-
DRG, so that the relative weight reflects the costs of the CAR T-cell
therapy drug. We stated that we identified clinical trial claims as
claims that contain ICD-10-CM diagnosis code Z00.6 or contain
standardized drug charges of less than $373,000, which was the average
sales price of KYMRIAH and YESCARTA, the two CAR T-cell biological
products licensed to treat relapsed/refractory large B-cell lymphoma as
of the time of the development of the FY 2021 final rule. In addition,
we stated that (a) when the CAR T-cell therapy product is purchased in
the usual manner, but the case involves a clinical trial of a different
product, the claim will be included when calculating the average cost
for new MS-DRG 018 to the extent such cases can be identified in the
historical data, and (b) when there is expanded access use of
immunotherapy, these cases will not be included when calculating the
average cost for new MS-DRG 018 to the extent such cases can be
identified in the historical data.
We also finalized our proposal to calculate an adjustment to
account for the CAR T-cell therapy cases identified as clinical trial
cases in calculating the national average standardized cost per case
that is used to calculate the relative weights for all MS-DRGs and for
purposes of budget neutrality and outlier simulations. We calculate
this adjustor by dividing the average cost for cases that we identify
as clinical trial cases by the average cost for cases that we identify
as non-clinical trial cases, with the additional refinements that (a)
when the CAR T-cell therapy product is purchased in the usual manner,
but the case involves a clinical trial of a different product, the
claim will be included when calculating the average cost for cases not
determined to be clinical trial cases to the extent such cases can be
identified in the historical data, and (b) when there is expanded
access use of immunotherapy, these cases will be included when
calculating the average cost for cases determined to be clinical trial
cases to the extent such cases can be identified in the historical
data. We stated that to the best of our knowledge, there were no claims
in the historical data used in the calculation of this adjustment for
cases involving a clinical trial of a different product, and to the
extent the historical data contain claims for cases involving expanded
access use of immunotherapy we believe those claims would have drug
charges less than $373,000.
In the FY 2021 IPPS/LTCH PPS final rule (85 FR 58842), we also
finalized an adjustment to the payment amount for applicable clinical
trial and expanded access use immunotherapy cases that group to MS-DRG
018, and indicated that we would provide instructions for identifying
these claims in separate guidance. Following the issuance of the FY
2021 IPPS/LTCH PPS final rule, we issued guidance \11\ stating that
providers may enter a Billing Note NTE02 ``Expand Acc Use'' on the
electronic claim 837I or a remark ``Expand Acc Use'' on a paper claim
to notify the MAC of expanded access use of CAR T-cell therapy. In this
case, the MAC would add payer-only condition code ``ZB'' so that Pricer
will apply the payment adjustment in calculating payment for the case.
In cases when the CAR T-cell therapy product is purchased in the usual
manner, but the case involves a clinical trial of a different product,
the provider may enter a Billing Note NTE02 ``Diff Prod Clin Trial'' on
the electronic claim 837I or a remark ``Diff Prod Clin Trial'' on a
paper claim. In this case, the MAC would add payer-only condition code
``ZC'' so that the Pricer will not apply the payment adjustment in
calculating payment for the case.
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\11\ https://www.cms.gov/files/document/r10571cp.pdf.
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In the FY 2022 IPPS/LTCH PPS final rule, we revised MS-DRG 018 to
include cases that report the procedure codes for CAR T-cell and non-
CAR T-cell therapies and other immunotherapies (86 FR 44798 through
44806). We also finalized our proposal to continue to use the proxy of
standardized drug charges of less than $373,000 (86 FR 44965) to
identify clinical trial claims. We also finalized use of this same
proxy for the FY 2023 IPPS/LTCH PPS final rule (87 FR 48894).
Following the issuance of the FY 2023 IPPS/LTCH PPS final rule, we
issued guidance \12\ stating where there is expanded access use of
immunotherapy, the provider may submit condition code ``90'' on the
claim so that Pricer will apply the payment adjustment in calculating
payment for the case. We stated that MACs would no longer append
Condition Code `ZB' to inpatient claims reporting Billing Note NTE02
``Expand Acc Use'' on the electronic claim 837I or a remark ``Expand
Acc Use'' on a paper claim, effective for claims for discharges that
occur on or after October 1, 2022.
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\12\ https://www.cms.gov/files/document/r11727cp.pdf.
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In the FY 2024 IPPS/LTCH PPS final rule, we explained that the
MedPAR claims data now includes a field that identifies whether or not
the claim includes expanded access use of immunotherapy. We stated that
for the FY 2022 MedPAR claims data, this field identifies whether or
not the claim includes condition code ZB, and for the FY 2023 MedPAR
data and subsequent
[[Page 36653]]
years, this field will identify whether or not the claim includes
condition code 90. We further noted that the MedPAR files now also
include a variable that indicates whether the claim includes the payer-
only condition code ``ZC'', which identifies a case involving the
clinical trial of a different product where the CAR T-cell, non-CAR T-
cell, or other immunotherapy product is purchased in the usual manner.
Accordingly, and as discussed further in the FY 2024 IPPS/LTCH PPS
final rule, we finalized two modifications to our methodology for
identifying clinical trial claims and expanded access use claims in MS-
DRG 018 (88 FR 58791). First, we finalized to exclude claims with the
presence of condition code ``90'' (or, for FY 2024 ratesetting, which
was based on the FY 2022 MedPAR data, the presence of condition code
``ZB'') and claims that contain ICD-10-CM diagnosis code Z00.6 without
payer-only code ``ZC'' to MS-DRG 018 when calculating the average cost
for MS-DRG 018. Second, we finalized to no longer use the proxy of
standardized drug charges of less than $373,000 to identify clinical
trial claims and expanded access use cases when calculating the average
cost for MS-DRG 018. Accordingly, we finalized that in calculating the
relative weight for MS-DRG 018 for FY 2024, only those claims that
group to MS-DRG 018 that (1) contain ICD-10-CM diagnosis code Z00.6 and
do not include payer-only code ``ZC'' or (2) contain condition code
``ZB'' (or, for subsequent fiscal years, condition code ``90'') would
be excluded from the calculation of the average cost for MS-DRG 018.
Consistent with this, we also finalized modifications to our
calculation of the adjustment to account for the CAR T-cell therapy
cases identified as clinical trial cases in calculating the national
average standardized cost per case that is used to calculate the
relative weights for all MS-DRGs. We refer readers to the FY 2024 IPPS/
LTCH PPS final rule for further discussion of these modifications (88
FR 58791).
Consistent with the FY 2025 IPPS/LTCH PPS final rule, in the
proposed rule, for FY 2026 we proposed to continue to use our
methodology as modified in the FY 2024 IPPS/LTCH PPS final rule for
identifying clinical trial claims and expanded access use claims in MS-
DRG 018, with an additional modification as discussed in this section.
First, we exclude claims with the presence of condition code ``90'' and
claims that contain ICD-10-CM diagnosis code Z00.6 without payer-only
code ``ZC'' that group to MS-DRG 018 when calculating the average cost
for MS-DRG 018. Second, we no longer use the proxy of standardized drug
charges of less than $373,000 to identify clinical trial claims and
expanded access use cases when calculating the average cost for MS-DRG
018.
In section VI.H. of this final rule, we discuss our proposal to
apply the payment adjustment for clinical trial and expanded access use
immunotherapy cases to other cases where the immunotherapy product is
not purchased in the usual manner, such as obtained at no cost. To
mirror this proposed change within our relative weight methodology, we
proposed to also exclude claims with standardized drug charges below
the median standardized drug charge of claims identified as clinical
trials in MS-DRG 018 when we calculate the average cost for MS-DRG 018.
For the proposed rule, based on the December 2024 update of the FY 2024
MedPAR file, we estimated that the median standardized drug charge of
claims identified as clinical trials in MS-DRG 018 is $29,819. We
proposed to apply this policy for 2 years (that is, in our relative
weight methodology for MS-DRG 018 for FYs 2026 and 2027), until the
claims data reflects the addition of the condition code indicating that
the immunotherapy product is not purchased in the usual manner, such as
obtained at no cost, which then would be able to be used to identify
these cases such that they can be identified for exclusion from the
calculation of the average cost of MS-DRG 018. We also proposed, for
the purpose of performing this trim, to update the median standardized
drug charge of claims identified as clinical trials in MS-DRG 018 based
on more recent data for the final rule.
Accordingly, we proposed that in calculating the relative weight
for MS-DRG 018 for FY 2026, in identifying clinical trial claims and
expanded access use claims and other cases where the immunotherapy
product is not purchased in the usual manner, such as obtained at no
cost, only those claims that group to MS-DRG 018 that (1) contain ICD-
10-CM diagnosis code Z00.6 and do not include payer-only code ``ZC'',
(2) contain condition code ``90'', or (3) contain standardized drug
charges below the median standardized drug charge of clinical trial
cases in MS-DRG 018 would be excluded from the calculation of the
average cost for MS-DRG 018.
With respect to claims that group to MS-DRG 018 and are identified
as clinical trials or involve expanded access use of the CAR T-cell
therapy or other immunotherapy, we noted in the proposed rule that
there are some cases that appear to include drug charges similar to
cases not identified as clinical trials or involving expanded access
use. These charges are generally in revenue center 0891, Cell Therapy
Drug Charges. We stated that we are seeking comments on potential
reasons for why claims identified as clinical trials or involving
expanded access use, in which the provider would typically receive the
product at no cost, would have charges in revenue center 0891, Cell
Therapy Drug Charges.
We also proposed to continue to use the methodology as modified in
the FY 2024 IPPS/LTCH PPS final rule to calculate the adjustment to
account for the CAR T-cell therapy cases identified as clinical trial
cases in calculating the national average standardized cost per case
that is used to calculate the relative weights for all MS-DRGs, with
the same proposed modification as described previously to identify
other cases where the immunotherapy product is not purchased in the
usual manner, such as obtained at no cost:
Calculate the average cost for cases assigned to MS-DRG
018 that (a) contain ICD-10-CM diagnosis code Z00.6 and do not contain
condition code ``ZC'', (b) contain condition code ``90'', or (c)
contain standardized drug charges below the median standardized drug
charge of clinical trial cases in MS-DRG 018.
Calculate the average cost for all other cases assigned to
MS-DRG 018.
Calculate an adjustor by dividing the average cost
calculated in step 1 by the average cost calculated in step 2.
Apply the adjustor calculated in step 3 to the cases
identified in step 1 as applicable clinical trial or expanded access
use cases, and other cases where the immunotherapy product is not
purchased in the usual manner, such as obtained at no cost, then add
this adjusted case count to the non-clinical trial case count prior to
calculating the average cost across all MS-DRGs.
Under our proposal to continue to apply this methodology, with the
proposed modification as described, based on the December 2024 update
of the FY 2024 MedPAR file used for the proposed rule, we estimated
that the average costs of cases assigned to MS-DRG 018 that are
identified as clinical trial cases ($88,484) were 23 percent of the
average costs of the cases assigned to MS-DRG 018 that are identified
as non-clinical trial cases ($385,147). Accordingly, as we did for FY
2025, we proposed to adjust the transfer-adjusted case count for MS-DRG
018 by applying the proposed adjustor of 0.23 to the applicable
clinical trial and expanded access use immunotherapy cases, and
[[Page 36654]]
other cases where the immunotherapy product is not purchased in the
usual manner, such as obtained at no cost, and to use this adjusted
case count for MS-DRG 018 in calculating the national average cost per
case, which is used in the calculation of the relative weights.
Therefore, in calculating the national average cost per case for
purposes of the proposed rule, each case identified as an applicable
clinical trial or expanded access use immunotherapy case, and other
cases where the immunotherapy product is not purchased in the usual
manner, such as obtained at no cost, was adjusted by 0.23. As we did
for FY 2025, we applied the same adjustor for the applicable cases that
group to MS-DRG 018 for purposes of budget neutrality and outlier
simulations. We also proposed to update the value of the adjustor based
on more recent data for the final rule.
Comment: Commenters supported our proposal to exclude claims in MS-
DRG 018 with standardized drug charges below the median standardized
drug charges of cases identified as clinical trials in MS-DRG 018.
Commenters stated that this proposal ensures that clinical trial and
no-cost cases do not distort payment rates across the IPPS. We note a
commenter mistakenly referred to our existing policy as still excluding
cases that have a standardized drug charge of less than $373,000.
Commenters requested clarification about whether the median
standardized drug charges includes all drug revenue lines and all
clinical trial claims, including expanded access claims. Some
commenters expressed support for the identification of cases involving
patient assistance programs, where no cost is incurred, but expressed
confusion regarding the language ``product not purchased in the usual
manner'', stating that is subjective, which can lead to confusion and
undue administrative burden for providers and varying interpretations
by the MACs. A commenter requested that CMS modify the language to
reflect the request in the comment summarized in the FY 2025 IPPS/LTCH
PPS final rule, which referred to cases where the immunotherapy is
``obtained at no cost''.
Response: We appreciate commenters support for our proposal. While
we indicated in the proposed rule that we calculate the median
standardized drug charges for cases identified as clinical trial claims
including cases that contain ICD-10-CM diagnosis code Z00.6 and do not
include payer only code ZC, we note that in calculating the median
standardized drug charges for cases identified as clinical trial
claims, we included claims that (a) contain ICD-10-CM diagnosis code
Z00.6 and do not contain condition code ``ZC'' or (b) contain condition
code ``90''. Just as we treat cases identified as clinical trial cases
and expanded access use cases in the same manner for payment purposes
and in the calculation of the relative weights, we are also including
both claims identified as clinical trial cases and claims identified as
expanded access use cases in calculating the median drug charges. Since
the provider does not incur the cost of the drug in cases identified as
clinical trial cases or expanded access use cases, but still incurs
costs for other drugs during the inpatient stay, we believe that using
the median standardized drug charge for clinical trial and expanded
access use cases would appropriately identify other cases involving
products not purchased in the usual manner. The drug revenue lines are
the same as those used in the relative weight calculations, which are
shown in the Cost Center HCRIS Lines Supplemental Data File referenced
earlier in this section.
With respect to the commenters who expressed concerns about the
language ``product not purchased in the usual manner'', we note that
this phrasing is not new; we have used the language ``product is
purchased in the usual manner'' in prior rules with respect to MS-DRG
018. Furthermore, we believe that this language is appropriately
phrased to include the broad range of scenarios that may fall under it.
For example, as described later in this section, commenters raised the
possibility of immunotherapy products administered over multiple
encounters. Given that we cannot predict all possible scenarios where
the product is not purchased in the usual manner, use of a condition
code that reflects a broad array of circumstances will facilitate more
accurate payment and ratesetting. We further note that the ``usual
manner'' in which a product is purchased may differ for products
administered in one dose versus split doses.
Comment: Commenters noted that some immunotherapy products may be
administered over multiple encounters (including in an outpatient
setting). A commenter requested that CMS confirm that a reduced payment
for MS-DRG 018 does not apply when a hospital purchases an
immunotherapy product (that is, incurs a cost), irrespective of whether
it is administered in multiple encounters. This commenter requested
that if CMS has specific requirements for how providers should handle
these situations, it should clarify them or state that it is up to the
individual provider to determine how to develop charges for multiple
administrations of a single product obtained from a manufacturer. A
commenter stated that unless manufacturers change their processes for
products administered over multiple encounters, hospitals will continue
to receive a single invoice and require guidance about how to report
the charges.
Response: CMS does not dictate a provider's charge structure or how
they itemize their charges. As stated in Chapter 22, Section 2203 of
the Provider Reimbursement Manual (https://www.cms.gov/regulations-and-guidance/guidance/manuals/paper-based-manuals-items/cms021929),
providers ``should have an established charge structure which is
applied uniformly to each patient as services are furnished to the
patient and which is reasonably and consistently related to the cost of
providing the services''. Providers should bill in the manner that they
customarily bill for split-dose administration and the charges should
be reasonably and consistently related to the cost of providing the
service in a split-dose administration circumstance. A split-dose
administration should not result in twice the amount of payment just by
virtue of the fact it is a split-dose administration. For example, we
remind hospitals that Chapter 3, Inpatient Hospital Billing, section
40.2.5 of the Medicare Claims Processing Manual (https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/clm104c03.pdf)
states that hospitals may place a patient on a leave of absence when
readmission is expected and the patient does not require a hospital
level of care during the interim period. Placing a patient on a leave
of absence will not generate two payments. Only one bill and one DRG
payment are made.
Comment: A commenter stated that a potential reason why claims
identified as clinical trials or involving expanded access use, in
which the provider would typically receive the product at no cost,
would have charges in revenue center 0891, is that the case involves a
clinical trial of another product. The commenter stated that given the
two-step and manual process in flagging these claims, (that is, the
provider includes ``Diff Prod Clin Trial'' in the Remarks field and the
MAC adds a payer-only condition code of ``ZC''), there is likely a
percentage of cases where the condition code was not applied as it
should be. The commenter noted that CMS' recent billing instructions
that automate the application of ``ZC'' should reduce the number of
claims with this profile.
[[Page 36655]]
Response: We appreciate the feedback on our comment solicitation
and will continue to monitor CAR T-cell therapy claims for such
potential anomalies.
Comment: Some commenters expressed concern that CMS no longer uses
the $373,000 threshold to identify clinical trial cases and requested
that CMS continue to refine its methodology to also consider
standardized drug charges to correctly identify clinical trial cases.
Commenters expressed concern that due to incorrect coding or incorrect
application of condition codes, cases below the $373,000 threshold may
be identified as clinical trials when the provider incurs the cost of
the drug. The commenter stated that as a result, these cases would be
included in ratesetting for MS-DRG 018 and these cases could be
underpaid, particularly as more hospitals administer cell and gene
therapies. The commenter requested that CMS publish information on
future cases that are below the $373,000 threshold given the likely
impact on the payment rate for MS-DRG 018.
Response: As we stated in the FY 2024 (88 FR 58791) and FY 2025
IPPS/LTCH PPS (89 FR 69112) final rules, while there continues to be a
small percentage of claims that report standardized drug charges of
less than $373,000 and do not report ICD-10-CM code Z00.6, we do not
believe it is necessary to continue the use of the proxy until the
number of cases reaches zero. In addition, our proposal to exclude
claims with standardized drug charges below the median standardized
drug charge of claims identified as clinical trials in MS-DRG 018 (that
is, claims that (a) contain ICD-10-CM diagnosis code Z00.6 and do not
include payer-only code ``ZC'' or (b) contain condition code ``90'') is
expected to reduce the number of cases with low standardized drug
charges that group to MS-DRG 018. We note that information on obtaining
the MedPAR Limited Data Set is available on the CMS website, at https://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/LimitedDataSets/MEDPARLDSHospitalNational.
Comment: A few commenters expressed confusion about CMS'
differentiation between clinical trial and expanded access use cases. A
commenter stated that it does not believe this differentiation is CMS'
intent because expanded access use of CAR T-cell or other therapies
that are grouped to MS-DRG 018 must occur as part of an Investigational
New Device (IND) study, which would have a National Clinical Trial
number and would meet criteria for routine costs of the clinical trial
NCD 310.1. This commenter cited the FDA website \13\ in support of
these statements. Another commenter requested that CMS clarify that
expanded access cases are a type of clinical trial.
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\13\ https://www.fda.gov/drugs/investigational-new-drug-ind-application/ind-applications-clinical-treatment-expanded-access-overview.
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A commenter requested that CMS clarify that expanded access use
would also be excluded from ratesetting because facilities do not incur
the cost of these products. A few commenters requested that CMS clarify
that the agency would expect to see clinical trial billing indicators
on expanded access claims (that is, diagnosis code Z00.6, condition
code 30, value code D4, and the NCT number), in addition to condition
code 90, which would help identify which clinical trial claims are
expanded access claims.
Response. The FDA states, at the link provided by the commenter,
``Expanded access, sometimes called ``compassionate use,'' is the use
of investigational new drug products outside of clinical trials to
treat patients with serious or immediately life-threatening diseases or
conditions when there are no comparable or satisfactory alternative
treatment options''. While we utilize separate condition codes to
identify clinical trial claims and expanded access use cases, we note
that they are treated the same for payment purposes and in the
calculation of the relative weights for MS-DRG 018.
Comment: A commenter stated that the MS-DRG payment for CAR T-cell
therapy services has never been sufficient and provided various reasons
for this, including problems with hospital chargemasters, CCRs, and
charge compression. Commenters provided various suggestions to mitigate
these concerns and increase the payment rate for MS-DRG 018. Commenters
stated that the percentage of cases in MS-DRG 018 that are eligible for
outlier payments has increased since FY 2021, which, the commenter
stated, if left unaddressed, places a constraint on the outlier pool,
which negatively impacts all hospitals.
A commenter stated that hospitals should not be targeted for having
high outlier payments given that it is the ``new norm'' for cell and
gene therapies, and that hospitals should not be questioned if they set
their charges consistent with their CCRs. This commenter stated that
CMS needs to provide more clarity so that stakeholders understand that
hospitals have no choice but to mark up product charges, and that
patients do not bear the cost of those charges. This commenter also
requested that CMS consider other methodologies to pay for
immunotherapies and expand CMMI's cell and gene therapy model.
Commenters requested that CMS explore the integration of Medicare
Advantage claims into the ratesetting process for MS-DRG 018 to improve
the sample size available for low volume products, which could improve
the robustness and reliability of cost estimates. A commenter noted
that as the percentage of enrollees in Medicare fee-for-service
decreases, the number of claims used in the ratesetting process will
decrease and become less representative for predicting resource
utilization.
Response: Regarding the comments that the MS-DRG relative weight
for MS-DRG 018 is inadequate and does not result in payment that fully
covers the hospital resource costs, as well as comments regarding
hospital charging practices, we refer readers to the FY 2022 IPPS/LTCH
final rule (86 FR 44965) where we responded to similar comments. With
respect to the commenter's statement about hospitals being ``targeted''
for having high outlier payments, we are unaware of the issue the
commenter is raising. We note our proposal, as discussed in the CY 2026
OPPS proposed rule (90 FR 33476), to collect payer-specific negotiated
charge data from MA organizations by MS-DRG for use in the MS-DRG
relative weight setting, would, if finalized, obviate many of the
concerns that commenters raised, including challenges with hospital
charging practices and the potential role of MA claims in the
ratesetting process.
Comment: Commenters requested that CMS revise its cost reporting
instructions for cell and gene therapy products (revenue codes 0891 and
0892) to instruct providers to use cost center 78. A commenter
requested that CMS also instruct providers to leave the services
associated with these therapies in their original cost centers. This
commenter stated that there is a precedent for CMS to define a cost
center based on a revenue code, like it did for the implantable devices
cost center. The commenter also requested that CMS clarify whether
hospitals are allowed to use product charges and expenses as valid
statistics to allocate administrative and general expenses to cost
report line 78.
Response: We do not believe changes to billing guidance are needed
at this time but will take these comments into consideration when
developing policies and program requirements for future years for CAR
T-cell therapy policy. We further note that under the proposal in
[[Page 36656]]
the CY 2026 OPPS proposed rule to collect payer-specific negotiated
charge data from MA organizations by MS-DRG for use in the MS-DRG
relative weight setting, an additional cost center would not impact the
relative weight for MS-DRG 018.
After consideration of the public comments we received, we are
finalizing our proposals without modifications regarding the
calculation of the relative weight for MS-DRG 018. We note that for
this final rule, based on the March 2025 update of the FY 2024 MedPAR
file, we estimated that the median standardized drug charge of claims
identified as clinical trials in MS-DRG 018 (that is, claims that (a)
contain ICD-10-CM diagnosis code Z00.6 and do not include payer-only
code ``ZC'' or (b) contain condition code ``90'') is $27,466. Applying
this finalized methodology, based on the March 2025 update of the FY
2024 MedPAR file used for this final rule, we estimated that the
average costs of cases assigned to MS-DRG 018 that are identified as
clinical trial cases ($61,643.46) were 16 percent of the average costs
of the cases assigned to MS-DRG 018 that are identified as nonclinical
trial cases ($384,471.59).
Accordingly, as we did for FY 2025, we are finalizing our proposal
to adjust the transfer-adjusted case count for MS-DRG 018 by applying
the adjustor of 0.16 to the applicable clinical trial and expanded
access use immunotherapy cases, and other cases where the immunotherapy
product is not purchased in the usual manner, such as obtained at no
cost, and to use this adjusted case count for MS-DRG 018 in calculating
the national average cost per case, which is used in the calculation of
the relative weights. Therefore, in calculating the national average
cost per case for purposes of this final rule, each case identified as
an applicable clinical trial or expanded access use immunotherapy case,
and other cases where immunotherapy product is not purchased in the
usual manner, such as obtained at no cost, was adjusted by 0.16. As we
did for FY 2025, we are applying this same adjustor for the applicable
cases that group to MS-DRG 018 for purposes of budget neutrality and
outlier simulations.
d. Cap for Relative Weight Reductions
In the FY 2023 IPPS/LTCH PPS final rule, we finalized a permanent
10-percent cap on the reduction in an MS-DRG's relative weight in a
given fiscal year, beginning in FY 2023. We also finalized a budget
neutrality adjustment to the standardized amount for all hospitals to
ensure that application of the permanent 10-percent cap does not result
in an increase or decrease of estimated aggregate payments. We refer
the reader to the FY 2023 IPPS/LTCH PPS final rule for further
discussion of this policy. In the Addendum to this IPPS/LTCH PPS final
rule, we present the budget neutrality adjustment for reclassification
and recalibration of the FY 2026 MS-DRG relative weights with
application of this cap. We are also making available on the CMS
website a supplemental file demonstrating the application of the
permanent 10 percent cap for FY 2026. For a further discussion of the
final budget neutrality adjustment for FY 2026, we refer readers to the
Addendum of this final rule.
3. Development of National Average Cost-to-Charge Ratios (CCRs)
We developed the national average CCRs as follows:
Using the FY 2023 cost report data, we removed CAHs, REHs, Indian
Health Service hospitals, all-inclusive rate hospitals, and cost
reports that represented time periods of less than 1 year (365 days).
We included hospitals located in Maryland because we include their
charges in our claims database. Then we created CCRs for each provider
for each cost center (see the supplemental data file for line items
used in the calculations) and removed any CCRs that were greater than
10 or less than 0.01. We normalized the departmental CCRs by dividing
the CCR for each department by the total CCR for the hospital for the
purpose of trimming the data. Then we took the logs of the normalized
cost center CCRs and removed any cost center CCRs where the log of the
cost center CCR was greater or less than the mean log plus/minus 3
times the standard deviation for the log of that cost center CCR. Once
the cost report data were trimmed, we calculated a Medicare-specific
CCR. The Medicare-specific CCR was determined by taking the Medicare
charges for each line item from Worksheet D-3 and deriving the
Medicare-specific costs by applying the hospital-specific departmental
CCRs to the Medicare-specific charges for each line item from Worksheet
D-3. Once each hospital's Medicare-specific costs were established, we
summed the total Medicare-specific costs and divided by the sum of the
total Medicare-specific charges to produce national average, charge-
weighted CCRs.
After we multiplied the total charges for each MS-DRG in each of
the 19 cost centers by the corresponding national average CCR, we
summed the 19 ``costs'' across each MS-DRG to produce a total
standardized cost for the MS-DRG. The average standardized cost for
each MS-DRG was then computed as the total standardized cost for the
MS-DRG divided by the transfer-adjusted case count for the MS-DRG. The
average cost for each MS-DRG was then divided by the national average
standardized cost per case to determine the relative weight. The final
FY 2026 cost-based relative weights were then normalized by an
adjustment factor of 1.922881 so that the average case weight after
recalibration was equal to the average case weight before
recalibration. The normalization adjustment is intended to ensure that
recalibration by itself neither increases nor decreases total payments
under the IPPS, as required by section 1886(d)(4)(C)(iii) of the Act.
We then applied the permanent 10-percent cap on the reduction in a MS-
DRG's relative weight in a given fiscal year; specifically for those
MS-DRGs for which the relative weight otherwise would have declined by
more than 10 percent from the FY 2025 relative weight, we set the FY
2026 relative weight equal to 90 percent of the FY 2025 relative
weight. The final relative weights for FY 2026 as set forth in Table 5
associated with this final rule and available on the CMS website at
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS reflect the application of this cap.
The 19 national average CCRs for FY 2026 are as follows:
[[Page 36657]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.134
Since FY 2009, the relative weights have been based on 100 percent
cost weights based on our MS-DRG grouping system.
When we recalibrated the DRG weights for previous years, we set a
threshold of 10 cases as the minimum number of cases required to
compute a reasonable weight. We proposed to use that same case
threshold in recalibrating the proposed MS-DRG relative weights for FY
2026. In this final rule, using data from the FY 2024 MedPAR file,
there are 9 MS-DRGs that contain fewer than 10 cases. For FY 2026,
because we do not have sufficient MedPAR data to set accurate and
stable cost relative weights for these low-volume MS-DRGs, we proposed
to compute relative weights for the low-volume MS-DRGs by adjusting
their final FY 2025 relative weights by the percentage change in the
average weight of the cases in other MS-DRGs from FY 2025 to FY 2026.
The crosswalk table is as follows.
[GRAPHIC] [TIFF OMITTED] TR04AU25.135
We did not receive any public comments on this proposal and
therefore are finalizing it for FY 2026 without modification.
E. Add-On Payments for New Services and Technologies for FY 2026
1. Background
Effective for discharges beginning on or after October 1, 2001,
section 1886(d)(5)(K)(i) of the Act requires the Secretary to establish
a mechanism to recognize the costs of new medical services and
technologies (sometimes collectively referred to in this section as
``new technologies'') under the IPPS. Section 1886(d)(5)(K)(vi) of the
Act specifies that a medical service or technology will be considered
new if it meets criteria established by the Secretary after notice and
opportunity for public comment. Section 1886(d)(5)(K)(ii)(I) of the Act
specifies
[[Page 36658]]
that a new medical service or technology may be considered for new
technology add-on payment if, based on the estimated costs incurred
with respect to discharges involving such service or technology, the
DRG prospective payment rate otherwise applicable to such discharges
under this subsection is inadequate. The regulations at 42 CFR 412.87
implement these provisions and Sec. 412.87(b) specifies three criteria
for a new medical service or technology to receive the additional
payment: (1) the medical service or technology must be new; (2) the
medical service or technology must be costly such that the DRG rate
otherwise applicable to discharges involving the medical service or
technology is determined to be inadequate; and (3) the service or
technology must demonstrate a substantial clinical improvement over
existing services or technologies. In addition, certain transformative
new devices and antimicrobial products may qualify under an alternative
inpatient new technology add-on payment pathway, as set forth in the
regulations at Sec. 412.87(c) and (d).
We note that section 1886(d)(5)(K)(i) of the Act requires the
Secretary to establish a mechanism to recognize the costs of new
medical services and technologies under the payment system established
under that subsection, which establishes the system for paying for the
operating costs of inpatient hospital services. The system of payment
for capital costs is established under section 1886(g) of the Act.
Therefore, as discussed in prior rulemaking (72 FR 47307 through
47308), we do not include capital costs in the add-on payments for a
new medical service or technology or make new technology add-on
payments under the IPPS for capital-related costs.
In the proposed rule, we highlighted some of the major statutory
and regulatory provisions relevant to the new technology add-on payment
criteria, as well as other information. For further discussion on the
new technology add-on payment criteria, we refer readers to the FY 2012
IPPS/LTCH PPS final rule (76 FR 51572 through 51574), the FY 2020 IPPS/
LTCH PPS final rule (84 FR 42288 through 42300), and the FY 2021 IPPS/
LTCH PPS final rule (85 FR 58736 through 58742).
a. New Technology Add-On Payment Criteria
(1) Newness Criterion
Under the first criterion, as reflected in Sec. 412.87(b)(2), a
specific medical service or technology will no longer be considered
``new'' for purposes of new medical service or technology add-on
payments after CMS has recalibrated the MS-DRGs, based on available
data, to reflect the cost of the technology. We note that we do not
consider a service or technology to be new if it is substantially
similar to one or more existing technologies. That is, even if a
medical product receives a new FDA marketing authorization, it may not
necessarily be considered ``new'' for purposes of new technology add-on
payments if it is ``substantially similar'' to another medical product
that was market authorized by FDA and has been on the market for more
than 2 to 3 years. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74
FR 43813 through 43814), we established criteria for evaluating whether
a new technology is substantially similar to an existing technology,
specifically whether: (1) a product uses the same or a similar
mechanism of action to achieve a therapeutic outcome; (2) a product is
assigned to the same or a different MS-DRG; and (3) the new use of the
technology involves the treatment of the same or similar type of
disease and the same or similar patient population. If a technology
meets all three of these criteria, it would be considered substantially
similar to an existing technology and would not be considered ``new''
for purposes of new technology add-on payments. For a detailed
discussion of the criteria for substantial similarity, we refer readers
to the FY 2006 IPPS final rule (70 FR 47351 through 47352) and the FY
2010 IPPS/LTCH PPS final rule (74 FR 43813 through 43814).
(2) Cost Criterion
Under the second criterion, Sec. 412.87(b)(3) further provides
that, to be eligible for the add-on payment for new medical services or
technologies, the MS-DRG prospective payment rate otherwise applicable
to discharges involving the new medical service or technology must be
assessed for adequacy. Under the cost criterion, consistent with the
formula specified in section 1886(d)(5)(K)(ii)(I) of the Act, to assess
the adequacy of payment for a new technology paid under the applicable
MS-DRG prospective payment rate, we evaluate whether the charges of the
cases involving a new medical service or technology will exceed a
threshold amount that is the lesser of 75 percent of the standardized
amount (increased to reflect the difference between cost and charges)
or 75 percent of one standard deviation beyond the geometric mean
standardized charge for all cases in the MS-DRG to which the new
medical service or technology is assigned (or the case-weighted average
of all relevant MS-DRGs if the new medical service or technology occurs
in many different MS-DRGs). The MS-DRG threshold amounts generally used
in evaluating new technology add-on payment applications for FY 2026
are presented in a data file that is available, along with the other
data files associated with the FY 2025 IPPS/LTCH PPS final rule,
correction notice and interim final action with comment period, on the
CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.
We note that, under the policy finalized in the FY 2021 IPPS/LTCH
PPS final rule (85 FR 58603 through 58605), beginning with FY 2022, we
use the proposed threshold values associated with the proposed rule for
that fiscal year to evaluate the cost criterion for all applications
for new technology add-on payments and previously approved technologies
that may continue to receive new technology add-on payments, if those
technologies would be assigned to a proposed new MS-DRG for that same
fiscal year.
As finalized in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41275),
beginning with FY 2020, we include the thresholds applicable to the
next fiscal year (previously included in Table 10 of the annual IPPS/
LTCH PPS proposed and final rules) in the data files associated with
the prior fiscal year. Accordingly, the final thresholds for
applications for new technology add-on payments for FY 2027 are
presented in a data file that is available on the CMS website, along
with the other data files associated with this FY 2026 final rule, by
clicking on the FY 2026 IPPS Final Rule Home Page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.
In the September 7, 2001, final rule that established the new
technology add-on payment regulations (66 FR 46917), we discussed that
applicants should submit a significant sample of data to demonstrate
that the medical service or technology meets the high-cost threshold.
Specifically, applicants should submit a sample of sufficient size to
enable us to undertake an initial validation and analysis of the data.
We also discussed in the September 7, 2001, final rule (66 FR 46917)
the issue of whether the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) Privacy Rule at 45 CFR part 160 and
subparts A and E of 45 CFR part 164, applies to claims information that
providers submit with applications
[[Page 36659]]
for new medical service or technology add-on payments. We refer readers
to the FY 2012 IPPS/LTCH PPS final rule (76 FR 51573) for further
information on this issue.
(3) Substantial Clinical Improvement Criterion
Under the third criterion at Sec. 412.87(b)(1), a medical service
or technology must represent an advance that substantially improves,
relative to technologies previously available, the diagnosis or
treatment of Medicare beneficiaries. In the FY 2020 IPPS/LTCH PPS final
rule (84 FR 42288 through 42292), we prospectively codified in our
regulations at Sec. 412.87(b) the following aspects of how we evaluate
substantial clinical improvement for purposes of new technology add-on
payments under the IPPS:
The totality of the circumstances is considered when
making a determination that a new medical service or technology
represents an advance that substantially improves, relative to services
or technologies previously available, the diagnosis or treatment of
Medicare beneficiaries.
A determination that a new medical service or technology
represents an advance that substantially improves, relative to services
or technologies previously available, the diagnosis or treatment of
Medicare beneficiaries means--
++ The new medical service or technology offers a treatment option
for a patient population unresponsive to, or ineligible for, currently
available treatments;
++ The new medical service or technology offers the ability to
diagnose a medical condition in a patient population where that medical
condition is currently undetectable, or offers the ability to diagnose
a medical condition earlier in a patient population than allowed by
currently available methods, and there must also be evidence that use
of the new medical service or technology to make a diagnosis affects
the management of the patient;
++ The use of the new medical service or technology significantly
improves clinical outcomes relative to services or technologies
previously available as demonstrated by one or more of the following: a
reduction in at least one clinically significant adverse event,
including a reduction in mortality or a clinically significant
complication; a decreased rate of at least one subsequent diagnostic or
therapeutic intervention; a decreased number of future hospitalizations
or physician visits; a more rapid beneficial resolution of the disease
process treatment including, but not limited to, a reduced length of
stay or recovery time; an improvement in one or more activities of
daily living; an improved quality of life; or, a demonstrated greater
medication adherence or compliance; or
++ The totality of the circumstances otherwise demonstrates that
the new medical service or technology substantially improves, relative
to technologies previously available, the diagnosis or treatment of
Medicare beneficiaries.
Evidence from the following published or unpublished
information sources from within the United States or elsewhere may be
sufficient to establish that a new medical service or technology
represents an advance that substantially improves, relative to services
or technologies previously available, the diagnosis or treatment of
Medicare beneficiaries: clinical trials, peer reviewed journal
articles; study results; meta-analyses; consensus statements; white
papers; patient surveys; case studies; reports; systematic literature
reviews; letters from major healthcare associations; editorials and
letters to the editor; and public comments. Other appropriate
information sources may be considered.
The medical condition diagnosed or treated by the new
medical service or technology may have a low prevalence among Medicare
beneficiaries.
The new medical service or technology may represent an
advance that substantially improves, relative to services or
technologies previously available, the diagnosis or treatment of a
subpopulation of patients with the medical condition diagnosed or
treated by the new medical service or technology.
We refer the reader to the FY 2020 IPPS/LTCH PPS final rule (84 FR
42288 through 42292) for additional discussion of the evaluation of
substantial clinical improvement for purposes of new technology add-on
payments under the IPPS.
We note, consistent with the discussion in the FY 2003 IPPS final
rule (67 FR 50015), that while FDA has regulatory responsibility for
decisions related to marketing authorization (for example, approval,
clearance, etc.), we do not rely upon FDA criteria in our evaluation of
substantial clinical improvement for purposes of determining what
services and technologies qualify for new technology add-on payments
under Medicare. This criterion does not depend on the standard of
safety and effectiveness on which FDA relies but on a demonstration of
substantial clinical improvement in the Medicare population.
b. Alternative Inpatient New Technology Add-On Payment Pathway
Beginning with applications for FY 2021 new technology add-on
payments, under the regulations at Sec. 412.87(c), a medical device
that is part of FDA's Breakthrough Devices Program may qualify for the
new technology add-on payment under an alternative pathway.
Additionally, under the regulations at Sec. 412.87(d) for certain
antimicrobial products, beginning with FY 2021, a drug that is
designated by FDA as a Qualified Infectious Disease Product (QIDP),
and, beginning with FY 2022, a drug that is approved by FDA under the
Limited Population Pathway for Antibacterial and Antifungal Drugs
(LPAD), may also qualify for the new technology add-on payment under an
alternative pathway. We refer the reader to the FY 2020 IPPS/LTCH PPS
final rule (84 FR 42292 through 42297) and the FY 2021 IPPS/LTCH PPS
final rule (85 FR 58737 through 58739) for further discussion on this
policy. We note that CMS reviews the application based on the
information provided by the applicant only under the alternative
pathway specified by the applicant at the time of application
submission. To receive approval for the new technology add-on payment
under that alternative pathway, the technology must have the applicable
FDA designation and meet all other requirements in the regulations in
Sec. 412.87(c) and (d), as applicable.
(1) Alternative Pathway for Certain Transformative New Devices
For applications received for new technology add-on payments for FY
2021 and subsequent fiscal years, a medical device designated under
FDA's Breakthrough Devices Program\14\ that has received FDA marketing
authorization will be considered not substantially similar to an
existing technology for purposes of the new technology add-on payment
under the IPPS, and will not need to meet the requirement under Sec.
412.87(b)(1) that it represent an advance that substantially improves,
relative to technologies previously available, the diagnosis or
treatment of Medicare beneficiaries. Under this alternative pathway, a
medical device that has received a Breakthrough Device designation, and
then received FDA marketing authorization (that is, has been
[[Page 36660]]
approved or cleared by, or had a De Novo classification request granted
by, FDA) for the indication covered by the Breakthrough Device
designation, will need to meet the requirements of Sec. 412.87(c). We
note that in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58734 through
58736), we clarified our policy that a new medical device under this
alternative pathway must receive marketing authorization for the
indication covered by the Breakthrough Devices Program designation. We
refer the reader to the FY 2021 IPPS/LTCH PPS final rule (85 FR 58734
through 58736) for further discussion regarding this clarification.
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\14\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program.
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(2) Alternative Pathway for Certain Antimicrobial Products
For applications received for new technology add-on payments for
certain antimicrobial products, beginning with FY 2021, if a technology
is designated by FDA as a QIDP and received FDA marketing
authorization, and, beginning with FY 2022, if a drug is approved under
FDA's LPAD pathway and used for the indication approved under the LPAD
pathway, it will be considered not substantially similar to an existing
technology for purposes of new technology add-on payments and will not
need to meet the requirement that it represent an advance that
substantially improves, relative to technologies previously available,
the diagnosis or treatment of Medicare beneficiaries. Under this
alternative pathway for QIDPs and LPADs, a medical product that has
received FDA marketing authorization and is designated by FDA as a QIDP
or approved under the LPAD pathway will need to meet the requirements
of Sec. 412.87(d). We refer the reader to the FY 2020 IPPS/LTCH PPS
final rule (84 FR 42292 through 42297) and FY 2021 IPPS/LTCH PPS final
rule (85 FR 58737 through 58739) for further discussion on this policy.
We note that, in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58737
through 58739), we clarified that a new medical product seeking
approval for the new technology add-on payment under the alternative
pathway for QIDPs must receive FDA marketing authorization for the
indication covered by the QIDP designation. We also finalized our
policy to expand our alternative new technology add-on payment pathway
for certain antimicrobial products to include products approved under
the LPAD pathway and used for the indication approved under the LPAD
pathway.
c. Additional Payment for New Medical Service or Technology
The new medical service or technology add-on payment policy under
the IPPS provides additional payments for cases with relatively high
costs involving eligible new medical services or technologies, while
preserving some of the incentives inherent under an average-based
prospective payment system. The payment mechanism is based on the cost
to hospitals for the new medical service or technology. As noted
previously, we do not include capital costs in the add-on payments for
a new medical service or technology or make new technology add-on
payments under the IPPS for capital-related costs (72 FR 47307 through
47308).
For discharges occurring before October 1, 2019, under Sec.
412.88, if the costs of the discharge (determined by applying operating
cost-to-charge ratios (CCRs) as described in Sec. 412.84(h)) exceed
the full DRG payment (including payments for IME and DSH, but excluding
outlier payments), CMS made an add-on payment equal to the lesser of:
(1) 50 percent of the costs of the new medical service or technology;
or (2) 50 percent of the amount by which the costs of the case exceed
the standard DRG payment.
Beginning with discharges on or after October 1, 2019, for the
reasons discussed in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42297
through 42300), we finalized an increase in the new technology add-on
payment percentage, as reflected at Sec. 412.88(a)(2)(ii).
Specifically, for a new technology other than a medical product
designated by FDA as a QIDP, beginning with discharges on or after
October 1, 2019, if the costs of a discharge involving a new technology
(determined by applying CCRs as described in Sec. 412.84(h)) exceed
the full DRG payment (including payments for IME and DSH, but excluding
outlier payments), Medicare will make an add-on payment equal to the
lesser of: (1) 65 percent of the costs of the new medical service or
technology; or (2) 65 percent of the amount by which the costs of the
case exceed the standard DRG payment. For a new technology that is a
medical product designated by FDA as a QIDP, beginning with discharges
on or after October 1, 2019, if the costs of a discharge involving a
new technology (determined by applying CCRs as described in Sec.
412.84(h)) exceed the full DRG payment (including payments for IME and
DSH, but excluding outlier payments), Medicare will make an add-on
payment equal to the lesser of: (1) 75 percent of the costs of the new
medical service or technology; or (2) 75 percent of the amount by which
the costs of the case exceed the standard DRG payment. For a new
technology that is a medical product approved under FDA's LPAD pathway,
beginning with discharges on or after October 1, 2020, if the costs of
a discharge involving a new technology (determined by applying CCRs as
described in Sec. 412.84(h)) exceed the full DRG payment (including
payments for IME and DSH, but excluding outlier payments), Medicare
will make an add-on payment equal to the lesser of: (1) 75 percent of
the costs of the new medical service or technology; or (2) 75 percent
of the amount by which the costs of the case exceed the standard DRG
payment. As set forth in Sec. 412.88(b)(2), unless the discharge
qualifies for an outlier payment, the additional Medicare payment will
be limited to the full MS-DRG payment plus 65 percent (or 75 percent
for certain antimicrobial products (QIDPs and LPADs)) of the estimated
costs of the new technology or medical service. We refer the reader to
the FY 2020 IPPS/LTCH PPS final rule (84 FR 42297 through 42300) for
further discussion on the increase in the new technology add-on payment
beginning with discharges on or after October 1, 2019.
As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69245
through 69252), we finalized an increase in the new technology add-on
payment percentage, reflected at Sec. 412.88(a)(2)(ii)(C) and
(b)(2)(iv), that for certain gene therapies approved for new technology
add-on payments in the FY 2025 IPPS/LTCH PPS final rule that are
indicated and used specifically for the treatment of sickle cell
disease (SCD), effective with discharges on or after October 1, 2024
and concluding at the end of the 2- to 3-year newness period for such
therapy, if the costs of a discharge (determined by applying CCRs as
described in Sec. 412.84(h)) involving the use of such therapy for the
treatment of SCD exceed the full DRG payment (including payments for
IME and DSH, but excluding outlier payments), Medicare will make an
add-on payment equal to the lesser of: (1) 75 percent of the costs of
the new medical service or technology; or (2) 75 percent of the amount
by which the costs of the case exceed the standard DRG payment. We
noted that these payment amounts would only apply to
CasgevyTM (exagamglogene autotemcel) and
LyfgeniaTM (lovotibeglogene autotemcel), when indicated and
used specifically for the treatment of SCD, which were approved for new
[[Page 36661]]
technology add-on payments in the FY 2025 IPPS/LTCH PPS final rule (89
FR 69128 through 69135, and 89 FR 69188 through 69196).
We note that, consistent with the prospective nature of the IPPS,
we finalize the new technology add on payment amount for technologies
approved or conditionally approved for new technology add-on payments
in the final rule for each fiscal year and do not make mid-year changes
to new technology add-on payment amounts. Updated cost information may
be submitted and included in rulemaking to be considered for the
following fiscal year.
Section 503(d)(2) of the MMA (Pub. L. 108-173) provides that there
shall be no reduction or adjustment in aggregate payments under the
IPPS due to add-on payments for new medical services and technologies.
Therefore, in accordance with section 503(d)(2) of the MMA, add-on
payments for new medical services or technologies for FY 2005 and
subsequent years have not been subjected to budget neutrality.
d. Evaluation of Eligibility Criteria for New Medical Service or
Technology Applications
In the FY 2009 IPPS final rule (73 FR 48561 through 48563), we
modified our regulation at Sec. 412.87 to codify our longstanding
practice of how CMS evaluates the eligibility criteria for new medical
service or technology add-on payment applications. That is, we first
determine whether a medical service or technology meets the newness
criterion, and only if so, do we then make a determination as to
whether the technology meets the cost threshold and represents a
substantial clinical improvement over existing medical services or
technologies. We specified that all applicants for new technology add-
on payments must have FDA approval or clearance by July 1 of the year
prior to the beginning of the fiscal year for which the application is
being considered. In the FY 2021 IPPS/LTCH PPS final rule, to more
precisely describe the various types of FDA approvals, clearances and
classifications that we consider under our new technology add-on
payment policy, we finalized a technical clarification to the
regulation to indicate that new technologies must receive FDA marketing
authorization 15 16 (such as pre-market approval (PMA);
510(k) clearance; the granting of a De Novo classification request; or
approval of a New Drug Application (NDA) or Biologics License
Application (BLA)) by July 1 of the year prior to the beginning of the
fiscal year for which the application is being considered (85 FR
58742). Consistent with our longstanding policy, we consider FDA
marketing authorization as representing that a product has received FDA
approval or clearance, or has been granted a De Novo classification
request when considering eligibility for the new technology add-on
payment.
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\15\ How to Study and Market Your Device https://www.fda.gov/medical-devices/device-advice-comprehensive-regulatory-assistance/how-study-and-market-your-device.
\16\ Types of Applications https://www.fda.gov/drugs/how-drugs-are-developed-and-approved/types-applications.
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Additionally, in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58739
through 58742), we finalized our proposal to provide conditional
approval for new technology add-on payment for a technology for which
an application is submitted under the alternative pathway for certain
antimicrobial products at Sec. 412.87(d) that does not receive FDA
marketing authorization by July 1 prior to the particular fiscal year
for which the applicant applied for new technology add-on payments,
provided that the technology otherwise meets the applicable add-on
payment criteria. Under this policy, cases involving eligible
antimicrobial products would begin receiving the new technology add-on
payment sooner, effective for discharges the quarter after the date of
FDA marketing authorization, provided that the technology receives FDA
marketing authorization before July 1 of the fiscal year for which the
applicant applied for new technology add-on payments.
As discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948
through 58958) and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69242
through 69245), beginning with the new technology add-on payment
applications for FY 2025, for technologies that are not already FDA
market authorized for the indication that is the subject of the new
technology add-on payment application, applicants must have a complete
and active FDA market authorization request at the time of new
technology add-on payment application submission and must provide
documentation of FDA acceptance (for a 510k application or De Novo
Classification request) or filing (for a PMA, NDA, or BLA) to CMS at
the time of application submission, consistent with the type of FDA
marketing authorization application the applicant has submitted to FDA.
See Sec. 412.87(e) and further discussion in the FY 2024 IPPS/LTCH PPS
final rule (88 FR 58948 through 58958) and the FY 2025 IPPS/LTCH PPS
final rule (89 FR 69242 through 69245). As we have discussed in prior
rulemaking, we consider the application to be complete when the full
application has been submitted to FDA and FDA has provided
documentation to the applicant indicating that FDA has determined that
the application is sufficiently complete to allow for substantive
review by FDA. We recognize that FDA processes and documentation may
change over time, and the acceptance or filing documentation may vary
depending on the type of FDA marketing authorization application the
applicant has submitted to FDA. For example, we understand that FDA
considers submission of a 510(k) or De Novo Classification request to
be accepted for substantive review after the completion of either a
refuse to accept (RTA) review or a technical screening process.
17 18 Submissions of 510(k) and De Novo Classification
requests undergo a technical screening process when they are submitted
to FDA using the electronic Submission Template And Resource (eSTAR)
process; 510(k) and De Novo Classification requests that are not
submitted via eSTAR undergo an RTA review. Accordingly, FDA provides
applicants using eSTAR with a review assignment notification to
indicate that FDA has completed its technical screening process and has
determined that the application is sufficiently complete to allow for
substantive review. Therefore, new technology add-on payment applicants
that have submitted a 510(k) application or De Novo Classification
request to FDA through eSTAR must submit a copy of the review
assignment notification to CMS (at the time of new technology add-on
payment application) to establish the application is sufficiently
complete to allow for substantive review by FDA. We note that PMAs
submitted using eSTAR that complete technical screening will still
undergo a subsequent filing review by FDA, after which an application
is determined to be sufficiently complete to allow for substantive
review; therefore, we
[[Page 36662]]
continue to require documentation of FDA filing for these applications.
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\17\ FDA and Industry Actions on Premarket Notification (510(k))
Submissions: Effect on FDA Review Clock and Goals Guidance for
Industry and Food and Drug Administration Staff Document issued on
October 3, 2022. https://www.fda.gov/media/73507/download.
\18\ FDA and Industry Actions on De Novo Classification
Requests: Effect on FDA Review Clock and Goals Guidance for Industry
and Food and Drug Administration Staff Document issued on October 3,
2022. https://www.fda.gov/media/107652/download.
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In addition, we recognize that FDA does not conduct a new filing
review for NDA or BLA applications that were the subject of a Complete
Response Letter (CRL) and were subsequently resubmitted to FDA, even
though resubmissions are considered a new review cycle.19 20
Therefore, beginning with the new technology add-on applications
submitted for FY 2027, these new technology add-on payment applicants
must provide to CMS a copy of the resubmission acknowledgement letter
from FDA that provides the new goal date for FDA review of the
application. We further note that if there are other processes not
described here, or if there are further changes to FDA's review
processes, consistent with our policy, applicants must provide to CMS
the most up-to-date documentation that indicates FDA has determined
that the application is sufficiently complete to allow for substantive
review by FDA.
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\19\ SOPP 8405.1: Procedures for Resubmissions to an Application
or Supplement. Version: 8 Effective Date: November 13, 2022. https://www.fda.gov/media/84417/download.
\20\ 21 CFR 314.110, Complete response letter to the applicant
https://www.ecfr.gov/current/title-21/chapter-I/subchapter-D/part-314/subpart-D/section-314.110.
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Comment: A commenter expressed support for this clarification and,
as FDA's review processes evolve or other challenges arise, encouraged
CMS to be flexible and to consider additional opportunities to clarify
documentation requirements to ensure technologies remain eligible for
new technology add-on payment and reach patients who need them, without
creating further delays in the availability of new technology add-on
payment.
Response: We appreciate the commenter's support and note that an
applicant may submit to us specific questions regarding their new
technology add-on payment application using the resources described on
the CMS website for the electronic application intake system: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/new-medical-services-and-new-technologies.
In the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through
58958), we also finalized that, beginning with FY 2025 applications, in
order to be eligible for consideration for the new technology add-on
payment for the upcoming fiscal year, an applicant for new technology
add-on payments must have received FDA marketing authorization by May 1
(rather than July 1) of the year prior to the beginning of the fiscal
year for which the application is being considered (except for an
application that is submitted under the alternative pathway for certain
antimicrobial products), as reflected at Sec. 412.87(f)(2) and (3), as
amended and redesignated in the FY 2024 IPPS/LTCH PPS final rule (88 FR
58948 through 58958, 88 FR 59331).
e. Pharmaceutical & Technology Ombudsman (PTO)
Many interested parties (including device/biologic/drug developers
or manufacturers, industry consultants, others) engage with CMS for
coverage, coding, and payment questions or concerns. In order to
streamline engagement by centralizing the different innovation pathways
within CMS including new technology add-on payments, CMS utilizes the
Pharmaceutical & Technology Ombudsman as an initial resource for
interested parties. This Ombudsman is available to assist with all of
the following:
Help to point interested parties to or provide information
and resources where possible regarding process, requirements, and
timelines.
As necessary, coordinate and facilitate opportunities for
interested parties to engage with various CMS components.
Serve as a primary point of contact for interested parties
and provide updates on developments where possible or appropriate.
We receive many questions from parties interested in pursuing new
technology add-on payments who may not be entirely familiar with
working with CMS. While we encourage interested parties to first review
our resources available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech, we know that there may
be additional questions about the application process. Interested
parties with further questions regarding Medicare's coverage, coding,
and payment processes, and how they can navigate these processes,
whether for new technology add-on payments or otherwise, should review
the updated resource guide available at: https://www.cms.gov/medicare/coding-billing/guide-medical-technology-companies-other-interested-parties. Parties that would like to further discuss questions or
concerns with CMS should contact the Pharmaceutical & Technology
Ombudsman at [email protected].
f. Application Information for New Medical Services or Technologies
Applicants for add-on payments for new medical services or
technologies for FY 2027 must submit a formal request, including a full
description of the clinical applications of the medical service or
technology and the results of any clinical evaluations demonstrating
that the new medical service or technology represents a substantial
clinical improvement (unless the application is under one of the
alternative pathways as previously described), along with a significant
sample of data to demonstrate that the medical service or technology
meets the high-cost threshold. CMS will review the application based on
the information provided by the applicant under the pathway specified
by the applicant at the time of application submission. Complete
application information, along with final deadlines for submitting a
full application, will be posted as it becomes available on the CMS
website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech.html.
To allow interested parties to identify the new medical services or
technologies under review before the publication of the proposed rule
for FY 2027, once the application deadline has closed, CMS will post on
its website a list of the applications submitted, along with a brief
description of each technology as provided by the applicant.
As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986
through 48990), we finalized our proposal to publicly post online new
technology add-on payment applications, including the completed
application forms, certain related materials, and any additional
updated application information submitted subsequent to the initial
application submission (except certain volume, cost and other
information identified by the applicant as confidential), beginning
with the application cycle for FY 2024, at the time the proposed rule
is published. We also finalized that with the exception of information
included in a confidential information section of the application, cost
and volume information, and materials identified by the applicant as
copyrighted or not otherwise releasable to the public, the contents of
the application and related materials may be posted publicly, and that
we will not post applications that are withdrawn prior to publication
of the proposed rule. We refer the reader to the FY 2023 IPPS/LTCH PPS
final
[[Page 36663]]
rule (87 FR 48986 through 48990) for further information regarding this
policy. In the proposed rule, we stated that beginning with the new
technology add-on applications submitted for FY 2027, we intend to
include certain cost criterion information in this public posting;
however, consistent with our current policy, cost and volume
information will not be publicly posted. Consistent with current
practice, certain cost and volume information may still be summarized
and discussed in the proposed rule, but we intend to provide more
succinct information as part of the summaries in the proposed and final
rules regarding the applicant's assertions as to how the medical
service or technology meets the cost criterion. Specifically, beginning
with the FY 2027 applications, the public posting will include the
applicant's explanation of the cost analysis methodology, including the
step-by-step explanation of the columns used in the cost analysis
spreadsheet attachment, any optional comments provided by the
applicant, and information about the case weighted threshold and final
inflated case weighted standardized charge per case, as is currently
subject to discussion in the cost criterion analysis for each eligible
application in the proposed rule. The cost analysis spreadsheet
attachment and other charge values provided in the applicant's
responses would not be included in the public posting. We stated that
we believe that including the described cost criterion information in
the public posting will further improve and streamline our evaluation
process, while also further supporting transparency and engagement with
interested parties.
Comment: Multiple commenters asked CMS to reconsider finalizing or
request additional input from interested parties through rulemaking
before finalizing the inclusion of certain cost criterion information
in the public posting beginning with FY 2027. Commenters stated that
because CMS already summarizes the relevant cost analyses in the
proposed rules to allow interested parties to comment on the analyses,
there is no extra benefit to additional disclosures. Some commenters
stated that disclosing applicants' cost analyses raises confidentiality
concerns because information about expected inpatient volume and other
data incorporated within cost analyses are based on confidential
commercial and financial information, including proprietary market
analyses. A commenter further explained that for therapies that target
small patient populations, even high-level methodological detail may be
commercially sensitive or permit back-calculation of pricing strategy.
Commenters explained that such information should be kept confidential,
consistent with long-standing statutes recognizing the need to protect
confidential commercial and financial information against public
disclosure. Multiple commenters also noted that because of the single
annual application period, applicants generally submit their
applications before their products are approved by FDA, creating
special sensitivities in disclosing pricing information. Commenters
stated that public release of this information could create
disincentives for small or emerging companies that may be more risk-
averse with respect to transparency of confidential methods.
Multiple commenters requested that CMS provide additional details
on the guardrails and specific steps the Agency would employ to ensure
proprietary and market sensitive cost and pricing data provided by new
technology add-on payment applicants are not inadvertently publicized,
either directly or indirectly, through this proposal. For example, a
commenter noted that the application asks the applicant to provide the
charges related to the new technology, as well as the cost-to-charge
ratio used to convert the product's cost to charges, and if CMS were to
publish these two data points, the public would be able to calculate
the cost of the product. Another commenter further asked CMS to
articulate the policy gaps this proposal would address and what
stakeholder needs it would serve.
A commenter recommended that CMS modify the proposal to allow
applicants to redact, generalize, or submit alternate public summaries
of methodology where disclosure could reasonably reveal proprietary
strategy. It also asked that CMS provide clear written guidance on what
components of the cost methodology are considered ``public'' versus
protected from disclosure.
Another commenter also stated its appreciation and support for
CMS's commitment to only publishing an explanation of the applicant's
cost analysis methodology without including cost or pricing data, and
CMS's effort to bring additional information about new technology add-
on payment applications to the public. The commenter further asked that
CMS create a sub-section text box dedicated to capturing proprietary
information in the cost analysis methodology section that would not be
included in any publication. Finally, the commenter asked that CMS
avoid use of artificial intelligence in drafting summaries of
applications for public display, including in the proposed rule, or
ensure human review of the summary before publication.
Response: We thank the commenters for their feedback and appreciate
the commenters' raising their concerns regarding balancing the need to
maintain the confidentiality of commercial and financial information
with our intent to further improve and streamline our evaluation
process and support transparency and engagement with interested
parties.
As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48986
through 48990), we finalized to publicly post online new technology
add-on payment applications, including the completed application forms,
certain related materials (for example, attachments, uploaded
supportive materials), and any additional updated application
information submitted subsequent to the initial application submission
(except certain volume, cost and other information identified by the
applicant as confidential). We also provided a mechanism for applicants
to submit confidential information that would not be posted online,
such as in a separate section of the application, or by identifying
particular questions for which the information submitted would not be
publicly posted. We also stated we would not publicly post cost and
volume information; however, consistent with our current practice, we
would continue to summarize and discuss certain cost and volume
information for the proposed rule and will indicate as such in the
application. With the exception of information included in a
confidential information section of the application, cost and volume
information, and materials identified by the applicant as copyrighted
and/or not otherwise releasable to the public, the contents of the
application and related materials may be posted publicly.
While we did not initially include the cost criterion analysis and
related materials in the public posting as we gained experience with
the public posting process, as noted by the commenters, in the
meantime, we have continued to summarize the information under the cost
criterion, including the applicant's assertions and supporting data on
how the technology meets the criteria under Sec. 412.87, in the annual
rules. This includes information such as: the inclusion/exclusion
criteria used for the cost analysis, including the data source and list
of ICD-10-CM/PCS codes and MS-DRGs used by the applicant, the number of
claims and
[[Page 36664]]
MS-DRGs identified by the applicant for the cost analysis, the indirect
and direct charges removed for prior technology (including the
methodology used to estimate these charges), how the applicant
standardized charges, the inflation factor applied to the standardized
charges, the indirect and direct charges added for the new technology
(including the methodology used to convert the cost of the new
technology to charges), the average case-weighted threshold amount, and
the final inflated average case-weighted standardized charge per case.
Under this current proposal, the processes described in the FY 2023
IPPS/LTCH PPS final rule (87 FR 48986 through 48990) remain unchanged.
The information described by commenters, including high-level
methodological detail or information about data incorporated within
cost analyses, is already included or subject to inclusion in the
proposed and final rulemaking. Under our existing practice, we
generally do not consider information that is marked as confidential,
proprietary, or trade secret when determining whether a technology
meets the criteria for new technology add-on payments. We would
continue to indicate in the application where certain information will
not be posted publicly (for example, contact information, cost and
volume), otherwise, applicants should expect that everything else may
be posted publicly. We would continue to provide a mechanism for
applicants to submit confidential information that would not be posted
online in a separate section of the application. Certain cost and
volume information would continue to be included in the proposed or
final rulemaking. For example, for an alternative pathway application,
we continue to include, as applicable, the maximum add-on payment
amount, where cost information is available. In the final rule, we
would continue to provide, for approved technologies, the final add-on
payment amounts and volume estimates.
When reviewing the public postings prior to publication, we would
continue to use human review rather than review by artificial
intelligence. Under this proposal, the case weighted threshold and
final inflated case weighted standardized charge per case would be
included in the public posting because they are currently subject to
discussion in the cost criterion analysis for each eligible application
in the proposed rule. The cost criterion analysis spreadsheet
attachment would continue to be excluded from the public posting. Other
cost or charge values, such as for charges related to the new
technology, provided in the applicant's responses would not be included
in the public posting. Human review would be used to identify and
manually redact cost or charge values that may have been provided in
the applicant's responses in the cost criterion section.
We continue to believe that providing additional information to the
public by publicly posting the applications and certain related
materials online helps further public engagement and fosters greater
public input on the various new medical services and technologies
presented annually for consideration for new technology add-on
payments. We also continue to believe that posting the applications
online reduces the risk that we may inadvertently omit or misrepresent
relevant information submitted by applicants, or are perceived as
misrepresenting such information, in our summaries in the rules. We do
not believe that it would be appropriate for applicants to further
redact, generalize, or provide alternate public summaries that would
differ from the information provided in their new technology add-on
payment applications for public review. As noted, we will continue to
provide a mechanism for applicants to submit confidential information
that would not be posted online in a separate section of the
application.
Therefore, we are finalizing that, beginning with the new
technology add-on payment applications submitted for FY 2027, the
public posting will include the applicant's explanation of the cost
analysis methodology, including the step-by-step explanation of the
columns used in the cost analysis spreadsheet attachment, any optional
comments provided by the applicant, and information about the case
weighted threshold and final inflated case weighted standardized charge
per case, as is currently subject to discussion in the cost criterion
analysis for each eligible application in the proposed rule. The cost
analysis spreadsheet attachment and other cost or charge values that
may have been provided in the applicant's responses in the cost
criterion section would not be included in the public posting.
Consistent with current practice, certain cost and volume information
may still be summarized and discussed in the proposed rule, but we
intend to provide more succinct information as part of the summaries in
the proposed and final rules regarding the applicant's assertions as to
how the medical service or technology meets the cost criterion.
We note that the burden associated with this information collection
requirement is the time and effort required to collect and submit the
data in the formal request for add-on payments for new medical services
and technologies to CMS. The aforementioned burden is subject to the
PRA and approved under OMB control number 0938-1347 and has an
expiration date of December 31, 2026.
2. Public Input Before Publication of a Notice of Rulemaking on Add-On
Payments
Section 1886(d)(5)(K)(viii) of the Act, as amended by section
503(b)(2) of the MMA, provides for a mechanism for public input before
publication of a notice of proposed rulemaking regarding whether a
medical service or technology represents a substantial clinical
improvement. The process for evaluating new medical service and
technology applications requires the Secretary to do all of the
following:
Provide, before publication of a proposed rule, for public
input regarding whether a new service or technology represents an
advance in medical technology that substantially improves the diagnosis
or treatment of Medicare beneficiaries.
Make public and periodically update a list of the services
and technologies for which applications for add-on payments are
pending.
Accept comments, recommendations, and data from the public
regarding whether a service or technology represents a substantial
clinical improvement.
Provide, before publication of a proposed rule, for a
meeting at which organizations representing hospitals, physicians,
manufacturers, and any other interested party may present comments,
recommendations, and data regarding whether a new medical service or
technology represents a substantial clinical improvement to the
clinical staff of CMS.
In order to provide an opportunity for public input regarding add-
on payments for new medical services and technologies for FY 2026 prior
to publication of the FY 2026 IPPS/LTCH PPS proposed rule, we published
a notice in the September 13, 2024, Federal Register (89 FR 74962) and
held a virtual town hall meeting on December 11, 2024. In the
announcement notice for the meeting, we stated that the opinions and
presentations provided during the meeting would assist us in our
evaluations of applications by allowing public discussion of the
substantial clinical improvement criterion for the FY 2026 new medical
service and technology add-on payment
[[Page 36665]]
applications before the publication of the FY 2026 IPPS/LTCH PPS
proposed rule.
Approximately 200 individuals attended the virtual town hall
meeting. We posted the recordings of the virtual town hall on the CMS
web page at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech.
We considered each applicant's presentation made at the town hall
meeting, as well as written comments received by the December 16, 2024,
deadline, in our evaluation of the new technology add-on payment
applications for FY 2026 in the development of the FY 2026 IPPS/LTCH
PPS proposed rule. In response to the published notice and the December
11, 2024, New Technology Town Hall meeting, we received written
comments regarding the applications for FY 2026 new technology add on
payments. As explained earlier and in the Federal Register notice
announcing the New Technology Town Hall meeting (89 FR 74962 through
74964), the purpose of the meeting was specifically to discuss the
substantial clinical improvement criterion with regard to pending new
technology add-on payment applications for FY 2026. Therefore, we did
not summarize any written comments in the proposed rule that were
unrelated to the substantial clinical improvement criterion. In section
II.E.5. of the preamble of the proposed rule, we summarized comments
regarding individual applications, or, if applicable, indicated that
there were no comments received in response to the New Technology Town
Hall meeting notice or New Technology Town Hall meeting, at the end of
each discussion of the individual applications.
3. ICD-10-PCS Section ``X'' Codes for Certain New Medical Services and
Technologies
As discussed in the FY 2016 IPPS/LTCH PPS final rule (80 FR 49434),
the ICD-10-PCS includes a new section containing the new Section ``X''
codes, which began being used with discharges occurring on or after
October 1, 2015. Decisions regarding changes to ICD-10-PCS Section
``X'' codes will be handled in the same manner as the decisions for all
of the other ICD-10-PCS code changes. That is, proposals to create,
delete, or revise Section ``X'' codes under the ICD-10-PCS structure
will be referred to the ICD-10 Coordination and Maintenance CommitteIn
addition, several of the new medical services and technologies that
have been, or may be, approved for new technology add-on payments may
now, and in the future, be assigned a Section ``X'' code within the
structure of the ICD-10-PCS. We posted ICD-10-PCS Guidelines on the CMS
website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes,
including guidelines for ICD-10-PCS Section ``X'' codes. We encourage
providers to view the material provided on ICD-10-PCS Section ``X''
codes.
4. FY 2026 Status of Technologies Receiving New Technology Add-On
Payments for FY 2025
In this section of the final rule, we discuss the FY 2026 status of
42 technologies approved for 39 new technology add-on payments for FY
2025, as set forth in the tables that follow. In the proposed rule, we
presented our proposals to continue the new technology add-on payments
for FY 2026 for those technologies that were approved for the new
technology add-on payment for FY 2025, and which would still be
considered ``new'' for purposes of new technology add-on payments for
FY 2026. We also presented our proposals to discontinue new technology
add-on payments for FY 2026 for those technologies that were approved
for the new technology add-on payment for FY 2025, and which would no
longer be considered ``new'' for purposes of new technology add-on
payments for FY 2026.
Our policy is that a medical service or technology may continue to
be considered ``new'' for purposes of new technology add-on payments
within 2 or 3 years after the point at which data begin to become
available reflecting the inpatient hospital code assigned to the new
service or technology. Our practice has been to begin and end new
technology add-on payments on the basis of a fiscal year, and we have
generally followed a guideline that uses a 6-month window before and
after the start of the fiscal year to determine whether to extend the
new technology add-on payment for an additional fiscal year, and, in
general, we have extended new technology add-on payments for an
additional year only if the 3-year anniversary date of the product's
entry onto the U.S. market occurs in the latter half of the fiscal year
(70 FR 47362).
As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69238
through 69242), we finalized that, beginning with new technology add-on
payments for FY 2026, in assessing whether to continue the new
technology add-on payments for those technologies that are first
approved for new technology add-on payments in FY 2025 or a subsequent
year, we will extend new technology add-on payments for an additional
fiscal year when the 3-year anniversary date of the product's entry
onto the U.S. market occurs on or after October 1 of that fiscal year.
This change is effective beginning with those technologies that are
initially approved for new technology add-on payments in FY 2025 or a
subsequent year. For technologies that were first approved for new
technology add-on payments prior to FY 2025, including for technologies
we determine to be substantially similar to those technologies, we
continue to use the midpoint of the upcoming fiscal year (April 1) when
determining whether a technology would still be considered ``new'' for
purposes of new technology add-on payments.
In the proposed rule, we provided Table II.E-01.A listing the
technologies that were first approved for new technology add-on
payments prior to FY 2025, for which we proposed to continue making new
technology add-on payments for FY 2026 because they were still
considered ``new'' for purposes of new technology add-on payments
because the 3-year anniversary date of the product's entry onto the
U.S. market occurs on or after April 1, 2026. This table also presented
the newness start date, new technology add-on payment start date, 3-
year anniversary date of the product's entry onto the U.S. market,
relevant final rule citations from prior fiscal years, proposed maximum
add-on payment amount, and coding assignments for each technology. We
referred readers to the cited final rules in the table for a complete
discussion of the new technology add-on payment application, coding,
and payment amount for these technologies, including the applicable
indications and discussion of the newness start date.
In the proposed rule, we also provided Table II.E-01.B listing the
technologies that were first approved for new technology add-on
payments in FY 2025, for which we proposed to continue making new
technology add-on payments for FY 2026 because they were still
considered ``new'' for purposes of new technology add-on payments
because the 3-year anniversary date of the product's entry onto the
U.S. market occurs on or after October 1, 2025. This table also
presented the newness start date, new technology add-on payment start
date, 3-year anniversary date of the product's entry onto the U.S.
market, relevant final rule citations from prior fiscal years, proposed
maximum add-on payment amount, and coding assignments for each
technology. We referred readers to the cited final rules in the table
for a complete discussion of
[[Page 36666]]
the new technology add-on payment application, coding, and payment
amount for these technologies, including the applicable indications and
discussion of the newness start date.
We invited public comments on our proposals to continue new
technology add-on payments for FY 2026 for the technologies listed in
Tables II.E.-01.A and II.E.-01.B of the proposed rule.
Comment: Multiple commenters supported CMS's proposed continuation
of new technology add-on payments for FY 2026 for those technologies
that were approved for the new technology add-on payment for FY 2025,
and which would still be considered ``new'' for purposes of new
technology add-on payments for FY 2026.
Response: We appreciate the commenters' support.
Comment: Commenters, including the applicant for CYTALUX[supreg]
for use in lung cancer, stated that they found that providers often do
not bill for the full cost of the single-use vials when only a portion
of the vial is administered during the surgical procedure. Commenters
noted that this appears to be due confusion about whether Medicare Part
B's discarded drug billing rules apply to inpatient billing under
Medicare Part A, or uncertainty about whether the full vial cost should
be reported in cases where only partial use occurs due to patient-
specific dosing considerations.
The applicant noted that although the non-reporting of the full
vial cost does not affect the triggering of the new technology add-on
payment because payment is driven by the unique ICD-10-PCS code for
CYTALUX[supreg], this practice can decrease the likelihood that a
hospital's reported cost for a case will exceed the payment threshold.
Furthermore, commenters noted that underreporting of the full cost of
CYTALUX[supreg] can distort the hospital's cost report data, which CMS
relies upon for rate-setting purposes and for future MS-DRG
assignments.
Commenters requested that CMS clarify that because hospitals are
not required to report drug wastage, they should bill for the full
package size used in administration, and that hospitals should report
the full acquisition cost of inpatient-administered drugs in their cost
reports, regardless of the quantity administered. A commenter further
suggested that CMS could instead support the reporting of waste for
products within the billing process for Medicare Part A inpatient
billing, similar to what is required on Medicare Part B.
Response: We thank the applicant and other commenters for their
comment. We note that they are correct that the drug wastage policy
applies to Medicare Part B. We encourage commenters to consult the CMS
Medicare discarded drug policy website at https://www.cms.gov/medicare/payment/part-b-drugs/discarded-drugs for further information.
Comment: The applicant for ZEVTERA[supreg] (ceftobiprole medocaril
sodium for injection) submitted a comment providing updated information
on its commercial availability and to update its Wholesale Acquisition
Cost (WAC). The applicant noted that ZEVTERA[supreg] received marketing
approval from FDA on April 3, 2024, for the treatment of adult patients
with Staphylococcus aureus bloodstream infections (bacteremia) (SAB),
including those with right-sided infective endocarditis, and adult
patients with acute bacterial skin and skin structure infections
(ABSSSI) and for adult and pediatric patients (3 months to less than 18
years old) with community-acquired bacterial pneumonia (CABP). The
applicant also noted that ZEVTERA[supreg] received new technology add-
on payment approval for FY 2025, with its newness period beginning on
April 3, 2024.
Per the applicant, on December 14, 2024, it entered into a license
and distribution agreement with Innoviva Specialty Therapeutics, LLC
(ISTx) for the commercialization of ZEVTERA[supreg] in the United
States. The applicant stated that transfer of ownership for the
ceftobiprole Investigational New Drug (IND) Application (064407) and
the ZEVTERA (ceftobiprole medocaril sodium for injection) NDA (218275)
from Basilea to ISTx, LLC was submitted to FDA and was effective on
March 18, 2025. ISTx, LLC announced on May 20th the commercial
availability of ZEVTERA[supreg] for the US market. The applicant
asserted that prior to this date, ZEVTERA[supreg] was not available to
Medicare beneficiaries in the United States, and requested that CMS
assign a newness date of May 20, 2025. The applicant asserted that CMS
had delayed the newness dates for other products when market
availability was significantly later than the FDA approval date, and
provided examples from FY 2025: HEPZATOTM KIT, Annalise
Enterprise CTB Triage--OH, and the LimFlowTM System.
The applicant also stated that ISTx, LLC made ZEVTERA[supreg]
available for use on May 20, 2025, with a WAC of $235.00 per vial. The
applicant explained that, with this updated pricing information, the
average inpatient cost per case is $21,620 for the indication of SAB
and $7,050 for the indication of ABSSSI and CABP. Therefore, because
ZEVTERA[supreg] is a Qualified Infectious Disease Product (QIDP), the
applicant requested that the maximum new technology add-on payment for
a case involving the use of ZEVTERA[supreg] be updated to $16,215 for
the indication of SAB and $5,288 for the indications of ABSSSI and CABP
for FY 2026 (that is, 75 percent of the average cost of the
technology).
Response: We thank the applicant for its comment and the updated
cost information. We have updated the new technology add-on payment
amount for ZEVTERA[supreg] accordingly.
ZEVTERA[supreg]'s current new technology add-on payment amount is
$8,625.00 for the indication of SAB and $2,812.50 for the indications
of ABSSSI and CABP, based on a WAC of $125 per vial. As we noted in the
FY 2025 IPPS/LTCH PPS final rule (89 FR 69237), for ABSSSI and CABP,
the suggested daily dose is 3 vials per day for a duration of 5-14
days, resulting in an estimated average cost of $3,750 for a 10-day
therapy. For SAB, the recommended dose is every 6 hours for the first 8
days, followed by every 8 hours for up to 42 days, and the applicant
had made the assumption that patients would be inpatient for 28 days
and then continue the therapy as an outpatient for up to 42 days. For
FY 2026, the maximum new technology add-on payment amount is $16,215.00
for the indication of SAB and $5,287.50 for the indications of ABSSSI
and CABP, as reflected in Table II.E.-01.B in this final rule.
With respect to the applicant's request that CMS should consider
the beginning of the newness period to commence on May 20, 2025, which
it states is the date on which ZEVTERA[supreg] became commercially
available on the U.S. market, we note that that date occurred after new
technology add-on payments for ZEVTERA[supreg] began, as it was
approved for new technology add-on payment for FY 2025 (starting
October 1, 2024). While we agree that per our policy, we may consider a
documented delay in a technology's market availability in our
determination of newness, we note that the new technology add-on
payment for claims reporting ICD-10-PCS procedure codes for
ZEVTERA[supreg] (XW0335A (Introduction of ceftobiprole medocaril anti-
infective into peripheral vein, percutaneous approach) and XW0435A
(Introduction of ceftobiprole medocaril anti-infective into central
vein, percutaneous approach)) was available beginning October 1, 2024.
Furthermore, as discussed in the FY 2025 IPPS/LTCH PPS final rule
(89 FR 69238 through 69242), we finalized that,
[[Page 36667]]
beginning with new technology add-on payments for FY 2026, in assessing
whether to continue the new technology add-on payments for those
technologies that are first approved for new technology add-on payments
in FY 2025 or a subsequent year, we would extend new technology add-on
payments for an additional fiscal year when the 3-year anniversary date
of the product's entry onto the U.S. market occurs on or after October
1 of that fiscal year. If we were to consider the beginning of the
newness period to commence on May 20, 2025, the date on which the
applicant states ZEVTERA[supreg] became commercially available on the
U.S. market, under our policy, the technology would potentially be
eligible for new technology add-on payment for up to four years.
Although the applicant stated that CMS had delayed the newness start
dates for other technologies when market availability was significantly
later than the FDA approval date, and that like these other products,
ZEVTERA[supreg]'s newness period should commence on the date on which
the technology became commercially available, we note that, unlike
these other technologies, the applicant for ZEVTERA[supreg] is
asserting a date of commercial availability that occurred after its new
technology add-on payment began.
We also note that applicants may assert a delay in commercial
availability due to business decisions made by the applicant. We are
concerned that a delay in commercial availability extending beyond the
implementation date for the new technology add-on payment would
potentially allow applicants to postpone commercial availability for an
indefinite period of time while the technology (and other technologies
reported using the same codes) remain eligible for new technology add-
on payment.
Therefore, we question whether, where the applicant asserts a date
of commercial availability that occurred after the new technology add-
on payment for the technology began, it would be appropriate to instead
consider the beginning of the newness period to commence with the start
of the technology's new technology add-on payment. We note that
regardless of whether we consider the beginning of the newness period
to commence for ZEVTERA[supreg] on May 20, 2025, April 3, 2024, or a
date in between, the three-year anniversary date would occur after
April 1, 2026, and, therefore, the technology would be considered new
for FY 2026.
After consideration of the public comments we received, we are
finalizing our proposals to continue new technology add-on payments for
FY 2026 for the technologies that were approved for new technology add-
on payment for FY 2025 and would still be considered ``new'' for
purposes of new technology add-on payments for FY 2026, as listed in
the proposed rule and in the following Tables II.E.-01.A and II-E.-01.B
in this section of this final rule.
We note that the following Tables II.E.-01.A and II.E.-01.B are the
same as Tables II.E.-01.A and II.E.-01.B that were presented in the
proposed rule, but Table II.E.-01.A in this final rule includes the
SAINT Neuromodulation System, as discussed later in this section, and
Table II.E.-01.B in this final rule includes the updated cost
information for ZEVTERA[supreg], as discussed previously. Tables II.E.-
01.A and II.E.-01.B in this final rule also present the newness start
date, new technology add-on payment start date, 3-year anniversary date
of the product's entry onto the U.S. market, relevant final rule
citations from prior fiscal years, maximum add-on payment amount, and
coding assignments for each technology. We refer readers to the final
rules cited in the following tables for a complete discussion of the
new technology add-on payment application, coding, and payment amount
for these technologies, including the applicable indications and
discussion of the newness start date.
BILLING CODE 4120-01-P
[[Page 36668]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.136
[[Page 36669]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.137
BILLING CODE 4120-01-C
In the proposed rule, we provided a Table II.E.-02 listing the
technologies that were first approved for new technology add-on
payments prior to FY
[[Page 36670]]
2025, including technologies determined to be substantially similar to
such technologies, for which we proposed to discontinue making new
technology add-on payments for FY 2026 because they were no longer
``new'' for purposes of new technology add-on payments because the 3-
year anniversary date of the product's entry onto the U.S. market
occurs before April 1, 2026. This table also presented the newness
start date, new technology add-on payment start date, the 3-year
anniversary date of the product's entry onto the U.S. market, and
relevant final rule citations from prior fiscal years. We referred
readers to the cited final rules in the table for a complete discussion
of each new technology add-on payment application and the coding and
payment amount for these technologies, including the applicable
indications and discussion of the newness start date.
As we discussed in section II.E.6. of the preamble of the proposed
rule, BONESUPPORT, Inc. is also seeking new technology add-on payments
for CERAMENT[supreg] G for FY 2026 for use in defects in the
extremities of skeletally mature patients as an adjunct to systemic
antibiotic therapy and surgical debridement as part of the standard
treatment approach to open fractures. Additionally, as discussed in the
FY 2023 IPPS/LTCH PPS final rule (87 FR 48961 through 48966),
CERAMENT[supreg] G was approved for new technology add-on payments with
an indication for use as a bone void filler in skeletally mature
patients as an adjunct to systemic antibiotic therapy and surgical
debridement (standard treatment approach to a bone infection) as part
of the surgical treatment of osteomyelitis in defects in the
extremities. For the proposed rule, we proposed to discontinue new
technology add-on payments for FY 2026 for CERAMENT[supreg] G when used
for bone infections, as the technology will no longer be considered new
for this indication. We believed cases involving the use of
CERAMENT[supreg] G related to bone infections, which would no longer be
eligible for new technology add-on payment in FY 2026, would be
identified by the ICD-10-PCS code XW0V0P7 (Introduction of antibiotic-
eluting bone void filler into bones, open approach, new technology
group 7) in combination with the ICD-10-CM codes in category M86
(Osteomyelitis). We invited public comments on the use of these codes
to exclude the indication for use of CERAMENT[supreg] G related to bone
infections, which we stated would not be eligible for the new
technology add-on payment for FY 2026, if approved.
Comment: Commenters expressed general support of the proposed ICD-
10-CM codes for which CMS specifically sought input.
Response: We thank the commenters for their comments. As discussed
in section II.E.6. of the preamble of this final rule, we are approving
CERAMENT[supreg] G for new technology add-on payments for FY 2026 for
use as a bone void filler intended for use in defects in the
extremities of skeletally mature patients as an adjunct to systemic
antibiotic therapy and surgical debridement as part of the standard
treatment approach to open fractures. Therefore, cases involving the
use of CERAMENT[supreg] G related to bone infections, which will no
longer be eligible for new technology add-on payment in FY 2026, will
be identified by the ICD-10-PCS code XW0V0P7 (Introduction of
antibiotic-eluting bone void filler into bones, open approach, new
technology group 7) in combination with the ICD-10-CM codes in category
M86 (Osteomyelitis).
We invited public comments on our proposals to discontinue new
technology add-on payments for FY 2026 for the technologies listed in
Table II.E.-02 of the proposed rule.
Comment: Multiple commenters, including the applicant for SAINT
Neuromodulation System, requested that CMS recognize a delay in
commercial availability of the technology to April 5, 2024, and
subsequently extend new technology add-on payment for the SAINT
Neuromodulation System for FY 2026.
Commenters presented the timelines for use of the device at their
hospitals. A commenter stated that equipment was installed at the
hospital on May 9 through 10, 2024; physicians and staff were trained
by the manufacturer on May 15 through 17, 2024; and the first patient
was treated on May 23, 2024. Another commenter stated that equipment
was installed at its hospital on April 23, 2024; physicians and staff
were trained between April 29 and May 1, 2024; and the first patients
were treated on May 30, 2024. Commenters stated their hope that
innovation for inpatient mental health patients would continue to be
available to hospitals in 2026.
The applicant also asserted that the SAINT Neuromodulation System
was commercially available in the United States on April 5, 2024, and
provided a timeline of the device's availability. The applicant stated
that although the device received FDA clearance on September 1, 2022,
there were significant product development, manufacturing design, and
compliance steps that it needed to complete before the device became
commercially available. Per the applicant, initially, it had planned to
develop and manufacture its own hardware; however, it was determined in
the second half of 2023 that the best course was to work with third-
party manufacturers for the stimulator and neuronavigation hardware.
The applicant stated that for compliance purposes, it followed a
development plan consistent with its quality system and the commercial
product could not be sold until the manufacturing processes were
designed, developed, and validated according to FDA quality guidelines.
Per the applicant, this process was finished on April 5, 2024, which
was the earliest possible date the device could be sold in compliance
with FDA regulations.
The applicant further stated that in the FY2025 IPPS/LTCH PPS final
rule, it was surprised to learn that there had been claims submitted
with the ICD-10-PCS section X code that was created to administer the
new technology add-on payment for the SAINT Neuromodulation System,
before it was commercially available. The applicant stated it analyzed
the claims using the Medicare Inpatient Standard Analytic Files (IPSAF)
from October 2022 through March 2024 and confirmed that none of the
billed cases were submitted by providers with access to the device or
had discussed the device with the applicant.
The applicant further looked at the primary diagnoses, all
diagnoses, and MS-DRG mapping for these claims. The applicant explained
that the device is intended to treat patients with major depressive
disorder with claims including ICD-10-CM diagnosis codes F33.2 or F32.2
and whose cases map to MS-DRG 885 (Psychoses), yet none of the claims
contained either a psychiatric diagnosis or were assigned to MS-DRG
885. The applicant asserted that these claims used the ICD-10-PCS code
inappropriately, and provided additional details in a summary table.
Per the applicant, in the FY 2026 final rule, CMS stated that the
applicant stated the specific ICD-10-PCS code X0Z0X18 is ``used to
uniquely describe procedures involving the use of SAINT Neuromodulation
System,'' which the applicant stated supports its contention that the
procedure code was intended to be used specifically for the device or a
procedure that is virtually the same when the technology was introduced
into the clinical setting. Therefore, the applicant asserted that the 5
claims should not have been accepted as qualifying claims and should
not be
[[Page 36671]]
included in the evaluation of continued eligibility.
The applicant asked that CMS establish the newness start date for
the SAINT Neuromodulation System to be April 5, 2024, and noted that
this would allow for the new technology add-on payment to continue in
FY 2026. The applicant further asserted that this accurate newness date
and continued new technology add-on payment would no longer result in
premature termination of payment. The applicant stated that to fulfill
the requirement for an adequate period of data collection of no less
than 2 and no more than 3 years, terminating the new technology add-on
payment at the end of FY 2025 would fall short of two years of active
new technology add-on payment.
Response: We thank the applicant and the commenters for their
comments and further details regarding the claims reporting the ICD-10-
PCS code X0Z0X18 (Computer-assisted transcranial magnetic stimulation
of prefrontal cortex, new technology group 8). As discussed in greater
detail previously in this section, we question whether, where the
applicant asserts a date of commercial availability that occurred after
the new technology add-on payment for the technology began, it would be
appropriate to instead consider the beginning of the newness period to
commence with the start of the technology's new technology add-on
payment. We note that regardless of whether we consider the beginning
of the newness period to commence for SAINT Neuromodulation System on
April 5, 2024; a date that reflects the start of the technology's new
technology add-on payment in FY 2024; or a date in between, the three-
year anniversary date would occur after April 1, 2026, and, therefore,
the technology would be considered new for FY 2026.
Comment: Multiple commenters, including the applicant for
EchoGo[supreg] Heart Failure 1.0 (referred to as EchoGo[supreg] Heart
Failure), requested that CMS extend new technology add-on payment for
EchoGo[supreg] Heart Failure for a third year. The commenters noted
that EchoGo[supreg] Heart Failure, developed by Ultromics, is an FDA-
cleared, AI-powered decision support platform designed to assist
clinicians in detecting heart failure with preserved ejection fraction
(HFpEF) using a single, routine echocardiogram view, and described the
clinical need and clinical value of the device in identifying HFpEF
from a standard echocardiogram.
The applicant stated that the request to extend new technology add-
on payment is consistent with CMS's longstanding policy that the
newness period begins with availability of the product on the market,
which is when data become available. The applicant explained that the
device was not available on the market until November 2023, when it
entered its first contract with a customer and invoiced a customer for
the service. As such, the applicant asserted that the three-year
anniversary of entry into the U.S. market would be in November of 2026.
The applicant noted that CMS has recognized a later date where an
applicant could prove a delay in actual availability of a product after
FDA approval or clearance. Therefore, the applicant stated that
consistent with this policy, CMS should not use the identified date of
November 23, 2022 (date of FDA marketing authorization) as the newness
start date for EchoGo[supreg] Heart Failure because that does not
reflect when the product was first available.
The applicant explained that the reason for the gap in time from
FDA clearance to sales of EchoGo[supreg] Heart Failure was that upon
FDA clearance, it had to perform considerable architectural and
workflow changes to integrate the software into the product platform.
Additionally, the applicant stated that it took considerable time to
implement its product platform into a hospital's Picture Archiving and
Communication System (PACS) and electronic health record (EHR) systems,
all of which delayed it being able to have a viable and available
product for which it could sign a commercial contract until 12 months
after clearance. The applicant explained that it was not until late in
2023 that it could pursue contracts with customers, the first of which
was signed in November of 2023, leading to a first invoice dated
November 30, 2023. The applicant further stated that in light of this
information, supplemented by its understanding that there are no claims
for the ICD-10-PCS procedure code tied to the technology (XXE2X19) in
the MedPAR database of FY 2023 claims, it asked CMS to apply its
current policy and consider the starting point for the newness period
for EchoGo[supreg] Heart Failure to begin in November of 2023, not
November of 2022, such that EchoGo[supreg] Heart Failure would continue
to receive new technology add-on payment for FY 2026.
Commenters stated that that while EchoGo[supreg] Heart Failure had
been available with new technology add-on payment since October 2023,
the technology is still in the early stages of adoption across U.S.
hospitals. Commenters explained that new technology add-on payment has
been instrumental in facilitating access to the device by offsetting
the additional costs associated with its use. However, commenters
asserted that broader clinical integration and real-world evidence
generation of novel technologies require more than two years,
particularly in the context of hospital operational cycles, education,
and ongoing validation in diverse patient populations. Commenters
explained that extending new technology add-on payment for a third year
would: ensure continued access to EchoGo[supreg] Heart Failure for
Medicare beneficiaries, particularly as hospitals complete the
necessary training and workflow adjustments; support ongoing data
collection and outcomes research, further establishing the clinical and
economic value of the technology; and encourage adoption in a wider
range of hospital settings, including those serving high-risk and
underserved populations disproportionately affected by HFpEF.
The applicant stated that if CMS did not believe this extension is
warranted under current policy, it should make changes to the new
technology add-on payment policy to provide new technology add-on
payment for three years for all technologies, similar to what was done
under the hospital outpatient prospective payment system pass-through
policy. The applicant explained that it can take a considerable period
of time for a new technology to enter into the market, and that having
a later year's data should provide more fulsome data set for rate
setting. The applicant stated that CMS should not settle for data that
would not be insufficient, but instead should strive to use as fulsome
a data set as possible when making the important determination as to
how to work a new technology into the MS-DRGs.
Response: We thank the applicant and commenters for their comments.
We note that while CMS may consider a documented delay in the
technology's market availability in our determination of newness, our
policy for determining whether to extend new technology add-on payments
for an additional year generally applies regardless of the volume of
claims for the technology after the beginning of the newness period (83
FR 41280). We do not consider the date of first sale of a product, or
first shipment of a product, as an indicator of the entry of a product
onto the U.S. market; neither of these dates indicate when a technology
in fact became available for sale. Similarly, our policy for
determining whether to extend new technology add-on payments for a
third year generally
[[Page 36672]]
applies regardless of the claims volume for the technology after the
start of the newness period (88 FR 58801 through 58802).
The applicant stated the device was not available on the market
until November 2023, which is when the applicant was able to enter its
first contract with a customer and invoice a customer for the service;
however, it is not clear to us when the technology first became
available for sale. The applicant noted that it was not until late in
2023 that it had taken such steps that it could pursue contracts with
customers, the first of which was signed in November of 2023, leading
to a first invoice dated November 30, 2023. However, it seems that a
viable product would have needed to be available for sale before the
applicant would be able to pursue and enter its first contract.
Furthermore, we note that according to the applicant's website, the
device was available in the United States as of the press release on
July 5, 2023,\21\ if not earlier. This further conflicts with the
applicant's assertion that the device was not available for sale until
November 2023.
---------------------------------------------------------------------------
\21\ CMS Establishes HCPCS code for Ultromics EchoGo[supreg]
Heart Failure, Accelerating Access to Precision HFpEF Detection:
https://www.ultromics.com/press-releases/cms-establishes-hcpcs-code-for-echogo-heart-failure-accelerating-access-to-precision-hfpef-detection.
---------------------------------------------------------------------------
Therefore, we cannot determine a newness date based on a documented
delay in the technology's availability on the U.S. market. Accordingly,
we are finalizing that we consider November 23, 2022, the date on which
the technology received FDA 510(k) clearance for the indication covered
by its Breakthrough Device designation, to be the date the technology
became available on the market and the beginning of its newness period.
We also disagree with the applicant's request that if CMS does not
believe this extension is warranted under current policy, we should
make changes to the new technology add-on payment policy to provide new
technology add-on payment for three years for all technologies, similar
to the hospital outpatient prospective payment system pass-through
policy, to allow for as fulsome a data set as possible. When we had
stated in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69241) that we
did not believe that 2 years' worth of data would be insufficient to
inform rate-setting for the inpatient setting, we also noted that, as
described in the FY 2005 IPPS final rule (69 FR 49003), even if a
technology does not receive new technology add-on payments, CMS
continues to pay for new technologies through the regular payment
mechanism established by the DRG payment methodology. In addition, the
costs incurred by the hospital for a case are evaluated to determine
whether the hospital is eligible for an additional payment as an
outlier case. This additional payment is designed to protect the
hospital from large financial losses due to unusually expensive cases.
Any eligible outlier payment is added to the DRG-adjusted base payment
rate (88 FR 58648). We further noted that whether a technology receives
new technology add-on payments or not does not affect coverage of the
technology or the ability for hospitals to provide a technology to
patients where appropriate.
After consideration of the public comments we received, we are
finalizing our proposal to discontinue new technology add-on payments
for the technologies as listed in the proposed rule and in the
following Table II.E.-02 of this final rule for FY 2025 because they
are no longer ``new'' for purposes of new technology add-on payments.
We note that Table II.E.-02 is the same as Table II.E.-02 that was
presented in the proposed rule, but Table II.E.-02 in this final rule
no longer lists the SAINT Neuromodulation System, as discussed
previously. This Table II.E.-02 also presents the newness start date,
new technology add-on payment start date, the 3-year anniversary date
of the product's entry onto the U.S. market, and relevant final rule
citations from prior fiscal years. We refer readers to the final rules
cited in the following table for a complete discussion of each new
technology add-on payment application and the coding and payment amount
for these technologies, including the applicable indications and
discussion of the newness start date.
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5. FY 2026 Applications for New Technology Add-On Payments (Traditional
Pathway)
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\22\ As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR
69149 through 69155), we determined that ELREXFIOTM
(elranatamab-bcmm) and TALVEYTM (talquetamab-tgvs) were
substantially similar to TECVAYLI[supreg] (teclistamab-cqyv), which
was first approved for new technology add-on payment in the FY 2024
IPPS/LTCH PPS final rule (88 FR 58885 through 58891). In accordance
with our policy, because these technologies are substantially
similar to each other, we use the earliest market availability date
submitted as the beginning of the newness period for these
technologies, November 9, 2022, the date TECVAYLI[supreg] became
commercially available. As discussed previously in this section, for
technologies that were first approved for new technology add-on
payments prior to FY 2025, including for technologies we determine
to be substantially similar to those technologies, we continue to
use the midpoint of the upcoming fiscal year (April 1) when
determining whether a technology would still be considered ``new''
for purposes of new technology add-on payments.
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As discussed previously, in the FY 2023 IPPS/LTCH PPS final rule,
we finalized our policy to publicly post online applications for new
technology add-on payment beginning with FY 2024 applications (87 FR
48986 through 48990). As noted in the FY 2023 IPPS/LTCH PPS final rule,
we are continuing to summarize each application in this final rule.
However, while we are continuing to provide discussion of the concerns
or issues we identified with respect to applications submitted under
the traditional pathway, we are providing more succinct information as
part of the summaries in the proposed and final rules regarding the
applicant's assertions as to how the medical service or technology
meets the newness, cost, and substantial clinical improvement criteria.
We refer readers to https://mearis.cms.gov/public/publications/ntap for
the publicly posted FY 2026 new technology add-on payment applications
and supporting information (with the exception of certain cost and
volume information, and information or materials identified by the
applicant as confidential or copyrighted), including tables listing the
ICD-10-CM codes, ICD-10-PCS codes, and/or MS-DRGs related to the
analyses of the cost criterion for certain technologies for the FY 2026
new technology add-on payment applications.
We received 19 applications for new technology add-on payments for
FY 2026 under the new technology add-on payment traditional pathway. In
accordance with the regulations under Sec. 412.87(f), applicants for
FY 2026 new technology add-on payments must have received FDA marketing
authorization by May 1 of the year prior to the beginning of the fiscal
year for which the application is being considered. As discussed in the
FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through 58958) and the FY
2025 IPPS/LTCH PPS final rule (89 FR 69242 through 69245), we finalized
that beginning with the new technology add-on payment applications for
FY 2025, for technologies that are not already FDA market authorized
for the indication that is the subject of the new technology add-on
payment application, applicants must have a complete and active FDA
market authorization request at the time of new technology add-on
payment application submission and must provide documentation of FDA
acceptance or filing to CMS at the time of application submission,
consistent with the type of FDA marketing authorization application the
applicant has submitted to FDA. See Sec. 412.87(e) and further
discussion in the FY 2024 and FY 2025 IPPS/LTCH PPS final rules (88 FR
58948 through 58958, 89 FR 69242 through 69245). Of the 19 applications
received under the traditional pathway, 2 applicants were not eligible
for consideration for new technology add-on payment because they did
not meet these requirements, and 3 applicants withdrew their
applications prior to the issuance of the proposed rule. Subsequently,
prior to the issuance of this final rule, one additional application
was withdrawn for DuraGraft[supreg] (Vascular Conduit Solution). We are
not including in this final rule the description and discussion of
applications that were withdrawn or that are ineligible for
consideration for FY 2026. We are addressing the remaining 13
applications. We are not approving new technology add-on payments for 8
technologies: AUCATZYL[supreg] (obecabtagene autoleucel),
COBENFYTM (xanomeline and trospium chloride),
FIBRYGA[supreg] (fibrinogen (human)), IntelliSep[supreg] Test,
Neuroguard IEP[supreg] 3-in-1 Carotid Stent and Post-Dilation Balloon
System with Integrated Embolic Protection, RYSTIGGO[supreg]
(rozanolixizumab-noli), SYMVESSTM (acellular tissue
engineered vessel-tyod), and ZIIHERA[supreg] (zanidatamab-hrii) for the
reasons discussed in the following sections. We are approving new
technology add-on payments for FY 2026 for the remaining 5
technologies: AURLUMYNTM (iloprost injection),
BREYANZI[supreg] (lisocabtagene maraleucel), GRAFAPEXTM
(treosulfan), IMDELLTRA[supreg] (tarlatamab-dlle), and TECELRA[supreg]
(afamitresgene autoleucel). A discussion of these applications is
presented in the following sections.
a. AUCATZYL[supreg] (obecabtagene autoleucel)
Autolus Therapeutics, Inc. submitted an application for new
technology add-on payments for AUCATZYL[supreg] for FY 2026. According
to the applicant, AUCATZYL[supreg] is a fast off-rate cluster of
differentiation 19 (CD19) autologous chimeric antigen receptor (CAR) T-
cell therapy with tumor burden-guided dosing designed to improve
persistence and reduce immune-mediated toxicity. Per the applicant,
AUCATZYL[supreg] is indicated for the treatment of adults with relapsed
or refractory (R/R) B-cell precursor acute lymphoblastic leukemia (B-
ALL).
Please refer to the online application posting for
AUCATZYL[supreg], available at https://mearis.cms.gov/public/publications/ntap/NTP241002GUJHV, for additional detail describing the
technology and the disease treated by the technology.
With respect to the newness criterion, according to the applicant,
AUCATZYL[supreg] was granted BLA approval from FDA on November 8, 2024,
for the treatment of adults with R/R B-ALL. According to the applicant,
AUCATZYL[supreg] was commercially available immediately after FDA
approval. The applicant stated that a single treatment of
AUCATZYL[supreg] consists of two intravenous infusions (given on Day 1
and Day 10 [2]) administered via a syringe or gravity-
assisted infusion through a central or peripheral venous line over a
few minutes. Per the applicant, each infusion is packaged in three or
more infusion bags containing a cell dispersion of the target tumor
burden-guided dose of 410 x 10\6\ CD19 CAR-positive viable T cells.\23\
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\23\ The applicant stated that the first dose, infused on Day 1,
is determined by the patient's bone marrow disease burden within 7
days prior to lymphodepletion, and the second dose, infused on Day
10 [2], is tailored for a total dose of 410 x 10\6\ CAR
T cells to complete the single treatment of AUCATYZL[supreg].
---------------------------------------------------------------------------
The applicant stated that, effective October 1, 2024, the following
ICD-10-PCS codes may be used to uniquely describe procedures involving
the use of AUCATZYL[supreg]: XW0338A (Introduction of obecabtagene
autoleucel into peripheral vein, percutaneous approach, new technology
group 10) or XW0438A (Introduction of obecabtagene autoleucel into
central vein, percutaneous approach, new technology group 10). The
applicant stated that C91.00 (Acute lymphoblastic leukemia not having
achieved remission), C91.01 (Acute lymphoblastic leukemia, in
remission), or C91.02 (Acute lymphoblastic leukemia, in relapse) may
[[Page 36675]]
be used to currently identify the R/R B-ALL indication for
AUCATZYL[supreg] under the ICD-10-CM coding system.
As previously discussed, if a technology meets all three of the
substantial similarity criteria under the newness criterion, it would
be considered substantially similar to an existing technology and would
not be considered ``new'' for the purpose of new technology add-on
payments.
With respect to the substantial similarity criteria, the applicant
asserted that AUCATZYL[supreg] is not substantially similar to other
currently available technologies because it has a distinct immune-
modulating mechanism of action and first-in-class tumor burden-guided
dosing indicated for the treatment of adults with R/R B-ALL, and that
therefore, the technology meets the newness criterion. More
specifically, the applicant asserted that AUCATZYL[supreg] is the only
CAR T-cell therapy constructed using the differentiated 4-1BB co-
stimulatory domain with a novel, proprietary low affinity, fast off-
rate CAT19 binding domain, and tumor burden-guided dosing. The
following table summarizes the applicant's assertions regarding the
substantial similarity criteria. Please see the online application
posting for AUCATZYL[supreg] for the applicant's complete statements in
support of its assertion that AUCATZYL[supreg] is not substantially
similar to other currently available technologies.
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[[Page 36676]]
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BILLING CODE 4120-01-C
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18092), we had the following concerns with regard to the newness
criterion. We noted that the applicant asserted that AUCATZYL[supreg]
does not use the same or
[[Page 36677]]
similar mechanism of action as existing technologies for R/R B-ALL in
adults because AUCATZYL[supreg]'s co-stimulatory and binding domains
differ from those of TECARTUS[supreg], which the applicant stated is
the only other currently available CD19-directed CAR T-cell
immunotherapy for this population. However, we noted that in the FY
2019 IPPS/LTCH PPS final rule (83 FR 41285 through 41291), with regard
to the CAR T-cell therapies KYMRIAH[supreg] (tisagenlecleucel) and
YESCARTA[supreg] (axicabtagene ciloleucel), we stated that although the
two technologies were not completely the same in terms of manufacturing
processes, co-stimulatory domains, and clinical profiles, these
differences did not result in different mechanisms of action, and
therefore, inferred that the technologies' mechanisms of action were
the same. Similarly, we questioned whether differences in the co-
stimulatory and binding domains for AUCATZYL[supreg] and
TECARTUS[supreg] result in the use of a different mechanism of action.
In addition, we noted that KYMRIAH[supreg] is also a CD19-directed CAR
T-cell immunotherapy, and it is indicated for the treatment of patients
up to 25 years of age with R/R B-ALL. We stated our belief that the
mechanism of action for all three therapies is the binding to CD19 by a
CAR construct, which results in T-cell activation and killing of
malignant cells in the treatment of B-ALL. Furthermore, while the
applicant also stated that AUCATZYL[supreg]'s personalized tumor
burden-guided dosing schedule is first in class and differentiates it
from other technologies' mechanisms of action, we stated we were
unclear how a technology's dosing schedule is relevant to its mechanism
of action. Accordingly, as it appeared that AUCATZYL[supreg],
TECARTUS[supreg], and KYMRIAH[supreg] may use the same or similar
mechanism of action to achieve a therapeutic outcome, are assigned to
the same MS-DRG, and treat the same or similar patient population and
disease, that is, adult patients with R/R B-ALL, we stated our belief
that these technologies may be substantially similar to each other. We
noted that, per our policy, if these technologies are substantially
similar to each other, we use the earliest market availability date as
the beginning of the newness period for the technologies. Therefore, if
AUCATZYL[supreg] is substantially similar to TECARTUS[supreg] and
KYMRIAH[supreg], we stated our belief that the newness period for this
technology would begin on November 22, 2017, the date KYMRIAH[supreg]
became commercially available.\24\ In addition, because the 3-year
anniversary date of the KYMRIAH[supreg]'s entry onto the U.S. market
(November 22, 2020) occurred in FY 2021, AUCATZYL[supreg] would no
longer be considered new and would not be eligible for new technology
add-on payments for FY 2026. We stated we were interested in
information on how these technologies may differ from each other with
respect to the substantial similarity criteria and newness criterion.
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\24\ TECARTUS[supreg] received FDA approval on October 1, 2021,
for treatment of adult patients with R/R B-ALL. https://www.fda.gov/drugs/resources-information-approved-drugs/fda-approves-brexucabtagene-autoleucel-relapsed-or-refractory-b-cell-precursor-acute-lymphoblastic.
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We invited public comments on whether AUCATZYL[supreg] meets the
newness criterion, including whether AUCATZYL[supreg] is substantially
similar to TECARTUS[supreg] and KYMRIAH[supreg] for purposes of new
technology add-on payments.
Comment: Several commenters submitted comments in support of new
technology add-on payments for AUCATZYL[supreg]. Some of the commenters
disagreed with CMS's proposal to treat AUCATZYL[supreg] as
substantially similar to other CD19-directed CAR T-cell therapies. A
commenter argued that CMS's proposed approach does not take into
consideration the specifics of the technological advancements that
differentiate how mechanisms of action are achieved. Some commenters
stated that when determining whether a CAR T-cell therapy sufficiently
demonstrates substantial similarity compared to an existing technology,
CMS should recognize innovations in the newer generation of therapies
and how they differentiate these from previous CAR T-cell therapies.
According to these commenters, those advancements should form the basis
for differentiation as a distinct mechanism of action and without
recognition of such advancements, continued innovation in the CAR T-
cell therapy field may be discouraged and Medicare beneficiaries may be
denied equitable access to such treatment advances. Some commenters
argued that CMS should consider each CAR T-cell therapy application for
new technology add-on payments on its own merits and not overly anchor
to previous decisions to inform evaluation of the current fiscal year's
applications. Per a commenter, it is especially important that CMS
consider technological advancements when evaluating similarity of
mechanisms of actions because they can translate directly into improved
clinical outcomes.
Response: We thank the commenters for their comments. We note that
we have stated in prior rulemaking (73 FR 48561 through 48563) that we
first determine whether a new technology meets the newness criterion,
and only if so, do we make a determination as to whether the technology
meets the cost threshold and represents a substantial clinical
improvement over existing medical services or technologies. Further, as
we have discussed in prior final rules (69 FR 49018 through 49019, and
70 FR 47344), it is our past and present practice to analyze the new
medical service or technology add-on payment criteria in the following
sequence: Newness, cost threshold, and finally substantial clinical
improvement.
Comment: The applicant and several commenters submitted public
comments regarding the newness criterion for AUCATZYL[supreg]. The
applicant reiterated that AUCATZYL[supreg] is a B-lymphocyte antigen
CD19 CAR T-cell therapy designed to overcome the immune-related
limitations in clinical activity and safety compared to current CD19
CAR T-cell therapies, with a fast target binding off-rate to minimize
excessive activation of the programmed T cells, which reduces immune-
mediated toxicity and is less prone to T-cell exhaustion, and that
decreased T-cell exhaustion has been shown to enhance persistence. The
applicant reiterated that based on the overall results from the pivotal
phase 1b/2 FELIX study (N=127), the largest and most diverse patient
population CAR T-cell study for adults with R/R B-ALL, a single
treatment of AUCATZYL[supreg] reduces immune-mediated toxicity and
results in reduced T cell exhaustion and improved persistence, leading
to high levels of durable remissions.
The applicant stated that AUCATZYL[supreg] is not the same or
substantially similar to TECARTUS[supreg], the only other currently
available CD19 CAR T-cell therapy approved for adult R/R B-ALL. The
applicant reiterated that AUCATZYL[supreg] has a significantly distinct
immune-modulating mechanism of action designed to model physiologic T-
cell activation, and that it is constructed using the differentiated 4-
1BB co-stimulatory domain with a novel, proprietary low affinity, fast
off-rate anti-CD 19 (CAT) hybridoma-derived anti-CD19 scFv (CAT19
binding domain) designed to improve potency and persistence and to
reduce immune-mediated toxicity, including CRS and ICANS. The applicant
provided an illustration of various components of AUCATZYL[supreg],
which facilitate its immune-modulating mechanism of
[[Page 36678]]
action. These components included the CAT19 fast off-rate binder, the
CD8-derived hinge region/transmembrane domain, the 4-1BB co-stimulatory
domain, shown to enhance CAR T-cell expansion and reduce exhaustion
compared with CD28 CARs in preclinical studies, and the CD3-zeta
activation domain. The applicant reiterated that shorter cell-cell
contact resulting from the greater than 40-fold lower affinity of CAT19
(off-rate of 3.7 minutes) compared with the FMC63 antigen-binding
domain used in other currently available CAR T-cell therapy, including
TECARTUS[supreg], reduces cytokine release and toxicity and CAR T-cell
exhaustion, and enhances CAR T-cell persistence. The applicant also
reiterated that the 4-1BB co-stimulatory domain is also highly
differentiated from the CD28 co-stimulatory domain used in
TECARTUS[supreg]; the 4-1BB distinct signaling pathway results in lower
T-Cell activation, increased mitochrondrial biogenesis, greater
oxidative metabolism, and sustained CAR T-Cell persistence.
The applicant stated although it agreed that both AUCATZYL[supreg]
and TECARTUS[supreg] target and kill CD19-expressing cancer cells,
AUCATZYL[supreg] has a differentiated mechanism of action in how it
binds CD19, with the key difference residing in the components of the
respective CAR constructs. The applicant described differences in the
CAR single chain variable fragments (scFv) for each technology and how
they were derived, as well as the differing co-stimulatory domains,
reiterating that the resulting shorter target interaction with targeT-
Cells for AUCATZYL[supreg] due to its lower affinity for CD19 mimics
physiologic T-cell activation, and the 4-1BB co-stimulatory domain is
generally associated with longer persistence. The applicant stated that
the use of these different features in AUCATZYL[supreg] leads to a
unique mechanism of action characterized by differentiated binding
kinetics, engraftment, persistence and immune-elicited responses.
Regarding differentiated binding kinetics, the applicant stated that
the CD19 (CAT) CAR binds CD19 with an above 40-fold lower affinity,
resulting in faster disengagement, and >40 shorter half-life compared
to the CD19 (FMC63) CAR used in currently marketed CAR-Ts, including
TECARTUS[supreg] (CAT 3.73 min vs FMC63 2.8 hours). Per the applicant,
both antibodies bind to an overlapping epitope of CD19 consisting of
residues within loops 1 and 2 of the CD19 ectodomain and provided a
chart that shows the results of the Ghorashian (2019) study. The
applicant stated that, in particular, in in vitro studies,
AUCATZYL[supreg] showed a higher equilibrium dissociation constant with
CAT scFv (14 nM) as a result of a much faster off-rate (CAT: 3.1 x
10-3 s-1 vs FMC63: 6.8 x 10-5
s-1), whereas the on-rate was equivalent compared to FMC63
scFv (CAT: 2.2 x 10\5\ M-1s-1 vs FMC63: 2.1 x
10\5\ M-1s-1). According to the applicant, the
fast off-rate and subsequent shorter cell-cell contact is advantageous
by reducing cytokine release and thereby reducing toxicity, as well as
reducing T-cell exhaustion, which enhances CAR T-cell persistence. The
applicant stated that these features are designed to address major
limitations of CAR T-cell therapy in B-ALL, namely, toxicity and lack
of durable responses.
Regarding engraftment and persistence, the applicant stated that
owing to the differentiated binding kinetics of AUCATZYL[supreg],
differenT-Cell kinetics at initial expansion and persistence compared
to TECARTUS[supreg] are observed. According to the applicant, the
pharmacokinetics for each patient in the Infused Set of Cohort IIA
(N=94) of the FELIX study were assessed between Day 1 and Day 28, and
AUCATZYL[supreg] demonstrated a rapid and high level of expansion of
the cells following infusion. The overall geometric mean of
Cmax was 114,982 copies/[mu]g/deoxyribonucleic acid (DNA)
(range 129-600,000 copies/[mu]g DNA) with a median time to maximum (or
peak) concentration (Tmax) of 14 days (range 2-55 days) and
a geometric mean AUC0-28d of 1,138,188 copies/[mu]g DNA (range 179,000-
7,230,000 copies/[mu]g DNA * day). The applicant stated that expansion,
measured by droplet digital PCR (ddPCR), was high regardless of whether
patients achieved complete remission/complete remission with incomplete
count recovery (CR/CRi) or not. Per the applicant, no biologically
significant differences were seen in the geometric mean or median,
interquartile range of Cmax. Per the applicant, in CR/CRi
patients, approximately 68.4 percent (54.6 percent-78.7 percent 95
percent confidence interval [CI]) demonstrated persistence at 6 months
with a maximum duration of 21 months. The applicant added that 75
percent (27/36) of the patients who had ongoing remission as of the
data cut-off date had ongoing CAR T persistence at the last laboratory
assessment as of the data cut-off date. According to the applicant, in
comparison to other FMC63-based CARs approved for ALL, such as
TECARTUS[supreg], the median Cmax was 38.35 cells/uL (range:
1.31-1533.4) and median AUC0-28 was 424.03 cells/uL x day
(range: 14.12-19390.42) in responding patients treated with
TECARTUS[supreg] (ZUMA-3 trial) compared to 0.49 cells/uL (range 0.0-
183.50) and 4.12 cells/uL x day (range 0.0-642.25) for Cmax
and AUC0-28d respectively for non-responders. The applicant added that
no CAR persistence was seen for TECARTUS[supreg] in the ZUMA-3 trial
beyond 3 months by flow cytometry and 6 months by ddPCR.
Per the applicant, not only was CAR-T expansion generally lower for
TECARTUS[supreg] than that seen for AUCATZYL[supreg], an even lower
expansion was observed in patients who did not respond compared to
patients who responded, and CAR-T expansion of AUCATZYL[supreg]
demonstrated a less than 3-fold increase in patients in CR/CRi vs
patients not in CR/CRi. According to the applicant, this is strikingly
different from TECARTUS[supreg] where ~80-fold increase in CAR-T
expansion is seen in CR/CRi vs patients not in CR/CRi and where there
is minimal CAR-T expansion in patients not in CR/CRi (0.49 cell/uL).
The applicant referred to the chart that shows the comparative results
of the Ghorashian (2019) study.
The applicant further stated that the immune-elicited responses for
AUCATZYL[supreg] are not similar to TECARTUS[supreg]. Per the
applicant, at an early stage of AUCATZYL[supreg] development, it was
hypothesized that the scFv of obe-cel's CAT CAR with a greatly reduced
affinity for CD19 would improve the post-infusion immune-mediated
cytokine release kinetics and toxicity profile common to currently
marketed CAR Ts using the FMC63 CAR construct. The applicant stated
that the novel 2-step fractionated tumor burden-guided dosing regimen
further enhances the ability to reduce immunotoxicity, which has been
linked to both disease burden and expansion of CAR T-cells. The
applicant stated that supportive data from a number of different CD19
CAR T-cell trials in acute lymphoblastic leukemia indicated that higher
disease burden is predictive of more severe CRS. The applicant further
stated this led some groups to mitigate this toxicity by either
administering a lower dose of CAR T-cells to patients with higher
disease burden or splitting the total dose. Furthermore, the applicant
stated that tumor burden-guided dosing provides an opportunity to
tailor AUCATZYL[supreg] doses based on the patient-specific tumor
burden, which may reduce the extent and rate of expansion, and thereby
affect the severity of CRS. The applicant stated that spacing between
the dose fractions takes into consideration the duration of IL-15 surge
following lymphodepletion
[[Page 36679]]
(LD), which is important for CAR T-cell expansion and function as well
as timing of early signals of subsequent severe toxicity. The applicant
also stated that tumor burden-guided dose is also unlikely to increase
the risk of immune-mediated reactions to the murine sequence present in
the CD19 antigen-binding domain of AUCATZYL[supreg]. The applicant
stated thaT-Cellular immune response at the time of the second dose, on
Day 10, will be significantly reduced by the LD chemotherapy
administered before AUCATZYL[supreg] infusion. The applicant added that
the humoral immune response, which takes approximately 14 days to be
generated, will be impaired by the B cell aplasia and subsequent
hypogammaglobulinaemia induced by the CD19 CAR T-cells administered on
Day 1. The applicant also stated that a range of serum biomarkers were
evaluated in the FELIX study, and per the applicant, in accordance with
AUCATZYL[supreg]'s distinct immune-modulating mechanism of action, the
profiles observed for induced inflammatory soluble serum biomarkers
were overall consistently and considerably lower than those reported
for TECARTUS[supreg] in the ZUMA-3 trial. The applicant illustrated
this finding with a table that compares selected peak inflammatory
soluble serum biomarkers between the FELIX and ZUMA-3 trials.
Per the applicant, the efficacy of CAR-T-cell therapy with
impressive response rates in hematologic malignancies must be weighed
with immune-mediated toxicities, notably CRS, a toxicity requiring
urgent diagnostic and therapeutic interventions, and targeted
modulation of key cytokine pathways represents the mainstay of CRS
management. The applicant stated that the expected risk of developing
CRS grade 3 after AUCATZYL[supreg] treatment was reduced relative to
TECARTUS[supreg] (2.4 percent vs 25 percent). Per the applicant, the
observed magnitude of difference in grade 3 CRS substantiates the
distinct functional and biological properties of AUCATZYL[supreg]. The
applicant acknowledged the limitations of unadjusted comparisons
between single-arm trials and conducted a prospectively designed
matching-adjusted indirect comparison (MAIC) of AUCATZYL[supreg] and
TECARTUS[supreg] which, per the applicant, demonstrated that patients
treated with TECARTUS[supreg] are significantly more likely to
experience a grade 3 CRS event or immune-mediated neurotoxicity
relative to patients treated with AUCATZYL[supreg].
The applicant concluded that AUCATZYL[supreg]'s immune-modulating
mechanism of action is not the same or substantially similar to
TECARTUS[supreg] because the novel CD19 (CAT) CAR in AUCATZYL[supreg]
exhibits distinct functional and biological characteristics, notably
lower affinity binding kinetics, prolonged persistence, and a
differentiated immune-modulating mechanism of action that leads to a
marked decrease in the release of inflammatory cytokines and a decrease
in the incidence of grade 3 CRS and immune-mediated neurotoxicity.
According to the applicant and several commenters, KYMRIAH[supreg]
is not a relevant comparator for treatment of the Medicare population,
as it is only approved for treatment of patients aged 25 or younger
with R/R B-ALL. The applicant stated that in the pivotal
AUCATZYL[supreg] Phase 2 Cohort IIA FELIX study population (n=94,
infused), the median age was 50 years (range 20-81), with 88.3 percent
over the age of 25. The applicant, as well as several commenters, also
stated that while KYMRIAH[supreg] also uses the 4-1BB co-stimulatory
domain, its scFv is FMC63-derived and therefore differences in binding
kinetics described previously for TECARTUS[supreg] apply to
KYMRIAH[supreg] as well. The applicant stated that therefore,
AUCATZYL[supreg] is non-similar to KYMRIAH[supreg] in its mechanism of
action and its intended population. In addition, the applicant stated
that AUCATZYL[supreg] has a fundamentally different mechanism of action
as a CAR T-cell therapy compared to immunotherapy, BLINCYTO[supreg] and
BESPONSA[supreg]. The applicant stated that BLINCYTO[supreg] is a
bispecific T-cell engager molecule derived from two distinct monoclonal
antibodies that bind CD19 and CD3, while BESPONSA[supreg] is an
antibody-drug conjugate (ADC) composed of a CD22-directed monoclonal
IgG4 antibody linked to a cytotoxic agent. The applicant also explained
that while immunotherapy is recommended as first-line treatment and
considered superior to standard chemotherapy, CAR T-cell therapy is
recommended following immunotherapy. The applicant stated that
therefore, the focus of the substantial similarity test for
AUCATZYL[supreg] should be TECARTUS[supreg].
Response: We appreciate the additional information from the
applicant and commenters with respect to whether AUCATZYL[supreg] is
substantially similar to existing technologies. We agree that
AUCATZYL[supreg] has a different mechanism of action as a CD19-directed
CAR T-cell therapy compared to BLINCYTO[supreg] and BESPONSA[supreg],
which are bispecific T-cell engager molecule and antibody-drug
conjugates. We also agree with the applicant that because
KYMRIAH[supreg] is only approved for treatment of patients aged 25 or
younger, representing a very small fraction of adults compared to
AUCATZYL[supreg], it therefore treats a different population and is not
substantially similar. However, we disagree with the applicant and
commenters that AUCATZYL[supreg] has a unique mechanism of action
because we do not believe there is a clear differentiation between the
mechanism of action of AUCATZYL[supreg] and that of TECARTUS[supreg].
While the applicant highlights differences such as the binding domain,
costimulatory/activation domains, binding kinetics, and dosing regimen,
we do not believe these meaningfully differentiate the mechanism of
action of AUCATZYL[supreg] from other CD19-directed CAR T-cell
therapies, which are all genetically modified autologous T-cell
immunotherapies that bind to CD-19 expressing cancer cells. We refer
the reader to the FY 2019 and FY 2022 IPPS/LTCH PPS final rules (83 FR
41287 through 41291, and 86 FR 44999 through 45000) for further
discussion of this issue, where we determined that the mechanisms of
action for CAR T-cell therapies were not new based on similar factors.
While the applicant stated that AUCATZYL[supreg] uses a fast-on-fast-
off mechanism, we disagree that a shorter length of binding time for
AUCATZYL[supreg] represents a different mechanism of action than the
other CAR T-cell therapies. We also disagree that any association
between AUCATZYL[supreg]'s binding and the rates of CRS and ICANS would
represent the technology's mechanism of action, nor would CAR T-cell
persistence and how it affects durability of response, as any
differences between AUCATZYL[supreg] and existing technologies in
observed outcomes would relate to an assessment of substantial clinical
improvement rather than the newness criterion.
Therefore, after consideration of the comments we received on
AUCATZYL[supreg]'s newness, we believe that AUCATZYL[supreg] and
TECARTUS[supreg] use the same mechanism of action to achieve a
therapeutic outcome: the binding to CD19 by a CAR construct, which
results in T-cell activation and killing of malignant cells in the
treatment of B-ALL, and are assigned to the same MS-DRG. We also agree
with the applicant that AUCATZYL[supreg] treats the same or similar
patient population and disease as TECARTUS[supreg], which is used in
treatment for adult patients with R/R B-ALL.
Because AUCATZYL[supreg] meets all three of the substantial
similarity criteria, we
[[Page 36680]]
believe AUCATZYL[supreg] is substantially similar to TECARTUS[supreg].
In accordance with our policy, because these technologies are
substantially similar to each other, we use the earliest market
availability date as the beginning of the newness period for
AUCATZYL[supreg]. Therefore, we consider the newness period for
AUCATZYL[supreg] to begin on October 1, 2021, the date TECARTUS[supreg]
became commercially available. Since the 3-year anniversary date of
TECARTUS[supreg]'s entry onto the market occurred prior to FY 2026,
AUCATZYL[supreg] does not meet the newness criterion and is not
eligible for new technology add-on payments for FY 2026. We note that
we received public comments with regard to the cost and substantial
clinical improvement criteria for this technology, but because we have
determined that the technology does not meet the newness criterion and
therefore is not eligible for approval for new technology add-on
payments for FY 2026, we are not summarizing comments received or
making a determination on those criteria in this final rule.
b. AURLUMYNTM (iloprost injection)
SERB Pharmaceuticals submitted an application for new technology
add-on payments for AURLUMYNTM for FY 2026. According to the
applicant, AURLUMYNTM is an intravenous form of iloprost
associated with immediate generalized vasodilation, immunomodulation,
and anti-inflammation indicated for the treatment of severe frostbite
in adults to reduce the risk of digit amputations.
Please refer to the online application posting for
AURLUMYNTM, available at https://mearis.cms.gov/public/publications/ntap/NTP241007QK29V, for additional detail describing the
technology and the disease treated by the technology.
With respect to the newness criterion, according to the applicant,
FDA granted NDA approval for AURLUMYNTM on February 13,
2024, for the treatment of severe frostbite in adults to reduce the
risk of digit amputations. Per the applicant, the commercial launch of
AURLUMYNTM was delayed until the NDA sponsor could secure a
capable commercial partner. Per the applicant, it acquired
AURLUMYNTM globally on October 18, 2024, and prepared for
launch aligned with the beginning of the winter season. The applicant
stated that the technology became available for sale on November 12,
2024. In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18096), we
stated we were interested in additional information regarding the cause
of any delay in the technology's commercial availability, including
additional details about the preparation for launch that aligned with
the beginning of the winter season.
According to the applicant, AURLUMYNTM is administered
as a continuous intravenous (IV) infusion over 6 hours per day,
increased in increments up to a maximum dose of 2 ng/kg/minute, for up
to a maximum of 8 consecutive days. The applicant expected that
AURLUMYNTM will be dosed in the inpatient setting for 8
consecutive days using a total of eight single-use vials (one per day).
The applicant submitted a request for unique ICD-10-PCS procedure
codes for AURLUMYNTM beginning in FY 2026 and was granted
approval for the following procedure codes effective October 1, 2025:
XW033QB (Introduction of iloprost into peripheral vein, percutaneous
approach, new technology group 11) and XW043QB (Introduction of
iloprost into central vein, percutaneous approach, new technology group
11). The applicant provided a list of diagnosis codes that may be used
to currently identify the indication for AURLUMYNTM under
the ICD-10-CM coding system. Please refer to the online application
posting for the complete list of ICD-10-CM codes provided by the
applicant.
As previously discussed, if a technology meets all three of the
substantial similarity criteria under the newness criterion, it would
be considered substantially similar to an existing technology and would
not be considered ``new'' for the purpose of new technology add-on
payments.
With respect to the substantial similarity criteria, the applicant
asserted that AURLUMYNTM is not substantially similar to
other currently available technologies because it is the first-ever
FDA-approved treatment for frostbite of any grade and is specifically
indicated for the treatment of severe frostbite in adults to reduce the
risk of finger or toe amputation, and therefore, the technology meets
the newness criterion. The following table summarizes the applicant's
assertions regarding the substantial similarity criteria. Please see
the online application posting for AURLUMYNTM for the
applicant's complete statements in support of its assertion that
AURLUMYNTM is not substantially similar to other currently
available technologies.
BILLING CODE 4120-01-P
[[Page 36681]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.140
BILLING CODE 4120-01-C
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18097), we noted
that the applicant asserted that AURLUMYNTM is not assigned
to the same MS-DRG as existing technologies. However, as the applicant
also stated that AURLUMYNTM will map to MS-DRGs based on
diagnosis/procedure codes, we stated our belief that the use of
AURLUMYNTM will not change the MS-DRG assignment and will,
therefore, map to the same MS-DRGs as other treatments for severe
frostbite. In addition, while the applicant asserted that
AURLUMYNTM does not treat the same or similar type of
disease and the same or similar patient population as existing
treatments because it is the first-ever FDA-approved treatment for
frostbite, we noted that there are other severe frostbite treatments
that are commonly used including rapid rewarming, fasciotomy,
thrombolysis, and sympathectomy.
We invited public comments on whether AURLUMYNTM is
substantially similar to existing technologies and whether
AURLUMYNTM meets the newness criterion.
Comment: A few commenters, including the applicant, stated that
AURLUMYNTM meets the newness criterion because it is the
only FDA-approved treatment for severe frostbite and the only available
intravenous formulation of iloprost, which enhances blood flow and
accelerates the healing
[[Page 36682]]
process through preserving tissue integrity and minimizing
complications.
Response: We thank the applicant and other commenters for their
input and have taken it into consideration in determining whether
AURLUMYNTM meets the newness criterion, as discussed later
in this section.
Comment: The applicant reiterated that AURLUMYNTM does
not use the same or substantially similar mechanisms of action as any
technology or drug therapy assigned to any MS-DRG in the 2023 MedPAR
data, nor of any drug currently marketed in the U.S. The applicant
further stated that AURLUMYNTM is a stable synthetic analog
of PGI2 and is a potent prostacyclin receptor agonist as well as the
only intravenous form of iloprost available in the U.S. In response to
CMS's note that use of AURLUMYNTM will not change the MS-DRG
assignment and will map to the same MS-DRGs as other treatments for
severe frostbite, the applicant agreed that patient cases with severe
frostbite where AURLUMYNTM is administered will map to the
same MS-DRGs as other frostbite cases where AURLUMYNTM is
not part of the frostbite treatment regimen, but noted that there are
no claims for medical therapies or procedures in the 2023 MedPAR data
with the same or similar mechanism of action as AURLUMYNTM.
Lastly, the applicant reiterated that patient cases where
AURLUMYNTM is administered will be uniquely identified by
two ICD-10-PCS codes specific to AURLUMYNTM.
In response to CMS's note that there are other commonly used severe
frostbite treatments, the applicant stated that prior to
AURLUMYNTM's availability, frostbite treatment in the U.S.
was limited to off-label use of tissue plasminogen activator (tPA)
within 24 hours of injury. The applicant further stated that
AURLUMYNTM extends the treatment window beyond the <24 hours
recommended for off-label use of tPA, and AURLUMYN will be available to
more patients with severe frostbite who, without access to AURLUMYN,
would be contraindicated for the use of tPA with its associated
significant bleeding risks and contraindications in trauma, recent
surgery, recent stroke, and many other conditions that might pose a
bleeding risk. Furthermore, the applicant stated that other non-
pharmacologic post-thaw medical therapy options, such as hydrotherapy,
hyperbaric oxygen therapy, sympathectomy, and fasciotomy, are part of
multimodal frostbite treatment regimens; however, none of these non-
pharmacologic treatments replace AURLUMYNTM or are used at
the exclusion of AURLUMYNTM.
In addition, a few commenters stated that AURLUMYNTM
meets an unmet need for targeted, early intervention for patients with
severe frostbite and represents a major advancement by uniquely
promoting vasodilation and improving microcirculatory flow, thereby
addressing the underlying pathophysiology of frostbite in a way that no
other medication currently does.
In response to CMS's request for additional information about the
delay in AURLUMYNTM's commercial availability, the applicant
commented that, while AURLUMYNTM received FDA approval on
February 13, 2024, the BLA sponsor, EICOS, delayed market availability
because it lacked the necessary commercial infrastructure and needed to
search for a capable commercial partner, and that the newness period
should begin on November 1, 2024. The applicant stated that it acquired
AURLUMYNTM on October 18, 2024, and immediately initiated
production, resulting in AURLUMYNTM becoming available for
order and shipment on November 1, 2024. The applicant stated that CMS
should use November 1, 2024, as the market availability date for the
newness period, and therefore, allow AURLUMYNTM to receive
new technology add-on payments for a full 3 years instead of a 2-year
period if the FDA approval date of February 13, 2024 is used.
Response: We thank the applicant and other commenters for their
comments. Based on our review of comments received and information
submitted by the applicant as part of its FY 2026 new technology add-on
payment application for AURLUMYNTM, we agree with the
applicant that AURLUMYNTM is the first synthetic analog of
PGI2 that binds to prostacyclin receptors leading to vasodilation and
inhibition of platelet activation approved by FDA to treat severe
frostbite, and therefore uses a unique mechanism of action. Therefore,
we agree with the applicant that AURLUMYNTM is not
substantially similar to existing treatment options and meets the
newness criterion. We consider the beginning of the newness period to
commence on November 1, 2024, the date on which AURLUMYNTM
became commercially available.
With respect to the cost criterion, the applicant provided multiple
analyses to demonstrate that AURLUMYNTM meets the cost
criterion. Each analysis followed the order of operations summarized in
the following table.
[[Page 36683]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.141
Because the final inflated average case-weighted standardized
charge per case exceeded the average case-weighted threshold amount in
both scenarios, the applicant asserted that AURLUMYN\TM\ meets the cost
criterion.
We invited public comments on whether AURLUMYNTM meets
the cost criterion.
Comment: Multiple commenters, inclusive of the applicant, stated
that AURLUMYNTM meets the cost criterion. A few commenters
also asserted that the current DRG payments for an inpatient
hospitalization for severe frostbite are inadequate to account for the
total cost of care and suggested that, without approval of new
technology add-on payments, hospitals may not be able to use
AURLUMYNTM for the treatment of frostbite in Medicare
patients.
Response: We thank the applicant and other commenters for their
comments. Based on the information submitted by the applicant as part
of its FY 2026 new technology add-on payment application, as previously
summarized, the final inflated average case-weighted standardized
charge per case exceeded the average case-weighted threshold amount
under both scenarios. Therefore, we agree that AURLUMYNTM
meets the cost criterion.
With regard to the substantial clinical improvement criterion, the
applicant asserted that AURLUMYN\TM\ represents a substantial clinical
improvement over existing technologies because AURLUMYNTM
substantially lowers the risk of digit amputation in severe frostbite
cases. Additionally, the applicant claimed that, by reducing the risk
of finger and toe amputations in adults with severe frostbite,
AURLUMYN\TM\ mitigates debilitating, lifelong health-related,
functional, and work-related impacts associated with digit amputation.
The applicant provided four documents, including two studies and
clinical practice guidelines to support these claims, as well as two
background articles about a classification system for frostbite
severity and the prevention and clinical treatment of frostbite.\25\
The following table summarizes the applicant's assertions regarding the
substantial clinical improvement criterion. Please see the online
posting for AURLUMYNTM for the applicant's complete
statements regarding the substantial clinical improvement criterion and
the supporting evidence provided.
---------------------------------------------------------------------------
\25\ Background articles are not included in the following table
but can be accessed via the online posting for the technology.
---------------------------------------------------------------------------
[[Page 36684]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.142
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18098 through
18099), after review of the information provided by the applicant, we
stated we had the following concerns regarding whether
AURLUMYNTM meets the substantial clinical improvement
criterion. With respect to the claim that AURLUMYNTM offers
a treatment option for a patient population unresponsive to, or
ineligible for, currently available treatments, we noted that the
applicant stated that AURLUMYNTM is the first-ever FDA-
approved medical treatment for severe frostbite to reduce the risk of
digit amputations, but did not identify a patient group that is
unresponsive to, or ineligible for, the standard-of-care treatment,
where AURLUMYNTM does offer a treatment option.
We stated that the applicant provided two published studies that
used AURLUMYNTM to support this claim (Cauchy et al., 2011;
Crooks et al., 2022). Cauchy et al. (2011), which was published as a
letter to the editor, is a single site, open-label trial which
randomized 47 healthy patients (aged 18 to 55 years) with severe
frostbite after mountain rescue in France to receive either buflomedil,
AURLUMYNTM, or AURLUMYNTM plus recombinant tPA
(rtPA), and assessed treatment efficacy based on bone scan scintigraphy
to determine risk of amputation. The second study (Crooks et al., 2022)
was a retrospective cohort study consisting of a medical records review
in Calgary, Canada, a large city inclusive of an unhoused population.
The study excluded patients due to superficial or grade 1 frostbite,
resulting in 90 patients with an interquartile age range of 31 to 53
years old. For frostbite treatment, these patients received either
AURLUMYNTM or the standard of care, which consisted of the
local best practice without AURLUMYNTM. We noted that while
these two studies compared treatment of patients with severe frostbite
using AURLUMYNTM to other treatments, neither study
described a patient group that is unresponsive to, or ineligible for,
existing treatment options where AURLUMYNTM offers
treatment. We further noted that while the applicant also cited the
Wilderness Medical Society Practice Guidelines (McIntosh et al., 2024)
which included a strong recommendation for iloprost as the first-line
treatment for severe (grades 3 and 4) frostbite less than 48 hours
after thawing, and possibly for up to 72 hours post-thawing,\26\ the
full statement in the Guidelines is that intravenous iloprost should be
considered first-line therapy for grade 3 and 4 frostbite <72 hours
after injury, when tPA is contraindicated, and in austere environments
where tPA infusion is considered risky or evacuation to a treatment
facility will be delayed. Additionally, the guidelines include other
recommendations for treatments such as sympathectomy, fasciotomy, and
hydrotherapy. Therefore, we stated it appeared that there are other
treatment options for frostbite other than AURLUMYNTM. We
stated that we would appreciate any additional information regarding
which patient population AURLUMYNTM can treat for severe
frostbite, for which other existing treatments could not be used.
---------------------------------------------------------------------------
\26\ McIntosh, S.E., Freer, L., Grissom, C.K., Rodway, G.W.,
Giesbrecht, G.G., McDevitt, M., Imray, C.H., Johnson, E.L., Pandey,
P., Dow, J., & Hackett, P.H. (2024). Wilderness Medical Society
Clinical Practice Guidelines for the Prevention and Treatment of
Frostbite: 2024 Update. Wilderness & Environmental Medicine, 35(2).
https://doi.org/10.1177/10806032231222359.
---------------------------------------------------------------------------
With respect to the claim that AURLUMYNTM significantly
improves clinical outcomes relative to services or technologies
previously available, the
[[Page 36685]]
applicant stated that AURLUMYNTM reduces the risk of
amputation of fingers and toes in adults with severe frostbite,
mitigating debilitating, lifelong health-related, functional, and work-
related impacts of digit amputation. To support this claim, the
applicant provided the two published studies and Wilderness Medical
Society Practice Guidelines previously discussed (Cauchy et al., 2011;
Crooks et al., 2022; McIntosh et al., 2024). The Cauchy et al. (2011)
study found that the 16 patients treated with AURLUMYNTM
without rtPA resulted in no amputations, whereas the risk of amputation
was greater in patients treated with buflomedil (60 percent, 9 of 15
patients) and patients treated with AURLUMYNTM plus rtPA (19
percent, 3 of 16 patients). The Crooks et al. (2022) study found that
18 percent of grade 3 frostbite injuries and 46 percent of grade 4
frostbite injuries treated with AURLUMYNTM resulted in
digital amputation, compared to the standard of care groups where 44
percent of grade 3 frostbite injuries and 95 percent of grade 4
frostbite injuries resulted in amputations. However, we questioned
whether the composition of the AURLUMYNTM and standard of
care treatment groups in these two published studies were sufficiently
comparable and, consequently, whether the outcomes demonstrated were
clinically significant. Specifically, we questioned the accuracy of
severity grading determinations and the resulting randomization process
used to group patients in both studies due to the subjective nature of
grading frostbite injuries that can evolve over time, and being that
the grading of frostbite injuries in Crooks et al. (2022) was conducted
using photographs and clinician health descriptions in the local
electronic health record. We also noted that, in Crooks et al. (2022),
no patients in the control group were treated with tPA, despite tPA and
heparin being available for severe injuries during the period of
treatment with standard frostbite care. The absence of tPA in the
control group raised questions about the adequacy of the comparator,
given that the Wilderness Medical Society Practice Guidelines recommend
tPA for select severe frostbite cases where timely administration is
feasible. We also questioned the extent to which the quality of
frostbite care in the control group may have varied, prior to the
implementation of the protocol that implemented 5-day iloprost
infusion. In addition, while the utility of recommendations in
establishing evidence of clinically improved outcomes is limited, we
further noted that neither study provided direct comparison with
therapies that are also strongly recommended by the Wilderness Medical
Society, such as fasciotomy and hydrotherapy, or with other therapies
that may have limited data availability, such as sympathectomy and
hyperbaric oxygen therapy.
We also stated concerns about the generalizability of the Cauchy et
al. (2011) and Crooks et al. (2022) studies to the Medicare population.
We noted that Cauchy et al. (2011) studied AURLUMYNTM
treatment in patients in France, whose mean age was 33.1 years and who
had no notable medical or surgical history. As noted in the Crooks et
al. (2022) study, which studied patients from a large Canadian city
with a substantial unhoused population, the effects may not be as
dramatic as results in other studies, owing to the differences in
medical and social comorbidities in the study population. Similarly,
the Medicare population may have significant differences from the
Cauchy et al. (2011) study population, in physical and mental health
and social complexities. We also questioned whether efficacy data from
Cauchy et al. (2011) is generalizable to the Medicare population due to
the study's location, small patient population, and patients' age. We
noted that these two published studies assessing AURLUMYNTM
were both conducted outside of the U.S and primarily included patients
under the age of 55 years (range: 18 to 55 and 29 to 54 years,
respectively). As noted in the AURLUMYNTM prescribing
information, clinical studies included insufficient numbers of patients
aged 65 years and older to determine whether they respond differently
than younger subjects.\27\
---------------------------------------------------------------------------
\27\ Eicos Sciences, Inc. Prescribing Information for
AURLUMYNTM (iloprost) injection, for intravenous use
(revised 5/2024), section 8.5 Geriatric Use. Available at: https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/217933s000lbl.pdf.
---------------------------------------------------------------------------
We invited public comments on whether AURLUMYNTM meets
the substantial clinical improvement criterion.
Comment: We received several comments in support of
AURLUMYNTM's new technology add-on payment application.
These commenters stated that denying AURLUMYNTM's
application would leave a large gap in frostbite treatment and would be
a grave disservice to the most vulnerable patients, as
AURLUMYNTM offers a critical opportunity to change the
trajectory of their lives. A few commenters specifically stated that
AURLUMYNTM meets the substantial clinical improvement
criterion because it has demonstrated a reduced risk of amputation, a
clear improvement in patient quality of life, and a reduction in long-
term costs associated with disability, rehabilitation, prosthetic use,
and readmission. A commenter also stated that the inclusion of
AURLUMYNTM into a multimodal treatment regimen has the
potential to improve patient flow within healthcare systems, streamline
the care of frostbite patients, decrease the burden on Q1 providers,
facilitate more effective use of resources, and enhance continuity of
care during critical treatment windows.
Several commenters, including the applicant, expressed general
support for approval of AURLUMYNTM's new technology add-on
payment application.
Response: We thank the commenters for their input and have taken it
into consideration in determining whether AURLUMYNTM meets
the substantial clinical improvement criterion as discussed later in
this section.
Comment: The applicant submitted a comment regarding the
substantial clinical improvement criterion and provided responses to
CMS's concerns from the proposed rule. In response to our concern that
the applicant did not identify a patient population that is
unresponsive to, or ineligible for, the standard-of-care treatment
where AURLUMYNTM does offer a treatment option, the
applicant reiterated that AURLUMYNTM reduces significant
risk of amputation and grade 3 and grade 4 frostbite's associated long-
term complications, which impact a patient's ability to cope with
normal everyday routines as well as health-related and functional
quality of life. The applicant also reemphasized the 2024 Wilderness
Medical Society Practice Guidelines for the Prevention and Treatment of
Frostbite (WMS Guidelines) strong recommendation that
AURLUMYNTM be used as a first-line therapy for grade 3 and 4
frostbite up to 48 hours after thawing, and possibly up to 72 hours.
The applicant stated that the WMS Guidelines underline the need to
consider the risk and benefits of using a thrombolytic, such as tPA,
that is contraindicated in trauma, recent surgery, recent stroke, and
many other conditions that might pose a bleeding risk; that has
potential risks of systemic and catheter site bleeding, compartment
syndrome, and failure to salvage tissue; and in which the long-term,
functional consequences of digit salvage has not been evaluated. The
applicant concluded that AURLUMYN extends the treatment window for
patients beyond the <24 hours recommended for off-label use of tPA, and
it provides an
[[Page 36686]]
important treatment option for patients with severe frostbite who are
contraindicated for the off-label use of tPA.
In addition, a few commenters, including the applicant, asserted
that AURLUMYNTM is an important component of a multimodal
treatment regimen that includes pharmacologic and non-pharmacologic
treatment for frostbite, such as rewarming, pain management, systemic
hydration, and pharmacologic treatment. These commenters further stated
that although non-pharmacologic post-thaw medical therapy, such as
hydrotherapy, hyperbaric oxygen therapy (HBOT), sympathectomy, and
fasciotomy, should be considered in a multimodal frostbite treatment
regimen, these therapies do not replace AURLUMYNTM and
instead are complementary. To demonstrate this, the applicant stated
that they attached or enclosed two examples of clinical practice
protocols for frostbite, which vary from institution to institution,
but we note that there were no enclosures/attachments of that nature.
In response to CMS's concern as to whether the Cauchy et al. (2011)
and Crooks et al. (2022) studies were sufficiently comparable and
demonstrated clinically significant outcomes, the applicant reiterated
the results from these two studies. The applicant also stated that
Cauchy et al. (2011) reported results from the largest and only
randomized, controlled, open-label study of severe frostbite treatment,
which included 46 patients with grade 3 or grade 4 frostbite and 1
patient with grade 2 frostbite who were treated with buflomedil,
AURLUMYNTM, or recombinant tPA plus AURLUMYNTM.
The applicant also stated that the results from this study played a
role in the WMS Guidelines recommending AURLUMYNTM.
With regard to rapid rewarming, a commenter stated that a
substantial proportion of the patients in Crooks et al. (2022)
presented after the frostbitten tissue was already thawed and did not
undergo rapid rewarming, which may have contributed to less favorable
outcomes compared to the patients in Cauchy et al. (2011) who all
underwent rapid rewarming. The commenter also stated that sympathectomy
has not been shown to improve outcomes in frostbite and can be
performed regardless of treatment with thrombolytics or
AURLUMYNTM, and fasciotomy is rarely necessary to treat
frostbite but should be performed regardless of other treatments when
required.
In addition, the applicant cited a retrospective chart review of 22
patients and a multicenter prospective single-arm study of 28 patients.
The applicant stated that the retrospective chart review of 22 patients
in Whitehorse, Yukon Territory, Canada, who presented to the hospital
with grade 2, 3, or 4 frostbite, found that patients treated with
AURLUMYNTM, or AURLUMYNTM in addition to
alteplase and heparin in the case of grade 4 frostbite, exhibited lower
than expected amputation rates. Specifically, the applicant stated that
no digits with grade 2 or 3 frostbite were amputated in patients
treated with AURLUMYNTM, and 50 percent of the digits with
grade 4 frostbite treated with AURLUMYNTM, alteplase, and
heparin, required amputation. The applicant stated that overall, 29 of
142 (20.4 percent) digits were amputated, and the majority of digits
amputated (N = 19) were from 1 patient who, according to direct
correspondence with the author, was a very extreme case with frostbite
extending beyond the carpal/tarsal region of the patient's limbs.\28\
The applicant referenced expected rates of amputation of 1 percent for
grade 2 digits, 31 to 67 percent for the grade 3 digits, and 98 to 100
percent for grade 4 digits, based on the Cauchy 2001 study.\29\ The
applicant also stated that a multicenter prospective single-arm study
of 28 patients with grade 3 or 4 frostbite conducted in Switzerland and
France compared early HBOT and AURLUMYNTM to treatment with
AURLUMYNTM alone. The applicant stated that after 1 year of
follow-up, 92 percent of injured digits/limbs treated with
AURLUMYNTM did not require amputation, (85 percent in the
AURLUMYNTM only control group and 98 percent in the
AURLUMYNTM + HBOT group).\30\ The applicant stated that this
study's interpretability is limited, as the study does not report the
amputation outcome rate in comparable patients who did not receive
AURLUMYNTM.
---------------------------------------------------------------------------
\28\ Poole A, et al. Management of severe frostbite with
iloprost, alteplase and heparin. A Yu-kon case series. CMAJ open 9
(2021), E585-E591.
\29\ Cauchy E, et al. Retrospective study of 70 cases of severe
frostbite lesions. A proposed new classification scheme. Wilderness
& Environmental Medicine 2001;12, 248-255.
\30\ Magnan MA, et al. Hyperbaric oxygen therapy with iloprost
improves digit salvage in severe frostbite compared to iloprost
alone. Medicina (Kaunas, Lathuania) 57 (2021).
---------------------------------------------------------------------------
In response to CMS's concerns related to the Crooks et al. (2022)
study's potentially inaccurate severity grading and the adequacy of the
comparator in the absence of tPA in the control group, a commenter
stated that the study authors listed both factors as limitations and
that some or all of the 41 patients that presented within 24 hours had
other contraindications to the use of tPA, including only grade 2
frostbite. The commenter further stated that Crooks et al. (2022) did
not report which patients in the standard care group presented within
24 hours with grade 2 frostbite and noted that clinicians can sometimes
have difficulty distinguishing between grade 2 and grade 3 frostbite
initially, leading most clinicians to err on the side of caution and
classifying the frostbite as grade 3.
In response to CMS's concern that the applicant did not present
evidence that directly compared AURLUMYNTM with other
therapies that are also strongly recommended by the WMS, the applicant
stated that it is unaware of any published literature examining
frostbite injury cases following treatment with AURLUMYNTM
that are described specifically referencing results of other adjunctive
post-thaw treatment options described in the WMS Guidelines
(hydrotherapy, sympathectomy, and fasciotomy). The applicant reiterated
that iloprost is a part of the multimodal treatment protocol hospitals
follow and does not replace any of these non-pharmacologic treatment
approaches; nor are these options employed at the exclusion of
iloprost.
In response to CMS's concern about the Cauchy et al. (2011) and
Crooks et al. (2022) studies' generalizability to the Medicare
population, the applicant stated that, in its analysis of 2023 MedPAR
data, Medicare paid 62 patient claims for severe frostbite, the
majority of which (about 63 percent) were for Medicare beneficiaries
under 65 years of age. The applicant stated that these findings mirror
the age demographics in the cited AURLUMYNTM studies. The
applicant also stated that evidence-based guidance for the prevention
and treatment of frostbite does not vary by age groups nor by
geographic region, which according to the applicant, aligns with the
Cauchy et al. (2011) and Crooks et al. (2022) studies' results which
demonstrate that regardless of age or geographic region, patients
treated with AURLUMYNTM showed substantial clinical
improvement. Another commenter stated that whether studies were
conducted outside the U.S. is irrelevant as there is no evidence to
suggest that the physiology of frostbite varies by location. The
commenter also stated that it is prudent to treat older patients and
patients with comorbidities using AURLUMYNTM when there are
no contraindications because there is no evidence to suggest the
effects of frostbite vary with age or that the response to treatment
with
[[Page 36687]]
AURLUMYNTM differs between older and younger patients but
frostbite outcomes are likely to be worse in older patients or patients
with comorbidities, such as diabetes. The commenter further stated that
the proposed rule incorrectly reports the age range in the Crooks et
al. (2022) study to be between 29 to 54 years and that these were
instead interquartile ranges (90 FR 18099).
The applicant summarized adverse events reported in Cauchy et al.
(2011) and Crooks et al. (2022), as well as a multicenter retrospective
cohort study and the AURLUMYNTM prescribing information. The
applicant also referenced the NDA sponsors clinical trial program for
patients with systemic sclerosis who received either placebo or
AURLUMYNTM to support the clinical safety of
AURLUMYNTM in patients with severe frostbite. The applicant
stated this clinical trial reported no deaths, study drug-related
serious adverse events, or adverse events of special interest leading
to study drug discontinuation, and all adverse events related to the
study drug were expected and consistent with the established safety
profile of AURLUMYNTM.
Response: We thank the applicant and other commenters for their
comments regarding the substantial clinical improvement criterion.
Based on the additional information received, we agree with the
applicant and other commenters that AURLUMYNTM represents a
substantial clinical improvement over existing technologies for the
treatment of severe frostbite in adults because it reduces the risk of
digit amputation compared to the standard of care, especially for
patients who are contraindicated for tPA or are beyond the <24 hours
treatment window recommended for off-label use of tPA.
After consideration of the public comments we received and the
information included in the applicant's new technology add-on payment
application, we have determined that AURLUMYNTM meets the
criteria for approval for new technology add-on payment. Therefore, we
are approving new technology add-on payments for this technology for FY
2026. Cases involving the use of AURLUMYNTM that are
eligible for new technology add-on payments will be identified by ICD-
10-PCS codes: XW033QB (Introduction of iloprost into peripheral vein,
percutaneous approach, new technology group 11) or XW043QB
(Introduction of iloprost into central vein, percutaneous approach, new
technology group 11).
In its application, the applicant estimated that the cost of
AURLUMYNTM is $44,000 per patient, based on eight single-use
100 mcg per mL vials (one per day over 8 days) at a cost of $5,500 per
vial. Under Sec. 412.88(a)(2), we limit new technology add-on payments
to the lesser of 65 percent of the average cost of the technology, or
65 percent of the costs in excess of the MS-DRG payment for the case.
As a result, the maximum new technology add-on payment for a case
involving the use of AURLUMYNTM is $28,600 for FY 2026.
c. BREYANZI[supreg] (lisocabtagene maraleucel)
Bristol Myers Squibb submitted an application for new technology
add-on payments for BREYANZI[supreg] for FY 2026. According to the
applicant, BREYANZI[supreg] is a CD19-directed, autologous CAR T-cell
immunotherapy comprised of individually formulated CD8 and CD4 CAR T-
cells and is indicated for the treatment of adult patients with
relapsed/refractory (R/R) chronic lymphocytic leukemia or small
lymphocytic lymphoma (CLL/SLL) who have received two or more prior
lines of therapy (LOTs), including a Bruton tyrosine kinase inhibitor
(BTKi) and a B-cell lymphoma 2 protein inhibitor (BCL2i). We noted that
BREYANZI[supreg] is also indicated for the treatment of adult patients
with R/R large B-cell lymphoma, for which the applicant submitted an
application for new technology add-on payments for FY 2021 and FY 2022,
as discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 44996
through 45008).
Please refer to the online application posting for
BREYANZI[supreg], available at https://mearis.cms.gov/public/publications/ntap/NTP24100722KTJ, for additional detail describing the
technology and the disease treated by the technology.
With respect to the newness criterion, according to the applicant,
BREYANZI[supreg] was granted accelerated approval for its supplemental
Biologics License Application (sBLA) by FDA on March 14, 2024 for the
treatment of adult patients with R/R CLL or SLL who have received two
or more prior LOTs, including a BTKi and a BCL2i.\31\ According to the
applicant, BREYANZI[supreg] was commercially available immediately
after FDA marketing authorization for the CLL/SLL indication. Per the
applicant, for this indication, patients receive a one-time intravenous
infusion of BREYANZI[supreg], which contains 90 to 110 x 10\6\ CAR-
positive viable T-cells consisting of 1:1 CAR-positive viable T-cells
of the CD8 and CD4 components, with each component supplied separately
in one or more single-dose vials.
---------------------------------------------------------------------------
\31\ Breyanzi. United States Prescribing Information (USPI),
(revised 5/2024). According to the applicant, FDA has also approved
BREYANZI[supreg] for several other indications, including for the
treatment of adults with (1) R/R follicular lymphoma (FL) who have
received two or more prior LOT (approved on 5/15/2024); (2) R/R
mantle cell lymphoma (MCL) who have received at least two prior LOT,
including a BTKi (approved on 5/30/2024); (3) R/R large B-cell
lymphoma (LBCL) after two or more LOT, including diffuse large B-
cell lymphoma (DLBCL) not otherwise specified (including DLBCL
arising from indolent lymphoma), high-grade B-cell lymphoma, primary
mediastinal LBCL, and FL grade 3B (approved on 2/5/2021); and (4)
LBCL, including DLBCL, not otherwise specified (including DLBCL
arising from indolent lymphoma), high-grade B-cell lymphoma, primary
mediastinal LBCL, and FL grade 3B, who have either refractory
disease to first-line chemoimmunotherapy or relapse within 12 months
of first-line chemoimmunotherapy or refractory disease to first-line
chemoimmunotherapy or relapse after first-line chemoimmunotherapy
and are not eligible for hematopoietic stem cell transplant (HSCT)
due to comorbidities or age (approved on 6/24/2022). (https://www.fda.gov/vaccines-blood-biologics/cellular-gene-therapy-products/breyanzi-lisocabtagene-maraleucel, accessed 3/27/2025).
---------------------------------------------------------------------------
The applicant stated that, effective October 1, 2021, the following
ICD-10-PCS codes could be used to uniquely describe procedures
involving the use of BREYANZI[supreg]: XW033N7 (Transfusion of
lisocabtagene maraleucel immunotherapy into peripheral vein,
percutaneous approach, new technology group 7) or XW043N7 (Transfusion
of lisocabtagene maraleucel immunotherapy into central vein,
percutaneous approach, new technology group 7). The applicant provided
the following list of codes may be used to currently identify the R/R
SLL/CLL indication for BREYANZI[supreg] under the ICD-10-CM coding
system:
[[Page 36688]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.143
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18100), we
invited public comments on the use of these ICD-10-CM diagnosis codes
to identify the indication of R/R SLL or CLL for purposes of the new
technology add-on payment, if approved.
Comment: We received comments expressing general support of the use
of the listed ICD-10-CM codes for which CMS specifically sought input.
A few commenters, including the applicant, agreed that these ICD-10-CM
codes properly identify the R/R SLL/CLL indication for
BREYANZI[supreg]. One of the commenters also suggested that CMS
consider four additional diagnosis codes that also identify the
indication of R/R SLL/CLL, including C91.Z0 (Other lymphoid leukemia
not having achieved remission), C91.Z2 (Other lymphoid leukemia, in
relapse), C91.90 (Lymphoid leukemia, unspecified not having achieved
remission), and C91.92 (Lymphoid leukemia, unspecified, in relapse).
Response: We thank the applicant and commenters for their input. We
note that the four additional ICD-10-CM codes describing ``other
lymphoid leukemia'' and ``lymphoid leukemia, unspecified'' are not
specific to SLL or CLL. Therefore, we do not believe those diagnosis
codes are appropriate to identify the indication of R/R SLL/CLL. We
agree with the applicant that the codes listed by the applicant
accurately identify the indication for BREYANZI[supreg].
As previously discussed, if a technology meets all three of the
substantial similarity criteria under the newness criterion, it would
be considered substantially similar to an existing technology and would
not be considered ``new'' for the purpose of new technology add-on
payments.
With respect to the substantial similarity criteria, the applicant
asserted that BREYANZI[supreg] is not substantially similar to other
currently available technologies because BREYANZI[supreg] does not use
the same or similar mechanism of action as other therapies approved for
the treatment of R/R CLL/SLL, is not assigned to the same MS-DRG as
other therapies currently approved for the treatment of R/R CLL/SLL,
and does not involve treatment of the same or similar type of disease
and patient population as other CAR T-cell therapies, and that
therefore, the technology meets the newness criterion. The following
table summarizes the applicant's assertions regarding the substantial
similarity criteria. Please see the online application posting for
BREYANZI[supreg] for the applicant's complete statements in support of
its assertion that BREYANZI[supreg] is not substantially similar to
other currently available technologies.
BILLING CODE 4120-01-P
[[Page 36689]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.144
BILLING CODE 4120-01-C
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18101), we noted
that the applicant asserted that because BREYANZI[supreg] is the first
CAR T-cell therapy, regardless of target, indicated for the treatment
of R/R CLL/SLL, it does not involve treatment of the same or similar
type of disease and patient population as existing technologies.
However, we noted that there are other existing (non-CAR T-cell)
treatments for patients with R/R CLL/SLL who have received two or more
prior LOTs, including a BTKi and a BCL2i, such as noncovalent BTKis,
PI3Kis, or allogeneic HSCT, and therefore, we questioned whether
BREYANZI[supreg] treats
[[Page 36690]]
a different type of disease or patient population than existing
technologies.
We invited public comments on whether BREYANZI[supreg] is
substantially similar to existing technologies and whether
BREYANZI[supreg] meets the newness criterion.
Comment: The applicant submitted a public comment that asserted
BREYANZI[supreg] meets the newness criterion because it does not use a
mechanism of action that is the same or similar to other therapies
currently approved for the treatment of R/R CLL/SLL, and is not
assigned to the same MS-DRG as those therapies. With respect to
BREYANZI[supreg]'s mechanism of action, the applicant stated that
BREYANZI[supreg] remains the only cell-based immunotherapy to be
successfully manufactured for patients with CLL/SLL, which is
characterized by profound T-cell dysfunction, and reiterated that
BREYANZI[supreg] differs from other treatments as a CAR T-cell therapy
that does not require repeated dosing until progression nor incur
cumulative toxicity and drug resistance. With respect to
BREYANZI[supreg]'s MS-DRG assignment, the applicant stated that no
other therapies indicated for the treatment of patients with R/R CLL/
SLL are assigned to MS-DRG 018.
Response: We thank the applicant for its comment. Based on our
review of comments received and information submitted by the applicant
as part of its FY 2026 new technology add-on payment application for
BREYANZI[supreg], we agree with the applicant that BREYANZI[supreg]
uses a unique mechanism of action because it is a CD19-directed,
autologous CAR T-cell immunotherapy that initiates proliferation of CAR
T cells that result in the cytotoxic killing of target cells for the
treatment of adult patients with R/R CLL/SLL who have received two or
more prior LOTs, including a BTKi and a BCL2i. We also agree with the
applicant that BREYANZI[supreg] is not assigned to the same MS-DRG as
other therapies currently approved for the treatment of these patients.
Therefore, we agree with the applicant that BREYANZI[supreg] is not
substantially similar to existing treatment options and meets the
newness criterion. We consider the beginning of the newness period to
commence on March 14, 2024, the date on which BREYANZI[supreg] was
granted accelerated approval of its sBLA from FDA.
With respect to the cost criterion, the applicant provided an
analysis to demonstrate that BREYANZI[supreg] meets the cost criterion.
The analysis followed the order of operations summarized in the
following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.145
Because the final inflated average case-weighted standardized
charge per case exceeded the average case-weighted threshold amount in
all scenarios, the applicant asserted that BREYANZI[supreg] meets the
cost criterion.
We invited public comments on whether BREYANZI[supreg] meets the
cost criterion.
Comment: The applicant reiterated that the cost criterion analysis
submitted with its application demonstrates that BREYANZI[supreg] meets
the cost criterion.
Response: We thank the applicant for its comment. We agree that the
final inflated average case-weighted standardized charge per case
exceeded the average case-weighted threshold amount in the applicant's
cost analysis. Therefore, BREYANZI[supreg] meets the cost criterion.
With regard to the substantial clinical improvement criterion, the
applicant asserted that BREYANZI[supreg] demonstrates a substantial
clinical improvement because R/R CLL/SLL patients who have received a
prior BTKi and BCL2i have limited treatment options and outcomes are
extremely poor. The applicant also asserted that BREYANZI[supreg] is
the first and only CAR T-cell therapy indicated for this population,
and in clinical studies, 20 percent of patients treated with
BREYANZI[supreg] achieved complete response or remission (CR) and
remained in CR through 22.4 months of follow-up. The applicant provided
one article and two conference presentations regarding one clinical
trial, and the BREYANZI[supreg] package insert to support these claims,
as well as 11 background articles about CLL, SLL, and current treatment
options.\32\ The following table summarizes the applicant's assertions
regarding the substantial clinical improvement criterion. Please see
the online posting for BREYANZI[supreg] for the applicant's complete
statements regarding the substantial clinical
[[Page 36691]]
improvement criterion and the supporting evidence provided.
---------------------------------------------------------------------------
\32\ Background articles are not included in the following table
but can be accessed via the online posting for the technology.
---------------------------------------------------------------------------
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR04AU25.146
BILLING CODE 4120-01-C
We also received a public comment in response to the New Technology
Town Hall meeting notice published in the Federal Register regarding
the substantial clinical improvement criterion for BREYANZI[supreg],
which we summarized in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18103).
After review of the information provided by the applicant and the
public comment received in response to the New Technology Town Hall
meeting, we stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18103) that we had the following concerns regarding whether
BREYANZI[supreg] meets the substantial clinical improvement criterion.
First, we questioned whether there is a particular subpopulation for
which BREYANZI[supreg] offers a treatment option that is unresponsive
to or ineligible for other existing therapies. While the applicant
asserted that BREYANZI[supreg] is the first and only CAR T-cell therapy
for this indication, it also stated that there are other treatment
options for this patient population, including non-covalent BTKis, such
as Jaypirca[supreg], and PI3Ks, such as COPIKTRA[supreg].\33\ We noted
that being the first CAR T-cell therapy for a particular indication
relates to mechanism of action and is not relevant to the demonstration
of substantial clinical improvement.
---------------------------------------------------------------------------
\33\ National Comprehensive Cancer Network. (2024, October 1).
NCCN Clinical Practice Guidelines in Oncology (NCCN
Guidelines[supreg]): Chronic Lymphocytic Leukemia/Small Lymphocytic
Lymphoma. https://www.nccn.org/professionals/physician_gls/pdf/cll.pdf.
---------------------------------------------------------------------------
Secondly, while the applicant stated that BREYANZI[supreg] is
anticipated to significantly improve clinical outcomes in R/R CLL/SLL
patients who have received prior BTKi and BCL2i therapy, we stated we
had questions regarding the evidence provided in support of this claim.
The applicant provided several
[[Page 36692]]
studies based on the results of the TRANSCEND CLL 004 trial, including
one published article (Siddiqi et al., 2023a), two conference
presentations (Siddiqi et al., 2023b; Siddiqi et al., 2024), and the
BREYANZI[supreg] package insert (2024). We noted that the TRANSCEND CLL
004 trial was a single-arm study in which no historical controls were
used to compare the effects of BREYANZI[supreg] on clinical outcomes.
We also noted that the applicant acknowledged the caveats inherent with
direct cross-study comparisons due to differences between patient
populations, baseline comorbidities, and the number and type of prior
treatment regimens that subjects have received. In addition, the
applicant stated that no head-to-head studies exist comparing
BREYANZI[supreg] in CLL to currently available treatments. At the same
time, the applicant asserted that BREYANZI[supreg]'s median time to
next therapy was considerably longer than that observed in a real-world
study of patients with CLL/SLL after prior treatment with a BTKi and B-
cell lymphoma 2 inhibitors (6.6 months [95 percent CI, 3.6-10.1].\34\
Also, the applicant noted that patients with prior BTKi exposure who
were venetoclax-na[iuml]ve would have improved outcomes had they
received BREYANZI[supreg] earlier, before other early-line
treatments.\35\ We stated our concern about the validity of comparing
the clinical outcomes of BREYANZI[supreg] and existing therapies to the
extent those clinical outcomes were results of trials with different
designs, and the patients in those studies were selected based on
different inclusion/exclusion criteria and may have different baseline
clinical characteristics. We stated that these differences may have an
impact on clinical outcomes that was independently of BREYANZI[supreg]
or the comparator treatments. Moreover, we noted the differing results
between BREYANZI[supreg] and other existing therapies in terms of the
clinical outcomes cited by the applicant. For example, as previously
described, BREYANZI[supreg] demonstrated a CR rate of 20 percent and
ORR of 44 percent for patients in the PEAS cohort. According to the
applicant, in a trial in which patients with R/R CLL/SLL received
Jaypirca[supreg], the CR rate and ORR was 0 percent and 70 percent
respectively.\36\ Furthermore, according to the applicant,
BREYANZI[supreg] resulted in PFS of 11.9 months for patients in the
PEAS cohort in the TRASNCEND CLL 004 trial. However, we noted that in
the trial in which patients with R/R CLL/SLL received Jaypirca[supreg],
the PFS was 16.8 months.\37\ We questioned how these mixed findings
support the claim that BREYANZI[supreg] represents a substantial
clinical improvement, given the higher values with respect to the
existing therapies for particular outcome results.
---------------------------------------------------------------------------
\34\ Siddiqi (2023b), op.cit.
\35\ Siddiqi (2024), op.cit.
\36\ Mato (2023b), op.cit.
\37\ Mato (2023b), op.cit.
---------------------------------------------------------------------------
In addition, with respect to the applicant's claims that R/R CLL/
SLL patients who received prior BTKi and BCL2i therapies have limited
treatment options, and that patients with R/R CLL/SLL have poor
outcomes on existing therapy, we questioned whether these claims
support that BREYANZI[supreg] improves clinical outcomes for this
patient population.
We invited public comments on whether BREYANZI[supreg] meets the
substantial clinical improvement criterion.
Comment: Several commenters expressed support for approval of
BREYANZI[supreg] for new technology add-on payments. A few commenters
stated that approval of BREYANZI[supreg]'s new technology add-on
payment application will remove a potential barrier to accessing
innovative treatments and tools advancing this approach to care for
unmet medical needs. Another commenter stated that the new technology
add-on payment program was created to eliminate the limitations on
access to new therapies due to lack of reimbursement in the inpatient
setting, and the use of BREYANZI[supreg] for the FDA-labeled
indications would require hospitals to incur costs that, without a new
technology add-on payment, would have to be fully absorbed by the
treating hospital.
A few commenters also emphasized that CAR T-cell therapies are a
critical and important advancement in the treatment of certain cancers
and for patient populations with few existing treatment options. A
commenter stated that BREYANZI[supreg] is a new CAR T-cell therapy for
patients with CLL and a new option for patients who have exhausted all
other treatment options. The commenter further urged CMS to consider
adding BREYANZI[supreg] to the set of tools available to address the
significant unmet need for additional lines of therapy for CLL,
regardless of whether a patient receives BREYANZI[supreg] as their
first treatment after progressing on two or more lines of therapy or
after a noncovalent BTKi and/or a PI3Ki.
Response: We thank the commenters for their input and have taken it
into consideration in determining whether BREYANZI[supreg] meets the
substantial clinical improvement criterion as discussed later in this
section.
Comment: The applicant submitted a public comment regarding the
substantial clinical improvement criterion and provided responses to
CMS's concerns from the proposed rule. The applicant asserted that
BREYANZI[supreg] provides a substantial clinical improvement relative
to services or technologies previously available for the treatment of
Medicare beneficiaries with R/R CLL/SLL who have limited therapy
options, according to National Comprehensive Cancer Network (NCCN)
Guidelines. The applicant further stated that BREYANZI[supreg] is the
only NCCN Guidelines-preferred regimen that offers patients a
treatment-free disease remission interval with improved quality of life
and the potential to achieve a deep and durable response (20 percent
CR) while other regimens, such as PI3Ki, have concerning benefit-risk
profiles and are associated with poor outcomes characterized by high
risks of fatal adverse events and the absence of complete disease
remission.
In response to CMS's question about the applicant's assertion that
BREYANZI[supreg] offers a treatment option for patients unresponsive to
or ineligible for other existing therapies, the applicant stated that
BREYANZI[supreg] is a novel, promising treatment option not only for
patients with R/R CLL/SLL who have received at least two prior lines of
therapy, including a BTKi and a BCL-2i (double class exposed), but is
also the only treatment intentionally studied and proven efficacious in
patients with highly refractory and aggressive CCL/SLL who experienced
disease progression while on BTKi and failed to respond to
Venclexta[supreg]. Per the applicant, these highly refractory patients
represent a particularly difficult-to-treat population with no existing
effective treatments. The applicant also stated that BREYANZI[supreg]
substantially improves treatment of the double class exposed
population, that is, patients with R/R CLL/SLL who had received at
least 2 prior lines of therapy, achieving a 20 percent CR rate and
improvements in health-related quality of life, whereas existing
therapies, including Jaypirca[supreg] (pirtobrutinib), the recently
approved non-covalent BTKi, rarely achieve CR in this population. The
applicant asserted that BREYANZI[supreg] addresses the critical unmet
need in this patient population by offering the possibility of a
durable CR following a one-time treatment. The applicant stated that in
this subpopulation, BREYANZI[supreg] demonstrated a consistent rate of
20 percent CR that was durable, with median PFS and DOR not reached at
[[Page 36693]]
31.4 and 31.7 months of follow up respectively. The applicant further
stated that PI3Kis, such as Copiktra[supreg] and Zydelig[supreg], are
not preferred treatment options for double class exposed patients due
to their benefit-risk profile. The applicant noted that 31 percent of
Copiktra[supreg]-treated patients and 48 percent of Zydelig[supreg]-
treated patients experienced fatal/serious infections, while 18 percent
and 20 percent of patients experienced fatal/serious diarrhea or
colitis respectively. The applicant added that 15 percent of
Copiktra[supreg]-treated patients demonstrated treatment-related
mortality, and accordingly, an FDA expert panel voted on April 21, 2022
to recommend that future FDA approvals of PI3Kis be supported by
randomized data, rather than single-arm data only, and further
discontinuing the use of almost all PI3Kis in hematologic treatment.
Another commenter stated that CMS's inquiry into whether there is a
particular subpopulation that is unresponsive to or ineligible for
alternatives to BREYANZI[supreg] did not recognize that a new treatment
line in a chronic cancer can offer an incremental, additive survival
benefit.
In response to CMS's concern about the lack of historical controls
in the single-arm TRANSCEND CLL 004 trial to compare the effects of
BREYANZI[supreg] on clinical outcomes, the applicant stated that it
conducted an external control arm analysis to compare BREYANZI[supreg]
to the standard of care treatments for double case exposed patients
with R/R CLL/SLL using patients from the TRANSCEND CLL 004 monotherapy
cohort matched to real-world patients from U.S. oncology practice and
cancer centers. Per the applicant, to ensure fair and robust
comparisons, it employed an advanced causal inference methodology,
Inverse Probability of Treatment Weighting combined with regression
modeling, to adjust for the differences in patient and disease
characteristics between the clinical trial and the real-world cohorts.
The applicant stated that this analysis demonstrated that
BREYANZI[supreg] significantly improved response, including higher CR
rates ([95% CI] of 17.9% [9-34] for BREYANZI[supreg] vs 2.2% [1-5]) for
standard of care treatments, P<0.0001) and ORR rates ([95% CI] of 52.5%
[35-79] for BREYANZI[supreg] vs 19.2% [14-26] for standard of care
treatments, P=0.0007), and also delayed disease progression and
prolonged OS compared with standard of care treatments. According to
the applicant, the median PFS [95 percent CI] was 12.0 months (10.8-
13.2) with BREYANZI[supreg] vs 4.4 months (3.2-5.5) for standard of
care treatments (hazard ratio, 0.40; 95% CI, 0.24-0.68, P=0.0007). The
probabilities of PFS at 24 and 36 months were 46.3 percent and 30.3
percent with BREYANZI[supreg], compared to 11.5 percent and 5.1 percent
for standard of care treatments, respectively. The applicant also
stated that mOS [95 percent CI] was 33.6 months (31.7-35.5) for
BREYANZI[supreg] vs 14.8 months (9.4-20.1) for standard of care
treatments (hazard ratio, 0.47; 95% CI 0.28-0.79, P=0.0043). The
probability of OS at 24 and 36 months were 73.4 percent and 42.6
percent with BREYANZI[supreg], compared to 35.1 percent and 29.7
percent with standard of care treatments respectively. The applicant
asserted that these statistically significant and clinically meaningful
results confirm that treatment with BREYANZI[supreg] results in
improved outcomes compared with historical controls for double class
exposed patients with R/R CLL/SLL.
A commenter, in response to CMS's concern about the single-arm
design of the BREYANZI[supreg] pivotal trial, cited a study \38\ that
asserted single-arm trials can provide substantial evidence of
effectiveness and safety when randomized controlled trials are
infeasible. The commenter also cited an article \39\ that assessed the
use of single-arm studies and found that almost all the single-arm
studies (174 out of 176) identified were for locally, advanced, or
metastatic disease and that most were for second-line or later
treatment (49 percent), third-line or later treatment (20 percent),
fourth-line or later treatment (4 percent), or fifth-line or later
treatment (1 percent). This commenter asserted that FDA's acceptance of
single-arm studies reflects both the challenges research sponsors face
in designing randomized controlled trials in these patient populations
and FDA's interest in getting promising treatments to patients who need
them. Another commenter urged CMS to recognize the inherent ethical
challenges to designing randomized studies in disease states, such as
R/R CLL, in which patients have few treatment options and are unlikely
to survive through a study duration if the investigational treatment is
withheld. The commenter stated that for many rare diseases, the
underlying biology and disease progression have not reached a level of
broad scientific understanding. The commenter asserted that limited
natural history data makes it difficult to choose appropriate
endpoints, assess whether a drug is effective, or even determine the
optimal timing or duration for the intervention and the trials. The
commenter agreed with the applicant that the R/R patient population has
limited treatment options. Per the commenter, while a poor prognosis
does not establish a case for significant improvement, it explains the
applicant's decision not to incorporate historic controls.
---------------------------------------------------------------------------
\38\ Sundeep Agrawal, MD, Agrawal S, Arora S, Amiri-Kordestani
L, et al. Use of single-arm trials for US Food and Drug
Administration drug approval in oncology, 2002-2021. JAMA Oncol.
2023; 9(2): 266-272. doi:10.1001/jamaoncol.2022.5985.
\39\ Nierengarten, M.B. (2023), Single-arm trials for US Food
and Drug Administration cancer drug approvals. Cancer, 129: 1626-
1626. https://doi.org/10.1002/cncr.34830.
---------------------------------------------------------------------------
In response to CMS's concern about the mixed clinical outcomes of
BREYANZI[supreg] compared to Jaypirca[supreg], the applicant stated it
is critical to note the key differences in the two studies' patient
populations. The applicant stated that the TRANSCEND CLL 004 study's
patients were more heavily pretreated (a median of 5 prior lines of
therapy compared to 3 in the Jaypirca[supreg] BRUIN phase \1/2\ pivotal
trial cohort \40\), had significantly higher prior exposure to both
BTKi and BCL-2i (80 percent versus 40.5 percent in the BRUIN trial),
and experienced disease progression while on a BTKi and failed to
respond to Venclexta[supreg], making it a study population with highly
refractory and aggressive disease that is not represented in the
Jaypirca[supreg] BRUIN study. The applicant stated that
BREYANZI[supreg] resulted in a 20 percent CR rate in this double-class
exposed (DCE) population, while Jaypirca[supreg] failed to induce CR.
The applicant also asserted that sustained durability of response in
CLL has been shown to closely correlate with achieving a complete
response, underscoring the risk of disease progression over time for
patients treated with Jaypirca[supreg]. Per the applicant, this was
reflected in the outcomes--although Jaypirca[supreg] demonstrated an
overall response rate at 70 percent, the CR rate was 0 percent, and the
durability of response (DoR) was inferior compared to BREYANZI[supreg].
In the DCE population, the median DoR with BREYANZI[supreg] was 35.3
months (95% CI, 12.4-not reached [NR])32 versus 12.2 months (95% CI,
9.3-14.7) among patients treated with Jaypirca[supreg].
---------------------------------------------------------------------------
\40\ Mato AR, Woyach JA, Brown JR, et al (2023). Pirtobrutinib
after a Covalent BTK Inhibitor in Chronic Lymphocytic Leukemia. N
Engl J Med 2023;389:33-44. DOI: 10.1056/NEJMoa2300696.
---------------------------------------------------------------------------
In addition, the applicant stated that the median PFS of 11.9
months associated with BREYANZI[supreg] that CMS referenced in the
proposed rule pertains specifically to the primary efficacy analysis
set in the TRANSCEND CLL
[[Page 36694]]
004 study, which was the cohort of patients who experienced disease
progression while on BTKi and failed to respond to Venclexta[supreg].
The applicant asserted that BREYANZI[supreg] uniquely demonstrates
efficacy in an especially high-risk, refractory, and disease-aggressive
population, which was not represented in the Jaypirca[supreg] study.
The applicant further stated that it is inappropriate to compare the
outcomes of BREYANZI[supreg]'s primary efficacy analysis set to those
of the Jaypirca[supreg] study, who showed a median PFS of 16.8 months,
because the patient population of the Jaypirca[supreg] study was
previously treated with a BTKi and Venclexta[supreg] but not required
to exhibit refractoriness to these treatments. The applicant further
commented that the Jaypirca[supreg] study showed that the median PFS of
double class exposed patients treated with Jaypirca[supreg] decreased
to 15.9 months at a median follow-up of 27.5 months. The applicant
contrasted these results to those of the TRANSCEND trial, in which 80
percent of the treated patients were double class exposed, and the
median PFS for these patients remained at 18 months and among the
patients who responded to BREYANZI[supreg], the median PFS was 26.2
months at a median follow-up of 31.7 months. The applicant further
stated that BREYANZI[supreg] results in treatment-free disease
remission, which is manifested as health-related quality of life
improvements in the R/R CLL/SLL population. Per the applicant, in the
TRANSCEND-CLL-004 trial, clinically meaningful improvements were
achieved in the key domains of global health status/quality of life,
physical function, role functioning, symptom burdens, and fatigue after
BREYANZI[supreg] infusion, and exceeded the pre-defined minimum
important difference thresholds. The applicant also stated that
BREYANZI[supreg]'s one-time infusion eliminates the compliance and
adherence challenges commonly associated with existing continuous
treatment technologies.
Another commenter stated that part of the clinical improvement
BREYANZI[supreg] offers by virtue of being the only approved CAR T-cell
therapy indicated for R/R CLL/SLL is the additional survival benefit
from a new line of treatment for patients with few available options.
The commenter further stated that BREYANZI[supreg] and its incremental
benefit are best viewed as additions to that accrued by both prior and
subsequent treatments, unlike second generation covalent BTKis, which
are unlikely to be effective after progression on another treatment in
its class. The commenter also stated that, during CMS's Medicare Drug
Price Negotiation Program Town Hall for Initial Price Applicability
Year 2027, CLL researchers and clinician experts emphasized that the
treatment goal for CLL is to prolong survival without compromising
quality of life. The commenter further stated that patients may remain
in a ``wait and see'' period after diagnosis and may delay second and
subsequent lines of treatment to delay or avoid progression through
available treatments, and therefore, the ``time to next treatment''
endpoint is highly relevant to CLL. The commenter stated that median
time to next therapy following treatment with BREYANZI[supreg] was
considerably longer than that observed in a real-world study of
patients with CLL/SLL after prior treatment with a BTKi and B-cell
lymphoma 2 inhibitors (6.6 months, [95 percent CI, 3.6-10.1] \41\). The
commenter stated that this improvement in time to next therapy is an
important clinical improvement for patients with R/R CLL/SLL from both
a patient and clinician perspective. In addition, the commenter stated
that, according to clinicians and researchers, patients prefer
treatment regimens of fixed duration and those that offer remission
with shorter times on treatment. The commenter therefore stated it
believes the option of receiving a course of therapy through a single
infusion is an important benefit of BREYANZI[supreg]. In addition, the
commenter stated that patients treated with BREYANZI[supreg] or
Jaypirca[supreg] are not choosing between the median PFS of each
therapy, but instead the decision is one of sequencing, and the
incremental benefit in terms of PFS and/or overall survival is additive
and significant. Moreover, the commenter argued that use of
BREYANZI[supreg] for the FDA-labeled indications would require
hospitals to incur costs that, without new technology add-on payments,
would have to be fully absorbed by the treating hospital. The commenter
asserted that the mechanism of new technology add-on payments was
created to eliminate the limitations on access to new therapies due to
lack of reimbursement in the inpatient setting.
---------------------------------------------------------------------------
\41\ Siddiqi et al. (2023), op. cit.
---------------------------------------------------------------------------
Response: We thank the applicant and other commenters for their
comments regarding the substantial clinical improvement criterion.
Based on the additional information received, we agree with the
applicant and other commenters that BREYANZI[supreg] represents a
substantial clinical improvement over existing technologies because
BREYANZI[supreg] is a one-time treatment that significantly improves CR
with lower risk of adverse events in R/R CLL/SLL patients who have
received prior BTKi and BCL2i therapy.
After consideration of the public comments we received and the
information included in the applicant's new technology add-on payment
application, we have determined that BREYANZI[supreg] meets the
criteria for approval for new technology add-on payment. Therefore, we
are approving new technology add-on payments for this technology for FY
2026. Cases involving the use of BREYANZI[supreg] that are eligible for
new technology add-on payments will be identified by ICD-10-PCS codes:
XW033N7 (Transfusion of lisocabtagene maraleucel immunotherapy into
peripheral vein, percutaneous approach, new technology group 7) or
XW043N7 (Transfusion of lisocabtagene maraleucel immunotherapy into
central vein, percutaneous approach, new technology group 7) in
combination with one of the following ICD-10-CM codes:
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[[Page 36695]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.149
In its application, the applicant estimated that the cost of a one-
time intravenous infusion of BREYANZI[supreg] is $487,477 per patient.
Under Sec. 412.88(a)(2), we limit new technology add-on payments to
the lesser of 65 percent of the average cost of the technology, or 65
percent of the costs in excess of the MS-DRG payment for the case. As a
result, the maximum new technology add-on payment for a case involving
the use of BREYANZI[supreg] is $316,860.05 for FY 2026.
d. COBENFYTM (xanomeline and trospium chloride)
Bristol Myers Squibb submitted an application for new technology
add-on payments for COBENFYTM for FY 2026. According to the
applicant, COBENFYTM is an oral combination drug consisting
of xanomeline, a muscarinic agonist, and trospium chloride, a
muscarinic antagonist, that is indicated for the treatment of
schizophrenia in adults. Please refer to the online application posting
for COBENFYTM, available at https://mearis.cms.gov/public/publications/ntap/NTP241007U99FM, for additional detail describing the
technology and the disease treated by the technology.
With respect to the newness criterion, according to the applicant,
COBENFYTM was granted NDA approval from FDA on September 26,
2024, for the treatment of schizophrenia in adults. The applicant
stated that COBENFYTM became commercially available on
October 9, 2024, and stated the delay in availability was due to a
ramp-up period associated with distribution. We stated we were
interested in additional information regarding the cause of any delay
in the technology's commercial availability, such as additional
information about the ramp-up period for distribution.
COBENFYTM has 3 approved dose strengths (50 mg/20 mg,
100 mg/20 mg, and 125 mg/30 mg) in capsule form. The recommended
starting dosage is one 50 mg/20 mg capsule orally twice daily for at
least 2 days. The dosage is increased to one 100 mg/20 mg capsule
orally twice daily for at least 5 days and may be increased thereafter
to one 125 mg/30 mg capsule orally twice daily based on patient
tolerability and response. The applicant stated the per day treatment
cost is the same across all dosages and the average length of stay for
patients taking COBENFYTM is 7.5 days.
The applicant submitted a request for approval for a unique ICD-10-
PCS procedure code for COBENFYTM and was granted approval to
use the following procedure code effective October 1, 2025: XW0DXVB
(Introduction of xanomeline and trospium chloride into mouth and
pharynx, external approach, new technology group 11). The applicant
provided the following list of diagnosis codes that may be used to
currently identify the indication for COBENFYTM under the
ICD-10-CM coding system: F20.0 (Paranoid schizophrenia), F20.1
(Disorganized schizophrenia), F20.3 (Undifferentiated schizophrenia),
F20.89 (Other schizophrenia), F20.9 (Schizophrenia, unspecified), F25.0
(Schizoaffective disorder, bipolar type), F25.1 (Schizoaffective
disorder, depressive type), F25.8 (Other schizoaffective disorders),
and F25.9 (Schizoaffective disorder, unspecified).
As previously discussed, if a technology meets all three of the
substantial similarity criteria under the newness criterion, it would
be considered substantially similar to an existing technology and would
not be considered ``new'' for the purpose of new technology add-on
payments.
With respect to the substantial similarity criteria, the applicant
asserted that COBENFYTM is not substantially similar to
other currently available technologies because it is the first
treatment for schizophrenia to target muscarinic receptors instead of
dopamine. Per the applicant, COBENFYTM combines xanomeline,
a muscarinic agonist, and trospium chloride, a muscarinic antagonist,
which work together to stimulate muscarinic receptors in the brain
while minimizing peripheral side effects; and its efficacy, safety, and
tolerability have been established in acute and long-term trials
providing a new option for patients; and therefore, the technology
meets the newness criterion. The following table summarizes the
applicant's assertions regarding the substantial similarity criteria.
Please see the online application posting for COBENFYTM for
the applicant's complete statements in support of its assertion that
COBENFYTM is not substantially similar to other currently
available technologies.
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[[Page 36696]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.150
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We invited public comments on whether COBENFYTM is
substantially similar to existing technologies and whether
COBENFYTM meets the newness criterion.
Comment: The applicant stated that COBENFYTM meets the
newness criterion because it received FDA approval on September 26,
2024, which is within the eligibility window for FY 2026 new technology
add-on payment consideration. Additionally, the applicant noted that as
the first antipsychotic medication for schizophrenia that specifically
targets muscarinic receptors instead of dopamine receptors,
COBENFYTM represents the first novel pharmacological
approach to schizophrenia treatment in decades. The applicant further
explained that COBENFYTM selectively targets M1 and M4
receptors in the brain without blocking D2 receptors, making it
fundamentally different from all existing antipsychotics that have
relied on dopamine receptor modulation for over 70 years. The applicant
also stated that FDA recognized this distinction, noting that
COBENFYTM ``takes the first new approach to schizophrenia
treatment in decades'' and ``offers a new alternative to the
antipsychotic medications people with schizophrenia have previously
been prescribed.'' The applicant concluded that COBENFYTM is
not substantially similar to any other product currently available to
treat schizophrenia because the therapy has a unique mechanism of
action, distinctive safety profile, and a recent FDA-approval date.
Additional commenters also noted the unique mechanism of action for
COBENFYTM since it targets
[[Page 36697]]
cholinergic receptors and the muscarinic pathway rather than blocking
dopamine receptors, which is the target for existing treatments.
The applicant asserted that the newness period for
COBENFYTM should begin on October 9, 2024, to reflect the
date that COBENFYTM was first commercially available for
purchase. In response to CMS's request for additional information
regarding the cause of any delay in commercial availability, the
applicant explained that the delay between FDA approval on September
26, 2024, and market availability on October 9, 2024, was for multiple
reasons. The applicant stated it allowed for complete standard launch
preparation activities that typically follow regulatory approval,
including finalizing the distribution network and ensuring support
teams were fully prepared. The applicant stated that additional time
was also needed to ensure sufficient inventory would be available
across retail pharmacies nationwide to meet initial and anticipated
patient demand without interruption. The applicant further stated that
the delay was also needed following its acquisition of
COBENFYTM from Karuna Therapeutics, since it needed
additional time to properly scale up manufacturing and distribution
capabilities to support a successful nationwide retail-pharmacy-based
launch. The applicant urged CMS to use October 9, 2024 as the newness
date, to align with new technology add-on payment statutes and to
reflect the date of COBENFYTM's first commercial
availability for inpatient hospital use.
Response: We thank the applicant for its comment. Based on our
review of the comment received and information submitted by the
applicant as part of its FY 2026 new technology add-on payment
application for COBENFYTM, we agree with the applicant that
COBENFYTM uses a unique mechanism of action because it is
the first schizophrenia treatment for adults to target muscarinic
receptors in the brain by combining the muscarinic agonist, xanomeline,
and the muscarinic antagonist, trospium chloride, unlike typical and
atypical antipsychotics currently used to treat schizophrenia, which
antagonize dopamine receptors. Therefore, we agree with the applicant
that COBENFYTM is not substantially similar to existing
treatment options and meets the newness criterion. We consider the
beginning of the newness period to commence on October 9, 2024, the
date on which COBENFYTM became commercially available.
With respect to the cost criterion, the applicant provided an
analysis to demonstrate that COBENFYTM meets the cost
criterion. The analysis followed the order of operations summarized in
the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.151
Because the final inflated average case-weighted standardized
charge per case exceeded the average case-weighted threshold amount,
the applicant asserted that COBENFYTM meets the cost
criterion.
We invited public comments on whether COBENFYTM meets
the cost criterion.
Comment: The applicant submitted a comment stating that its cost
analysis was calculated to best represent the patients with
schizophrenia who the applicant believes will be eligible for treatment
with COBENFYTM, specifically patients being treated for
psychosis or other mental diseases or disorders in an inpatient or
outpatient setting. The applicant also reiterated the methods it used
in its cost criterion analysis and that the final inflated average
case-weighted standardized charge per case exceeded the average case-
weighted threshold amount.
Response: We thank the applicant for its comment. We agree that the
final inflated average case-weighted standardized charge per case
exceeded the average case-weighted threshold amount. Therefore,
COBENFYTM meets the cost criterion.
With regard to the substantial clinical improvement criterion, the
applicant asserted that COBENFYTM represents a substantial
clinical improvement over existing technologies because it is a first-
in-class muscarinic agonist offering a new approach to treating
schizophrenia by selectively targeting muscarinic receptors in the
brain without targeting dopamine. The applicant further asserted that
COBENFYTM has the potential to improve outcomes by
addressing both positive and negative symptoms, which current drugs
often inadequately manage, and that its unique mechanism reduces the
risk of dopamine-related side effects, such as tardive dyskinesia (TD).
The applicant stated that for these reasons, COBENFYTM
offers a treatment
[[Page 36698]]
option for adult patients with schizophrenia who are unresponsive to,
or ineligible for, currently available treatments and significantly
improves clinical outcomes relative to existing treatments. The
applicant provided six articles regarding five studies to support these
claims. We also noted that two additional articles (Cornett et al.,
2017 and Lieberman et al., 2005) \42\ submitted as supporting evidence
would more appropriately be characterized as background articles
because they do not directly assess the use of
COBENFYTM.\43\ \44\ Instead, Cornett, et al. (2017) is a
literature review of medication-induced TD, and Lieberman, et al.
(2005) is a study reviewing the efficacy and side effect profile of
other antipsychotic drugs in chronic schizophrenia. The following table
summarizes the applicant's assertions regarding the substantial
clinical improvement criterion. Please see the online posting for
COBENFYTM for the applicant's complete statements regarding
the substantial clinical improvement criterion and the supporting
evidence provided.
---------------------------------------------------------------------------
\42\ Background articles are not included in the following table
but can be accessed via the online posting for the technology.
\43\ Cornett EM, Novitch M, Kaye AD, Kata V, Kaye AM.
Medication-Induced Tardive Dyskinesia: A Review and Update. Ochsner
J. 2017 Summer;17(2):162-174. PMID: 28638290; PMCID: PMC5472076.
\44\ Lieberman, J.A., Stroup, T.S., McEvoy, J.P., Swartz, M.S.,
Rosenheck, R.A., Perkins, D.O., . . . & Hsiao, J.K. (2005).
Effectiveness of antipsychotic drugs in patients with chronic
schizophrenia. The New England Journal of Medicine, 353(12), 1209-
1223. https://doi.org/10.1056/NEJMoa051688.
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[GRAPHIC] [TIFF OMITTED] TR04AU25.152
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We also received a public comment in response to the New Technology
Town Hall meeting notice published in the Federal Register regarding
the substantial clinical improvement criterion for
COBENFYTM, which we summarized in the FY 2026 IPPS/LTCH PPS
proposed rule (90 FR 18107).
After review of the information provided by the applicant and the
[[Page 36700]]
public comment received in response to the New Technology Town Hall
meeting, we stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18107 through 18108) that we had the following concerns regarding
whether COBENFYTM meets the substantial clinical improvement
criterion. We noted that the applicant did not identify a patient
population for which COBENFYTM could be used that is
unresponsive to or ineligible for other available treatments. The
applicant asserted that COBENFYTM's efficacy and side effect
profile make it a valuable option for patients who respond inadequately
to current treatments and that COBENFYTM may be an effective
treatment option for patients experiencing disruptive negative
symptoms. To support these assertions, we noted that the applicant
provided data on COBENFYTM from three 5-week, randomized,
double-blind trials (EMERGENT-1, EMERGENT-2, and EMERGENT-3) that
compared COBENFYTM to placebo and from two unpublished 52-
week open-label trials (EMERGENT-4 and EMERGENT-5). While the exclusion
criteria are unknown for EMERGENT-5, we noted that the other trials
excluded patients with a history of treatment resistance to
schizophrenia medications, and we therefore questioned how the trials
demonstrated that COBENFYTM can treat patients unresponsive
to other therapies. In addition, we did not receive data indicating
that other antipsychotics cannot manage negative symptoms. We also
noted that if a patient experiences a side effect on one antipsychotic,
they may not experience the same side effect on another antipsychotic.
Similarly, if one antipsychotic does not work for a patient, it does
not necessarily mean another typical or atypical antipsychotic would
not work for that patient. Therefore, we questioned if
COBENFYTM is the only treatment option for patients with
inadequate response to current treatments or for those experiencing
negative symptoms.
The applicant also asserted that COBENFYTM significantly
improves outcomes relative to previously available therapies. To
support this assertion, the applicant provided data from three 5-week
clinical trials (EMERGENT-1, EMERGENT-2, and EMERGENT-3) that compared
COBENFYTM to placebo and a literature review on TD (Cornett
et al., 2017). However, COBENFYTM was compared to placebo in
these trials, and data was not provided comparing COBENFYTM
to currently available therapies. We noted that, per the applicant,
there are more than 20 FDA-approved therapies for schizophrenia, and we
stated we were interested in additional information comparing clinical
outcomes with COBENFYTM to these therapies, such as with
regard to reduction in symptoms of schizophrenia and/or side effects,
improved medication adherence, or other outcomes described under the
regulations at Sec. 412.87(b)(1)(ii)(C), to inform an assessment of
whether COBENFYTM provides a substantial clinical
improvement over existing treatment options.
In addition, with respect to the claim that COBENFYTM
offers a side-effect profile that has the potential to enhance outcomes
by improving tolerability and expanding treatment options, the
applicant stated that the provided literature review on TD (Cornett et
al., 2017) supports the theory that blockade of dopamine receptors by
dopamine antagonists contributes to the development of TD, which
COBENFYTM does not affect. We noted that the study stated
that typical antipsychotics are the most likely to cause TD, while
atypical antipsychotics may be associated with a decreased prevalence
of TD, and we, therefore, stated we were unclear if the applicant is
stating that COBENFYTM may reduce the prevalence of TD only
compared to typical antipsychotics. We also noted that this literature
review only discussed TD, which is one potential side effect of some
schizophrenia treatments, and no other provided evidence related to
rates of other potential side effects seen with existing schizophrenia
treatment options, such as cardiac arrhythmias, metabolic syndrome, and
tremor, were compared to the rates for COBENFYTM. We stated
that we would appreciate further information comparing the overall
benefit-risk profile of COBENFYTM to previously available
antipsychotics in order to assess if COBENFYTM provides a
substantial clinical improvement over other available therapies. We
also noted that the applicant stated that the EMERGENT trials
demonstrated that COBENFYTM is well-tolerated and that
measures of extrapyramidal symptoms, weight gain, and somnolence were
similar between groups. However, given that the trials were only 5
weeks in duration and some side effects, such as tardive dyskinesia,
can take longer to occur, we questioned whether these rates of adverse
events may increase over time. For these reasons, we questioned the
assertion that COBENFYTM improves tolerability and side-
effects relative to previously available therapies.
The applicant claimed that COBENFYTM demonstrates
statistically significant and clinically meaningful reductions in the
severity of illness compared to placebo, as measured by the Clinical
Global Impression-Severity (CGI-S) scale. According to the applicant,
the CGI-S is a global assessment tool used to rate the overall severity
of a patient's illness, and rather than being specific to positive,
negative, or cognitive symptoms, it instead gives an overall sense of
how severe schizophrenia is perceived to be at a given time. However,
we questioned long-term efficacy, given that the only data submitted
for this claim was from two 5-week trials (EMERGENT-1 and EMERGENT-3).
We invited public comments on whether COBENFYTM meets
the substantial clinical improvement criterion.
Comment: A few commenters urged CMS to approve new technology add-
on payments for COBENFYTM. These commenters highlighted that
COBENFYTM offers a critical new option for a patient
population that has seen limited innovation despite urgent unmet need,
has been effective in reducing positive and negative symptoms of
schizophrenia demonstrated over 1 year of use, and provides an
alternative option for patients to avoid the significant side effects
associated with antipsychotic medications, such as TD, significant
weight gain, metabolic disturbances, sedation and fluid retention,
among others. A commenter stated that by offering a temporary payment
adjustment, the new technology add-on payment ensures that hospitals
don't face financial penalties for making clinically-driven decisions
that benefit the schizophrenic community because hospitals are
reimbursed through MS-DRG rates that struggle to reflect the value of
innovative therapies. In addition, the commenter stated that without
the new technology add-on payment, institutions may default to outdated
inpatient care models that overlook recent advances in science and
patient experience, simply to remain financially viable. This commenter
also stated that delays in access to novel therapeutics increase the
likelihood of patient relapse, readmission, or discontinuation of
medication. The commenter further highlighted that inadequate treatment
of schizophrenia contributes to severe consequences, including
neurological damage, worsening symptoms, and an average lifespan that
is 15 years shorter than that of the general population.
[[Page 36701]]
Another commenter stated that CMS should ensure coverage of new
therapies, such as COBENFYTM, to allow clinicians the
ability to choose medications based on their expertise and patient
needs, while also allowing patients to benefit from the full range of
schizophrenia treatment options and to determine which therapy is an
appropriate, advantageous option for them.
Response: We thank the commenters for their input and have taken it
into consideration in determining whether COBENFYTM meets
the substantial clinical improvement criterion as discussed later in
this section. We note that whether a technology receives new technology
add-on payments or not does not affect coverage of the technology or
the ability for hospitals to provide a technology to patients where
appropriate.
Comment: The applicant for COBENFYTM submitted a public
comment regarding the substantial clinical improvement criterion and
provided responses to CMS's concerns from the proposed rule. The
applicant asserted that COBENFYTM satisfies the substantial
clinical improvement criterion by introducing the first novel
pharmacological approach to schizophrenia treatment in decades. The
applicant reiterated that COBENFYTM fundamentally differs
from all existing antipsychotics as a first-in-class muscarinic agonist
that selectively targets M1 and M4 receptors without blocking dopamine
receptors. The applicant also stated that COBENFYTM has the
potential to break the cycle of treatment resistance progression
through its innovative mechanism and that the placebo-controlled trials
submitted as part of its application were scientifically appropriate
for evaluating this groundbreaking medication. The applicant also noted
COBENFYTM's differentiated safety profile relative to
existing antipsychotics across both 5-week and 52-week trials, as well
as comprehensive long-term data that confirms sustained efficacy.
In response to CMS's concern that the applicant did not identify a
patient population for which COBENFYTM could be used that is
unresponsive to other available treatments, the applicant stated that
by leveraging its novel mechanism of action, COBENFYTM
offers a promising alternative that addresses multiple unmet needs in
patients with schizophrenia by providing an effective and safe
treatment option, particularly because all other approved
antipsychotics work through varying degrees of dopamine receptor
modulation.
In response to CMS's concern that the clinical trials excluded
patients with a history of treatment resistance to schizophrenia
medications, and questioned how the trials demonstrate that
COBENFYTM treats patients unresponsive to other therapies,
the applicant clarified that FDA recognizes treatment-resistant
schizophrenia as a distinct indication from the general treatment of
schizophrenia, as evidenced by FDA granting a separate indication to
clozapine for treatment-resistant patients. The applicant also stated
that treatment-resistant schizophrenia is estimated to affect only
about 30 percent of individuals with the disease, meaning that roughly
70 percent of patients do not meet the criteria for treatment
resistance and typically respond to standard therapies. The applicant
asserted that while the COBENFYTM clinical trials focused on
the primary indication of schizophrenia, the trials' exclusion of
patients with documented treatment resistance does not preclude
potential benefits across a broad segment of the schizophrenia
population, namely the 70 percent of patients who do not meet the
criteria for treatment resistance. The applicant further stated that
because COBENFYTM does not rely on dopamine receptor
antagonism, this therapy creates the potential for broader benefit. The
applicant stated that medical literature suggests that the occurrence
of treatment resistance in schizophrenia may develop through successive
treatment failures, a cycle perpetuated by the limited mechanistic
diversity of available therapies, such that patients experiencing
insufficient response or intolerable side effects with one
antipsychotic often encounter similar challenges when switching to
another. The applicant explained that COBENFYTM presents an
opportunity to interrupt patients' progression toward treatment
resistance by offering a genuinely different pharmacological option.
The applicant also stated that, although COBENFYTM does not
carry a specific FDA-approved indication for treatment-resistant
schizophrenia, it provides clinicians with an entirely different
neurobiological approach that has the potential to benefit patients
across the disease spectrum, including but not limited to, those who
have experienced inadequate response or intolerable side effects with
traditional antipsychotics that modulate dopamine receptors.
The applicant also stated that the side effects associated with
conventional antipsychotics frequently lead to antipsychotic
discontinuation and stem directly from dopamine receptor blockade and
other associated receptor interactions, contributing to the cycle of
treatment failures. The applicant asserted that COBENFYTM's
fundamentally different mechanism of action significantly reduces the
risk of these dopamine-related side effects, such as weight gain,
diabetes, TD, extrapyramidal symptoms, sedation, and cognitive dulling,
and may only result in manageable and transient effects, such as nausea
and dyspepsia. The applicant also stated that there is a significant
economic burden associated with managing antipsychotic-induced side
effects due to the chronic nature of schizophrenia treatment and the
potential need for long-term management of side effects, which can
result in costs greater than $10,000 to $15,000 per patient annually.
The applicant stated that COBENFYTM may reduce the need for
such costly interventions, providing not only a clinically significant
alternative but also a financially prudent option for healthcare
systems and patients. The applicant asserted that this further
highlights how COBENFYTM addresses the real unmet needs
faced by patients with schizophrenia and underscores its importance in
breaking the cycle of treatment failures that contribute to treatment
resistance development.
In response to CMS's request for additional information comparing
COBENFYTM's clinical outcomes to other FDA-approved
therapies, the applicant stated that it made the scientifically sound
and regulatory-compliant methodological decision to conduct placebo-
controlled trials. The applicant explained that it believes placebo-
controlled trials represent the most rigorous and appropriate
methodology for establishing the safety, tolerability, and efficacy
profile of COBENFYTM. The applicant stated that placebo-
controlled clinical trials are sufficient as well as the standard
approach for obtaining initial FDA approval. The applicant further
explained that placebo-controlled trials are particularly appropriate
for psychiatric medications because FDA specifically prefers them to
evaluate efficacy and safety due to the unique challenges inherent in
psychiatric research and considers them essential to establish that a
drug has an effect beyond nonspecific trial effects, such as
expectation, rater bias, and regression to the mean--all of which are
prominent in psychiatric trials. The applicant reiterated the findings
from the three 5-week trials (EMERGENT-1, EMERGENT-2, and EMERGENT-3)
and
[[Page 36702]]
2 52-week trials (EMERGENT-4 and EMERGENT-5) submitted in its new
technology add-on payment application. Additionally, the applicant
noted that despite being placebo-controlled, these trials demonstrate
the comparative advantages of COBENFYTM with respect to its
safety profile across both the 5-week trials and 52-week trials,
indicating the sustained tolerability advantage of
COBENFYTM.
In response to CMS's concern whether COBENFYTM improves
tolerability and side-effects relative to previously available
therapies, the applicant stated that COBENFYTM's unique
mechanism of action suggests potential benefits over both typical and
atypical antipsychotics, although the Cornett et al. (2017) review it
submitted only focused on typical antipsychotics. The applicant
explained that, unlike any existing antipsychotics,
COBENFYTM does not target dopamine receptors, which is the
fundamental mechanism implicated in TD development. The applicant,
therefore, asserted that this represents a categorical distinction
rather than a marginal improvement, suggesting that
COBENFYTM results in potential TD risk reduction compared to
all current antipsychotics, both typical and atypical.
In response to CMS's concern that the clinical trials submitted in
its application may be too brief in duration to observe some side
effects, such as TD, the applicant summarized the safety data from the
EMERGENT clinical trials. Specifically, the applicant stated there were
no cases of TD reported in the three 5-week clinical trials, with the
primary adverse effects being mild gastrointestinal symptoms. The
applicant highlighted that the two 52-week EMERGENT trials did not show
any new safety concerns compared with the 5-week trials. The applicant
also stated that COBENFYTM demonstrated sustained symptom
improvement through 52 weeks of treatment, and the trials only observed
two cases of TD, which the primary investigator adjudicated as
unrelated to treatment with COBENFYTM, as the patients had
pre-existing TD histories. The applicant asserted that the EMERGENT-4
and EMERGENT-5 52-week clinical trials directly address the potential
emergence of delayed adverse effects and provide compelling evidence of
COBENFYTM's long-term tolerability compared to the
characteristic adverse effects associated with both typical and
atypical antipsychotics that the applicant notes are commonly
understood to be a result of prolonged dopamine receptor blockage,
which COBENFYTM avoids. The applicant provided the side
effect data from COBENFYTM's package insert: nausea (19
percent), dyspepsia (18 percent), vomiting (15 percent), hypertension
(11 percent), abdominal pain (8 percent), diarrhea (6 percent),
dizziness (5 percent), and tachycardia (5 percent). The applicant also
indicated that motor disturbances, sedation, vision impairments,
seizures, weight gain, hyperlipidemia, insulin resistance/diabetes, QTc
prolongation, extrapyramidal symptoms, tardive dyskinesia, and sexual
dysfunction are common antipsychotic side effects.
In response to CMS's concern whether the EMERGENT-1 and EMERGENT-3
clinical trials demonstrate COBENFYTM's long-term efficacy
in reducing illness severity, the applicant provided additional
evidence from the 52-week EMERGENT-4 trial, which showed
COBENFYTM improves disease severity, as measured by the CGI-
S scale, throughout a full 52-week trial period. The applicant
explained that 47.4 percent of participants who remained on
COBENFYTM by week 52 achieved CGI-S scores 3, compared to
the mean baseline scores of 4, which reflected clinically meaningful
improvement to mild disease severity or better. The applicant also
stated that the EMERGENT-4 study demonstrates COBENFYTM's
sustained efficacy across core schizophrenia symptoms as measured by
the PANSS total score. Specifically, the applicant stated that nearly
70 percent of participants in the overall modified intent-to-treat
population achieved at least a 30 percent reduction in PANSS total
score from baseline to week 52, with 37.1 percent of participants
achieving a 50 percent or greater reduction. The applicant asserted
that the trial observed these PANSS total score improvements
consistently across both positive and negative symptom domains,
supporting the robust and durable therapeutic benefit of
COBENFYTM beyond short-term clinical trials. Lastly, the
applicant reiterated the EMERGENT-4 and EMERGENT-5 trials' pooled
safety and tolerability data that it submitted in its application. The
applicant asserted that these pooled data demonstrate durable
effectiveness beyond dopamine receptor-based therapies, with a
tolerability profile that can support improved medication adherence and
reduce the risk of cumulative side effects that often complicate long-
term antipsychotic use.
Response: We thank the applicant and commenters for their comments
regarding the substantial clinical improvement criterion. Based on the
additional information received and all data received to date, we
continue to have concerns as to whether COBENFYTM meets the
substantial clinical improvement criterion to be approved for new
technology add-on payments. Specifically, it remains unclear that
COBENFYTM offers a treatment option for a patient population
unresponsive to, or ineligible for, currently available treatments for
schizophrenia in adults and that the use of COBENFYTM
significantly improves clinical outcomes over existing technologies.
While the applicant noted that COBENFYTM may be able to
help patients who do not respond to or are intolerant of other
therapies, the basis for this assertion was COBENFYTM's
different mechanism of action rather than data supporting it. There was
also no data provided indicating that other antipsychotics cannot
manage negative symptoms. Therefore, we do not believe the evidence
provided indicates COBENFYTM is a treatment option for
patients who are unresponsive to or ineligible for other therapies.
With regard to the assertion that COBENFYTM improves
clinical outcomes relative to previously available therapies, we note
that there was no data provided comparing COBENFYTM to other
therapies for schizophrenia in adults with regard to efficacy and
safety. While the potential risk of certain side effects was noted for
treatments for schizophrenia, there was no data provided comparing the
relative risk of these side effects for COBENFYTM versus
typical and atypical antipsychotics. In addition, while the applicant
stated that COBENFYTM's different mechanism of action
reduces the risk of the side effects that frequently lead to
antipsychotic discontinuation, there was no comparative data provided
indicating a lower risk of discontinuation for COBENFYTM
compared to typical and atypical antipsychotics.
After consideration of all the information received from the
applicant as well as the public comments we received, we are unable to
determine that COBENFYTM represents a substantial clinical
improvement over existing technologies for the reasons discussed in the
proposed rule and in this final rule, and therefore, we are not
approving new technology add-on payments for COBENFYTM for
FY 2026.
e. FIBRYGA[supreg] (Fibrinogen (Human))
Octapharma USA, Inc. submitted an application for new technology
add-on payments for FIBRYGA[supreg] for FY 2026. According to the
applicant, FIBRYGA[supreg] is a concentrated form of human fibrinogen,
indicated for fibrinogen
[[Page 36703]]
supplementation in bleeding patients with acquired fibrinogen
deficiency and the treatment of acute bleeding episodes in patients
with congenital fibrinogen deficiency, including afibrinogenemia and
hypofibrinogenemia. We note that the applicant is seeking new
technology add-on payments for FIBRYGA[supreg] for FY 2026 specific to
the 2024 supplemental Biologics License Application (sBLA) indicated
for the fibrinogen supplementation in bleeding adult and pediatric
patients with acquired fibrinogen deficiency.
Please refer to the online application posting for FIBRYGA[supreg],
available at https://mearis.cms.gov/public/publications/ntap/NTP241007YU8UR, for additional detail describing the technology and
acquired fibrinogen deficiency.
With respect to the newness criterion, according to the applicant,
FIBRYGA[supreg] was granted supplemental BLA approval from FDA on July
31, 2024, expanding its previous BLA indication to include the
fibrinogen supplementation in bleeding adult and pediatric patients
with acquired fibrinogen deficiency indication and to update the U.S.
prescribing information to include this indication.\45\ According to
the applicant, FIBRYGA[supreg] became commercially available
immediately after FDA approval for this expanded indicated use. The
applicant stated that FIBRYGA[supreg] is administered intravenously
with a recommended dose of 4g for adults per inpatient stay.
---------------------------------------------------------------------------
\45\ Previous FDA approvals for FIBRYGA[supreg]: In 2017, FDA
granted FIBRYGA[supreg] approval under a BLA application for the
treatment of acute bleeding episodes in adults and adolescents >= 12
years of age with congenital fibrinogen deficiency, including
afibrinogenemia and hypofibrinogenemia. On December 23, 2020, FDA
granted FIBRYGA[supreg] approval under a sBLA application for on-
demand treatment of acute bleeding episodes to pediatric patients
<12 years of age with congenital fibrinogen deficiency.
---------------------------------------------------------------------------
The applicant submitted a request for approval for unique ICD-10-
PCS procedure codes for FIBRYGA[supreg] and was granted approval to use
the following procedure codes effective October 1, 2025: XW133YB
(Transfusion of nonautologous (human) fibrinogen concentrate, shelf-
stable into peripheral vein, percutaneous approach, new technology
group 11) and XW143YB (Transfusion of nonautologous (human) fibrinogen
concentrate, shelf-stable into central vein, percutaneous approach, new
technology group 11). The applicant stated that D68.4 (Acquired
coagulation factor deficiency) and O72.3 (Postpartum coagulation
defects) may be currently used to identify the indication for
FIBRYGA[supreg] under the ICD-10-CM coding system. We stated the
relevant ICD-10-CM code to identify the indication of fibrinogen
supplementation in bleeding adult and pediatric patients with acquired
fibrinogen deficiency that is relevant to this new technology add-on
payment application would be D68.4 (Acquired coagulation factor
deficiency). We invited public comments on the use of this ICD-10-CM
diagnosis code to identify this indication for purposes of the new
technology add-on payment, if approved.
Comment: Commenters expressinged general support for the use of the
ICD-10-CM code for which CMS specifically sought input.
Response: We thank the commenters and agree that D68.4 (Acquired
coagulation factor deficiency) accurately identifies the indication for
FIBRYGA[supreg].
As previously discussed, if a technology meets all three of the
substantial similarity criteria under the newness criterion, it would
be considered substantially similar to an existing technology and would
not be considered ``new'' for the purpose of new technology add-on
payments.
With respect to the substantial similarity criteria, the applicant
asserted that FIBRYGA[supreg] is not substantially similar to other
currently available technologies because it is the only FDA-approved
therapy available to treat acquired fibrinogen deficiency in bleeding
patients. According to the applicant, in patients experiencing a major
bleeding event, acquired fibrinogen deficiency often goes untreated
because cryoprecipitate cannot be delivered fast enough. The applicant
further explained that FIBRYGA[supreg]'s storage and preparation
characteristics allow it to be readily available, giving patients
reliable access to therapy that is potentially lifesaving, and that
therefore, the technology meets the newness criterion. The following
table summarizes the applicant's assertions regarding the substantial
similarity criteria. Please see the online application posting for
FIBRYGA[supreg] for the applicant's complete statements in support of
its assertion that FIBRYGA[supreg] is not substantially similar to
other currently available technologies.
[[Page 36704]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.153
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18114), we noted the following concerns with regard to the newness
criterion. While the applicant asserted that FIBRYGA[supreg] is
currently the only FDA-approved therapy for treating acquired
fibrinogen deficiency as a result of major bleeding, we noted that
INTERCEPT[supreg] Fibrinogen Complex, which is the pathogen reduced
cryoprecipitated fibrinogen complex (PRCFC) produced by the
INTERCEPT[supreg] Blood System, is FDA-approved for the treatment and
control of bleeding, including massive hemorrhage, associated with
fibrinogen deficiency. The applicant further asserted that
FIBRYGA[supreg] can be stored at room temperature, allowing it to be
delivered quickly to bleeding patients and offering an FDA-approved
rapid treatment option for acquired hypofibrinogenemia in emergent
bleeds. However, we noted that INTERCEPT[supreg] Fibrinogen Complex has
a 5-day shelf life at room temperature and is immediately available in
a ready-to-transfuse form as a fibrinogen source.46 47
Therefore, we questioned whether FIBRYGA[supreg] and INTERCEPT[supreg]
Fibrinogen Complex involve the treatment of the same or similar type of
disease and the same or similar patient population. In addition, we
noted that the applicant asserted that FIBRYGA[supreg] has the same
mechanism of action as cryoprecipitate and works by providing a source
of fibrinogen that the body can use to form blood clots to stop
bleeding. We also noted that INTERCEPT[supreg] Fibrinogen Complex
provides a source of fibrinogen, and therefore, we questioned whether
FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex have the same
mechanism of action. We also noted that the applicant asserted that use
of FIBRYGA[supreg] is not expected to change the MS-DRG assignment for
cases of acquired hypofibrinogenemia, and we therefore stated that
FIBRYGA[supreg] would map to the same MS-DRGs as INTERCEPT[supreg]
Fibrinogen Complex.
---------------------------------------------------------------------------
\46\ Cerus Corporation. INTERCEPT[supreg] Blood System for
Cryoprecipitation Package Insert For the manufacturing of Pathogen
Reduced Cryoprecipitated Fibrinogen Complex. (Revised 5/2024).
Available at: www.fda.gov/media/143996/download.
\47\ https://intercept-usa.com/products/intercept-fibrinogen-
complex/
#:~:text=INTERCEPT%C2%AE%20Fibrinogen%20Complex%20is,day%20post%2Dtha
w%20shelf%20life.
---------------------------------------------------------------------------
Therefore, as it appeared that FIBRYGA[supreg] and
INTERCEPT[supreg] Fibrinogen Complex may use the same or similar
mechanism of action to achieve a therapeutic outcome, are assigned to
the same MS-DRGs, and treat the same or similar patient population and
disease, we stated our belief that these technologies may be
substantially similar to each other. We noted that, per our policy, if
these technologies are substantially similar to each other, we use the
earliest market availability date as the beginning of the newness
period for the technologies. Therefore, if FIBRYGA[supreg] is
substantially similar to INTERCEPT[supreg] Fibrinogen Complex, we
stated that we believe the newness period for this technology would
begin on May 5, 2021, the date INTERCEPT[supreg] Fibrinogen Complex
became commercially available.\48\ In addition, because the 3-year
anniversary date of the INTERCEPT[supreg] Fibrinogen Complex's entry in
the U.S. market (May 5, 2024) occurred in FY 2024, FIBRYGA[supreg]
would not be considered new and would not be eligible for new
technology add-on payments for FY 2026. We stated we were interested in
information on how these technologies may differ from each other with
respect to the substantial similarity criteria and the newness
criterion.
---------------------------------------------------------------------------
\48\ INTERCEPT[supreg] Blood System received FDA approval on
November 24, 2020, to produce PRCFC; however, as noted in FY 2022
IPPS/LTCH PPS final rule (86 FR 45149), the manufacturers stated
that it was not available for sale until May 5, 2021.
---------------------------------------------------------------------------
We invited public comments on whether FIBRYGA[supreg] meets the
newness criterion, including whether FIBRYGA[supreg] is substantially
similar to INTERCEPT[supreg] Fibrinogen Complex for purposes of new
technology add-on payments.
Comment: The applicant and another commenter submitted public
comments regarding the newness criterion. In response to CMS's question
of whether FIBRYGA[supreg] and INTERCEPT[supreg]
[[Page 36705]]
Fibrinogen Complex have the same mechanism of action, the applicant and
another commenter stated that they have different mechanisms of action.
The applicant agreed with CMS that FIBRYGA[supreg] and
INTERCEPT[supreg] Fibrinogen Complex are both used in patients with
hemorrhage and acquired hypofibrinogenemia, but asserted that the
clinical behavior, regulatory oversight, and administration logistics
differ substantially. The applicant stated that, despite sharing a
general mechanism of restoration of fibrinogen to support clot
formation, the way each product achieves this outcome is materially
distinct. The applicant provided a table comparing regulatory status,
pathogen inactivation, composition, dosing, administration time, and
storage between FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen
Complex. Another commenter further detailed that the INTERCEPT[supreg]
Fibrinogen Complex, a cryoprecipitate, is derived from pooled plasma
through the INTERCEPTTM Blood System, which uses amotosalen
and UVA light for pathogen reduction, but contains variable
concentrations of fibrinogen and other plasma proteins, including
factor VIII, vWF, factor XIII, and fibronectin.
The applicant and another commenter stated that FIBRYGA[supreg]'s
active component is fibrinogen. The other commenter further stated that
FIBRYGA[supreg] is manufactured through a multi-step purification
process including solvent/detergent treatment, ion exchange
chromatography, and nanofiltration to remove viral contaminants,
resulting in purity levels consistently above 96 percent and a defined
fibrinogen concentration of 20 mg/mL, allowing for precise dosing based
on patient weight and clinical needs. The applicant stated that the
precise biochemical composition of FIBRYGA[supreg] ensures that it only
works by interacting with thrombin in the last step of secondary
hemostasis to promote clot formation via fibrin production from
fibrinogen. The applicant and another commenter stated that, in
addition to fibrinogen, cryoprecipitate and INTERCEPT[supreg]
Fibrinogen Complex contain plasma proteins such as von Willebrand
factor (vWF), factor VIII, factor XIII, and fibronectin. The applicant
stated that this means cryoprecipitate and INTERCEPT[supreg] Fibrinogen
Complex promote clotting via primary hemostasis, where vWF interacts
with platelets to form a plug at the site of bleeding. The applicant
further asserted that the presence of factor VIII results in the
activation of factor X in the final common pathway of coagulation,
resulting in the production of thrombin to promote clot formation. The
applicant asserted that FIBRYGA[supreg] has a different mechanism of
action because it does not work via these pathways.
The applicant also stated that FIBRYGA[supreg] is FDA-approved as a
biologic for the treatment of acquired and congenital fibrinogen
deficiency and is manufactured under a BLA with full FDA batch release
and monitoring. The applicant stated that, in contrast,
INTERCEPT[supreg] Fibrinogen Complex is approved as a blood component
for the treatment of acquired fibrinogen deficiency. The applicant
stated that INTERCEPT[supreg] Fibrinogen Complex is pathogen-
inactivated but contains other active coagulation proteins that can
potentially affect coagulation and carry risk when treating a patient
who is only hypofibrinogenemic. The applicant and another commenter
further asserted that since it is regulated as a blood component,
fibrinogen content is variable and not standardized. The commenter
further stated that a study by Stanford et al. (2023) found significant
variability in cryoprecipitate-based products compared to the
consistent profile of fibrinogen concentrate whereas, in contrast,
Schulz et al. (2018) demonstrated that FIBRYGA[supreg] contains
negligible amounts of other clotting factors and plasma proteins,
creating a different pharmacologic profile than cryoprecipitated plasma
products. The commenter also stated that Wikkels[oslash] et al. (2013)
demonstrated significant compositional differences between fibrinogen
concentrates and cryoprecipitate products, affecting their mechanism of
action in clinical settings. The applicant stated that FIBRYGA[supreg]
is shelf-stable and ready to use immediately without the thawing wait
time of INTERCEPT[supreg] Fibrinogen Complex. A commenter also
expressed concerns regarding the accurate classification of products,
reimbursement alignment, and recognition of meaningful clinical and
operational differences within fibrinogen replacement therapies. The
commenter stated that FDA classified and labeled INTERCEPT[supreg]
Fibrinogen Complex as a Pathogen-Reduced Cryoprecipitated Fibrinogen
Complex to distinguish it as a blood component, rather than a
pharmaceutical.
In response to CMS's concern that FIBRYGA\[acirc]\ would map to the
same MS-DRGs as INTERCEPT[supreg] Fibrinogen Complex, the commenter
stated that while cases utilizing either product may initially map to
the same MS-DRGs, substantial evidence indicates FIBRYGA[supreg] can
affect ultimate MS-DRG assignments through improved outcomes. The
commenter further explained that multiple clinical studies demonstrate
that FIBRYGA[supreg] reduces the need for allogeneic blood product
transfusions compared to cryoprecipitate-based products such as
INTERCEPT[supreg] Fibrinogen Complex. The commenter stated that the
FIBRES trial post-hoc analysis revealed a statistically significant
decrease in allogeneic blood product use in specific patient
populations, particularly those with longer surgical procedures
(Bartoszko et al., 2022). The commenter stated that studies
demonstrated that patients receiving fibrinogen concentrate had shorter
ICU stays (5.13 days) compared to those receiving cryoprecipitate (6.15
days) after cardiac surgery (Ayaganov et al., 2024), and significantly
shorter in-hospital and intensive care unit LOS compared to those
receiving cryoprecipitate (Joseph et al., 2022). This commenter stated
that reduced LOS, combined with the established decreased need for
allogeneic blood product transfusion shown in multiple studies,
provides strong evidence that patients receiving FIBRYGA[supreg] may
experience different clinical courses and resource utilization
patterns, which could influence MS-DRG-related metrics compared to
those receiving INTERCEPT[supreg] Fibrinogen Complex.
In response to CMS's question about whether FIBRYGA[supreg] and
INTERCEPT[supreg] Fibrinogen Complex treat the same or similar patient
population and disease, the applicant and a commenter agreed with CMS
that both treat bleeding associated with acquired fibrinogen deficiency
but stated that FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen
Complex treat different patients. Specifically, the applicant and
commenter asserted that FIBRYGA[supreg] is shelf-stable and can be
stored in patient care areas such as trauma bays, operating rooms
(ORs), Labor and Delivery (L&D) suites, and rural emergency settings
for immediate use, and therefore treats a broader patient population
than INTERCEPT[supreg] Fibrinogen Complex, which must be stored in a
temperature-controlled blood bank and requires thawing and has cross-
matching requirements. The applicant stated that FIBRYGA[supreg] avoids
the delivery of vWF and factor VIII proteins present in
INTERCEPT[supreg] Fibrinogen Complex and cryoprecipitate, which may
increase thrombotic risk, especially in cardiovascular, trauma, and
obstetric patients. A commenter further stated that due to the varied
amounts of coagulation factors and plasma proteins
[[Page 36706]]
in the INTERCEPT[supreg] Fibrinogen Complex, accurate dosing is
challenging in patients with coagulopathic bleeding (Stanford et al.,
2023), whereas FIBRYGA[supreg] supports a more precise and timely
therapeutic approach for those lacking blood type-compatible
cryoprecipitate, those requiring urgent fibrinogen replacement,
patients who are allergic and/or respond poorly to plasma products, and
at-risk immunocompromised patients. The applicant reiterated that
FIBRYGA[supreg] has been associated with a reduced need for packed red
blood cells (PRBCs) and fresh frozen plasma (FFP), lowering the
incidence of infections and allergic reactions.
In response to CMS's statement that FIBRYGA[supreg] and
INTERCEPT[supreg] Fibrinogen Complex can be stored at room temperature
and are immediately available, the applicant commented that
FIBRYGA[supreg] may be stored at room temperature with a 48-month shelf
life, while INTERCEPT[supreg] Fibrinogen Complex may be frozen with a
1-year shelf-life but expires 5 days after thaw. A commenter noted that
there are significant differences in practical availability and storage
requirements. The commenter agreed with CMS that INTERCEPT[supreg]
Fibrinogen Complex has a 5-day room temperature shelf life once thawed,
while FIBRYGA[supreg] has a 30-month shelf life at room temperature (2-
25[deg] C) in its unreconstituted form and can be stored directly in
emergency departments, operating rooms, and obstetric units. The
commenter referenced several additional studies of fibrinogen
concentrate as supporting evidence, including Franchini and Lippi
(2012), which noted that fibrinogen concentrate is stored as a
lyophilized powder at room temperature and can be reconstituted quickly
with sterile water and infusion volumes are low, allowing for rapid
administration without delays for thawing or cross-matching; Winearls
et al. (2021), which found that fibrinogen concentrate administration
in trauma patients with major hemorrhage and hypofibrinogenemia was
achieved significantly faster than cryoprecipitate; and S[oslash]rensen
and Bevan (2010), which emphasized the critical difference in storage
and availability between fibrinogen concentrate and cryoprecipitate
products, noting that the latter's requirement for blood bank
processing creates significant barriers to rapid administration in
emergent bleeding scenarios.
Response: We appreciate the additional information from the
applicant and commenter with respect to whether FIBRYGA[supreg] is
substantially similar to existing technologies. However, we disagree
with the applicant and commenter that FIBRYGA[supreg] has a new
mechanism of action compared to cryoprecipitate and INTERCEPT[supreg]
Fibrinogen Complex. We note that the applicant had originally stated in
its application that FIBRYGA[supreg] works by providing a source of
fibrinogen that the body can use to form blood clots to stop bleeding,
which is the same mechanism used by cryoprecipitate, and we agree with
this statement. We also believe that this is also the same mechanism of
action as INTERCEPT[supreg] Fibrinogen Complex, a pathogen-inactivated
cryoprecipitate, since all three products provide a source of
fibrinogen to promote clot formation. We note that the applicant stated
in its comment that FIBRYGA[supreg] only contains fibrinogen and
therefore only works by interacting with thrombin in the last step of
secondary hemostasis to promote clot formation and that
INTERCEPT[supreg] and cryoprecipitate contain additional factors that
may affect primary hemostasis. However, these products also contain
fibrinogen and therefore the interaction with thrombin in secondary
hemostasis remains the same across all three products. In addition,
while the applicant and commenter provided differences between
FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex in FDA
regulatory classifications, pathogen inactivation, composition, dosing,
administration time, and storage, we do not believe that the
differences described in these public comments constitute a difference
in the mechanism of action because, as stated previously, both
treatments work by providing a source of fibrinogen the body can use to
form blood clots to stop bleeding. Additionally, while the applicant
stated that FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen Complex
have better safety profiles (thrombotic risk) and exposure risks (due
to the need for PRBCs and FFP), we note that these differences in
clinical outcomes are not evaluated as part of the mechanism of action,
but rather substantial clinical improvement. Therefore, we believe that
all three products have the same mechanism of action of providing
exogenous fibrinogen to promote clot formation in patients with
acquired fibrinogen deficiency.
In regard to the second criterion, whether a technology is assigned
to the same or a different MS-DRG, we agree with the applicant's
assertion in its application that it is not expected that the use of
FIBRYGA[supreg] will affect the MS-DRG assignment. We note that
outcomes that change as a result of the technology's administration do
not change the MS-DRG mapping. We further note that, as the applicant
stated in its application, cases requiring this type of treatment
include a broad range of clinical situations in which a diagnosis of
acquired coagulation factor deficiency or postpartum afibrinogenemia is
present. Therefore, we continue to agree with the applicant that the
use of FIBRYGA[supreg] would not change the MS-DRG assignment.
In regard to the third criterion, whether a technology treats the
same or similar type of disease and patient populations, we disagree
that the use of FIBRYGA[supreg] and INTERCEPT[supreg] Fibrinogen
Complex involves different patient populations or disease types. Both
technologies treat patients with hemorrhage and acquired
hypofibrinogenemia and address fibrinogen deficiency in bleeding
patients. While the applicant and a commenter commented that
FIBRYGA[supreg] treats a different patient population than
INTERCEPT[supreg] Fibrinogen Complex because it is shelf-stable and
ready to use immediately, as we stated previously and in the FY 2022
IPPS/LTCH PPS final rule (86 FR 45149), the 5-day shelf life post-thaw
of INTERCEPT[supreg] Fibrinogen Complex makes it immediately available
in a ready-to-transfuse form as a fibrinogen source. While the
commenter stated that FIBRYGA[supreg] treats a different patient
population because certain subsets of patients may benefit from
fibrinogen concentrates such as those with plasma allergies or who are
immunocompromised and for whom the risk of pathogen-reduced
cryoprecipitate remains too great, these represent clinical practice
considerations rather than distinct patient populations requiring
different therapeutic approaches. Specifically, we note that the FDA
label for FIBRYGA[supreg] also includes warning regarding risks of
allergic reactions and transmission of infectious agents, noting that
FIBRYGA[supreg] is made from human plasma.\49\ Therefore, it seems that
the factors described by the commenter relate to treatment preferences
and logistical considerations within the same patient population (those
with fibrinogen deficiency) rather than identifying a different patient
population. We also note that both FIBRYGA[supreg] and
INTERCEPT[supreg] Fibrinogen Complex are indicated for the same disease
and the same patient population for which the applicant is seeking new
technology add-on payment status. We further disagree that
FIBRYGA[supreg]'s standardized,
[[Page 36707]]
purified formulation and ease of administration results in the
treatment of a different patient population compared to
INTERCEPT[supreg] Fibrinogen Complex because while these differences
may or may not lead to improved clinical outcomes, they do not
differentiate the disease or patient population being treated by the
two technologies.
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\49\ FIBRYGA[supreg]. USPI (06-19-25). Section 5: Warnings and
Precautions.
---------------------------------------------------------------------------
Because FIBRYGA[supreg] meets all three of the substantial
similarity criteria, we believe FIBRYGA[supreg] is substantially
similar to the INTERCEPT[supreg] Fibrinogen Complex. Therefore, we
consider the beginning of the newness period for FIBRYGA[supreg] to
begin on the date the INTERCEPT[supreg] Fibrinogen Complex became
commercially available for the treatment and control of bleeding,
including massive hemorrhage, associated with fibrinogen deficiency.
Since INTERCEPT[supreg] Fibrinogen Complex has been on the U.S. market
since May 5, 2021, the 3-year anniversary date of its entry onto the
market occurred prior to FY 2026, and therefore, FIBRYGA[supreg] does
not meet the newness criterion and is not eligible for new technology
add-on payments for FY 2026. We note that we received public comments
with regard to the cost and substantial clinical improvement criteria
for this technology, but because we have determined that the technology
does not meet the newness criterion and therefore is not eligible for
approval for new technology add-on payments for FY 2026, we are not
summarizing comments received or making a determination on those
criteria in this final rule.
f. GRAFAPEX\TM\ (treosulfan)
Medexus Pharma, Inc. submitted an application for new technology
add-on payments for GRAFAPEXTM for FY 2026. According to the
applicant, GRAFAPEXTM is a novel conditioning agent for use
in combination with fludarabine as a preparative regimen for allogeneic
hematopoietic stem cell transplantation (alloHSCT) in adult and
pediatric patients one year of age and older with acute myeloid
leukemia (AML) or myelodysplastic syndrome (MDS). We note that Medexus
Pharma, Inc. submitted an application for new technology add-on
payments for GRAFAPEXTM for FY 2023 under the name
treosulfan, as summarized in the FY 2023 IPPS/LTCH PPS proposed rule
(87 FR 28296 through 28302), that it withdrew prior to the issuance of
the FY 2023 IPPS/LTCH PPS final rule (87 FR 48920).
Please refer to the online application posting for
GRAFAPEXTM, available at https://mearis.cms.gov/public/publications/ntap/NTP241007WE8D6, for additional detail describing the
technology and the disease treated by the technology.
With respect to the newness criterion, according to the applicant,
GRAFAPEXTM was granted NDA approval from FDA on January 21,
2025, for use in combination with fludarabine as a preparative regimen
for alloHSCT in adult and pediatric patients one year of age and older
with either AML or MDS. The applicant stated that GRAFAPEXTM
became commercially available on February 20, 2025, because the
applicant required time after FDA marketing authorization to build
inventory and stock the third-party logistic wholesalers prior to
commercial launch. We stated that we were interested in additional
information regarding the cause of any delay in the technology's
commercial availability, such as additional information about building
inventory and stocking logistic wholesalers.
According to the applicant, GRAFAPEXTM is administered
via intravenous infusion in conjunction with fludarabine from either a
1g or 5g vial after reconstitution with a 20mL or 100mL solution. Per
the package insert,\50\ the recommended dosage of GRAFAPEXTM
is 10g/m\2\ body surface area per day, given as a 2-hour intravenous
infusion on 3 consecutive days (day -4, -3, -2) in conjunction with
fludarabine before hematopoietic stem cell infusion on day 0. Per the
applicant, based on the estimated average body size for Medicare
patients being treated with GRAFAPEXTM and the labeling for
a 3-day treatment, the estimated average dose per inpatient stay is
54g.
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\50\ Oncotec Pharma Produktion GmbH. GRAFAPEXTM
[package insert]. (Revised 2/2025). Available at: https://www.accessdata.fda.gov/drugsatfda_docs/label/2025/214759s001lbl.pdf.
---------------------------------------------------------------------------
According to the applicant, effective October 1, 2022, the
following ICD-10-PCS codes may be used to uniquely describe procedures
involving the use of GRAFAPEXTM: XW04388 (Introduction of
treosulfan into central vein, percutaneous approach, new technology
group 8) and XW03388 (Introduction of treosulfan into peripheral vein,
percutaneous approach, new technology group 8). The applicant provided
a list of diagnosis codes that may be used to currently identify the
indication for GRAFAPEXTM under the ICD-10-CM coding system.
Please refer to the online application posting for the complete list of
ICD-10-CM codes provided by the applicant.
As previously discussed, if a technology meets all three of the
substantial similarity criteria under the newness criterion, it would
be considered substantially similar to an existing technology and would
not be considered ``new'' for the purpose of new technology add-on
payments.
With respect to the substantial similarity criteria, the applicant
asserted that GRAFAPEXTM is not substantially similar to
other currently available technologies because GRAFAPEXTM is
a new chemical entity with a unique structure and unique mechanism of
action that permits it to be metabolized without the liver, resulting
in reduced toxicity while still delivering effective treatment,
including for older and/or more comorbid patients who are ineligible
for myeloablative conditioning (MAC) and face higher relapse risk if
reduced intensity conditioning (RIC) is used. The applicant stated that
GRAFAPEXTM addresses the unmet need in this patient
population and is the only FDA-approved alloHSCT conditioning agent for
AML and MDS, and that therefore, the technology meets the newness
criterion. The following table summarizes the applicant's assertions
regarding the substantial similarity criteria. Please see the online
application posting for GRAFAPEXTM for the applicant's
complete statements in support of its assertion that
GRAFAPEXTM is not substantially similar to other currently
available technologies.
BILLING CODE 4120-01-P
[[Page 36708]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.154
BILLING CODE 4120-01-C
With respect to the substantial similarity criteria, we noted in
the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18119) that
GRAFAPEXTM is an alkylating agent like other drugs used in
conditioning, such as busulfan and melphalan. While the applicant
stated that GRAFAPEXTM has a unique mechanism of action and
a unique structure that allows it to bypass liver metabolism and
subsequently reduce treatment related toxicity, we questioned whether
bypassing liver metabolism is the mechanism of action of a conditioning
agent, or if it instead relates to clinical outcomes, such as the side
effect profile of GRAFAPEXTM. In
[[Page 36709]]
regard to whether GRAFAPEXTM treats the same or similar type
of disease and the same or similar patient population compared to
existing technologies, we questioned whether GRAFAPEXTM
treats a new patient population since MAC, nonmyeloablative
conditioning (NMA), and RIC are all options for patients. Additionally,
while MAC may not be preferred for older or more comorbid patients, RIC
and NMA may still be options for these patients.
We invited public comments on whether GRAFAPEXTM is
substantially similar to existing technologies and whether
GRAFAPEXTM meets the newness criterion.
Comment: The applicant submitted a public comment reiterating that
GRAFAPEXTM is not substantially similar to any existing
technology because GRAFAPEXTM does not use the same or
similar mechanism of action when compared to existing technologies to
achieve a therapeutic outcome and does not involve treatment of the
same or similar type of disease and patient population when compared to
any existing technology. The applicant explained that
GRAFAPEXTM is the first and only FDA-approved alloHSCT
conditioning agent for AML and MDS, and that prior to FDA's approval of
GRAFAPEXTM, patients with AML or MDS had no FDA-approved
treatment option for an alloHSCT conditioning agent. In addition, the
applicant cited the FY 2020 IPPS/LTCH PPS final rule (84 FR 42243) and
asserted that CMS has repeatedly recognized that being the first FDA-
approved therapy for a particular indication is relevant to the new
technology add-on payment newness criterion and relates to mechanism of
action. The applicant further stated that GRAFAPEXTM is the
first drug with its mechanism of action approved by FDA to treat
patients with AML or MDS and, therefore, GRAFAPEXTM is not
substantially similar to existing technologies and meets the newness
criterion.
The applicant also reiterated that GRAFAPEXTM is a new
chemical entity and novel prodrug of a bifunctional alkylating agent
with antileukemic properties used for alloHSCT conditioning. The
applicant further specified that GRAFAPEXTM is a non-
enzymatically activated prodrug that targets bone marrow cells for
alkylation, and the pharmacologically inactive treosulfan is converted
spontaneously under physiological conditions into the active
monoepoxide intermediate (2S,3S)-1,2-epoxybutane-3,4-diol-4-
methanesulfonate) and finally to active L-diepoxibutane (2S,3S)-
1,2:3,4-diepoxybutane). The applicant also stated that
GRAFAPEXTM has a unique chemical structure resulting from
two hydroxide bonds that are not present in other alkylating agents and
due to these unique hydroxide bonds, GRAFAPEXTM's mechanism
of alkylation is entirely different than that of busulfan and other
alkylating agents. The applicant stated that the distinct structure and
unique mechanism of alkylation further distinguish
GRAFAPEXTM's mechanism of action from all other alkylating
agents.
The applicant provided additional explanation of
GRAFAPEXTM's mechanism of action and chemical properties of
the medication. The applicant stated that not all alkylating agents are
prodrugs, and neither busulfan or melphalan are prodrugs. The applicant
contrasted the mechanism of action of GRAFAPEXTM with
cyclophosphamide, the only other alkylating agent used for alloHSCT
conditioning that is also a prodrug, and stated that the mechanism of
action for cyclophosphamide requires enzymatic breakdown by the liver
to activate the drug. The applicant then stated that
GRAFAPEXTM's mechanism of action is uniquely characterized
by non-enzymatic bioactivation, which allows GRAFAPEXTM to
bypass the liver when activating and producing its effect in the body,
unlike other alkylating agents. The applicant asserted that
GRAFAPEXTM being a prodrug and an agent that is non-
enzymatically activated are especially important in the bone marrow
transplant (BMT) space because the act of processing a drug in the
liver increases the inflammatory milieu and predisposes patients to
adverse events such as veno-occlusive disease and graft-versus-host
disease. Additionally, the applicant stated these aspects result in
spontaneous conversion under normal physiological conditions, such that
it is activated in the blood, as opposed to requiring enzymatic
activity in order to activate like other alkylating agents. The
applicant added that cyclophosphamide specifically requires the enzyme
P450 in order to activate, which is mostly located in the liver. The
applicant further explained that other alkylating agents used in
alloHSCT conditioning, such as busulfan and melphalan, also require
enzymatic activation just as cyclophosphamide does. The applicant
asserted that GRAFAPEXTM's uniquely non-enzymatic mechanism
of activation is a distinct and critical aspect of its unique mechanism
of action.
The applicant stated that the National Cancer Institute's
definition of mechanism of action describes how a drug or other
substance produces an effect in the body and, in certain cases, may
help provide information about the safety of the drug and how it
affects the body. The applicant stated that GRAFAPEXTM's
unique mechanism of action also has the effect of reducing treatment-
related toxicity compared to other alkylating agents used for alloHSCT
conditioning. The applicant cited four publications to clarify
GRAFAPEX's lower toxicity results from its distinct mechanism of
action. The applicant stated that Romanski et al. (2018) noted the low
organ toxicity of treosulfan-based conditioning compared with busulfan-
based treatment and that the clinical exposure of the lungs and brain
to the epoxide (the active form of GRAFAPEXTM) was lower
than to busulfan while the exposure to bone marrow was similar,
indicating that the distinct non-enzymatic activation of
GRAFAPEXTM is connected to the clinical observations that
treosulfan-based conditioning regimens demonstrate lower hepato-,
pulmo-, and neurotoxicity than busulfan-based conditioning regimens,
but comparable myeloablation strength.\51\ The applicant also stated
Chichra et al. (2024) found that patients receiving a
GRAFAPEXTM-based regimen experienced fewer acute toxicities
than the patients receiving a melphalan-based regimen and that severe
mucositis and diarrhoea were significantly less frequent with
GRAFAPEXTM than melphalan. The applicant cited Lorenzo et
al. (2021) regarding the ability for successful pregnancy or fatherhood
after alloHSCT with GRAFAPEXTM related to lower gonadal
toxicity compared to other alkylating agents such as busulfan.\52\ The
applicant added that Scheulen et al. (2000) observed these types of
differences between GRAFAPEXTM and other alkylating agents,
noting that neither severe nephrotoxicity, bladder toxicity,
cardiotoxicity, nor severe central nervous system toxicity that had
been reported after high-dose treatments with other alkylators such as
ifosfamide
[[Page 36710]]
or cyclophosphamide was evident after high-dose treosulfan.\53\ The
applicant also stated that Scheulen at al. (2000) discussed these
differences in the context of GRAFAPEXTM's mechanism of
action, stating that, in contrast to busulfan, high-dose treosulfan did
not induce severe hepatotoxicity or veno-occlusive disease in the nine
patients treated at or above MTD of 47 g/m2, and that this might be
considered a consequence of the different mode of alkylation and the
reliable i.v. infusion of high-dose treosulfan. The applicant asserted
that these points confirm GRAFAPEXTM's unique mechanism of
action and demonstrate that bypassing liver metabolism and allowing for
delivery of the alkylating agent directly to the blood is a key aspect
of GRAFAPEXTM's mechanism of action by reflecting and
underscoring the distinct way that GRAFAPEXTM produces an
effect in the body.
---------------------------------------------------------------------------
\51\ Michael Romanski et al., Treosulfan Pharmacokinetics and
its Variability in Pediatric and Adult Patients Undergoing
Conditioning Prior to Hematopoietic Stem Cell Transplantation:
Current State of the Art, In-Depth Analysis, and Perspectives, 57
Clin. Pharmacokinet. 1255, 1255 (2018).
\52\ Lorenzo Lazzari et al., Treosulfan-Based Conditioning
Regimen Prior to Allogeneic Stem Cell Transplantation: Long-Term
Results From a Phase 2 Clinical Trial, 11 Frontiers Oncology art.
no. 731478, at 9 (2021); Rohtesh S. Mehta et al., Long-Term Outcomes
and Quality of Life with Treosulfan-Based Conditioning in
Hematological Malignancies, 9 Blood Advances 2691, 2693 (2025)
(``Mehta et al. (2025)'') (``The 16 pregnancies observed in our
cohort are encouraging, contrasting with the 4 reported pregnancies
in a very large registry study following nonmyeloablative HCT.'').
\53\ Max E. Scheulen et al., Clinical Phase I Dose Escalation
and Pharmacokinetic Study of High-Dose Chemotherapy with Treosulfan
and Autologous Peripheral Blood Stem Cell Transplantation in
Patients with Advanced Malignancy, 6 Clinical Cancer Research 4209,
4209 (2000).
---------------------------------------------------------------------------
In response to CMS's note that MAC, NMA, and RIC are all options
for patients with AML or MDS, the applicant stated that this does not
reflect the clinical realities, individual patient circumstances, and
complex balancing that physicians and patients must work through in
treating these conditions. The applicant further stated that while some
previously available regimens could be used in older and/or more
comorbid patients, not all such patients could be treated with a
previously available regimen, and GRAFAPEXTM-based
conditioning provides a new and critically important option for these
patients. The applicant also stated that GRAFAPEXTM is the
first and only FDA-approved allo-HSCT conditioning agent to treat
patients with AML or MDS. The applicant further stated that, within the
population of patients with AML or MDS, GRAFAPEXTM is
specifically designed to be used in conditioning regimens for older
and/or more comorbid patients who are ineligible for previously
existing MAC regimens where RIC may be attempted, but results in
compromised effectiveness. The applicant explained that, because of MAC
regimens' high toxicity and RIC regimens' higher risk of relapse, and
thus, lower effectiveness, many patients would be prevented from
pursuing BMT. In addition, the applicant stated that in the absence of
GRAFAPEXTM availability, there is a subset of patients who
would be viewed as nonviable BMT candidates due to the lack of an
appropriate conditioning regimen. The applicant added that many
patients with MDS or AML who are older and/or have significant
comorbidities are not referred to and do not undergo alloHSCT; but
instead, only a highly select group of patients in this sub-population
are viewed as viable candidates for this treatment. The applicant cited
a review article in which the authors note that age alone was one of
the most frequent barriers to BMT because of dated assumptions and bias
against older patients, a lack of prospective studies in older adults,
perceived higher risks versus benefits, current guidelines, higher
levels of comorbidities, and a bias against HSCT as a modality in older
adults among physicians.\54\ The applicant asserted that
GRAFAPEXTM provides an appropriate, and therefore, a
critical new conditioning regimen for this subpopulation that can help
address the previously observed resistance to providing BMT for these
patients.
---------------------------------------------------------------------------
\54\ Colin Flannelly et al., Barriers to Hematopoietic Cell
Transplantation for Adults in the United States: A Systematic Review
with a Focus on Age, 26 Biol. Blood Marrow Transplant. 2335, 2341
(2020).
---------------------------------------------------------------------------
The applicant cited multiple studies that discuss the unmet need
among older patients and/or those with significant comorbidities for
alloHSCT. The applicant stated that GRAFAPEXTM-based
regimens are particularly well-suited and provide significant clinical
benefits for this patient population. The applicant reiterated that
Scott et al. (2017), submitted as part of its application, discusses
how alloHSCT conditioning regimens available prior to FDA approval of
GRAFAPEXTM, are not suitable for all patients, especially
older and/or more comorbid patients. The applicant also stated that
published literature recognizes the limits of conventional MAC and RIC
regimens. In addition, the applicant stated that multiple peer-reviewed
studies submitted in its application confirm that GRAFAPEXTM
is a critical novel regimen that addresses the unmet need for older
and/or comorbid AML and MDS patients. The applicant also stated
GRAFAPEXTM-based conditioning uniquely provides a regimen
with myeloablative-intensity combined with significantly lower
toxicity, without an increase in mortality. The applicant asserted that
GRAFAPEXTM-based conditioning, thereby fuses RIC regimens'
lower organ toxicities with MAC regimens' potent antileukemic
properties, expanding the availability of myeloablative conditioning to
a new patient population. The applicant reiterated results from Beelen
et al. (2022), which per the applicant, demonstrates the superiority of
GRAFAPEXTM-based conditioning over busulfan-based
conditioning in overall survival (OS), event-free survival (EFS), non-
relapse mortality (NRM), and adverse events, such as GVHD in older and/
or more comorbid patients who were ineligible for MAC. The applicant
stated that the authors of the pivotal phase 3 clinical trial, Beelen
et al. (2022), concluded that the treosulfan regimen appears
particularly suitable for older AML and MDS patients.
In response to CMS's request for additional information regarding
the cause of delay in commercial availability, the applicant reiterated
that GRAFAPEXTM received FDA approval on January 21, 2025,
and the first commercial sale of GRAFAPEXTM occurred on
February 20, 2025. The applicant further explained that, in its new
technology add-on payment application, it had estimated the amount of
time (2 to 3 months) after FDA-approval required to bring
GRAFAPEXTM to market, which included building inventory and
stocking the third-party logistic wholesalers. The applicant stated
that during the 1-month period prior to commercial availability, it
undertook critical activities to ensure complete readiness across both
product and services to support all stakeholders, which included:
transfer of NDA ownership from Medac in Germany to the applicant in the
U.S.; submission of required FDA filings; shipping the final drug
product from its manufacturing site in Germany to the U.S., which
required the product to be cleared by U.S. Customs and Border
Protection; labeling and preparation of the product into approved
packaging; conduction of batch record reviews; releasing the final
product to the applicant's third-party logistics provider for
distribution to the market; and ensuring that all wraparound services,
such as pharmacovigilance program, medical affairs training and
certification, and its patients services hub, were fully operational.
The applicant asserted that the newness period for
GRAFAPEXTM should begin on the date of commercial
availability, February 20, 2025.
Response: We thank the applicant for its comment. Based on our
review of comments received and information submitted by the applicant
as part of its FY 2026 new technology add-on payment application for
GRAFAPEXTM, we agree with the applicant that
GRAFAPEXTM has a unique mechanism
[[Page 36711]]
of action because it is the first and only FDA-approved allo-HSCT
conditioning agent for patients with AML and MDS. Therefore, we agree
with the applicant that GRAFAPEXTM is not substantially
similar to existing treatment options and meets the newness criterion.
With regards to the commercial availability of
GRAFAPEXTM, as we have discussed in prior rulemaking (86 FR
45132; 77 FR 53348), generally, our policy is to begin the newness
period on the date of FDA approval or clearance or, if later, the date
of availability of the product on the U.S. market. Although the
applicant stated in its public comment that GRAFAPEXTM
became commercially available on February 20, 2025, the date of first
sale, we note that we do not consider the date of first sale of a
product, or first shipment of a product, as an indicator of the entry
of a product onto the U.S. market; neither of these dates indicate when
a technology in fact became available for sale (88 FR 58802). It is
unclear from the information provided when the technology first became
available for sale and, absent additional information from the
applicant, we cannot determine a newness date based on a documented
delay in the technology's availability on the U.S. market. Therefore,
we consider the beginning of the newness period for
GRAFAPEXTM to commence on January 21, 2025, when
GRAFAPEXTM received FDA marketing authorization.
With respect to the cost criterion, the applicant provided two
analyses to demonstrate that GRAFAPEXTM meets the cost
criterion. Each analysis followed the order of operations summarized in
the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.155
Because the final inflated average case-weighted standardized
charge per case exceeded the average case-weighted threshold amount in
both scenarios, the applicant asserted that GRAFAPEXTM meets
the cost criterion.
We invited public comments on whether GRAFAPEXTM meets
the cost criterion.
Comment: The applicant reiterated that the two cost criterion
analyses submitted with its application demonstrate that
GRAFAPEXTM meets the cost criterion.
Response: We thank the applicant for its comment. We agree that the
final inflated average case-weighted standardized charge per case
exceeded the average case-weighted threshold amount under both of the
scenarios. Therefore, GRAFAPEXTM meets the cost criterion.
With regard to the substantial clinical improvement criterion, the
applicant asserted that GRAFAPEXTM offers a treatment option
for a patient population unresponsive to, or ineligible for, currently
available treatments because GRAFAPEXTM offers a critical
new treatment option and addresses an unmet need for alloHSCT
conditioning for older and/or more comorbid patients who have AML or
MDS and are ineligible for currently available MAC regimens and face
higher relapse risk if a RIC regimen is used. Additionally, per the
applicant, GRAFAPEXTM significantly improves clinical
outcomes relative to existing technologies because
GRAFAPEXTM-based conditioning has shown superiority in
survival (in terms of overall and event-free survival) and non-relapse
mortality, as well as significant reductions in adverse events, such as
graft-versus-host disease (GVHD), veno-occulsive disease (VOD), and
infections, compared to previously available regimens. The applicant
provided 10 studies to support these claims, as well as 1 background
article
[[Page 36712]]
that, per the applicant, indicates that many patients with AML or MDS,
especially those who are older and/or have significant comorbidities,
are ineligible for MAC regimens, and face higher risk of relapse with
RIC regimens.\55\ The following table summarizes the applicant's
assertions regarding the substantial clinical improvement criterion.
Please see the online posting for GRAFAPEXTM for the
applicant's complete statements regarding the substantial clinical
improvement criterion and the supporting evidence provided.
---------------------------------------------------------------------------
\55\ Background articles are not included in the following table
but can be accessed via the online posting for the technology.
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BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR04AU25.156
[[Page 36713]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.157
BILLING CODE 4120-01-C
We also received a public comment in response to the New Technology
Town Hall meeting notice published in the Federal Register regarding
the substantial clinical improvement criterion for
GRAFAPEXTM, which we summarized in the FY 2026 IPPS/LTCH PPS
proposed rule (90 FR 18121 through 18122).
After review of the information provided by the applicant and the
public comment received in response to the New Technology Town Hall
meeting, we stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18122 through 18123) that we had the following concerns regarding
whether GRAFAPEXTM meets the substantial clinical
improvement criterion. The applicant stated GRAFAPEXTM
offers a conditioning treatment regimen option for older and/or more
comorbid patients with AML or MDS who are ineligible for currently
available MAC regimens due to their high toxicity and higher relapse
risk with RIC regimens. The applicant provided 11 studies which it
stated show that GRAFAPEXTM-based regimens reduce the
toxicity, non-relapse related mortality, and treatment related
mortality associated with MAC without resulting in the increased
incidence of relapse associated with RIC. However, we noted that in two
studies provided by the applicant comparing a GRAFAPEXTM-
based regimen to RIC, there was a higher rate of relapse with the
GRAFAPEXTM-based regimen. Specifically, in Fraccaroli et al.
(2024), patients treated with a GRAFAPEXTM regimen
demonstrated a higher cumulative incidence of relapse compared to the
melphalan treatment group (24 percent vs. 0 percent, p=0.006).
Similarly, we noted that Bug et al. (2023) found that a fludarabine
plus GRAFAPEXTM conditioning regimen had a higher cumulative
incidence of relapse (34.7 percent) compared to a fludarabine plus
fractionated total body irradiation conditioning regimen (18.3 percent,
p=0.018).
Additionally, we stated that as the applicant noted in its Town
Hall comment, GRAFAPEXTM-based regimens are not the only
intermediate-intensity or RTC regimens. Specifically, the applicant
mentioned three additional RTC regimens in addition to
GRAFAPEXTM-based regimens: fludarabine <160mg/m2 plus
busulfan 12.8mg/kg, fludarabine 35mg/m2 x 4 plus busulfan 3.2mg/kg x 2
plus total body irradiation 2Gy, and fludarabine plus melphalan 140mg/
m2. We also noted that RIC and NMA are additional options for these
patients. Therefore, we questioned if GRAFAPEXTM-based
regimens are the only treatment options for patients ineligible for
MAC.
With respect to the assertion that GRAFAPEXTM
significantly improves clinical outcomes relative to services or
technologies previously available, the applicant stated that
GRAFAPEXTM-based conditioning has shown superior outcomes
for event-free survival, overall survival, and non-relapse mortality,
as well as significant reductions in several adverse events. To support
its statements, the applicant provided 1 randomized trial for
GRAFAPEXTM and 9 retrospective studies, which were also
cited in support of the prior claim. However, we questioned the
generalizability of these studies to the Medicare population. First,
none of the studies assessing GRAFAPEXTM evaluated the
treatment in a U.S. population; rather, all of the studies were
conducted outside the U.S, and we questioned whether differences in
treatment guidelines and regimens between countries could affect
generalizability to the Medicare population. Second, we noted that, of
the submitted studies directly assessing GRAFAPEXTM, 7 had a
majority of participants in the GRAFAPEXTM treatment arm
under 65 years and 1 study (Wedge et al., 2020) did not include any
participants over 66 years of age in the GRAFAPEXTM
treatment group, and we therefore questioned whether outcomes seen in
these studies are generalizable to the Medicare population. Third,
relative to the number of Medicare patients with AML or MDS who may be
eligible for alloHSCT, two studies (Chichra et al., 2023; Fraccaroli et
al., 2024) included small sample sizes among the GRAFAPEXTM
treatment arms. In particular, Chichra et al. (2023) only contained 11
patients in the matched sibling donor/matched unrelated (MRD/MUD) donor
fludarabine plus GRAFAPEXTM group and 16 patients in the
haploidentical (Haplo) donor fludarabine plus GRAFAPEXTM
group. Fraccaroli et al. (2024) included only 21 patients in the
melphalan group and 21 patients in the GRAFAPEXTM group.
Given these small sample sizes, we questioned whether these studies
would be generalizable to the Medicare population due to the potential
influence of confounding variables. We also noted that in Beelen et al.
(2024), about half of the data was missing for the comorbidity index
and over half of the data was missing regarding the disease risk, which
are characteristics that could impact efficacy, making it difficult to
fully compare the treatment groups.
We further noted that while some studies showed improved overall
survival, a lower NRM, and reduced
[[Page 36714]]
adverse events with the GRAFAPEXTM-based regimen, there were
some conflicting results across studies. First, while the applicant
stated GRAFAPEXTM-based regimens have shown improved overall
survival (OS), we noted that in Bug et al. 2023, Chichra et al. 2023,
and Fraccaroli et al. 2024, OS was similar between the
GRAFAPEXTM-based regimen and RIC. Specifically, 2-year OS
was 67.8 percent in the GRAFAPEXTM-based regimen in Bug et
al. 2023 and 66.9 percent in the fludarabine/TBI group (HR 1.08 (95
percent CI, 0.67-1.75)). In Chichra et al. 2023, 5-year OS was 53
percent in those treated with a GRAFAPEXTM-based regimen
(Flu-Treo) and 62 percent in those treated with fludarabine/melphalan
(Flu-Mel) in the MRD/MUD transplant group (p=0.694) and 28 percent in
Flu-Treo and 41 percent in Flu-Mel in the Haplo transplant group
(p=0.770). In Fraccaroli et al. (2024), the 2-year survival was 66
percent in both the fludarabine-cyclophosphamide-melphalan and
fludarabine-cyclophosphamide-GRAFAPEXTM groups (p=0.8).
Second, the applicant asserted superior outcomes for
GRAFAPEXTM in non-relapse mortality (NRM). However, we
stated that multiple studies showed that GRAFAPEXTM had a
NRM rate that was higher than or similar to other technologies. Per
Chichra et al. (2023), the 2-year NRM was similar between Flu-Treo and
Flu-Mel in the MRD/MUD and Haplo groups, although the specific numbers
were not provided in the study. In Gavriilaki et al. (2023), NRM was
similar between fludarabine/GRAFAPEXTM (FT14) (20.8 percent)
and fludarabine/busulfan (FB4) (22.6 percent) (p=0.46). Shimoni et al.
(2021) found that 5-year NRM was statistically highest among patients
who received MAC (34 percent) followed by those who received
fludarabine and GRAFAPEXTM (30 percent) and lowest among
those who received RIC (27 percent) (p=0.008). In Wedge et al. (2020),
3-year NRM was not statistically different (p=0.425) with a NRM of 13.6
percent for fludarabine/GRAFAPEXTM, 33.3 percent for
standard myeloablative (SMA) conditioning, and 17.9 percent for
nonmyeloablative (NMA) conditioning.
Third, the applicant claimed a significant reduction in several
clinically significant adverse events and complications that often lead
to treatment-related mortality (TRM), such as graft-versus-host disease
(GVHD), veno-occlusive disease (VOD), life-threatening infections, and
organ toxicities. However, we stated that some studies showed similar
or higher rates of adverse effects with the GRAFAPEXTM-based
regimen. Specifically, Fraccaroli et al. (2024) reported a similar
frequency of GVHD and renal failure, with no cases of VOD in either
group and no statistical comparison of infection rates presented. Per
Beelen et al. (2022), the frequencies of treatment-emergent adverse
events and serious adverse events were equally distributed between the
study arms. The incidence of acute GVHD and chronic GVHD was similar
between treatment groups or higher with the GRAFAPEXTM-based
regimen in Chichra et al. (2023), Bug et al. (2023), Gavriilaki et al.
(2023), and Pasic et al. (2024). In Shimoni et al. (2021), there was no
statistical difference in chronic GVHD among the treatment groups and
in Wedge et al. (2020), acute GVHD was similar between FluTreo and NMA.
We invited public comments on whether GRAFAPEXTM meets
the substantial clinical improvement criterion.
Comment: A commenter stated its support for the approval of
GRAFAPEXTM's new technology add-on payment application. The
commenter stated their experience as a physician using
GRAFAPEXTM with patients and added that
GRAFAPEXTM is the first and only FDA-approved alloHSCT
preparative regimen for AML and MDS. The commenter also stated that
GRAFAPEXTM uniquely combines myeloablative-level intensity
with lower toxicity, making GRAFAPEXTM-based conditioning
distinctly suitable for the AML or MDS patients who are older and/or
have significant co-morbidities and would not be able to tolerate a
higher-toxicity MAC regimen, but would have a significant risk of
compromised outcomes with a lower-intensity RIC regimen. The commenter
described their utilization of GRAFAPEXTM in their clinical
practice and research, citing several studies 56 57 where
the commenter was a lead or co-author. In addition, the commenter cited
the phase II clinical trial of GRAFAPEXTM conducted by Deeg
et al. (2018) \58\ and stated it found that GRAFAPEXTM
results in minimal toxicity and very low NRM in a cohort of patients up
to 70 years old, two-thirds with co-morbidity scores of 3 or higher,
patients with a history of prior allo-HSCT, and patients previously
treated with cytotoxic therapy for malignancies preceding AML or MDS/
CMML. The commenter further stated that GRAFAPEXTM is
distinct among alloHSCT conditioning agents due to its unique
combination of myeloablative-level intensity with notably lower
toxicity, providing an important new tool for patients who are older
and/or have significant comorbidities.
---------------------------------------------------------------------------
\56\ Filippo Milano et al., Treosulfan-based conditioning is
feasible and effective for cord blood recipients: a phase 2
multicenter study, 4 Blood Advances 3302, 3308 (2020).
\57\ Mehta RS, Lee SJ, Gooley TA, Thur L, Dahlberg A, Delaney C,
Gyurkocza B, Vo PT, Deeg HJ, Milano F. Long-Term Outcomes and
Quality of Life with Treosulfan-Based Conditioning in Hematological.
\58\ H. Joachim Deeg et al., Transplant Conditioning with
Treosulfan/Fludarabine with or without Total Body Irradiation: A
Randomized Phase II Trial in Patients with Myelodysplastic Syndrome
and Acute Myeloid Leukemia, 24 Biology Blood & Marrow
Transplantation 956, 962 (2018).
---------------------------------------------------------------------------
Response: We thank the commenter for its input and have taken it
into consideration in determining whether GRAFAPEXTM meets
the substantial clinical improvement criterion as discussed later in
this section.
Comment: The applicant submitted a public comment regarding the
substantial clinical improvement criterion and provided responses to
CMS's concerns from the proposed rule. The applicant stated that
GRAFAPEXTM represents a substantial clinical improvement
over previously existing therapy options because GRAFAPEXTM
offers an alloHSCT conditioning treatment option for older and/or more
comorbid patients who have AML or MDS, who are ineligible for
previously available MAC regimens. In addition, the applicant asserted
that GRAFAPEXTM-based conditioning has shown superior
outcomes for EFS, OS, NRM, and significant reductions in several
adverse events. Further, the applicant stated that clinical tradeoffs
in RIC regimens include compromised effectiveness, increased risk of
relapse, and additional negative side effects. The applicant asserted
that GRAFAPEXTM offers a conditioning regimen for older and/
or more comorbid patients with MAC-level intensity without the
increased relapse risk of RIC for those that cannot tolerate MAC-level
conditioning from a toxicity perspective. The applicant also asserted
that its application, Town Hall presentation, and Town Hall comment
discuss in detail evidence demonstrating GRAFAPEX's unique clinical
benefits and significant clinical improvement for older and/or more
comorbid populations with AML or MDS compared to a wide range of many
previously available regimens, including conventional MAC regimens, RIC
or NMA regimens, and other regimens that potentially could be described
as ``reduced toxicity conditioning'' or ``RTC'' regimens.
In response to CMS's note that RIC and NMA are options for older
and/or more comorbid patients, the applicant
[[Page 36715]]
stated that is not necessarily true for all patients, and the clinical
consequences of RIC regimens should be taken into account, namely that
such regimens involve reduced treatment intensity leading to higher
rates of relapse and other adverse effects. The applicant further
stated that GRAFAPEXTM provides a critical treatment option
for the set of older and/or more comorbid AML or MDS patients who
otherwise would not be candidates for BMT due to the lack of a suitable
conditioning regimen. The applicant stated that Scott et al. (2017)
concluded that MAC is superior to RIC when patients can tolerate the
regimen due to RIC's substantially higher relapse rate with only a
modest decrease in transplant-related mortality (TRM). The applicant
stated that prior to the availability of GRAFAPEXTM,
patients would have either no option at all or, in an effort to do
something to treat their life-threatening conditions, would be faced
with no choice other than RIC and its significantly increased risk of
relapse and additional negative side effects. The applicant added that
Beelen et al (2022) concluded that the GRAFAPEXTM-based
conditioning regimen led to superior outcomes after alloHSCT compared
with the reference RIC busulfan regimen, thereby appearing particularly
suitable for older AML and MDS transplantation candidates. In addition,
the applicant stated that other studies, such as Wedge et al. (2020)
and Pasic et al. (2024), that have similarly focused on patients
ineligible for conventional MAC regimens, have also confirmed the
Beelen et al. (2022) results. Specifically, the applicant highlighted
that Wedge et al. (2020), which studied mostly MDS patients, found
similar overall survival among GRAFAPEXTM, standard
myeloablative conditioning (SMA), and NMA regimens with
GRAFAPEXTM having lower rates of chronic GVHD and similar
rates of acute GVHD compared to both SMA and NMA. The applicant also
stated that Pasic et al. (2024) found significantly higher overall and
event-free survival with GRAFAPEXTM compared to RIC and
Nagler et al. (2017) found a relative lack of adverse effects in
patients treated with a GRAFAPEXTM-based conditioning
regimen.
In response to CMS's concern regarding the higher rate of relapse
with GRAFAPEXTM-based conditioning regimens compared to RIC
in Fraccaroli et al. (2024) and Bug et al. (2023), the applicant
asserted that the isolated results of overall relapse in these two
studies do not reflect the totality of evidence submitted within its
application or the overall weight of the data. The applicant stated
that this type of isolated analysis fails to acknowledge the positive
outcomes reflected in these two studies. The applicant further stated
that, in terms of overall relapse, the Fraccaroli et al. (2024) and Bug
et al. (2023) results are outliers compared to the multiple additional
peer-reviewed, published studies that it provided in its new technology
add-on payment application. The applicant asserted that the nature of
clinical research is such that results are not always uniform across
all studies for every single outcome measure and that they submitted
multiple studies for this reason, and state that CMS has noted that it
evaluates the new technology add-on payment ``substantial clinical
improvement'' criterion based on a ``totality of circumstances''
analysis, and the body of literature presented in their application and
their comments reflects a totality of circumstances based on more than
ten peer-reviewed published studies showing strong evidence and trends
of superiority in key clinical outcomes including EFS, OS, and NRM for
GRAFAPEXTM-based regimens compared to many other existing
conditioning regimens. In addition, the applicant reiterated the Bug et
al. (2023) and Fraccaroli et al. (2024) studies' results regarding NRM
and stated that NRM is an especially significant outcome measure for
older patients and/or those with significant comorbidities, an
important subpopulation for Medicare, who may be considered for BMT
because they face particularly significant risk of treatment-related
mortality.
In response to CMS's questions regarding the submitted studies'
generalizability to the Medicare population, the applicant stated the
cited literature includes significant percentages and numbers of
Medicare-eligible patients which demonstrates the extensive study of
treatment with GRAFAPEX-based conditioning in patients who are older
and/or have significant comorbidities or disabilities, as is typically
reflective of the majority of Medicare beneficiaries. The applicant
highlighted several examples of additional peer-reviewed literature
which demonstrate that GRAFAPEXTM has been used and studied
specifically in U.S. populations, in addition to the Canadian and
European cohorts, and stated that these articles indicate positive
results with GRAFAPEX-based conditioning that are consistent with the
studies previously submitted.\59\ \60\ \61\ \62\ The applicant stated
that the multiple studies it provided with Canadian and European
patient populations are also generalizable to the Medicare population,
as clinical guidelines in these countries do not vary in meaningful
ways from U.S. clinical guidelines in this area, and there is no
evidence indicating that patients' experiences of AML or MDS or
responses to conditioning regimens vary depending on the country where
they are located. Additionally, the applicant stated that clinical
guidelines and treatment practices for older patients with AML or MDS
are similar throughout the developed world, including Europe, Canada,
and the United States, with data used across the globe to develop
treatment recommendations. The applicant also stated that both European
and U.S. BMT clinical guidelines include and describe
GRAFAPEXTM as a myeloablative conditioning treatment option.
---------------------------------------------------------------------------
\59\ Eneida R. Nemecek et al., Conditioning with treosulfan and
fludarabine followed by allogeneic hematopoietic cell
transplantation for high-risk hematologic malignancies, 17 Biology
Blood & Marrow Transplantation 341 (2011).
\60\ Deeg, 2018, op. cit.
\61\ Filipino, 2020, op. cit.
\62\ Mehta, 2025, op. cit.
---------------------------------------------------------------------------
In response to CMS's question whether the age of patients in the
studies submitted are generalizable to the Medicare population, the
applicant stated that its application and this submitted comment
included multiple peer-reviewed published studies that enrolled
significant percentages and numbers of both older patients and patients
with disabilities and significant comorbidities. The applicant asserted
that the patients in its submitted studies are highly generalizable to
the Medicare population, which includes not only individuals age 65 or
older but also patients with significant comorbidities and
disabilities. The applicant summarized the patient demographics of
seven studies in its application that included those over 65 years of
age and more comorbid participants.\62\ \63\ \64\ \65\ \66\ \67\ \68\
\69\ The applicant reiterated that there is a subpopulation of AML or
MDS patients who are older and/or have significant comorbidities and
who, prior to the availability of GRAFAPEXTM, were not
considered candidates for BMT because their treatment teams concluded
there was no appropriate conditioning regimen available. In addition,
the
[[Page 36716]]
applicant stated that AML and MDS are diseases that primarily affect
older patient populations, with a median age at diagnosis 69 and 70
years, respectively. The applicant concluded by noting that
GRAFAPEXTM's pivotal clinical trial observed no significant
differences in safety or effectiveness between subjects age 65 or older
and younger subjects.
---------------------------------------------------------------------------
\63\ Beelen, 2022, op. cit.
\64\ Shimoni, 2021, op cit.
\65\ Bug, 2023, op. cit.
\66\ Pasic, 2024, op cit.
\67\ Fraccaroli, 2024, op. cit.
\68\ Wedge, 2020, op. cit.
\69\ Gavriilaki, 2023, op. cit.
---------------------------------------------------------------------------
In response to CMS's question about small sample sizes in two
submitted studies and generalizability to the Medicare population, the
applicant stated that it is important to place these 2 studies in the
broader context of all the studies it submitted in its application and
comments, including more than 10 published peer-reviewed studies in
which GRAFAPEXTM was used to treat patients, representing
hundreds of patients with consistent trends in key results. The
applicant added that totaling the participants of all its submitted
studies accounts for more than 3,000 patients, of which over 1,200
received treatment with GRAFAPEXTM. The applicant emphasized
that these studies also included significant numbers of patients 65
years or older and/or patients with significant comorbidities and
disabilities, who are highly generalizable to the Medicare population.
In addition, the applicant stated that several of the studies provided
had significantly larger patient populations, and while the Chichra et
al. (2023) and Fraccaroli et al. (2024) had small sample sizes compared
to other submitted studies, they provide helpful confirmatory results
comparing GRAFAPEXTM-based conditioning regimens to other
available regimens. The applicant also stated that these two studies
focused on the specific patient population and sub-population of
interest, contributing to the totality of circumstances in
demonstrating GRAFAPEXTM's significant clinical value. In
addition, the applicant stated that AML and MDS are life-threatening
and relatively rare conditions, and that FDA granted
GRAFAPEXTM orphan drug designation in April 2015. The
applicant asserted that notwithstanding the realities and challenges of
rare diseases, it believes that the totality of data and evidence
submitted provides a robust set of peer-reviewed, published literature
demonstrating GRAFAPEXTM's significant clinical benefits for
AML or MDS patients.
In response to CMS's concern about the Beelen et al. (2024) study's
missing data, the applicant stated it is unclear what significance this
missing data has to the GRAFAPEXTM results, since it was
data for the comparator arms. The applicant asserted that it seems one
would have to assume that all missing data was positive for the
comparators in order to undermine the results with respect to
GRAFAPEXTM. The applicant further stated that Beelen et al.
(2022) and other submitted studies in its application do not have
missing data and demonstrate that GRAFAPEXTM-based
conditioning demonstrates superior EFS, OS, and NRM compared to
previously available conditioning regimens.
The applicant asserted that the overwhelming majority of results
and prominent trends of GRAFAPEXTM reflected in the peer-
reviewed published literature demonstrate superior outcomes in EFS, OS,
and NRM compared to a wide range of other available conditioning
regimens, despite isolated outcome measures from certain individual
studies. In response to CMS's concern regarding some conflicting
outcome results, the applicant stated that the nature of different
studies and comparator regimens is that specific data points and
outcome measures are not always fully and uniformly consistent with
respect to each individual metric across all studies. The applicant
further stated that it provided a large body of evidence to present a
fulsome picture of GRAFAPEXTM's substantial clinical
benefits compared to several other existing conditioning regimens,
including conventional MAC, RIC/NMA, and other conditioning regimens
that could be described as ``reduced toxicity conditioning'' or ``RTC''
regimens. The applicant stated that the proposed rule did not identify
concerns regarding the provided studies that show
GRAFAPEXTM's superior EFS.
The applicant reiterated its belief that GRAFAPEXTM-
based conditioning has shown superior outcomes for EFS, OS, and NRM as
well as significant reductions in several adverse events compared to
other agents and regimens used in allo-HSCT conditioning. The applicant
stated that the randomized, controlled Beelen et al. (2022) clinical
trial demonstrated GRAFAPEXTM's superiority in EFS, OS, and
NRM compared to busulfan-based conditioning. The applicant further
stated that Beelen et al. (2024) replicated these results in
GRAFAPEXTM-treated patients compared to registries of
melphalan- and busulfan-treated patients.
The applicant asserted the overall body of evidence demonstrates
that physicians and researchers consistently turn to
GRAFAPEXTM for older and/or more comorbid patients, and that
GRAFAPEXTM results for NRM and OS are favorable in this
patient population. The applicant reiterated the Shimoni et al. (2021)
study's results and highlighted that the median age for patients who
received a MAC regimen was 8 years younger than those who received
GRAFAPEXTM-based conditioning. The applicant stated that
because clinicians often administer GRAFAPEXTM to older and/
or more comorbid patients, when a retrospective cohort demonstrates
similar results for GRAFAPEXTM and other treatments, it may
at least be in part due to the GRAFAPEXTM cohort's older age
and increase in comorbidities. In response to CMS's concern regarding
similar OS between GRAFAPEXTM-based regimens and RIC in
certain studies, the applicant asserted that the selective focus on a
single metric in the Bug et al. (2023), Chichra et al. (2024), and
Fraccaroli et al. (2024) studies does not account for the multiple
other submitted studies in its application in which
GRAFAPEXTM demonstrated significantly improved, and even
superior, OS compared to other conditioning regimens. The applicant
further stated that this focus fails to account for
GRAFAPEXTM's superior NRM results in the Fraccaroli et al.
(2024) study, significantly improved NRM in the Bug et al. (2023)
study, and fewer acute toxicities and infections in the Chichra et al.
(2024) study. In addition, the applicant stated that the Chichra et al.
(2024) study also highlighted GRAFAPEXTM's reduced hospital
LOS compared to the melphalan-based regimen.
In response to CMS's concern regarding GRAFAPEXTM's
similar NRM rate compared to other technologies in some studies, the
applicant again stated that this isolated analysis fails to account for
these studies' positive results as well as other studies in which
GRAFAPEXTM showed significantly improved or superior NRM
compared to other conditioning regimens. The applicant reiterated
results from Chichra et al. (2024), Gavriilaki et al. (2023), Shimoni
et al. (2021), and Wedge et al. (2020).
In response to CMS's concern that some studies showed some
differences in the rate of adverse effects between the
GRAFAPEXTM-based regimen and comparators, the applicant
asserted that this analysis does not assess or account for the overall
body of data and totality of circumstances reflected in its provided
studies and fails to account for the positive results for GRAFAPEX-
based conditioning in the noted studies. The applicant reiterated the
results of studies submitted with its new technology add-on payment
application. The applicant also stated that other peer-reviewed
publications have
[[Page 36717]]
similarly recognized GRAFAPEXTM's low organ toxicity, which
multiple publications have attributed to the technology's unique
mechanism of action. Specifically, the applicant stated that
GRAFAPEXTM's distinct non-enzymatic activation targets the
drug to the bone marrow and blood, sparing organs like the brain,
lungs, and liver and helps account for the clinically observed lower
hepato-, pulmo-, and neurotoxicity compared to busulfan-based
conditioning regimens.
The applicant concluded by emphasizing that a one-study-at-a-time,
one-metric-at-a-time type of analysis does not account for the overall
thrust of the complete body of data and the significant, consistent
trends it demonstrates. The applicant urged CMS to evaluate the body of
peer-reviewed published literature with an eye toward the overall
picture it presents, which it stated overwhelmingly demonstrates that
GRAFAPEX-based conditioning has shown superior outcomes for EFS, OS,
and NRM and significant reductions in several adverse events compared
to other existing conditioning regimens.
Response: We thank the applicant and other commenter for their
comments regarding the substantial clinical improvement criterion.
Based on the additional information received, we agree with the
applicant and commenter that GRAFAPEXTM represents a
substantial clinical improvement over existing technologies because
GRAFAPEXTM improves overall survival with similar or lower
frequencies of clinically significant adverse events compared to
existing treatments for allo-HSCT conditioning in patients with AML or
MDS who are ineligible for MAC.
After consideration of the public comments we received and the
information included in the applicant's new technology add-on payment
application, we have determined that GRAFAPEXTM meets the
criteria for approval for new technology add-on payment. Therefore, we
are approving new technology add-on payments for this technology for FY
2026. Cases involving the use of GRAFAPEXTM that are
eligible for new technology add-on payments will be identified by ICD-
10-PCS codes XW03388 (Introduction of treosulfan into peripheral vein,
percutaneous approach, new technology group 8) or XW04388 (Introduction
of treosulfan into central vein, percutaneous approach, new technology
group 8).
In its application, the applicant stated that the anticipated cost
of GRAFAPEXTM is $610 for a 1 g vial and $3,050 for a 5 g
vial. Per the applicant, based on the recommended dose (10g/m\2\) and
estimated average body size for Medicare patients being treated, 18 g
of GRAFAPEXTM per treatment (three 1 g vials and three 5 g
vials) is required for each day of a three-day course of treatment,
totaling an average dose per inpatient stay of 54 g. Therefore, the
applicant estimated that the average cost for GRAFAPEXTM is
$32,940 per inpatient stay. Under Sec. 412.88(a)(2), we limit new
technology add-on payments to the lesser of 65 percent of the average
cost of the technology, or 65 percent of the costs in excess of the MS-
DRG payment for the case. As a result, the maximum new technology add-
on payment for a case involving the use of GRAFAPEXTM is
$21,411 for FY 2026.
g. IMDELLTRA[supreg] (tarlatamab-dlle)
Amgen, Inc. submitted an application for new technology add-on
payments for IMDELLTRA[supreg] for FY 2026. According to the applicant,
IMDELLTRA[supreg] is a novel, first-in-class bispecific T-cell engager
(BiTE[supreg]) molecule for the treatment of adult patients with
extensive stage small cell lung cancer (ES-SCLC) with disease
progression on or after platinum-based chemotherapy. According to the
applicant, IMDELLTRA[supreg] works by binding to the delta-like ligand
3 (DLL3) antigen expressed on the surface of SCLC tumor cells and the
cluster of differentiation 3 (CD3) co-receptor expressed on the surface
of T cells, causing T-cell activation, release of inflammatory
cytokines, and lysis of DLL3-expressing cells.
Please refer to the online application posting for
IMDELLTRA[supreg], available at https://mearis.cms.gov/public/publications/ntap/NTP241007BQ3UB, for additional detail describing the
technology and the disease treated by the technology.
With respect to the newness criterion, according to the applicant,
IMDELLTRA[supreg] was granted accelerated approval of its BLA from FDA
on May 16, 2024, for the treatment of adult patients with ES-SCLC with
disease progression on or after platinum-based chemotherapy. According
to the applicant, IMDELLTRA[supreg] was commercially available
immediately after FDA approval. The applicant stated that the first
dose of IMDELLTRA[supreg] is 1 mg and all subsequent doses are 10 mg,
with all doses administered by a healthcare provider as a 1-hour
intravenous (IV) infusion. Per the applicant, the average inpatient
dose is 7.3 mg based on available data. The applicant stated the only
inpatient data available is for patients who experience cytokine
release syndrome (CRS) or immune effector cell-associated neurotoxicity
syndrome (ICANS) after IMDELLTRA[supreg] and it is unknown how many
patients without these adverse events would receive IMDELLTRA[supreg]
on an inpatient basis.
The applicant submitted a request for unique ICD-10-PCS procedure
codes for IMDELLTRA[supreg] and was granted approval for use of the
following procedure codes effective October 1, 2025: XW033NA
(Introduction of tarlatamab-dlle antineoplastic into peripheral vein,
percutaneous approach, new technology group 10) and XW043NA
(Introduction of tarlatamab-dlle antineoplastic into central vein,
percutaneous approach, new technology group 10). The applicant provided
a list of diagnosis codes that may be used to currently identify the
indication for IMDELLTRA[supreg] under the ICD-10-CM coding system.
Please refer to the online application posting for the complete list of
ICD-10-CM (and PCS) codes provided by the applicant.
As previously discussed, if a technology meets all three of the
substantial similarity criteria under the newness criterion, it would
be considered substantially similar to an existing technology and would
not be considered ``new'' for the purpose of new technology add-on
payments.
With respect to the substantial similarity criteria, the applicant
asserted that IMDELLTRA[supreg] is not substantially similar to other
currently available technologies because it has a unique mechanism of
action as a BiTE[supreg] that simultaneously binds DLL3 on SCLC cells
and CD3 on T cells and because it is the only therapy specifically
studied and shown to improve outcomes for patients who are relapsed or
refractory to two or more other therapies and those with treated,
stable brain metastases, and that therefore, the technology meets the
newness criterion. The following table summarizes the applicant's
assertions regarding the substantial similarity criteria. Please see
the online application posting for IMDELLTRA[supreg] for the
applicant's complete statements in support of its assertion that
IMDELLTRA[supreg] is not substantially similar to other currently
available technologies.
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In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18124), we noted
that while the applicant asserted that IMDELLTRA[supreg] does not
involve the treatment of the same or similar disease or patient
population because it is the first BiTE[supreg] therapy for patients
with ES-SCLC who have had disease progression on or after platinum-
based chemotherapy, per the applicant, other FDA-approved therapies for
the treatment of the same patient population (patients who have ES-SCLC
with disease progression on or after platinum-based chemotherapy) are
currently available, such as lurbinectedin and topotecan. Further, with
respect to the applicant's statements that IMDELLTRA[supreg] is the
only FDA-approved therapy that has been specifically studied and
demonstrated improvements in the subset of ES-SCLC patients who have
become R/R to two or more therapies or that have stable brain
metastases, we stated our belief that these assertions may be relevant
to substantial clinical improvement rather than newness and these
patients may still be treated with lurbinectedin or topotecan.
Therefore, we questioned the applicant's assertion that
IMDELLTRA[supreg] treats a unique patient population compared to
existing technology.
We invited public comments on whether IMDELLTRA[supreg] is
substantially similar to existing technologies and whether
IMDELLTRA[supreg] meets the newness criterion.
Comment: The applicant submitted a public comment reiterating that
IMDELLTRA[supreg] meets the newness criterion because it is the first
and only approved BiTE[supreg] molecule that binds the
[[Page 36719]]
antigen DLL3 expressed on the surface of SCLC cells and CD3 expressed
on the surface of T cells causing T-cell activation, release of
inflammatory cytokines, and lysis of DLL3-expressing cells for the
treatment of 2L+ ES-SCLC, and IMDELLTRA[supreg] has a unique mechanism
of action as the only BiTE[supreg] molecule approved for ES-SCLC. The
applicant stated its continued belief that IMDELLTRA[supreg] treats a
unique patient population and reiterated information presented in its
application about limited research regarding outcomes of SCLC patients
with treated, stable brain metastases treated with existing
chemotherapy, like lurbinectedin and topotecan. The applicant also
stated that, while some studies have been conducted on topotecan and
SCLC patients with brain metastases, topotecan had an ORR of 10.5
percent in a Phase 2 trial, which is empirically lower than
IMDELLTRA[supreg]'s reported 40 percent ORR in the phase 2 DeLLphi-301
trial. The applicant provided new evidence from the Phase 3 randomized
controlled DeLLphi-304 study, which the applicant stated demonstrated a
survival benefit in patients with brain metastases (untreated or
treated, stable) treated with IMDELLTRA[supreg] as compared to standard
of care chemotherapy.\70\ The applicant stated that although other
existing FDA-approved treatments for ES-SCLC may be prescribed in the
real world for SCLC patients with brain metastases, given the high
unmet need, these existing treatments do not have a randomized
controlled Phase 3 trial demonstrating efficacy over the current
standard of care. The applicant further stated that IMDELLTRA[supreg]
does not treat the same or similar disease and same or similar patient
population because it is the only FDA-approved treatment option for ES-
SCLC patients with or without brain metastases who have progressed
after initial platinum-based chemotherapy that has demonstrated
improved survival outcomes.
---------------------------------------------------------------------------
\70\ Mountzios G, Sun L, Cho BC, et al. Tarlatamab in small-cell
lung cancer after platinum-based chemotherapy. N Engl J Med
(published online ahead of print June 2, 2025). DOI:10.1056/
NEJMoa2502099.
---------------------------------------------------------------------------
Response: We thank the applicant for its comment. Based on our
review of comments received and information submitted by the applicant
as part of its FY 2026 new technology add-on payment application for
IMDELLTRA[supreg], we agree with the applicant that IMDELLTRA[supreg]
uses a unique mechanism of action because it is the only BiTE[supreg]
therapy targeting DLL3 for the treatment of adult patients with ES-SCLC
with disease progression on or after platinum-based chemotherapy.
Therefore, we agree with the applicant that IMDELLTRA[supreg] is not
substantially similar to existing treatment options and meets the
newness criterion. We consider the beginning of the newness period to
commence on May 16, 2024, the date on which IMDELLTRA[supreg] was FDA
approved.
With respect to the cost criterion, the applicant provided two
analyses to demonstrate that IMDELLTRA[supreg] meets the cost
criterion. Each analysis followed the order of operations summarized in
the following table.
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Because the final inflated average case-weighted standardized
charge per case exceeded the average case-weighted threshold amount in
both scenarios, the applicant asserted that IMDELLTRA[supreg] meets the
cost criterion.
We invited public comments on whether IMDELLTRA[supreg] meets the
cost criterion.
Comment: The applicant reiterated that IMDELLTRA[supreg] satisfies
the cost criterion because the standardized charge per case exceeds the
threshold for the cost criterion. The applicant also commented that a
maximum new technology add-on payment amount for IMDELLTRA[supreg]
should be calculated based on an average inpatient dose of 7.3 mg.
Response: We thank the applicant for its comment. We agree that the
final inflated average case-weighted standardized charge per case
exceeded the average case-weighted threshold amount under both
scenarios. Therefore, IMDELLTRA[supreg] meets the cost criterion.
With regard to the substantial clinical improvement criterion, the
applicant asserted that IMDELLTRA[supreg] represents a substantial
clinical improvement over existing technologies because
IMDELLTRA[supreg] offers a treatment option for a patient population
unresponsive to, or ineligible for, currently available treatments and
the technology significantly improves clinical outcomes relative to
services or technologies previously available. Specifically, per the
applicant, IMDELLTRA[supreg] is a novel treatment option that offers
substantial clinical improvement through deep and durable response for
patients with ES-SCLC relapsed on platinum-based chemotherapy. The
applicant further stated that IMDELLTRA[supreg] is the only approved
DLL3-directed-CD3 T-cell engager for the treatment of ES-SCLC, for
which there is a profound unmet need in this population who suffer from
devastating outcomes and suboptimal care from limited and ineffective
treatment options. The applicant provided four articles regarding
outcomes from the phase I DeLLphi-300 and phase II DeLLphi-301 trials
and the IMDELLTRA[supreg] prescribing information to support these
claims, as well as 16 background articles about SCLC and existing
treatments for the disease.\71\ The following table summarizes the
applicant's assertions regarding the substantial clinical improvement
criterion. Please see the online posting for IMDELLTRA[supreg] for the
applicant's complete statements regarding the substantial clinical
improvement criterion and the supporting evidence provided.
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\71\ Background articles are not included in the following table
but can be accessed via the online posting for the technology.
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We also received a public comment in response to the New Technology
Town Hall meeting notice published in the Federal Register regarding
the
[[Page 36722]]
substantial clinical improvement criterion for IMDELLTRA[supreg], which
we summarized in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18126
through 18127).
We stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18127
through 18128) that, after review of the information provided by the
applicant and the public comment received in response to the New
Technology Town Hall meeting, we had the following concerns regarding
whether IMDELLTRA[supreg] meets the substantial clinical improvement
criterion. The applicant stated that IMDELLTRA[supreg] offers a
treatment option for patients with 2L+ ES-SCLC that are unresponsive
to, or ineligible for, currently available treatments, however, we
stated it was unclear that these patients are unresponsive or
ineligible for existing 2L+ treatments for ES-SCLC, such as
lurbinectedin and topotecan. The applicant claimed that the majority of
ES-SCLC patients who are relapsed or refractory to 1L treatment are or
become unresponsive to previously approved 2L treatments. For this
claim, the applicant provided background articles regarding treatment
of ES-SCLC, but did not indicate a patient population that
IMDELLTRA[supreg] treats that is ineligible or unresponsive to other 2L
treatments. The applicant also claimed that there are limited treatment
options for ES-SCLC patients who have relapsed and IMDELLTRA[supreg] is
a new option for these patients. However, we noted that having limited
treatment options does not demonstrate that these patients are
unresponsive to or ineligible for any available therapies. In addition,
while the applicant provided results from the pivotal DeLLphi-301 study
of IMDELLTRA[supreg] stating that it is the first therapy that has
shown meaningful outcome improvements in patients who have failed two
or more prior therapies, the study did not list these therapies, and we
also noted that retreatment with platinum-based chemotherapy was
considered an additional line of therapy per the study. Therefore, it
was unclear that the study demonstrated that patients had failed
existing 2L+ treatments, including lurbinectedin and topotecan. For
these reasons, we questioned the assertion that IMDELLTRA[supreg]
offers a treatment for a patient population unresponsive to, or
ineligible for, currently available treatments.
With respect to the applicant's statement that IMDELLTRA[supreg]
improves clinical outcomes over existing technologies because outcomes
on existing therapies for ES-SCLC continue to be very poor,
particularly as all previously approved therapies have high relapse
rates, and that, in the past 2 decades, relapsed ES-SCLC patients who
have failed platinum-based chemotherapy have had few treatment options
as only topotecan and lurbinectedin are FDA-approved and indicated for
these patients, we noted that the applicant provided outcome data for
topotecan and lurbinectedin, in addition to highlighting that
lurbinectedin, pembrolizumab, and nivolumab failed to show a benefit in
OS in the confirmatory phase 3 clinical trials. However, we stated that
the applicant did not provide relapse rates for current therapies,
including IMDELLTRA[supreg], and did not compare the provided outcome
data to IMDELLTRA[supreg], and therefore we questioned how this
demonstrates that IMDELLTRA[supreg] improves clinical outcomes relative
to these therapies.
To support its other statements regarding improved outcomes for
IMDELLTRA[supreg], the applicant provided results from DeLLphi-301, a
phase 2, single arm, open-label, international trial which evaluated
antitumor activity and safety of IMDELLTRA[supreg] in patients with
advanced SCLC previously treated with two or more lines of therapy.\72\
However, we noted that, of the 134 patients treated with the target
dose of IMDELLTRA[supreg], only 14 were from North America (without
further specification on the country), and we questioned whether
differences in treatment guidelines between countries could affect
generalizability to the Medicare population. We also noted that 75
percent (101/134) of the patients who took the approved dose of 10 mg
in DeLLphi-301 had a previous use of a programmed death ligand 1 (PD-
L1) or programmed death 1 (PD-1) inhibitor,\73\ which are recommended
as part of the initial therapy for ES-SCLC, and we therefore questioned
whether the results of the DeLLphi-301 study were different between the
group of patients who previously received these therapies versus those
who did not. We further noted that the applicant also provided the
Sands et al. (2024) presentation and the Dingemans et al. (2024)
abstract which are unpublished overviews that do not provide full
details on the study methods; therefore, we stated that we did not have
sufficient information to evaluate these studies.
---------------------------------------------------------------------------
\72\ Anh, 2023, op. cit.
\73\ Anh, 2023, op. cit.
---------------------------------------------------------------------------
With respect to the claim that IMDELLTRA[supreg] has shown
substantial clinically meaningful improvement in outcomes relative to
other available therapies for ES-SCLC patients, we stated that the
applicant provided outcomes for IMDELLTRA[supreg] from the DeLLphi-301
single arm, phase 2 trial and compared them to outcomes from trials for
other approved treatments for patients who have relapsed on first-line
chemotherapy. The applicant stated that IMDELLTRA[supreg],
lurbinectedin, and topotecan are FDA-approved and no treatments are
specifically FDA-approved for 3L treatment. The applicant stated
chemotherapy is a 3L treatment and has a mOS of 4.4 months, ORR of 21
percent, mDOR of 2.6 months, and mPFS of 2.3 months.\74\ The applicant
also noted that lurbinectedin can be used as a 3L agent, but mOS was
5.6 months according to real world data.\75\ The applicant also stated
IMDELLTRA[supreg] had an ORR of 40 percent, mDOR of 9.7 months, mPFS of
4.9 months, and mOS of 14.3 months,\76\ with an mOS of 15.2 months
after extended follow-up.\77\ The applicant further noted that in a
subgroup analysis of 22 patients with stable, treated brain metastases,
IMDELLTRA[supreg] showed similar outcomes with an ORR of 54.5 percent,
mPFS of 7.1 months, and mOS of 14.3 months.\78\ The applicant stated
the registrational study for topotecan included patients with brain
metastases and reported a mOS of only 5.8 months,\79\ while the pivotal
phase II trial for lurbinectedin excluded patients with brain
metastases and in a real-world analysis among 14 patients who received
3L therapy with lurbinectedin (11 of which with CNS metastases), the
mOS was 5.6 months.\80\ However, we noted that the applicant also
stated in its Town Hall comment that tumor response (for example, ORR)
can be adequately evaluated in a single-arm study, while OS and PFS
endpoints must be interpreted with caution in single-arm trials and
confirmatory phase 3 trials are needed to confirm OS and PFS results.
Therefore, we questioned the applicant's use of OS and PFS to support
improved clinical outcomes with IMDELLTRA[supreg] compared to
previously available therapy. Additionally, the applicant stated that
the trial demonstrated mOS of 14.3 months for IMDELLTRA[supreg],\81\
and compared it to lurbinectedin's mOS of 5.6 months according to real
world
[[Page 36723]]
data,\82\ but we questioned whether it is appropriate to compare
clinical trial and real-world data. We noted, for example, that the
phase 2 single arm trial for lurbinectedin noted an OS of 9.3 months
(Trigo et al. (2020)), and we therefore questioned how the applicant
chose the historical control it used in these comparisons of outcomes.
In addition, the applicant noted that ORR can be evaluated in a single-
arm study and provides the ORR for IMDELLTRA[supreg] (40 percent in 3L
therapy \83\ and 54.5 percent in patients with stable brain metastases
\84\) but did not provide the ORR for topotecan or lurbinectedin in
patients with stable brain metastases, nor in patients that are taking
3L therapy. Therefore, we questioned the applicant's assertion of
improved clinical outcomes for IMDELLTRA[supreg] compared to previously
available therapy.
---------------------------------------------------------------------------
\74\ Coutinho, 2019, op. cit.
\75\ Desai, 2023, op. cit.
\76\ Ahn, 2023, op. cit.
\77\ Sands, 2024, op. cit.
\78\ Dingemans, 2024, op. cit.
\79\ von Pawel, 1999, op. cit.
\80\ Desai, 2023, op. cit.
\81\ Ahn, 2023, op. cit.
\82\ Desai, 2023, op. cit.
\83\ Ahn, 2023, op. cit.
\84\ Dingemans, 2024, op. cit.
---------------------------------------------------------------------------
We stated we agreed with the applicant that head-to-head trials,
while preferred, are not required for comparing currently available
therapy. However, we noted that among the clinical trial and real-world
data provided for alternative therapies to IMDELLTRA[supreg], there was
no control for confounding variables to ensure similar patients were
being compared to those who took IMDELLTRA[supreg]. Additionally, we
noted that the real-world data provided for lurbinectedin as third line
therapy and the data for the subset of patients from DeLLphi-301 with
brain metastases were small sample sizes of 14 and 22, respectively,
which may limit generalizability of these results to the Medicare
population as confounding variables could affect the results. We noted
that exclusion of patients with brain metastases from the pivotal phase
2 trial for lurbinectedin does not exclude use of this drug in this
patient population.
We further questioned the use of von Pawel et al. (1999) study of
topotecan as a comparator to IMDELLTRA[supreg] since it was conducted
approximately 25 years before the IMDELLTRA[supreg] phase 2 trial (Ahn
et al., 2023) and included some highly varied patient outcomes (such as
topotecan duration of responses ranging from 9.4-50.1 weeks). We noted
that guidelines and treatment protocols for SCLC have evolved over this
extended period and the resulting changes in care standards may have
impacted the outcomes observed from the older study versus the more
recent one.
We stated that in addition, the applicant stated that clinical
trials of topotecan and lurbinectedin reported higher rates of Grade 3
neutropenia than reported in the DeLLphi-301 study with
IMDELLTRA[supreg] monotherapy but did not consider other serious
adverse events such as cytokine release syndrome (CRS) or immune
effector cell-associated neurotoxicity syndrome (ICANS), which are
possible side effects for IMDELLTRA[supreg] but not for topotecan or
lurbinectedin. We further noted that there was no control for potential
confounding variables in the patient populations in the comparisons of
neutropenia rates, and it is therefore difficult to draw conclusions
regarding relative side effect profiles among these different trials.
We invited public comments on whether IMDELLTRA[supreg] meets the
substantial clinical improvement criterion.
Comment: The applicant submitted a public comment regarding the
substantial clinical improvement criterion and provided responses to
CMS's concerns from the proposed rule. The applicant stated that it is
clear from currently available literature that patients with ES-SCLC
after failing on chemotherapy have extremely poor outcomes on existing
therapies, where response and survival are measured in just a few
months, and that when survival is measured in months, it is clear
patients need access to new, more efficacious treatments. The applicant
commented that the evidence it previously submitted support that
IMDELLTRA[supreg] satisfies the substantial clinical improvement
criterion, and further stated that additional evidence and publications
have become available, reinforcing that IMDELLTRA[supreg] is a
substantial clinical improvement compared to prior therapy, with
IMDELLTRA[supreg] representing the first FDA-approved therapy to
demonstrate a substantial survival advantage over chemotherapy in 2L
SCLC in a Phase 3 study. The applicant stated this new evidence
unequivocally shows that IMDELLTRA[supreg] is a substantial clinical
improvement for 2L+ ES-SCLC patients because it demonstrates that
IMDELLTRA[supreg] provides statistically significant and clinically
meaningful improvement in OS compared to other 2L+ approved therapies.
Per the applicant, the new evidence includes results from the DeLLphi-
304 trial, as well as an indirect treatment comparison (ITC) assessing
the relative efficacy of IMDELLTRA[supreg] versus real-world U.S.
physicians' choice of therapies in 3L+ ES-SCLC patients.\85\
---------------------------------------------------------------------------
\85\ Tapan U, Takundwa R, et al. (2025, March 26-29). A
comparison of tarlatamab with real-world physicians' choice of
therapies in patients with previously treated small cell lung cancer
[Poster Presentation]. European Lung Cancer Conference, Paris,
France.
---------------------------------------------------------------------------
Per the applicant, the DeLLphi-304 trial was a randomized, open-
label, multicenter, global, Phase 3 trial of 509 patients that compared
IMDELLTRA[supreg] (n=254) to standard of care chemotherapy (n=255) in
patients with relapsed SCLC after platinum-based 1L chemotherapy. The
applicant stated that standard of care chemotherapy was either
topotecan, amrubicin, or lurbinectedin; the primary endpoint was OS;
key secondary endpoints were PFS and patient-reported outcomes (PRO);
and additional secondary endpoints included ORR, disease control, DOR,
and safety. Per the applicant, the median age was 65. The applicant
further stated that 45 percent of patients had brain metastases
(current or prior), 35 percent had liver metastases at baseline, 71
percent received prior PD-L1 inhibitor therapy, and 44 percent had
platinum-resistant disease. Per the applicant, the results demonstrated
a higher, more durable anticancer activity for IMDELLTRA[supreg]
compared to chemotherapy. Specifically, the applicant stated that
IMDELLTRA[supreg] resulted in significantly longer OS compared to
chemotherapy (median, 13.6 months vs. 8.3 months; [HR 0.60, 95% CI,
0.47 to 0.77; p<0.001]), significantly improved PFS (median, 4.2 months
vs. 3.7 months [piecewise weighted average HR: 0.71; 95% CI: 0.59,
0.86; P < 0.002, restricted mean survival time (RMST) for PFS),
improved ORR (35% vs. 20% [OR 2.13; 95% CI 1.43-3.18]), and a positive
benefit:risk profile versus chemotherapy, with chemotherapy resulting
in more frequent and high-grade adverse events. The applicant noted
Kaplan-Meier estimates for 6-month and 12-month PFS were 30 percent and
20 percent, respectively, in the IMDELLTRA[supreg] group, compared with
23 percent and 4 percent in the chemotherapy group. In addition, the
applicant stated that approximately 47 percent of responders remained
on study without progression or death in the IMDELLTRA[supreg] group as
compared to 15 percent in the chemotherapy group at the interim
analysis; the median DOR was 6.9 months with IMDELLTRA[supreg] and 5.5
months with chemotherapy; and the Kaplan-Meier estimate of 12-month DOR
was 41 percent with IMDELLTRA[supreg] and 13 percent with chemotherapy.
The applicant stated that IMDELLTRA[supreg] improved PROs with
statistically significant and clinically meaningful improvements over
chemotherapy in
[[Page 36724]]
dyspnea and cough after 18 weeks from baseline in DeLLphi-304, and that
changes in chest pain were not statistically significant.
The applicant stated that the ITC, which was recently conducted by
Tapan et al. (2025), assessed the relative efficacy of
IMDELLTRA[supreg] versus real-world physicians' choice of therapies,
including lurbinectedin and topotecan, in patients with previously
treated ES-SCLC. The applicant stated that the ITC analysis used data
from DeLLphi-301 and comparator data from the Flatiron Health Research
database, which the applicant stated is a trusted real-world evidence
source known for its high-quality, longitudinal, clinical information.
The applicant also stated that patients included in the external
control cohort from this database were treated with a variety of
chemotherapies and/or immunotherapies, including lurbinectedin (18
percent), topotecan (15 percent), nivolumab (13 percent), paclitaxel (8
percent), pembrolizumab (7 percent), nivolumab + ipilimumab (5
percent), and others (34 percent). In addition, the applicant stated
that the study employed best practices to enhance the reliability of
the ITC assessment of treatment effects for IMDELLTRA[supreg] versus
comparator regimens. To perform the ITC between balanced patient
populations, the applicant stated that the study applied the DeLLphi-
301 inclusion/exclusion criteria to the Flatiron Health data and
adjusted for differences in a comprehensive list of key prognostic
factors. The applicant further stated that E-values for hazard ratios
(HRs) were estimated, ranging from 2.15 to 2.86, which suggested low
likelihood of bias from potential unmeasured confounding variables.
The applicant stated that the ITC analysis demonstrated
significantly longer OS, PFS, and a higher ORR for IMDELLTRA[supreg]
versus comparator therapies after propensity score (PS) weighting was
applied to balance baseline patient characteristics between cohorts.
Per the applicant, the mOS was 15.2 months (95% CI: [10.8, NE]) in
DeLLphi-301, which the applicant noted represents more than a two-fold
increase in survival versus comparator regimens that had a mOS of 6.0
months (95% CI: [5.0, 7.1]) after adjusting for prognostic factors. The
applicant stated the hazard ratio (HR) [95% CI] for OS was
significantly in favor of IMDELLTRA[supreg] over comparator regimens at
0.45 (95% CI: [0.30, 0.68], p<0.001). The applicant stated that
patients were free of progression for an extended period in the
IMDELLTRA[supreg] cohort (mPFS: 4.9 months [2.9, 6.7]) compared to the
comparator regimens cohort (mPFS: 3.1 [2.3, 3.7], after weighting) with
a HR of 0.61 (95% CI: [0.43, 0.90], p=0.009). Additionally, the
applicant noted significantly more patients treated with IMDELLTRA
achieved ORR (40 percent) compared with patients receiving comparator
regimens (19 percent, after weighting) and the odds of achieving ORR
were 2.80 (95% CI: [1.44, 5.83], p=0.004) times higher for
IMDELLTRA[supreg] versus comparator regimens. Per the applicant, the
results for the prespecified sensitivity analyses (intended to examine
impact on ITCs with different approaches to define real-world
progression, to adjust for imbalances on more baseline variables, and
to account for globally available regimens) were consistent or near
identical to the primary analysis. The applicant also stated that this
consistency across the primary and sensitivity analyses reinforces the
robustness of the clinical benefit that IMDELLTRA[supreg] may offer
over comparator regimens.
In response to CMS's concern about how IMDELLTRATM
demonstrates improved clinical outcomes relative to other current
therapies without providing relapse rates or comparing outcome data,
the applicant stated that IMDELLTRA[supreg] improves survival outcomes
compared to previously available treatments. Specifically, the
applicant stated that in SCLC, PFS is generally evaluated instead of
relapse free survival, which is more commonly used in hematology
oncology, and the PFS for lurbinectedin and topotecan may depend on
whether there are CNS metastases, although such a difference has not
been observed for IMDELLTRA[supreg]'s PFS benefit in DeLLphi-301 and
DeLLphi-304. The applicant restated information from its application
from the Desai et al. (2023) analyses. The applicant further stated
that DeLLphi-304 demonstrated a significant PFS benefit with a 4.2
months median PFS with IMDELLTRA[supreg] and a 3.7 months median PFS
with chemotherapy (piecewise weighted average HR: 0.71; 95% CI: 0.59,
0.86; P < 0.002, RMST for PFS). In addition, the applicant stated the
Kaplan-Meier estimates for 6-months and 12-months PFS were 31 percent
and 20 percent, respectively, in the IMDELLTRA[supreg] group, compared
with 23 percent and 4 percent in the chemotherapy group. The applicant
also stated that the chemotherapy group included patients on topotecan
and lurbinectedin and DeLLphi-304 overall included patients with
treated, stable brain metastases and untreated, asymptomatic brain
metastases. Per the applicant, a subgroup comparison reported hazard
ratios of PFS between IMDELLTRA[supreg] versus topotecan/amrubicin of
0.76 (95% CI: 0.62, 0.94) and versus lurbinectedin of 0.56 (95% CI:
0.34, 0.90). Additionally, the applicant stated that among responders,
the DOR at 12 months was 41 percent for IMDELLTRA[supreg] and 13
percent for standard of care chemotherapies, reaffirming the
substantial improvements of IMDELLTRA[supreg] in delaying progression
compared to chemotherapies such as topotecan and lurbinectedin. Per the
applicant, IMDELLTRA[supreg] has a significantly more durable
anticancer response compared to chemotherapy treatments like
lurbinectedin and topotecan, supporting that IMDELLTRA[supreg]
substantially improves outcomes over previously available treatments
for ES-SCLC.
In response to CMS's question about the use of OS and PFS to
support improved clinical outcomes in a single-arm study, the applicant
stated that DeLLphi-304 is the Phase 3 confirmatory trial needed to
confirm superior survival benefit over previously available treatments.
Per the applicant, the Phase 2 DeLLphi-301 OS and PFS data is very
similar to that reported in the Phase 3 DeLLphi-304 trial with
significantly improved OS and PFS, validating the claim that Phase 2
data represent an improved clinical outcome with IMDELLTRA[supreg]
compared to previously available treatments. The applicant reiterated
that based on this Phase 2 data, updated ASCO guidelines stated that
the cross-trial comparisons suggest that both lurbinectedin and
IMDELLTRA[supreg] are more effective than topotecan or other agents,
although the DOR of >9 months reported with IMDELLTRA[supreg] is
substantially longer than that seen with other agents.
In response to CMS's questions about the generalizability of
DeLLphi-301 trial data because 14 of the 134 patients treated with the
target dose of IMDELLTRA[supreg] were from North America (without
further specification on the country) and whether differences in
treatment guidelines between countries could affect generalizability to
the Medicare population, the applicant stated that IMDELLTRA[supreg]'s
clinical trial data is generalizable to the Medicare population. The
applicant stated it was a global multicenter trial with representation
from Asia, Europe, and North America; the only trial sites in North
America were in the United States; and approximately 48 percent of
patients were age 65 years or older. The applicant stated that,
similarly, the new DeLLphi-304 data also is generalizable to a Medicare
population because the
[[Page 36725]]
median age is 65 years. The applicant further stated that real world
survival outcomes in 2L+ ES-SCLC do not vary widely among the clinical
trial regions of Asia, Europe, and North America, where the main
previously available treatment options are chemotherapies like
topotecan, amrubicin, irinotecan, taxanes, and lurbinectedin. The
applicant also stated that standard of care therapies in these regions
show consistently poor outcomes similar to the U.S. population
following initiation of 2L and 3L therapy in ES-SCLC patients based on
analyses of real-world treatment patterns and outcomes.
In response to CMS's questions about the small sizes of the real-
world data that may limit the generalizability of these results to the
Medicare population, the applicant stated that Phase 2 clinical trials
examine efficacy in a specific patient population and are characterized
by relatively small sample sizes of generally 50 to 200 patients.
Furthermore, the applicant stated that SCLC is an orphan patient
population (only 30,000 to 35,000 new cases diagnosed in the U.S. each
year, of which approximately two-thirds are ES-SCLC), and thus trial
size is limited by necessity. Per the applicant, as discussed
previously, the FDA extrapolated clinical benefit out of the
IMDELLTRA[supreg] Phase 2 DeLLphi-301 clinical trial, awarded the
product Breakthrough Therapy Designation, and approved the product
under Accelerated Approval. The applicant further stated that, in
DeLLphi-304, the OS benefit with IMDELLTRA[supreg] versus chemotherapy
was consistent across prespecified patient subgroups, including the 44
percent of patients with brain metastases that received
IMDELLTRA[supreg] (asymptomatic, untreated or treated). Furthermore,
the applicant stated that, given that the median age of the DeLLphi-304
patients was 65 years, it believes that the Phase 3 outcomes are
generalizable to the Medicare population and sufficient to determine
that IMDELLTRA[supreg] represents a substantial clinical improvement in
the Medicare population.
In response to CMS's question about whether the results of DeLLphi-
301 were different between the group of patients who previously
received PD-L1 or PD-1 inhibitors versus those who did not, the
applicant stated that IMDELLTRA[supreg]'s substantial clinical
improvement is consistent regardless of prior PD-L1 therapy. The
applicant further stated that DeLLphi-301 reported near identical ORR
between the patients with prior PD-L1 and without prior PD-L1. The
applicant stated that, in the supplement of Ahn et al. (2023),
IMDELLTRA[supreg]'s ORR is 39.7 percent for patients previously exposed
to PD-L1 therapy versus 40.7 percent for patients without prior PD-L1
exposure. Per the applicant, consistent with the DeLLphi-301 data,
DeLLphi-304 also demonstrated a comparable overall survival benefit in
patients both with (HR 0.61; 95% CI 0.45-0.82) and without (HR 0.65,
95% CI 0.42-1.03) prior PD-L1 inhibitor treatment, compared to standard
of care chemotherapy.
In response to CMS's concern that the Sands et al. (2024) and
Dingemans et al. (2024) evidence did not provide full detail on their
study methods and therefore did not have sufficient information to
evaluate these studies, the applicant stated that, as summarized in its
application, Sands et al. (2024) presented efficacy and safety outcomes
from a longer follow-up of the DeLLphi-301 study at the 2024 World
Conference on Lung Cancer, while Dingemans et al. (2024) is an abstract
of a post-hoc analysis of DeLLphi-301. Per the applicant, since both
stem from the primary DeLLphi-301 study, the statistical methods are
the same and the full protocol is available in the supplement to the
New England Journal Medicine article.
In response to CMS's question about whether it was appropriate to
compare clinical trial and real-world data, the applicant stated that
comparisons to previously available therapies are limited by available
evidence. The applicant further stated that its application provided
literature ranging from clinical trials, real-world analyses,
guidelines, to evidence reviews as treatment advancements for ES-SCLC
patients have come slowly in the decades preceding IMDELLTRA[supreg]'s
FDA approval. The applicant stated that it provided the clinical trial
evidence that supported the FDA approvals of topotecan, lurbinectedin
and IMDELLTRA[supreg] as well as multiple real-world analyses. The
applicant stated that, for example, Trigo et al. (2020) reported on the
pivotal single arm Phase 2 trial that was the basis for lurbinectedin's
approval in 2L ES-SCLC. The applicant further stated in response to
CMS's note that lurbinectedin demonstrated an OS of 9.3 months in the
single arm trial, that it also provided the randomized controlled Phase
3 ATLANTIS trial where lurbinectedin failed to reach its primary
endpoint of OS. In response to CMS's question about how the applicant
chose the historical control it used in comparing outcomes, the
applicant stated that it recognized the challenges and limitations with
comparing separate trials. Per the applicant, this is why, in addition
to each therapy's pivotal clinical trial data, it provided more recent
evidence in the form of real-world data since topotecan's FDA approval
for SCLC was in 1998. The applicant stated that the new ITC analysis
from Tapan et al. (2025) as well as the new DeLLphi-304 data confirm
what prior literature suggested, which is that IMDELLTRA[supreg]
provides statistically significant and clinically meaningful
improvement in OS compared to other FDA 2L+ approved therapies.
In response to CMS's concern about ORR data for topotecan and
lurbinectedin in patients with stable brain metastases as well as in
patients that are taking 3L therapy, the applicant stated that
IMDELLTRA[supreg] is the only FDA-approved therapy for 2L ES-SCLC that
demonstrated survival benefit compared to previously available
treatments in patients with treated, stable brain metastases and
untreated, asymptomatic brain metastases. The applicant stated that
both the Phase 2 and 3 studies evaluating the efficacy and safety of
IMDELLTRA[supreg] included patients with treated, stable brain
metastases and untreated, asymptomatic brain metastases. The applicant
further stated that while lurbinectedin and topotecan are also approved
for 2L therapy in ES-SCLC patients, they were not extensively studied
in patients with treated, stable brain metastases; therefore, the
applicant stated that it could not provide ORR data for this specific
patient population. For lurbinectedin, the applicant stated that
patients with brain metastases were excluded from the pivotal trial.
Per the applicant, while some studies have been conducted on topotecan
and SCLC patients with brain metastases, low response rates were
observed. The applicant stated that in a Phase 2 trial, only 2 out of
19 (10.5 percent) SCLC patients with brain metastases responded to
topotecan, which did not meet the minimum response requested for study
continuation. The applicant stated that, likewise, topotecan and
lurbinectedin do not have registrational trial data in 3L+ ES-SCLC
patients while IMDELLTRA[supreg] does. Per the applicant, while ORR
data for topotecan and lurbinectedin as 3L therapy were not available
in the respective registrational trials, it did provide real-world
evidence of these previously available treatments being used as 3L
therapy.
In response to CMS's concern that, among the clinical trial and
real-world data provided there was no control for confounding variables
to ensure similar patients were being compared, the
[[Page 36726]]
applicant stated that in addition to the clinical literature provided
in its application regarding outcomes of currently available treatment,
the new evidence from the ITC analysis and DeLLphi-304 addresses this
concern and further supports the applicant's claims of substantial
clinical improvement for IMDELLTRA[supreg]. The applicant stated that,
for example, the ITC analysis from Tapan et al. (2025) controlled for
potential confounding factors by selecting controls based on key
DeLLphi-301 inclusion/exclusion criteria and employing propensity score
matching. In addition, the applicant stated that the E-value, which
measures the likelihood of unmeasured confounding to bias in the ITC
estimates, showed that the likelihood of bias is low in the analysis by
Tapan et al. (2025).
In response to CMS's concern that exclusion of patients with brain
metastases from the pivotal Phase 2 trial for lurbinectedin does not
exclude use of this drug in this patient population, the applicant
stated that, while registrational trial data is lacking to support its
use in this specific patient population, Desai et al. (2023) evaluated
the safety and efficacy of lurbinectedin in a real-world setting,
focusing on its use as a 2L+ treatment in SCLC patients. The applicant
reiterated findings from the Desai et al. (2023) study provided in its
original application to further support its statement.
In response to CMS's question about the use of the von Pawel et al.
(1999) study of topotecan as a comparator to IMDELLTRA[supreg] since it
was conducted approximately 25 years before the IMDELLTRA[supreg] Phase
2 trial (Ahn et al., 2023), and guidelines and treatment protocols for
SCLC have evolved and it included some highly varied patient outcomes,
the applicant stated, given the long time periods between treatment
advances in this difficult to treat cancer, it provided in its
application more recent real-world evidence on previously approved
treatments for 2L ES-SCLC. The applicant also reiterated that it
provided an ITC analysis and new data from the DeLLphi-304 randomized
controlled Phase 3 trial comparing IMDELLTRA[supreg] to standard of
care chemotherapy, including topotecan, that demonstrate
IMDELLTRA[supreg] provides a substantial clinical improvement compared
to previously available treatments using more contemporary data than
the historical literature on these treatments.
In response to CMS's concern that while clinical trials of
topotecan and lurbinectedin reported higher rates of >= Grade 3
neutropenia, they did not consider other serious adverse events such as
CRS or ICANS, the applicant stated that, IMDELLTRA[supreg] has a
positive benefit:risk safety profile and a low incidence of treatment-
related neutropenia. The applicant stated this is further confirmed in
the randomized controlled DeLLphi-304 trial, where IMDELLTRA[supreg]
demonstrated a more favorable toxicity profile than standard
chemotherapy, with chemotherapy associated with more frequent and
higher-grade adverse events. Per the applicant, in DeLLphi-304, Grade
>=3 TRAEs were significantly lower in the IMDELLTRA[supreg] group (27
percent) compared to the chemotherapy group (62 percent). The applicant
additionally stated that TRAEs led to dose interruption and/or
reduction in 19 percent of patients receiving IMDELLTRA[supreg] versus
55 percent in the chemotherapy group, and to discontinuation in 3
percent and 6 percent of patients, respectively.
The applicant further stated that the most common TRAEs across both
the Phase 2 and Phase 3 trial was CRS, which was mild and generally
manageable with antipyretics, IV fluids and steroids with <= 1 percent
of patients experiencing CRS >= Grade 3. Per the applicant, consistent
with this established safety profile, in the randomized controlled
DeLLphi-304 trial, CRS and ICANS were observed in 56 percent of
patients and 6 percent of patients treated with IMDELLTRA[supreg],
respectively, and were mostly Grade 1-2. The applicant stated that in
the IMDELLTRA[supreg] group only one percent of patients experienced a
Grade 3 CRS event and CRS rarely led to treatment interruption (1.6
percent) or discontinuation (0.4 percent). The applicant also stated
that all ICANS events were Grade 1 or 2 in severity except for one
Grade 5 event and rarely led to treatment interruption (0.8 percent) or
discontinuation (0.4 percent). The applicant stated that in DeLLphi-
304, CRS and ICANS were mostly Grade 1 or 2 in severity and generally
manageable for patients treated with IMDELLTRA[supreg]. Per the
applicant, overall, the IMDELLTRA[supreg] group reported a 27 percent
rate of TRAEs with Grade 3 or higher events while the chemotherapy
group reported a 62 percent rate. In addition, the applicant stated
that TRAEs led to dose interruption and/or dose reduction in 19 percent
of patients in the IMDELLTRA[supreg] group and in 55 percent of those
in the chemotherapy group, and to discontinuation in 3 percent and 6
percent of patients, respectively.
In response to CMS's concern that there was no control for
potential confounding variables in the patient populations in the
comparisons of neutropenia rates, the applicant stated that while the
historical comparisons are informative, the new evidence from the
randomized controlled DeLLphi-304 trial provide confirmation that rates
of neutropenia are higher for chemotherapy than IMDELLTRA[supreg]. The
applicant further stated that in the DeLLphi-304 trial,
IMDELLTRA[supreg] had a four percent rate of Grade 3 or higher
neutropenia and a two percent rate of any grade febrile neutropenia.
The applicant stated that, in comparison, the chemotherapy group had a
rate of 22 percent along with an 11 percent rate of any grade febrile
neutropenia. The applicant also stated that, given 2L+ ES-SCLC patients
have been exposed to repeated chemotherapy with cumulative toxicities,
the lower incidence of neutropenia is notable as this TRAE is known to
delay or prevent cancer patients from initiating treatment. Per the
applicant, the randomized controlled DeLLphi-304 trial demonstrates a
favorable toxicity profile for IMDELLTRA[supreg] compared to
chemotherapy, with chemotherapy resulting in more frequent and high-
grade adverse events. The applicant stated its belief that the safety
data included in its application as well as the confirming DeLLphi-304
safety data support that IMDELLTRA[supreg] represents a substantial
clinical improvement in the Medicare population. The applicant stated
that it is clear that IMDELLTRA[supreg] substantially improves clinical
outcomes relative to previously available treatment and, therefore,
meets the substantial clinical improvement criterion.
Additionally, the applicant reiterated that IMDELLTRA[supreg]
treats a patient population unresponsive to previously available
technologies and provided responses to CMS concerns about this
assertion from the proposed rule. In response to CMS's concern about
whether ES-SCLC patients are unresponsive or ineligible for existing
2L+ treatments, such as lurbinectedin and topotecan, and that having
limited treatment options does not demonstrate that patients are
unresponsive or ineligible for any available therapies, the applicant
stated that, while topotecan and lurbinectedin may have some response
in relapsed SCLC, it is short-lived and modest at best. The applicant
further stated that for the subpopulation of relapsed SCLC patients
that have poor prognostic factors, such as brain metastases and
platinum-resistance, this short-lived response is even more pronounced.
The
[[Page 36727]]
applicant stated, for example, in the pivotal Phase 2 study for
lurbinectedin, platinum-resistant patients had a low response rate of
22 percent and a DOR of 4.7 months. Thus, the applicant stated that the
poor response supports that patients are largely unresponsive to
available treatments. The applicant also stated that in the Phase 3
DeLLphi-304 trial, the median DOR was 6.9 months with IMDELLTRA[supreg]
versus 5.5 months with chemotherapy. Per the applicant, given that
IMDELLTRA[supreg] has shown significantly better and longer response,
it is evident that IMDELLTRA[supreg] treats a patient population
unresponsive to previously available technology.
Furthermore, the applicant stated that for ES-SCLC patients with
brain metastases, IMDELLTRA[supreg] is the only FDA-approved therapy
for 2L that has been studied in ES-SCLC patients with treated, stable
brain metastases and untreated, asymptomatic brain metastases. Per the
applicant, while lurbinectedin and topotecan are also approved as 2L
ES-SCLC therapies, they were not extensively studied in patients with
treated, stable brain metastases. The applicant reiterated that in the
case of lurbinectedin, patients with brain metastases were excluded
from the pivotal trial, and in addition, lurbinectedin failed to reach
its primary endpoint of OS in the confirmatory Phase 3 ATLANTIS trial.
The applicant further stated that, while a Phase 2 study has been
conducted on topotecan and SCLC patients with brain metastases, low
response rates were observed. The applicant stated new evidence from
the Phase 3 randomized controlled DeLLphi-304 study demonstrates the
IMDELLTRA[supreg]-treated group of SCLC patients with treated, stable
brain metastases had similar safety and efficacy outcomes as those
patients without brain metastases. Further, the applicant stated that
the OS benefit with IMDELLTRA[supreg] versus chemotherapy was
consistent across prespecified patient subgroups, including the 44
percent of patients with brain metastases who received
IMDELLTRA[supreg] (asymptomatic, untreated or treated) (HR, 0.45; 95%
CI 0.31-0.65). The applicant stated that, although other existing FDA
approved treatments for ES-SCLC may be prescribed in the real world for
SCLC patients with brain metastases, these existing treatments do not
have a randomized controlled Phase 3 trial demonstrating efficacy over
the current standard of care. The applicant stated that
IMDELLTRA[supreg] has demonstrated improved survival outcomes for ES-
SCLC patients with or without brain metastases who have progressed
after initial platinum-based chemotherapy, a patient population that is
effectively unresponsive to existing treatment as demonstrated by low
response rates.
Response: We thank the applicant for its comments regarding the
substantial clinical improvement criterion. Based on the additional
information received, we agree with the applicant that
IMDELLTRATM represents a substantial clinical improvement
over existing technologies because it significantly improves OS and PFS
with lower rates of Grade 3 or higher TRAEs, including neutropenia,
compared to existing treatment options for 2L+ ES-SCLC patients.
After consideration of the public comments we received and the
information included in the applicant's new technology add-on payment
application, we have determined that IMDELLTRA[supreg] meets the
criteria for approval for new technology add-on payment. Therefore, we
are approving new technology add-on payments for this technology for FY
2026. Cases involving the use of IMDELLTRA[supreg] that are eligible
for new technology add-on payments will be identified by ICD-10-PCS
codes XW033NA (Introduction of tarlatamab-dlle antineoplastic into
peripheral vein, percutaneous approach, new technology group 10) or
XW043NA (Introduction of tarlatamab-dlle antineoplastic into central
vein, percutaneous approach, new technology group 10).
In its application, the applicant stated that the cost of
IMDELLTRA[supreg] is $1,500 for a 1 mg dose and $15,000 for a 10 mg
dose. According to the applicant, the first dose of IMDELLTRA[supreg]
is 1 mg and all subsequent doses are 10 mg. In its application, the
applicant estimated that the weighted average dose of IMDELLTRA[supreg]
for Medicare patients is 7.3 mg based on about 70 percent of inpatient
Medicare administrations being for a 10 mg dose and 30 percent of
inpatient Medicare administrations being for a 1 mg dose. Therefore,
the average cost per patient for IMDELLTRA[supreg] is $10,950 ($1,500
per mg * 7.3 mg). Under Sec. 412.88(a)(2), we limit new technology
add-on payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, the maximum new technology add-on payment
for a case involving the use of IMDELLTRA[supreg] is $7,117.50 for FY
2026.
h. IntelliSep[supreg] Test
Cytovale, Inc. submitted an application for new technology add-on
payments for the IntelliSep[supreg] Test for FY 2026. According to the
applicant, the IntelliSep[supreg] Test is a semi-quantitative test that
assesses cellular host response via a microfluidic deformability
cytometry of leukocyte biophysical properties and is intended for use
in conjunction with clinical assessments and laboratory findings to aid
in the early detection of sepsis with organ dysfunction for adults
presenting to the Emergency Department (ED). The IntelliSep[supreg]
Test generates an index value that falls within 1 of 3 discrete
interpretation bands based on the probability of sepsis with organ
dysfunction manifesting within the first 3 days after testing.
Please refer to the online application posting for the
IntelliSep[supreg] Test, available at https://mearis.cms.gov/public/publications/ntap/NTP24100553685, for additional detail describing the
technology and the disease diagnosed in part by the technology.
With respect to the newness criterion, according to the applicant,
the IntelliSep[supreg] Test was granted 510(k) clearance from FDA on
December 20, 2022, for use in adult patients with signs and symptoms of
infection who present to the ED. According to the applicant, the
IntelliSep[supreg] Test was commercially available immediately after
FDA marketing authorization. The applicant stated that one
IntelliSep[supreg] Test is used per patient per inpatient stay.
The applicant stated that, effective April 1, 2025, the following
ICD-10-PCS procedure code may be used to uniquely describe procedures
involving the use of the IntelliSep[supreg] Test: XXE5X5A (Measurement
of immune response, whole blood cellular assessment via microfluidic
deformability, new technology group 10). The applicant provided a list
of diagnosis codes that may be used to currently identify the
indication for the IntelliSep[supreg] Test using the ICD-10-CM coding
system. Please refer to the online application posting for the complete
list of ICD-10-CM codes provided by the applicant.
As previously discussed, if a technology meets all three of the
substantial similarity criteria under the newness criterion, it would
be considered substantially similar to an existing technology and would
not be considered ``new'' for the purpose of new technology add-on
payments.
With respect to the substantial similarity criteria, the applicant
asserted that the IntelliSep[supreg] Test is not substantially similar
to other currently available technologies because the
IntelliSep[supreg] Test is the only FDA-cleared
[[Page 36728]]
test that uses a microfluidic deformability cytometry technique for
early detection of sepsis in the ED regardless of whether the patient
is admitted to the hospital or not and that therefore, the technology
meets the newness criterion. The following table summarizes the
applicant's assertions regarding the substantial similarity criteria.
Please see the online application posting for the IntelliSep[supreg]
Test for the applicant's complete statements in support of its
assertion that the IntelliSep[supreg] Test is not substantially similar
to other currently available technologies.
[GRAPHIC] [TIFF OMITTED] TR04AU25.161
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18129 through
18130), we noted the following concerns regarding the substantial
similarity criteria. We noted that the applicant did not compare the
IntelliSep[supreg] Test's mechanism of action to those of other sepsis
tests or detection tools, such as the Early Sepsis Indicator for
monocyte distribution width (MDW), SeptiCyte[supreg] RAPID, and Sepsis
ImmunoScoreTM. We further noted that MDW measurement
involves the assessment of white blood cells to detect pathogen-induced
infections. Specifically, MDW measures the variability in peripheral
monocyte morphologic characteristics that increase during early phases
of infection after pathogen-induced monocyte activation.\86\ Notably,
monocytes (measured for MDW) are one type of leukocyte, and the
IntelliSep[supreg] Test also evaluates leukocytes in its mechanism of
action.\87\ While the techniques of leukocyte measurement may differ,
we stated that the subject of measurement appears to be the same or
similar. Therefore, we questioned whether the IntelliSep[supreg] Test's
measurement of leukocytes and their deformities is a unique mechanism
of action, particularly in comparison to the Early Sepsis Indicator.
Further, we questioned whether the measurement of different biomarkers
or gene expression to determine the risk of sepsis is different than
the measurement of leukocyte properties to determine the risk of
sepsis. We stated we were interested in information regarding how the
IntelliSep[supreg] Test's mechanism of action differs from other such
sepsis tests and detection tools.
---------------------------------------------------------------------------
\86\ Malinovska, A., Hernried, B., Lin, A., Badaki-Makun, O.,
Fenstermacher, K., Ervin, A.M., Ehrhardt, S., Levin, S., & Hinson,
J.S. (2023). Monocyte Distribution Width as a Diagnostic Marker for
Infection: A Systematic Review and Meta-analysis. Chest, 164(1),
101-113. https://doi.org/10.1016/j.chest.2022.12.049.
\87\ U.S. Food and Drug Administration. (2022). 510(k) approval
letter for IntelliSep Test, 21 CFR 866.3215, device to detect and
measure non-microbial analyte(s) in human clinical specimens to aid
in assessment of patients with suspected sepsis. https://www.accessdata.fda.gov/cdrh_docs/pdf22/K220991.pdf.
---------------------------------------------------------------------------
In addition, while the applicant stated that the use of the
IntelliSep[supreg] Test does not involve treatment of the same or
similar population and disease as existing technologies, we noted that
the IntelliSep[supreg] Test is a diagnostic tool to evaluate patients
with suspected infection, as are other FDA-cleared sepsis diagnostic
tools, such as those that calculate Quick Sequential Organ Failure
Assessment (qSOFA) scores (for example, SpassageQ \88\ or NAVOY
CDS[supreg] \89\). We stated that furthermore, there are also other
means of assessment, including body temperature, respiratory rate,
heart rate, blood counts, and blood cultures, that are used to
diagnosis sepsis. We also questioned whether a patient's location,
whether in the ED, admitted to the hospital, or in the intensive care
unit (ICU) constitutes a different population. Further, we noted that
there are existing sepsis diagnostic technologies that are also
approved for use in the ED such as the Early Sepsis Indicator and
Sepsis ImmunoScoreTM, which were FDA market-authorized on
March 18, 2019 and April 2, 2024, respectively.\90\ \91\ Therefore, we
stated it was unclear that there are no existing technologies other
than the IntelliSep[supreg] Test that are involved with the diagnosis
of sepsis in adult patients who have signs and symptoms of infection.
---------------------------------------------------------------------------
\88\ https://www.accessdata.fda.gov/cdrh_docs/pdf23/K230386.pdf.
\89\ https://www.accessdata.fda.gov/cdrh_docs/pdf24/K240558.pdf.
\90\ https://www.accessdata.fda.gov/scrIpts/cdrh/cfdocs/cfpmn/pmn.cfm?id=K181599.
\91\ https://www.accessdata.fda.gov/cdrh_docs/pdf23/DEN230036.pdf.
---------------------------------------------------------------------------
We invited public comments on whether the IntelliSep[supreg] Test
is substantially similar to existing technologies and whether the
IntelliSep[supreg] Test meets the newness criterion.
[[Page 36729]]
Comment: A commenter submitted a comment stating that both MDW and
the IntelliSep[supreg] Test quantify biophysical changes in leukocytes
to flag sepsis in emergency departments, and that it did not support
new technology add-on payment designation for the IntelliSep[supreg]
Test.
Response: We thank the commenter for its input and have taken it
into consideration in determining whether the IntelliSep[supreg] Test
meets the newness criterion as discussed later in this section.
Comment: The applicant also submitted a public comment regarding
substantial similarity. In response to CMS's concern that the applicant
did not compare the IntelliSep[supreg] Test's mechanism of action to
those of other sepsis tests or detection tools, the applicant asserted
that the IntelliSep[supreg] Test is novel, provides needed information
that MDW, SeptiCyte[supreg] RAPID, and the Sepsis
ImmunoScoreTM cannot, and supports a market segment that is
underserved by these technologies. The applicant stated that in 2016,
International Consensus (Sepsis-3) established a new definition of
sepsis, calling the disease a life-threatening organ dysfunction caused
by a dysregulated host response to infection, and stating that there is
no way to measure this dysregulated host response directly. The
applicant stated that, although the Sepsis-3 authors proposed proxy
measures for a dysregulated host response, including the organ failure
assessment scores SOFA and qSOFA, these measures reflect consequences
that are not exclusive to sepsis, making them insufficient for sepsis
diagnosis. The applicant further stated that MDW, SeptiCyte[supreg]
RAPID, and the Sepsis ImmunoScoreTM similarly rely on
indirect measures or proxy indicators of immune dysfunction, rather
than directly measuring immune cells' structural changes that are the
hallmark of sepsis. The applicant asserted that the most profound
difference between the IntelliSep[supreg] Test and other technologies
is that the IntelliSep[supreg] Test interrogates and visualizes immune
cells directly rather than relying on downstream biomarkers or
consequences.
The applicant described the IntelliSep[supreg] Test's mechanism of
action as a real-time assessment of immune dysregulation and sepsis by
quantifying the structural changes in white blood cells (WBCs),
specifically neutrophils and monocytes, during the formation of
Neutrophil Extracellular Trap (NET) or NETosis in cells. The applicant
explained that NETs are networks of extracellular fibers, primarily
composed of DNA from neutrophils, which bind to pathogens. The
applicant stated that the formation of NETosis in neutrophils causes
specific and measurable changes in the cells' structural composition.
The applicant further stated that the IntelliSep[supreg] Test, unlike
other sepsis tests, has been shown to correlate strongly with NET
formation markers. The applicant stated that the IntelliSep[supreg]
Test examines cell morphology and immune cell activation through high-
speed video imagery with automated analysis and quantification of WBC
's internal structure as they undergo hydrodynamic stress applied in a
microfluidic environment, providing a direct measurement of the
dysregulated immune response that underlies sepsis. The applicant
asserted that, therefore, the IntelliSep[supreg] Test is unique in its
capability to visualize and quantify the activation level of immune
cells compared to other sepsis tests, which provide or aggregate
secondary information that may correlate with sepsis.
With regard to MDW and the IntelliSep[supreg] Test's subject of
measurement appearing to be the same or similar, the applicant stated
that both tests examine blood cell characteristics and are used to
evaluate patients presenting to the ED, aiming to provide an indication
of the level of immune system activation. The applicant explained that
MDW measures monocytes' external size variability and is automatically
reported with a routine complete blood count, whereas the
IntelliSep[supreg] Test examines both monocytes and neutrophils' fluid
mechanical compression and assesses the changes in cell compliance
visually using high speed imagery. The applicant stated that the
IntelliSep[supreg] Test evaluation of neutrophils adds critical new
information, providing a broader signal that is not available from
monocytes alone, and thus, not available from MDW. The applicant
further stated that differences in method of action are foundational to
the IntelliSep[supreg] Test's ability to directly indicate immune
dysregulation, in contrast to MDW's more indirect, or limited approach.
In addition, the applicant stated that Sarani et al. (2024) conducted
an independent evaluation of MDW and the IntelliSep[supreg] Test and
found limited correlation in overall data and especially weak
correlation in high-risk groups between the two tests' results. The
applicant added that Sarani et al. (2024) asserted that this lack of
correlation suggests that MDW and the IntelliSep[supreg] Test are
measuring different blood cell properties.
The applicant compared the IntelliSep[supreg] Test to
SeptiCyte[supreg] RAPID, the Sepsis ImmunoScoreTM, qSOFA,
and other Systemic Inflammatory Response Syndrome (SIRS) symptoms. The
applicant stated SeptiCyte[supreg] RAPID aims to indirectly assess host
immune activation through proxy gene expression markers for two
selected genes and compares them to a specific set of known septic and
healthy patient profiles. The applicant asserted that SeptiCyte[supreg]
RAPID captures only a narrow, indirect signal compared to the broader
range of signals evaluated and captured by the IntelliSep[supreg] Test.
The applicant added that SeptiCyte[supreg] RAPID has limitations when
it comes to racial disparities and usage outside the ICU.
The applicant stated that the Sepsis ImmunoScoreTM
measures up to 22 other biomarkers and provides no new independent
assessment of a patient's condition. The applicant further stated that
Sepsis ImmunoScoreTM collates and analyzes measurements from
a patient's medical record, calculating a proxy score for immune
activation using machine learning algorithms applied to electronic
health record data. In addition, the applicant stated that the qSOFA is
based on clinical and laboratory indicators of organ dysfunction and
does not provide any new information beyond what is already available
as the standard of care. The applicant further stated that SIRS
symptoms and the sepsis markers based upon them reflect findings from
initial clinical assessments and do not offer any new information. In
comparison to SeptiCyte[supreg] RAPID, the Sepsis
ImmunoScoreTM, qSOFA, and SIRS symptoms, the applicant
stated that the IntelliSep[supreg] Test delivers a standalone signal of
the host response based on a blood sample from the patient and directly
evaluates the structure of monocytes and neutrophils under mechanical
stress using high-speed video.
In response to CMS's question whether a patient's location, whether
in the ED, admitted to the hospital, or in the ICU constitutes a
different population, the applicant provided a table to summarize
differences between the IntelliSep[supreg] Test, SeptiCyte[supreg]
RAPID, Sepsis ImmunoScoreTM, and MDW reported by the Early
Sepsis Indicator. The applicant provided comparative analyses and
asserted that the IntelliSep[supreg] Test is the only test of its kind
indicated for use in adult patients presenting to the ED with signs and
symptoms of infection. The applicant reported the population for Sepsis
ImmunoScoreTM as patients admitted to the Emergency
Department or hospital
[[Page 36730]]
with cultures drawn, and for Early Sepsis Indicator as adult patients
presenting to the ED in whom a WBC differential was ordered. The
applicant elaborated on implications of differences between the
IntelliSep[supreg] Test and the reported population for
SeptiCyte[supreg] RAPID, adult patients with SIRS within the first day
of ICU admission. The applicant stated that the suspected sepsis
population that has been admitted to the ICU is significantly different
than the population presenting to the ED, and therefore, the
IntelliSep[supreg] Test does not involve treatment of the same or
similar population and disease as existing technologies, such as
SeptiCyte[supreg] RAPID. The applicant stated that previous studies
found that 68 percent of the IntelliSep[supreg] Test tested population
were admitted to the hospital and 16.1 percent were admitted to the
ICU. The applicant asserted that these findings indicate that providers
judged only a small portion of those tested with the IntelliSep[supreg]
Test severe enough to warrant an ICU level of care. The applicant
stated that identifying sepsis early in the ED when symptoms are subtle
is challenging, while diagnosing sepsis later when severe organ
dysfunction necessitates ICU care is easier. The applicant concluded
the value of a test, like the IntelliSep[supreg] Test, that can provide
an accurate indicator of sepsis in an ED population, is much greater
because the opportunity to intervene with effective care is greater.
Response: We thank the applicant and commenter for their comments.
Based on our review of comments received and information submitted by
the applicant as part of its FY 2026 new technology add-on payment
application for the IntelliSep[supreg] Test, we agree with the
applicant that the IntelliSep[supreg] Test uses a unique mechanism of
action for early sepsis detection because it is the only FDA-approved
test that directly assesses immune dysregulation by quantifying the
changes in cell compliance for WBCs to aid in the early detection of
sepsis with organ dysfunction. Therefore, we agree with the applicant
that the IntelliSep[supreg] Test is not substantially similar to
existing treatment options and meets the newness criterion. We consider
the beginning of the newness period to commence on December 20, 2022,
the date on which the IntelliSep[supreg] Test received FDA market
authorization for use with adult patients with signs and symptoms of
infection who present to the ED.
With respect to the cost criterion, the applicant provided an
analysis to demonstrate that the IntelliSep[supreg] Test meets the cost
criterion. The analysis followed the order of operations summarized in
the following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.162
Because the final inflated average case-weighted standardized
charge per case exceeded the average case-weighted threshold amount,
the applicant asserted that the IntelliSep[supreg] Test meets the cost
criterion.
We invited public comments on whether the IntelliSep[supreg] Test
meets the cost criterion.
Comment: The applicant reiterated that the cost criterion analysis
submitted with the application demonstrate that the IntelliSep[supreg]
Test meets the cost criterion.
Response: We thank the applicant for its comment. We agree that the
final inflated average case-weighted standardized charge per case
exceeded the average case-weighted threshold amount. Therefore, the
IntelliSep[supreg] Test meets the cost criterion.
With regard to the substantial clinical improvement criterion, the
applicant asserted that the IntelliSep[supreg] Test represents a
substantial clinical improvement over existing technologies because the
IntelliSep[supreg] Test is the only technology that is FDA-cleared for
use in the ED to rapidly assess immune activation and identify sepsis
risk in approximately 10 minutes, providing actionable results that
significantly impact clinical decision-making and patient outcomes. The
applicant provided 9 studies to support these claims,\92\ as well as 19
background articles about international sepsis guidelines,
antimicrobial therapy initiation, timing of antibiotic administration,
and other topics related to sepsis detection. We noted that two other
articles were submitted as supporting evidence (Kraus et al., 2023;
Rhee et al., 2017), which we stated we believed should be characterized
as background articles because they do not directly assess the use of
the IntelliSep[supreg]
[[Page 36731]]
Test.\93\ Instead, Kraus et al. (2023) focused on evaluating key
attributes of rapid host response sepsis tests via an expert review
panel, and Rhee et al. (2017) estimated the U.S. incidence of sepsis
and sepsis trends using electronic health records. The following table
summarizes the applicant's assertions regarding the substantial
clinical improvement criterion. Please see the online posting for the
IntelliSep[supreg] Test for the applicant's complete statements
regarding the substantial clinical improvement criterion and the
supporting evidence provided.
---------------------------------------------------------------------------
\92\ One of these studies (Sheybani et al., 2024) is a published
abstract that was retracted.
\93\ Kraus, C.K., Nguyen, H.B., Jacobsen, R.C., Ledeboer, N.A.,
May, L.S., O'Neal, H.R., Jr., Puskarich, M.A., Rice, T.W., Self,
W.H., & Rothman, R.E. (2023). Rapid identification of sepsis in the
emergency department. Journal of the American College of Emergency
Physicians Open, 4, e12984. https://doi.org/10.1002/emp2.12984.
---------------------------------------------------------------------------
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR04AU25.163
[[Page 36732]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.164
[[Page 36733]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.165
BILLING CODE 4120-01-C
We also received a public comment in response to the New Technology
Town Hall meeting notice published in the Federal Register regarding
the substantial clinical improvement criterion for the
IntelliSep[supreg] Test, which we summarized in the FY 2026 IPPS/LTCH
PPS proposed rule (90 FR 18132).
After review of the information provided by the applicant and the
public comment received in response to the New Technology Town Hall
meeting, we stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18132 through 18133) that we had the following concerns regarding
whether the IntelliSep[supreg] Test meets the substantial clinical
improvement criterion. Regarding the new study provided by the
applicant in the Town Hall comment, we noted that Sarani et al. (2024)
does not compare the IntelliSep[supreg] Test and MDW with respect to
the ability to diagnose sepsis earlier or resulting clinical outcomes
(for example, length of stay or mortality).
We stated that the applicant made six claims in regard to the
substantial clinical improvement assertion that the IntelliSep[supreg]
Test offers the ability to diagnose sepsis in a patient population
where the condition is currently undetectable or offers the ability to
diagnose sepsis earlier in a patient population than allowed by
currently available methods; however, we noted that a number of these
claims did not address this criterion. Specifically, the applicant
stated that the IntelliSep[supreg] Test (1) allows clinicians to make
early, appropriate antibiotic decisions in patients with suspected
sepsis while pursuing antimicrobial stewardship targets; (2)
outperforms current sepsis diagnostic tools available for use in the
ED; (3) effectively differentiates sepsis from non-specific biomarker
elevations in various clinical conditions; (4) is the only FDA-cleared
test to assess dysregulated immune response to infection (sepsis) in
patients presenting to the ED; and (5) has demonstrated a high NPV for
sepsis and therefore allows for it to be ruled out where sepsis is
unlikely. We stated that these claims discuss the reliability of the
IntelliSep[supreg] Test outcomes or the potential benefits of sepsis
risk stratification, or relate to not diagnosing sepsis, and do not
address the ability of the IntelliSep[supreg] Test to diagnose a
patient population where sepsis is currently undetectable or offer the
ability to diagnose sepsis earlier than other technologies.
We further noted that none of the claims made by the applicant
under this assertion provided a comparison of time to diagnosis to
currently available sepsis diagnostics in order to demonstrate that the
IntelliSep[supreg] Test can diagnose sepsis earlier than currently
available methods. While the applicant provided O'Neal et al. (2024b),
which established the 7.2 minute testing turnaround time for the
IntelliSep[supreg] Test to support the claim that it provides
clinicians with actionable results sooner than pathogen-based detection
systems, the only other testing time provided as a comparison was from
a study comparing time to positivity between the BacT/Alert and BACTEC
blood culture systems (Butler-Laporte et al., 2020). We stated we would
appreciate evidence comparing time to diagnosis for the
IntelliSep[supreg] Test and other existing sepsis detection tools also
developed to address the length of time to definite sepsis diagnosis
with blood cultures, such as Early Sepsis Indicator or Sepsis
ImmunoScore, in order to demonstrate the applicant's assertion that the
IntelliSep[supreg] Test allows for faster detection of sepsis compared
to existing technologies.
We further noted that we did not receive any information
demonstrating that clinicians changed the management of patients due to
the use of the IntelliSep[supreg] Test. The Jagneaux et al. (2024)
study measured time-to-bed assignment (TTB) when nurses at one medical
center triaged patients in the ED waiting room, tested patients using
the IntelliSep[supreg] Test, and placed patients with
IntelliSep[supreg] Band 3 results in ED beds. The study showed that TTB
for Band 3 was shorter than TTB for Band 1, but we questioned whether
TTB between risk-stratified bands should be considered a change in
management. The study did not include a control group or comparison to
other sepsis tests or diagnostic tools to demonstrate differences in
patient management between the use of the IntelliSep[supreg] Test and
other standards of care. We further noted that Jagneaux et al. (2024),
which is an unpublished abstract, lacked details regarding the patient
population, study protocol, and statistical analyses, and is only
representative of a single medical center. We stated that we were
therefore unclear whether the results may be influenced by potential
confounding factors, and we questioned whether they are generalizable
to other EDs or geographic regions as well as to the Medicare
population.
We stated that the applicant also made seven claims in regard to
the substantial clinical improvement assertion that the
IntelliSep[supreg] Test significantly improves clinical outcomes
relative to services or technologies previously available. However, we
noted that a number of these claims do not address this criterion. In
particular, the applicant stated that the IntelliSep[supreg] Test (1)
reduces door-to-bed time for patients presenting with occult sepsis who
appear clinically stable by triage staff; (2) allows for prompt
attention to infection source identification and control through its
rapid turnaround time; (3) aids improved compliance with the CMS SEP-1
and Surviving Sepsis Campaign 3-hour bundle compliance; and (4) aids
sepsis antibiotic initiation consistent with current consensus
guidelines. First, we questioned whether the claim that the
IntelliSep[supreg] Test reduces door-to-bed time is an appropriate
proxy for timely antibiotic administration and the
[[Page 36734]]
potential for subsequent clinical outcomes (such as mortality). We
stated that the strength of the direct association between time from
door-to-bed and clinical outcome improvement or whether any outcomes
are inferred from surrogate endpoints was unclear. We also noted that
the provided evidence did not demonstrate whether the
IntelliSep[supreg] Test is the driving factor, among all other tests
and clinical practices, that allows timely infection source
identification and control and, therefore, decreases mortality.
Additionally, we stated we were unclear about the direct association
between the IntelliSep[supreg] Test and antibiotic initiation for
sepsis consistent with current guidelines as this was also only
inferred, and the IntelliSep[supreg] Test is one tool among others used
to diagnose sepsis. We also questioned whether compliance with the CMS
SEP-1 and Surviving Sepsis Campaign 3-hour bundles is intended as a
proxy for decreased mortality that may occur from reducing the time to
antibiotic administration. We noted that a decrease in mortality is
only inferred, and the provided evidence does not demonstrate that the
IntelliSep[supreg] Test decreases mortality. We stated we were unclear
how these claims relate to a demonstration of substantial clinical
improvement over existing technologies because these claims do not
pertain to clinical outcomes described at Sec. 412.87(b)(1)(ii)(C),
such as a reduction in mortality or a decreased rate of at least one
subsequent diagnostic or therapeutic intervention.
We also noted that the claims and the provided evidence regarding
the IntelliSep[supreg] Test's ability to significantly improve clinical
outcomes relative to services or technologies previously available lack
a comparison of the IntelliSep[supreg] Test to existing technologies
used to diagnose sepsis, such as the previously discussed Early Sepsis
Indicator, SeptiCyte[supreg] RAPID, and Sepsis
ImmunoScoreTM. While the applicant stated in its Town Hall
comment that a comparison between the IntelliSep[supreg] Test and
SeptiCyte[supreg] RAPID is inappropriate due to the differences in
indicated location, we questioned whether the impact of testing
different patients in different environments within a hospital would be
relevant to clinical outcomes such as timely antibiotic administration
and mortality. In addition, we noted that both Early Sepsis Indicator
and Sepsis ImmunoScoreTM are indicated for use in the ED. We
stated we were interested in comparative evidence for other sepsis
diagnostic technologies in order to evaluate the IntelliSep[supreg]
Test's clinical outcomes relative to other technologies. We also noted
that since much of the evidence provided across claims (Thomas et al.
(2025); Thomas et al. (2024a); Thomas et al. (2024b)) is unpublished,
the details provided do not include study protocols or statistical
methods and measures. As such, we stated we were unable to account for
differences in the outcome measures or determine if the results are
statistically significant. Further, because these study results are
from one academic medical center, we questioned whether the results are
generalizable to other hospitals and more broadly to the Medicare
population. Where the Jagneaux et al. (2024) study was used to support
claims regarding the IntelliSep[supreg] Test's ability to significantly
improve clinical outcomes relative to services or technologies
previously available, we also stated we had the same concerns as
previously discussed, including lack of details regarding the patient
population, study protocol, and statistical analyses.
In addition, with respect to the claim that IntelliSep[supreg] Test
results enable ED providers to decrease the use of diagnostic images
and testing, resulting in decreased exposure and associated risks,
while Thomas et al. (2024a) evaluated the impact of the
IntelliSep[supreg] Test on blood culture orders, antibiotic usage, and
patients' LOS for 1,275 patients who presented to an ED with signs or
symptoms of infection, we noted that the study did not determine
whether a decrease in these measures resulted in patients experiencing
decreased exposure and associated risks or a significant improvement in
clinical outcomes relative to technologies previously available.
We stated that while the Jagneaux et al. (2024) study provided by
the applicant did not measure mortality, the applicant provided the
O'Neal, et al. (2024a) study, which did measure all-cause cumulative
hospital mortality stratified by IntelliSep[supreg] bands; however, the
study only compared the IntelliSep[supreg] Test to common traditional
sepsis tests or detection tools, such as white blood cell count,
procalcitonin, lactate, blood cultures, and the Sequential Organ
Failure Assessment (SOFA). O'Neal et al. (2024a) did not provide
hospital mortality data to demonstrate the IntelliSep[supreg] Test's
improved clinical outcomes relative to other technologies that are
available, such as Early Sepsis Indicator, SeptiCyte[supreg] RAPID, and
Sepsis ImmunoScoreTM.
Regarding the claim that the IntelliSep[supreg] Test aids in
reducing average LOS among tested patients, the Thomas et al. (2024b)
study submitted by the applicant found that incorporating the
IntelliSep[supreg] Test and releasing its results to clinicians for 413
patients of a large U.S. academic medical center led to a reduction of
1.28 days for inpatients and 2.42 days for ICU patients, when compared
to 196 patients in the control group for which the IntelliSep[supreg]
Test was performed but not released to clinicians. We noted that the
study used control and intervention cohorts that were not concurrent,
and we questioned the impact from varying confounders, such as changes
in clinical policy. We noted that the applicant also included
background studies to demonstrate a positive association between longer
hospital LOS and the probability of acquiring an infection,
readmission, negative emotions, and increased hospital costs.\94\
However, these studies did not assess the IntelliSep[supreg] Test's
ability to affect LOS, rates of infection, readmission, or other
clinical outcomes.
---------------------------------------------------------------------------
\94\ Hassan, M., Tuckman, H. P., Patrick, R. H., Kountz, D. S.,
& Kohn, J. L. (2010). Hospital length of stay and probability of
acquiring infection. International Journal of Pharmaceutical and
Healthcare Marketing, 4(4), 324-338. https://doi.org/10.1108/17506121011095182.
---------------------------------------------------------------------------
Lastly, we questioned how much capability should be attributed to
the IntelliSep[supreg] Test when making clinical judgments and
improving clinical outcomes, and we welcomed additional information.
We invited public comments on whether the IntelliSep[supreg] Test
meets the substantial clinical improvement criterion.
Comment: A few commenters expressed support for approval of the
IntelliSep[supreg] Test's new technology add-on payment, inclusive of
emphasis on the importance of early sepsis recognition and rapid
treatment. Another commenter did not support approval for the
IntelliSep[supreg] Test, stating that O'Neal et al. (2024) found that
the IntelliSep[supreg] Test's area under the receiver operating
characteristic curve (AUROC) is indistinguishable from procalcitonin.
The commenter also stated that head-to-head evidence of the
IntelliSep[supreg] Test and MDW is even thinner, stating that the
Sarani 2025 series reports IntelliSep[supreg] Test results only,
leaving MDW unmeasured. The commenter also stated that for Sepsis-3
identification, FDA clearance assigned the IntelliSep[supreg] Test
likelihood ratios of 0.35 (Band 1) and 2.69 (Band 3), but 28 percent of
patients fall into the indeterminate Band 2. The commenter further
stated MDW delivers comparable discriminatory power (<=20: LR 0.36;
>20: LR 0.265) with 100 percent of patients classified, meaning it
still
[[Page 36735]]
reports when the IntelliSep[supreg] Test cannot. According to the
commenter, MDW results are available in roughly 2 minutes, widely
deployed as part of complete blood counts, and reimbursed at $4.48,
unlike the dedicated IntelliSep[supreg] Test instrument. The commenter
added that the IntelliSep[supreg] Test's utility claims hinge on
abstracts and single-center slide decks from the site that co-developed
the test. The commenter stated that the applicant for the
IntelliSep[supreg] Test did not offer peer-reviewed publications with
robust outcome benefits and that unpublished data from one institution
does not establish utility. The commenter stated that MDW, in contrast,
has a substantial, peer-reviewed record of both clinical validity and
real-world benefit, whereas the IntelliSep[supreg] Test shows similar
or poorer analytic performance, lacks peer-reviewed utility data, and
requires proprietary hardware at higher cost. The commenter, therefore,
recommended that the IntelliSep[supreg] Test's new technology add-on
payment application be denied.
Response: We thank the commenters for their input and have taken it
into consideration in determining whether IntelliSep[supreg] meets the
substantial clinical improvement criterion, discussed later in this
section.
Comment: The applicant submitted a public comment regarding the
substantial clinical improvement criterion and provided responses to
CMS's concerns from the proposed rule. The applicant included a
recently published paper by Thomas et al. (2025),\95\ which the
applicant asserted further demonstrates how the IntelliSep[supreg] Test
provides a substantial clinical improvement in detecting and diagnosing
sepsis compared to all other available tests. The applicant explained
the article discusses a sepsis quality improvement initiative at a
large academic medical center with a high-volume ED that incorporated
the IntelliSep[supreg] Test into its protocol, enabling rapid
diagnostic support for patients flagged by an electronic health record-
based alert. The applicant asserted that, per the authors, over the
course of 1 year, implementation of the IntelliSep[supreg] Test
significantly reduced mortality, hospital LOS, and blood culture
utilization, demonstrating improved patient outcomes and resource
efficiency compared to the pre-implementation period. The applicant
further stated that while the study does not have the rigor of some
other study designs, it overcomes limitations related to a control
population by leveraging protocolized screening, which defines a broad,
consistent, and pre-specified analysis group including more than 12,000
diverse patients (median age: 66 years) with no inclusion or exclusion
criteria. In addition, the applicant asserted that the article shows
that the use of the IntelliSep[supreg] Test in an ED triage process
enabled the care delivery in a way that was superior to the standard of
care in a large population of patients.
---------------------------------------------------------------------------
\95\ Thomas, C. B., Wyler, B., D'Antonio, C. M., Laperouse, M.,
Alwood, S., Richard, K., Grantham, A., Sheybani, R., Sorrells, M.
G., Tan, W.-J., Teague, J. W., O'Neal, H., & Jagneaux, T. (2025).
Impact of a Sepsis Quality Improvement Initiative on Clinical and
Operational Outcomes. Healthcare, 13, 1273. https://doi.org/10.3390/healthcare13111273.
---------------------------------------------------------------------------
The applicant also asserted that the article provides additional
documentation regarding multiple concerns that CMS stated in the
proposed rule, including those related to reductions in hospital LOS,
blood culture utilization, and mortality. First, the applicant stated
that it addressed CMS's concerns regarding the Thomas et al. (2024b)
study, including the impact from varying confounders and several
questions from CMS, specifically providing additional documentation
related to reductions in hospital length of stay, blood culture
utilization, and mortality. The applicant stated that, in the Thomas et
al. (2025) study, the IntelliSep[supreg] Test's implementation resulted
in a reduction in hospital LOS for sepsis patients of 0.64 days (9.5
percent) for the full cohort and 0.76 days (11.3 percent) for the
temporally matched cohort. The applicant stated that this reduction
meets the standard provided in 42 CFR 412.87(b), which states: A more
rapid beneficial resolution of the disease process treatment including,
but not limited to, a reduced length of stay or recovery time. Second,
the applicant asserted that the Thomas et al. (2025) study addresses
the IntelliSep[supreg] Test's ability to reduce diagnostic exposure,
because the study showed application of the IntelliSep[supreg] Test
resulted in a relative reduction in blood culture utilization, from
usage in 50.8 to 45.7 percent of patients. The applicant stated that
this reduction in cultures meets the standard in 42 CFR 412.87(b) which
describes a decreased rate of at least one subsequent diagnostic or
therapeutic intervention. In addition, the applicant stated that the
Thomas et al. (2025) study demonstrates that, in the temporally matched
cohort, application of the IntelliSep[supreg] Test produced an absolute
reduction in sepsis mortality risk by 4.2 percent (from 10.7 percent to
6.5 percent). The applicant added that this reduction is a significant
improvement over the standard of care, which included SIRS symptoms,
lactate measurement, and the use of cultures, that no other sepsis test
has demonstrated.
In response to CMS's concern that its application lacked a
comparison of the IntelliSep[supreg] Test to existing technologies used
to diagnose sepsis, the applicant stated that the Sepsis
ImmunoScoreTM, SeptiCyte[supreg] RAPID, and the Early Sepsis
Indicator are not in widespread use, preventing comparative data
between these sepsis diagnostic tests and the IntelliSep[supreg] Test.
The applicant further stated that a 2024 New England Journal of
Medicine review article confirmed that no sepsis test is in widespread
use. The applicant asserted that, as such, there is no practical way to
construct a comparison in sepsis diagnostic tests. The applicant
additionally asserted that no other technology has conducted a
comparative study documenting improvements in hospital LOS, blood
culture utilization, and mortality risk relative to the standard of
care as the Thomas et al. (2025) study provides.
In response to CMS's concern that the IntelliSep[supreg] Test
application did not address its ability to diagnose a patient
population where sepsis is currently undetectable or the ability to
diagnose sepsis earlier than other technologies, the applicant stated
that other sepsis diagnostic tests, including SIRS symptoms, lactate,
and blood cultures, assess the symptoms or effects of sepsis, rather
than sepsis's immune dysregulation, and are therefore insufficient. The
applicant asserted that the IntelliSep[supreg] Test provides the novel
capability to assess immune activation, which can allow for a sepsis
diagnosis based on underlying cell physiology. The applicant further
stated that the IntelliSep[supreg] Test shows superior performance in
sepsis diagnosis (as adjudicated by a physician panel) against the
current sepsis detection standards of care for sepsis detection.
Regarding the IntelliSep[supreg] Test's ability to diagnose sepsis
earlier than other technologies, the applicant stated that the
IntelliSep[supreg] Test's turnaround time is comparable to some other
sepsis tests, such as MDW and the Sepsis ImmunoScoreTM. The
applicant asserted that the IntelliSep[supreg] Test's ability to
rapidly assess immune dysregulation allows it to identify sepsis across
the range of the disease's progression continuum based on ED
presentation, where patients may present early in sepsis progression
with limited symptoms. In addition, the applicant asserted that, as
such, the IntelliSep[supreg] Test's sensitivity allows it to identify
sepsis patients at an earlier point in the disease's course than other
available
[[Page 36736]]
tests. The applicant stated that Sarani et al. (2024) showed that the
IntelliSep[supreg] Test demonstrated improved sepsis detection
capability relative to MDW.
In response to CMS's concerns about the Jagneaux et al. (2024)
study, the applicant reiterated that the study showed that patients in
the waiting room with a Band 3 score from the IntelliSep[supreg] Test
were immediately put into an ED bed for treatment, which improved time
to bed (TTB) relative to the overall mean. The applicant stated that
this study did not document patient outcomes but added it demonstrated
that patients with Band 3 scores had a 94 percent rate of infection and
a 54 percent rate of sepsis based upon discharge, while patients with
Band 1 scores had a 1.6 percent rate of sepsis. The applicant asserted
that because the IntelliSep[supreg] Test results led to faster TTB for
patients with Band 3 scores, the test resulted in faster treatment
times for high-risk patients. The applicant also stated that while
Jagneaux et al. (2024) did not document patient outcomes, Thomas et al.
(2025) included these same patients and observed significant decreases
in sepsis-associated mortality. The applicant further asserted that
given the known association between care timeliness and mortality as
well as the known waiting time decrease, it follows that some of the
IntelliSep[supreg] Test's documented mortality improvement is likely
attributable to the advancement in sepsis care it enabled. The
applicant concluded that the application of the IntelliSep[supreg] Test
in clinical practice provides evidence for its substantial clinical
improvement and the approval of its new technology add-on payment
application.
A commenter who employed the IntelliSep[supreg] Test at several
facilities submitted a comment and an unpublished abstract to show how
the test's adoption impacted patient outcomes at the facilities. The
commenter stated that it tracked patient discharge and return rates
following the introduction of the IntelliSep[supreg] Test, and
documented a significant increase (from 14 percent to 24.9 percent) in
the patient discharge rate from EDs in the first 4 months following the
IntelliSep[supreg] Test's implementation. The commenter further stated
that the EDs achieved this increase without an increase in the rate of
patient returns. The commenter asserted that, taken together with other
admission and clinical data, it observed a significant increase (26
days to 27 days) in the return-adjusted hospital free days experienced
by patients. The commenter stated that the IntelliSep[supreg] Test
adoption resulted in a significant clinical impact for its patients.
The commenter provided an abstract describing the impact of the
IntelliSep[supreg] Test use in the ED within their submission.
Response: We thank the applicant and other commenters for their
comments regarding the substantial clinical improvement criterion.
Based on the additional information received and all data received to
date, we continue to have concerns as to whether the IntelliSep[supreg]
Test represents a substantial clinical improvement over existing
technologies. Specifically, we disagree with the applicant that the
evidence provided is sufficient to establish that the
IntelliSep[supreg] Test offers the ability to diagnose a medical
condition in a patient population where the medical condition is
currently undetectable or offers the ability to diagnose a medical
condition earlier in a patient population than allowed by currently
available methods. Additionally, it remains unclear that the
IntelliSep[supreg] Test significantly improves clinical outcomes
relative to services or technologies previously available.
Regarding the applicant's assertion that the IntelliSep[supreg]
Test provides a substantial clinical improvement in detecting and
diagnosing sepsis compared to all other available tests, we note the
recently published and submitted Thomas et al. (2025) study did not
compare the IntelliSep[supreg] Test to other available sepsis
diagnostic technologies, such as the Early Sepsis Indicator and Sepsis
ImmunoScoreTM. Furthermore, the applicant stated that Sarani
et al. (2024) showed that the IntelliSep[supreg] Test demonstrated
improved sepsis detection capability relative to MDW. However, the
Sarani et al. (2024) study was conducted in a single medical center
with a small sample size (n = 44), and we therefore question the
generalizability of the results. We maintain our concern that Sarani et
al. (2024) does not compare the IntelliSep[supreg] Test and MDW with
respect to the ability to diagnose sepsis earlier, and the study does
not define a patient population where sepsis is currently undetectable
in which the IntelliSep[supreg] Test can detect sepsis. The applicant
asserted that the O'Neal et al. (2024) study demonstrates that the
IntelliSep[supreg] Test shows faster time to diagnosis against current
standards of care including SIRS, lactate, and blood cultures. However,
the applicant stated that the turnaround time of the IntelliSep[supreg]
Test is comparable with that of MDW (that is, Early Sepsis Indicator)
and Sepsis ImmunoScore,TM which both may also have the
capability to provide a faster diagnosis of sepsis compared to SIRS,
lactate, and blood cultures. Although the applicant stated that the
Sepsis ImmunoScoreTM, SeptiCyte[supreg] RAPID, and the Early
Sepsis Indicator are not in widespread use, the substantial clinical
improvement criterion requires that a technology demonstrate its
diagnostic ability relative to currently available methods or
technology. The applicant also stated that the sensitivity of the
IntelliSep[supreg] Test allows it to identify these patients at an
earlier point in the patient's course of sepsis than other available
tests, but the applicant did not provide evidence demonstrating sepsis
identification earlier in the disease process than other diagnostic
tools. In addition, the applicant cited the Jagneaux et al. (2024)
study, stating that the test led to faster treatment for patients who
were ultimately shown to have been at high risk, based on the rate of
higher infection in the high risk band. We continue to be concerned
that the Jagneaux, et al. (2024) study does not demonstrate how the
IntelliSep[supreg] Test compares to other currently available
diagnostic methods in TTB. Also, while the applicant concluded that
because the patients from the Jagneaux, et al. (2024) study were
included in the Thomas et al. (2025) patient cohort, some of the
mortality improvement documented with the IntelliSep[supreg] Test in
the Thomas et al. (2025) study is likely attributable to the
advancement in sepsis care enabled by the IntelliSep[supreg] Test,
neither the applicant nor the Jagneaux, et al. (2024) study identify or
measure the asserted advancements. It is unclear if TTB resulted in
changes in patient management, and if so what those changes were. Our
concerns for evidence of differences in the management of patients
remain. We also continue to be concerned with the lack of data
comparing the IntelliSep[supreg] Test to other available sepsis
diagnostics, or evidence of a patient population where sepsis is
currently undetectable, in which the IntelliSep[supreg] Test can detect
sepsis. We remain unclear how the IntelliSep[supreg] Test compares to
other available sepsis diagnostic technology in detecting and
diagnosing sepsis.
Regarding the applicant's assertion that the IntelliSep[supreg]
Test significantly improves clinical outcomes relative to services or
technologies previously available, we remain unclear how the
IntelliSep[supreg] Test compares to other sepsis diagnostic
technologies. While the applicant submitted the Thomas et al. (2025)
study to show that the IntelliSep[supreg] Test demonstrated a
significant reduction in mortality, LOS, and blood culture utilization,
we remain concerned about the continued lack of
[[Page 36737]]
comparative data. We remain unclear how the IntelliSep[supreg] Test's
clinical outcomes compare to those of other existing sepsis detection
tests.
After consideration of all the information received from the
applicant as well as the public comments, we are unable to determine
that the IntelliSep[supreg] Test represents a substantial clinical
improvement over existing technologies for the reasons discussed in the
proposed rule and in this final rule, and therefore, we are not
approving new technology add-on payments for the IntelliSep[supreg]
Test for FY 2026.
i. Neuroguard IEP[supreg] 3-in-1 Carotid Stent and Post-Dilation
Balloon System With Integrated Embolic Protection
Contego Medical, Inc. submitted an application for new technology
add-on payments for the Neuroguard IEP[supreg] 3-in-1 Carotid Stent and
Post-Dilation Balloon System with Integrated
Embolic Protection (Neuroguard IEP[supreg] System) for FY 2026.
According to the applicant, the Neuroguard IEP[supreg] System combines
a carotid stent with an integrated 40 [mu]m embolic protection filter
and post-dilation balloon. Per the applicant, the Neuroguard
IEP[supreg] System restores and maintains vessel patency while
stabilizing plaque, and by capturing small emboli during critical
phases, it reduces the risk of stroke during the procedure and helps
prevent future stroke.
Please refer to the online application posting for the Neuroguard
IEP[supreg] System, available at https://mearis.cms.gov/public/publications/ntap/NTP241004CNKB9, for additional detail describing the
technology and carotid artery disease.
With respect to the newness criterion, according to the applicant,
the Neuroguard IEP[supreg] System was granted premarket approval (PMA)
from FDA on October 11, 2024 for improving the carotid luminal diameter
in subjects at high risk for adverse events from a carotid
endarterectomy who require carotid revascularization and meet the
criteria outlined: patients with symptomatic stenosis of the common or
internal carotid artery with 50 percent as determined by angiography
using North American Symptomatic Carotid Endarterectomy Trial (NASCET)
methodology or patients with asymptomatic stenosis of the common or
internal carotid artery with 80 percent as determined by angiography
using NASCET methodology; and patients with reference vessel diameters
4.0 mm to 8.0 mm. The applicant and FDA approval letter stated that
this technology is also indicated for post-dilation of the stent
component with simultaneous capture and removal of embolic material.
According to the applicant, the Neuroguard IEP[supreg] System is used
in conjunction with an available primary distal embolic protection
device as described in the Instructions for Use. According to the
applicant, the Neuroguard IEP[supreg] System was commercially available
immediately after its FDA approval. Per the applicant, one Neuroguard
IEP[supreg] System typically is used per inpatient stay.
The applicant submitted a request for approval for unique ICD-10-
PCS procedure codes for the Neuroguard IEP[supreg] System and was
granted approval to use the following procedure codes effective October
1, 2025: X2AH34B (Right common carotid artery cerebral embolic
filtration, single integrated distal filter, percutaneous approach, new
technology group 11), X2AJ34B (Left common carotid artery cerebral
embolic filtration, single integrated distal filter, percutaneous
approach, new technology group 11), X2AK34B (Right internal carotid
artery cerebral embolic filtration, single integrated distal filter,
percutaneous approach, new technology group 11), and X2AL34B (Left
internal carotid artery cerebral embolic filtration, single integrated
distal filter, percutaneous approach, new technology group 11). The
applicant stated that codes I65.21 (Occlusion and stenosis of right
carotid artery), I65.22 (Occlusion and stenosis of left carotid
artery), I65.23 (Occlusion and stenosis of bilateral carotid arteries),
or I65.29 (Occlusion and stenosis of unspecified carotid artery) may be
used to currently identify the indication for the Neuroguard
IEP[supreg] System under the ICD-10-CM coding system.
As previously discussed, if a technology meets all three of the
substantial similarity criteria under the newness criterion, it would
be considered substantially similar to an existing technology and would
not be considered ``new'' for the purpose of new technology add-on
payments.
With respect to the substantial similarity criteria, the applicant
asserted that the Neuroguard IEP[supreg] System is not substantially
similar to other currently available technologies because it is a
first-in-class, novel device that uses a different mechanism of action
compared to existing technologies by integrating a stent with a 40
[mu]m (3 to 4 times smaller than pores of traditional filters) embolic
protection filter and a post-dilation balloon, aiming to streamline the
procedure and increase the effectiveness of embolic protection during
carotid stenting, and that no other similar device is currently
available in the U.S., and therefore, the technology meets the newness
criterion. The following table summarizes the applicant's assertions
regarding the substantial similarity criteria. Please see the online
application posting for the Neuroguard IEP[supreg] System for the
applicant's complete statements in support of its assertion that the
Neuroguard IEP[supreg] System is not substantially similar to other
currently available technologies.
[[Page 36738]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.166
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18135), we stated
we had the following concerns with regard to the newness criterion.
While the applicant asserted that the Neuroguard IEP[supreg] System is
novel in that it uses a new mechanism of action because its 40 [mu]m
embolic protection filter has pores 3-4 times smaller than traditional
filters used in CAS, we questioned whether this represents a new
mechanism of action as both Neuroguard's filter and existing filters
use a porous membrane to capture and remove embolic material while
performing angioplasty and stenting procedures in carotid arteries. We
noted that the applicant asserted that this change in filter size may
impact clinical outcomes, however, this is not relevant to mechanism of
action. Furthermore, the Neuroguard IEP[supreg] System should always be
used in conjunction with an available primary distal embolic protection
device as described in the IFU,\96\ which suggests that its filter
would not impact the mechanism of action of the device. We also noted
that there are other existing embolic protection filters used during
CAS procedures that have the same 40-micron pore size, such as the
Paladin[supreg] Carotid Post-Dilation Balloon System with Integrated
Embolic Protection (Paladin[supreg] System with IEP) from the same
manufacturer, which received FDA 510(k) clearance on September 6,
2018.\97\
---------------------------------------------------------------------------
\96\ Neuroguard IEP[supreg] 3-in-1 Carotid Stent, Post-Dilation
Balloon System with Integrated Embolic Protection (https://www.accessdata.fda.gov/cdrh_docs/pdf24/P240009A.pdf).
\97\ FDA. Section 510(k) premarket notification. Paladin Carotid
Post-Dilation Balloon System with Integrated Embolic Protection.
K181128. September 6, 2018 (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?id=K181128, accessed 2/5/2025).
---------------------------------------------------------------------------
In addition, while the applicant asserted that the Neuroguard
IEP[supreg] System has a new mechanism of action because it integrates
a stent with an embolic protection filter that opens during stent
deployment and balloon
[[Page 36739]]
dilation to streamline the procedure and increase the effectiveness of
embolic protection during CAS, we questioned how integrating existing
procedural devices into one device to eliminate the need for multiple
devices results in a different mechanism of action, as this appears to
describe an ease-of-use feature rather than having an impact on the
technology's therapeutic outcome of improving carotid luminal diameter
for patients with stenosis of the carotid artery.\98\ We stated it was
unclear how the way in which the Neuroguard IEP[supreg] System treats
carotid artery stenosis is different from the way in which the many
existing carotid artery stents, filters, and post-dilation balloons
available on the market, used together or as part of a system, treat
carotid artery stenosis. Therefore, we stated that it appears these
technologies may have the same or a similar mechanism of action as the
Neuroguard IEP[supreg] System. We further noted that the applicant
stated that the Neuroguard IEP[supreg] System treats the same disease,
carotid artery stenosis, in the same patient population as existing
carotid stent technologies, and that it maps to the same MS-DRGs for
carotid artery stenting procedures.
---------------------------------------------------------------------------
\98\ FDA. Neuroguard IEP[supreg] 3-in-1 Carotid Stent, Post-
Dilation Balloon System with Integrated Embolic Protection. Pre-
market approval. October 11, 2024.
---------------------------------------------------------------------------
Accordingly, as we stated that it appears that the Neuroguard
IEP[supreg] System and existing carotid stents or stent systems, such
as the GORE[supreg] Carotid Stent, RX AcculinkTM Carotid
Stent System, or Carotid WALLSTENT[supreg] Monorail[supreg]
Endoprosthesis, or the Paladin[supreg] System with IEP used with any
available carotid artery stent, may use the same or similar mechanism
of action to achieve a therapeutic outcome, would be assigned to the
same MS-DRG, and would treat the same or similar patient population and
disease, we questioned whether these technologies may be substantially
similar to one another. We noted that, per our policy, if technologies
are substantially similar to each other, we use the earliest market
availability date as the beginning of the newness period for the
technologies. Accordingly, we stated if we determine that the
Neuroguard IEP[supreg] System is substantially similar to existing
carotid stents or systems as described previously, because the 3-year
anniversary of the FDA clearance of all these current technologies
occurred prior to FY 2026,99 100 101 the Neuroguard
IEP[supreg] System would not be considered new.
---------------------------------------------------------------------------
\99\ The 3-year anniversary of FDA PMA approval for the RX
AcculinkTM Carotid Stent System was August 30, 2007.
https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpma/pma.cfm?id=P040012.
\100\ The 3-year anniversary of FDA PMA approval for Carotid
WALLSTENT[supreg] Monorail[supreg] Endoprosthesis was October 23,
2011. https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpma/pma.cfm?id=P050019.
\101\ The 3-year anniversary of FDA PMA approval for GORE
Carotid Stent was November 1, 2021. https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpma/pma.cfm?ID=P180010.
---------------------------------------------------------------------------
We invited public comments on whether the Neuroguard IEP[supreg]
System is substantially similar to existing technologies and whether
the Neuroguard IEP[supreg] System meets the newness criterion.
Comment: Several commenters expressed support for the Neuroguard
IEP[supreg] System. The commenters stated that the 3-in-1 design is
new, often based on their clinical experience. A few of the commenters
stated that the integrated design streamlines the procedure, shortens
the procedure time, and eliminates multiple device exchanges, each of
which represents a discrete embolic risk in and of itself. A commenter
stated that the Neuroguard IEP System is a paradigm shift in the field
of carotid intervention by introducing a new mechanism of action,
combining targeted microembolus capture at the most vulnerable stages
of the procedure with improved procedural efficiency through reduced
device exchanges. A commenter stated that the Neuroguard IEP[supreg]
System is a true advancement that directly addresses an unmet need
posed by traditional or legacy EPDs, which are unable to capture
microemboli materials less than 100 microns. Some commenters stated
that these smaller particles account for more than 80 percent of the
debris generated during carotid stenting and that by functioning in
tandem with standard embolic protection, the Neuroguard IEP[supreg]
System offers dual protection. Another commenter stated that the
Neuroguard IEP[supreg] System eliminates the need to maneuver through
the cervical loop to capture additional filters, thereby reducing the
risks to patients and decreasing the overall procedure time. A
commenter stated that the Neuroguard IEP[supreg] System introduces a
novel dual embolic protection mechanism while maintaining required
primary protection throughout the procedure. Per the commenter, this
integrated approach creates therapeutic capabilities not available with
existing technologies. A commenter stated that this technology has
broader implications, particularly in the treatment of tandem
occlusions during anterior circulation stroke, since these are complex
cases involving both an intracranial large vessel occlusion and a
proximal cervical internal carotid artery lesion, often of
atherosclerotic origin. Some commenters stated that the closed-cell
design of the stent enhances plaque coverage without reducing vessel
conformability.
Response: We thank the commenters for their input and have taken it
into consideration in determining whether the Neuroguard IEP[supreg]
meets the newness criterion as discussed later in this section.
Comment: The applicant submitted a public comment asserting that
the Neuroguard IEP[supreg] System represents a groundbreaking
advancement in CAS with a novel 3-in-1 design combining a carotid
stent, post-dilation balloon, and 40-micron pore integrated embolic
filter in 1 device. The applicant reiterated that the technology's
design distinctions enable a novel mechanism of action that directly
addresses the root cause of procedure-related embolic events,
microemboli generated during stent deployment and post-dilation, when
perioperative stroke risk is highest.102 103 104 The
applicant reiterated that the Neuroguard IEP[supreg] System enables the
placement of a 40-micron pore filter, deployment of the stent, and
post-dilation ballooning all through a single catheter. Per the
applicant, the Neuroguard IEP[supreg] System's revolutionary mechanism
of action directly addresses the primary limitation of traditional
carotid stenting technologies and offers advantages not achievable
through any combination of existing devices, including (1) smaller
filter size and selective deployment combined with standard embolic
protection offers dual protection; and (2) integration enables usage of
40-micron pore protection and real-time filter control with no catheter
exchanges.
---------------------------------------------------------------------------
\102\ Kastrup A, Gr[ouml]schel K, Krapf H, et al (2003) Early
outcome of carotid angioplasty and stenting with and without
cerebral protection devices: A systematic review of the literature.
Stroke 34(3) https://doi.org/10.1161/01.STR.0000058160.53040.5F.
\103\ M[uuml]ller-H[uuml]lsbeck SM, Jahnke T, Stolzmann P, et al
(2003) A new concept for covered stent protected carotid
angioplasty: An ex vivo study R[ouml]fo 175(12): 1634-1638 DOI:
10.1055/s-2003-45342.
\104\ Schnaudigel S, Gr[ouml]schel K, Pilgram S, et al (2008)
New brain lesions after carotid stenting versus carotid
endarterectomy: A systematic review of the literature. Stroke 39(6)
https://doi.org/10.1161/STROKEAHA.107.500603.
---------------------------------------------------------------------------
The applicant also referred to CMS's determination in the FY 2021
IPPS/LTCH PPS final rule that the EluviaTM Drug Eluting
Stent (EluviaTM) had a unique mechanism of action (85 FR
58648) and discussed how the same approach can be applied to the
determination of the Neuroguard IEP[supreg]
[[Page 36740]]
System's mechanism of action. According to the applicant, because CMS
recognized that EluviaTM's long-term drug release profile
constituted a unique mechanism of action although the device used
paclitaxel like other peripheral drug-eluting stents, it asserted that
CMS was stating that integrating a novel distinction to existing
technology to address a critical treatment limitation such as sustained
drug delivery constituted a novel mechanism of action. The applicant
stated that similarly, the Neuroguard IEP[supreg] System integrates a
critical function that fundamentally alters treatment for carotid
stenting because it uniquely addresses the lack of micro-embolic
protection during stent deployment and post-dilation.
In response to CMS's question about whether the requirement that
the Neuroguard IEP[supreg] System must always be used in conjunction
with an available primary distal embolic protection device suggests
that its filter would not impact the mechanism of action of the device,
the applicant stated that this requirement does not diminish its novel
mechanism of action, but rather underscores its innovative
complementary approach to solving a critical clinical limitation in
carotid stenting procedures. The applicant explained that the
Neuroguard IEP[supreg] System offers complementary, not redundant,
protection by pairing a standard filter that protects against large
emboli (>100 microns) throughout the procedure with its integrated 40-
micron pore filter, which captures microemboli during the highest-risk
phases of the procedure. Per the applicant, traditional filters must
maintain minimum pore sizes of 100 microns to avoid filter thrombosis
during prolonged use throughout the carotid stenting procedure, but
that approximately 69 percent to 90 percent of embolic particles
released during carotid artery stenting procedures are less than 100
microns in size, and thus may reach the cerebral circulation despite
the use of these large pore distal filters. The applicant stated that
the Neuroguard IEP[supreg] System's unique mechanism of action is not
possible with other commercially available technologies, including
first-generation embolic protection devices and FDA-approved dual-layer
stents. The applicant asserted that the Neuroguard IEP[supreg] System's
clinical outcomes reflect a distinct function that cannot be explained
by simply combining existing technologies.
In response to CMS's question about similarity to other existing
embolic protection filters used during CAS procedures that have the
same 40-micron pore size, such as the Paladin[supreg] System with IEP
from the same manufacturer, the applicant stated that the Neuroguard
IEP[supreg] System fundamentally differs from the Paladin[supreg]
System with IEP in mechanism of action and clinical utility, despite
both featuring a 40-micron pore filter. The applicant explained that
the key differences are related to procedural coverage and device
integration, both of which set the two technologies apart and are
critical for understanding why the Neuroguard IEP[supreg] System
represents a novel therapeutic approach. In terms of procedural
coverage differences, the applicant stated that the Paladin[supreg]
System with IEP's balloon is a separate balloon catheter with
integrated embolic protection (without a stent) that can provide small-
pore coverage only during balloon dilation before or after a
traditional carotid stent placement. According to the applicant, the
Paladin[supreg] System with IEP's 2018 and 2022 510(k) clearances were
limited to balloon angioplasty and post-dilation of a deployed self-
expanding stent. Thus, per the applicant, the Paladin[supreg] System
with IEP cannot be used with a stent during stent deployment, leaving
patients unprotected during the high-risk stent deployment phase of the
procedure. The applicant stated that the Neuroguard IEP[supreg]
System's integrated design, in contrast, provides 40-micron pore
protection during both the stent deployment and post-dilation phases.
In terms of device integration and impact, the applicant stated that
the Paladin[supreg] System with IEP's balloon must be used with
separate stenting systems, which requires additional catheter exchanges
and therefore increases embolic risk, whereas the Neuroguard
IEP[supreg] System consists of a stent, balloon, and filter on a single
platform, providing comprehensive protection and eliminating exchanges
that increase the risk of microemboli. The applicant also stated that
the Neuroguard IEP[supreg] System received FDA PMA approval as a novel
device with no predicate, and that its comprehensive integrated
solution not only enhances protection but also improves procedural
efficiency, which was validated by the more rigorous PMA process. The
applicant also added that the Paladin[supreg] System with IEP's balloon
was not widely commercialized in the U.S., as company records show no
to minimal sales from 2021 to 2024.
Response: We appreciate the additional information from the
applicant and commenters with respect to whether the Neuroguard
IEP[supreg] System is substantially similar to existing technologies.
However, we remain unclear that the Neuroguard IEP[supreg] System does
not use the same or a similar mechanism of action as existing
technologies. While the applicant and commenters describe differences
between the Neuroguard IEP[supreg] System and other technologies that
require a separate EPD, stent, and post-dilation balloon, we believe
that the mechanisms of action for the Neuroguard IEP[supreg] System to
perform individual tasks, like capturing debris, dilating a vessel, and
expanding a stent against vessel walls, remain similar to that of
existing EPDs, carotid stents, and post-dilation balloons. The
applicant asserted that the Neuroguard IEP[supreg] System's integrated
design, which allows for simultaneous deployment, is absent in other
technologies, and that this design in addition to the smaller pore size
captures more microemboli. However, the amount of microembolic material
captured between EPD types refers to how well each technology performs
that task. Thus, the difference in pore size between the EPD of
Neuroguard IEP[supreg] System and other EPDs, their differential
capabilities in capturing microemboli, and the potential impact on
clinical outcomes are related to performance differences rather than
differences in mechanism of action. Similarly, while the applicant
states that by capturing more microemboli, the Neuroguard IEP[supreg]
System will likely protect patients from strokes post-procedure, this
relates to the assessment of substantial clinical improvement rather
than the newness criterion. We also note that while, according to the
applicant, the Neuroguard IEP[supreg] System's integrated design
enables the EPD to be deployed during both the stenting and post-
dilation phases, reducing the risks for thrombosis, this also relates
to assessment of substantial clinical improvement rather than the
newness criterion. In addition, while commenters described potential
benefits in terms of the Neuroguard IEP[supreg] System's closed-cell
design, vessel conformability, potential applications for treating
complex patients, ease of use, or improving workflow efficiency, these
do not describe a new mechanism of action. Since the stent of the
Neuroguard IEP[supreg] System expands the carotid luminal diameter by
propping open a narrow blood vessel physically and providing structural
support to the vessel walls, its mechanism of action is similar to that
of existing carotid stents. By the same token, the mechanism of action
by which existing EPDs and the EPD in the Neuroguard IEP[supreg] System
capture debris is fundamentally similar. Similarly, regarding the
Paladin[supreg]
[[Page 36741]]
System with IEP, the mechanism of action by which the EPD of the
Paladin[supreg] System with IEP captures and removes microemboli
appears to be the same as that of the EPD of the Neuroguard IEP[supreg]
System, as well as existing stents and EPDs. We note that we do not
believe that the volume of sales is a relevant consideration for making
the determination as to whether a product is considered ``new'' for the
purposes of new technology add-on payments. Consistent with the statute
and our implementing regulations, a technology is no longer considered
``new'' once it is more than 2 to 3 years old, and the costs of the
procedures are considered to be included in the relative weights
irrespective of how frequently the technology has been used in the
Medicare population (89 FR 69126).
With regard to the applicant's comment about EluviaTM,
we determined in the FY 2021 IPPS/LTCH PPS final rule that the
EluviaTM Drug-Eluting Stent uses a unique mechanism of
action because the sustained release of paclitaxel combats restenosis
for 12 to 15 months as compared to other drug-coated balloons or drug-
coated stents that deliver drug to the artery for about two months (85
FR 58649). We disagree with the applicant's conclusions that our
determination of a new mechanism of action for EluviaTM
means that addressing a treatment limitation constitutes a new
mechanism of action. We note that EluviaTM allowed for
gradual degradation of the polymer to control the release of paclitaxel
into the bloodstream, while stents that were commercially available
before EluviaTM lacked any mechanism of sustained and
controlled release of paclitaxel. Like all EPDs in the market, the EPD
of the Neuroguard IEP[supreg] System is designed with a filter basket
that captures and traps microembolic materials. In this way, its
mechanism of action is the same as that of existing EPDs. While
existing EPDs are deployed alone and remain open during the entire
procedure, and the EPD of the Neuroguard IEP[supreg] System is deployed
selectively, they all use a basket-like component to catch microembolic
materials. Similarly, despite the differences in the pore size of this
basket-like component in the Neuroguard IEP[supreg] System and existing
EPDs, they use the same method to stop microembolic materials from
escaping into the bloodstream. Thus, the Neuroguard IEP[supreg]
System's mechanism of action is the same as that of existing
technologies because the mechanism by which each of its components
performs a specific task is the same as that of existing technologies.
After consideration of the comments received, and for the reasons
discussed, we believe that that the Neuroguard IEP[supreg] System uses
a similar mechanism of action as existing technologies by using a
balloon to dilate blood vessels physically, using a stent to support
the vessel wall and keep the vessels open, and using an EPD to capture
embolic materials. Furthermore, as discussed previously, the Neuroguard
IEP[supreg] System and existing technologies map to the same MS-DRGs
and treat the same disease, carotid artery stenosis, in the same
patient population as existing carotid stent technologies and EPDs.
Accordingly, because the Neuroguard IEP[supreg] System meets all three
of the substantial similarity criteria, we believe that the Neuroguard
IEP[supreg] System is substantially similar to existing carotid artery
stents. In accordance with our policy, because these technologies are
substantially similar to each other, we use the earliest market
availability date as the beginning of the newness period. Because
carotid artery stents and EPDs have been on the market for many years,
the 3-year anniversary for the Neuroguard IEP[supreg] System occurred
prior to FY 2026. Therefore, the Neuroguard IEP[supreg] System does not
meet the newness criterion and is not eligible for new technology add-
on payments for FY 2026. We note that we received public comments with
regard to the cost and substantial clinical improvement criteria for
this technology, but because we have determined that the technology
does not meet the newness criterion and therefore is not eligible for
approval for new technology add-on payments for FY 2026, we are not
summarizing comments received or making a determination on those
criteria in this final rule.
j. RYSTIGGO[supreg] (Rozanolixizumab-Noli)
UCB, Inc. submitted an application for new technology add-on
payments for RYSTIGGO[supreg] for FY 2026. According to the applicant,
RYSTIGGO[supreg] is a neonatal Fc receptor (FcRn) blocker indicated for
the treatment of generalized myasthenia gravis (gMG) in adult patients
who are anti-acetylcholine receptor (AChR) or anti-muscle-specific
tyrosine kinase (MuSK) antibody positive (ab+). The applicant stated
that gMG is a rare chronic autoimmune disorder in which antibodies
destroy the communication between nerves and muscle, resulting in
weakness of the skeletal muscles, particularly the eyes, mouth, throat,
and limbs. Per the applicant, some gMG patients have MuSK ab+, a
subtype of gMG that may lead to more severe symptoms and limited
treatment options.
Please refer to the online application posting for
RYSTIGGO[supreg], available at https://mearis.cms.gov/public/publications/ntap/NTP2410073H0PQ, for additional detail describing the
technology and the disease treated by the technology.
With respect to the newness criterion, according to the applicant,
RYSTIGGO[supreg] was granted BLA approval from FDA on June 26, 2023,
for the treatment of gMG in adult patients who are AChR ab+ or MuSK
ab+. According to the applicant, RYSTIGGO[supreg] was not available for
sale until July 20, 2023, the date on which the product was released
from U.S. Customs after being shipped from an overseas manufacturing
facility. Per the applicant, RYSTIGGO[supreg] is administered as a
subcutaneous infusion once each week for 6 weeks. Per the applicant,
RYSTIGGO[supreg] is available in single-dose vials that contain 280 mg,
420 mg, 560 mg, or 840 mg of RYSTIGGO[supreg] at a concentration of 140
mg/mL. The applicant noted it used the following equation to calculate
the weighted average cost per inpatient stay: [(percent of patients
whose weight aligns to the 3mL vial x cost of the 3mL vial) + (percent
of patients whose weight aligns to the 4mL vial x cost of the 4mL vial)
+ (percent of patients whose weight aligns to the 6mL vial x cost of
the 6mL vial/100%] x 2 doses. The applicant stated that the typical
inpatient stay for patients with gMG is 11 to 13 days, and thus, 2
doses would usually be administered during a typical inpatient stay.
The applicant submitted a request for approval for a unique ICD-10-
PCS procedure code for RYSTIGGO[supreg] and was granted approval to use
the following procedure code effective October 1, 2025: XW013TB
(Introduction of rozanolixizumab-noli monoclonal antibody into
subcutaneous tissue, percutaneous approach, new technology group 11).
The applicant stated that G70.00 (Myasthenia gravis without (acute)
exacerbation) and G70.01 (Myasthenia gravis with (acute) exacerbation)
may be used to currently identify the indication for RYSTIGGO[supreg]
under the ICD-10-CM coding system.
As previously discussed, if a technology meets all three of the
substantial similarity criteria under the newness criterion, it would
be considered substantially similar to an existing technology and would
not be considered ``new'' for the purpose of new technology add-on
payments.
With respect to the substantial similarity criteria, the applicant
asserted
[[Page 36742]]
that RYSTIGGO[supreg] is not substantially similar to other currently
available technologies because, while other treatments are available
for gMG, about 40 percent of patients continue to experience
exacerbations, and that RYSTIGGO[supreg] is the only treatment for
patients with gMG who are AChR or MuSK ab+, and that therefore, the
technology meets the newness criterion. The following table summarizes
the applicant's assertions regarding the substantial similarity
criteria. Please see the online application posting for
RYSTIGGO[supreg] for the applicant's complete statements in support of
its assertion that RYSTIGGO[supreg] is not substantially similar to
other currently available technologies.
[GRAPHIC] [TIFF OMITTED] TR04AU25.168
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18139), with
respect to the substantial similarity criteria, while the applicant
stated that RYSTIGGO[supreg] does not use the same or a similar
mechanism of action as compared to existing technologies because there
are specific differences in FcRn affinities between RYSTIGGO[supreg]
and other FcRn inhibitors, we stated that we were unclear as to what
the specific differences are and whether they rise to the level of a
new mechanism of action. We noted that VYVGART[supreg] is also an FcRn
inhibitor approved for use in patients with gMG, and per FDA
prescribing information, both technologies bind to the FcRn resulting
in the reduction of circulating IgG.105 106 We welcomed
additional information about how the mechanism of action for
RYSTIGGO[supreg] differs from other existing FDA-approved therapies,
including FcRn inhibitors such as VYVGART[supreg]. We noted that the
applicant also stated that RYSTIGGO[supreg] does not involve the
treatment of the same or similar type of disease and the same or
similar patient population when compared to an existing technology
because, while there are other treatments for gMG, about 40 percent of
patients continue to experience gMG exacerbation, suggesting an
inadequate response to existing treatment and RYSTIGGO[supreg] is the
only FDA-approved treatment for patients with gMG that are MuSK ab+.
However, we noted there are other standard of care treatment options
for patients with AChR ab+ and MuSK ab+ gMG, such as pyridostigmine,
glucocorticoid therapy, and plasmapheresis. In addition,
VYVGART[supreg], ULTOMIRIS[supreg], ZILBRYSQ[supreg], and
SOLIRIS[supreg] are also treatment options for patients with AChR ab+
gMG. Therefore, we questioned the assertion that RYSTIGGO[supreg] does
not involve the treatment of the same or similar type of disease and
the same or similar patient population when compared to existing
technology.
---------------------------------------------------------------------------
\105\ argenx US, Inc. VYVGART[supreg] (efgartigimod alfa-fcab)
injection [Package Insert]. (Revised 8/2024). Available at: https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/761195s004,761304s003lbl.pdf.
\106\ UCB, Inc. RYSTIGGO[supreg] (rozanolixizumab-noli)
injection, for subcutaneous use [Package Insert]. (Revised 6/2024).
Available at: https://www.accessdata.fda.gov/spl/data/c6e71126-50c1-4ae2-9d82-b053d605b9cb/c6e71126-50c1-4ae2-9d82-b053d605b9cb.xml.
---------------------------------------------------------------------------
We invited public comments on whether RYSTIGGO[supreg] is
substantially similar to existing technologies and whether
RYSTIGGO[supreg] meets the newness criterion.
Comment: The applicant submitted a public comment regarding the
newness criterion. The applicant stated that RYSTIGGO[supreg] meets the
newness criterion for new technology add-on payment status because it
was just recently approved by FDA on June 26, 2023, and was not
available for sale until July 20, 2023 and there are no other
treatments for the disease or condition that RYSTIGGO[supreg] treats or
diagnoses. The applicant noted that RYSTIGGO[supreg] is the first
treatment approved by FDA specifically for patients with either AChR
ab+ or MuSK ab+ gMG. The applicant also reiterated information from its
application regarding its claim that RYSTIGGO[supreg] does not use the
same or a similar mechanism of action compared to existing technologies
to achieve a therapeutic outcome and does not treat the same or similar
type of disease or patient population compared to existing therapies.
In response to CMS's request for additional information about how
the mechanism of action for RYSTIGGO[supreg] differs from existing FDA-
approved therapies, including FcRn inhibitors such as VYVGART[supreg],
the applicant stated that while technically, both RYSTIGGO[supreg] and
VYVGART[supreg] are FcRn blockers, RYSTIGGO[supreg] was specifically
studied for the MuSK ab+ patient population, and FDA granted an
expedited review of the product for this subset of gMG patients, for
which there was previously no other indicated product. The applicant
also commented that RYSTIGGO[supreg] differs from IMAAVY[supreg] in
that IMAAVY[supreg] is
[[Page 36743]]
immuno-selective, only targeting IgG1 levels, while RYSTIGGO[supreg]
targets IgG1, IgG2, IgG3, and IgG4 levels.
The applicant commented that while several treatments have been
approved by FDA for gMG, including SOLIRIS[supreg], ULTOMIRIS[supreg],
and VYVGART[supreg], these treatments do not adequately assist those
gMG patients with anti-muscle specific tyrosine kinase antibodies. In
response to CMS's concern with regards to the applicant's assertion
that RYSTIGGO[supreg] does not involve the treatment of the same or
similar type of disease and the same or similar patient population
because there are other standard of care treatment options, the
applicant stated that RYSTIGGO[supreg] is a targeted therapy with a
safety and efficacy profile established in a randomized clinical trial,
as well as real world evidence. The applicant further stated that at
the time RYSTIGGO[supreg] was approved, there were no other available
approved treatments for gMG in adult patients who are MuSK ab+, and all
other treatments for gMG cited by CMS have been used off-label.
According to the applicant, RYSTIGGO[supreg] is now able to meet this
patient population's need and as such, it is effectively the new
standard of care for the MuSK ab+ patient population.
Response: We appreciate the additional information from the
applicant. Based on our review of comments received and information
submitted by the applicant as part of its FY 2026 new technology add-on
payment application for RYSTIGGO[supreg], we agree with the applicant
that RYSTIGGO[supreg] uses a unique mechanism of action for the
treatment of MuSK ab+ gMG because at the time the new technology add-on
application was submitted, it was the only FcRn inhibitor FDA-approved
for the treatment of adult patients with gMG who are MuSK ab+.
Therefore, we agree that RYSTIGGO[supreg] is not substantially similar
to existing treatment options and meets the newness criterion,
specifically for the MuSK ab+ gMG indication. We consider the beginning
of the newness period to commence on July 20, 2023, the date on which
RYSTIGGO[supreg] became commercially available.
However, we have concerns with regard to the substantial similarity
criteria for RYSTIGGO[supreg] for the treatment of AChR ab+ gMG in
adults. We note that the applicant has not provided any information to
differentiate RYSTIGGO[supreg]'s mechanism of action from that of
VYVGART[supreg], and we therefore believe that the two technologies
have the same or a similar mechanism of action as FcRn inhibitors
approved for use in patients with AChR ab+ gMG. As there are many other
treatment options for patients with AChR ab+ gMG, including
VYVGART[supreg], ULTOMIRIS[supreg], ZILBRYSQ[supreg], and
SOLIRIS[supreg], we also believe that RYSTIGGO[supreg] does not treat a
new patient population or disease with respect to AChR ab+ gMG. In
addition, we agree with the applicant that RYSTIGGO[supreg] would be
assigned to the same MS-DRG as existing technologies.
Because RYSTIGGO[supreg] for the treatment of adults with AChR ab+
gMG meets all three of the substantial similarity criteria, we believe
that RYSTIGGO[supreg] is substantially similar to VYVGART[supreg] for
this indication. Therefore, in accordance with our policy, we consider
the beginning of the newness period for RYSTIGGO[supreg] to begin on
December 17, 2021, the date on which VYVGART[supreg] received FDA
marketing authorization for the treatment of adults with AChR ab+ gMG.
Since the 3-year anniversary date of VYVGART[supreg]'s entry onto the
market occurred prior to FY 2026, RYSTIGGO[supreg] for the treatment of
adults with AChR ab+ gMG does not meet the newness criterion and is not
eligible for new technology add-on payments for FY 2026. We note that
because we have determined that the technology does not meet the
newness criterion for the treatment of adults with AChR ab+ gMG and
therefore is not eligible for approval for new technology add-on
payments for FY 2026 for this indication, we are not summarizing
comments received or making a determination on the cost or substantial
clinical improvement criteria for the AChR ab+ gMG indication in this
final rule.
With respect to the cost criterion, the applicant provided an
analysis to demonstrate that RYSTIGGO[supreg] meets the cost criterion.
The analysis followed the order of operations summarized in the
following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.169
[[Page 36744]]
Because the final inflated average case-weighted standardized
charge per case exceeded the average case-weighted threshold amount,
the applicant asserted that RYSTIGGO[supreg] meets the cost criterion.
We invited public comments on whether RYSTIGGO[supreg] meets the
cost criterion.
Comment: The applicant reiterated that the cost criterion analysis
submitted with the application demonstrates that RYSTIGGO[supreg] meets
the cost criterion.
Response: We thank the applicant for its comment. We agree that the
final inflated average case-weighted standardized charge per case
exceeded the average case-weighted threshold amount. Therefore,
RYSTIGGO[supreg] meets the cost criterion.
With regard to the substantial clinical improvement criterion, the
applicant asserted that RYSTIGGO[supreg] represents a substantial
clinical improvement over existing technologies because
RYSTIGGO[supreg] is the only FDA-approved product for anti-MuSK ab+ gMG
in adult patients, and is an option for patients unresponsive to, and
not treated by, conventional therapies. The applicant also asserted
that RYSTIGGO[supreg] significantly improves clinical outcomes relative
to services or technologies previously available. The applicant
provided seven articles regarding the MycarinG study and its open-label
extension studies, as well as a meta-analysis regarding efficacy of
newer therapies for MG, to support these claims. The following table
summarizes the applicant's assertions regarding the substantial
clinical improvement criterion. Please see the online posting for
RYSTIGGO[supreg] for the applicant's complete statements regarding the
substantial clinical improvement criterion and the supporting evidence
provided.
[GRAPHIC] [TIFF OMITTED] TR04AU25.170
[[Page 36745]]
We also received written public comments in response to the New
Technology Town Hall meeting notice published in the Federal Register
regarding the substantial clinical improvement criterion for
RYSTIGGO[supreg], which we summarized in the FY 2026 IPPS/LTCH PPS
proposed rule (90 FR 18140 through 18141).
After review of the information provided by the applicant and the
public comments received in response to the New Technology Town Hall
meeting, we stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18141 through 18142) that we had the following concerns regarding
whether RYSTIGGO[supreg] meets the substantial clinical improvement
criterion. While the applicant stated that RYSTIGGO[supreg] is the only
FDA-approved therapy for gMG in adult patients who are MuSK ab+, and
that this subtype is challenging to treat, as patients are usually
unresponsive and often intolerant of pyridostigmine (a standard first-
line MG therapy), we noted that the applicant also stated that 3,4-
diaminopyridine treatments may have a mild to moderate effect. We
further noted that, as mentioned previously, other therapies such as
pyridostigmine, glucocorticoid therapy, and plasmapheresis are also
available options for these patients, and we therefore questioned
whether RYSTIGGO[supreg] offers a treatment option for patients with
MuSK ab+ gMG who have no other treatment options. The applicant also
stated that RYSTIGGO[supreg] provides a treatment option for the
approximately 10 to 20 percent of patients with gMG whose disease is
not responsive to, and not treated by, conventional therapies due to
inadequate response or intolerable side effects, however, we questioned
whether the evidence provided demonstrates that there is a population
of patients with gMG with no other treatment options. To support this
claim, the applicant provided the double-blind, placebo-controlled,
phase 3 MycarinG study, which randomized 200 patients (1:1:1) to
receive RYSTIGGO[supreg] 7 mg/kg, RYSTIGGO[supreg] 10 mg/kg, or placebo
in addition to their current gMG treatment (where permitted by the
study inclusion criteria) for 6 weeks, as well as an abstract of a post
hoc subgroup analysis of this study (Vu et al., 2023) which stratified
trial results based on the number of prior therapies.\107\ The
applicant stated that the MycarinG study demonstrated RYSTIGGO[supreg],
in addition to standard of care, significantly improved clinical
outcomes by reducing MG-ADL, QMG, and MG Composite (MGC) scores in
adult patients with gMG, including those with prior standard of care
treatments such as corticosteroids, parasympathomimetics, and non-
steroidal immunosuppressants. We noted that permitted concomitant
medications were cholinesterase inhibitors, oral corticosteroids,
azathioprine, ciclosporin, methotrexate, mycophenolate mofetil, and
tacrolimus. All of these medications, except for cholinesterase
inhibitors, required a stable dose. We questioned if the cholinesterase
inhibitor dose may have affected the results of the study since the
dose may not have been stable throughout the trial. In addition, other
standard of care treatment options for patients were excluded,
including rituximab products, VYVGART[supreg], ULTOMIRIS[supreg],
ZILBRYSQ[supreg], and SOLIRIS[supreg], and we therefore questioned if
RYSTIGGO[supreg] is the only treatment option for patients with gMG who
have failed conventional therapy.
---------------------------------------------------------------------------
\107\ Bril, 2023a, op. cit.
---------------------------------------------------------------------------
We stated that the applicant also provided an abstract of a
subgroup analysis (Vu et al., 2023) of the MycarinG study and stated
the subgroup analysis demonstrated that RYSTIGGO[supreg] significantly
improved outcomes based on a reduction in MG-ADL in patients who had
previously undergone myasthenia gravis standard treatments based on
stratification on a number of prior therapies, excluding
acetylcholinesterase inhibitors, but including corticosteroids, non-
steroidal immunosuppressants, IVIg, and plasma exchange. However, we
stated that it was unclear how a subgroup analysis on the number of
prior therapies provides evidence that RYSTIGGO[supreg] is the only
treatment option for patients unresponsive to conventional therapies.
We also noted that acetylcholinesterase inhibitors were excluded from
this subgroup analysis, but these are part of the standard of care for
MG.
With respect to the applicant's assertion that RYSTIGGO[supreg]
improves clinical outcomes over existing therapies, the applicant
submitted three presentation posters (Bril et al., 2023b; Sacconi et
al., 2023; Habib et al., 2024b) that provided efficacy and safety
results from the MycarinG study and 2 open-label extension studies
(MG0004 and MG007) which we noted are not published or peer-reviewed.
We noted that two of the poster presentations (Bril et al., 2023b and
Habib et al., 2024b) do not report the statistical significance of
results and, therefore, we were uncertain as to how significant the
results are. We stated that with regards to the MycarinG study, per the
applicant's Town Hall comment, patients were allowed to remain on
standard of care therapies such as non-steroidal immunosuppressive
therapy, steroids, and pyridostigmine. However, we noted that various
other standard of care therapies were excluded such as rituximab
products, VYVGART[supreg], ULTOMIRIS[supreg], ZILBRYSQ[supreg], and
SOLIRIS[supreg]. Without a comparison to these therapies, we questioned
whether RYSTIGGO[supreg] improves clinical outcomes relative to all
previously available therapies. Given the 6-week duration of the trial,
we also questioned how natural changes in symptoms were accounted for
since symptoms can wax and wane in patients with gMG. We further noted
that the MycarinG and the open-label extension studies involved only 8
weeks (MycarinG and MG0004) or 16 weeks (MG0007) of observation, which
makes it more difficult to assess the frequency of prolonged remission
rates and how the adverse event rates, such as for cancer and
infection, compare with existing therapies. We stated that we were also
interested in more information on the lack of a dose-response effect
with RYSTIGGO[supreg]. For instance, there was a least squares mean
(LSM) in MG-ADL of -7.28 in the rozanolixizumab (RLZ) 7 mg/kg group and
-4.16 in the RLZ 10 mg/kg group within the MuSK ab+ population and an
LSM of -3.03 in the RLZ 7 mg/kg group and a similar LSM of -3.36 in the
RLZ 10 mg/kg group within the AChR ab+ population. We also noted there
is only about a 2 to 2.5-point difference between RYSTIGGO[supreg] and
placebo for MG-ADL in the AChR ab+ subpopulation and the overall
population. Specifically, for the AChR ab+ population, the LSM
difference versus placebo in the RLZ 7 mg/kg group was -1.94 and in the
RLZ 10 mg/kg group was -2.26 and for the overall population, the LSM
difference versus placebo was -2.59 in the RLZ 7 mg/kg group and -2.62
in the RLZ 10 mg/kg group. The applicant stated that these findings
were statistically significant. We noted that the study considered a 2-
point difference in MG-ADL as a clinically meaningful improvement. We
stated that we would appreciate clarification on how the study defined
clinically meaningful improvement.
In addition, with respect to the MuSK ab+ population in the
MycarinG trial, we noted there were 21 MuSK ab+ patients in the studies
submitted by the applicant. We further noted that the FDA Integrated
Review for RYSTIGGO[supreg] indicated that 16 patients tested positive
for the MuSK ab+ and we stated that we would appreciate clarification
regarding this discrepancy in numbers. We noted
[[Page 36746]]
that in its Town Hall comment, the applicant emphasized that gMG,
particularly MuSK positive gMG, is a rare disease and the number of
patients in the study is consistent with other rare disease treatment
clinical trials and was acceptable to FDA. However, we questioned if
the results are generalizable to the Medicare population since only 2
patients treated with RYSTIGGO[supreg] were from the U.S. and only 1
patient treated was 65 years or older.\108\ We also noted that not all
efficacy outcomes were statistically significant within the MuSK ab+
population. Specifically, the LSM difference in QMG between
RYSTIGGO[supreg] and placebo was not statistically significant for
either the RLZ 7 mg/kg group (97.5 percent confidence interval -14.24,
0.41) nor the RLZ 10 mg/kg group (97.5 percent confidence interval -
9.73, 3.45). Further, we noted there appears to be a difference in the
disease severity between the MuSK ab+ patients in the placebo and
treatment arms. For example, results from Habib et al. (2024a)
indicated that among the MuSK ab+ population of the MycarinG study, all
patients with severe (Class IV) disease at baseline, per the Myasthenia
Gravis Foundation of America (MGFA) classification system, were in the
placebo arm (\3/8\), while individuals in the treatment groups all had
mild or moderate (Class II or Class III) disease at baseline. We
questioned how this difference may have impacted the placebo group's
outcomes relative to those of the treatment groups. Additionally, a
higher percentage of patients were taking corticosteroids in the
RYSTIGGO[supreg] groups (80 percent in 7 mg/kg group and 87.5 percent
in 10 mg/kg group) compared to placebo (62.5 percent) and we questioned
if this difference in background therapy could have affected the
outcomes, since oral corticosteroids were a permitted concomitant
medication in the trial. We also noted that the trial excluded
individuals with severe oropharyngeal or respiratory weakness, and we
questioned whether this exclusion would affect the generalizability of
the results for this MuSK ab+ subpopulation, as the applicant indicated
that patients with MuSK ab+ gMG tend to have more severe disease with a
potential unmet need for treatment options.
---------------------------------------------------------------------------
\108\ U.S. FDA CDER, 2023, op. cit.
---------------------------------------------------------------------------
We stated that the applicant also provided a meta-analysis
comparing innovative therapies in MG, stating that it demonstrated that
anti-FcRn treatments such as RYSTIGGO[supreg] showed greater effects on
QMG, MGC, and MG-QoL15 compared to complement inhibitors, with
VYVGART[supreg] and RYSTIGGO[supreg] having the highest probabilities
of being the most effective treatment for MG-ADL and QMG. However, we
noted that the same article indicated no significant difference in MG-
ADL between complement inhibitors and anti-FcRn treatments.
Additionally, we noted that the analysis found that VYVGART[supreg] had
the highest probability of being the best treatment, followed by
RYSTIGGO[supreg].\109\ We noted that we did not receive any other
evidence comparing complement inhibitors or anti-FcRn treatments with
RYSTIGGO[supreg] to demonstrate improved outcomes. Therefore, we
requested additional information comparing RYSTIGGO[supreg] to these
other therapies in order to inform our assessment of whether
RYSTIGGO[supreg] demonstrates a substantial clinical improvement over
existing technologies. In addition, we noted that the meta-analysis
included seven clinical trials, only two of which included patients
positive for MuSK ab+, MycarinG and ADAPT, a trial studying
VYVGART[supreg]. The meta-analysis did not include trials studying
other standard of care therapies in patients with MuSK ab+ gMG. Since
the meta-analysis did not include a comparison of current therapies in
patients with MuSK ab+ gMG, we questioned how this analysis
demonstrates RYSTIGGO[supreg] improves clinical outcomes relative to
previously available therapy for patients with MuSK ab+ gMG.
---------------------------------------------------------------------------
\109\ Sacc[agrave], 2023, op. cit.
---------------------------------------------------------------------------
We also noted that, while the applicant stated that
RYSTIGGO[supreg] meets patient preferences for convenience by its
ability to be administered via a subcutaneous infusion by a healthcare
provider, either at an infusion clinic or at home with nurse
assistance, the applicant did not provide a comparison of
administration to other available therapies. We stated that we would
further appreciate additional information on how the administration
method for RYSTIGGO[supreg] demonstrates that the technology
significantly improves one or more of the clinical outcomes described
under the regulations at Sec. 412.87(b)(1)(ii)(C).
We invited public comments on whether RYSTIGGO[supreg] meets the
substantial clinical improvement criterion.
Comment: A few commenters expressed general support for
RYSTIGGO[supreg]'s eligibility for new technology add-on payments. A
commenter stated its belief that use of RYSTIGGO[supreg] for the FDA-
labeled indications would require hospitals to incur costs that,
without a new technology add-on payment, would have to be fully
absorbed by the treating hospital. The commenter stated that the new
technology add-on payment mechanism was created to eliminate the
limitations in access to new therapies due to lack of reimbursement in
the inpatient setting.
Response: We thank the commenters for their input.
Comment: The applicant submitted a public comment regarding the
substantial clinical improvement criterion and provided responses to
CMS's concerns from the proposed rule. The applicant also reiterated
information from its application regarding the claim that
RYSTIGGO[supreg] meets the substantial clinical improvement criterion
because it offers a treatment option for gMG patients unresponsive to,
or ineligible for, currently available treatments, and that,
RYSTIGGO[supreg] offers further clinical improvement in addition to
standard of care therapies for adult patients with gMG.
In response to CMS's note that there are other therapy options for
patients with MuSK ab+ gMG, the applicant reiterated RYSTIGGO[supreg]
is the first approved treatment for gMG in adult patients who are MuSK
ab+, and all other treatments are used off-label. In addition, the
applicant discussed a case report of an adult patient with MuSK ab+ gMG
that illustrated that the patient was responsive to and tolerant of
3,4-diaminopyridine (DAP). According to the applicant, the case report
qualifies as Class IV evidence and is a single observational study
without controls. The applicant further stated that, while in the
abstract it would be ideal if the safety and efficacy of 3,4-DAP in
patients with MuSK ab+ gMG were confirmed in randomized trials, the
evidence to-date, along with real world data and patient reports,
supports the conclusion that RYSTIGGO[supreg] is unique in being the
first drug to treat the gMG MuSK ab+ population.
In response to CMS's question whether the evidence provided
demonstrates that there is a population of patients with gMG with no
other treatment options, which refers to the 10 to 20 percent of
patients with gMG whose disease was not responsive to and not treated
by conventional therapies due to inadequate response or intolerable
side effects, the applicant stated that the 10 to 20 percent of
patients with gMG referenced are those patients who are MuSK ab+, and
thus did not have effective treatments
[[Page 36747]]
available until the approval of RYSTIGGO[supreg].
In response to CMS's question if RYSTIGGO[supreg] is the only
treatment option for patients with gMG who have failed conventional
therapy, given that some standard of care treatment options for
patients were excluded from the MycarinG study, including rituximab
products, VYVGART[supreg], ULTOMIRIS[supreg], ZILBRYSQ[supreg], and
SOLIRIS[supreg], the applicant restated that RYSTIGGO[supreg] was the
first treatment option approved for the MuSK ab+ patient population and
noted rituximab is not indicated for the treatment of MG even if it is
sometimes used off-label in the MuSK ab+ patient population. According
to the applicant, rituximab, an anti-CD20 mAb, is reserved for patients
who are refractory to conventional oral immunosuppressants and used as
part of an escalation therapy, which is supported in the International
Consensus guidance. The applicant stated that safety concerns related
to the risk of virus-related progressive multifocal leukoencephalopathy
remain. Per the applicant, biologics have added to the more targeted
treatment options for gMG, with SOLIRIS[supreg] being a first-in-class
humanized mAb targeting the terminal complement complex, blocking the
enzymatic cleaving of complement 5 (C5), and thereby preventing the
activation of the complement complex. The applicant further stated that
due to lack of complement involvement in the pathophysiology of MuSK
ab+ patients with gMG, this difficult-to-treat subgroup of patients
does not benefit from C5 inhibitor treatment. The applicant commented
that immunosuppressive treatment of gMG is dominated by untargeted
treatments, such as steroids and nonsteroidal immunosuppressants, and
that both steroids and nonsteroidal immunosuppressants target the
immune system non-specifically with the goal of reducing autoimmune
reactivity in MG. The applicant stated that the treatments with these
agents are associated with well-documented short-term as well as long-
term toxicities, and that the delayed beneficial effect combined with
early onset of tolerability issues frequently discourages patients from
continuing therapy. The applicant further commented that both plasma
exchange (PLEX) and IVIg are considered for patients with gMG who have
exhausted all of their other treatment options, and whose clinical
status is deteriorating despite ongoing immunosuppressive and
acetylcholinesterase inhibitors (AChEI) therapies. According to the
applicant, although treatment with PLEX or IVIg is mentioned in the
International Consensus guidance for management of MG, neither
treatment is approved in the U.S. for gMG. The applicant stated that
the availability of IVIg (including shortages and increasing demand
over supply) and repetitive cycles of IVIg and PLEX administered in a
hospital setting are burdensome and time consuming for patients,
caregivers, and healthcare professionals, and are not considered a
viable long-term treatment option for the majority of patients with MG.
In response to CMS's question on how a subgroup analysis of the
MycarinG study, in the Vu et al. (2023) abstract, provides evidence
that RYSTIGGO[supreg] is the only treatment option for patients
unresponsive to the prior standard of care, the applicant stated that
MycarinG is a pivotal Phase III trial that led to the approval of
RYSTIGGO[supreg], and Phase III trials typically don't include head-to-
head analyses. The applicant stated that the MycarinG study
demonstrates that RLZ is a possible option for patients who have had or
have not had prior therapies. In response to CMS's further concern
about why AChEIs were excluded from this subgroup analysis even though
they are part of the standard of care for MG, the applicant stated that
``prior therapies (0 1, 2 prior MG therapies excluding AChEI)'' refers
to patients who had been on two therapies that did not include AChEIs,
not that the patient had not received AChEIs. The applicant clarified
that this includes patients who might have received three prior
therapies (for example AChEI, corticosteroids, and non-steroidal
immunosuppressive therapies). According to the applicant, patients in
the zero prior therapy group could have received AChEI but no other
treatment and 86 percent of patients in MycarinG were on AChEIs.
With regards to the concern that two poster presentations (Bril et
al., 2023b and Habib et al., 2024b) do not report statistically
significant results, the applicant stated that the Bril et al. (2023b)
poster did not report statistical significance because the poster
included pooled extension data, so there was no placebo group to
compare against, and therefore, no statistical test. Similarly, the
applicant stated that the Habib et al. (2024b) poster did not report
statistical significance given the reported significant change from
baseline at day 43 in muscle weakness fatigability and physical
fatigue, confirming the Bril et al. (2023b) study. Per the applicant,
the Habib et al. (2024b) poster further shows the clinical
meaningfulness for those data by applying the meaningful change
thresholds that were determined post hoc. However, according to the
applicant, because of the novel nature of the Myasthenia Gravis
Symptoms Patient Reported Outcome (MGSPRO), the threshold of responder
is a range, as described in the poster. The applicant stated that
because both ends of the range of the threshold were applied,
statistical significance does not apply here. The applicant stated that
CMS posed several questions about the MycarinG study, which allowed
trial participants to remain on standard of care therapies such as non-
steroidal immunosuppressive therapy, steroids, and pyridostigmine, but
not on other treatments, such as rituximab products, VYVGART[supreg],
ULTOMIRIS[supreg], ZILBRYSQ[supreg], and SOLIRIS[supreg]. In response
to CMS's questions about the lack of comparison to other treatments,
the applicant stated it appreciates that it would be ideal if all study
designs were identical, allowing for both head-to-head comparative
results between different therapies and dose-response results in tests
of identical duration. Per the applicant, there was a clearing out
period for some of these therapies because, while no head-to-head
studies have been conducted, continued use would potentially lead to
immunosuppression that would be more severe and lead to other major
side effects. In response to CMS's questions about the 6-week trial
duration given patient symptom variability, the applicant stated that
the reason the study included 6 weeks of administration was that IgG
levels were tracked and showed a 70 percent reduction at 6 weeks. In
response to CMS's questions about the difficulty in comparing results
with 8-week studies (such as MycarinG and MG0004) or 16-week studies
(MG0007), the applicant stated that the reason for the 8 weeks of
observation in the pivotal trial and then 16 weeks in the open-label
extension study is that patients were only reinitiated with therapy
based on emerging symptoms, which speaks to the long-lasting durability
of the product.
In response to CMS's question about whether there is a dose-
response effect and the definition of a clinically meaningful
improvement, the applicant stated the study considered a two-point
difference in MG-ADL as a clinically meaningful improvement. The
applicant reiterated that more patients achieved meaningful symptom
expression (MSE) in both rozanolixizumab groups than in the placebo
group, and the change from baseline to day 43 in MGII was greater in
both rozanolixizumab groups than in the placebo group.
[[Page 36748]]
A commenter provided a response to CMS's concern on the validity of
the endpoints used in the RYSTIGGO[supreg] study, including the
rationale for using MG-ADL as the primary endpoint. The commenter
stated that the choice of endpoints is largely driven by FDA
preferences, and while sponsors may choose to select endpoints other
than those outlined as acceptable within a review toward approval, few
would assume the risk in doing so. The commenter stated that it is
aware that FDA's preferences on specific endpoints evolves over time
and could change while a study incorporating an older endpoint is in
progress. The commenter asserted that, while it believes there are
often flaws in FDA's determination on endpoints for specific rare and
ultra-rare conditions, once a study has started (and certainly after
FDA has granted approval based on that endpoint), CMS should not make
an independent decision impacting access based on choice of endpoints.
The commenter further stated that CMS's analyses related to
RYSTIGGO[supreg] focused primarily on whether there is a particular
subpopulation for which the treatment under review offers a significant
improvement over other treatments. The commenter stated that these
inquiries appeared to examine whether other products existed and the
extent to which there was a direct comparison between those therapies
and the product under review. The commenter stated the time from
approval to expiration of any new technology add-on payment period is 3
years, far too short for any comparative effectiveness study. The
commenter stated its belief that the expectation of data that
unequivocally demonstrates superiority of a newly approved treatment
over existing branded therapies is simply not realistic.
In response to CMS's question with respect to the discrepancy in
numbers between 21 MuSK ab+ patients included in the MycarinG study
submitted by the applicant and 16 patients tested positive for the MuSK
ab+ in the FDA Integrated Review for RYSTIGGO[supreg], the applicant
clarified that the 21 MuSK ab+ patients is the number of historical MG-
specific autoantibody status patients, and the baseline MG-specific
autoantibody status was 16 patients.
In response to CMS's question if the results of the MycarinG study
are generalizable to the Medicare population due to the small sample
size,\110\ the applicant commented that MuSK ab+ gMG is a rare disease,
and limited U.S. enrollment is not unusual in global trials for rare
conditions. The applicant commented that FDA's acceptance of the sample
size and international enrollment is consistent with rare disease
norms. Additionally, a commenter stated that it urges CMS to accept the
manufacturers assertion that small study samples are not only common to
rare disease studies but that they are accepted by FDA to support
approval. The commenter stated that with respect to generalizability to
the Medicare population, it urges CMS to recognize that recruitment of
patients over age 65 has been a challenge for researchers regardless of
patient population size, and additionally, Medicare's beneficiary
population extends beyond those over age 65 to include disabled
individuals. Per the commenter, approximately 10 percent of individuals
qualifying for SSDI payments (and subsequently eligible for Medicare
benefits) are disabled due to a condition of nervous system and sense
organs such as MG.
---------------------------------------------------------------------------
\110\ U.S. FDA CDER, 2023, op. cit.
---------------------------------------------------------------------------
In response to CMS's concern that in the MycarinG study not all
efficacy outcomes were statistically significant within the MuSK ab+
population, the applicant stated that as a rare disease with a small
patient population in the pivotal study, it is not unusual that some
endpoints may not demonstrate statistical significance. The applicant
acknowledged that the QMG score difference between RYSTIGGO[supreg] and
placebo in the MuSK ab+ subgroup did not reach statistical
significance, as the 97.5 percent CIs crossed zero. The applicant
stated that the MG-ADL and MGC endpoints were statistically significant
or numerically favored RYSTIGGO[supreg]. According to the applicant,
the small size of the MuSK ab+ subgroup (n=21) results in limited
power, but multiple endpoints consistently showed improvement. The
applicant stated that this trend across endpoints supports clinical
benefit, notwithstanding the absence of ideal statistical uncertainty.
The applicant reiterated that as with many rare disease indications,
the limited power of the studies necessarily will constrain the nature
of the data, and FDA was comfortable approving the biologic and found
the available statistical evidence sufficient.
In response to CMS's concern that in the MycarinG study there was a
difference in the disease severity between the MuSK ab+ patients in the
placebo and treatment arms, the applicant stated that patients were
randomized. The applicant also stated that consistent improvements
across MG-ADL, QMG, and MGC (in the context of randomization) suggest
efficacy notwithstanding baseline severity differences.
In response to CMS's question on whether the difference in
corticosteroid use between treatment and placebo groups in the clinical
trial could have impacted the trial results, the applicant commented
that this variability is inevitable in rare disease clinical trials
that necessarily involve relatively small numbers of patients. The
applicant further stated that the extensive data analysis that followed
the trial did not produce any suggestion that corticosteroid use
influenced trial results. The applicant commented that, whether or not
corticosteroids could enhance response and amplify the treatment
effect, RYSTIGGO[supreg] still demonstrated a benefit over placebo
despite corticosteroids being allowed across arms. In response to CMS's
question on the choice of the clinical study design to exclude
individuals with severe oropharyngeal or respiratory weakness, and
whether the trial results would apply to such patients, the applicant
commented that while additional data or trials including this subgroup
would enhance relevance for the Medicare population with more severe
disease, the clinical trial design that was accepted by FDA did not
require the inclusion of these patients to demonstrate efficacy.
The applicant commented in response to CMS's concerns about a meta-
analysis comparing innovative therapies in MG. In response to CMS's
question why there was no significant difference in MG-ADL between
complement inhibitors and anti-FcRn treatments, the applicant stated
that the meta-analysis suggests that anti-FcRn therapies, including
RYSTIGGO[supreg], are among the most promising emerging treatments for
gMG based on multiple outcome measures, with statistically superior
results to complement inhibitors in QMG, MG-QoL15, and a trend toward
improved MGC. In response to CMS's requested additional information
comparing RYSTIGGO[supreg] to other therapies, the applicant stated
that, notwithstanding the conclusions of the meta-analysis, the
totality of available evidence for RYSTIGGO[supreg]--the meta-analysis
by Sacc[agrave] et al. (2023), differentiation in patient populations
treated (particularly MuSK ab+), subcutaneous route with home
administration, rapid onset of effect, and favorable safety profile
without the need for complement blockade monitoring--supports the
conclusion that RYSTIGGO[supreg] represents a substantial clinical
improvement over existing therapies for appropriate patients with gMG.
In response to
[[Page 36749]]
CMS's question of how the meta-analysis demonstrates improved clinical
outcomes without a comparison to current therapies in patients with
MuSK ab+ gMG, the applicant stated its view that the clinical trial
data in both the pivotal studies and from the meta-analysis contain
sufficient evidence to conclude that RYSTIGGO[supreg] offers clinical
superiority over the existing standard of care for the MuSK ab+
patients at the time of approval. Further, the applicant commented that
the meta-analysis included two clinical trials with MusK ab+ patient
data, MycarinG and ADAPT, while the remaining five trials primarily
enrolled patients with AChR ab+ gMG. The applicant stated that it
agrees that the meta-analysis, as published, does not allow for a
subgroup-level indirect comparison of RYSTIGGO[supreg] with standard of
care therapies specifically in the MuSK ab+ population. According to
the applicant, the meta-analysis did not include trials assessing
standard of care therapies (for example, corticosteroids,
cholinesterase inhibitors, or non-steroidal immunosuppressants) in MuSK
ab+ gMG. The applicant stated that this gap reflects a broader evidence
limitation in the field but does not detract from the conclusions of
the literature and clinical results demonstrating that RYSTIGGO[supreg]
was the first FDA-approved treatment specifically indicated for MuSK
ab+ gMG in adult patients. The applicant also stated that the evidence
demonstrates that patients with MuSK Ab+ gMG often do not respond to
cholinesterase inhibitors and may have intolerances or inadequate
responses to corticosteroids and immunosuppressants. The applicant
further stated the MycarinG study included a subgroup of 21 patients
with MuSK ab+ gMG, representing a rare disease cohort. The applicant
noted that these patients demonstrated rapid onset of clinical
improvement in MG-ADL and MGC scores by Day 8, numerically greater
improvements versus placebo across multiple endpoints (MG-ADL, MGC,
QMG, PRO measures), and an MG-ADL responder rate of 100 percent in both
RYSTIGGO[supreg] treatment arms compared to 14 percent in placebo. Per
the applicant, these results were achieved in the context of a
randomized, placebo-controlled, double-blind phase 3 trial,
representing the highest level of evidence currently available for this
subgroup. The applicant stated that in summary, the clinical trials
reflect the clinical benefits of RYSTIGGO[supreg] for the MuSK ab+ rare
disease population notwithstanding the absence of standard of care-
controlled RCTs.
In response to CMS's request for additional information comparing
RYSTIGGO[supreg]'s administration method to other therapies and
regarding how the administration method for RYSTIGGO[supreg]
demonstrates that the technology significantly improves one or more of
the clinical outcomes described under the regulations at Sec.
412.87(b)(1)(ii)(C), the applicant commented that patient preference is
directly related to an improvement in the quality of the patient's life
when on therapy, Sec. 412.87(b)(1)(ii)(C)(6), and patient preference
is directly related to greater medication adherence. The applicant
stated that patient preference is implicated by the regulatory factors
that CMS must consider in evaluating clinical superiority. The
applicant commented that RYSTIGGO[supreg]'s subcutaneous delivery with
optional home administration offers potential convenience over IV
therapies like IVIg or PLEX, which require clinic settings.
Response: We thank the applicant and the commenters for their
comments regarding the substantial clinical improvement criterion.
Based on the additional information received, we continue to have
concerns as to whether RYSTIGGO[supreg] for the treatment of MuSK ab+
gMG meets the substantial clinical improvement criterion to be approved
for new technology add-on payments. We note that whether a particular
treatment improves outcomes does not demonstrate that the treatment
offers an option for patients with no other options. We also note that
being the first treatment with a specific (narrower) indication, does
not singularly demonstrate substantial clinical improvement,
particularly when there are other treatments available which are
considered the standard of care, and which have broader indications.
Therefore, we continue to question that the evidence provided
demonstrates both that there is a population of patients with MuSK ab+
gMG with no other treatment options, and that RYSTIGGO[supreg] offers
further clinical improvement over currently available standard of care
therapies for adult patients with MuSK ab+ gMG. We also did not receive
data to indicate that potential confounders such as differences in
disease severity and other therapies received among the treatment
groups in MycarinG could not have impacted the study results. We also
continue to question the assertion of improved clinical outcomes with
RYSTIGGO[supreg] compared to other therapies without adequate
comparison data to other therapies in the MuSK ab+ patient population.
In addition, we question whether the clinical outcome results provided
by the applicant adequately distinguish the effect of RYSTIGGO[supreg]
from natural changes in symptoms.
The applicant and another commenter highlighted that the study
design, including endpoints, sample size, and international enrollment,
was accepted by FDA. As previously stated, while FDA has regulatory
responsibility for decisions related to marketing authorization, we do
not rely upon FDA criteria in our evaluation of substantial clinical
improvement for purposes of determining what services and technologies
qualify for new technology add-on payments under Medicare. This
criterion does not depend on the standard of safety and efficacy on
which FDA relies but on a demonstration of substantial clinical
improvement in the Medicare population. In addition, with regard to the
generalizability of the MycarinG study results to the Medicare
population, while we acknowledge that Medicare does include
beneficiaries under the age of 65 years who are disabled, we are
unclear that the MycarinG study included any patients generalizable to
disabled Medicare patients since it excluded patients with more severe
disease (severe oropharyngeal or respiratory weakness). Also, as stated
previously, all MuSK ab+ patients in the treatment arms of the MycarinG
study had mild or moderate disease. Given this, and that only one
patient who received RYSTIGGO[supreg] was 65 years or older, the age of
the majority of the Medicare population, we remain unclear that the
patient population of the MycarinG trial represented the Medicare
population that is eligible for this technology.
Finally, we note the applicant did not provide any evidence linking
patient preference to greater medication adherence or greater quality
of life for patients treated with RYSTIGGO[supreg], nor any comparison
of these outcomes to other treatment options. Therefore, we disagree
that the administration method for RYSTIGGO[supreg] for patients with
MuSK ab+ gMG demonstrates that the technology significantly improves
clinical outcomes over other available treatments.
After consideration of all the information received from the
applicant, as well as the public comments we received, we are unable to
determine that RYSTIGGO[supreg] for patients with MuSK ab+ gMG
represents a substantial clinical improvement over existing
technologies for the reasons discussed in the proposed rule and in this
final rule, and therefore, we are not
[[Page 36750]]
approving new technology add-on payments for RYSTIGGO[supreg] for FY
2026.
k. SYMVESSTM (Acellular Tissue Engineered Vessel-Tyod)
Humacyte, Inc. submitted an application for new technology add-on
payments for SYMVESSTM for FY 2026. According to the
applicant, SYMVESSTM is a bioengineered, implantable blood
vessel indicated for use in adults as a vascular conduit for extremity
arterial injury when urgent revascularization is needed to avoid
imminent limb loss and when autologous vein grafting is not feasible.
The applicant stated that SYMVESSTM is composed of organized
extracellular matrix proteins in the tubular form of a blood vessel and
is used to repair, bypass, or replace arteries that have sustained
traumatic injuries.
Please refer to the online application posting for
SYMVESSTM, available at https://mearis.cms.gov/public/publications/ntap/NTP24100639G2M, for additional detail describing the
technology and the disease treated by the technology.
With respect to the newness criterion, according to the applicant,
SYMVESSTM was granted BLA approval from FDA on December 19,
2024, for use in adults as a vascular conduit for extremity arterial
repair when urgent revascularization is needed to avoid imminent limb
loss, and when autologous vein grafting is not feasible. The applicant
stated that FDA required a lot release that shows results of all
applicable tests prior to distribution of SYMVESSTM and that
it submitted the required paperwork to FDA on December 26, 2024. The
applicant stated that on February 26, 2025, FDA notified the applicant
that the required review of commercial batch information was completed
and authorized the applicant to commence commercial shipment;
therefore, per the applicant, SYMVESSTM became commercially
available as of February 26, 2025. Per the applicant, the average
number of units of SYMVESSTM anticipated to be used per
inpatient stay is 1 unit.
The applicant stated that, effective October 1, 2024, the following
ICD-10-PCS codes may be used to uniquely describe procedures involving
the use of SYMVESSTM: X2R50WA (Replacement of right upper
extremity artery using bioengineered human acellular vessel, open
approach, new technology group 10), X2R60WA (Replacement of left upper
extremity artery using bioengineered human acellular vessel, open
approach, new technology group 10), X2R70WA (Replacement of right lower
extremity artery using bioengineered human acellular vessel, open
approach, new technology group 10), and X2R80WA (Replacement of left
lower extremity artery using bioengineered human acellular vessel, open
approach, new technology group 10).
As previously discussed, if a technology meets all three of the
substantial similarity criteria under the newness criterion, it would
be considered substantially similar to an existing technology and would
not be considered ``new'' for the purpose of new technology add-on
payments.
With respect to the substantial similarity criteria, the applicant
asserted that SYMVESSTM is not substantially similar to
other currently available technologies because it does not use the same
or a similar mechanism of action compared to existing technologies, and
that therefore, the technology meets the newness criterion. The
following table summarizes the applicant's assertions regarding the
substantial similarity criteria. Please see the online application
posting for SYMVESSTM for the applicant's complete
statements in support of its assertion that SYMVESSTM is not
substantially similar to other currently available technologies.
BILLING CODE 4120-01-P
[[Page 36751]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.171
BILLING CODE 4120-01-C
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18144), we stated
we had the following concerns with regard to the newness criterion. The
applicant stated that SYMVESSTM has a novel mechanism of
action based on its manufacturing, composition, and post-operative
regenerative properties. However, we stated we were interested in more
information about how the composition of SYMVESSTM is
associated with its post-operative regenerative properties, and
specifically how these regenerative properties are associated with its
mechanism of action to achieve a therapeutic outcome, as well as how
the association between SYMVESSTM's regenerative properties
and mechanism of therapeutic action differs from that of autologous
vein grafts. In addition, we questioned whether physiological changes,
such as arterialization, cellular repopulation, and fibrosis, that
occur after a conduit is implanted, should be considered part of the
mechanism of action. We also noted that the applicant stated that the
mechanism of action of synthetic grafts is immediate revascularization,
and we questioned whether that is not also the mechanism of action of
SYMVESSTM and/or autologous vein grafts.
We invited public comments on whether SYMVESSTM is
substantially similar to existing technologies, including whether post-
implantation physiological changes should be considered as part of a
technology's mechanism of action, and whether SYMVESSTM
meets the newness criterion.
[[Page 36752]]
Comment: The applicant submitted a public comment regarding the
newness criterion. The applicant reiterated that SYMVESSTM
is not substantially similar to other currently available technologies
because it does not use the same or a similar mechanism of action
compared to existing technologies, and therefore, the technology meets
the newness criterion. In response to CMS's question about how
SYMVESSTM' composition is associated with regenerative
properties and how these properties are associated with its mechanism
of action, the applicant asserted that the composition of
SYMVESSTM is unique amongst vascular conduits, which leads
to its regenerative properties and new mechanism of action.
Specifically, the applicant stated that unlike native veins and
arteries, SYMVESSTM is a unique vascular conduit that lacks
living cells and elastin. The applicant explained that
SYMVESSTM' absence of living cells prevents cellular injury
and inflammatory responses upon implantation, reducing risks like
fibrosis, neointimal hyperplasia, and vessel occlusion. The applicant
added that the lack of elastin contributes to SYMVESSTM'
resistance to calcification, as calcification in native vessels often
occurs near elastin proteins. The applicant further stated that
SYMVESSTM contains over 40 extracellular matrix molecules
typically found in the human aorta, including fibronectin, vitronectin,
and collagens (types I and III), which support vascular cell adhesion,
survival, migration, and integration. The applicant explained that
these human extracellular matrix proteins in SYMVESSTM
interact with vascular cells through specific binding motifs,
facilitating cellular adhesion, migration, differentiation, and
repopulation and transforming the conduit into a living blood vessel
capable of consistent blood flow, long-term durability, and self-
repair. The applicant further asserted that SYMVESSTM'
composition, which does not contain synthetic materials or xenogeneic
proteins, facilitates cellular ingrowth, remodeling, and integration
without triggering foreign body reactions or fibrosis. The applicant
explained that because SYMVESSTM transforms into tissue
resembling the patient's native vascular structure post-implantation,
critical cellular repopulation occurs, as proteins like collagen have a
finite half-life in vivo, and the conduit does not then mechanically
fail due to foreign proteins. The applicant emphasized that this
cellular integration and matrix upkeep are key to SYMVESSTM'
therapeutic effectiveness and mechanical resilience over time. The
applicant stated that long-term follow-up from the V005 clinical study
demonstrate SYMVESSTM' mechanical durability and stability
in treating extremity vascular trauma, with excellent limb salvage
rates, low infection incidence, and no spontaneous rupture over 3 years
of follow-up, across a high-risk population with many severe injuries
and contaminated wounds. The applicant further stated that duplex
ultrasound assessments through 36 months demonstrated stable conduit
dimensions without trends toward dilation or stenosis.
In response to CMS's question as to how the association between
SYMVESSTM' regenerative properties and mechanism of
therapeutic action differs from that of autologous vein grafts, the
applicant asserted that there are important differences between
SYMVESSTM and autologous vein grafts related to composition,
mechanism of action, and regenerative properties after implantation.
The applicant stated that SYMVESSTM has greater mechanical
strength than autologous vein grafts, making it a more effective option
for arterial implantation. The applicant further explained that, while
autologous vein grafts have a rupture strength of approximately 1,600
mmHg, SYMVESSTM has a rupture strength exceeding 3,000 mmHg,
comparable to native arteries. The applicant asserted that
SYMVESSTM' mechanical strength prevents over-distension and
maintains its original diameter post-implantation, whereas autologous
vein grafts become distended under arterial pressure, leading to
cellular damage and death, which triggers inflammatory and pro-fibrotic
responses, neo-intimal hyperplasia, and eventual graft occlusion. The
applicant further explained SYMVESSTM avoids over-
proliferation in the vascular wall due to its acellular structure,
absence of an intima, and non-inflammatory protein matrix, which
collectively prevent cellular over-proliferation and neo-intimal
hyperplasia, ensuring long-term functionality without the need for
additional interventions.
In response to CMS's question about whether physiological changes,
such as arterialization, cellular repopulation, and fibrosis, that
occur after a conduit is implanted should be considered part of
SYMVESSTM' mechanism of action, the applicant stated that
these physiological changes are directly part of SYMVESSTM'
mechanism of action and support its ability to provide durable blood
flow to injured extremities. The applicant stated that
SYMVESSTM' composition of human proteins drives cellular
responses post-implantation and is central to its mechanism of action.
The applicant also stated that multiple publications have not observed
fibrosis, which can be triggered by synthetic materials and the
production of foreign-body giant cells, after SYMVESSTM
implantation. In addition, the applicant stated that
SYMVESSTM conduits' physiological transformation after
implantation closely mimics native vascular tissue, which cannot be
achieved with synthetic grafts which remain inert and foreign to the
body.
In response to CMS's question whether immediate revascularization
is not also the mechanism of action of SYMVESSTM and/or
autologous vein grafts, the applicant asserted that
SYMVESSTM' mechanism of action is the sustained and durable
blood flow after implantation made possible by its unique human protein
composition and resultant mechanical and biological properties. Per the
applicant, this is inherently different from that of synthetic grafts,
which cannot interact with human cells in the way that
SYMVESSTM does, and from autologous vein grafts, which
create extensive cellular damage and death after implantation which
impairs the ability of the vein to maintain patency due to endothelial
and smooth muscle damage. The applicant stated that
SYMVESSTM' immediate physiological effect of implantation
for revascularization is restoration of blood flow, which would be
similar to the effect of implanting any tubular conduit, regardless of
material or composition, into arterial circulation. The applicant
further explained that immediate restoration of blood flow is not the
important mechanism of action and associated clinical benefit of an
arterial conduit, since it may not be a durable benefit for the
patient. The applicant asserted that any conduit's true therapeutic
effect, and hence its mechanism of action, lies in its long-term
functionality and maintained post-implantation blood perfusion within
the body. The applicant reiterated that SYMVESSTM'
composition (both what it contains in terms of proteins that interact
with cells, and what it lacks in terms of cellular content) contributes
to its mechanism of action as a durable conduit that supports cellular
repopulation and sustained mechanical function while avoiding cellular
damage and inflammation at the time of implantation. The applicant also
reiterated long-term outcomes from the V005 study regarding
SYMVESSTM' durability.
[[Page 36753]]
Several commenters also voiced support for SYMVESSTM and
asserted that SYMVESSTM has a different mechanism of action
than synthetic grafts. A commenter asserted that SYMVESSTM
operates through a targeted mechanism of action designed to improve
blood flow, vessel wall stabilization, capacity for remodeling, and
long-term viability. Other commenters described its immediate
availability similar to that of synthetic grafts but stated it has a
unique mechanism of action which enables integration into native
vasculature. Another commenter provided its personal experience that
imaging of patients post-SYMVESSTM repair often reveals no
visible graft. Per the commenter, this suggests natural tissue
integration and effective healing, which the commenter has not seen
with other conduits. Other commenters stated that due to its acellular
nature, SYMVESSTM' unique composition avoids cellular damage
post-implantation, enabling better interaction with human cells, and
maintaining patency, which drives its distinct regenerative properties
compared to other vascular conduits.
Response: We appreciate the additional information from the
applicant and commenters with respect to whether SYMVESSTM
is substantially similar to existing technologies. However, we disagree
with the applicant and commenters that SYMVESSTM has a
unique mechanism of action compared to currently available synthetic
grafts. While the applicant asserted that SYMVESSTM has a
novel composition, we note that, as stated in the FY 2024 IPPS/LTCH PPS
final rule (88 FR 58847), the composition of a technology does not
represent the mechanism of action. Further, we note the applicant's
assertions that SYMVESSTM's mechanism of action is the
restoration and maintenance of durable blood flow through the conduit
post-implantation, achieved through a combination of immediate
revascularization and long-term cellular repopulation and remodeling,
and that SYMVESSTM's regenerative properties, including
cellular repopulation, matrix remodeling and tissue integration are
central to SYMVESSTM's mechanism of action and therapeutic
effectiveness. However, we note that, per FDA, definitive studies that
characterize the behavior of SYMVESSTM and how long it would
take for cells to migrate and repopulate the graft have not been
conducted, and that the exact mechanism of action has not been
established.111 112 We remain unclear that these potential
downstream effects are critical to the way SYMVESSTM
provides for urgent arterial repair following extremity vascular trauma
to avoid limb loss. Furthermore, we disagree with the applicant that
SYMVESSTM's avoidance of cellular damage and inflammatory
responses represents a novel mechanism of action. While these
attributes may reduce complications such as fibrosis and neointimal
hyperplasia, they do not change the fact that SYMVESSTM
functions as a vascular conduit by facilitating blood flow, similar to
other vascular grafts. Similarly, the long-term clinical results
described by the applicant to demonstrate mechanical durability,
patency, and low rates of complications relate to
SYMVESSTM's clinical outcome and not mechanism of action.
Similarly, with respect to the comments by several commenters that the
absence of visible grafts in imaging studies post-SYMVESSTM
implantation suggest natural tissue integration and effective healing,
we note that this observation may reflect SYMVESSTM's
biocompatibility and regenerative properties, but it does not, on its
own, establish a novel mechanism of action. Tissue integration and
remodeling are expected outcomes for many vascular conduits, as stated
previously, and are influenced by the material and design of the graft
rather than representing a new therapeutic mechanism.
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\111\ SYMVESS. USPI Section 12: Clinical Pharmacology, p. 10.
\112\ December 18, 2024 Clinical Review Memo--SYMVESS, https://www.fda.gov/media/185229.
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After review of the information provided in the comments, including
the applicant's assertions regarding SYMVESSTM's
composition, post-implantation healing characteristics, and mechanism
of action, we disagree with the applicant that the evidence provided
demonstrates that SYMVESSTM has a unique mechanism of action
compared to previously available technologies. Because we agree with
applicant that SYMVESSTM will be assigned to the same MS-
DRGs and used to treat the same type of disease in a similar patient
population as existing technologies for treating significantly damaged
arteries due to traumatic injuries, SYMVESSTM meets all
three of the substantial similarity criteria. Therefore, we believe
SYMVESSTM is substantially similar to currently approved or
cleared synthetic grafts, and we consider the beginning of the newness
period for SYMVESSTM to begin on the date on which those
existing synthetic grafts received FDA marketing authorization. Since
those technologies have been on the U.S. market for longer than 3
years, SYMVESSTM does not meet the newness criterion and is
not eligible for new technology add-on payments for FY 2026. We note
that we received public comments with regard to the cost and
substantial clinical improvement criteria for this technology, but
because we have determined that the technology does not meet the
newness criterion and, therefore is not eligible for approval for new
technology add-on payments for FY 2026, we are not summarizing comments
received or making a determination on those criteria in this final
rule.
l. TECELRA[supreg] (Afamitresgene Autoleucel)
Adaptimmune, LLC submitted an application for new technology add-on
payments for TECELRA[supreg] for FY 2026. According to the applicant,
TECELRA[supreg] is a melanoma-associated antigen A4 (MAGE-A4)-directed
genetically modified autologous T-cell immunotherapy (also referred to
as an autologous T-cell receptor (TCR) therapy) indicated for the
treatment of adults with unresectable or metastatic synovial sarcoma
who have received prior chemotherapy, are HLA-A*02 subtype positive,
and whose tumor expresses the MAGE-A4 antigen. Per the applicant,
TECELRA[supreg] is composed of T cells genetically modified to express
affinity-enhanced TCRs specific to the MAGE-A4 protein, which is
expressed by synovial sarcoma tumor cells at varying frequencies.
Please refer to the online application posting for TECELRA[supreg],
available at https://mearis.cms.gov/public/publications/ntap/NTP241004LTDY2, for additional detail describing the technology and the
disease treated by the technology.
With respect to the newness criterion, according to the applicant,
TECELRA[supreg] was granted BLA accelerated approval from FDA on August
1, 2024 for treatment of adults with unresectable or metastatic
synovial sarcoma who have received prior chemotherapy; are HLA-
A*02:01P, HLA-A*02:02P, HLA-A*02:03P, or HLA-A*02:06P positive; and
whose tumor expresses the MAGE-A4 antigen as determined by FDA-approved
or cleared companion diagnostic devices. Per the applicant,
TECELRA[supreg] was commercially available immediately after receiving
FDA marketing authorization. The applicant stated that TECELRA[supreg]
is a single, one-time, patient-specific treatment delivered as an
intravenous infusion containing 2.68 x 10\9\ to 10 x 10\9\
[[Page 36754]]
MAGE-A4 TCR positive T-cells, in one or more infusion bag(s).
The applicant stated that, effective October 1, 2022, the following
ICD-10-PCS codes may be used to uniquely describe procedures involving
the use of TECELRA[supreg]: XW03368 (Introduction of afamitresgene
autoleucel immunotherapy into peripheral vein, percutaneous approach,
new technology group 8) or XW04368 (Introduction of afamitresgene
autoleucel immunotherapy into central vein, percutaneous approach, new
technology group 8).
As previously discussed, if a technology meets all three of the
substantial similarity criteria under the newness criterion, it would
be considered substantially similar to an existing technology and would
not be considered ``new'' for the purpose of new technology add-on
payments.
With respect to the substantial similarity criteria, the applicant
asserted that TECELRA[supreg] is not substantially similar to other
currently available technologies because TECELRA[supreg] is the first
FDA-approved engineered TCR T-cell therapy with a unique mechanism of
action that is distinct from that of other marketed therapeutic
products, the only therapy approved for synovial sarcoma assigned to
MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-Cell and Other
Immunotherapies), and the only therapy studied specifically in the
synovial sarcoma patient population and FDA-approved specifically for
the treatment of synovial sarcoma. Therefore, according to the
applicant, the technology meets the newness criterion. The following
table summarizes the applicant's assertions regarding the substantial
similarity criteria. Please see the online application posting for
TECELRA[supreg] for the applicant's complete statements in support of
its assertion that TECELRA[supreg] is not substantially similar to
other currently available technologies.
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In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18150), we noted
that the applicant stated that TECELRA[supreg] is the only FDA-approved
therapy specifically studied and approved for patients with synovial
sarcoma, therefore, it does not involve the treatment of a similar type
of disease or patient population as existing technologies. While the
applicant stated that other therapies in the National Comprehensive
Cancer Network Clinical Practice Guidelines (NCCN Guidelines[supreg]),
such as pazopanib, are indicated for use in the broader STS population
rather than specifically for synovial sarcoma, we noted that synovial
sarcoma is a type of STS. Consequently, we questioned whether existing
treatments indicated for STS, which can be used for the treatment of
specific subtypes of STS, such as synovial sarcoma, would treat the
same or similar patient population as TECELRA[supreg].
We invited public comments on whether TECELRA[supreg] is
substantially similar to existing technologies and whether
TECELRA[supreg] meets the newness criterion.
Comment: The applicant submitted a public comment reiterating that
[[Page 36756]]
TECELRA[supreg] meets the newness criterion because it is the first
FDA-approved engineered TCR T-cell therapy with a unique mechanism of
action that is distinct from that of other marketed therapeutic
products, the only therapy approved for synovial sarcoma assigned to
MS-DRG 018, and the only therapy studied specifically in the synovial
sarcoma patient population and FDA-approved for the treatment of
synovial sarcoma. In response to CMS's question about whether existing
treatment indicated for STS, which can be used for the treatment of
specific subtypes of STS, such as synovial sarcoma, would treat the
same or similar patient population as TECELRA[supreg], the applicant
stated that existing treatments used for STS do not treat the same, or
similar, patient population as TECELRA[supreg]. The applicant explained
that STS is a broad and heterogeneous group of solid tumors with more
than 50 different histologic subtypes of STS identified, differing
widely in morphology, genetic aberrations, and expression of tumor
antigens. The applicant submitted a review article by Beck et al.
(2009),\113\ which stated that synovial sarcoma is a distinct subtype
of STS with a pattern of dysregulated gene expression and a cluster
that separates it from other STS. Specifically, the applicant stated
that Beck et al. (2009) explained that synovial sarcoma has a unique
gene expression that includes increased expression of genes associated
with neural differentiation, the retinoic acid pathway, and epidermal
and fibroblast growth factor receptor signaling pathways. The applicant
further explained that, given the lack of data and FDA-approved
synovial sarcoma-specific therapies, the NCCN Guidelines recommend
systemic therapies for patients with unresectable recurrent or
metastatic disease while acknowledging that the benefits of systemic
therapy are very limited. The applicant stated that the SPEARHEAD-1
trial studied TECELRA[supreg] in a targeted population, of which the
majority (44 out of 52) of patients had synovial sarcoma. The applicant
added that the SPEARHEAD-1 trial was unique in the STS field because it
was designed to utilize the specific tumor antigen (MAGE-A4) expression
expressed in 70 percent of the synovial sarcoma patient population.
Given the results of the SPEARHEAD-1 trial, the applicant asserted that
TECELRA[supreg] is the only product in the recently updated NCCN
Guidelines specifically recommended for synovial sarcoma.
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\113\ Beck, A.H., West, R.B., & van de Rijn, M. (2009). Gene
expression profiling for the investigation of soft tissue sarcoma
pathogenesis and the identification of diagnostic, prognostic, and
predictive biomarkers. Virchows Arch 456(1): 141-151. https://doi.org/10.1007/s00428-009-0774-2.
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Response: We thank the applicant for its comment. Based on our
review of comments received and information submitted by the applicant
as part of its FY 2026 new technology add-on payment application for
TECELRA[supreg], we agree with the applicant that TECELRA[supreg] uses
a unique mechanism of action because its modified T-cells target and
destroy MAGE-A4 expressing cancer cells in adults with unresectable or
metastatic synovial sarcoma who have received prior chemotherapy, are
HLA-A*02 subtype positive, and whose tumor expresses the MAGE-A4
antigen. We also agree with the applicant that TECELRA[supreg] is the
only synovial sarcoma therapy assigned to MS-DRG 018 (Chimeric Antigen
Receptor (CAR) T-Cell and Other Immunotherapies). Therefore, we agree
with the applicant that TECELRA[supreg] is not substantially similar to
existing treatment options and meets the newness criterion. We consider
the beginning of the newness period to commence on August 1, 2024, the
date on which TECELRA[supreg] received FDA market authorization for
treatment of adults with unresectable or metastatic synovial sarcoma
who have received prior chemotherapy; are HLA-A*02:01P, HLA-A*02:02P,
HLA-A*02:03P, or HLA-A*02:06P positive; and whose tumor expresses the
MAGE-A4 antigen as determined by FDA-approved or cleared companion
diagnostic devices.
With respect to the cost criterion, the applicant provided four
analyses to demonstrate that TECELRA[supreg] meets the cost criterion.
Each analysis followed the order of operations summarized in the
following table.
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Because the final inflated average case-weighted standardized
charge per case exceeded the average case-weighted threshold amount in
all four scenarios, the applicant asserted that TECELRA[supreg] meets
the cost criterion.
We invited public comments on whether TECELRA[supreg] meets the
cost criterion.
Comment: The applicant reiterated that the four cost criterion
analyses submitted with its application demonstrated that the final
inflated average case-weighted standardized charge per case exceeded
the average case-weighted threshold amount, and therefore,
TECELRA[supreg] meets the cost criterion.
Response: We thank the applicant for its comment. We agree that the
final inflated average case-weighted standardized charge per case
exceeded the average case-weighted threshold amount under all
scenarios. Therefore, TECELRA[supreg] meets the cost criterion.
With regard to the substantial clinical improvement criterion, the
applicant asserted that TECELRA[supreg] represents a substantial
clinical improvement over existing technologies because TECELRA[supreg]
is the first and only FDA-approved therapy for eligible patients with
unresectable or metastatic synovial sarcoma; is a new treatment option
for eligible patients with unresectable or metastatic synovial sarcoma,
who are unresponsive to existing systemic therapies after first-line
(1L) progression; offers significant clinical improvement in overall
response rate (ORR) and overall survival (OS) compared to existing
therapies; and is well-tolerated with a manageable safety profile. The
applicant provided 1 published study, TECELRA[supreg]'s prescribing
information, and an FDA press release to support these claims, as well
as 15 background articles about TCR T-cell therapies, expression of
MAGE-A4 in tumors, the prevalence of HLA-A subtypes, other 2L synovial
sarcoma treatments, and the burden of illness for patients with
synovial sarcoma and myxoid/round cell liposarcoma (MRCLS).\114\ The
following table summarizes the applicant's assertions regarding the
substantial clinical improvement criterion. Please see the online
posting for TECELRA[supreg] for the applicant's complete statements
regarding the substantial clinical improvement criterion and the
supporting evidence provided.
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\114\ Background articles are not included in the following
table but can be accessed via the online posting for the technology.
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In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18152), after
review of the supporting evidence provided by the applicant, we stated
we had the following concerns regarding whether TECELRA[supreg] meets
the substantial clinical improvement criterion. With respect to the
assertion that TECELRA[supreg] offers a treatment option for a patient
population unresponsive to, or ineligible for, currently available
treatments, we noted that TECELRA[supreg], being the first approved TCR
therapy, may relate to mechanism of action under the newness criterion,
but is not relevant to the demonstration of substantial clinical
improvement. Further, while the applicant stated that TECELRA[supreg]
is the first and only therapy approved specifically for patients with
unresectable or metastatic synovial sarcoma, we noted that synovial
sarcoma is a subtype of the broader STS group. According to the
applicant, there were no therapies approved by FDA specifically for
synovial sarcoma, and pazopanib and trabectedin are two therapies that
may be used to manage synovial sarcoma in subsequent-line settings.
However, according to the NCCN Clinical Guidelines[supreg] for STS,
there are other available treatments that treat advanced and metastatic
STS, including synovial sarcoma, which include pazopanib and
trabectedin. Therefore, we questioned whether the applicant's claim
supports that TECELRA[supreg] offers a treatment option for a patient
population unresponsive to, or ineligible for, currently available
treatments given there are other available treatments for patients with
STS that would also treat patients with unresectable or metastatic
synovial sarcoma. In addition, while the applicant stated that
TECELRA[supreg] is a new treatment option for patients with
unresectable or metastatic synovial sarcoma unresponsive to existing
systemic therapies after previous 1L treatments such as anthracycline-
based or ifosfamide-based therapy due to limited effectiveness, ORR,
and OS, it is unclear whether this patient population is unresponsive
to or ineligible for other existing treatments such as trabectedin, in
which higher response rates of 27-51 percent have been reported.\115\
We noted that while patients in the SPEARHEAD-1 study received multiple
[[Page 36759]]
previous lines of systemic therapy, the study did not list these
therapies while noting that bridging therapy, including pazopanib,
trabectedin, ifosfamide, or doxorubicin, was permissible between
leukapheresis and lymphodepletion at the investigators' discretion.
Therefore, we questioned whether TECELRA[supreg] offers a treatment for
a patient population unresponsive to, or ineligible for, currently
available treatments.
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\115\ Takahashi M, Takahashi S, Araki N, et al. Efficacy of
trabectedin in patients with advanced translocation-related
sarcomas: pooled analysis of two phase II studies. Oncologist 2017;
22: 979-88.
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With regard to the claim that TECELRA[supreg] offers a significant
clinical improvement in ORR and OS compared to existing therapies, we
stated that the applicant provided the SPEARHEAD-1 phase II clinical
trial (D'Angelo et al., 2024), which assessed TECELRA[supreg]'s
efficacy in 44 patients (aged 16 to 75 years) with metastatic or
unresectable synovial sarcoma who previously received at least 1 prior
line of anthracycline-containing or ifosfamide-containing chemotherapy.
The SPEARHEAD-1 study found that synovial sarcoma patients treated with
TECELRA[supreg] had an ORR of 39 percent and a median OS (mOS) of 16.9
months. According to the applicant, the study demonstrated a higher ORR
and longer mOS than those from historical studies with pazopanib (18.9
percent, 10.3 months), trabectedin (12.3 percent, 10.4 months),
gemcitabine/docetaxel (4.5-5.0 percent, 8.4-14 months), and regorafenib
(8 percent, 13.4 months).116 117 118 119 The applicant also
stated that, although listed in the NCCN Clinical Guidelines[supreg]
for STS, eribulin, dacarbazine, temozolomide, and vinorelbine have not
been adequately studied in previously treated unresectable or
metastatic synovial sarcoma patients, and therefore, their
effectiveness for this patient population cannot be determined (NCCN,
2024). However, we noted that patients with unresectable or metastatic
synovial sarcoma treated with TECELRA[supreg] demonstrated a mOS of
16.9 months, which is similar to the historical benchmark results from
patients treated with gemcitabine/docetaxel (8.4 to 14 months) and
regorafenib (13.4 months). In addition, we noted that the mOS for
SPEARHEAD-1 non-responders was comparable to existing therapies, and we
questioned whether the baseline characteristics of the study
population, such as biomarkers of resistance to TECELRA[supreg] rather
than the treatment itself, may account for the observed survival
outcomes. Furthermore, we noted that TECELRA[supreg] is indicated for
patients with tumors expressing the MAGE-A4 tumor antigen, and we
questioned whether the provided historical benchmark results for other
treatments in which study participants were not tested for biomarkers,
such as MAGE-A4, may represent different target populations from that
of TECELRA[supreg]. Finally, we noted that the applicant compared the
clinical outcomes from the SPEARHEAD-1 study to historical controls
without appropriate statistical adjustments to account for differences
in study designs. We questioned whether these differences may introduce
confounders which could reduce the validity of the results of the
comparison.
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\116\ Carroll, C., Patel, N., Gunsoy, N.B., Stirnadel-Farrant,
H.A., & Pokras, S. (2022). Meta-analysis of pazopanib and
trabectedin effectiveness in previously treated metastatic synovial
sarcoma (second-line setting and beyond). Future Oncology, 18(32),
3651-3665. https://doi.org/10.2217/fon-2022-0348.
\117\ Pender, A., Davis, E.J., Chauhan, D., Messiou, C., Al-
Muderis, O., Thway, K., . . . & Jones, R.L. (2018). Poor treatment
outcomes with palliative gemcitabine and docetaxel chemotherapy in
advanced and metastatic synovial sarcoma. Medical Oncology, 35, 1-5.
https://doi.org/10.1007/s12032-018-1193-5.
\118\ Tansir, G., Rastogi, S., Kumar, A., Barwad, A., Mridha,
A.R., Dhamija, E., . . . & Bhoriwal, S. (2023). A phase II study of
gemcitabine and docetaxel combination in relapsed metastatic or
unresectable locally advanced synovial sarcoma. BMC Cancer, 23(1),
639. https://doi.org/10.1186/s12885-023-11099-4.
\119\ Mir, O., Brodowicz, T., Italiano, A., Wallet, J., Blay,
J.Y., Bertucci, F., . . . & Penel, N. (2016). Safety and efficacy of
regorafenib in patients with advanced soft tissue sarcoma
(REGOSARC): a randomised, double-blind, placebo-controlled, phase 2
trial. The Lancet Oncology, 17(12), 1732-1742. https://doi.org/10.1016/S1470-2045(16)30507-1.
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With respect to the claim that TECELRA[supreg] is well-tolerated
and has a manageable safety profile, we stated that the applicant
stated that the SPEARHEAD-1 clinical trial found that 75 percent of
patients experienced cytokine release syndrome (CRS), with only one
patient experiencing grade >=3 CRS, and one patient experienced
symptoms consistent with grade 1 immune effector cell-associated
neurotoxicity syndrome (ICANS). The applicant stated that, compared to
CAR T-cell therapies, the CRS associated with TECELRA[supreg] is modest
(Tsimberidou et al., 2021). However, we stated we were unclear why the
applicant compared the safety profile of TECELRA[supreg] to CAR T-cell
therapies (which are not approved for use in STS) rather than other
available therapies that treat unresectable or metastatic synovial
sarcoma. Therefore, we stated we were interested in evidence comparing
TECELRA[supreg]'s safety profile to other, non-CAR T-cell treatments
for unresectable or metastatic synovial sarcoma. The applicant also
stated that because TECELRA[supreg] is a single administration,
recipients are less likely to experience repeated adverse events from
the infusion compared to treatments requiring multiple/regular
continuous or cyclical administrations; however, we questioned the
basis for this claim as the applicant did not provide any supporting
evidence.
We invited public comments on whether TECELRA[supreg] meets the
substantial clinical improvement criterion.
Comment: Several commenters stated support for the approval of
TECELRA[supreg] for the new technology add-on payment program. A few
commenters further stated that approval would allow for increased
patient access to this new therapy. A few commenters also underlined
their support for approval by stating TECELRA[supreg] is an innovative,
significantly advanced and meaningful therapy that addresses an unmet
need in the treatment of synovial sarcoma, an ultrarare cancer
accounting for <10 percent of all STS, and asserted that new technology
add-on payments for TECELRA[supreg] would make it financially feasible
for hospitals to provide innovative care that improves patient
outcomes.
Response: We thank the commenters for their input and have taken it
into consideration in determining whether TECELRA[supreg] meets the
substantial clinical improvement criterion as discussed later in this
section.
Comment: The applicant submitted a public comment regarding the
substantial clinical improvement criterion and provided responses to
CMS's concerns from the proposed rule. The applicant reiterated that
TECELRA[supreg] meets the substantial clinical improvement criterion
because it offers a treatment option for a patient population
unresponsive to, or ineligible for, currently available treatments and
significantly improves clinical outcomes relative to previously
available services or technologies. In response to CMS's concern
whether TECELRA[supreg] offers a treatment option for a patient
population unresponsive to, or ineligible for, currently available
treatments given there are other available treatments for patients with
STS that would also treat patients with unresectable or metastatic
synovial sarcoma, the applicant stated that advanced synovial sarcoma
patients have limited treatment options because, as they experience
disease progression, patients develop resistance, or in some cases
intolerance, to treatment. The applicant also reiterated that the
current treatment options listed in the NCCN Guidelines were not
studied or approved specifically for the treatment
[[Page 36760]]
of synovial sarcoma. The applicant asserted that other current
treatment options have a minimal impact on ORR and OS in this patient
population. The applicant further explained that due to the broad and
heterogenous subtypes of STS, clinical studies face challenges in
enrolling patients for only one subtype due to limited numbers. The
applicant stated that studies like PALETTE (44 out of 369 patients had
SyS) and REGOSARC (27 out of 182 patients had SyS) provide limited data
for synovial sarcoma, leaving clinicians reliant on limited results
applicable to synovial sarcoma for treatment decisions. The applicant
reiterated that the SPEARHEAD-1 clinical trial studied TECELRA[supreg]
in heavily pretreated patients, many of whom had failed multiple prior
therapies. The applicant asserted that, given that the SPEARHEAD-1
participants failed multiple prior lines of treatment and were no
longer eligible for other treatment options due to toxicity, it is
reasonable to conclude that this patient population is unresponsive to
or ineligible for other currently available treatment options.
In response to CMS's concern that it was unclear whether patients
with unresectable or metastatic synovial sarcoma who are unresponsive
to existing systemic therapies after previous 1L treatments are
unresponsive to or ineligible for other existing treatments, such as
trabectedin, in which higher response rates have been reported, the
applicant stated that higher response rates for other existing
treatment options have not been reported. The applicant asserted that
TECELRA[supreg] demonstrated a significant clinical improvement for
synovial sarcoma patients by achieving a 43.2 percent ORR compared to
historical controls, such as trabectedin (up to 12.3 percent) and
pazopanib (up to 18.9 percent). The applicant further stated that the
higher ORR rates (27 to 51 percent) referenced by CMS were not specific
to synovial sarcoma, but rather pooled analyses of other sarcoma
subtypes, with synovial sarcoma showing much lower response rates (5.9
percent for trabectedin). The applicant stated that a meta-analysis of
trabectedin and pazopanib reported similar results in patients with
metastatic synovial sarcoma, with trabectedin and pazopanib producing
an ORR of 7 and 13.2 percent in clinical trials and 12.3 and 18.9
percent in real-world studies, respectively. The applicant reiterated
that the SPEARHEAD-1 trial for TECELRA[supreg] used a benchmark ORR of
18 percent based on historical second-line therapies and agreed upon by
FDA, and TECELRA[supreg]'s ORR significantly exceeded this benchmark,
underscoring its efficacy in treating heavily pretreated synovial
sarcoma patients.
In response to CMS's concern that the SPEARHEAD-1 study allowed
bridging therapy including pazopanib, trabectedin, ifosfamide, or
doxorubicin, between leukapheresis and lymphodepletion at the
investigators' discretion putting into question whether the results can
solely be attributable to TECELRA[supreg], the applicant reiterated
that TECELRA[supreg] provides a treatment option for synovial sarcoma
patients who are unresponsive to or ineligible for existing therapies,
which have limited efficacy and are not specifically approved for
synovial sarcoma. The applicant further explained that patients in the
SPEARHEAD-1 study were heavily pretreated with a median of three prior
lines of therapy, including standard agents like ifosfamide,
doxorubicin, and pazopanib. The applicant stated that some patients
received bridging therapy to control disease progression temporarily,
but these strategies required a washout period before TECELRA[supreg]
treatment. The applicant also stated that patients who received
bridging therapy notably had a lower ORR of 25 percent compared to 46
percent for those who did not, indicating that bridging therapies did
not contribute to improved outcomes.
In response to CMS's concern that patients with unresectable or
metastatic synovial sarcoma treated with TECELRA[supreg] demonstrated a
similar mOS to historical benchmark results of gemcitabine/docetaxel
and regorafenib, the applicant reiterated that TECELRA[supreg] offers a
significant clinical improvement in OS compared to existing therapies.
The applicant stated that patients with advanced synovial sarcoma who
were treated with TECELRA[supreg] demonstrated a mOS of 16.9 months (95
percent CI 10.9-not estimable) in the SPEARHEAD-1 phase II clinical
trial conducted at 23 sites in Canada, the U.S., and Europe. The
applicant stated that the data referenced in its application for other
therapies comes from studies of various designs and scientific rigor,
conducted at limited treatment sites, and showed limited efficacy and
no statistical benefit over placebo in trials. In contrast, the
applicant stated that the SPEARHEAD-1 trial for TECELRA[supreg] was an
open-label, single arm, phase II trial specifically designed to
evaluate efficacy and safety outcomes in populations of advanced
synovial sarcoma and MRCLS patients, with a primary endpoint of ORR, a
secondary endpoint of OS, and a prespecified statistical analysis plan.
The applicant highlighted that Carroll et al. (2022) conducted a meta-
analysis that evaluated clinical trials and real-world studies of
pazopanib and trabectedin in previously treated metastatic synovial
sarcoma patients and found: an mOS of 10.3 months (95 percent CI 8.4-
12.6) for 4 pazopanib studies that included 4 to 38 patients; an mOS of
10.5 months (95 percent CI 8.2-13.4) when restricted to pazopanib
studies with greater than or equal to ten participants; a mOS of 10.4
months (95 percent CI 7.3-14.8) when using 4 trabectedin studies with 3
to 101 patients; and 10.8 months (95 percent CI 8.4-13.9) when
restricted to 3 trabectedin studies with 10 or more participants.
As for the data supporting gemcitabine and docetaxel in synovial
sarcoma, the applicant stated the data are limited and come from
analyses of various designs and two studies that show partial response
in only one patient. In contrast, the applicant reiterated that the
SPEARHEAD-1 study demonstrated an ORR of 39 percent in patients with
synovial sarcoma and a mOS of 16.9 months (95 percent CI 10.9-NE). The
applicant further stated that the OS among patients who responded to
TECELRA[supreg] (mOS not reached; 95 percent CI 15.4-NE) was
significantly improved versus non-responders (10.9 months; 95 percent
CI 5.2-20.9; p<0.0001). The applicant stated that, when FDA re-
evaluated the efficacy information during its review of the
TECELRA[supreg] BLA, the ORR was revised to 43.2 percent (19 of 44
patients) including 2 incomplete responses (4.5 percent) and 17 partial
responses (38.6 percent). The applicant stated that, given the study
design, it is confident that the ORR of 39 to 43.2 percent is accurate.
Lastly, the applicant stated that, even though mOS was not the primary
endpoint of the SPEARHEAD-1 study, the strengths of the study provide
confidence that the mOS of 16.9 months represent real improvement in
patients with synovial sarcoma.
In response to CMS's concern that TECELRA[supreg] is indicated for
patients with tumors expressing the MAGE-A4 tumor antigen and,
therefore, the provided historical benchmark results from other studies
may represent different target populations from that of
TECELRA[supreg], the applicant stated that the baseline characteristics
of the SPEARHEAD-1 study population, including non-responders, are
consistent with those of the broader synovial sarcoma population. The
applicant stated that TECELRA[supreg] targets
[[Page 36761]]
a novel antigen with a unique mechanism of action and biomarkers of
resistance have not been observed. The applicant stated that the
patient population in Carroll et al. (2022) had similar baseline
characteristics to the patient population in the SPEARHEAD-1 study. The
applicant explained that, although cancer-testis antigen expression in
solid tumors, such as MAGE-A4 in synovial sarcoma, was not used to
select patients in past studies, current evidence by
immunohistochemistry shows that 70 to 82 percent of synovial sarcoma
tumors express MAGE-A4. The applicant stated that, therefore, it
expects to see the same prevalence of antigen expression as in prior
studies. The applicant further stated that a retrospective study of
adult patients with metastatic synovial sarcoma from the French Sarcoma
Group NetSARC database found that expression of MAGE-A4 and HLA-A
genotype did not affect prognosis in synovial sarcoma. The applicant
asserted that patients with metastatic synovial sarcoma who are MAGE-A4
positive/HLA-A*02 eligible exhibited similar prognosis as the rest of
the population, strengthening the absence of selection bias in
TECELRA[supreg] trials.
Similarly, a commenter stated that there are no biomarkers for
synovial sarcoma prognosis and that MAGE-A4 positive synovial sarcoma
is not a different disease than MAGE-A4 negative synovial sarcoma.
According to this commenter, there is no evidence that MAGE-A4 tumor
expression is associated with synovial sarcoma prognosis, and there is
no biological reason to suspect that it could be the case.
In response to CMS's question whether the applicant had compared
clinical outcomes from the SPEARHEAD-1 study to historical controls
without appropriate statistical adjustment to account for differences
in the study designs, the applicant submitted two analyses containing
indirect treatment comparisons to assess the relative efficacy of
TECELRA[supreg] versus relevant comparators (pazopanib, trabectedin,
gemcitabine/docetaxel, and regorafenib) in patients with advanced or
metastatic synovial sarcoma. The applicant stated that, since most
trials that included patients with synovial sarcoma were single-arm
trials, it conducted unanchored matching-adjusted indicated comparisons
(MAICs) to assess ORR and OS and a simulated treatment comparison
analysis for these endpoints to serve as a sensitivity analysis to the
MAICs. The applicant asserted that the point estimates from these
analyses were either statistically significant or trended in favor of
TECELRA[supreg] for both ORR and OS. The applicant further stated that,
in those instances where point estimate results were not statistically
significant, interpretation of the 95 percent CI demonstrated clinical
meaningfulness in favor of TECELRA[supreg] (lower limits of CI for ORR
and upper limits of CI on the HRs for OS).
In response to CMS's question as to why the applicant compared the
safety profile of TECELRA[supreg] to CAR T-cell therapies (which are
not approved for use in STS) rather than other available therapies that
treat unresectable or metastatic synovial sarcoma, the applicant stated
that it made the comparison to CAR T-cell therapies because of the
unique hematological aspects of cellular therapy for any indication.
The applicant also provided a side-by-side adverse event list comparing
TECELRA[supreg] to other treatments for STS (pazopanib, trabectedin,
and regorafenib).
In response to CMS's question about the support for the applicant's
statement that, because TECELRA[supreg] is a single administration,
recipients are less likely to experience repeated adverse events from
the infusion, compared to treatments requiring multiple or regular
continuous or cyclical administrations, the applicant stated that the
most common adverse events for TECELRA[supreg] were expected,
reversible, and manageable with supportive care. The applicant further
stated that, unlike TECELRA[supreg]'s one-time administration, other
therapies currently used for STS involve continuous or cyclical dosing
with repeated or long-term AEs. The applicant noted that for
trabectedin, repeated dosing may lead to rhabdomyolysis,
hepatotoxicity, and cardiomyopathy; for pazopanib, continuous dosing is
associated with hepatotoxicity and hypertension within 18 weeks; and
for regorafenib, cyclical administration can lead to liver dysfunction
due to hepatocellular injury within 2 months. The applicant asserted
that TECELRA[supreg] offers a favorable benefit-risk profile with a
single-dose regimen and manageable adverse events, making it a viable
option for patients with contraindications to or risks associated with
toxicities from other current treatments used for STS. Similarly, a few
commenters stated that TECELRA[supreg] provides a safe and more
tolerable treatment option for patients with synovial sarcoma. Lastly,
a commenter stated that, compared to traditional therapies that require
multiple cycles and prolonged exposure to toxic side effects, synovial
sarcoma patients treated with TECELRA[supreg] have reported improved
quality of life due to the convenience of a single treatment
administration and the reduced exposure to ongoing toxicities
associated with traditional therapies, representing a significant step
forward in the treatment of synovial sarcoma.
Response: We thank the applicant and other commenters for their
comments regarding the substantial clinical improvement criterion.
Based on the additional information received, we agree with the
applicant and other commenters that TECELRA[supreg] represents a
substantial clinical improvement over existing technologies because it
offers an improvement in ORR of 43.2 percent compared to up to 18.9
percent for existing treatments with a single treatment for adults with
unresectable or metastatic synovial sarcoma who have received prior
chemotherapy, are HLA-A*02 subtype positive, and whose tumor expresses
the MAGE-A4 antigen.
After consideration of the public comments we received and the
information included in the applicant's new technology add-on payment
application, we have determined that TECELRA[supreg] meets the criteria
for approval for new technology add-on payment. Therefore, we are
approving new technology add-on payments for this technology for FY
2026. Cases involving the use of TECELRA[supreg] that are eligible for
new technology add-on payments will be identified by ICD-10-PCS code
XW03368 (Introduction of afamitresgene autoleucel immunotherapy into
peripheral vein, percutaneous approach, new technology group 8) or
XW04368 (Introduction of afamitresgene autoleucel immunotherapy into
central vein, percutaneous approach, new technology group 8).
In its application, the applicant estimated that the cost of the
one-time TECELRA[supreg] infusion is $727,000 per patient based on a
single, one-time, patient-specific treatment delivered as a cell
suspension for intravenous infusion containing 2.68 x 10\9\ to 10 x
10\9\ MAGE-A4 TCR positive T-cells. Under Sec. 412.88(a)(2), we limit
new technology add-on payments to the lesser of 65 percent of the
average cost of the technology, or 65 percent of the costs in excess of
the MS-DRG payment for the case. As a result, the maximum new
technology add-on payment for a case involving the use of
TECELRA[supreg] is $472,550 for FY 2026.
m. ZIIHERA[supreg] (Zanidatamab-hrii)
Jazz Pharmaceuticals, Inc. submitted an application for new
technology add-on payments for ZIIHERA[supreg] for FY 2026. According
to the applicant, ZIIHERA[supreg] is
[[Page 36762]]
a bispecific human epidermal growth factor receptor 2 (HER2)-directed
antibody for the treatment of adults with previously treated,
unresectable or metastatic HER2-positive (IHC 3+) biliary tract cancer
(BTC).
Please refer to the online application posting for ZIIHERA[supreg],
available at https://mearis.cms.gov/public/publications/ntap/NTP240925MW5YD, for additional detail describing the technology and the
disease treated by the technology.
With respect to the newness criterion, according to the applicant,
ZIIHERA[supreg] was granted BLA approval from FDA on November 20, 2024,
for the treatment of adults with previously treated, unresectable or
metastatic HER2-positive (IHC 3+) BTC as detected by an FDA-approved
test. According to the applicant, ZIIHERA[supreg]'s market availability
was delayed to allow for final packaging with FDA approved labels and
package inserts as well as to allow time for shipment to channel
distribution points, therefore, ZIIHERA[supreg] became commercially
available as of December 2, 2024. We stated we were interested in
additional information regarding the cause of any delay in the
technology's commercial availability, such as related to packaging and
shipment to channel distribution points.
According to the applicant, ZIIHERA[supreg] is administered
intravenously in doses of 20 mg/kg once every 2 weeks until disease
progression or unacceptable toxicity; therefore, the dose per inpatient
stay is 1,400 mg.
The applicant stated that effective October 1, 2024, the following
ICD-10-PCS codes may be used to uniquely describe procedures involving
the use of ZIIHERA[supreg]: XW033CA (Introduction of zanidatamab
antineoplastic into peripheral vein, percutaneous approach, new
technology group 10) or XW043CA (Introduction of zanidatamab
antineoplastic into central vein, percutaneous approach, new technology
group 10). The applicant stated that C22.1 (Intrahepatic bile duct
carcinoma), C23 (Malignant neoplasm of gallbladder), C24.0 (Malignant
neoplasm of extrahepatic bile duct), C24.8 (Malignant neoplasm of
overlapping sites of biliary tract), C24.9 (Malignant neoplasm of
biliary tract, unspecified); or Z51.11 (Encounter for antineoplastic
chemotherapy) may be used to currently identify the indication for
ZIIHERA[supreg] under the ICD-10-CM coding system.
As previously discussed, if a technology meets all three of the
substantial similarity criteria under the newness criterion, it would
be considered substantially similar to an existing technology and would
not be considered ``new'' for the purpose of new technology add-on
payments.
With respect to the substantial similarity criteria, the applicant
asserted that ZIIHERA[supreg] is not substantially similar to other
currently available technologies because ZIIHERA[supreg]'s novel and
distinct mechanisms of action are not the same or substantially similar
to those of other currently available therapies used for the treatment
of adults with previously treated, unresectable/metastatic HER2+ (IHC
3+) BTC. In addition, the applicant asserted that ZIIHERA[supreg] is
the first and only bispecific HER2-directed antibody indicated for this
population, and that therefore, the technology meets the newness
criterion. The following table summarizes the applicant's assertions
regarding the substantial similarity criteria. Please see the online
application posting for ZIIHERA[supreg] for the applicant's complete
statements in support of its assertion that ZIIHERA[supreg] is not
substantially similar to other currently available technologies.
BILLING CODE 4120-01-P
[[Page 36763]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.175
BILLING CODE 4120-01-C
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18154), after
review of the information provided by the applicant, we noted that
while the applicant stated that ZIIHERA[supreg] is the first and only
bispecific HER2-directed, biparatopic antibody approved by FDA for the
treatment of adults with previously treated, unresectable/metastatic
HER2+ (IHC 3+) BTC, there are several existing treatment options for
patients with unresectable/metastatic HER2+ (IHC 3+) BTC such as
FOLFOX, FOLFIRI, STIVARGA[supreg], or
[[Page 36764]]
ENHERTU[supreg].\120\ Therefore, we stated it was unclear how
ZIIHERA[supreg] treats a new patient population or disease as compared
to these existing treatments.
---------------------------------------------------------------------------
\120\ National Comprehensive Care Network (NCCN). (2024,
November 27). NCCN Guidelines Version 5.2024 Biliary Tract Cancers.
Retrieved on January 8, 2025, from https://www.nccn.org.
---------------------------------------------------------------------------
We invited public comments on whether ZIIHERA[supreg] is
substantially similar to existing technologies and whether
ZIIHERA[supreg] meets the newness criterion.
Comment: A commenter submitted a public comment stating that
ZIIHERA[supreg]'s bispecific design targets two non-overlapping HER2
epitopes, enhancing receptor clustering, internalization, and immune-
mediated cytotoxicity. The commenter stated that this dual engagement
mechanism distinguishes it from other HER2-directed agents used in BTC,
such as trastuzumab deruxtecan (T-DXd), which relies on a cytotoxic
payload, or trastuzumab-based combinations, which may provide less
potent HER2 blockade in this disease context.
Response: We thank the commenter for its comment.
Comment: The applicant submitted a public comment regarding the
newness criterion. The applicant reiterated its statements from its new
technology add-on payment application in support of its assertion that
ZIIHERA[supreg] meets the newness criterion, including that it is the
first and only FDA-approved, HER2-directed bispecific antibody
indicated for the treatment of adults with previously treated,
unresectable/metastatic HER2+ (IHC3+) BTC, and that it has a unique
mechanism of action. The applicant reiterated that ZIIHERA[supreg]'s
unique asymmetric antibody design, its biparatopic bispecific binding,
and its ability to induce HER2 receptor crosslinking and
internalization is hypothesized to drive multiple mechanisms of action
that lead to a reduction of HER2 from the cell surface and reduction in
downstream signaling as well as complement-dependent cytotoxicity
(CDC), antibody-dependent cellular cytotoxicity (ADCC), and antibody-
dependent cellular phagocytosis (ADCP) to destroy and eliminate HER2-
express tumor cells, all of which may support its clinical activity as
a single agent. The applicant provided additional information,
including figures detailing its study of ZIIHERA[supreg]'s mechanism of
action observed in pre-clinical trials. The applicant stated that
ZIIHERA[supreg] provides an opportunity to circumvent potential
resistance mechanisms from single site HER2 agents.
In response to CMS's concern about whether ZIIHERA[supreg] treats a
new patient population or disease as compared to existing treatments,
such as FOLFOX, FOLFIRI, STIVARGA[supreg], or ENHERTU[supreg], the
applicant reiterated that ZIIHERA[supreg] is the first and only FDA-
approved, HER2-directed bispecific antibody indicated for the treatment
of adults with previously treated, unresectable/metastatic HER2+
(IHC3+) BTC. The applicant stated that prior to the FDA approval of
ZIIHERA[supreg] and its NCCN addition as a Category 2A treatment option
for BTC, the preferred subsequent-line therapy option for patients with
advanced BTC who progress was FOLFOX (fluorouracil, leucovorin, and
oxaliplatin) chemotherapy, as well as other systemic therapy options
recommended for 2L therapy in BTC, such as FOLFIRI (fluorouracil,
leucovorin, and irinotecan) and, with Category 2B evidence,
STIVARGA[supreg] (regorafenib) and liposomal irinotecan plus 5-
fluorouracil plus leucovorin. The applicant reiterated that, overall,
these and other regimens used in the 2L or later setting are associated
with response rates of approximately 3 percent to 15 percent, median
PFS of approximately 3 to 7 months, and median OS of approximately 6 to
9 months, and that historically, chemotherapies have shown modest
clinical benefit in the 2L or later setting and are associated with
significant toxicity burden for the patients, with up to a third
reported to discontinue chemotherapy because of the toxicities. The
applicant also stated that chemotherapy-related toxicity may be
cumulative by the time patients make it to 2L since treatment
guidelines recommend the use of cisplatin and gemcitabine with or
without immunotherapy as 1L treatment for patients with metastatic BTC.
The applicant stated that there is a need for a chemotherapy-free
option in the 2L+ setting. The applicant further stated that HER2 is an
important targetable alteration, accounting for ~20 percent of BTC and
provided a study that included 122 previously treated patients with
HER2-amplified solid tumors including BTC that demonstrated patients
who received HER2-targeted therapy had numerical improvement in mOS
compared to those who did not (18.6 vs 10.9 months; hazard ratio [HR],
0.60; 95% CI, 0.34 to 1.06; P=.07), highlighting ZIIHERA[supreg]'s
potential to address the serious unmet treatment need and further
provide a chemotherapy-free option. In regards to ENHERTU[supreg], the
applicant commented that the FDA approval and NCCN recommendation were
based on the DESTINY-PanTumor2 basket trial including 41 patients with
BTC who had received a median of 2 lines of prior therapy (range, 1-5),
16 of which were HER2+ (IHC3+) BTC, stating that ENHERTU[supreg] had a
cORR of 56.3 percent (95% CI 29.9, 80.2), an observed mOS of 12.4 (2.8,
NR) months, and a mDOR of 10.9 months (5.5, NE) while emphasizing that
ENHERTU[supreg]'s FDA-approved indication is for the treatment of adult
patients with unresectable or metastatic HER2-positive (IHC3+) solid
tumors who have received prior systemic treatment and have no
satisfactory alternative treatment options.
With respect to assignment to the same MS-DRG as existing
technologies, the applicant stated that it agrees with CMS that
ZIIHERA[supreg] will not map to MS-DRGs distinct from other treatments
administered to patients with BTC.
In response to CMS's request for additional information regarding
the cause of any delay in commercial availability, the applicant stated
that the newness period for ZIIHERA[supreg] should begin on the date of
its first market availability, December 2, 2024, and not the FDA
approval date of November 20, 2024. Specifically, the applicant
explained that the gap in time from FDA approval to commercial
availability was to allow for final packaging with FDA-approved labels
and package inserts as well as to allow time for shipment to all
critical distribution points. ZIIHERA[supreg] inventory was received by
specialty distributors on December 3, 2024, and was able to be ordered
by end users on that date. The applicant stated its understanding that
CMS's use of either date will result in the 3-year anniversary of
ZIIHERA[supreg]'s entry onto the U.S. market occurring after October 1,
2027, and so long as this understanding is correct, it does not object
to CMS using November 20, 2024, as the date of ZIIHERA[supreg] market
availability.
Response: We thank the applicant and other commenters for their
comments. Based on our review of comments received and information
submitted by the applicant as part of its FY 2026 new technology add-on
payment application for ZIIHERA[supreg], we agree with the applicant
that ZIIHERA[supreg] uses a unique mechanism of action because it is a
bispecific HER2-directed, biparatopic antibody approved by FDA for the
treatment of adults with previously treated, unresectable/metastatic
HER2+ (IHC 3+) BTC. Therefore, we agree with the applicant that
ZIIHERA[supreg] is not substantially similar to existing treatment
options and meets the newness criterion. We consider the
[[Page 36765]]
beginning of the newness period to commence on December 2, 2024, the
date on which ZIIHERA[supreg] became commercially available.
With respect to the cost criterion, the applicant provided multiple
analyses to demonstrate that ZIIHERA[supreg] meets the cost criterion.
Each analysis followed the order of operations summarized in the
following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.176
[GRAPHIC] [TIFF OMITTED] TR04AU25.177
Because the final inflated average case-weighted standardized
charge per case exceeded the average case-weighted threshold amount in
both scenarios, the applicant asserted that ZIIHERA[supreg] meets the
cost criterion.
We invited public comments on whether ZIIHERA[supreg] meets the
cost criterion.
Comment: The applicant stated that the final inflated average case-
weighted standardized charge per case exceeded the average case-
weighted threshold amount for both the primary cohort and the
sensitivity cohort, and thus ZIIHERA[supreg] meets the cost criterion.
Response: We thank the applicant for its comments. We agree that
the final inflated average case-weighted standardized charge per case
exceeded the average case-weighted threshold amount under all
scenarios. Therefore, ZIIHERA[supreg] meets the cost criterion.
With regard to the substantial clinical improvement criterion, the
applicant asserted that ZIIHERA[supreg] represents a substantial
clinical improvement over existing technologies because it is a
bispecific HER2-directed antibody with multiple, distinct mechanisms of
action and a differentiated clinical profile, and it is the first and
only FDA-approved treatment for HER2+ (IHC 3+) BTC. In addition, the
applicant asserted that ZIIHERA[supreg] fulfills an unmet need for this
patient population by providing an optimal chemotherapy-free treatment
option, where patients also have the potential to achieve meaningfully
improved clinical benefits. The applicant provided 1 study and 2 poster
presentations of the same study to support these claims, as well as 3
background articles on other treatments for advanced BTC.\121\ The
following table summarizes the applicant's assertions regarding the
substantial clinical improvement criterion. Please see the online
posting for ZIIHERA[supreg] for the applicant's complete statements
regarding the substantial clinical improvement criterion and the
supporting evidence provided.
---------------------------------------------------------------------------
\121\ Background articles and supplemental material are not
included in the following table but can be accessed via the online
posting for the technology.
---------------------------------------------------------------------------
BILLING CODE 4120-01-P
[[Page 36766]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.178
BILLING CODE 4120-01-C
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18156), after
review of the information provided by the applicant, we stated we had
the following concerns regarding whether ZIIHERA[supreg] meets the
substantial clinical improvement criterion. With respect to the
assertion that ZIIHERA[supreg] offers a treatment option for a patient
population unresponsive to or ineligible for existing therapies, the
applicant stated that ZIIHERA[supreg] is the first and only FDA-
approved bispecific HER2-directed antibody for the treatment of adults
with previously treated, unresectable/metastatic HER2+ (IHC 3+) BTC.
However, we noted that while the target (HER2+) and type of therapy
(bispecific antibody) for a particular indication may relate to
mechanism of action under the newness criterion, it is not relevant to
the demonstration of substantial clinical improvement. Further, we
noted that the applicant stated that FOLFOX is the preferred subsequent
line therapy option for these patients, and we also noted that NCCN
guidelines list additional available therapies including: FOLFIRI,
ENHERTU[supreg], and HERCEPTIN[supreg] plus TUKYSA[supreg]. We further
noted that while the applicant provided studies describing outcomes
from the HERIZON-BTC-01 trial of ZIIHERA[supreg] as well as background
studies describing outcomes for other treatment options in 2L advanced
BTC, the studies did not demonstrate that patients eligible for
treatment with ZIIHERA[supreg] are unable to receive other existing
therapies. Therefore, we questioned whether ZIIHERA[supreg] offers a
treatment option for a patient population unresponsive to, or
ineligible for other existing therapies.
With respect to the assertion that ZIIHERA[supreg] significantly
improves clinical outcomes relative to services or technologies
previously available, the applicant provided 1 published peer-reviewed
study of HERIZON-BTC-01
[[Page 36767]]
(Harding et al., 2023) and 2 poster presentations that are analyses of
HERIZON-BTC-01 (Pant et al., 2024; Wasan et al., 2023) in support of
its claims. Harding et al. (2023) and Pant et al. (2024) provided
results of the phase IIB HERIZON-BTC-01, a global, multicenter, single
arm, cohort study assessing ZIIHERA[supreg] treatment in 87 patients
with HER2+ BTC, which were grouped into cohorts based on
immunohistochemistry (IHC): cohort 1, n=80 (HER2+ (IHC 2+ or IHC 3+))
and cohort 2, n=7 (IHC 0 or IHC 1+). We noted that the HERIZON-BTC-01
study did not compare ZIIHERA[supreg] outcomes to outcomes for other
existing treatments, and therefore we questioned the extent to which
this can be relied upon for a finding of substantial clinical
improvement. We noted that 63 percent of the study's patients were
enrolled at clinical trial sites in Asia, and we questioned whether the
location of the clinical trial sites being outside of the US could
affect the generalizability of the findings to the U.S. Medicare
patient population. We also questioned whether the study's sample size
may have impacted the ability to perform or interpret comparative
analyses within and between the two different patient cohorts.
With respect to the applicant's claim that, in HERIZON-BTC-01 study
(Harding et al., 2023), ZIIHERA[supreg] demonstrated a clinical benefit
of sustained/durable response rates, longer OS, and a significantly
higher response rate compared to previously reported outcomes of 2L
advanced BTC therapies, we noted that while the applicant provided
background studies comparing FOLFOX and FOLFIRI to ZIIHERA[supreg], the
supporting evidence provided did not compare ZIIHERA[supreg] to other
FDA-approved therapies used for unresectable/metastatic BTC such as
ENHERTU[supreg]. The applicant stated that ZIIHERA[supreg]'s median
confirmed objective response rate (cORR) of 51.6 percent represents a
marked clinical benefit for the target population, which is
approximately 10-fold higher than the previously reported median ORR
for FOLFOX and significantly more than the historical response rate of
7.7 percent for 2L chemotherapy regimens, noting the highest historical
rate reported of 14.8 percent was seen in the FOLFIRI regimen. However,
we questioned whether the differences in the studies' reported
responses are comparable given that the studies are different in
design, protocol, and methodology, which may limit the ability to
interpret the outcomes. While the applicant stated that FOLFOX
chemotherapy regimen remains the preferred 2L treatment of advanced
BTC, as there are other treatments used in the 2L+ treatment of
advanced BTC, we stated we would appreciate additional information on
the comparison of outcomes with ZIIHERA[supreg] to those with other
FDA-approved therapies used for advanced/metastatic BTC.
With respect to the claim that ZIIHERA[supreg] has a manageable
safety profile with favorable tolerability in adults with previously
treated, unresectable/metastatic HER2+ (IHC 3+) BTC, the applicant
stated that, in contrast to chemotherapy regimens used as 2L or later
therapies, ZIIHERA[supreg] as a single agent is well tolerated in the
pretreated BTC patient population and the resulting adverse events are
manageable. In support of this claim, the applicant provided results of
the HERIZON-BTC-01 study (Harding et al., 2023, Wasan et al., 2023, and
Pant et al., 2024), which measured safety and quality of life in 87
patients. We stated we were concerned that the safety and quality of
life data were combined in both the Harding et al. (2023) and Pant et
al. (2024) studies for cohort 1 (n=80) (HER2+ (IHC 3+ or IHC 2+)) and
cohort 2 (n=7) (IHC 1+ or IHC 0), and the Wasan paper reported from
cohort 1 (HER2+ (IHC 3+ or IHC 2+)). Therefore, these studies did not
provide data on safety and treatment-related adverse events for IHC 3+
BTC patients separately. We noted that since ZIIHERA[supreg] is
indicated for use in patients with HER2+ (IHC 3+) BTC only, we
questioned whether the inclusion of patients with HER2+ (IHC 2+) BTC
and patients with IHC 1+ or IHC 0 BTC is appropriate to demonstrate
outcomes for HER2+ (IHC 3+) BTC patients specifically. We questioned
whether this analysis provides sufficient evidence as to
ZIIHERA[supreg]'s overall benefit-risk profile and how it compares to
other treatments given that Wasan et al. and Pant et al., which are
unpublished and non-peer-reviewed conference posters, do not include
full details of the study and methodology, which therefore may limit
our ability to interpret the results. We further noted that HERIZON-
BTC-01 was a single arm study and that the clinical outcome and HRQoL
data are not specific to IHC 3+ BTC patients, in accordance with
ZIIHERA[supreg]'s FDA indication.
We invited public comments on whether ZIIHERA[supreg] meets the
substantial clinical improvement criterion.
Comment: We received several comments that expressed general
support for new technology add-on payment approval for ZIIHERA[supreg].
Some of the commenters stated that ZIIHERA[supreg] addresses a critical
unmet need in this patient population by offering a targeted,
chemotherapy-free treatment option that has demonstrated meaningful and
durable responses in a setting where conventional therapies have
limited efficacy, and that the ability to initiate or continue
ZIIHERA[supreg] in the inpatient setting may help stabilize disease,
reduce symptom burden, and facilitate discharge planning, offering both
clinical and health system benefits. A commenter expressed support for
ZIIHERA[supreg] as a chemotherapy-free treatment option for patients
with biliary obstruction, poor performance status, and comorbidities
that limit chemotherapy tolerance. Many commenters also stated that in
the HERIZON-BTC-01 trial, ZIIHERA[supreg] demonstrated meaningful
results with an ORR of 52 percent with a mDOR of 14.9 months. One of
the commenters stated that a small but clinically relevant subset of
BTCs have HER2-amplification for which HER2-targeted therapy is vastly
superior to traditional chemotherapy. Another commenter stated that for
patients with HER2 overexpression after progression on first-line
therapy, ZIIHERA[supreg] offers a singularly advantageous profile based
upon a host of parameters including the lack of myelosuppression which
is important in a population at high risk for cholangitis or biliary
sepsis and that because ZIIHERA[supreg] does not require significant
hepatic metabolism, it is also a preferred choice in patients with
biliary obstruction and risk for fluctuating hepatic function. The
commenter stated that alternate HER2-targeted therapies, such as
trastuzumab deruxtecan or tucatinib-based regiments, are not options in
these settings due to risk for hepatic toxicity or worsening infection.
A commenter further stated that currently available options for
patients with HER2+ (IHC3+) BTC, such as chemotherapy or
ENHERTU[supreg], have important limitations, especially in 2L where
patients may already be fragile and chemotherapy-intolerant, and that
ZIIHERA[supreg] represents an important option because it offers a
chemotherapy-free, HER2-targeted approach. The commenter stated the
availability of a well-tolerated, targeted 2L regimen such as
ZIIHERA[supreg] could expand access especially for patients who might
otherwise forgo treatment due to poor performance status or inability
to tolerate the toxicity of current standard regimens. Additionally,
another commenter stated that traditionally,
[[Page 36768]]
antineoplastic therapies have not been given in the inpatient setting
due to them being unsafe for people that are acutely ill because they
have cytotoxic mechanisms of action that can cause infection,
cytopenias, bleeding and other complications and that having inpatient
access to ZIIHERA[supreg] would allow patients to start it sooner or to
continue treatment on schedule, rather than missing doses.
Response: We thank the commenters for their input and have taken it
into consideration in determining whether ZIIHERA[supreg] meets the
substantial clinical improvement criterion as discussed later in this
section.
Comment: The applicant submitted a public comment regarding the
substantial clinical improvement criterion and provided responses to
CMS's concerns from the proposed rule. In response to CMS's questions
regarding the applicant's assertion that ZIIHERA[supreg] offers a
treatment option for a patient population unresponsive to, or
ineligible for, other existing therapies, the applicant stated that
prior to FDA approval of ZIIHERA[supreg] and its addition as a Category
2A treatment option for BTC, the preferred subsequent-line therapy
option for patients with advanced BTC was FOLFOX chemotherapy, although
survival rates remain poor (6.2 months OS and 4.0 months mPFS) and
response rates are low (5 percent). The applicant asserted that among
patients receiving FOLFOX, Grade 3 to 5 adverse events occurred in 69
percent of patients, and 3 chemotherapy-related deaths were reported.
The applicant explained that additional treatment options recommended
for 2L therapy in BTC were FOLFIRI, STIVARGA[supreg], and liposomal
irinotecan plus 5-fluorouracil plus leucovorin, and provided two tables
displaying the efficacy, and safety and tolerability of select 2L
therapies in BTC. The applicant commented that historically, there were
no HER2-targeted therapies that were specifically studied in a trial
dedicated to patients with BTC as most of these trials were basket
trials. Per the applicant, with the addition of ZIIHERA[supreg], four
HER2-targeted therapies are now recommended in the NCCN guidelines. The
applicant stated that ZIIHERA[supreg] was studied in the largest phase
2b clinical trial dedicated to BTC with 80 patients with HER2+ disease,
62 of which were IHC3+ and that aside from ZIIHERA[supreg], only
ENHERTU[supreg] has reported efficacy data in centrally confirmed HER2+
(IHC3+) BTC (n=16). The applicant further stated that two of the
guideline-recommended HER2-targeted agents, trastuzumab + pertuzumab,
which was investigated in a phase 2 basket trial (SGNTUC-019) in
patients with HER2+ solid tumors, including 30 patients with HER2+
advanced BTC, and trastuzumab + tucatinib, which was investigated for
the treatment of patients with previously treated, locally advance/
metastatic HER2+ BTC in phase 2 multiple-basket study (MyPathway), are
not FDA-approved for use in patients with HER2+ BTC. The applicant
provided two figures that describe the efficacy outcomes in previously
treated HER2+ BTC for fam-trastuzumab-deruxtecan, tucatinib +
trastuzumab, and trastuzumab + pertuzumab, as well as the TEAEs with
HER2-targeted subsequent-line therapies for treatment of BTC. The
applicant reiterated that a significant and urgent unmet medical need
exists for optimal and tolerable treatment options for patients with
unresectable/metastatic HER2+ (IHC3+) BTC who have progressed on prior
systemic therapy or for those who are ineligible for chemotherapy, and
that the outcomes demonstrated by ZIIHERA[supreg] support the potential
for a new standard of care for patients who progress on 1L options. The
applicant further stated that ZIIHERA[supreg] offers the only FDA-
approved chemotherapy-free treatment option and noted that
ENHERTU[supreg] has a chemotherapeutic payload and is approved for use
when no satisfactory alternative treatment option remains.
With respect to the assertion that ZIIHERA[supreg] significantly
improves clinical outcomes relative to service or technologies
previously available, the applicant reiterated findings from the
HERIZON-BTC-01 trial and stated that the data continue to demonstrate
rapid, sustained, and durable responses in comparison to FOLFOX and
FOLFIRI while highlighting the clinical benefit of continued treatment
with chemotherapy-free, single-agent ZIIHERA[supreg]. The applicant
further commented that given the aggressive and rare nature of advanced
HER2+ BTC (affecting about 4.4 per 100,000 in the U.S.), the conduct of
randomized studies can be challenging in this biomarker-selected
population and that HERIZON-BTC-01 is a single-arm study without
comparator arm as there is no approved standard of care in this
setting. The applicant stated that, acknowledging the hazards of cross-
trial indirect comparison, the anti-tumor activity observed for
ZIIHERA[supreg] in patients with HER2+ BTC compares favorably to
historic controls from clinical studies in similar and relevant
populations. The applicant provided several figures that describe the
efficacy outcomes (ORR, mDOR in months, mPFS in months, and mOS in
months) in previously treated HER2+ BTC for fam-trastuzumab-deruxtecan,
tucatinib + trastuzumab, and trastuzumab + pertuzumab, noting that the
table is for illustrative purposes only and is not intended as a direct
comparison across trials. The applicant further stated that with the
rarity of BTC and a further reduced subset of patients with HER2-
expressing tumors, the sample size of HERIZON-BTC-01 (n=80, Cohort 1;
median age 64 years [IQR 58-70]) is representative of the small BTC
population, and that a sample size of approximately 75 patients in
Cohort 1 was informed by Clopper-Pearson exact binomial 95 percent CIs
using a historical response rate of 10 percent. The applicant
reiterated that the HERIZON-BTC-01 study population represented the
largest study in the 2L setting conducted in this rare disease. The
applicant also stated that a conscious effort was made to target a
broad range of clinical sites in wide geographic locations for the
HERIZON-BTC-01 study, with study participants enrolled at sites in the
U.S., Canada, Spain, France, U.K., Italy, Chile, China, and Korea. The
applicant reiterated that the largest components of participants in
Cohort 1 (IHC3+) were Asian (61.3 percent) and White (30.6 percent) but
asserted that these demographic characteristics are representative of
the target indication population of patients with BTC, which has a
higher prevalence in Asian populations. The applicant stated that
Harding et al. (2023) concluded that the ORRs were similar in patients
enrolled in Asia compared with those enrolled in the rest of the world,
indicating that geographical variation is unlikely to affect the
therapeutic use of ZIIHERA[supreg]. The applicant stated these data
demonstrate that HERIZON-BTC-01 results are generalizable to the U.S.
BTC population, including the Medicare-age patient population.
Furthermore, the applicant stated that prespecified subgroup analysis
of cORR based on age (<65 or 65 or <75 or 75), sex (female or male),
race (Asian or non-Asian), geographical region (North America, Asia, or
other), HER2+ IHC score (2+ or 3+), anatomic site (gallbladder cancer,
intrahepatic cholangiocarcinoma, and extrahepatic cholangiocarcinoma),
number of previous therapies for advanced disease (<2 or 2), disease
stage at baseline (stage III or stage IV), intolerance to most recent
previous treatment (yes or no), and baseline ECOG performance status (0
or 1) were also examined. The applicant stated that
[[Page 36769]]
ZIIHERA[supreg] provided treatment benefit regardless of the anatomic
subtype, geographical region, and lines of previous treatment and that
the ORR results were similar across age groups (<65; 65; <75).
In regard to the claim that the overall benefit:risk assessment of
ZIIHERA[supreg] is favorable and ZIIHERA[supreg] fulfills an unmet
medical need and provides an option for patients to receive clinical
benefit with a low risk of harm, the applicant reiterated that in
contrast to chemotherapy regimens used in the 2L or later setting,
ZIIHERA[supreg] as a single agent is well tolerated in the pretreated
BTC patient population with AEs that are manageable and that
ZIIHERA[supreg], a HER2-directed, non-chemotherapy treatment approach,
provides a clear clinical benefit, fulfills an unmet medical need for
the intended patient population, and provides an option for patients to
receive clinical benefit with a low risk of harm. The applicant further
stated that the BLA safety analysis for ZIIHERA[supreg] was based on
cohort 1 (n=80) of the pivotal, single arm Phase 2b HERIZON-BTC-01, and
that for the cohort 1 subgroup of IHC3+ patients (n=62), 80.6 percent
of patients experienced any TRAEs, with 59.7 percent of patients having
a Grade 1 or 2 TRAE, 19.4 percent having a Grade 3 TRAE, 1.6 percent
having a Grade 4 TRAE, none having a Grade 5 TRAE, and 2.3 percent
having a TRAE leading to discontinuation. The applicant provided a
figure with a summary of TRAEs. Furthermore, the applicant stated that
the subgroup analysis by IHC status indicates that patients with IHC3+
had an ORR of 51.6 percent (32 of 62 patients) and those with IHC2+ had
a response rate of 5.6 percent (one of 18 patients). The applicant
stated that substantial improvements in quality of life were seen in
patients who had a response, which was primarily in patients with HER2+
IHC3+ BTC (32/33 responders). The applicant also stated that the
present analysis of quality of life was based on cohort 1: HER2+
patients defined as IHC3+ or IHC2+. The applicant stated that there
were no responders in cohort 2 (IHC1+ or IHC0), and therefore, Cohort 2
was not included in any of the analysis. The applicant also explained
that a Phase 3 clinical trial is underway investigating the use of
ZIIHERA[supreg] in combination with standard of care versus standard of
care alone as 1L therapy in advanced HER2+ BTC and will serve as the
confirmatory trial.
Response: We thank the applicant for its comment regarding the
substantial clinical improvement criterion. Based on the additional
information received, we continue to have concerns as to whether
ZIIHERA[supreg] meets the substantial clinical improvement criterion to
be approved for new technology add-on payments.
Regarding the applicant's assertion that ZIIHERA[supreg] offers a
treatment option for a patient population unresponsive to or ineligible
for other existing therapies, since the information provided in the
application for this assertion as well as the updated NCCN guidelines
note that there are additional therapy options, we disagree that the
material presented adequately supports that patients treated with
ZIIHERA[supreg] have no other treatment options. Specifically, we note
that the NCCN guidelines recommend other treatment options for patients
with unresectable or metastatic BTC, including FOLFOX, FOLFIRI,
liposomal irinotecan plus 5-fluorouracil plus leucovorin, and
STIVARGA[supreg], or targeted therapy for patients with HER2+
unresectable or metastatic BTC, including ENHERTU[supreg],
PERJETA[supreg] plus HERCEPTIN[supreg], and TUKYSA[supreg] plus
HERCEPTIN[supreg], as well as ZIIHERA[supreg]. In addition, while
ZIIHERA[supreg] may provide a treatment option for patients unable to
tolerate the toxicity of current standard chemotherapy regimens as
described by the applicant and commenters, it is unclear that patients
who are unable to tolerate these chemotherapy regimens are also
ineligible for other targeted therapies such as ENHERTU[supreg].
We also continue to question that ZIIHERA[supreg] improves outcomes
over existing targeted therapies like ENHERTU[supreg]. While the
applicant provided outcomes for ZIIHERA[supreg] and ENHERTU[supreg]
from their respective trials, we note the similarity of the clinical
outcomes data in the information provided. For example, while the
applicant stated ZIIHERA[supreg] demonstrated a cORR of 51.6 percent
(95 percent CI: 38.6, 64.5) in the HERIZON-BTC-01 which the applicant
stated was significantly more than the historical response rate of 7.7
percent, we note that ENHERTU[supreg] demonstrated a cORR of 56.3
percent in the DESTINY-PanTumor02 trial. We also question whether the
data provided by the applicant comparing outcomes and TRAEs for the
HER2-targeted therapies allows for direct comparison given there are
differences in the sample size and differences in the number of prior
treatments between the two studies. Therefore, we remain unclear that
ZIIHERA[supreg] improves outcomes or TRAEs compared to other HER2-
targeted therapies such as ENHERTU[supreg] for patients with 2L
unresectable or metastatic HER2+ (IHC 3+) BTC.
After consideration of all the information received from the
applicant, as well as the public comments we received, we are unable to
determine that ZIIHERA[supreg] represents a substantial clinical
improvement over existing technologies for the reasons discussed in the
proposed rule and in this final rule, and therefore, we are not
approving new technology add-on payments for ZIIHERA[supreg] for FY
2026.
6. FY 2026 Applications for New Technology Add-On Payments (Alternative
Pathways)
As discussed previously, beginning with applications for FY 2021, a
medical device designated under FDA's Breakthrough Devices Program that
has received marketing authorization for the indication covered by the
Breakthrough Device designation, may qualify for the new technology
add-on payment under an alternative pathway. Additionally, beginning
with FY 2021, a medical product that is designated by FDA as a
Qualified Infectious Disease Product (QIDP) and has received marketing
authorization for the indication covered by the QIDP designation, and,
beginning with FY 2022, a medical product that is a new medical product
approved under FDA's Limited Population Pathway for Antibacterial and
Antifungal Drugs (LPAD) and used for the indication approved under the
LPAD pathway, may also qualify for the new technology add-on payment
under an alternative pathway. Under an alternative pathway, a
technology will be considered not substantially similar to an existing
technology for purposes of the new technology add-on payment under the
IPPS and will not need to meet the requirement that it represents an
advance that substantially improves, relative to technologies
previously available, the diagnosis or treatment of Medicare
beneficiaries. These technologies must still be within the 2-to-3-year
newness period to be considered ``new,'' and must also still meet the
cost criterion.
As discussed previously, in the FY 2023 IPPS/LTCH PPS final rule,
we finalized our proposal to publicly post online applications for new
technology add-on payment beginning with FY 2024 applications (87 FR
48986 through 48990). As noted in the FY 2023 IPPS/LTCH PPS final rule,
we are continuing to summarize each application in this final rule.
However, while we are continuing to provide discussion of the concerns
or issues we identified with respect to applications submitted under
the alternative pathway, we are providing more succinct information as
part of the summaries in the proposed
[[Page 36770]]
and final rules regarding the applicant's assertions as to how the
medical service or technology meets the applicable new technology add-
on payment criteria. We refer readers to https://mearis.cms.gov/public/publications/ntap for the publicly posted FY 2026 new technology add-on
payment applications and supporting information (with the exception of
certain cost and volume information, and information or materials
identified by the applicant as confidential or copyrighted), including
tables listing the ICD-10-CM codes, ICD-10-PCS codes, and/or MS-DRGs
related to the analyses of the cost criterion for certain technologies
for the FY 2026 new technology add-on payment applications. In
addition, for certain FY 2026 new technology add-on payment
applications, in the FY 2026 IPPS/LTCH PPS proposed rule, we noted we
made available separate tables listing the ICD-10-CM codes and/or ICD-
10-PCS codes that we believed would be used to identify cases relevant
to the Breakthrough Device-designated indications, or would be
appropriate to exclude for cases related to FDA market authorized
indications that are not covered by the Breakthrough Device designation
indications, for purposes of the new technology add-on payment, if
approved, in Table 10 associated with the proposed rule, available via
the internet on the CMS website at https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps. Click on the link
on the left side of the screen titled ``FY 2026 IPPS Proposed Rule Home
Page'' or ``Acute Inpatient--Files for Download''. Please see section
VI of the Addendum of the proposed rule for additional information
regarding tables associated with the proposed rule.
Table 10 associated with this final rule reflects the finalized
lists of ICD-10-CM codes or ICD-10-PCS codes that would be used to
identify cases relevant to the Breakthrough Device-designated
indication for the RECELL[supreg] Autologous Cell Harvesting Device for
purposes of the new technology add-on payment for FY 2026, and is
available on the CMS website at: https://www.cms.gov/medicare/medicare-fee-for-service-payment/acuteinpatientpps.
We received 34 applications for new technology add-on payments for
FY 2026 under the new technology add-on payment alternative pathway. As
discussed in the FY 2024 IPPS/LTCH PPS final rule (88 FR 58948 through
58958) and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69242 through
69245), we finalized that beginning with the new technology add-on
payment applications for FY 2025, for technologies that are not already
FDA market authorized for the indication that is the subject of the new
technology add-on payment application, applicants must have a complete
and active FDA market authorization request at the time of new
technology add-on payment application submission and must provide
documentation of FDA acceptance or filing to CMS at the time of
application submission, consistent with the type of FDA marketing
authorization application the applicant has submitted to FDA. See Sec.
412.87(e) and further discussion in the FY 2024 and the FY 2025 IPPS/
LTCH PPS final rules (88 FR 58948 through 58958; 89 FR 69242 through
69245). Of the 34 applications received under the alternative pathway,
1 application was not eligible for consideration for new technology
add-on payment because it did not meet these requirements; and 4
applicants withdrew their applications prior to the issuance of the
proposed rule. Subsequently, prior to the issuance of this final rule,
7 additional applicants (for the Dexcom G7 Hospital Continuous Glucose
Monitoring System, DrugSorb-ATR Device, Nelli Seizure Monitoring
System, PearlMatrix P-15 Peptide Enhanced Bone Graft, Provizio[supreg]
SEM Scanner, Spur Peripheral Retrievable Stent System, and the
Ventura[supreg] Interatrial Shunt System) withdrew their applications,
or did not meet the May 1 deadline for FDA approval or clearance of the
technology and therefore are not eligible for consideration for new
technology add-on payments for FY 2026. We are not including in this
final rule the description and discussion of applications that were
withdrawn or that are ineligible for consideration for FY 2026. We are
addressing the remaining 22 applications. Of the remaining 22
applications, 20 of the technologies received a Breakthrough Device
designation from FDA. The remaining two applications were designated as
a QIDP by FDA. We did not receive any applications for technologies
approved through the LPAD pathway.
In accordance with the regulations under Sec. 412.87(f)(2),
applicants for new technology add-on payments for FY 2026 for
Breakthrough Devices must have FDA marketing authorization by May 1 of
the year prior to the beginning of the fiscal year for which the
application is being considered. Under Sec. 412.87(f)(3), applicants
for new technology add-on payments for FY 2026 for QIDPs and
technologies approved under the LPAD pathway must have FDA marketing
authorization by July 1 of the year prior to the beginning of the
fiscal year for which the application is being considered. The policy
finalized in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58742)
provides for conditional approval for a technology for which an
application is submitted under the alternative pathway for certain
antimicrobial products (QIDPs and LPADs) at Sec. 412.87(d) that does
not receive FDA marketing authorization by July 1 prior to the
particular fiscal year for which the applicant applied for new
technology add-on payments, provided that the technology receives FDA
marketing authorization before July 1 of the fiscal year for which the
applicant applied for new technology add-on payments. We refer the
reader to the FY 2021 IPPS/LTCH final rule for a complete discussion of
this policy (85 FR 58737 through 58742).
As we did in the FY 2025 IPPS/LTCH PPS proposed rule, for
applications under the alternative new technology add-on payment
pathway, in the FY 2026 IPPS/LTCH PPS proposed rule we made a proposal
to approve or disapprove each of these 22 applications for FY 2026 new
technology add-on payments. Therefore, in this section of the preamble
of this final rule, we provide a table summarizing background
information and the cost analysis for each of the remaining alternative
pathway applications and our determination on whether or not each
technology is eligible for the new technology add-on payment for FY
2026. We refer readers to section II.H.8. of the preamble of the FY
2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) and FY 2021
IPPS/LTCH PPS final rule (85 FR 58715 through 58733) for further
discussion of the alternative new technology add-on payment pathways
for these technologies.
a. Alternative Pathway for Breakthrough Devices
(1) 4WEB Medical Ankle Truss System
The following table summarizes the information provided in the new
technology add-on payment application for the 4WEB Medical Ankle Truss
System. We note that 4WEB Medical, Inc. submitted an application for
new technology add-on payments for the 4WEB Medical Ankle Truss System
for FY 2024, as summarized in the FY 2024 IPPS/LTCH PPS proposed rule
(88 FR 26924 through 26926), which the applicant withdrew prior to the
issuance of the FY 2024 IPPS/LTCH PPS final rule (88 FR 58919).
BILLING CODE 4120-01-P
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BILLING CODE 4120-01-C
In the proposed rule, we noted that after review of the information
provided by the applicant, since the indication for which the applicant
received 510(k) clearance is included within the scope of the
Breakthrough Device designation indication, it appears that the FDA-
cleared indication is appropriate for consideration for new technology
add-on payment under the alternative pathway criteria.
We agreed with the applicant that the 4WEB Medical ATS meets the
cost criterion and therefore proposed to approve the 4WEB Medical ATS
for new technology add-on payments for FY 2026 for use as an accessory
to the Stryker T2 Ankle Arthrodesis Nail or the Stryker Valor Hindfoot
Fusion Nail as part of a TCC fusion construct in a salvage procedure
following failed ankle arthrodesis or failed ankle arthroplasty for
patients at risk for loss of limb.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the 4WEB
Medical ATS to the hospital to be $23,500 per patient. Per the
applicant, one 4WEB Medical ATS is used per patient per hospital
discharge. We noted that the cost information for this technology may
be updated in the final rule based on revised or additional information
CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we
limit new technology add-on payments to the lesser of 65 percent of the
average cost of the technology, or 65 percent of the costs in excess of
the MS-DRG payment for the case. As a result, we proposed that the
maximum new technology add-on payment for a case involving the use of
the 4WEB Medical ATS would be $15,275 for FY 2026 (that is, 65 percent
of the average cost of the technology).
We invited public comments on whether the 4WEB Medical ATS meets
the cost criterion and our proposal to approve new technology add-on
payments for the 4WEB Medical ATS for FY 2026.
Comment: A few commenters, including the applicant, expressed
support for our proposal to approve new technology add-on payment for
the 4WEB Medical ATS. Commenters stated that the technology meets all
the eligibility requirements and requested that CMS finalize the
proposal to approve the new technology add-on payments for FY 2026.
The applicant also confirmed that the per-patient cost to the
hospital of the device of $23,500 provided in the new technology add-on
payments application has not changed. The applicant submitted a summary
of relevant dates related to commercial availability, noting that
510(k) clearance was received from FDA on March 21, 2024, and a third-
party distribution agreement between the applicant and Stryker
Corporation (Stryker) was executed on July 26, 2024, to give
[[Page 36773]]
Stryker exclusive rights to distribute and sell the device. The
applicant stated that there was a delay between July 26, 2024, and
January 8, 2025, because manufacturing could not begin until the
distribution agreement was executed, and the first batch of implants
for commercial use were received on January 8, 2025. Per the applicant,
it completed its inspection of the device and shipped the first batch
to Stryker on January 28, 2025, and Stryker completed its processes on
January 31, 2025 and made the device available for sale. The applicant
noted that this date represents the date the device was commercially
available and does not represent the date of first implant. The
applicant stated that the first 4WEB Medical ATS implantation occurred
on February 7, 2025. Given the timeline of events, the applicant
requested that CMS utilize January 31, 2025, as the date of first
commercial availability.
Response: We thank the commenters for their comments and support.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe 4WEB Medical ATS meets the cost
criterion. The technology received 510(k) clearance on March 21, 2024,
with an indication for use as an accessory to the Stryker T2 Ankle
Arthrodesis Nail or the Stryker Valor Hindfoot Fusion Nail as part of a
TCC fusion construct in a salvage procedure following failed ankle
arthrodesis or failed ankle arthroplasty for patients at risk for loss
of limb, which is covered by its Breakthrough Device designation.
Therefore, we are finalizing our proposal to approve new technology
add-on payments for 4WEB Medical ATS for FY 2026. We consider the
beginning of the newness period to commence on January 31, 2025, the
date on which the technology became commercially available for the
indication covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of 4WEB Medical ATS to the hospital is $23,500 per
patient. Per the applicant, one 4WEB Medical ATS is used per patient
per hospital discharge. Under Sec. 412.88(a)(2), we limit new
technology add-on payments to the lesser of 65 percent of the average
cost of the technology, or 65 percent of the costs in excess of the MS-
DRG payment for the case. As a result, we are finalizing that the
maximum new technology add-on payment for a case involving the use of
4WEB Medical ATS is $15,275 for FY 2026 (that is, 65 percent of the
average cost of the technology). Cases involving the use of 4WEB
Medical ATS that are eligible for new technology add-on payments will
be identified by ICD-10-PCS procedure codes: XRGJ0B9 (Fusion of right
ankle joint using open-truss design internal fixation device, open
approach, new technology group 9), XRGK0B9 (Fusion of left ankle joint
using open-truss design internal fixation device, open approach, new
technology group 9), XRGL0B9 (Fusion of right tarsal joint using open-
truss design internal fixation device, open approach, new technology
group 9), or XRGM0B9 (Fusion of left tarsal joint using open-truss
design internal fixation device, open approach, new technology group
9).
(2) AeroPace[supreg] System
The following table summarizes the information provided in the new
technology add-on payment application for the AeroPace[supreg] System.
BILLING CODE 4120-01-P
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BILLING CODE 4120-01-C
In the proposed rule, we noted that after review of the information
provided by the applicant, since the indication for which the applicant
received PMA
[[Page 36775]]
approval from FDA is included within the scope of the Breakthrough
Device designation indication, it appears that the FDA-approved
indication is appropriate for consideration for new technology add-on
payment under the alternative pathway criteria.
We noted that the applicant stated that the technology is not yet
available for sale because it would take time following FDA approval to
finalize its commercial operations and market materials to include the
final labeling and regulatory information. We stated in the proposed
rule that we were interested in additional information regarding the
cause for any delay in the technology's market availability, as it
received FDA approval on December 4, 2024, and the applicant stated
that it is not expected to be commercially available until October 1,
2025.
We agreed with the applicant that the AeroPace[supreg] System meets
the cost criterion and therefore proposed to approve the
AeroPace[supreg] System for new technology add-on payments for FY 2026,
for use to improve weaning success--increase weaning, reduce ventilator
days, and reduce reintubation--in patients ages 18 years or older on MV
>=96 hours and who have not weaned.
The applicant had not provided an estimate for the cost of the
AeroPace[supreg] System at the time of the proposed rule. The applicant
stated that the operating components include the AeroPace[supreg]
Catheter and the Airway Sensor. The applicant also noted the capital
components of the AeroPace[supreg] Neurostimulation Console, Catheter
Cable, Handheld Controller, and Airway Sensor Cable. Because section
1886(d)(5)(K)(i) of the Act requires that the Secretary establish a
mechanism to recognize the costs of new medical services or
technologies under the payment system established under that
subsection, which establishes the system for payment of the operating
costs of inpatient hospital services, we stated that we do not include
capital costs in the add-on payments for a new medical service or
technology or make new technology add-on payments under the IPPS for
capital-related costs (86 FR 45145). As noted, the applicant stated
that the cost of the AeroPace[supreg] Neurostimulation Console,
Catheter Cable, Handheld Controller, and Airway Sensor Cable are
capital costs. Therefore, we stated that it appears that these
components are not eligible for new technology add-on payment because,
as discussed in prior rulemaking and as noted, we only make new
technology add-on payments for operating costs (72 FR 47307 through
47308). We stated that we expected the applicant to submit cost
information prior to the final rule, and that we would provide an
update regarding the new technology add-on payment amount for the
technology, if approved, in the final rule. Any new technology add-on
payment for the AeroPace[supreg] System would be subject to our policy
under Sec. 412.88(a)(2) where we limit new technology add-on payment
to the lesser of 65 percent of the average cost of the technology, or
65 percent of the costs in excess of the MS-DRG payment for the case.
We invited public comments on whether the AeroPace[supreg] System
meets the cost criterion and our proposal to approve new technology
add-on payments for the AeroPace[supreg] System for FY 2026.
Comment: A few commenters, including the applicant, submitted
public comments expressing support for our proposal to approve new
technology add-on payment for the AeroPace[supreg] System for FY 2026.
In response to CMS's request for additional information regarding
the delay in the technology's market availability, the applicant stated
that the company is currently manufacturing devices and anticipates
first commercial use and launch beginning October 1, 2025. Regarding
the delay, the applicant stated that based on average FDA PMA review
times, the applicant targeted its preparation of commercial operations
for manufacturing, and its fundraising to support manufacturing and
hiring of sales personnel based on the anticipated FDA approval
timeline of early Q2 2025. Per the applicant, the FDA review process
occurred in less time than anticipated and given the lead time for
manufacturing, building inventory, establishing its commercial
operation, and costs, there was not sufficient time to accelerate
commercialization sooner than planned.
The applicant also provided the costs for the single-patient use
components that are eligible for new technology add-on payment, the
AeroPace[supreg] Neurostimulation Catheter and the Airway Sensor. The
applicant noted that the total per-patient cost of the AeroPace[supreg]
System single-patient use components to the hospital is $36,386. Per
the applicant, each AeroPace[supreg] Neurostimulation Catheter is
$24,995 and each Airway Control Sensor is $995, and based on the
clinical trial data, patients will use 1.4 AeroPace[supreg]
Neurostimulation Catheters and Airway Sensors on average.
Response: We thank the commenters for their comments and the
updated cost information.
As we have discussed in prior rulemaking (86 FR 45132; 77 FR
53348), generally, our policy is to begin the newness period on the
date of FDA approval or clearance or, if later, the date of
availability of the product on the U.S. market. The applicant states
that it anticipates first commercial use and launch beginning October
1, 2025, but it is unclear whether the technology would be available
for sale prior to that date. In addition, we note that we do not
consider the date of first sale of a product, or first shipment of a
product, as an indicator of the entry of a product onto the U.S.
market; neither of these dates indicate when a technology in fact
became available for sale (88 FR 58802). At this time, there is not
sufficient information to determine a newness date based on a
documented delay in the technology's availability on the U.S. market.
Absent additional information, we therefore consider the newness date
for this technology to be December 4, 2024.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe AeroPace[supreg] System meets the cost
criterion. The technology received FDA premarket approval on December
4, 2024, with an indication for use to improve weaning success--
increase weaning, reduce ventilator days, and reduce reintubation--in
patients ages 18 years or older on MV 96 hours and who have not weaned,
which is covered by its Breakthrough Device designation. Therefore, we
are finalizing our proposal to approve new technology add-on payments
for AeroPace[supreg] System for FY 2026. Absent additional information
from the applicant, we consider the beginning of the newness period to
commence on December 4, 2024, the date of FDA marketing authorization
for the indication covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of AeroPace[supreg] System is $36,386. Under Sec.
412.88(a)(2), we limit new technology add-on payments to the lesser of
65 percent of the average cost of the technology, or 65 percent of the
costs in excess of the MS-DRG payment for the case. As a result, we are
finalizing that the maximum new technology add-on payment for a case
involving the use of AeroPace[supreg] System is $23,650.90 for FY 2026
(that is, 65 percent of the average cost of the technology).
The applicant submitted a request and was granted approval for a
unique ICD-10-PCS procedure code for the AeroPace[supreg] System
beginning in FY
[[Page 36776]]
2026. Therefore, cases involving the use of AeroPace[supreg] System
that are eligible for new technology add-on payments will be identified
by ICD-10-PCS procedure code X2H13XB (Insertion of temporary phrenic
nerve/diaphragm stimulation electrodes into superior vena cava,
percutaneous approach, new technology group 11).
(3) AGENTTM Paclitaxel-Coated Balloon Catheter
The following table summarizes the information provided in the new
technology add-on payment application for the AGENTTM
Paclitaxel-Coated Balloon Catheter.
BILLING CODE 4120-01-P
[[Page 36777]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.182
BILLING CODE 4120-01-C
In the proposed rule, we noted that after review of the information
provided by the applicant, since the indication for which the applicant
received PMA
[[Page 36778]]
approval from FDA is included within the scope of the Breakthrough
Device designation indication, it appears that the FDA-approved
indication is appropriate for consideration for new technology add-on
payment under the alternative pathway criteria.\122\
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\122\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program.
---------------------------------------------------------------------------
We agreed with the applicant that the AGENTTM
Paclitaxel-Coated Balloon Catheter meets the cost criterion and
therefore proposed to approve the AGENTTM Paclitaxel-Coated
Balloon Catheter for new technology add-on payments for FY 2026 for use
after appropriate vessel preparation in adult patients undergoing PCI
in coronary arteries 2.0 mm to 4.0 mm in diameter and lesions up to 26
mm in length for the purpose of improving myocardial perfusion when
treating ISR.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the
AGENTTM Paclitaxel-Coated Balloon Catheter to the hospital
to be $6,175 per patient. We noted that the cost information for this
technology may be updated in the final rule based on revised or
additional information CMS receives prior to the final rule. Under
Sec. 412.88(a)(2), we limit new technology add-on payments to the
lesser of 65 percent of the average cost of the technology, or 65
percent of the costs in excess of the MS-DRG payment for the case. As a
result, we proposed that the maximum new technology add-on payment for
a case involving the use of the AGENTTM Paclitaxel-Coated
Balloon Catheter would be $4,013.75 for FY 2026 (that is, 65 percent of
the average cost of the technology).
We invited public comments on whether the AGENTTM
Paclitaxel-Coated Balloon Catheter meets the cost criterion and our
proposal to approve new technology add-on payments for the
AGENTTM Paclitaxel-Coated Balloon Catheter for FY 2026.
Comment: A few commenters, including the applicant, expressed
support for our proposal to approve new technology add-on payment for
the AGENTTM Paclitaxel-Coated Balloon Catheter. Commenters
stated that the device meets all requirements for approval and
requested that CMS finalize its proposal for new technology add-on
payments for FY 2026. The applicant requested that CMS finalize the
approval of new technology add-on payments with a maximum payment of
$4,013.75 starting October 1, 2025.
Response: We thank the commenters for their comments. Based on the
information provided in the application for new technology add-on
payments, and after consideration of the public comments we received,
we believe AGENTTM Paclitaxel-Coated Balloon Catheter meets
the cost criterion. The technology received FDA premarket approval on
February 29, 2024, with an indication for use after appropriate vessel
preparation in adult patients undergoing PCI in coronary arteries 2.0
mm to 4.0 mm in diameter and lesions up to 26 mm in length for the
purpose of improving myocardial perfusion when treating ISR, which is
covered by its Breakthrough Device designation. Therefore, we are
finalizing our proposal to approve new technology add-on payments for
AGENTTM Paclitaxel-Coated Balloon Catheter for FY 2026. We
consider the beginning of the newness period to commence on February
29, 2024, the date on which technology received its premarket
authorization for the indication covered by its Breakthrough Device
designation.
Based on the information available at the time of this final rule,
the cost per case of AGENTTM Paclitaxel-Coated Balloon
Catheter is $6,175. Under Sec. 412.88(a)(2), we limit new technology
add-on payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we are finalizing that the maximum new
technology add-on payment for a case involving the use of
AGENTTM Paclitaxel-Coated Balloon Catheter is $4,013.75 for
FY 2026 (that is, 65 percent of the average cost of the technology).
Cases involving the use of AGENTTM Paclitaxel-Coated Balloon
Catheter that are eligible for new technology add-on payments will be
identified by one of the following ICD-10-PCS procedure codes:
BILLING CODE 4120-01-P
[[Page 36779]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.183
(4) alfapump[supreg] system
The following table summarizes the information provided in the new
technology add-on payment application for the alfapump[supreg] system.
[[Page 36780]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.184
[[Page 36781]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.185
BILLING CODE 4120-01-C
In the proposed rule, we noted that the applicant stated that the
technology is not expected to be commercially available until July 2025
due to its internal production capacity and the phased roll out plan
into Liver Transplant centers. We stated in the proposed rule that we
were interested in additional information regarding any delay, such as
whether the technology would be available for sale during its phased
roll out plan.
We agreed with the applicant that the alfapump[supreg] system meets
the cost criterion and therefore proposed to approve the
alfapump[supreg] system for new technology add-on payments for FY 2026,
in adult patients with refractory or recurrent ascites due to liver
cirrhosis for the removal of excess peritoneal fluid from the
peritoneal cavity into the bladder.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the
alfapump[supreg] system to the hospital to be $30,000 per patient. Per
the applicant, the alfapump[supreg] system is a single patient use
implantable device, and one device is used per hospital stay. We noted
that the cost information for this technology may be updated in the
final rule based on revised or additional information CMS receives
prior to the final rule. Under Sec. 412.88(a)(2), we limit new
technology add-on payments to the lesser of 65 percent of the average
cost of the technology, or 65 percent of the costs in excess of the MS-
DRG payment for the case. As a result, we proposed that the maximum new
technology add-on payment for a case involving the use of the
alfapump[supreg] system would be $19,500 for FY 2026 (that is, 65
percent of the average cost of the technology).
We invited public comments on whether the alfapump[supreg] system
meets the cost criterion and our proposal to approve new technology
add-on payments for the alfapump[supreg] system.
Comment: A few commenters, including the applicant, expressed
support for our proposal to approve new technology add-on payment for
the alfapump[supreg] system.
In response to CMS's request for additional information regarding
the delay in the technology's market availability the applicant stated
that the alfapump[supreg] was not available for sale as of June 2025
and that it anticipates that the first cases and sales will now occur
during the month of August 2025.
The applicant also provided updated cost information and stated
that the price of the alfapump[supreg] kit will be revised from the
original cost of $30,000 to a new cost of $33,000, given various
commercial factors. Per the applicant, this results in a revised final
average case weighted standardized charge per case of $271,692, as
compared to the prior figure of $260,109, against the case weighted
threshold of $130,906. The applicant requested a revised calculation
using the revised cost of $33,000 for a maximum allowable new
technology add-on payment of $21,450.
Response: We thank the applicant and commenters for their comments
and support.
As we have discussed in prior rulemaking (86 FR 45132; 77 FR
53348), generally, our policy is to begin the newness period on the
date of FDA approval or clearance or, if later, the date of
availability of the product on the U.S. market. The applicant states
that it anticipates first commercial use and launch beginning August
2025, but it is unclear whether the technology would be available for
sale prior to that date. At this time, there is not sufficient
information to determine a newness date based on a documented delay in
the technology's availability on the U.S. market. Absent additional
information, we therefore consider the newness date for this technology
to be December 20, 2024.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comment we received, we believe the alfapump[supreg] system meets the
cost criterion. The technology received FDA marketing authorization on
December 20, 2024, with an indication for use in adult patients with
refractory or recurrent ascites due to liver cirrhosis for the removal
of excess peritoneal fluid from the peritoneal cavity into the bladder,
which is covered by its Breakthrough Device designation. Therefore, we
are finalizing our proposal to approve new technology add-on payments
for the alfapump[supreg] system for FY 2026. Absent additional
information from the applicant, we consider the beginning of the
newness period to commence on December 20, 2024, the date of FDA
marketing authorization for the indication covered by its Breakthrough
Device designation.
Based on the information available at the time of this final rule,
the cost per case of the alfapump[supreg] system is $33,000. Under
Sec. 412.88(a)(2), we limit new technology add-on payments to the
lesser of 65 percent of the average cost of the technology, or 65
percent of the costs in excess of the MS-DRG payment for the case. As a
result, we are finalizing that the maximum new technology add-on
payment for a case involving the use of the alfapump[supreg] system is
$21,450 for FY 2026 (that is, 65 percent of the average cost of the
technology). Cases involving the use of the alfapump[supreg] system
that are eligible for new technology add-on payments will be identified
by ICD-10-PCS procedure code 0W1G3J6 (Bypass peritoneal cavity to
bladder with synthetic substitute, percutaneous approach) in
combination with 0JH80YZ (Insertion of other device into abdomen
subcutaneous tissue and fascia, open approach).
(5) Aprevo[supreg]-C Cervical Interbody Fusion Device
The following table summarizes the information provided in the new
technology add-on payment application for the aprevo[supreg]-C cervical
interbody fusion device.
BILLING CODE 4120-01-P
[[Page 36782]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.186
[[Page 36783]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.187
BILLING CODE 4120-01-C
In the proposed rule, we noted that after review of the information
provided by the applicant, since the indication for which the applicant
received 510(k) clearance from FDA is included within the scope of the
Breakthrough Device designation, it appears that the FDA 510(k)
clearance indication is appropriate for consideration for new
technology add-on payment under the alternative pathway criteria.
We noted that the applicant stated that the technology is expected
to be commercially available starting October 1, 2025, to align with
the start of the new technology add-on payment. We were interested in
additional information regarding the cause for any delay in the
technology's market availability as the technology received FDA
clearance on November 15, 2024.
We agreed with the applicant that the aprevo[supreg]-C cervical
interbody fusion device meets the cost criterion and therefore proposed
to approve the aprevo[supreg]-C cervical interbody fusion device for
new technology add-on payments for FY 2026, as interbody fusion devices
indicated at one or more levels of the cervical spine (C2-T1) in
patients with the following degenerative cervical conditions: cervical
disc disease, instability, trauma including fractures, deformity
defined as kyphosis, lordosis, or scoliosis, cervical spondylotic
myelopathy, spinal stenosis, and failed previous fusion.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the
aprevo[supreg]-C cervical interbody fusion device to the hospital to be
$32,500 per patient. The applicant stated that the average number of
cervical interbody fusion (CIBF) devices per procedure is 4.42 if the
patient has a deformity and 1.7 if the patient has a degenerative
condition. Per the applicant, based on the projected mix between these
diagnoses, the average number of aprevo[supreg]-C CIBF per procedure is
expected to be 3.25. The applicant stated that the selling price will
be $19,000 for the first level, and $6,000 for each additional level.
We noted that the cost information for this technology may be updated
in the final rule based on revised or additional information CMS
receives prior to the final rule. Under Sec. 412.88(a)(2), we limit
new technology add-on payments to the lesser of 65 percent of the
average cost of the technology, or 65 percent of the costs in excess of
the MS-DRG payment for the case. As a result, we proposed that the
maximum new technology add-on payment for a case involving the use of
the aprevo[supreg]-C cervical interbody fusion device would be $21,125
for FY 2026 (that is, 65 percent of the average cost of the
technology).
We invited public comments on whether the aprevo[supreg]-C cervical
interbody fusion device meets the cost criterion and our proposal to
approve new technology add-on payments for the aprevo[supreg]-C
cervical interbody fusion device for FY 2026.
Comment: A few commenters, including the applicant, expressed
support for our proposal to approve new technology add-on payment for
the aprevo[supreg]-C cervical interbody fusion device. The applicant
stated that the aprevo[supreg]-C cervical interbody fusion device meets
the cost criterion. In response to CMS's request for additional
information regarding the delay in the technology's market
availability, the applicant stated that the commercial availability of
the product is scheduled for October 1, 2025, to align with the new
technology add-on payment start date because the higher hospital
acquisition cost of the technology must be mitigated by the new
technology add-on payment to secure the hospital value analysis
committee approval.
Response: We thank the commenters for their comments. As we have
discussed in prior rulemaking (86 FR 45132 and 77 FR 53348), generally,
our policy is to begin the newness period on the date of FDA approval
or clearance or, if later, the date of availability of the product on
the U.S. market. The applicant states that it anticipates commercial
availability beginning October 1, 2025, but it is unclear whether the
technology would be available for sale prior to that date. At this
time, there is not sufficient
[[Page 36784]]
information to determine a newness date based on a documented delay in
the technology's availability on the U.S. market. Absent additional
information, we therefore consider the newness date for this technology
to be November 15, 2024.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the aprevo[supreg]-C cervical
interbody fusion device meets the cost criterion. The technology
received 510(k) clearance from FDA on November 15, 2024, with an
indication for use as interbody fusion devices indicated at one or more
levels of the cervical spine (C2-T1) in patients with the following
degenerative cervical conditions: cervical disc disease, instability,
trauma including fractures, deformity defined as kyphosis, lordosis, or
scoliosis, cervical spondylotic myelopathy, spinal stenosis, and failed
previous fusion, which is covered by its Breakthrough Device
designation. Therefore, we are finalizing our proposal to approve new
technology add-on payments for the aprevo[supreg]-C cervical interbody
fusion device for FY 2026. We consider the beginning of the newness
period to commence on November 15, 2024, the date on which the
technology received FDA marketing authorization for the indication
covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the aprevo[supreg]-C cervical interbody fusion
device is $32,500. Under Sec. 412.88(a)(2), we limit new technology
add-on payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we are finalizing that the maximum new
technology add-on payment for a case involving the use of the
aprevo[supreg]-C cervical interbody fusion device is $21,125 for FY
2026 (that is, 65 percent of the average cost of the technology). The
applicant submitted a request and was granted approval for unique ICD-
10-PCS procedure codes for the aprevo[supreg]-C cervical interbody
fusion device beginning in FY 2026. Therefore, cases involving the use
of the aprevo[supreg]-C cervical interbody fusion device that are
eligible for new technology add-on payments will be identified by one
of the following ICD-10-PCS procedure codes:
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR04AU25.188
(6) CERAMENT[supreg] G
The following table summarizes the information provided in the new
technology add-on payment application for CERAMENT[supreg] G.
[[Page 36785]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.189
BILLING CODE 4120-01-C
In the proposed rule, we noted that under the eligibility criteria
for approval under the alternative pathway for certain transformative
devices, only the
[[Page 36786]]
use of the technology for the indication that corresponds to the
technology's Breakthrough Device designation would be eligible for the
new technology add-on payment. Therefore, we noted that only the use of
CERAMENT[supreg] G for open fractures, and the FDA Breakthrough Device
designation it received for that use, were relevant for purposes of the
new technology add-on payment application for FY 2026. We noted that
CERAMENT[supreg] G is also indicated for use for bone infections and
was approved for new technology add-on payment for that indication in
the FY 2023 IPPS/LTCH PPS final rule (87 FR 48961 through 48966). As
discussed in section II.E.4. of the preamble of the proposed rule, we
proposed to discontinue making new technology add-on payments for FY
2026 for use of CERAMENT[supreg] G for bone infections. We believed
cases involving the use of CERAMENT[supreg] G related to bone
infections, which would no longer be eligible for new technology add-on
payment in FY 2026, would be identified by the ICD-10-PCS code XW0V0P7
(Introduction of antibiotic-eluting bone void filler into bones, open
approach, new technology group 7) in combination with the ICD-10-CM
codes in category M86 (Osteomyelitis). We invited public comments on
the use of these codes to exclude the indication for use of
CERAMENT[supreg] G related to bone infections, which would not be
eligible for the new technology add-on payment for FY 2026, if
approved.
We agreed with the applicant that CERAMENT[supreg] G meets the cost
criterion and therefore proposed to approve CERAMENT[supreg] G for new
technology add-on payments for FY 2026 for use as a bone void filler
intended for use in defects in the extremities of skeletally mature
patients as an adjunct to systemic antibiotic therapy and surgical
debridement as part of the standard treatment approach to open
fractures.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost to the
hospital to be $8,750 per patient. The applicant stated that the cost
of 10 cc of CERAMENT[supreg] G would be $8,750, and expected that 10 cc
of CERAMENT[supreg] G would be used per patient as indicated in a long-
term study of 81 patients with open fractures.\123\ We noted that the
cost information for this technology may be updated in the final rule
based on revised or additional information CMS receives prior to the
final rule. Under Sec. 412.88(a)(2), we limit new technology add-on
payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we proposed that the maximum new technology
add-on payment for a case involving the use of CERAMENT[supreg] G would
be $5,687.50 for FY 2026 (that is, 65 percent of the average cost of
the technology).
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\123\ Henry, J, Ali, A., and Elkhidir, I et al. (2023). Long-
term follow-up of open Gustilo-Anderson IIIB fractures treated with
an adjuvant local antibiotic hydroxyapatite bio-composite. Cureus
15(5): e39103. DOI 10.7759/cureus.39103.
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We invited public comments on whether CERAMENT[supreg] G meets the
cost criterion and our proposal to approve new technology add-on
payments for CERAMENT[supreg] G for FY 2026.
Comment: We received comments expressing support for technologies
under consideration for new technology add-on payments for FY 2026. We
also received comments expressing general support of the proposed ICD-
10-CM codes for which CMS specifically sought input.
Response: We thank the commenters for their comments. Based on the
information provided in the application for new technology add-on
payments, we believe CERAMENT[supreg] G meets the cost criterion. The
technology received FDA 510(k) clearance on March 13, 2024, with an
indication for use in defects in the extremities of skeletally mature
patients as an adjunct to systemic antibiotic therapy and surgical
debridement as part of the standard treatment approach to open
fractures. Therefore, we are finalizing our proposal to approve new
technology add-on payments for CERAMENT[supreg] G for FY 2026. As noted
earlier in this section, only the use of CERAMENT[supreg] G for open
fractures, and the FDA Breakthrough Device designation it received for
that use, are relevant for purposes of the new technology add-on
payment application for FY 2026. We consider the beginning of the
newness period to commence on March 13, 2024, the date on which
technology received its 510(k) clearance for the indication of open
fractures covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of CERAMENT[supreg] G is $8,750. Under Sec.
412.88(a)(2), we limit new technology add-on payments to the lesser of
65 percent of the average cost of the technology, or 65 percent of the
costs in excess of the MS-DRG payment for the case. As a result, we are
finalizing that the maximum new technology add-on payment for a case
involving the use of CERAMENT[supreg] G is $5,687.50 for FY 2026 (that
is, 65 percent of the average cost of the technology).
As noted, CERAMENT[supreg] G is also indicated for use for bone
infections and was approved for new technology add-on payment for that
indication in the FY 2023 IPPS/LTCH PPS final rule (87 FR 48961 through
48966). As discussed in section II.E.4. of the preamble of this final
rule, we are finalizing our proposal to discontinue making new
technology add-on payments for FY 2026 for use of CERAMENT[supreg] G
for bone infections. Therefore, cases involving the use of
CERAMENT[supreg] G that are eligible for new technology add-on payments
in FY 2026 will be identified by ICD-10-PCS procedure code XW0V0P7
(Introduction of antibiotic-eluting bone void filler into bones, open
approach, new technology group 7) without any of the ICD-10-CM
diagnosis codes in category M86 (Osteomyelitis).
(7) Emily's Care Nourish Test System (Model 1)
The following table summarizes the information provided in the new
technology add-on payment application for the Emily's Care Nourish Test
System (Model 1).
BILLING CODE 4120-01-P
[[Page 36787]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.190
BILLING CODE 4120-01-C
In the proposed rule, after review of the information provided by
the applicant, we noted that under the eligibility criteria for
approval under the alternative pathway for certain transformative
devices, only the use of the technology for the indication that
corresponds to the technology's Breakthrough Device designation would
be eligible for the new technology add-on payment for FY 2026.
Therefore, we noted that only the use of the Emily's Care Nourish Test
System (Model 1) for VLBW neonates and infants in the NICU, and the FDA
Breakthrough
[[Page 36788]]
Device designation it received for that use, were relevant for purposes
of the new technology add-on payment application for FY 2026.
We noted the following concerns with respect to the cost criterion.
We were unclear how the applicant identified the 25,000 claims used in
its cost analysis, including the type of source data and the data year
that were used to identify cases. The applicant did not provide a
completed cost criterion codes and MS-DRGs worksheet and we were
unclear how ICD-10-PCS and/or -CM codes were used to identify potential
cases representing patients that may be eligible for use of the Emily's
Care Nourish Test System (Model 1). We noted that MS-DRGs 790 and 791
identified by the applicant may represent a patient population broader
than those cases that would be included within the scope of the
Breakthrough Device designation indication that is appropriate for
consideration for new technology add-on payment under the alternative
pathway criteria (VLBW neonates and infants less than 6 months of age
in the NICU), and we questioned whether using these MS-DRGs without
additional inclusion and/or exclusion criteria would be representative
of cases eligible for new technology add-on payment.
Furthermore, we noted that it appeared that the applicant did not
identify relevant cases from a claims database such as the MedPAR file
for its cost analysis, but instead calculated a case volume based on
assumptions using the number of total live births in the United States.
In addition, we questioned the assumptions used in the cost analysis
regarding the potential Medicare volume for the technology. As we
noted, in the FDA clearance letter for this device,\124\ its intended
patient population is newborns, including preterm, and infants. We
stated that the applicant asserted that after a premature infant is
delivered, the infant may be eligible for Medicare coverage if it
qualifies under specific criteria, such as disability or end-stage
renal disease (ESRD). Although we agreed that infants may be eligible
for Medicare if they have ESRD and need regular dialysis or have had a
kidney transplant,\125\ we noted that Medicare Part A entitlement--for
inpatient hospital services--based on child disability benefit
entitlement can never begin before the month the person attains age 20
(or age 18 if the individual's disability is Amyotrophic Lateral
Sclerosis).\126\
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\124\ https://www.accessdata.fda.gov/cdrh_docs/pdf23/K234088.pdf.
\125\ Centers for Medicare & Medicaid Services. End-stage renal
disease (https://www.medicare.gov/basics/end-stage-renal-disease,
accessed 1/16/2024).
\126\ Centers for Medicare & Medicaid Services. Original
Medicare (Part A and B) Eligibility and Enrollment (https://www.cms.gov/medicare/enrollment-renewal/health-plans/original-part-a-b, accessed 1/16/2024).
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Furthermore, we were unclear how the average charge per case
(unstandardized with no case weight) was calculated as it is unclear
what claims data was used to determine the average charges for MS-DRG
790 and MS-DRG 791. We were also unclear as to the applicant's
methodology for calculating the average charge per case (unstandardized
with case weight), as it appeared the applicant multiplied the average
charge per case (unstandardized with no case weight) by 5.6671 for the
charges in MS-DRG 790, and by 3.8704 for the charges in MS-DRG 791.
Although the applicant did not remove charges related to the
technology being replaced, we noted that the applicant stated that
targeted fortification leads to a decreased length of stay (LOS) by 2.5
days, and we questioned if charges should be removed to account for the
decreased LOS for patients using this technology.
We were also unclear as to the applicant's methodology for
calculating the average standardized charge per case as the applicant
used the same values from the average charge per case (unstandardized
with case weight), which were the average charge per case
(unstandardized with no case weight) multiplied by 5.6671 for the
charges in MS-DRG 790, and by 3.8704 for the charges in MS-DRG 791.
To calculate the inflated average standardized charge per case, the
applicant applied an inflation factor of 1.04118 percent. We stated in
the proposed rule that we were interested in additional information
regarding the basis for using this inflation factor and how it
corresponded to the source data and year used for the cost analysis.
We noted the applicant added direct and indirect charges related to
the new technology. However, although the applicant identified a cost-
to-charge ratio of 0.36 for intensive inpatient admission days, we
stated it was unclear how this cost-to-charge ratio was used to convert
costs for the technology and indirect costs to charges, and how these
charges were calculated using the costs of the device itself or costs
related to additional time for training or measuring milk.
Therefore, because the applicant had not provided sufficient
information as part of its cost analysis to demonstrate that the
Emily's Care Nourish Test System (Model 1) meets the cost criterion, we
proposed to disapprove new technology add-on payments for the Emily's
Care Nourish Test System (Model 1) for FY 2026. However, in the event
we were to receive updated information to establish that the Emily's
Care Nourish Test System (Model 1) meets the cost criterion, we
provided the following information regarding the new technology add-on
payment.
We noted the applicant stated that the technology, which received
FDA clearance on May 3, 2024, was expected to be commercially available
May 1, 2025, and we stated that we would appreciate more information
about the cause for any delay in the commercial availability of the
device following FDA clearance.
We believed the relevant ICD-10-CM codes to identify the
Breakthrough Device-designated indication for use of the technology in
VLBW neonates and infants would be the following codes:
[[Page 36789]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.191
We invited public comments on the use of these ICD-10-CM diagnosis
codes to identify the Breakthrough Device-designated indication for
purposes of the new technology add-on payment, if approved.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost to the
hospital for the Emily's Care Nourish Test System (Model 1) to be
$3,000 per patient before discounts and $1,800 after discounts, based
on the contents of the kit, which provides enough supplies for testing
over a typical NICU stay (36 tests). The applicant stated the contents
of the kit include: 36 test strips, pipettes, reference cards, 2
control solutions, and a reusable lightbox (iPhone not included). The
applicant also provided additional information on the costs for the
annual use of the technology to the hospital of $25,000, consisting of
$10,000 for the kit including the lease of the lightbox and iPhone, and
$15,000 for the device's operation (labor, testing milk, analysis
interpretation, adjustment of feeding protocols). However, we noted
that the costs to the hospital, per patient, per inpatient stay remains
unclear, and that the provided costs also include additional costs
related to use of the device as well as capital costs for the lease of
the lightbox and iPhone.
We stated that, as we had discussed in prior rulemaking, when
determining a new technology add-on payment, we provide payment based
on the cost of the actual technology (such as the drug or device
itself) and not for additional costs related to the use of the device
(86 FR 45146). Therefore, we would not include costs of staff labor for
the device's operation in the relevant costs for purposes of
determining the new technology add-on payment amount.
In addition, because section 1886(d)(5)(K)(i) of the Act requires
that the Secretary establish a mechanism to recognize the costs of new
medical services or technologies under the payment system established
under that subsection, which establishes the system for payment of the
operating costs of inpatient hospital services, we stated that we do
not include capital costs in the add-on payments for a new medical
service or technology or make new technology add-on payments under the
IPPS for capital-related costs (86 FR 45145). We stated that the costs
to lease the lightbox and iPhone are capital costs. As such, we noted
that these components would not be eligible for new technology add-on
payment because, as discussed in prior rulemaking and as noted, we only
make new technology add-on payments for operating costs (72 FR 47307
through 47308).
Without a breakdown of the costs of this technology to the
hospital, per patient, per inpatient stay, for the operating components
of the kit, we stated we were unable to identify the relevant costs for
purposes of determining the new technology add-on payment amount. In
addition, the applicant had indicated that the cost of the device would
be discounted to hospitals, and the Medicare program expects providers
to take advantage of available discounts.\127\ We stated it was unclear
how potential discounts would affect the relevant estimated operating
costs of the device. We also stated we would be interested in
additional information regarding the current or anticipated average
cost of the technology to the hospital per inpatient stay.
---------------------------------------------------------------------------
\127\ Medicare Department of Health & Human Services (DHHS)
Provider Reimbursement Manual Part 1--Chapter 8, Purchase Discounts;
Allowances; Refunds of Expenses (Date: March 8, 2013) https://www.cms.gov/regulations-and-guidance/guidance/transmittals/downloads/r456pr1.pdf.
---------------------------------------------------------------------------
We invited public comments on whether the Emily's Care Nourish Test
System (Model 1) meets the cost criterion and our proposal to
disapprove new technology add-on payments for the Emily's Care Nourish
Test System (Model 1) for FY 2026. We also invited public comments on
the operating costs for the device, in the event we received updated
information to establish that the Emily's Care Nourish Test System
(Model 1) meets the cost criterion.
Comment: We received a comment from Prolacta Biosciences stating
that subsequent to submission of the new technology add-on payment
application for Emily's Care Nourish Test System (Model 1), Prolacta
Bioscience acquired Lactation Lab Inc. and that Prolacta Bioscience
should now officially be considered the applicant, and asked that all
correspondence regarding the new technology add-on payments for FY 2026
application and any questions be directed to Prolacta Biosciences.
Response: We thank the commenter for its comment and note that for
this final rule Prolacta Biosciences is identified as the applicant in
the following section.
Comment: Multiple commenters, including the applicant, expressed
support for approving new technology add-on payment for the Emily's
Care Nourish Test System (Model 1). Some commenters shared their
personal experiences as practicing clinicians or as mothers who had
infants in the NICU. A few commenters submitted citations and studies
that emphasized the importance of human milk and targeted fortification
for VLBW infants in the NICU. Other commenters stated that Medicare-
eligible mothers may have disabilities which raise the risk of
[[Page 36790]]
preterm birth, low birth weight, and NICU admission. Several commenters
stated that during these admissions, Emily's Care Nourish Test System
(Model 1) may be used by the hospital at the point of care to test the
mother's milk.
In response to CMS's concerns regarding the potential Medicare
volume for this technology and the eligible Medicare patient
population, the applicant stated that testing with the device impacts
both maternity-related admissions (as the subject of the nutritional
analysis is the mother's breast milk) and neonatal care (as the results
of the nutritional analysis guide treatment for the infant). The
applicant and other commenters referenced maternal testing, measures
such as the Maternal Morbidity Structural Measure in the Hospital
Inpatient Quality Reporting (IQR) Program and the Exclusive Breast Milk
Feeding electronic clinical quality measure, and Medicare designation
of Birthing-Friendly hospitals as evidence for CMS's role in maternal
and infant care. A few commenters urged CMS to approve the application
for infants regardless of the insurance they hold.
The applicant stated that it agrees with the proposed rule analysis
that there is an extremely low volume of Medicare claims for MDC 15
(Newborns & Other Neonates with Conditions Originating in Perinatal
Period). However, the applicant maintained that since extremely low-
volume MS-DRGs are active, Medicare payment for newborn and neonatal
services should accurately reflect resource utilization, regardless of
claims volume. Based on these examples cited, the applicant stated that
new technology add-on payment eligibility for Emily's Care Nourish Test
System is consistent with prior CMS policy with regard to Medicare IPPS
reimbursement for maternal services and neonatal care.
Response: We thank the applicant and other commenters for their
comments. While we share commenters' interests in improving maternal
and infant outcomes, we do not believe that maternal care is relevant
to this technology, which received a Breakthrough Device designation to
measure the concentration of fat, carbohydrate, and protein in human
milk to aid in the nutritional management and treatment of VLBW in the
NICU, for both neonates and infants less than 6 months of age. We note
that after the infant is delivered, items and services furnished to the
infant cannot be covered and reimbursed under Medicare on the basis of
the mother's eligibility.\128\ Therefore, an infant would need to meet
Medicare eligibility criteria, regardless of the mother's Medicare
eligibility. As we noted in the proposed rule, infants may be eligible
for Medicare if they have ESRD and need regular dialysis or have had a
kidney transplant.\129\ Therefore, we believe the relevant patient
population for the purpose of the new technology add-on payment are
VLBW neonates and infants less than 6 months of age with ESRD that need
regular dialysis or have had a kidney transplant. Furthermore, the
Breakthrough Device designation does not limit the sample source of the
device to human milk from the mother. For example, donor human milk may
be used in the NICU, as noted by a commenter.
---------------------------------------------------------------------------
\128\ Medicare Benefit Policy Manual Chapter 1--Inpatient
Hospital Services Covered Under Part A (Rev. 10892, 08-06-21)
https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/bp102c01.pdf.
\129\ Centers for Medicare & Medicaid Services. End-stage renal
disease (https://www.medicare.gov/basics/end-stage-renal-disease,
accessed 1/16/2024).
---------------------------------------------------------------------------
Comment: In response to CMS's concerns with respect to the cost
criterion, the applicant submitted a revised cost analysis, updated
cost criterion codes, and a calculation narrative. The applicant stated
that it conducted three different cost calculations. Per the applicant,
the first, and most restrictive, calculation used the diagnosis codes
suggested by CMS in the proposed rule discussion and MS-DRGs identified
by the applicant related to childbirth or potential maternal
nutritional issues. The applicant then identified cases that contained
at least one code from the diagnosis code list and were also on the
list of MS-DRGs. In this analysis, the applicant identified less than
11 claims mapping to each of two MS-DRGs: 641 (Miscellaneous Disorders
of Nutrition, Metabolism, Fluids and Electrolytes without MCC) and 807
(Vaginal Delivery without Sterilization/D&C without CC/MCC), and
therefore imputed a value of 11 cases for its cost analysis. The
applicant calculated a final inflated average case-weighted
standardized charge per case of $39,225, which exceeded the average
case-weighted threshold amount of $32,060.
The applicant stated that the second analysis used a diagnosis code
list with four additional diagnosis codes that it had identified could
be appropriate. These codes are P07.21 (Extreme immaturity of newborn,
gestational age less than 23 completed weeks), P07.24 (Extreme
immaturity of newborn, gestational age less than 25 completed weeks),
P07.25 (Extreme immaturity of newborn, gestational age less than 26
completed weeks) and P07.26 (Extreme immaturity of newborn, gestational
age less than 27 completed weeks). The applicant stated that these
diagnosis codes for extreme immaturity may be used in place for
birthweight diagnosis. The applicant further stated these additional
diagnosis codes expanded the number of claims and produced a selection
of MS-DRGs unrelated to childbirth. Per the applicant, one hypothesis
for the additional MS-DRGs present is that early childbirth may have
been induced as the result of the mother's illness. The applicant
provided rationale that medical coders and billers preferentially use
gestational age over birth weight for coding and reimbursement due to
clinical, regulatory, and practical considerations. Per the applicant,
the claims data provides some merit for this hypothesis as it contained
several claims which appeared to be outliers. The applicant stated the
presence of likely outliers for non-neonate patients implies the mother
was quite ill, and standardized charges for these outlier cases far
exceeded CMS's MS-DRG thresholds. Therefore, the applicant calculated
the second analysis two ways: with and without the apparent outlier
claims. For the scenario with outlier claims, the applicant calculated
a final inflated average case-weighted standardized charge per case of
$175,383, which exceeded the average case-weighted threshold amount of
$53,328. For the scenario without outlier claims, the applicant
calculated a final inflated average case-weighted standardized charge
per case of $49,284, which exceeded the average case-weighted threshold
amount of $46,604.
Because the final inflated average case-weighted standardized
charge per case exceeded the average case-weighted threshold amount in
all scenarios, the applicant asserted that the Emily's Care Nourish
Test System (Model 1) meets the cost criterion.
Response: We thank the applicant for its comments and updated cost
analysis. We disagree that the additional ICD-10-CM diagnosis codes
proposed by the applicant are relevant because gestational age is
preferentially used over birthweight for coding and reimbursement due
to clinical, regulatory, and practical considerations. We note that,
under the eligibility criteria for approval under the alternative
pathway for certain transformative new devices, only the indication for
use of the Emily's Care Nourish Test System (Model 1) that is covered
by the FDA Breakthrough Device designation is relevant for
[[Page 36791]]
purposes of the new technology add-on payment application. Therefore,
we continue to believe that the birthweight-related ICD-10-CM diagnosis
codes are most appropriate to identify the use of the technology for
VLBW neonates and infants that is relevant to the Breakthrough Device
designation for the purposes of new technology add-on payment.
However, we note that the analyses using these additional
gestational age-related diagnosis codes were provided as additional
analyses. We agree that the final inflated average case-weighted
standardized charge per case exceeded the average case-weighted
threshold amount in the most restrictive scenario. Therefore, the
Emily's Care Nourish Test System (Model 1) meets the cost criterion.
Comment: In response to CMS's requests for information about
discounts to hospitals, length of stay, and cost breakdown, the
applicant stated it does not anticipate providing routine discounts off
the cost of the device and any discounts would be a volume discount and
should not impact the calculation of new technology add-on payment. The
applicant stated that the reference to expected reductions in length of
stay was included in error, as it was not included in the labeled
claims and resulted from the applicant's misunderstanding of the
factors that are relevant to the device cost calculations. The
applicant stated the length of stay for maternal cases is not expected
to be materially impacted by testing via the Emily's Care Nourish Test
System (Model 1). The applicant provided a revised cost of $5,150 per
patient, per inpatient stay. The applicant stated that the costs for
consumables and single-use disposables is due to an increase in the
cost of raw materials and increased cost of control solutions.
In response to CMS's request for additional information regarding
the delay in the technology's market availability the applicant stated
that as a startup in the maternal and child health sector, Lactation
Lab encountered typical early-stage funding obstacles. The applicant
stated there was a delay due to restricted access to capital and
establishment of the essential infrastructure for achieving scalable
manufacturing. Per the applicant, it consequently acquired Lactation
Lab and will be manufacturing the device. The applicant expected to be
fully commercial by Q4 of 2025.
Response: We thank the applicant for its comment. As we have
discussed in prior rulemaking (86 FR 45132 and 77 FR 53348), generally,
our policy is to begin the newness period on the date of FDA approval
or clearance or, if later, the date of availability of the product on
the U.S. market. The applicant states that it anticipates that the
device will be fully commercial by Q4 of 2025, but it is unclear
whether the technology would be available for sale earlier, in limited
quantities. At this time, there is not sufficient information to
determine a newness date based on a documented delay in the
technology's availability on the U.S. market. Absent additional
information, we therefore consider the newness date for this technology
to be May 3, 2024.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the Emily's Care Nourish Test System
(Model 1) meets the cost criterion. The technology received FDA
clearance on May 3, 2024, with an indication for use to aid in the
nutritional management of newborns, including preterm, and infants. As
noted earlier in this section, Emily's Care Nourish Test System (Model
1) has received FDA clearance for multiple indications, and only the
use of the Emily's Care Nourish System (Model 1) for VLBW neonates and
infants in the NICU, and the FDA Breakthrough Device designation it
received for that use, are relevant for purposes of the new technology
add-on payment application for FY 2026. Therefore, we are finalizing to
approve new technology add-on payments for the Emily's Care Nourish
Test System (Model 1) for FY 2026. Absent additional information from
the applicant, we consider the beginning of the newness period to
commence on May 3, 2024, the date of FDA marketing authorization for
the indication covered by its Breakthrough Device designation. Based on
the information available at the time of this final rule, the cost per
case of Emily's Care Nourish Test System (Model 1) is $5,150 per
patient, per inpatient stay. Under Sec. 412.88(a)(2), we limit new
technology add-on payments to the lesser of 65 percent of the average
cost of the technology, or 65 percent of the costs in excess of the MS-
DRG payment for the case. As a result, we are finalizing that the
maximum new technology add-on payment for a case involving the use of
Emily's Care Nourish Test System (Model 1) is $3,347.50 for FY 2026
(that is, 65 percent of the average cost of the technology).
The applicant submitted a request and was granted approval for a
unique ICD-10-PCS procedure code for the Emily's Care Nourish Test
System (Model 1) beginning in FY 2026. Therefore, cases involving the
use of Emily's Care Nourish Test System (Model 1) that are eligible for
new technology add-on payments will be identified by ICD-10-PCS
procedure code XXEZXAB (Measurement of macronutrient content, computer-
aided assessment for nutrition management, new technology group 11) in
combination with one of the following ICD-10-CM diagnosis codes:
[[Page 36792]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.192
(8) Esprit\TM\ BTK Everolimus Eluting Resorbable Scaffold System
The following table summarizes the information provided in the new
technology add-on payment application for the Esprit\TM\ BTK Everolimus
Eluting Resorbable Scaffold System
BILLING CODE 4120-01-P
[[Page 36793]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.193
BILLING CODE 4120-01-C
In the proposed rule, we noted that after review of the information
provided by the applicant, since the indication for which the applicant
has received FDA
[[Page 36794]]
marketing authorization is included within the scope of the
Breakthrough Device designation indication, it appears that the FDA
marketing authorization is appropriate for consideration for new
technology add-on payment under the alternative pathway criteria.\130\
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\130\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program.
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We agreed with the applicant that the Esprit\TM\ BTK Everolimus
Eluting Resorbable Scaffold meets the cost criterion and therefore
proposed to approve the Esprit\TM\ BTK Everolimus Eluting Resorbable
Scaffold for new technology add-on payments for FY 2026 for the
indication of improving luminal diameter in infrapopliteal lesions in
patients with CLTI and total scaffolding length up to 170 mm with a
reference vessel diameter of 2.5 mm and 4 mm.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the
Esprit\TM\ BTK Everolimus Eluting Resorbable Scaffold to the hospital
to be $6,000 per patient. According to the applicant, the costs of the
technology include the Esprit\TM\ BTK Scaffold ($2,750) and the
Esprit\TM\ BTK Delivery System ($250). The applicant stated that per
the IDE Clinical Study, on average two Esprit\TM\ BTK Everolimus
Eluting Resorbable Scaffolds were used per patient. We noted that the
cost information for this technology may be updated in the final rule
based on revised or additional information CMS receives prior to the
final rule. Under Sec. 412.88(a)(2), we limit new technology add-on
payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we proposed that the maximum new technology
add-on payment for a case involving the use of the Esprit\TM\ BTK
Everolimus Eluting Resorbable Scaffold would be $3,900 for FY 2026
(that is, 65 percent of the average cost of the technology).
We invited public comments on whether the Esprit\TM\ BTK Everolimus
Eluting Resorbable Scaffold meets the cost criterion and our proposal
to approve new technology add-on payments for the Esprit\TM\ BTK
Everolimus Eluting Resorbable Scaffold for FY 2026.
Comment: Multiple commenters, including the applicant, expressed
support for our proposal to approve new technology add-on payment for
the Esprit\TM\ BTK Everolimus Eluting Resorbable Scaffold.
The applicant also requested that CMS increase the maximum new
technology add-on payments for FY 2026. To support this request, the
applicant described two-year data from its randomized controlled
trial,\131\ stating that among trial subjects, the clinical success of
the treatment was not based on a specific number of scaffolds used, but
rather on the clinical treatment protocol, which required scaffolds to
be placed along the entire length of the diseased artery, also known as
``healthy-to-healthy'' vessel treatment. The applicant stated that
while two scaffolds per case were implanted on average to treat the
average lesion length of 44 mm, as indicated in its application, a
range of one to six scaffolds were implanted depending on the length of
the lesion being treated and the corresponding healthy-to-healthy
clinical need of the patient. The applicant stated that it also
summarized 16 recent studies evaluating infrapopliteal lesions in
patients with chronic limb-threatening ischemia, and that lesion
lengths ranged from 41 mm to 244.7 mm, with a calculated weighted
average of 135.1 mm based on the analyses reflecting real-world
clinical practice. In addition, the applicant stated that data in the
RECCORD registry showed 40.4 percent of lesions were <10 cm (100 mm),
40.4 percent were 10-20 cm (100-200 mm), and 19.2 percent were >20 cm
(200 mm) in length, among patients treated solely for infrapoliteal
lesions.
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\131\ DeRubertis, Brian (2024, November 3-6) Two-Year Outcomes
of the LIFE-BTK Randomized Controlled Trial Evaluating the Esprit
BTK Drug-eluting Resorbable Scaffold for Treatment of Infrapopliteal
Lesions. VIVA 2024 Conference, Las Vegas, NV, United States.
---------------------------------------------------------------------------
Therefore, the applicant requested that CMS revise the maximum new
technology add-on payment to $6,933 to reflect a conservative average
of 3.55 scaffolds needed to cover the real-world average lesion length
of 135.1 mm (65 percent of 3.55 scaffolds, priced at $3,000 each).
Response: We thank the commenters for their comments and for the
additional cost and trial information. We note that, based on the
information provided by the applicant about the estimated average cost
of the technology, the maximum new technology add-on payment for a case
would be $6,922.50. Specifically, the applicant stated that an average
of 3.55 scaffolds would be used, priced at $3,000 each. Therefore, the
estimated average cost per case would be $10,650 and 65 percent of the
average cost of the technology ($10,650) is $6,922.50.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe EspritTM BTK Everolimus
Eluting Resorbable Scaffold meets the cost criterion. The technology
received FDA marketing authorization on April 26, 2024, with an
indication of improving luminal diameter in infrapopliteal lesions in
patients with CLTI and total scaffolding length up to 170 mm with a
reference vessel diameter of 2.5 mm and 4 mm, which is covered by its
Breakthrough Device designation. Therefore, we are finalizing our
proposal to approve new technology add-on payments for
EspritTM BTK Everolimus Eluting Resorbable Scaffold for FY
2026. We consider the beginning of the newness period to commence on
April 26, 2024, the date on which the technology received its FDA
marketing authorization for the indication covered by its Breakthrough
Device designation.
Based on the information available at the time of this final rule,
the cost per case of EspritTM BTK Everolimus Eluting
Resorbable Scaffold is $10,650.00. Under Sec. 412.88(a)(2), we limit
new technology add-on payments to the lesser of 65 percent of the
average cost of the technology, or 65 percent of the costs in excess of
the MS-DRG payment for the case. As a result, we are finalizing that
the maximum new technology add-on payment for a case involving the use
of EspritTM BTK Everolimus Eluting Resorbable Scaffold is
$6,922.50 for FY 2026 (that is, 65 percent of the average cost of the
technology). Cases involving the use of EspritTM BTK
Everolimus Eluting Resorbable Scaffold that are eligible for new
technology add-on payments will be identified by one of the following
ICD-10-PCS procedure codes:
[[Page 36795]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.195
(9) EUROPATM Posterior Cervical Fusion System
The following table summarizes the information provided in the new
technology add-on payment application for the EUROPATM
Posterior Cervical Fusion System.
BILLING CODE 4120-01-P
[[Page 36796]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.196
BILLING CODE 4120-01-C
In the proposed rule, we noted that after review of the information
provided by the applicant, since the indication for which the applicant
has received FDA marketing authorization is included within the scope
of the Breakthrough Device designation indication, it appears that the
FDA marketing authorization is appropriate for consideration for new
technology add-on payment under the alternative pathway criteria.
We noted in the proposed rule that according to the applicant, the
technology, which received FDA clearance on November 19, 2024, is not
yet available for sale due to project timelines. The applicant stated
that the technology is not expected to be
[[Page 36797]]
commercially available until the fourth quarter of 2025. We stated in
the proposed rule that we were interested in additional information
regarding the cause of any delay in the technology's market
availability.
We agreed with the applicant that the EUROPATM Posterior
Cervical Fusion System meets the cost criterion and therefore proposed
to approve the EUROPATM Posterior Cervical Fusion System for
new technology add-on payments for FY 2026, to provide immobilization
and stabilization of spinal segments as an adjunct to fusion for the
acute and chronic instabilities of the cervical spine (Cl to C7) and
the upper thoracic spine (T1 to T3) listed in both the Breakthrough
Device designation and FDA clearance letter.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the
EUROPATM Posterior Cervical Fusion System to the hospital to
be $123,920 per patient. According to the applicant, there are
approximately 374 different components associated with the technology,
including Pedicle Screws, Set Screws, Rods, and Connectors, all of
which are operating costs and new components. The applicant stated that
the majority of posterior cervical fusion procedures are inpatient
Medicare procedures in most hospitals, but there may be exceptions
based on individual clinical practice. Per the applicant, most of these
procedures are C1-T3 or C2-T3 with some exceptions being 2-3 levels.
The applicant calculated the total cost based on the unit prices of the
implants used in a construct (Rod $9,000.00; Pedicle Screw $5,000.00;
Smooth Shank Screw $5,000.00; Set Screw $500.00; Connector $4,000.00),
weighted by the length of the construct (1- through 9-level), and the
percentage of those procedures across different levels of fusion (10
percent for 2- through 4-level; 90 percent for 5 or more levels). We
noted that the cost information for this technology may be updated in
the final rule based on revised or additional information CMS receives
prior to the final rule. Under Sec. 412.88(a)(2)(ii)(B), we limit new
technology add-on payments to the lesser of 65 percent of the average
cost of the technology, or 65 percent of the costs in excess of the MS-
DRG payment for the case. As a result, we proposed that the maximum new
technology add-on payment for a case involving the use of the
EUROPATM Posterior Cervical Fusion System would be $80,548
for FY 2026 (that is, 65 percent of the average cost of the
technology).
We invited public comments on whether the EUROPATM
Posterior Cervical Fusion System meets the cost criterion and our
proposal to approve new technology add-on payments for the
EUROPATM Posterior Cervical Fusion System for FY 2026.
Comment: We received comments, including from the applicant,
expressing support for our proposal to approve new technology add-on
payment for the EUROPATM Posterior Cervical Fusion System.
In response to CMS's request for additional information regarding
the delay in the technology's market availability, the applicant stated
that following FDA clearance of the EUROPATM Posterior
Cervical Fusion System on November 19, 2024, the company initiated
final steps toward market release, with product availability
anticipated around August 2025. The applicant stated that the
EUROPATM Posterior Cervical Fusion System is manufactured
using its proprietary MoRe alloy, which requires a different
manufacturing process compared to conventional spinal implant
materials. Per the applicant, the raw materials have a long lead time
and are further complicated by the current macro-economic conditions,
and the MoRe alloy is 3 to 4 times more expensive to produce and
requires specialized tooling, extended machining time, and rigorous
quality processes. Per the applicant, scaling up production while
maintaining consistency and compliance with FDA cleared specifications
also contributes to the extended timeline. The applicant stated that
finalizing the production capabilities has taken additional time with
current market considerations including supplier reliability, global
tariff impacts, affecting increased demand on local manufacturing
companies and delays in timeline. Per the applicant, additional time is
needed to finalize regulatory labeling, sterilization, and
transportation validation requirements. The applicant stated that all
documentation must undergo internal review, printing, and packaging
verification processes. To support commercialization, the applicant
stated that it has begun conversations with large hospitals and other
organizations to add the products to contracts, and that approvals have
taken longer than expected. The applicant stated that it will continue
communicating with CMS regarding any additional delays or updates in
this timeline as the launch date approaches. The applicant stated that
this timing ensures appropriate product training, manufacturing
capacity, packaging readiness, and hospital system and facility
approvals are in place to support a safe and successful launch.
Response: We thank the commenters for their comments and the
applicant for its detailed explanation for delay in commercial market
availability. As we have discussed in prior rulemaking (86 FR 45132 and
77 FR 53348), generally, our policy is to begin the newness period on
the date of FDA approval or clearance or, if later, the date of
availability of the product on the U.S. market. The applicant states
that it anticipates first commercial use and launch beginning around
August 2025, but it is unclear whether the technology would be
available for sale prior to that date. At this time, there is not
sufficient information to determine a newness date based on a
documented delay in the technology's availability on the U.S. market.
Absent additional information, we therefore consider the newness date
for this technology to be November 19, 2024.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comment we received, we believe the EUROPATM Posterior
Cervical Fusion System meets the cost criterion. The technology
received FDA clearance on November 19, 2024, with an indication to
provide immobilization and stabilization of spinal segments as an
adjunct to fusion for the acute and chronic instabilities of the
cervical spine (Cl to C7) and the upper thoracic spine (T1 to T3),
which is covered by its Breakthrough Device designation. Therefore, we
are finalizing our proposal to approve new technology add-on payments
for the EUROPATM Posterior Cervical Fusion System for FY
2026. Absent additional information from the applicant, we consider the
beginning of the newness period to commence on November 19, 2024, the
date of FDA marketing authorization for the indication covered by its
Breakthrough Device designation.
Based on the information available at the time of this final rule,
the average cost per case of the EUROPATM Posterior Cervical
Fusion System is $123,920, based on the unit prices of the implants
used in a construct (Rod $9,000.00; Pedicle Screw $5,000.00; Smooth
Shank Screw $5,000.00; Set Screw $500.00; Connector $4,000.00),
weighted by the length of the construct (1- through 9-level), and the
percentage of those procedures across different levels of fusion (10
percent for 2- through 4-level; 90 percent for 5 or more levels). Under
Sec. 412.88(a)(2), we limit new technology add-on payments to the
lesser of 65 percent of the average cost
[[Page 36798]]
of the technology, or 65 percent of the costs in excess of the MS-DRG
payment for the case. As a result, we are finalizing that the maximum
new technology add-on payment for a case involving the use of the
EUROPATM Posterior Cervical Fusion System is $80,548 for FY
2026 (that is, 65 percent of the average cost of the technology).
The applicant submitted a request and was granted approval for
unique ICD-10-PCS procedure codes for the EUROPATM Posterior
Cervical Fusion System beginning in FY 2026. Therefore, cases involving
the use of the EUROPATM Posterior Cervical Fusion System
that are eligible for new technology add-on payments will be identified
by one of the following ICD-10-PCS procedure codes:
[GRAPHIC] [TIFF OMITTED] TR04AU25.197
(10) iFuse TORQ TNTTM Implant System
The following table summarizes the information provided in the new
technology add-on payment application for the iFuse TORQ
TNTTM Implant System.
BILLING CODE 4120-01-P
[[Page 36799]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.198
[[Page 36800]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.199
BILLING CODE 4120-01-C
In the proposed rule, after review of the information provided by
the applicant, we noted that under the eligibility criteria for
approval under the
[[Page 36801]]
alternative pathway for certain transformative devices, only the use of
the technology for the indication that corresponds to the technology's
Breakthrough Device designation would be eligible for the new
technology add-on payment for FY 2026. As noted by the applicant, the
FDA clearance describes an additional indication for sacroiliac joint
fusion for augmenting immobilization and stabilization of the
sacroiliac joint in skeletally mature patients undergoing sacropelvic
fixation as part of a lumbar or thoracolumbar fusion, which is not
included in the Breakthrough Device designation. Therefore, we noted
that it appeared that this indication was not relevant for purposes of
the new technology add-on payment application for FY 2026.
Please see Table 10.2.-iFuse TORQ TNTTM Implant System
associated with the proposed rule for the list of ICD-10-PCS procedure
codes that we believed would be appropriate to exclude when reported in
combination with use of the iFuse TORQ TNTTM Implant System.
We invited public comments on the exclusion of cases reporting these
ICD-10-PCS procedure codes in combination with the procedure codes that
identify use of the iFuse TORQ TNTTM Implant System for
augmenting immobilization and stabilization of the sacroiliac joint in
skeletally mature patients undergoing sacropelvic fixation as part of a
lumbar or thoracolumbar fusion, which we stated would not be eligible
for new technology add-on payment, if approved.
We agreed with the applicant that the iFuse TORQ TNTTM
Implant System meets the cost criterion and therefore proposed to
approve the iFuse TORQ TNTTM Implant System for new
technology add-on payments for FY 2026 when used for fracture fixation
of the pelvis, including acute, non-acute and nontraumatic fractures
and sacroiliac joint fusion for sacroiliac joint dysfunction including
sacroiliac joint disruption and degenerative sacroiliitis.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the
iFuse TORQ TNTTM Implant System to the hospital to be $6,573
per patient. The applicant stated that the iFuse TORQ TNTTM
Implant System includes the operating unit costs of the TNT Implant
($3,150), Drill Bit ($200), Guide Pin ($100), Blunt Pin ($100), and
Washer ($50). The applicant estimated the average number of each
component used per case for pelvic fixation and sacroiliac joint fusion
cases separately, and calculated the costs of the new technology by
multiplying the component costs by the average number of components
used per case. The applicant used internal sales data to estimate the
percentages of pelvic fixation (80 percent) and sacroiliac joint (20
percent) fusion cases in an average hospital. The applicant then
calculated the total cost of the iFuse TORQ TNTTM Implant
System to the hospital by taking the weighted average of the cost per
pelvic fixation case and cost per sacroiliac joint fusion case.
We noted that it appeared that the TNT Implant and Washers are
components of the Breakthrough device. However, we noted that the Drill
Bit, Guide Pin, and Blunt Pin are instrumentation used for the
implantation of the TNT Implant. We stated that as we have discussed in
prior rulemaking, when determining a new technology add-on payment, we
provide payment based on the cost of the actual technology (such as the
drug or device itself) and not for additional costs related to the use
of the device (86 FR 45146). We noted it appeared that the cost of the
instrumentation (the Drill Bit, Guide Pin, and Blunt Pin) are costs
related to the use of the technology, rather than a cost of the
technology itself. In addition, we stated it was not clear if the Drill
Bit, Guide Pin, and Blunt Pin are new and unique components for this
technology, or if they may be reused and/or may be purchased separately
in support of other technologies. Therefore, we noted it appeared any
add-on payment for the iFuse TORQ TNTTM Implant System would
include only the weighted average cost per pelvic fixation case and
cost per sacroiliac joint fusion case of the TNT Implant and Washers
($6,093).
We noted that the cost information for this technology may be
updated in the final rule based on revised or additional information
CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we
limit new technology add-on payments to the lesser of 65 percent of the
average cost of the technology, or 65 percent of the costs in excess of
the MS-DRG payment for the case. As a result, we proposed that the
maximum new technology add-on payment for a case involving the use of
the iFuse TORQ TNTTM Implant System would be $3,960.45 for
FY 2026 (that is, 65 percent of the average cost of the technology).
We invited public comments on whether the iFuse TORQ
TNTTM Implant System meets the cost criterion and our
proposal to approve new technology add-on payments for the iFuse TORQ
TNTTM Implant System for FY 2026.
Comment: Multiple commenters, including the applicant, expressed
support for our proposal to approve new technology add-on payment for
the iFuse TORQ TNTTM Implant System for FY 2026. Several
commenters described their positive experience with the technology in
their clinical practice and in enabling their elderly patients to
return home instead of being discharged to skilled nursing facilities.
Commenters stated that the technology enhances patient quality of life,
reduces the need for revision surgeries, and facilitates earlier
mobilization. A few commenters stated that the initial cost of the
iFuse TORQ TNTTM Implant System may present a barrier to
broader adoption, but that new technology add-on payment designation
would help address this challenge, encourage wider use among surgeons,
and enable quicker adoption in hospitals to care for Medicare patients.
Response: We thank the commenters for their comments.
Comment: We received comments expressing general support of the
proposed ICD-10-PCS codes for which CMS specifically sought input. Some
commenters, including the applicant, submitted public comments
regarding the exclusion of new technology add-on payment for cases
reporting iFuse TORQ TNTTM Implant System in combination
with certain ICD-10-PCS codes noted in Table 10.2 of the proposed rule
describing lumbar or thoracolumbar fusion procedures. The applicant
stated that the iFuse TORQ TNTTM Implant System has
marketing authorization by FDA for placing the implant in a specific
trajectory (sacro-alar iliac, or SAI) when adjacent to pelvic fixation
screws during the thoracolumbar fusion procedures extending to the
pelvis. Per the applicant, this authorization is a ``pre-clearance''
function of a Predetermined Change Control Plan (PCCP) as part of the
iFuse TORQ TNTTM Implant System 510(k) application, so that
the applicant may conduct future work in this trajectory without the
need for submitting another 510(k). The applicant stated that it would
be inappropriate to exclude new technology add-on payment for a case
using iFuse TORQ TNTTM Implant System as part of a lumbar or
thoracolumbar fusion procedure in the same encounter because it is part
of iFuse TORQ TNTTM Implant System's approved use and is in-
line with its BDD application and pre-cleared indications. Another
commenter also questioned whether there was the potential for a
multiple level fusion that would involve the sacroiliac fusion using
the iFuse TORQ TNTTM Implant System simultaneously with
lumbar or thoracolumbar fusion and that it would be inappropriate to
exclude cases
[[Page 36802]]
simply because the patient is receiving two levels of fusion in the
same surgical encounter. The applicant encouraged CMS not to finalize
its proposal to exclude ICD-10-PCS procedure codes noted in Table 10.2
in the proposed rule.
Response: We thank the applicant and other commenters for their
comments. We agree with the commenters that there may be cases in which
a lumbar or thoracolumbar fusion procedure may occur in the same
encounter as sacroiliac joint fusion using the iFuse TORQ
TNTTM Implant System. We agree that the use of the device
for sacroiliac joint fusion is covered by its Breakthrough Device
designation, whether it is used to treat sacroiliac joint dysfunction
as a standalone procedure or when it is used for sacroiliac joint
fusion that also occurs in the setting of other simultaneous procedures
(such as lumbar or thoracolumbar fusions). Therefore, we are not
finalizing to exclude cases reporting the ICD-10-PCS procedure codes
listed in Table 10.2.-iFuse TORQ TNTTM Implant System
associated with the proposed rule in combination with use of the iFuse
TORQ TNTTM Implant System.
Comment: In response to CMS's proposed maximum new technology add-
on payment, the applicant requested that CMS increase the per-case
maximum amount. Per the applicant, while some of the instruments within
the iFuse TORQ TNTTM Implant System may not be unique or
part of the Breakthrough Device (that is, Blunt Pin and Drill Bit), the
TNT Guide Pins are single-use instruments that were noted in the
Breakthrough Device designation application with FDA as new and unique,
as they were developed specifically for the iFuse TORQ TNTTM
Implant System to support navigation compatibility. The applicant
stated that the TNT Guide Pins used in both Pelvic Fixation cases (2.5
units) and SI Joint Fusion cases (3.5 units) are a part of the
Breakthrough Device technology, as they are navigational aids, enabling
surgeons to accurately position implants, drills, or other tools while
minimizing risks to surrounding tissues. Per the applicant, taking into
consideration the costs of the new and unique TNT Implant, Washers, and
Guide Pins, the weighted average cost per pelvic fixation case (80
percent of mix) and cost per sacroiliac joint fusion case (20 percent
of mix), the new technology cost increases to $6,363. The applicant
proposed an updated maximum new technology add-on payment for a case of
$4,135.95 for FY 2026 (65 percent of the average cost of the
technology).
Response: We thank the applicant for its comment and cost
information. We agree that the TNT Guide Pins are also a new and unique
component of the iFuse TORQ TNTTM Implant System and should
be included in the maximum new technology add-on payment.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comment we received, we believe the iFuse TORQ TNTTM Implant
System meets the cost criterion. The technology received FDA clearance
on August 12, 2024, with an indication for fracture fixation of the
pelvis, including acute, non-acute and nontraumatic fractures and
sacroiliac joint fusion for sacroiliac joint dysfunction including
sacroiliac joint disruption and degenerative sacroiliitis. Therefore,
we are finalizing our proposal to approve new technology add-on
payments for the iFuse TORQ TNTTM Implant System for FY
2026. We consider the beginning of the newness period to commence on
August 19, 2024, the date on which technology received its FDA
clearance for the indication covered by its Breakthrough Device
designation.
Based on the information available at the time of this final rule,
the average cost per case of the iFuse TORQ TNTTM Implant
System is $6,363, based on the weighted average cost per pelvic
fixation case and cost per sacroiliac joint fusion case of the TNT
Implant, Washers, and Guide Pins. Under Sec. 412.88(a)(2), we limit
new technology add-on payments to the lesser of 65 percent of the
average cost of the technology, or 65 percent of the costs in excess of
the MS-DRG payment for the case. As a result, we are finalizing that
the maximum new technology add-on payment for a case involving the use
of the iFuse TORQ TNTTM Implant System is $4,135.95 for FY
2026 (that is, 65 percent of the average cost of the technology).
The applicant submitted a request and was granted approval for
unique ICD-10-PCS procedure codes for the iFuse TORQ TNTTM
Implant System beginning in FY 2026. Therefore, cases involving the use
of the iFuse TORQ TNTTM Implant System that are eligible for
new technology add-on payments will be identified by one of the
following ICD-10-PCS procedure codes:
[[Page 36803]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.200
(11) Merit Wrapsody[supreg] Cell Impermeable Endoprosthesis (CIE)
The following table summarizes the information provided in the new
technology add-on payment application for the Merit Wrapsody[supreg]
Cell Impermeable Endoprosthesis (CIE).
BILLING CODE 4120-01-P
[[Page 36804]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.201
BILLING CODE 4120-01-C
In the proposed rule, we noted that after review of the information
provided by the applicant, since the indication for which the applicant
received PMA
[[Page 36805]]
approval from FDA is included within the scope of the Breakthrough
Device designation indication, it appears that the FDA-approved
indication is appropriate for consideration for new technology add-on
payment under the alternative pathway criteria.
We noted that the application stated that commercialization of the
device was initiated on January 2, 2025, with 3 purchase orders in 3
days. We were interested in additional information regarding any delay
in commercial availability between its FDA approval on December 19,
2024, and the date commercialization was initiated, including if the
device was available for sale prior to January 2, 2025.
We agreed with the applicant that the Merit Wrapsody[supreg] CIE
meets the cost criterion and therefore proposed to approve the Merit
Wrapsody[supreg] CIE for new technology add-on payments for FY 2026,
for use in hemodialysis patients for the treatment of stenosis or
occlusion within the dialysis access outflow circuit, including
stenosis or occlusion in the peripheral veins of individuals with an AV
fistula or at the venous anastomosis of a synthetic AV graft.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the cost of the Merit
Wrapsody[supreg] CIE to the hospital to be $5,800 per patient,
inclusive of all components and accessories. The applicant also
provided an additional cost for operating room time because the
facility operation room time may be 8-12 minutes greater than similar
current procedures. However, as discussed in prior rulemaking, when
determining a new technology add-on payment, we provide payment based
on the cost of the actual technology (such as the drug or device
itself) and not for additional costs related to the use of the device,
such as the ongoing use of the device including maintenance and
processing fees. For example, if a technology required an extra hour of
operating room time, or reduced the amount of procedure time, we would
neither add nor deduct costs based on this, and would only consider the
actual cost of the technology at the time of purchase in our
determination of the add-on payment (86 FR 45146).
We noted that the cost information for this technology may be
updated in the final rule based on revised or additional information
CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we
limit new technology add-on payments to the lesser of 65 percent of the
average cost of the technology, or 65 percent of the costs in excess of
the MS-DRG payment for the case. As a result, we proposed that the
maximum new technology add-on payment for a case involving the use of
the Merit Wrapsody[supreg] CIE would be $3,770 for FY 2026 (that is, 65
percent of the average cost of the technology).
We invited public comments on whether the Merit Wrapsody[supreg]
CIE meets the cost criterion and our proposal to approve new technology
add-on payments for the Merit Wrapsody[supreg] CIE for FY 2026.
Comment: A few commenters, including the applicant, expressed
support for our proposal to approve new technology add-on payment for
the Merit Wrapsody[supreg] CIE and agreed with the proposed maximum new
technology add-on payment.
In response to CMS's request for additional information regarding
the delay in the technology's market availability, commenters stated
that the date of the first sale was January 2, 2025, and that sales
were delayed due to the holiday season. Per the commenters, the date of
FDA clearance on December 19, 2024, occurred before the holiday week
and the sales team had completed product training based off the
approved indication for use. Per the commenters, in compliance with FDA
marketing rules, sales communication about the Merit Wrapsody[supreg]
CIE did not commence until PMA FDA approval. The commenters stated that
manufacturing and production time was needed to assemble finished goods
to fulfill customer purchasing. Per the applicant, approval within
customers facilities and meetings were scheduled after the Christmas
holiday, which led to a delay in purchasing decision until January 2,
2025.
Response: We thank the commenters for their comments and for the
additional information.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the Merit Wrapsody[supreg] CIE meets
the cost criterion. The technology received PMA approval on December
19, 2024, with an indication for use in hemodialysis patients for the
treatment of stenosis or occlusion within the dialysis access outflow
circuit, including stenosis or occlusion in the peripheral veins of
individuals with an AV fistula or at the venous anastomosis of a
synthetic AV graft, which is covered by its Breakthrough Device
designation. Therefore, we are finalizing our proposal to approve new
technology add-on payments for the Merit Wrapsody[supreg] CIE for FY
2026. We consider the beginning of the newness period to commence on
January 2, 2025, the date on which the technology became commercially
available for the indication covered by its Breakthrough Device
designation.
Based on the information available at the time of this final rule,
the cost per case of the Merit Wrapsody[supreg] CIE is $5,800. Under
Sec. 412.88(a)(2), we limit new technology add-on payments to the
lesser of 65 percent of the average cost of the technology, or 65
percent of the costs in excess of the MS-DRG payment for the case. As a
result, we are finalizing that the maximum new technology add-on
payment for a case involving the use of the Merit Wrapsody[supreg] CIE
is $3,770 for FY 2026 (that is, 65 percent of the average cost of the
technology).
The applicant submitted a request and was granted approval for
unique ICD-10-PCS procedure codes for the Merit Wrapsody[supreg] CIE
beginning in FY 2026. Therefore, cases involving the use of the Merit
Wrapsody[supreg] CIE that are eligible for new technology add-on
payments will be identified by one of the following ICD-10-PCS
procedure codes:
[[Page 36806]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.202
12. Minima Stent System
The following table summarizes the information provided in the new
technology add-on payment application for the Minima Stent System.
[[Page 36807]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.203
In the proposed rule, we noted that after review of the information
provided by the applicant, since the indication for which the applicant
received PMA approval from FDA is included within the scope of the
Breakthrough Device designation indication, it appears that the FDA-
approved indication is appropriate for consideration for new technology
add-on payment under the alternative pathway criteria.\132\
---------------------------------------------------------------------------
\132\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program.
---------------------------------------------------------------------------
With respect to the cost criterion, we noted that the applicant
identified 6 relevant MS-DRGs using 8 ICD-10-PCS codes that most
closely resemble the procedure to insert and/or dilate the great
vessels using the Minima Stent System. We noted that, per the
applicant, the Minima Stent System is used in the pediatric population
and no cases appear in Medicare data; therefore, the applicant used CY
2022 and CY 2023 Medicare charge and discharge data accessed via
Definitive Healthcare as well as data from the AOR/BOR File published
as part of the FY 2025 IPPS/LTCH PPS final rule, correction notice and
interim final action with comment period Data and Supplemental Files
and FY 2023 IPPS/LTCH PPS final rule and correcting amendment files.
However, we questioned whether using the total charges for the Medicare
claims within the 6 identified MS-DRGs would provide an accurate
estimate for eligible cases in a pediatric patient population where the
Minima Stent System would be used.
Subject to the applicant adequately addressing this concern, we
agreed that the technology meets the cost criterion and proposed to
approve the Minima Stent System for new technology add-on payments for
FY 2026 for use in the treatment of native or acquired pulmonary artery
stenoses or coarctation of the aorta in neonates, infants, and children
at least 1.5 kg in weight.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the
Minima Stent
[[Page 36808]]
System to the hospital to be $34,900 per patient. Per the applicant,
total cost per inpatient stay was calculated based on the assumption
that only one unit will be used per patient for each inpatient stay. We
noted that the cost information for this technology may be updated in
the final rule based on revised or additional information CMS receives
prior to the final rule. Under Sec. 412.88(a)(2), we limit new
technology add-on payments to the lesser of 65 percent of the average
cost of the technology, or 65 percent of the costs in excess of the MS-
DRG payment for the case. As a result, we proposed that the maximum new
technology add-on payment for a case involving the use of the Minima
Stent System would be $22,685 for FY 2026 (that is, 65 percent of the
average cost of the technology).
We invited public comments on whether the Minima Stent System meets
the cost criterion and our proposal to approve new technology add-on
payments for the Minima Stent System for FY 2026.
Comment: A few commenters, including the applicant expressed
support for our proposal to approve new technology add-on payment for
the Minima Stent System.
In response to CMS's concern about using the total charges for the
Medicare claims within the six identified MS-DRGs to estimate eligible
cases in a pediatric patient population, the applicant stated that the
Minima Stent System was FDA-approved ten months ago and that given the
newness of the procedure and absence of pediatric cases in Medicare
data and other available claims data, its approach of using Medicare
claims within six identified MS-DRGs was reasonable. The applicant
stated that while Medicare coverage is expected to be rare with fewer
than 10 cases during the new technology add-on payment period, there
are circumstances where medically complex children will be covered
under Medicare, citing precedent with the new technology add-on payment
approval for the MAGEC[supreg] Spinal Bracing Distraction system for
pediatric use in FY 2017. The applicant stated that in its original
cost analysis, using Medicare cases, the new charge per case of
$135,000 for the device alone surpassed the case-weighted threshold of
$128,762 without including other inpatient stay charges, and that since
the Minima Stent device is not replacing an existing technology, it
would meet the cost criterion regardless of the applicability of
Medicare charges to eligible pediatric cases.
To verify if the Medicare threshold might be too low, the applicant
also reviewed data from the Healthcare Cost and Utilization Project
(HCUP) Kids' Inpatient Database (KID) and HCUP National Inpatient
Sample (NIS) to evaluate case distribution threshold. The applicant
identified 6,855 HCUP KID cases compared to 75,638 cases Medicare cases
across the six MS-DRGs used in its cost analysis. The applicant noted
that pediatric cases were distributed differently compared to Medicare
cases, resulting in a higher case-weighted threshold of $141,341. The
applicant also stated that pediatric inpatient stays had a higher
average length of stay, higher average charges, and higher average
costs per stay. Based on the distribution of pediatric cases, the
applicant conducted an additional cost analysis and calculated a final
inflated average case-weighted standardized charge per case of
$281,314, which exceeded the average case-weighted threshold amount of
$141,341.
Per the applicant, data from HCUP NIS and HCUP KID suggest that for
the six identified MS-DRGs, pediatric inpatient stays have higher
average length of stay, higher average charges and higher average costs
per stay compared to inpatient stays across all ages. Per the
applicant, this suggests that using total Medicare charges in the cost
criterion analysis likely resulted in an underestimated inflated case-
weighted standardized charge per case for the Minima stent and that
while Medicare charges are not a perfect estimate, they are a
reasonable and conservative substitute.
Response: We thank the applicant and other commenters for their
comments. We acknowledge the challenges of estimating charges related
to use of a pediatric device using Medicare data and agree that the
Medicare charges used in this analysis are reasonable based on the
additional information provided by the applicant.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the Minima Stent System meets the cost
criterion. The technology received PMA approval on August 28, 2024,
with an indication for use in the treatment of native or acquired
pulmonary artery stenoses or coarctation of the aorta in neonates,
infants, and children at least 1.5 kg in weight, which is covered by
its Breakthrough Device designation. Therefore, we are finalizing our
proposal to approve new technology add-on payments for the Minima Stent
System for FY 2026. We consider the beginning of the newness period to
commence on August 28, 2024, the date on which the technology received
its premarket approval for the indication covered by its Breakthrough
Device designation.
Based on the information available at the time of this final rule,
the cost per case of the Minima Stent System is $34,900. Under Sec.
412.88(a)(2), we limit new technology add-on payments to the lesser of
65 percent of the average cost of the technology, or 65 percent of the
costs in excess of the MS-DRG payment for the case. As a result, we are
finalizing that the maximum new technology add-on payment for a case
involving the use of the Minima Stent System is $22,685 for FY 2026
(that is, 65 percent of the average cost of the technology).
The applicant submitted a request and was granted approval for
unique ICD-10-PCS procedure codes for the Minima Stent System beginning
in FY 2026. Therefore, cases involving the use of the Minima Stent
System that are eligible for new technology add-on payments will be
identified by ICD-10-PCS procedure codes: X27339B (Dilation of right
pulmonary artery with expandable intraluminal device, percutaneous
approach, new technology group 11), X27439B (Dilation of left pulmonary
artery with expandable intraluminal device, percutaneous approach, new
technology group 11), X27W39B (Dilation of thoracic aorta, descending
with expandable intraluminal device, percutaneous approach, new
technology group 11), or X27X39B (Dilation of thoracic aorta,
ascending/arch with expandable intraluminal device, percutaneous
approach, new technology group 11).
(12) MY01 Continuous Compartmental Pressure Monitor
The following table summarizes the information provided in the new
technology add-on payment application for the MY01 Continuous
Compartmental Pressure Monitor.
BILLING CODE 4120-01-P
[[Page 36809]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.204
BILLING CODE 4120-01-C
In the proposed rule, we noted that after review of the information
provided by the applicant, since the indication for which the applicant
has received FDA
[[Page 36810]]
marketing authorization is included within the scope of the
Breakthrough Device designation indication, it appears that the FDA
marketing authorization is appropriate for consideration for new
technology add-on payment under the alternative pathway criteria.\133\
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\133\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program.
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We noted in the proposed rule that according to the applicant, the
MY01 Mobile Application was not yet available for use because the
applicant was completing final testing of the application before it is
available for download. We stated that we were interested in additional
information on when the MY01 Continuous Compartmental Pressure Monitor,
which is the subject of this new technology add-on payment application,
became available for sale.
We agreed with the applicant that the MY01 Continuous Compartmental
Pressure Monitor meets the cost criterion and therefore proposed to
approve the MY01 Continuous Compartmental Pressure Monitor for new
technology add-on payments for FY 2026, for real-time and continuous
measurement of the muscle compartment pressure.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the MY01
Continuous Compartmental Pressure Monitor to the hospital to be $3,250
per patient. Per the applicant, only one device is used per inpatient
stay, and the companion MY01 Mobile Application is provided at no
additional cost for any physician registered to use the device. We
noted that the cost information for this technology may be updated in
the final rule based on revised or additional information CMS receives
prior to the final rule. Under Sec. 412.88(a)(2), we limit new
technology add-on payments to the lesser of 65 percent of the average
cost of the technology, or 65 percent of the costs in excess of the MS-
DRG payment for the case. As a result, we proposed that the maximum new
technology add-on payment for a case involving the use of the MY01
Continuous Compartmental Pressure Monitor would be $2,112.50 for FY
2026 (that is, 65 percent of the average cost of the technology).
We invited public comments on whether the MY01 Continuous
Compartmental Pressure Monitor meets the cost criterion and our
proposal to approve new technology add-on payments for the MY01
Continuous Compartmental Pressure Monitor for FY 2026.
Comment: We received comments expressing support for technologies
under consideration for new technology add-on payments for FY 2026.
The applicant submitted a public comment in response to CMS's
request for additional information regarding the delay in the
technology's market availability. The applicant stated that there was a
slight market availability delay for the MY01 Mobile App due to launch
and distribution orchestration and post approval compliance
documentation. Per the applicant, the MY01 Mobile App was available on
the Apple App Store and the Google Play Store on April 29, 2025.
Response: We thank the commenters for their comments. Based on the
information provided in the application for new technology add-on
payments, and after consideration of the public comments we received,
we believe MY01 Continuous Compartmental Pressure Monitor meets the
cost criterion. The technology received FDA marketing authorization on
March 13, 2025, with an indication for real-time and continuous
measurement of the muscle compartment pressure, which is covered by its
Breakthrough Device designation. Therefore, we are finalizing our
proposal to approve new technology add-on payments for MY01 Continuous
Compartmental Pressure Monitor for FY 2026. We consider the beginning
of the newness period to commence on April 29, 2025, the date on which
the technology became commercially available for the indication covered
by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of MY01 Continuous Compartmental Pressure Monitor is
$3,250. Under Sec. 412.88(a)(2), we limit new technology add-on
payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we are finalizing that the maximum new
technology add-on payment for a case involving the use of MY01
Continuous Compartmental Pressure Monitor is $2,112.50 for FY 2026
(that is, 65 percent of the average cost of the technology). Cases
involving the use of MY01 Continuous Compartmental Pressure Monitor
that are eligible for new technology add-on payments will be identified
by ICD-10-PCS procedure code XX2F3W9 (Monitoring of musculoskeletal
muscle compartment pressure, micro-electro-mechanical system,
percutaneous approach, new technology group 9).
(13) Positive Blood Culture (PBC) Separator With Selux AST System
The following table summarizes the information provided in the new
technology add-on payment application for the PBC Separator with Selux
AST System. We note that Selux Diagnostics, Inc. submitted an
application for new technology add-on payments for the PBC Separator
with Selux AST System for FY 2024 under the name Selux NGP System, as
summarized in the FY 2024 IPPS/LTCH PPS proposed rule (88 FR 26946
through 26949), that it withdrew prior to the issuance of the FY 2024
IPPS/LTCH PPS final rule (88 FR 58919).
BILLING CODE 4120-01-P
[[Page 36811]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.205
[[Page 36812]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.206
BILLING CODE 4120-01-C
In the proposed rule, we noted that after review of the information
provided by the applicant, since the indication for which the applicant
received 510(k)
[[Page 36813]]
clearance from FDA is included within the scope of the Breakthrough
Device designation indication, it appears that the FDA-cleared
indication is appropriate for consideration for new technology add-on
payment under the alternative pathway criteria.
We agreed with the applicant that the PBC Separator with Selux AST
System meets the cost criterion and therefore proposed to approve the
PBC Separator with Selux AST System for new technology add-on payments
for FY 2026 for use as an automated inoculum preparation system that
uses lysis, centrifugation and sequential optical density measurements
to generate a McFarland equivalent suspension from positive blood
culture samples that can be used for quantitative in vitro AST by the
Selux AST System.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the PBC
Separator with Selux AST System to the hospital to be $135.04 per
patient. Per the applicant, the cost per patient includes $80 for the
Selux AST Gram Negative and Selux AST Gram Positive AST Kit, $50 for
the Selux AST Positive Blood Culture Kit, $4.79 for the Selux AST
Analyzer Reagent Kit, and $0.25 for the Selux AST Waste Kit.
We noted that according to the applicant, the Selux AST System has
been granted multiple previous FDA clearances for a different
indication and sample type.\134\ However, we stated that per the
applicant, the Breakthrough Device designation is for the Selux
Positive Blood Culture Separator and Selux [AST] System. We stated that
the previous FDA clearances for the Selux AST System were not
considered Breakthrough Devices. Therefore, we noted that it appeared
that the components of the Selux AST System, including the Selux AST
Gram Negative and Selux AST Gram Positive AST Kit, Selux AST Analyzer
Reagent Kit, and Selux AST Waste Kit are eligible for new technology
add-on payment only when used in conjunction with the PBC Separator on
positive blood culture samples. We further noted that the Selux AST
System first received FDA 510(k) clearance on January 18, 2023, and
therefore the components of the Selux AST System would still be new for
FY 2026.
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\134\ https://www.accessdata.fda.gov/cdrh_docs/pdf21/K211759.pdf
and https://www.accessdata.fda.gov/cdrh_docs/pdf21/K211748.pdf.
---------------------------------------------------------------------------
We noted that the cost information for this technology may be
updated in the final rule based on revised or additional information
CMS receives prior to the final rule. Under Sec. 412.88(a)(2) we limit
new technology add-on payments to the lesser of 65 percent of the
average cost of the technology, or 65 percent of the costs in excess of
the MS-DRG payment for the case. As a result, we proposed that the
maximum new technology add-on payment for a case involving the use of
the PBC Separator with Selux AST System would be $87.78 for FY 2026
(that is, 65 percent of the average cost of the technology).
We invited public comments on whether the PBC Separator with Selux
AST System meets the cost criterion and our proposal to approve new
technology add-on payments for the PBC Separator with Selux AST System
for FY 2026.
Comment: We received comments expressing support for technologies
under consideration for new technology add-on payments for FY 2026.
Response: We thank the commenters for their comments. Based on the
information provided in the application for new technology add-on
payments, we believe the PBC Separator with Selux AST System meets the
cost criterion. The technology received 510(k) clearance on February
15, 2024, with an indication for use as an automated inoculum
preparation system that uses lysis, centrifugation and sequential
optical density measurements to generate a McFarland equivalent
suspension from positive blood culture samples that can be used for
quantitative in vitro AST by the Selux AST System, which is covered by
its Breakthrough Device designation. Therefore, we are finalizing our
proposal to approve new technology add-on payments for the PBC
Separator with Selux AST System for FY 2026. We consider the beginning
of the newness period to commence on February 15, 2024, the date on
which technology received its premarket approval for the indication
covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the PBC Separator with Selux AST System is
$135.04. As noted earlier in this section, the Selux AST System has
been granted multiple previous FDA clearances for a different
indication and sample type.\135\ However, per the applicant, the
Breakthrough Device designation is for the Selux Positive Blood Culture
Separator and Selux [AST] System. The previous FDA clearances for the
Selux AST System were not considered Breakthrough Devices. Therefore,
it appears that the components of the Selux AST System, including the
Selux AST Gram Negative and Selux AST Gram Positive AST Kit, Selux AST
Analyzer Reagent Kit, and Selux AST Waste Kit are eligible for new
technology add-on payment only when used in conjunction with the PBC
Separator on positive blood culture samples. Under Sec. 412.88(a)(2),
we limit new technology add-on payments to the lesser of 65 percent of
the average cost of the technology, or 65 percent of the costs in
excess of the MS-DRG payment for the case. As a result, we are
finalizing that the maximum new technology add-on payment for a case
involving the use of the PBC Separator with Selux AST System is $87.78
for FY 2026 (that is, 65 percent of the average cost of the
technology). Cases involving the use of the PBC Separator with Selux
AST System that are eligible for new technology add-on payments will be
identified by ICD-10-PCS procedure code XXE5XY9 (Measurement of
infection, other positive blood/isolated colonies bimodal phenotypic
susceptibility technology, new technology group 9).
---------------------------------------------------------------------------
\135\ https://www.accessdata.fda.gov/cdrh_docs/pdf21/K211759.pdf
and https://www.accessdata.fda.gov/cdrh_docs/pdf21/K211748.pdf.
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(14) RECELL[supreg] Autologous Cell Harvesting Device
The following table summarizes the information provided in the new
technology add-on payment application for the RECELL[supreg] Autologous
Cell Harvesting Device.
BILLING CODE 4120-01-P
[[Page 36814]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.207
[[Page 36815]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.208
BILLING CODE 4120-01-C
In the proposed rule, after review of the information provided by
the applicant, we noted that the RECELL[supreg] Autologous Cell
Harvesting Device is also indicated for acute partial-thickness thermal
burn wounds and acute full-thickness thermal burn wounds. However, we
noted that under the eligibility criteria for approval under the
alternative pathway for certain transformative devices, only the use of
the technology for the indication that corresponds to the technology's
Breakthrough Device designation would be eligible for the new
technology add-on payment for FY 2026. Therefore, we noted that only
the use of the RECELL[supreg] Autologous Cell Harvesting Device for
acute nonthermal full thickness skin wounds after traumatic avulsion,
surgical excision (for example, necrotizing soft tissue infection), or
resection (for example, skin cancer), and the FDA Breakthrough Device
designation it received for those uses, were relevant for purposes of
the new technology add-on payment application for FY 2026.
Please see Table 10.1.A.-RECELL[supreg] Autologous Cell Harvesting
Device associated with the proposed rule for the list of relevant ICD-
10-CM diagnosis codes that we believed would identify the Breakthrough
Device-designated indication of acute nonthermal full thickness skin
wounds after traumatic avulsion. Please see Table 10.1.B.-
RECELL[supreg] Autologous Cell Harvesting Device associated with the
proposed rule for the list of relevant ICD-10-PCS procedure codes that
we believed would be appropriate to report in combination with use of
the RECELL[supreg] Autologous Cell Harvesting Device to identify use of
the technology for the Breakthrough Device-designated indication of
acute nonthermal full thickness skin wounds after surgical excision
(for example, necrotizing soft tissue infection) or resection (for
example, skin cancer). We invited public comments on the use of these
ICD-10-CM diagnosis and ICD-10-PCS procedure codes to identify use of
the technology for the Breakthrough Device-designated indications for
purposes of the new technology add-on payment, if approved.
We agreed with the applicant that the RECELL[supreg] Autologous
Cell Harvesting Device meets the cost criterion and therefore proposed
to approve the RECELL[supreg] Autologous Cell Harvesting Device for new
technology add-on payments for FY 2026, when used in combination with
meshed autografting for acute full-thickness thermal burn wounds in
pediatric and adult patients and full-thickness skin defects after
traumatic avulsion (for example, degloving) or surgical excision (for
example, necrotizing soft tissue infection) or resection (for example,
skin cancer).
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the
RECELL[supreg] Autologous Cell Harvesting Device to the hospital to be
$7,500 per device. The applicant estimated that, on average, one device
is used per inpatient stay for patients with a full-thickness skin
defect. We noted that the cost information for this technology may be
updated in the final rule based on revised or additional information
CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we
limit new technology add-on payments to the lesser of 65 percent of the
average cost of the technology, or 65 percent of the costs in excess of
the MS-DRG payment for the case. As a result, proposed that the maximum
new technology add-on payment for a case involving the use of the
RECELL[supreg] Autologous Cell Harvesting Device would be $4,875 for FY
2026 (that is, 65 percent of the average cost of the technology).
We invited public comments on whether the RECELL[supreg] Autologous
Cell Harvesting Device meets the cost criterion and our proposal to
approve new technology add-on payments for the RECELL[supreg]
Autologous Cell Harvesting Device for FY 2026.
Comment: A few commenters, including the applicant, expressed
support for our proposal to approve new technology add-on payment for
the RECELL[supreg] Autologous Cell Harvesting Device. We received
comments expressing general support of the proposed ICD-10-CM/PCS codes
for which CMS specifically sought input. The applicant further stated
its support for the use of the ICD-10-CM diagnosis codes listed in
Table 10.1.A and the ICD-10-PCS procedure codes listed in Table 10.1.B
to identify cases eligible for new technology add-on payments for FY
2026, and agreed that new technology
[[Page 36816]]
add-on payment eligibility is limited to the Breakthrough-designated
indication for nonthermal full-thickness wounds. The applicant also
supported CMS's proposal to establish a maximum payment of $4,875 per
case, based on the cost of $7,500 per device.
A commenter requested more clarity regarding the circumstances in
which a hospital is eligible to receive new technology add-on payments
for the RECELL[supreg] Autologous Cell Harvesting Device. Per the
commenter, the technology's use in combination with another procedure
(meshed autografting) is atypical and stated that it would expect that
such a claim must include: (i) an ICD-10-PCS code for the use of the
RECELL[supreg] Autologous Cell Harvesting Device; (ii) an ICD-10-PCS
code for meshed autografting; and (iii) an ICD-10-CM code to reflect
use for patients with acute nonthermal full thickness skin wounds. The
commenter stated that the need for the latter two seemed to be implicit
in CMS's development of Table 10.1.B and Table 10.1.A, respectively, in
connection with the proposed rule. However, the commenter stated that
the messaging should not be implicit, but that CMS should issue a clear
statement in the final rule, or consider communicating it in an
implementing transmittal, or in a Medicare Learning Network (MLN)
issuance.
The commenter also recommended that CMS reassess the scope of the
new technology add-on payments for FY 2026 to ensure that we had
identified the appropriate ICD-10-PCS and ICD-10-CM codes to capture
what would be appropriate to report in combination with the use of the
RECELL[supreg] Autologous Cell Harvesting Device and that would
identify the pertinent Breakthrough Device indication. Per the
commenter, the listed ICD-10-PCS codes in Table 10.1.B are all for
excision procedures and should be removed so that CMS can populate the
table with procedures for meshed autografting. The commenter also
stated its concern with the listed ICD-10-CM codes in Table 10.1.A as
it stated many of the listed codes are for lacerations and lacerations
typically do not correlate to full thickness wound. Accordingly, the
commenter stated that it is important for CMS to ensure that Table
10.1.A be populated with diagnosis codes that capture nonthermal, full
thickness wounds.
Response: We thank the applicant and other commenters for their
comments.
We disagree that the procedure codes for meshed autografting should
be included in Tables 10.1.A or 10.1.B. Table 10.1.A.-RECELL[supreg]
Autologous Cell Harvesting Device associated with the proposed rule
provided the list of relevant ICD-10-CM diagnosis codes that we
believed would identify the Breakthrough Device-designated indication
of acute nonthermal full thickness skin wounds after traumatic
avulsion. Table 10.1.B.-RECELL[supreg] Autologous Cell Harvesting
Device associated with the proposed rule provided the list of relevant
ICD-10-PCS procedure codes that we believed would be appropriate to
report in combination with use of the RECELL[supreg] Autologous Cell
Harvesting Device to identify use of the technology for the
Breakthrough Device-designated indication of acute nonthermal full
thickness skin wounds after surgical excision (for example, necrotizing
soft tissue infection) or resection (for example, skin cancer). We had
listed ICD-10-PCS procedure codes in Table 10.1.B.-RECELL[supreg]
Autologous Cell Harvesting Device to identify use of the technology
after surgical excision or resection because these describe procedures,
not diagnoses. Either a code from Table 10.1.A or Table 10.1.B.
associated with the proposed rule may be used to identify the
Breakthrough Device-designated indication for the RECELL[supreg]
Autologous Cell Harvesting Device.
As we noted in the proposed rule, although the RECELL[supreg]
Autologous Cell Harvesting Device is also indicated for acute partial-
thickness thermal burn wounds and acute full-thickness thermal burn
wounds, only the use of the device for acute nonthermal full thickness
skin wounds after traumatic avulsion, surgical excision (for example,
necrotizing soft tissue infection), or resection (for example, skin
cancer), and the FDA Breakthrough Device designation it received for
those uses, were relevant for purposes of the new technology add-on
payment application for FY 2026. According to its FDA indication for
use, the RECELL[supreg] Autologous Cell Harvesting Device is used for
application in combination with meshed autografting for both acute
full-thickness thermal burn wounds and full-thickness skin defects.
Therefore, it is not possible to differentiate between use of the
device for acute full-thickness thermal burn wounds and full-thickness
skin defects using the procedure codes for meshed autografting, and
these codes are not relevant to our proposal.
Although we agree with the commenter that some of the listed
diagnosis codes in Table 10.1.A associated with the proposed rule may
not correlate to full thickness skin wounds after traumatic avulsion in
all instances, we note that these diagnosis codes must be reported in
combination with use of the RECELL[supreg] Autologous Cell Harvesting
Device to be eligible for new technology add-on payment. The
RECELL[supreg] Autologous Cell Harvesting Device is FDA market
authorized for use in full-thickness skin defects. Therefore, we
believe that when these diagnosis codes are used in combination with
the list of procedure codes that uniquely identify procedures involving
the use of the RECELL[supreg] Autologous Cell Harvesting Device, they
would describe full thickness skin defects. Therefore, we are
finalizing the lists of codes in Tables 10.1.A.- and 10.1.B.-
RECELL[supreg] Autologous Cell Harvesting Device associated with the
proposed rule as proposed. We note that Tables 10.A.- and 10.B.-
RECELL[supreg] Autologous Cell Harvesting Device associated with this
final rule are the same as Tables 10.1.A.- and 10.1.B.-RECELL[supreg]
Autologous Cell Harvesting Device associated with the proposed rule,
respectively, but the names of the tables were updated for this final
rule.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the RECELL[supreg] Autologous Cell
Harvesting Device meets the cost criterion. The technology received FDA
marketing authorization on June 7, 2023, with an indication for use in
combination with meshed autografting for acute full-thickness thermal
burn wounds in pediatric and adult patients and full-thickness skin
defects after traumatic avulsion (for example, degloving) or surgical
excision (for example, necrotizing soft tissue infection) or resection
(for example, skin cancer), which is covered by its Breakthrough Device
designation. Therefore, we are finalizing our proposal to approve new
technology add-on payments for the RECELL[supreg] Autologous Cell
Harvesting Device for FY 2026. We consider the beginning of the newness
period to commence on June 7, 2023, the date on which the technology
received its FDA marketing authorization for the indication covered by
its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the RECELL[supreg] Autologous Cell Harvesting
Device is $7,500. Under Sec. 412.88(a)(2), we limit new technology
add-on payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we are finalizing that the maximum new
technology add-on payment for a case involving the use of the
RECELL[supreg] Autologous Cell
[[Page 36817]]
Harvesting Device is $4,875 for FY 2026 (that is, 65 percent of the
average cost of the technology). As noted earlier in this section, the
RECELL[supreg] Autologous Cell Harvesting Device is also indicated for
acute partial-thickness thermal burn wounds and acute full-thickness
thermal burn wounds. However, we note that under the eligibility
criteria for approval under the alternative pathway for certain
transformative devices, only the use of the technology for the
indication that corresponds to the technology's Breakthrough Device
designation would be eligible for the new technology add-on payment for
FY 2026. Therefore, only the use of the RECELL[supreg] Autologous Cell
Harvesting Device for acute nonthermal full thickness skin wounds after
traumatic avulsion, surgical excision (for example, necrotizing soft
tissue infection), or resection (for example, skin cancer), and the FDA
Breakthrough Device designation it received for those uses, are
relevant for purposes of the new technology add-on payment for FY 2026.
Therefore, cases involving the use of the RECELL[supreg] Autologous
Cell Harvesting Device that are eligible for new technology add-on
payments will be identified by one of the following ICD-10-PCS
procedure codes, in combination with any of the ICD-10-CM diagnosis
codes listed in Table 10.A.-RECELL[supreg] Autologous Cell Harvesting
Device or ICD-10-PCS procedure codes listed in Table 10.B.-
RECELL[supreg] Autologous Cell Harvesting Device associated with this
final rule.
[GRAPHIC] [TIFF OMITTED] TR04AU25.209
(15) restor3d TIDALTM Fusion Cage
The following table summarizes the information provided in the new
technology add-on payment application for the restor3d
TIDALTM Fusion Cage. We note that restor3d submitted an
application for new technology add-on payments for the restor3d
TIDALTM Fusion Cage for FY 2025, as summarized in the FY
2025 IPPS/LTCH PPS proposed rule (89 FR 36124 through 36125), that it
withdrew prior to the issuance of the FY 2025 IPPS/LTCH PPS final rule
(89 FR 69204).
BILLING CODE 4120-01-P
[[Page 36818]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.210
BILLING CODE 4120-01-C
In the proposed rule, we noted that after review of the information
provided by the applicant, we agreed with the applicant that the
restor3d TIDALTM Fusion Cage meets the cost criterion and
therefore proposed to approve the
[[Page 36819]]
restor3d TIDALTM Fusion Cage for new technology add-on
payments for FY 2026 subject to the technology receiving FDA marketing
authorization for the indication corresponding to the Breakthrough
Device designation by May 1, 2025.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the cost of the restor3d
TIDALTM Fusion Cage to the hospital to be $27,995 per
patient. In addition, the applicant noted the costs related to the
technology for required supporting instruments and materials consist of
one unit each of the Instrument Kit ($6,995), TTC Fusion Nail ($7,500),
and Graft Material ($1,500). The applicant estimated the total cost to
the hospital to be $43,990 for each procedure per patient, including
the related cost of the technology. As we discussed in the FY 2025
IPPS/LTCH PPS proposed rule (89 FR 36125) and in prior rulemaking, when
determining a new technology add-on payment, we provide payment based
on the cost of the actual technology (such as the drug or device
itself) and not for additional costs related to the use of the device
(86 FR 45146). We noted that based on the information provided by the
applicant, the cost of the Instrument Kit was included in the costs of
the supporting instruments and materials for each procedure related to
the use of the technology, rather than the cost of the technology
itself. In addition, we noted it appeared that the TTC Fusion Nail and
Bone Graft were not new and unique components for this technology and
could be purchased separately in support of other technologies.
Furthermore, we noted that the Instrument Kit was not included in the
Breakthrough Device designation, and it therefore appeared that only
the restor3d TIDALTM Fusion Cage would be designated as the
Breakthrough Device once market authorized and would be eligible for
new technology add-on payments under the alternative pathway.
Therefore, we stated it appeared any add-on payment for the restor3d
TIDALTM Fusion Cage would include only the cost of the
restor3d TIDALTM Fusion Cage ($27,995).
We noted that the cost information for this technology may be
updated in the final rule based on revised or additional information
CMS receives prior to the final rule. Under Sec. 412.88(a)(2), we
limit new technology add-on payments to the lesser of 65 percent of the
average cost of the technology, or 65 percent of the costs in excess of
the MS-DRG payment for the case. As a result, we proposed that the
maximum new technology add-on payment for a case involving the use of
the restor3d TIDALTM Fusion Cage would be $18,196.75 for FY
2026 (that is, 65 percent of the average cost of the technology).
We invited public comments on whether the restor3d
TIDALTM Fusion Cage meets the cost criterion and our
proposal to approve new technology add-on payments for the restor3d
TIDALTM Fusion Cage for FY 2026, subject to the technology
receiving FDA marketing authorization for the indication corresponding
to the Breakthrough Device designation by May 1, 2025.
Comment: We received comments expressing support for technologies
under consideration for new technology add-on payments for FY 2026.
The applicant submitted a public comment noting that the restor3d
TIDAL Fusion Cage received FDA 510(k) clearance (K242356) effective
March 24, 2025, and that the Indications for Use are a subset of the
Breakthrough Device designation indications.
Response: We thank the commenters for their comments.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe restor3d TIDALTM Fusion
Cage meets the cost criterion. The technology received 510(k) clearance
from FDA on March 24, 2025, with an indication for use as part of a
tibiotalocalcaneal fusion construct in a salvage procedure following
failed ankle arthrodesis or failed ankle arthroplasty for patients at
risk of limb loss, which is covered by its Breakthrough Device
designation. Therefore, we are finalizing our proposal to approve new
technology add-on payments for restor3d TIDALTM Fusion Cage
for FY 2026. We consider the beginning of the newness period to
commence on March 24, 2025, the date on which technology received its
510(k) clearance for the indication covered by its Breakthrough Device
designation.
Based on the information available at the time of this final rule,
the cost per case of TIDAL Fusion Cage System is $27,995. Under Sec.
412.88(a)(2), we limit new technology add-on payments to the lesser of
65 percent of the average cost of the technology, or 65 percent of the
costs in excess of the MS-DRG payment for the case. As a result, we are
finalizing that the maximum new technology add-on payment for a case
involving the use of TIDAL Fusion Cage System is $18,196.75 for FY 2026
(that is, 65 percent of the average cost of the technology). Cases
involving the use of TIDAL Fusion Cage System that are eligible for new
technology add-on payments will be identified by ICD-10-PCS procedure
codes: XRGK0CA (Fusion of left ankle joint using gyroid-sheet lattice
design internal fixation device, open approach), XRGM0CA (Fusion of
left tarsal joint using gyroid-sheet lattice design internal fixation
device, open approach), XRGJ0CA (Fusion of right ankle joint using
gyroid-sheet lattice design internal fixation device, open approach),
or XRGL0CA (Fusion of right tarsal joint using gyroid-sheet lattice
design internal fixation device, open approach).
(16) ShortCutTM
The following table summarizes the information provided in the new
technology add-on payment application for the ShortCutTM.
[[Page 36820]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.211
After review of the information provided by the applicant, we
agreed with the applicant that the ShortCutTM meets the cost
criterion and therefore proposed to approve the ShortCutTM
for new technology add-on payments for FY 2026 for use as a splitting
device of bioprosthetic aortic valve leaflets to facilitate valve-in-
valve procedures for patients at risk for coronary obstruction.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the
ShortCutTM to the hospital to be $15,000 per patient. We
noted that the cost information for this technology may be updated in
the final rule based on revised or additional information CMS receives
prior to the final rule. Under Sec. 412.88(a)(2), we limit new
technology add-on payments to the lesser of 65 percent of the average
cost of the technology, or 65 percent of the costs in excess of the MS-
DRG payment for the case. As a result, we proposed that the maximum new
technology add-on payment for a case involving the use of the
ShortCutTM would be $9,750 for FY 2026 (that is, 65 percent
of the average cost of the technology).
We invited public comments on whether the ShortCutTM
meets the cost criterion and our proposal to approve new technology
add-on payments for the ShortCutTM for FY 2026.
Comment: Multiple commenters, including the applicant, expressed
support for our proposal to approve new technology add-on payment for
the ShortCutTM device for FY 2026. Some commenters provided
their perspectives regarding the clinical need for the device. Several
commenters, including the applicant, noted that the device enabled
splitting of pre-existing valve leaflets after insertion of the
transcatheter heart valve to allow blood flow into the adjacent or ``at
risk'' coronary artery. Per commenters, approving new technology add-on
payments for ShortCutTM would make it economically feasible
for hospitals to offer this breakthrough technology to Medicare
patients without incurring steep losses
The applicant further reiterated that the ShortCutTM
device received FDA
[[Page 36821]]
Breakthrough Device Designation on January 18, 2024, and FDA market
clearance on September 27, 2024. The applicant also noted that CMS
created a new ICD-10-PCS procedure code (X28F3VA) effective October 1,
2024, responding to the growing need for leaflet splitting in patients
undergoing valve-in-valve transcatheter aortic valve replacement.
Response: We thank the commenters for their comments.
Based on the information provided in the application for new
technology add-on payments, we believe the ShortCutTM meets
the cost criterion. The technology received FDA marketing authorization
on September 27, 2024, with an indication for use as a splitting device
of bioprosthetic aortic valve leaflets to facilitate valve-in-valve
procedures for patients at risk of coronary obstruction, which is
covered by its Breakthrough Device designation. Therefore, we are
finalizing our proposal to approve new technology add-on payments for
the ShortCutTM for FY 2026. We consider the beginning of the
newness period to commence on September 27, 2024, the date on which
technology received its FDA marketing authorization for the indication
covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the ShortCutTM is $15,000. Under Sec.
412.88(a)(2), we limit new technology add-on payments to the lesser of
65 percent of the average cost of the technology, or 65 percent of the
costs in excess of the MS-DRG payment for the case. As a result, we are
finalizing that the maximum new technology add-on payment for a case
involving the use of the ShortCutTM is $9,750 for FY 2026
(that is, 65 percent of the average cost of the technology). Cases
involving the use of the ShortCutTM that are eligible for
new technology add-on payments will be identified by ICD-10-PCS
procedure code X28F3VA (Division of aortic valve using intraluminal
bioprosthetic valve leaflet splitting technology in existing valve,
percutaneous approach, new technology group 10).
(17) The WiSE CRT System
The following table summarizes the information provided in the new
technology add-on payment application for The WiSE CRT System.
[[Page 36822]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.212
In the proposed rule, we noted that after review of the information
provided by the applicant, we agreed with the applicant that the WiSE
CRT System meets the cost criterion and therefore proposed to approve
the WiSE CRT System for new technology add-on payments for FY 2026,
subject to the technology receiving FDA marketing authorization for the
indication corresponding to the Breakthrough Device designation by May
1, 2025.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the WiSE
CRT System to the hospital to be $63,300 per patient. The components
included the electrode
[[Page 36823]]
and catheter ($21,970), the delivery sheath ($2,590), the battery
($12,870), and the transmitter ($25,870). We noted that the cost
information for this technology may be updated in the final rule based
on revised or additional information CMS receives prior to the final
rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments
to the lesser of 65 percent of the average cost of the technology, or
65 percent of the costs in excess of the MS-DRG payment for the case.
As a result, we proposed that the maximum new technology add-on payment
for a case involving the use of the WiSE CRT System would be $41,145
for FY 2026 (that is, 65 percent of the average cost of the
technology).
We invited public comments on whether the WiSE CRT System meets the
cost criterion and our proposal to approve new technology add-on
payments for the WiSE CRT System for FY 2026, subject to the technology
receiving FDA marketing authorization for the indication corresponding
to the Breakthrough Device designation by May 1, 2025.
Comment: A few commenters, including the applicant, expressed
support for our proposal to approve new technology add-on payment for
the WiSE CRT System. The applicant further stated that the WiSE CRT
System received FDA approval on April 11, 2025, and that the approved
indications are consistent with the Breakthrough Device designation
indications. The applicant also noted that the total price of the
technology is unchanged.
Response: We thank the commenters for their comments.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the WiSE CRT System meets the cost
criterion. The technology received premarket approval from FDA on April
11, 2025, with an indication for adult patients who are at least 22
years of age, are indicated for CRT, have an existing or are eligible
for an implanted right ventricular pacing system, and are in one of the
following two categories: Patients in whom previous coronary
sinus (CS) lead implantation was unsuccessful, or where an implanted
lead has been turned off, referred to as ``previously untreatable'';
Patients with previously implanted pacemakers or Implantable
Cardioverter-Defibrillators (ICDs) in whom standard CRT upgrade is not
advisable due to known relative contraindications for CS lead or CRT
device implantation, referred to as ``high risk upgrades,'' which is
covered by its Breakthrough Device designation. Therefore, we are
finalizing our proposal to approve new technology add-on payments for
the WiSE CRT System for FY 2026. We consider the beginning of the
newness period to commence on April 11, 2025, the date on which the
technology received premarket approval for the indication covered by
its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the WiSE CRT System is $63,300. Under Sec.
412.88(a)(2), we limit new technology add-on payments to the lesser of
65 percent of the average cost of the technology, or 65 percent of the
costs in excess of the MS-DRG payment for the case. As a result, we are
finalizing that the maximum new technology add-on payment for a case
involving the use of the WiSE CRT System is $41,145 for FY 2026 (that
is, 65 percent of the average cost of the technology). The applicant
submitted a request and was granted approval for unique ICD-10-PCS
procedure codes for the WiSE CRT System beginning in FY 2026.
Therefore, cases involving the use of the WiSE CRT System that are
eligible for new technology add-on payments will be identified by ICD-
10-PCS procedure code X2HN37B (Insertion of endocardiac pacing
electrode into left ventricle, percutaneous approach, new technology
group 11) in combination with XHH80HB (Insertion of ultrasound
transmitter and battery for endocardiac pacing electrode into chest
subcutaneous tissue and fascia, open approach, new technology group
11).
(18) TriVerity Test
The following table summarizes the information provided in the new
technology add-on payment application for the TriVerity Test.
[[Page 36824]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.213
[[Page 36825]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.214
In the proposed rule, after review of the information provided by
the applicant, we noted the applicant stated that the technology was
not commercially available immediately after FDA clearance. We stated
in the proposed rule that we were interested in additional information
regarding the cause of any delay in the technology's commercial
availability, including the significance of building up TriVerity
cartridge inventory on its availability for routine clinical use.
With regard to the cost criterion, we stated that the applicant
stated the technology is used as an aid to differentiate bacterial
infections, viral infections, and non-infectious illness, as well as
the likelihood of disease progression in adult patients. However, we
noted that the applicant included diagnosis codes related to sepsis of
newborn in the second cost criterion analysis. We questioned whether
diagnosis codes related to newborns were applicable to this technology
because it is indicated for use in adult patients, and whether the
applicant should have removed these diagnosis codes to identify
eligible cases more accurately.
Subject to the applicant adequately addressing this concern, we
agreed that the technology meets the cost criterion and proposed to
approve the TriVerity Test for new technology add-on payments for FY
2026, for use in conjunction with clinical assessments and other
laboratory findings as an aid to differentiate bacterial infections,
viral infections, and non-infectious illness, as well as to determine
the likelihood of 7-day need for mechanical ventilation, vasopressors,
and/or renal replacement therapy in adult patients with suspected acute
infection or suspected sepsis presenting to the emergency department.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the
TriVerity Test to the hospital to be $388 per patient. The applicant
stated that there would be two components for the operating cost of the
technology: the TriVerity Cartridge ($375) and the PAXgene Blood RNA
Tube ($13). We noted that per the applicant, the PAXgene Blood RNA Tube
is an FDA-cleared tube distributed by BD and is a necessary component
for hospitals to use the TriVerity Test. The applicant stated that
hospitals can purchase the PAXgene Blood RNA Tubes directly from BD or
from the applicant. Although the applicant stated that the PAXgene
Blood RNA Tube is a new component of the device, we noted that the
PAXgene Blood RNA Tube is also commercially available for other uses as
a standalone sample collection device, and received FDA marketing
authorization as early as April 18, 2005.\136\ Therefore, we stated
that it appeared that only the cost of the TriVerity Cartridge was
appropriate for consideration for new technology add-on payment. We
noted that the cost information for this technology may be updated in
the final rule based on revised or additional information CMS receives
prior to the final rule. Under Sec. 412.88(a)(2), we limit new
technology add-on payments to the lesser of 65 percent of the average
cost of the technology, or 65 percent of the costs in excess of the MS-
DRG payment for the case. As a result, we proposed that the maximum new
technology add-on payment for a case involving the use of the TriVerity
Test would be $243.75 for FY 2026 (that is, 65 percent of the average
cost of the technology).
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\136\ https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/denovo.cfm?id=DEN050003.
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We invited public comments on whether the TriVerity Test meets the
cost criterion and our proposal to approve new technology add-on
payments for the TriVerity Test for FY 2026.
Comment: A few commenters, including the applicant, expressed
support for our proposal to approve new technology add-on payment for
the TriVerity Test for FY 2026.
In response to CMS's request for additional information regarding
the delay in the technology's market availability, the applicant stated
that the TriVerity Test was cleared by FDA on January 10, 2025, and
commercial product inventory became available for hospital customers on
March 13, 2025. The applicant stated that Inflammatix manufactures
TriVerity cartridges at their headquarters in Sunnyvale, CA and has
both an active cartridge production line and storage facilities of
TriVerity cartridge inventory. The applicant stated that it affirms it
has built up cartridge inventory to meet hospital customer demand for
routine use of the TriVerity test.
In response to CMS's question about including diagnosis codes
related to sepsis of newborn in the second cost criterion analysis, the
applicant stated that while these codes were included in the algorithm
to select cases for the analysis, it did not actually identify any
cases with the newborn sepsis ICD-10-CM diagnosis codes. Per the
applicant, removal of those codes from the case selection algorithm
does not affect the results of the cost criterion analysis and the
final inflated case weighted
[[Page 36826]]
standardized charge per case of $81,393 exceeded the case weighted
threshold of $73,258 by $8,135. The applicant reiterated that the other
cost criterion analysis scenario had a final inflated case weighted
standardized charge per case of $70,025, which exceeded the case
weighted threshold of $67,984 by $2,041 and that the TriVerity Test
meets the cost criterion under both scenarios.
The applicant also agreed with CMS's statement that only the cost
of the TriVerity Cartridge should be included in the new technology
add-on payment calculation.
Response: We thank the applicant and other commenters for their
comments. We agree that the final inflated average case-weighted
standardized charge per case exceeded the average case-weighted
threshold amount. Therefore, the TriVerity Test meets the cost
criterion.
We stated in the proposed rule that we were interested in
additional information regarding the cause of any delay in the
technology's commercial availability, including the significance of
building up TriVerity cartridge inventory on its availability for
routine clinical use. Although the applicant affirmed that it has built
up cartridge inventory to meet demand for routine use of the TriVerity
Test, we note that we did not receive any information regarding the
cause of any delay in the technology's commercial availability.
Therefore, at this time, there is not sufficient information to
determine a newness date based on a documented delay in the
technology's availability on the U.S. market. Absent additional
information, we consider the beginning of the newness period to
commence on January 10, 2025, the date of FDA marketing authorization
for the indication covered by its Breakthrough Device designation.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the TriVerity Test meets the cost
criterion. The technology received FDA marketing authorization on
January 10, 2025, with an indication for use in conjunction with
clinical assessments and other laboratory findings as an aid to
differentiate bacterial infections, viral infections, and non-
infectious illness, as well as to determine the likelihood of 7-day
need for mechanical ventilation, vasopressors, and/or renal replacement
therapy in adult patients with suspected acute infection or suspected
sepsis presenting to the emergency department. Therefore, we are
finalizing our proposal to approve new technology add-on payments for
the TriVerity Test for FY 2026. We consider the beginning of the
newness period to commence on January 10, 2025, the date of FDA
marketing authorization for the indication covered by its Breakthrough
Device designation.
Based on the information available at the time of this final rule,
the cost per case of the TriVerity Test for the TriVerity Cartridge
component is $375. Under Sec. 412.88(a)(2), we limit new technology
add-on payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we are finalizing that the maximum new
technology add-on payment for a case involving the use of the TriVerity
Test is $243.75 for FY 2026 (that is, 65 percent of the average cost of
the technology). Cases involving the use of the TriVerity Test that are
eligible for new technology add-on payments will be identified by ICD-
10-PCS procedure code XXE5XBB (Measurement of infection and immune
response, gene expression testing system, new technology group 11).
(19) VITEK[supreg] REVEALTM AST System
The following table summarizes the information provided in the new
technology add-on payment application for the VITEK[supreg]
REVEALTM AST System.
BILLING CODE 4120-01-P
[[Page 36827]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.215
[[Page 36828]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.216
BILLING CODE 4120-01-C
In the proposed rule, we noted that after review of the information
provided by the applicant, since the indication for which the applicant
received 510(k) clearance is included within the scope of the
Breakthrough Device designation indication, it appears that the FDA-
cleared indication is appropriate for consideration for new technology
add-on payment under the alternative pathway criteria.\137\
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\137\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program.
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We noted the applicant stated the device was not commercially
available until October 21, 2024, due to lead times in the supply chain
and implementation of system modifications due to FDA requirements. We
stated that we were interested in additional information regarding the
cause for any delay in the technology's commercial availability, as it
received FDA clearance on June 20, 2024, and it was not clear how lead
times in the supply chain affected its availability on the market and
what system modifications were required.
We agreed with the applicant that the VITEK[supreg]
REVEALTM AST System meets the cost criterion and therefore
proposed to approve the VITEK[supreg] REVEALTM AST System
for new technology add-on payments for FY 2026, indicated for
susceptibility testing direct from positive blood culture samples
signaled positive by a continuous monitoring blood culture system and
confirmed to contain gram-negative bacilli by Gram stain.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of the
VITEK[supreg] REVEALTM AST System to the hospital to be $125
per patient for the VITEK[supreg] REVEALTM Sensor Array. Per
the applicant, while there are additional capital costs for the
technology, these costs were not included in the device's cost to the
hospital per patient per inpatient stay. We noted that the cost
information for this technology may be updated in the final rule based
on revised or additional information CMS receives prior to the final
rule. Under Sec. 412.88(a)(2), we limit new technology add-on payments
to the lesser of 65 percent of the average cost of the technology, or
65 percent of the costs in excess of the MS-DRG payment for the case.
As a result, we proposed that the maximum new technology add-on payment
for a case involving the use of the VITEK[supreg] REVEALTM
AST System would be $81.25 for FY 2026 (that is, 65 percent of the
average cost of the technology).
We invited public comments on whether the VITEK[supreg]
REVEALTM AST System meets the cost criterion and our
proposal to approve new technology add-on payments for the
VITEK[supreg] REVEALTM AST System for FY 2026.
Comment: A few commenters, including the applicant, submitted
public comments expressing support for our proposal to approve new
technology add-on payment for the VITEK[supreg] REVEALTM AST
System for FY 2026. The applicant also stated that the technology meets
the newness criterion for FY 2026, does not have to demonstrate
substantial clinical improvement in order to qualify for new technology
add-on payments, reiterated that it met the cost criterion, and agreed
[[Page 36829]]
with the proposed maximum new technology add-on payment of $81.25.
In response to CMS's request for additional information regarding
the delay in the technology's market availability, the applicant stated
the VITEK[supreg] REVEALTM received FDA clearance in June
2024, but the technology was not commercially available until October
21, 2024. Per the applicant, the basis for the delay was due to the
implementation of a software requirement from FDA that could not be
validated until a validation panel was available. The applicant stated
that an external entity was not able to provide the aforementioned
panel until September 2024, and that validation was initiated upon
receipt of the panel and completed in October. Per the applicant, it
had to delay commercial availability until this step was completed.
Response: We thank the commenters for their comments.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe the VITEK[supreg] REVEALTM
AST System meets the cost criterion. The technology received 510(k)
clearance on June 20, 2024, with an indication for susceptibility
testing direct from positive blood culture samples signaled positive by
a continuous monitoring blood culture system and confirmed to contain
gram-negative bacilli by Gram stain, which is covered by its
Breakthrough Device designation. Therefore, we are finalizing our
proposal to approve new technology add-on payments for the
VITEK[supreg] REVEALTM AST System for FY 2026. We consider
the beginning of the newness period to commence on October 21, 2024,
the date on which the technology became commercially available for the
indication covered by its Breakthrough Device designation.
Based on the information available at the time of this final rule,
the cost per case of the VITEK[supreg] REVEALTM AST System
is $125. Under Sec. 412.88(a)(2), we limit new technology add-on
payments to the lesser of 65 percent of the average cost of the
technology, or 65 percent of the costs in excess of the MS-DRG payment
for the case. As a result, we are finalizing that the maximum new
technology add-on payment for a case involving the use of the
VITEK[supreg] REVEALTM AST System is $81.25 for FY 2026
(that is, 65 percent of the average cost of the technology). Cases
involving the use of the VITEK[supreg] REVEALTM AST System
that are eligible for new technology add-on payments will be identified
by ICD-10-PCS procedure code XXE5X4A (Measurement of infection,
positive blood culture small molecule sensor array technology, new
technology group 10).
b. Alternative Pathways for Qualified Infectious Disease Products
(QIDPs)
(1) EMBLAVEOTM (aztreonam-avibactam)
The following table summarizes the information provided in the new
technology add-on payment application for EMBLAVEOTM (also
referred to as ATM-AVI).
[[Page 36830]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.217
[GRAPHIC] [TIFF OMITTED] TR04AU25.218
In the proposed rule, we noted that after review of the information
provided by the applicant, since the indication for which the applicant
received NDA approval is included within the scope of the QIDP
designation indication, it appears that the FDA-approved indication is
appropriate for consideration for new technology add-on payment under
the alternative pathway criteria.
We noted that the applicant stated that the technology is expected
to be commercially available by Q3 of CY 2025 due to product
availability. We stated we were interested in additional information
regarding the cause for any delay in the technology's market
availability as the technology received FDA approval on February 7,
2025.
We agreed with the applicant that EMBLAVEOTM meets the
cost criterion and therefore proposed to approve EMBLAVEOTM
for new technology add-on payments for FY 2026 for use in patients 18
years and older who have limited or no alternative options for the
treatment of cIAI.
The applicant had not provided an estimate for the cost of
EMBLAVEOTM at the time of the proposed rule. We stated that
we expected the applicant to submit cost information prior to the final
rule, and that we would provide an update regarding the new technology
add-on payment amount for the technology, if approved, in the final
rule. We stated that any new technology add-on payment for
EMBLAVEOTM would be subject to our policy under Sec.
412.88(a)(2)(ii)(B) where we limit new technology add-on payment for
QIDPs to the lesser of 75 percent of the average cost of the
technology, or 75 percent of the costs in excess of the MS-DRG payment
for the case.
We invited public comments on whether EMBLAVEOTM meets
the cost criterion and our proposal to approve new technology add-on
payments for EMBLAVEOTM for FY 2026.
[[Page 36831]]
Comment: A few commenters, including the applicant submitted public
comments expressing support for our proposal to approve new technology
add-on payment for EMBLAVEOTM for FY 2026, with the
applicant further reiterating that the product meets the cost
criterion.
In response to CMS's request regarding the cause for delay in the
technology's market availability, the applicant stated that it expected
that EMBLAVEOTM would be commercially available for use and
purchase in the United States by quarter 3 (Q3) of calendar year (CY)
2025 due to delays related to first run manufacturing for the product
and packaging and other processes such as securing an export license to
ship the drug to the U.S., followed by customs clearance. The applicant
stated that the product will not be commercially available in the U.S.
until after these processes are complete and that it would notify CMS
of the date when EMBLAVEOTM is first available in the U.S.
The applicant requested that the newness period for the product begin
on that date.
The applicant also provided the cost for EMBLAVEOTM at
$327 per vial as of June 9, 2025. The applicant stated that the
anticipated cost of EMBLAVEOTM in the hospital setting is
$12,000.90, which was calculated using data from the clinical trials
and accounted for the loading dose, patients' estimated creatinine
clearance, and treatment duration. The applicant requested that CMS set
the maximum new technology add-on payment for cases involving the use
of EMBLAVEOTM at $9,000.68 for FY 2026 (that is, 75 percent
of the average cost of the technology), because EMBLAVEOTM
is a designated QIDP.
Response: We thank the commenters for their support and additional
information.
As we have discussed in prior rulemaking (86 FR 45132; 77 FR
53348), generally, our policy is to begin the newness period on the
date of FDA approval or clearance or, if later, the date of
availability of the product on the U.S. market. The applicant states
that EMBLAVEOTM is expected to be commercially available by
Q3 of CY 2025 due to product availability, but it is unclear whether
the technology would be available for sale prior to that date. At this
time, there is not sufficient information to determine a newness date
based on a documented delay in the technology's availability on the
U.S. market. Absent additional information, we therefore consider the
newness date for this technology to be February 7, 2025.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe EMBLAVEOTM meets the cost
criterion. The technology received NDA approval on February 7, 2025,
with an indication for use in patients 18 years and older who have
limited or no alternative options for the treatment of cIAI, which is
covered by its QIDP designation. Therefore, we are finalizing our
proposal to approve new technology add-on payments for
EMBLAVEOTM for FY 2026. Absent additional information from
the applicant, we consider the beginning of the newness period to
commence on February 7, 2025, the date of FDA marketing authorization
for the indication covered by its QIDP designation.
Based on the information available at the time of this final rule,
the cost per case of EMBLAVEOTM is $12,000.90. Under Sec.
412.88(a)(2), we limit new technology add-on payments for QIDPs to the
lesser of 75 percent of the average cost of the technology, or 75
percent of the costs in excess of the MS-DRG payment for the case. As a
result, we are finalizing that the maximum new technology add-on
payment for a case involving the use of EMBLAVEOTM is
$9,000.68 for FY 2026 (that is, 75 percent of the average cost of the
technology).
The applicant submitted a request and was granted approval for
unique ICD-10-PCS procedure codes for EMBLAVEOTM beginning
in FY 2026. Therefore, cases involving the use of EMBLAVEOTM
that are eligible for new technology add-on payments will be identified
by ICD-10-PCS procedure codes XW033PB (Introduction of aztreonam-
avibactam anti-infective into peripheral vein, percutaneous approach,
new technology group 11) or XW043PB (Introduction of aztreonam-
avibactam anti-infective into central vein, percutaneous approach, new
technology group 11).
(2) CONTEPOTM (fosfomycin)
The following table summarizes the information provided in the new
technology add-on payment application for CONTEPOTM
(fosfomycin). We note that Nabriva Therapeutics submitted an
application for CONTEPOTM for FY 2021 and FY 2022, as
summarized in the FY 2021 and FY 2022 IPPS/LTCH PPS proposed rules (85
FR 32682 through 32683; 86 FR 25390 through 25392), and received
conditional approval subject to the technology receiving FDA marketing
authorization before July 1 of the particular fiscal year for which the
applicant applied for new technology add-on payments (85 FR 58723
through 58725; 86 FR 45154 through 45155). CONTEPOTM did not
receive FDA marketing authorization by the applicable July 1 deadlines,
and was therefore not eligible for new technology add-on payments for
FY 2021 or FY 2022 (86 FR 44972; 87 FR 48909).
Per the applicant, Meitheal Pharmaceuticals Inc. has acquired the
rights to CONTEPOTM in the U.S. and is submitting the new
technology add-on payment application for FY 2026.
BILLING CODE 4120-01-P
[[Page 36832]]
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[[Page 36833]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.220
BILLING CODE 4120-01-C
In the proposed rule, after review of the information provided by
the applicant, we noted that the applicant stated that the technology
is expected to be commercially available within 3 months of FDA
approval, and we stated that we would appreciate more information on
the reasons for any delay in the commercial availability of
CONTEPOTM following FDA approval.
We agreed with the applicant that CONTEPOTM meets the
cost criterion and therefore proposed to approve CONTEPOTM
for new technology add-on payments for FY 2026, subject to the
technology receiving FDA marketing authorization for the indication
corresponding to the QIDP designation by July 1, 2025. We stated that
as an application submitted under the alternative pathway for certain
antimicrobial products at Sec. 412.87(d), CONTEPOTM is
eligible for conditional approval for new technology add-on payments if
it does not receive FDA marketing authorization by July 1, 2025,
provided that the technology receives FDA marketing authorization
before July 1 of the fiscal year for which the applicant applied for
new technology add-on payments (that is, July 1, 2026), as provided in
Sec. 412.87(f)(3). We stated that if CONTEPOTM receives FDA
marketing authorization before July 1, 2026, the new technology add-on
payment for cases involving the use of this technology would be made
effective for discharges beginning in the first quarter after FDA
marketing authorization is granted. If FDA marketing authorization is
received on or after July 1, 2026, no new technology add-on payments
would be made for cases involving the use of CONTEPOTM for
FY 2026.
Based on preliminary information from the applicant at the time of
the proposed rule, the applicant anticipated the total cost of
CONTEPOTM to the hospital to be $11,700 per patient. The
applicant estimated that each vial costs $325 and that 3 doses are
needed each day for an average treatment duration of 12 days. We noted
that the cost information for this technology may be updated in the
final rule based on revised or additional information CMS receives
prior to the final rule. Under Sec. 412.88(a)(2)(ii)(B), we limit new
technology add-on payment for technologies designated as QIDPs to the
lesser of 75 percent of the average cost of the technology, or 75
percent of the costs in excess of the MS-DRG payment for the case. As a
result, we proposed that the maximum new technology add-on payment for
a case involving the use of CONTEPOTM would be $8,775 for FY
2026 (that is, 75 percent of the average cost of the technology).
We invited public comments on whether CONTEPOTM meets
the cost criterion and our proposal to approve new technology add-on
payments for CONTEPOTM for FY 2026, subject to the
technology receiving FDA marketing authorization consistent with its
QIDP designation by July 1, 2025.
Comment: We received comments expressing support for technologies
under consideration for new technology add-on payments for FY 2026.
The applicant submitted a public comment in response to CMS's
request for additional information regarding the expected delay in the
commercial availability of CONTEPOTM following FDA approval.
The applicant stated that once CONTEPOTM receives marketing
authorization from FDA, the final label needs to be implemented and
printed, and product packaging needs to be finalized and produced. The
applicant stated that logistics in the supply chain and proper loading
of product information in the supply chain systems would altogether
take an anticipated three months from approval. The applicant stated
that this was the basis of its assessment of product availability 3
months after FDA approval.
Response: We thank the commenters for their comments. As we have
discussed in prior rulemaking (86 FR 45132; 77 FR 53348), generally,
our policy is to begin the newness period on the date of FDA approval
or clearance or, if later, the date of availability of the product on
the U.S. market. The applicant states that it anticipates three months
from FDA approval for commercial availability, but it is unclear when
the technology would be available for sale. At this time, there is not
sufficient information to determine a newness date based on a
documented delay in the technology's availability on the U.S. market.
Based on the information provided in the application for new
technology add-on payments, and after consideration of the public
comments we received, we believe CONTEPOTM meets the cost
criterion. Therefore, we are granting a conditional approval for
CONTEPOTM for new technology add-on payments for FY 2026,
subject to the technology receiving FDA marketing authorization before
July 1, 2026 (that is, before July 1 of the fiscal year for which the
applicant applied for new technology add-on payments (2026)). In the
proposed rule we stated that as an application submitted under the
alternative pathway for certain antimicrobial products at Sec.
412.87(d), CONTEPOTM is eligible for conditional approval
for new technology add-on payments if it does not receive FDA marketing
authorization by July 1, 2025, provided that the technology receives
FDA marketing authorization before July 1 of the fiscal year for which
the applicant applied for new technology add-on payments (that is, July
1, 2026), as provided in Sec. 412.87(f)(3) (90 FR 18217). If
CONTEPOTM receives FDA marketing authorization before July
1, 2026, the new technology add-on payment for cases involving the use
of this technology would be made effective for discharges beginning in
the first quarter after FDA marketing authorization is granted. If FDA
marketing authorization is received on or after July 1, 2026, no new
technology add-on payments will be made for cases involving the use of
CONTEPOTM for FY 2026.
Based on the information available at the time of this final rule,
the cost per case of CONTEPOTM is $11,700. Under Sec.
412.88(a)(2), we limit new technology add-on payments for QIDPs to the
lesser
[[Page 36834]]
of 75 percent of the average cost of the technology, or 75 percent of
the costs in excess of the MS-DRG payment for the case. As a result, we
are finalizing that, subject to CONTEPOTM receiving FDA
marketing authorization before July 1, 2026, the maximum new technology
add-on payment for a case involving the use of CONTEPOTM is
$8,775 for FY 2026 (that is, 75 percent of the average cost of the
technology). Cases involving the use of CONTEPOTM that are
eligible for new technology add-on payments will be identified by ICD-
10-PCS procedure codes XW033WB (Introduction of fosfomycin anti-
infective into peripheral vein, percutaneous approach, new technology
group 11) or XW043WB (Introduction of fosfomycin anti-infective into
central vein, percutaneous approach, new technology group 11).
7. Other Comments
We received several public comments requesting changes to the new
technology add-on payment policies such as, but not limited to:
modifying or removing the requirement for a complete and active FDA
marketing authorization request, changing the deadline for an applicant
for new technology add-on payments to receive FDA marketing
authorization, and establishing a more frequent (such as quarterly or
biannual) process to apply for new technology add-on payment. We also
received comments on technologies that were not under consideration for
new technology add-on payments for FY 2026. These comments were outside
the scope of the proposals included in the FY 2026 IPPS/LTCH PPS
proposed rule and we are therefore not addressing them in this final
rule.
III. Changes to the Hospital Wage Index for Acute Care Hospitals
A. Background
1. Legislative Authority
Section 1886(d)(3)(E) of the Act requires that, as part of the
methodology for determining prospective payments to hospitals, the
Secretary adjust the standardized amounts for area differences in
hospital wage levels by a factor (established by the Secretary)
reflecting the relative hospital wage level in the geographic area of
the hospital compared to the national average hospital wage level. We
currently define hospital labor market areas based on the delineations
of statistical areas established by the Office of Management and Budget
(OMB). A discussion of the FY 2026 hospital wage index based on the
statistical areas appears under section III.B. of the preamble of this
final rule.
Section 1886(d)(3)(E) of the Act requires the Secretary to update
the wage index annually and to base the update on a survey of wages and
wage-related costs of short-term, acute care hospitals. CMS collects
these data on the Medicare cost report, CMS Form 2552-10, Worksheet S-
3, Parts II, III, IV. The aforementioned information collection
requirements are in Worksheet S-3, Parts II, III, IV. of the
information collection request titled ``Hospitals and Health Care
Complex Cost Report (CMS Form 2552-10)''. The information collection
request is currently approved under OMB control number is 0938-0050 and
has a September 30, 2025, expiration date. We have submitted the
information collection request to OMB for reapproval. Section
1886(d)(3)(E) of the Act also requires that any updates or adjustments
to the wage index be made in a manner that ensures that aggregate
payments to hospitals are not affected by the change in the wage index.
The adjustment for FY 2026 is discussed in section II.B. of the
Addendum to this final rule.
As discussed in section III.I. of the preamble of this final rule,
we also take into account the geographic reclassification of hospitals
in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of the Act
when calculating IPPS payment amounts. Under section 1886(d)(8)(D) of
the Act, the Secretary is required to adjust the standardized amounts
so as to ensure that aggregate payments under the IPPS after
implementation of the provisions of sections 1886(d)(8)(B),
1886(d)(8)(C), and 1886(d)(10) of the Act are equal to the aggregate
prospective payments that would have been made absent these provisions.
The budget neutrality adjustment for FY 2026 is discussed in section
II.A.4.b. of the Addendum to this final rule.
Section 1886(d)(3)(E) of the Act also provides for the collection
of data every 3 years on the occupational mix of employees for short-
term, acute care hospitals participating in the Medicare program to
construct an occupational mix adjustment to the wage index. The
information collection request is currently approved under OMB control
number is 0938-0907 and has a January 31, 2026, expiration date. We
plan to submit the information collection request to OMB for reapproval
in the near future. A discussion of the occupational mix adjustment
that we are applying to the FY 2026 wage index appears under section
III.E. of the preamble of this final rule.
2. Core-Based Statistical Areas (CBSAs) for the FY 2026 Hospital Wage
Index
The wage index is calculated and assigned to hospitals on the basis
of the labor market area in which the hospital is located. Under
section 1886(d)(3)(E) of the Act, beginning with FY 2005 (69 FR 49026
through 49032), we delineate hospital labor market areas based on OMB-
established Core-Based Statistical Areas (CBSAs). In the July 16, 2021,
Federal Register (86 FR 37777), OMB finalized a schedule for future
updates based on results of the decennial Census updates to commuting
patterns from the American Community Survey (ACS). In accordance with
that schedule, on July 21, 2023, OMB released Bulletin No. 23-01. The
current statistical areas (which were implemented beginning with FY
2025) are based on revised OMB delineations issued on July 21, 2023, in
OMB Bulletin No. 23-01. According to OMB, the delineations reflect the
2020 Standards for Delineating Core Based Statistical Areas (``the 2020
Standards''), which appeared in the Federal Register on July 16, 2021
(86 FR 37770 through 37778), and the application of those standards to
Census Bureau population and journey-to-work data (that is, 2020
Decennial Census, the ACS, and Census Population Estimates Program
data) (we refer to these revised OMB delineations as the ``new OMB
delineations'' in this final rule). A copy of OMB Bulletin No. 23-01
may be obtained at https://bidenwhitehouse.archives.gov/wp-content/uploads/2023/07/OMB-Bulletin-23-01.pdf. We refer readers to the FY 2025
IPPS/LTCH PPS final rule (89 FR 69253 through 69266) for a full
discussion of our implementation of the new OMB delineations for the FY
2025 wage index. For FY 2026, we are continuing to use the new OMB
delineations that we adopted beginning with FY 2025 to calculate the
area wage indexes and the transition periods.
3. Codes for Constituent Counties in CBSAs
CBSAs are made up of one or more constituent counties. Each CBSA
and constituent county has its own unique identifying codes. The
Federal Information Processing Standard (FIPS) county codes are
maintained by the U.S. Census Bureau. In the FY 2018 IPPS/LTCH PPS
final rule (82 FR 38129 through 38130), we adopted a policy to use the
FIPS county codes for purposes of crosswalking counties to CBSAs. In
addition, in the same rule, we implemented the latest FIPS code
updates, which were effective October 1, 2017, beginning with the FY
2018
[[Page 36835]]
wage indexes. These updates have been used to calculate the wage
indexes in a manner generally consistent with the CBSA-based
methodologies finalized in the FY 2005 IPPS final rule and the FY 2015
IPPS/LTCH PPS final rule. We refer the reader to the FY 2018 IPPS/LTCH
PPS final rule (82 FR 38129 through 38130) for a complete discussion of
our adoption of FIPS county codes. For FY 2026, we are continuing to
use only the FIPS county codes for purposes of crosswalking counties to
CBSAs. For FY 2026, Tables 2 and 3 associated with this final rule and
the County to CBSA Crosswalk File and Urban CBSAs and Constituent
Counties for Acute Care Hospitals File posted on the CMS website
reflect the latest FIPS county code updates.
B. Worksheet S-3 Wage Data for the FY 2026 Wage Index
1. Cost Reporting Periods Beginning in FY 2022 for FY 2026 Wage Index
The FY 2026 wage index values are based on the data collected from
the Medicare cost reports submitted by hospitals for cost reporting
periods beginning in FY 2022 (the FY 2025 wage indexes were based on
data from cost reporting periods beginning during FY 2021).
The FY 2026 wage index includes all of the following categories of
data associated with costs paid under the IPPS (as well as outpatient
costs):
Salaries and hours from short-term, acute care hospitals
(including paid lunch hours and hours associated with military leave
and jury duty).
Home office costs and hours.
Certain contract labor costs and hours including direct
patient care (which includes nursing), certain top management,
pharmacy, laboratory, and nonteaching physician Part A services, and
certain contract indirect patient care services (as discussed in the FY
2008 final rule with comment period (72 FR 47315 through 47317)).
Wage-related costs, including pension costs (based on
policies adopted in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51586
through 51590) and modified in the FY 2016 IPPS/LTCH PPS final rule (80
FR 49505 through 49508)) and other deferred compensation costs.
Consistent with the wage index methodology for FY 2025, the wage
index for FY 2026 excludes the direct and overhead salaries and hours
for services not subject to IPPS payment, such as skilled nursing
facility (SNF) services, home health services, costs related to
Graduate Medical Education (GME) (teaching physicians and residents)
and certified registered nurse anesthetists (CRNAs), and other
subprovider components that are not paid under the IPPS. The FY 2026
wage index also excludes the salaries, hours, and wage-related costs of
hospital-based rural health clinics (RHCs), and federally qualified
health centers (FQHCs), because Medicare pays for these costs outside
of the IPPS (68 FR 45395). In addition, as explained in the FY 2004
IPPS final rule (68 FR 45397 through 45398), salaries, hours, and wage-
related costs of critical access hospitals (CAHs) are excluded from the
wage index as we believe that removing CAHs from the wage index is
prudent policy, given the substantial negative impact these hospitals
have on the wage indexes in the areas where they are located and the
minimal impact they have on the wage indexes of other areas. We refer
the reader to the FY 2004 IPPS final rule (68 FR 45397 through 45398)
for a complete discussion regarding the exclusion of CAHs from the wage
index. Similar to our treatment of CAHs, as discussed later in this
section, we exclude rural emergency hospitals (REHs) from the wage
index.
For FY 2020 and subsequent years, other wage-related costs are also
excluded from the calculation of the wage index. As discussed in the FY
2019 IPPS/LTCH final rule (83 FR 41365 through 41369), other wage-
related costs reported on Worksheet S-3, Part II, Line 18 and Worksheet
S-3, Part IV, Line 25 and subscripts, as well as all other wage-related
costs, such as contract labor costs, are excluded from the calculation
of the wage index.
2. Use of Wage Index Data by Suppliers and Providers Other Than Acute
Care Hospitals Under the IPPS
Data collected for the IPPS wage index also are currently used to
calculate wage indexes applicable to suppliers and other providers,
such as SNFs, home health agencies (HHAs), ambulatory surgical centers
(ASCs), and hospices. In addition, they are used for prospective
payments to IRFs, IPFs, and LTCHs, and for hospital outpatient
services. We note, in the calendar year (CY) 2025 ESRD PPS final rule
(89 FR 89097 through 89116), CMS finalized a new ESRD PPS-specific wage
index that will be used to adjust ESRD PPS payments for geographic
differences in area wages. We refer the reader to the CY 2025 ESRD PPS
final rule for complete details regarding ESRD wage index. We further
note that, in the IPPS rules, we do not address comments pertaining to
the wage indexes of any supplier or provider except IPPS providers and
LTCHs. Such comments should be made in response to separate proposed
rules for those suppliers and providers.
3. Verification of Worksheet S-3 Wage Data
The wage data for the FY 2026 wage index were obtained from
Worksheet S-3, Parts II, III, and IV of the Medicare cost report, CMS
Form 2552-10 (OMB Control Number 0938-0050 with an expiration date
September 30, 2025) for cost reporting periods beginning on or after
October 1, 2021, and before October 1, 2022. For wage index purposes,
we refer to cost reports beginning on or after October 1, 2021, and
before October 1, 2022, as the ``FY 2022 cost report,'' the ``FY 2022
wage data,'' or the ``FY 2022 data.'' Instructions for completing the
wage index sections of Worksheet S-3 are included in the Provider
Reimbursement Manual (PRM), Part 2 (Pub. 15-2), Chapter 40, Sections
4005.2 through 4005.4. The data file used to construct the FY 2026 wage
index includes FY 2022 data submitted to us as of January 31, 2025. As
in past years, we performed an extensive review of the wage data,
mostly through the use of edits designed to identify aberrant data.
We note, in previous fiscal years, we reviewed and evaluated the
audited wage data, and the impacts of the COVID-19 PHE on such data.
For FY 2026, we have not identified any significant issues with the FY
2022 wage data itself in terms of our audits of this data. As usual,
the data was audited by the Medicare Administrative Contractors (MACs),
and there were no significant issues reported across the data for all
hospitals.
We requested that our MACs revise or verify data elements that
resulted in specific edit failures. For the proposed FY 2026 wage
index, we identified and excluded 79 providers with aberrant data that
should not be included in the wage index. However, we stated that if
data elements for some of these providers are corrected, we intend to
include data from those providers in the final FY 2026 wage index. We
also adjusted certain aberrant data and included these data in the wage
index. For example, in situations where a hospital did not have
documentable salaries, wages, and hours for housekeeping and dietary
services, we imputed estimates, in accordance with policies established
in the FY 2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967). We
instructed MACs to complete their verification of questionable data
elements and to transmit any changes to the wage data no later than
March 21, 2025. After we
[[Page 36836]]
issued the proposed rule, for the final FY 2026 wage index, we restored
the data of 15 hospitals to the wage index, because their data was
either verified or improved and removed the data of 2 hospitals with
aberrant data. Thus, 66 hospitals with aberrant data remain excluded
from the FY 2026 wage index (79-15 + 2 = 66).
In constructing the proposed FY 2026 wage index, we included the
wage data for facilities that were IPPS hospitals in FY 2022, inclusive
of those facilities that have since terminated their participation in
the program as hospitals, as long as those data did not fail any of our
edits for reasonableness. We stated in the proposed rule (90 FR 18219)
that we believe that including the wage data for these hospitals is, in
general, appropriate to reflect the economic conditions in the various
labor market areas during the relevant past period and to ensure that
the current wage index represents the labor market area's current wages
as compared to the national average of wages.
As discussed in the FY 2004 IPPS final rule (68 FR 45397 through
45398) and FY 2025 IPPS/LTCH final rule (89 FR 69268), any hospital
that is designated as a CAH or REH by 7 days prior to the publication
of the preliminary wage index public use file (PUF) is excluded from
the calculation of the wage index.
For the proposed FY 2026 wage index, we removed 7 hospitals that
converted to CAH status and 5 hospitals that converted to REH status on
or after January 24, 2024, the cut-off date for CAH and REH exclusion
from the FY 2025 wage index, and through and including January 24,
2025, the cut-off date for CAH and REH exclusion from the FY 2026 wage
index. We did not receive any comments with regard to this proposal,
and we are finalizing as proposed to exclude hospitals that have
subsequently converted to CAH and/or REH from the wage index
calculation. Since we issued the proposed rule, we learned of 6 more
hospitals that converted to CAH and/or REH status on or after January
24, 2024, and through and including January 24, 2025. We removed these
additional hospitals from the FY 2026 wage index due to their
conversion to CAH and/or REH status. In summary, we calculated the FY
2026 wage index using the Worksheet S-3, Parts II and III wage data of
3,036 hospitals.
For the FY 2026 wage index, we allotted the wages and hours data
for a multicampus hospital among the different labor market areas where
its campuses are located using campus full-time equivalent (FTE)
percentages as originally finalized in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51591). Table 2, which contains the FY 2026 wage index
associated with this final rule (available via the internet on the CMS
website), includes separate wage data for the campuses of 29
multicampus hospitals. The following chart lists the multicampus
hospitals by CMS certification number (CCN) and the FTE percentages on
which the wages and hours of each campus were allotted to their
respective labor market areas:
[[Page 36837]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.221
We note that, in past years, in Table 2, we have placed a ``B'' to
designate the subordinate campus in the fourth position of the hospital
CCN. However, for the FY 2019 IPPS/LTCH PPS proposed and final rules
and subsequent rules, we have moved the ``B'' to the third position of
the CCN. Because all IPPS hospitals have a ``0'' in the third position
of the CCN, we believe that placement of the ``B'' in this third
position, instead of the ``0'' for the subordinate campus, is the most
efficient method of identification and interferes the least with the
other variable digits in the CCN. We also note that provider 340115 has
an additional second sub campus located in a different CBSA then the
main campus and its other sub campus. Therefore, in order to uniquely
identify this second sub campus, we have placed a ``C'' in the third
position of the CCN.
4. Process for Requests for Wage Index Data Corrections
a. Process for Hospitals To Request Wage Index Data Corrections
The preliminary, unaudited Worksheet S-3 wage data files for the
proposed FY 2026 wage index were made available on May 23, 2024,
through the internet on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2026-wage-index-home-page. The FY 2026 preliminary
Worksheet S-3 wage data file inadvertently contained cost report data
with a begin date before 10/01/2021 and cost report data with a begin
date after 10/01/2022. We removed these cost reports and added cost
reports that were inadvertently omitted from the file originally posted
on May 23. Therefore, on June 20, 2024, we posted an updated FY 2026
preliminary Worksheet S-3 wage data file.
On January 31, 2025, we posted a public use file (PUF) at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2026-wage-index-home-page containing
FY 2026 wage index data available as of January 31, 2025. This PUF
contains a tab with the Worksheet S-3 wage data (which includes
Worksheet S-3, Parts II and III wage data from cost reporting periods
beginning on or after October 1, 2021, through September 30, 2022; that
is, FY 2022 wage data), a tab with the occupational mix data (which
includes data from the CY 2022 occupational mix survey, Form CMS-
10079), a tab containing the Worksheet S-3 wage data of hospitals
deleted from the January 31, 2025 wage data PUF, and a tab containing
the CY 2022 occupational mix data of the hospitals deleted from
[[Page 36838]]
the January 31, 2025 occupational mix PUF. In a memorandum dated
January 31, 2025, we instructed all MACs to inform the IPPS hospitals
that they service of the availability of the January 31, 2025, wage
index data PUFs, and the process and timeframe for requesting revisions
in accordance with the FY 2026 Hospital Wage Index Development Time
Table available at https://www.cms.gov/files/document/fy-2026-hospital-wage-index-development-time-table.pdf.
In the interest of meeting the data needs of the public, beginning
with the proposed FY 2009 wage index, we post an additional PUF on the
CMS website that reflects the actual data that are used in computing
the proposed wage index. The release of this file does not alter the
current wage index process or schedule.
In a memorandum dated April 17, 2024, we instructed all MACs to
inform the IPPS hospitals that they service of the availability of the
preliminary wage index data files and the CY 2022 occupational mix
survey data files posted on May 23, 2024, and the process and timeframe
for requesting revisions.
If a hospital wished to request a change to its data as shown in
the May 23, 2024, preliminary wage data files and occupational mix data
files, the hospital had to submit corrections along with complete,
detailed supporting documentation to its MAC so that the MAC received
them by September 3, 2024. Hospitals were notified of these deadlines
and of all other deadlines and requirements, including the requirement
to review and verify their data as posted in the preliminary wage index
data files on the internet, through the letters sent to them by their
MACs.
November 1, 2024, was the date by when MACs notified State hospital
associations regarding hospitals that failed to respond to issues
raised during the desk reviews. Additional revisions made by the MACs
were transmitted to CMS throughout January 2025. CMS published the wage
index PUFs that included hospitals' revised wage index data on January
31, 2025. Hospitals had until February 18, 2025, to submit requests to
the MACs to correct errors in the January 31, 2025, PUF due to CMS or
MAC mishandling of the wage index data, or to revise desk review
adjustments to their wage index data as included in the January 31,
2025, PUF. Hospitals also were required to submit sufficient
documentation to support their requests. Hospitals' requests and
supporting documentation must have been received by the MAC by the
February deadline (that is, by February 18, 2025, for the FY 2026 wage
index).
After reviewing requested changes submitted by hospitals, MACs were
required to transmit to CMS any additional revisions resulting from the
hospitals' reconsideration requests by March 21, 2025. Under our
current policy as adopted in the FY 2018 IPPS/LTCH PPS final rule (82
FR 38153), the deadline for a hospital to request CMS intervention in
cases where a hospital disagreed with a MAC's handling of wage data on
any basis (including a policy, factual, or other dispute) was April 4,
2025. Data that were incorrect in the preliminary or January 31, 2025,
wage index data PUFs, but for which no correction request was received
by the February 18, 2025, deadline, are not considered for correction
at this stage. In addition, April 4, 2025, was the deadline for
hospitals to dispute data corrections made by CMS of which the hospital
was notified after the January 31, 2025, PUF and at least 14 calendar
days prior to April 4, 2025 (that is, March 21, 2025), that do not
arise from a hospital's request for revisions. The hospital's request
and supporting documentation must be received by CMS (and a copy
received by the MAC) by the April deadline (that is, by April 4, 2025,
for the FY 2026 wage index). We refer readers to the FY 2026 Hospital
Wage Index Development Time Table for complete details.
Hospitals were given the opportunity to examine Table 2 associated
with the proposed rule, which is listed in section VI. of the Addendum
to the proposed rule and available via the internet on the CMS website
at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2026-wage-index-home-page.
Table 2 associated with the proposed rule contained each hospital's
proposed adjusted average hourly wage used to construct the wage index
values for the past 3 years, including the proposed FY 2026 wage index,
which was constructed from FY 2022 data. We noted in the proposed rule
that the proposed hospital average hourly wages shown in Table 2 only
reflected changes made to a hospital's data that were transmitted to
CMS by late January 2025.
We posted the final wage index data PUFs on April 30, 2025, on the
CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2026-wage-index-home-page. The April 2025 PUFs are made available solely for the
limited purpose of identifying any potential errors made by CMS or the
MAC in the entry of the final wage index data that resulted from the
correction process (the process for disputing revisions submitted to
CMS by the MACs by March 21, 2025, and the process for disputing data
corrections made by CMS that did not arise from a hospital's request
for wage data revisions as discussed earlier), as previously described.
After the release of the April 2025 wage index data PUFs, changes
to the wage and occupational mix data can only be made in those very
limited situations involving an error by the MAC or CMS that the
hospital could not have known about before its review of the final wage
index data files. Specifically, neither the MAC nor CMS will approve
the following types of requests:
Requests for wage index data corrections that were
submitted too late to be included in the data transmitted to CMS by the
MACs on or before March 21, 2025.
Requests for correction of errors that were not, but could
have been, identified during the hospital's review of the January 31,
2025, wage index PUFs.
Requests to revisit factual determinations or policy
interpretations made by the MAC or CMS during the wage index data
correction process.
If, after reviewing the April 2025 final wage index data PUFs, a
hospital believes that its wage or occupational mix data are incorrect
due to a MAC or CMS error in the entry or tabulation of the final data,
the hospital is given the opportunity to notify both its MAC and CMS
regarding why the hospital believes an error exists and provide all
supporting information, including relevant dates (for example, when it
first became aware of the error). The hospital was required to send its
request to CMS and to the MAC so that it was received no later than May
30, 2025. May 30, 2025, was also the deadline for hospitals to dispute
data corrections made by CMS of which the hospital was notified on or
after 13 calendar days prior to April 4, 2025 (that is, March 22,
2025), and at least 14 calendar days prior to May 30, 2025 (that is,
May 16, 2025), that did not arise from a hospital's request for
revisions. (Data corrections made by CMS of which a hospital is
notified on or after 13 calendar days prior to May 30, 2025 (that is,
May 17, 2025), may be appealed to the Provider Reimbursement Review
Board (PRRB)). In accordance with the FY 2026 Hospital Wage Index
Development Time Table posted on the CMS website at https://www.cms.gov/files/document/fy-2026-hospital-wage-index-development-time-table.pdf, the May appeals were required to be submitted to CMS
[[Page 36839]]
through an online submission process or through email. We refer readers
to the FY 2026 Hospital Wage Index Development Time Table for complete
details.
Verified corrections to the wage index data received timely (that
is, by May 30, 2025) by CMS and the MACs were incorporated into the
final FY 2026 wage index, which will be effective October 1, 2025.
We created the processes previously described to resolve all
substantive wage index data correction disputes before we finalize the
wage and occupational mix data for the FY 2026 payment rates.
Accordingly, hospitals that do not meet the procedural deadlines set
forth earlier will not be afforded a later opportunity to submit wage
index data corrections or to dispute the MAC's decision with respect to
requested changes. Specifically, our policy is that hospitals that do
not meet the procedural deadlines as previously set forth (requiring
requests to MACs by the specified date in February and, where such
requests are unsuccessful, requests for intervention by CMS by the
specified date in April) will not be permitted to challenge later,
before the PRRB, the failure of CMS to make a requested data revision.
We refer readers also to the FY 2000 IPPS final rule (64 FR 41513) for
a discussion of the parameters for appeals to the PRRB for wage index
data corrections. As finalized in the FY 2018 IPPS/LTCH PPS final rule
(82 FR 38154 through 38156), this policy also applies to a hospital
disputing corrections made by CMS that do not arise from a hospital's
request for a wage index data revision. That is, a hospital disputing
an adjustment made by CMS that did not arise from a hospital's request
for a wage index data revision is required to request a correction by
the first applicable deadline. Hospitals that do not meet the
procedural deadlines set forth earlier will not be afforded a later
opportunity to submit wage index data corrections or to dispute CMS'
decision with respect to changes.
Again, we believe the wage index data correction process described
earlier provides hospitals with sufficient opportunity to bring errors
in their wage and occupational mix data to the MAC's attention.
Moreover, because hospitals had access to the final wage index data
PUFs by late April 2025, they have an opportunity to detect any data
entry or tabulation errors made by the MAC or CMS before the
development and publication of the final FY 2026 wage index by August
2025, and the implementation of the FY 2026 wage index on October 1,
2025. Given these processes, the wage index implemented on October 1
should be accurate. Nevertheless, in the event that errors are
identified by hospitals and brought to our attention after May 30,
2025, we retain the right to make midyear changes to the wage index
under very limited circumstances.
Specifically, in accordance with Sec. 412.64(k)(1) of our
regulations, we make midyear corrections to the wage index for an area
only if a hospital can show that: (1) The MAC or CMS made an error in
tabulating its data; and (2) the requesting hospital could not have
known about the error or did not have an opportunity to correct the
error, before the beginning of the fiscal year. For purposes of this
provision, ``before the beginning of the fiscal year'' means by the May
deadline for making corrections to the wage data for the following
fiscal year's wage index (for example, May 30, 2025, for the FY 2026
wage index). This provision is not available to a hospital seeking to
revise another hospital's data that may be affecting the requesting
hospital's wage index for the labor market area. As indicated earlier,
because CMS makes the wage index data available to hospitals on the CMS
website prior to publishing both the proposed and final IPPS rules, and
the MACs notify hospitals directly of any wage index data changes after
completing their desk reviews, we do not expect that midyear
corrections will be necessary. However, under our current policy, if
the correction of a data error changes the wage index value for an
area, the revised wage index value will be effective prospectively from
the date the correction is made.
In the FY 2006 IPPS final rule (70 FR 47385 through 47387 and
47485), we revised Sec. 412.64(k)(2) to specify that, effective on
October 1, 2005, that is, beginning with the FY 2006 wage index, a
change to the wage index can be made retroactive to the beginning of
the Federal fiscal year only when CMS determines all of the following:
(1) The MAC or CMS made an error in tabulating data used for the wage
index calculation; (2) the hospital knew about the error and requested
that the MAC and CMS correct the error using the established process
and within the established schedule for requesting corrections to the
wage index data, before the beginning of the fiscal year for the
applicable IPPS update (that is, by the May 30, 2025, deadline for the
FY 2026 wage index); and (3) CMS agreed before October 1 that the MAC
or CMS made an error in tabulating the hospital's wage index data and
the wage index should be corrected.
In those circumstances where a hospital requested a correction to
its wage index data before CMS calculated the final wage index (that
is, by the May 30, 2025 deadline for the FY 2026 wage index), and CMS
acknowledges that the error in the hospital's wage index data was
caused by CMS' or the MAC's mishandling of the data, we believe that
the hospital should not be penalized by our delay in publishing or
implementing the correction. As with our current policy, we indicated
that the provision is not available to a hospital seeking to revise
another hospital's data. In addition, the provision cannot be used to
correct prior years' wage index data; it can only be used for the
current Federal fiscal year. In situations where our policies would
allow midyear corrections other than those specified in Sec.
412.64(k)(2)(ii), we continue to believe that it is appropriate to make
prospective-only corrections to the wage index.
We note that, as with prospective changes to the wage index, the
final retroactive correction will be made irrespective of whether the
change increases or decreases a hospital's payment rate. In addition,
we note that the policy of retroactive adjustment will still apply in
those instances where a final judicial decision reverses a CMS denial
of a hospital's wage index data revision request.
b. Process for Data Corrections by CMS After the January 31, 2025,
Public Use File (PUF)
The process set forth with the wage index timetable discussed in
section III.C.4. of the preamble of this final rule allows hospitals to
request corrections to their wage index data within prescribed
timeframes. In addition to hospitals' opportunity to request
corrections of wage index data errors or MACs' mishandling of data, CMS
has the authority under section 1886(d)(3)(E) of the Act to make
corrections to hospital wage index and occupational mix data to ensure
the accuracy of the wage index. As we explained in the FY 2016 IPPS/
LTCH PPS final rule (80 FR 49490 through 49491) and the FY 2017 IPPS/
LTCH PPS final rule (81 FR 56914), section 1886(d)(3)(E) of the Act
requires the Secretary to adjust the proportion of hospitals' costs
attributable to wages and wage-related costs for area differences
reflecting the relative hospital wage level in the geographic areas of
the hospital compared to the national average hospital wage level. We
believe that, under section 1886(d)(3)(E) of the Act, we have
discretion to make corrections to hospitals' data to help
[[Page 36840]]
ensure that the costs attributable to wages and wage-related costs in
fact accurately reflect the relative hospital wage level in the
hospitals' geographic areas.
We have an established multistep, 15-month process for the review
and correction of the hospital wage data that is used to create the
IPPS wage index for the upcoming fiscal year. Since the origin of the
IPPS, the wage index has been subject to its own annual review process,
first by the MACs, and then by CMS. As a standard practice, after each
annual desk review, CMS reviews the results of the MACs' desk reviews
and focuses on items flagged during the desk review, requiring that, if
necessary, hospitals provide additional documentation, adjustments, or
corrections to the data. This ongoing communication with hospitals
about their wage data may result in the discovery by CMS of additional
items that were reported incorrectly or other data errors, even after
the posting of the January 31, 2025, PUF, and throughout the remainder
of the wage index development process. In addition, the fact that CMS
analyzes the data from a regional and even national level, unlike the
review performed by the MACs that review a limited subset of hospitals,
can facilitate additional editing of the data the need for which may
not be readily apparent to the MACs. In these occasional instances, an
error may be of sufficient magnitude that the wage index of an entire
CBSA is affected. Accordingly, CMS uses its authority to ensure that
the wage index accurately reflects the relative hospital wage level in
the geographic area of the hospital compared to the national average
hospital wage level, by continuing to make corrections to hospital wage
data upon discovering incorrect wage data, distinct from instances in
which hospitals request data revisions.
We note that CMS corrects errors to hospital wage data as
appropriate, regardless of whether that correction will raise or lower
a hospital's average hourly wage. For example, as discussed in section
III.C. of the preamble of the FY 2019 IPPS/LTCH PPS final rule (83 FR
41364), in situations where a hospital did not have documentable
salaries, wages, and hours for housekeeping and dietary services, we
imputed estimates, in accordance with policies established in the FY
2015 IPPS/LTCH PPS final rule (79 FR 49965 through 49967). Furthermore,
if CMS discovers after conclusion of the desk review, for example, that
a MAC inadvertently failed to incorporate positive adjustments
resulting from a prior year's wage index appeal of a hospital's wage-
related costs such as pension, CMS will correct that data error, and
the hospital's average hourly wage will likely increase as a result.
While we maintain CMS' authority to conduct additional review and
make resulting corrections at any time during the wage index
development process, in accordance with the policy finalized in the FY
2018 IPPS/LTCH PPS final rule (82 FR 38154 through 38156) and as first
implemented with the FY 2019 wage index (83 FR 41389), hospitals are
able to request further review of a correction made by CMS that did not
arise from a hospital's request for a wage index data correction.
Instances where CMS makes a correction to a hospital's data after the
January 31, 2025, PUF based on a different understanding than the
hospital about certain reported costs, for example, could potentially
be resolved using this process before the final wage index is
calculated. We believe this process and the timeline for requesting
review of such corrections (as described earlier and in the FY 2018
IPPS/LTCH PPS final rule) promote additional transparency in instances
where CMS makes data corrections after the January 31, 2025 PUF and
provide opportunities for hospitals to request further review of CMS
changes in time for the most accurate data to be reflected in the final
wage index calculations. These additional appeals opportunities are
described earlier and in the FY 2026 Hospital Wage Index Development
Time Table, as well as in the FY 2018 IPPS/LTCH PPS final rule (82 FR
38154 through 38156).
C. Method for Computing the FY 2026 Unadjusted Wage Index
The method used to compute the FY 2026 wage index without an
occupational mix adjustment follows the same methodology that we used
to compute the wage indexes without an occupational mix adjustment in
the FY 2021 IPPS/LTCH PPS final rule (see 85 FR 58758 through 58761),
and we did not propose any changes to this methodology. We have
restated our methodology in this section the preamble of this final
rule.
Step 1.--We gathered data from each of the non-Federal, short-term,
acute care hospitals for which data were reported on the Worksheet S-3,
Parts II and III of the Medicare cost report for the hospital's cost
reporting period relevant to the wage index (in this case, for FY 2026,
these were data from cost reports for cost reporting periods beginning
on or after October 1, 2021, and before October 1, 2022). In addition,
we included data from hospitals that had cost reporting periods
beginning prior to the October 1, 2021, begin date and extending into
FY 2022 but that did not have any cost report with a begin date on or
after October 1, 2021, and before October 1, 2022. We include this data
because no other data from these hospitals will be available for the
cost reporting period as previously described, and because particular
labor market areas might be affected due to the omission of these
hospitals. However, we generally describe these wage data as data
applicable to the fiscal year wage data being used to compute the wage
index for those hospitals. We note that, if a hospital had more than
one cost reporting period beginning during FY 2022 (for example, a
hospital had two short cost reporting periods beginning on or after
October 1, 2021, and before October 1, 2022), we include wage data from
only one of the cost reporting periods, the longer, in the wage index
calculation. If there was more than one cost reporting period and the
periods were equal in length, we included the wage data from the later
period in the wage index calculation.
Step 2.--Salaries.--The method used to compute a hospital's average
hourly wage excludes certain costs that are not paid under the IPPS.
(We note that, beginning with FY 2008 (72 FR 47315), we included what
were then Lines 22.01, 26.01, and 27.01 of Worksheet S-3, Part II of
CMS Form 2552-96 for overhead services in the wage index. Currently,
these lines are lines 28, 33, and 35 on CMS Form 2552-10. However, we
note that the wages and hours on these lines are not incorporated into
Line 101, Column 1 of Worksheet A, which, through the electronic cost
reporting software, flows directly to Line 1 of Worksheet S-3, Part II.
Therefore, the first step in the wage index calculation is to compute a
``revised'' Line 1, by adding to the Line 1 on Worksheet S-3, Part II
(for wages and hours respectively) the amounts on Lines 28, 33, and
35.) In calculating a hospital's Net Salaries (we note that we
previously used the term ``average'' salaries in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51592), but we now use the term ``net'' salaries)
plus wage-related costs, we first compute the following: Subtract from
Line 1 (total salaries) the GME and CRNA costs reported on CMS Form
2552-10, Lines 2, 4.01, 7, and 7.01, the Part B salaries reported on
Lines 3, 5 and 6, home office salaries reported on Line 8, and exclude
salaries reported on Lines 9 and 10 (that is, direct salaries
attributable to SNF services, home health services, and other
subprovider components not subject to the IPPS). We also subtract
[[Page 36841]]
from Line 1 the salaries for which no hours were reported. Therefore,
the formula for Net Salaries (from Worksheet S-3, Part II) is the
following:
((Line 1 + Line 28 + Line 33 + Line 35)-(Line 2 + Line 3 + Line
4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line
10)).
To determine Total Salaries plus Wage-Related Costs, we add to the
Net Salaries the costs of contract labor for direct patient care,
certain top management, pharmacy, laboratory, and nonteaching physician
Part A services (Lines 11, 12 and 13), home office salaries and wage-
related costs reported by the hospital on Lines 14.01, 14.02, and 15,
and nonexcluded area wage-related costs (Lines 17, 22, 25.50, 25.51,
and 25.52). We note that contract labor and home office salaries for
which no corresponding hours are reported are not included. In
addition, wage-related costs for nonteaching physician Part A employees
(Line 22) are excluded if no corresponding salaries are reported for
those employees on Line 4. The formula for Total Salaries plus Wage-
Related Costs (from Worksheet S-3, Part II) is the following: ((Line 1
+ Line 28 + Line 33 + Line 35)-(Line 2 + Line 3 + Line 4.01 + Line 5 +
Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line 10)) + (Line 11 +
Line 12 + Line 13 + Line 14.01 + 14.02 + Line 15) + (Line 17 + Line 22
+ 25.50 + 25.51 + 25.52).
Step 3.--Hours.--With the exception of wage-related costs, for
which there are no associated hours, we compute total hours using the
same methods as described for salaries in Step 2. The formula for Total
Hours (from Worksheet S-3, Part II) is the following:
((Line 1 + Line 28 + Line 33 + Line 35)-(Line 2 + Line 3 + Line
4.01 + Line 5 + Line 6 + Line 7 + Line 7.01 + Line 8 + Line 9 + Line
10)) + (Line 11 + Line 12 + Line 13 + Line 14.01 + 14.02 + Line 15).
Step 4.--For each hospital reporting both total overhead salaries
and total overhead hours greater than zero, we then allocate overhead
costs to areas of the hospital excluded from the wage index
calculation. First, we determine the ``excluded rate'', which is the
ratio of excluded area hours to Revised Total Hours (from Worksheet S-
3, Part II) with the following formula: (Line 9 + Line 10)/(Line 1 +
Line 28 + Line 33 + Line 35)-(Lines 2, 3, 4.01, 5, 6, 7, 7.01, and 8
and Lines 26 through 43). We then compute the amounts of overhead
salaries and hours to be allocated to the excluded areas by multiplying
the previously discussed ratio by the total overhead salaries and hours
reported on Lines 26 through 43 of Worksheet S-3, Part II. Next, we
compute the amounts of overhead wage-related costs to be allocated to
the excluded areas using three steps:
We determine the ``overhead rate'' (from Worksheet S-3,
Part II), which is the ratio of overhead hours (Lines 26 through 43
minus the sum of Lines 28, 33, and 35) to revised hours excluding the
sum of lines 28, 33, and 35 (Line 1 minus the sum of Lines 2, 3, 4.01,
5, 6, 7, 7.01, 8, 9, 10, 28, 33, and 35). We note that, for the FY 2008
and subsequent wage index calculations, we have been excluding the
overhead contract labor (Lines 28, 33, and 35) from the determination
of the ratio of overhead hours to revised hours because hospitals
typically do not provide fringe benefits (wage-related costs) to
contract personnel. Therefore, it is not necessary for the wage index
calculation to exclude overhead wage-related costs for contract
personnel. Further, if a hospital does contribute to wage-related costs
for contracted personnel, the instructions for Lines 28, 33, and 35
require that associated wage-related costs be combined with wages on
the respective contract labor lines. The formula for the Overhead Rate
(from Worksheet S-3, Part II) is the following: (Lines 26 through 43--
Lines 28, 33 and 35)/((((Line 1 + Lines 28, 33, 35)-(Lines 2, 3, 4.01,
5, 6, 7, 7.01, 8, and 26 through 43))-(Lines 9 and 10)) + (Lines 26
through 43-Lines 28, 33, and 35)).
We compute overhead wage-related costs by multiplying the
overhead hours ratio by wage-related costs reported on Part II, Lines
17, 22, 25.50, 25.51, and 25.52.
We multiply the computed overhead wage-related costs by
the previously described excluded area hours ratio.
Finally, we subtract the computed overhead salaries, wage-related
costs, and hours associated with excluded areas from the total salaries
(plus wage-related costs) and hours derived in Steps 2 and 3.
Step 5.--For each hospital, we adjust the total salaries plus wage-
related costs to a common period to determine total adjusted salaries
plus wage-related costs. To make the wage adjustment, we estimate the
percentage change in the employment cost index (ECI) for compensation
for each 30-day increment from October 14, 2021, through April 15,
2023, for private industry hospital workers from data obtained from the
Bureau of Labor Statistics' (BLS') Office of Compensation and Working
Conditions. We use the ECI because it reflects the price increase
associated with total compensation (salaries plus fringe benefits)
rather than just the increase in salaries. In addition, the ECI
includes managers as well as other hospital workers. This methodology
to compute the monthly update factors uses actual quarterly ECI data
and assures that the update factors match the actual quarterly and
annual percent changes. We also note that, since April 2006 with the
publication of March 2006 data, the BLS' ECI uses a different
classification system, the North American Industrial Classification
System (NAICS), instead of the Standard Industrial Codes (SICs), which
no longer exist. We have consistently used the ECI as the data source
for our wages and salaries and other price proxies in the IPPS market
basket, and we did not propose to make any changes to the usage of the
ECI for FY 2026. The factors used to adjust the hospital's data are
based on the midpoint of the cost reporting period, as indicated in
this final rule.
Step 6.--Each hospital is assigned to its appropriate urban or
rural labor market area before any reclassifications under section
1886(d)(8)(B), 1886(d)(8)(E), or 1886(d)(10) of the Act. Within each
urban or rural labor market area, we add the total adjusted salaries
plus wage-related costs obtained in Step 5 for all hospitals in that
area to determine the total adjusted salaries plus wage-related costs
for the labor market area.
Step 7.--We divide the total adjusted salaries plus wage-related
costs obtained under Step 6 by the sum of the corresponding total hours
(from Step 4) for all hospitals in each labor market area to determine
an average hourly wage for the area.
Step 8.--We add the total adjusted salaries plus wage-related costs
obtained in Step 5 for all hospitals in the Nation and then divide the
sum by the national sum of total hours from Step 4 to arrive at a
national average hourly wage.
Step 9.--For each urban or rural labor market area, we calculate
the hospital wage index value, unadjusted for occupational mix, by
dividing the area average hourly wage obtained in Step 7 by the
national average hourly wage computed in Step 8.
Step 10.--For each urban labor market area for which we do not have
any hospital wage data (either because there are no IPPS hospitals in
that labor market area, or there are IPPS hospitals in that area but
their data are either too new to be reflected in the current year's
wage index calculation, or their data are aberrant and are deleted from
the wage index), we finalized in the FY 2020 IPPS/LTCH PPS final rule
(84 FR 42305) that, for FY 2020 and subsequent years' wage index
calculations, such CBSAs' wage index will be equal to total urban
[[Page 36842]]
salaries plus wage-related costs (from Step 5) in the State, divided by
the total urban hours (from Step 4) in the State, divided by the
national average hourly wage from Step 8 (see 84 FR 42305 and 42306).
We believe that, in the absence of wage data for an urban labor market
area, it is reasonable to use a statewide urban average, which is based
on actual, acceptable wage data of hospitals in that State, rather than
impute some other type of value using a different methodology. For
calculation of the FY 2026 wage index, we note there is one urban CBSA
for which we do not have IPPS hospital wage data. In Table 3 (which is
available via the internet on the CMS website and contains the area
wage indexes), we include a footnote to indicate to which CBSA this
policy applies. This CBSA's wage index is calculated as described,
based on the FY 2020 IPPS/LTCH PPS final rule methodology (84 FR
42305). Under this step, we also apply our policy with regard to how
dollar amounts, hours, and other numerical values in the wage index
calculations are rounded.
We refer readers to section II. of Appendix B of this final rule
for the policy regarding rural areas that do not have IPPS hospitals.
Step 11.--Section 4410 of Public Law 105-33 provides that, for
discharges on or after October 1, 1997, the area wage index applicable
to any hospital that is located in an urban area of a State may not be
less than the area wage index applicable to hospitals located in rural
areas in that State. The areas affected by this provision are
identified in Table 2 listed in section VI. of the Addendum to this
final rule and available via the internet on the CMS website.
The following is our policy with regard to rounding of the wage
data (dollar amounts, hours, and other numerical values) in the
calculation of the unadjusted and adjusted wage index, as finalized in
the FY 2020 IPPS/LTCH final rule (84 FR 42306). For data that we
consider to be ``raw data,'' such as the cost report data on Worksheets
S-3, Parts II and III, and the occupational mix survey data, we use
such data ``as is,'' and do not round any of the individual line items
or fields. However, for any dollar amounts within the wage index
calculations, including any type of summed wage amount, average hourly
wages, and the national average hourly wage (both the unadjusted and
adjusted for occupational mix), we round the dollar amounts to 2
decimals. For any hour amounts within the wage index calculations, we
round such hour amounts to the nearest whole number. For any numbers
not expressed as dollars or hours within the wage index calculations,
which could include ratios, percentages, or inflation factors, we round
such numbers to 5 decimals. However, we continue rounding the actual
unadjusted and adjusted wage indexes to 4 decimals, as we have done
historically.
As discussed in the FY 2012 IPPS/LTCH PPS final rule, in ``Step
5,'' for each hospital, we adjust the total salaries plus wage-related
costs to a common period to determine total adjusted salaries plus
wage-related costs. To make the wage adjustment, we estimate the
percentage change in the ECI for compensation for each 30-day increment
from October 14, 2021, through April 15, 2023, for private industry
hospital workers from the BLS' Office of Compensation and Working
Conditions data. We have consistently used the ECI as the data source
for our wages and salaries and other price proxies in the IPPS market
basket, and we did not propose any changes to the usage of the ECI for
FY 2026. The factors used to adjust the hospital's data were based on
the midpoint of the cost reporting period, as indicated in the
following table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.222
For example, the midpoint of a cost reporting period beginning
January 1, 2022, and ending December 31, 2022, is June 30, 2022. An
adjustment factor of 1.03412 was applied to the wages of a
[[Page 36843]]
hospital with such a cost reporting period.
Previously, we also would provide a Puerto Rico overall average
hourly wage. As discussed in the FY 2017 IPPS/LTCH PPS final rule (81
FR 56915), prior to January 1, 2016, Puerto Rico hospitals were paid
based on 75 percent of the national standardized amount and 25 percent
of the Puerto Rico-specific standardized amount. As a result, we
calculated a Puerto Rico specific wage index that was applied to the
labor-related share of the Puerto Rico-specific standardized amount.
Section 601 of Division O, Title VI (section 601) of the Consolidated
Appropriations Act, 2016 (Pub. L. 114-113) amended section
1886(d)(9)(E) of the Act to specify that the payment calculation with
respect to operating costs of inpatient hospital services of a
subsection (d) Puerto Rico hospital for inpatient hospital discharges
on or after January 1, 2016, shall use 100 percent of the national
standardized amount. As we stated in the FY 2017 IPPS/LTCH PPS final
rule (81 FR 56915 through 56916), because Puerto Rico hospitals are no
longer paid with a Puerto Rico specific standardized amount as of
January 1, 2016, under section 1886(d)(9)(E) of the Act, as amended by
section 601 of the Consolidated Appropriations Act, 2016, there is no
longer a need to calculate a Puerto Rico specific average hourly wage
and wage index. Hospitals in Puerto Rico are now paid 100 percent of
the national standardized amount and, therefore, are subject to the
national average hourly wage (unadjusted for occupational mix) and the
national wage index, which is applied to the national labor-related
share of the national standardized amount. Therefore, for FY 2026,
there is no Puerto Rico-specific overall average hourly wage or wage
index.
Based on the previously described methodology, the final FY 2026
unadjusted national average hourly wage is the following:
Final FY 2026 Unadjusted Average Hourly Wage: $57.92
D. Occupational Mix Adjustment to the FY 2026 Wage Index
As stated earlier, section 1886(d)(3)(E) of the Act provides for
the collection of data every 3 years on the occupational mix of
employees for each short-term, acute care hospital participating in the
Medicare program, to construct an occupational mix adjustment to the
wage index, for application beginning October 1, 2004 (the FY 2005 wage
index). The purpose of the occupational mix adjustment is to control
for the effect of hospitals' employment choices on the wage index. For
example, hospitals may choose to employ different combinations of
registered nurses, licensed practical nurses, nursing aides, and
medical assistants for the purpose of providing nursing care to their
patients. The varying labor costs associated with these choices reflect
hospital management decisions rather than geographic differences in the
costs of labor.
1. Use of 2022 Medicare Wage Index Occupational Mix Survey for the FY
2026 Wage Index
Section 304(c) of Appendix F, Title III of the Consolidated
Appropriations Act, 2001 (Pub. L. 106-554) amended section
1886(d)(3)(E) of the Act to require CMS to collect data every 3 years
on the occupational mix of employees for each short-term, acute care
hospital participating in the Medicare program and to measure the
earnings and paid hours of employment for such hospitals by
occupational category. As discussed in the FY 2025 IPPS/LTCH PPS final
rule (89 FR 69275 through 69278), we collected data in 2022 to compute
the occupational mix adjustment for the FY 2025, FY 2026, and FY 2027
wage indexes.
The FY 2026 occupational mix adjustment is based on a calendar year
(CY) 2022 survey. Hospitals were required to submit their completed
2022 surveys (Form CMS-10079, OMB Control Number 0938-0907, expiration
date January 31, 2026) to their MACs by July 1, 2023. The preliminary,
unaudited CY 2022 survey data were posted on the CMS website on July
12, 2023. As with the Worksheet S-3, Parts II and III cost report wage
data, as part of the FY 2026 desk review process, the MACs revised or
verified data elements in hospitals' occupational mix surveys that
resulted in certain edit failures.
2. Calculation of the Occupational Mix Adjustment for FY 2026
For FY 2026, we proposed to calculate the occupational mix
adjustment factor using the same methodology that we have used since
the FY 2012 wage index (76 FR 51582 through 51586) and to apply the
occupational mix adjustment to 100 percent of the FY 2026 wage index.
In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42308), we modified our
methodology with regard to how dollar amounts, hours, and other
numerical values in the unadjusted and adjusted wage index calculation
are rounded, to ensure consistency in the calculation. According to the
policy finalized in the FY 2020 IPPS/LTCH PPS final rule (84 FR 42308
and 42309), for data that we consider to be ``raw data,'' such as the
cost report data on Worksheets S-3, Parts II and III, and the
occupational mix survey data, we continue to use these data ``as is'',
and not round any of the individual line items or fields. However, for
any dollar amounts within the wage index calculations, including any
type of summed wage amount, average hourly wages, and the national
average hourly wage (both the unadjusted and adjusted for occupational
mix), we round such dollar amounts to 2 decimals. We round any hour
amounts within the wage index calculations to the nearest whole number.
We round any numbers not expressed as dollars or hours in the wage
index calculations, which could include ratios, percentages, or
inflation factors, to 5 decimals. However, we continue rounding the
actual unadjusted and adjusted wage indexes to 4 decimals, as we have
done historically.
Similar to the method we use for the calculation of the wage index
without occupational mix, salaries and hours for a multicampus hospital
are allotted among the different labor market areas where its campuses
are located. Table 2 associated with this final rule (which is
available via the internet on the CMS website), which contains the
final FY 2026 occupational mix adjusted wage index, includes separate
wage data for the campuses of multicampus hospitals. We refer readers
to section III.C. of the preamble of this final rule for a chart
listing the multicampus hospitals and the FTE percentages used to allot
their occupational mix data.
Because the statute requires that the Secretary measure the
earnings and paid hours of employment by occupational category not less
than once every 3 years, all hospitals that are subject to payments
under the IPPS, or any hospital that would be subject to the IPPS if
not granted a waiver, must complete the occupational mix survey, unless
the hospital has no associated cost report wage data that are included
in the proposed FY 2026 wage index. For the proposed FY 2026 wage
index, we used the Worksheet S-3, Parts II and III wage data of 3,029
hospitals, and we used the occupational mix surveys of 2,945 hospitals
for which we also had Worksheet S-3 wage data, which represented a
``response'' rate of 97 percent (2,945/3,029). For the proposed FY 2026
wage index, we applied proxy data for noncompliant hospitals, new
hospitals, or hospitals that submitted erroneous or aberrant data in
the same manner that we applied proxy data for such hospitals in the FY
2012 wage index occupational mix adjustment (76 FR 51586). As a result
of applying this
[[Page 36844]]
methodology, the proposed FY 2026 occupational mix adjusted national
average hourly wage was $57.63.
We did not receive any comments on our proposed calculation of the
occupational mix adjustment to the FY 2026 wage index. Thus, for the
reasons discussed in this final rule and in the FY 2026 IPPS/LTCH PPS
proposed rule, we are finalizing our proposal without modification to
calculate the occupational mix adjustment factor using the same
methodology that we have used since the FY 2012 wage index and to apply
the occupational mix adjustment to 100 percent of the FY 2026 wage
index.
For the final FY 2026 wage index, we are using the Worksheet S-3,
Parts II and III wage data of 3,036 hospitals, and we are using the
occupational mix surveys of 2,952 hospitals for which we also had
Worksheet S-3 wage data, which represented a ``response'' rate of 97
percent (2,952/3,036). For the final FY 2026 wage index, we are
applying proxy data for noncompliant hospitals, new hospitals, or
hospitals that submitted erroneous or aberrant data in the same manner
that we applied proxy data for such hospitals in the FY 2012 wage index
occupational mix adjustment (76 FR 51586). As a result of applying this
methodology, the final FY 2026 occupational mix adjusted national
average hourly wage is the following:
Final FY 2026 Occupational Mix Adjusted National Average Hourly Wage:
$57.86
3. Occupational Mix Adjustment and the FY 2026 Occupational Mix
Adjusted Wage Index
As discussed in section III.E. of the preamble of this final rule,
for FY 2026, we are applying the occupational mix adjustment to 100
percent of the FY 2026 wage index. We calculated the occupational mix
adjustment using data from the 2022 occupational mix survey, using the
methodology described in the FY 2012 IPPS/LTCH PPS final rule (76 FR
51582-51586).
Based on the 2022 occupational mix survey data, the FY 2026
national average hourly wages for each occupational mix nursing
subcategory as calculated in Step 2 of the occupational mix calculation
are as follows:
[GRAPHIC] [TIFF OMITTED] TR04AU25.223
The national average hourly wage for the entire nurse category is
computed in Step 5 of the occupational mix calculation. Hospitals with
a nurse category average hourly wage (as calculated in Step 4) of
greater than the national nurse category average hourly wage receive an
occupational mix adjustment factor (as calculated in Step 6) of less
than 1.0. Hospitals with a nurse category average hourly wage (as
calculated in Step 4) of less than the national nurse category average
hourly wage receive an occupational mix adjustment factor (as
calculated in Step 6) of greater than 1.0.
Based on the 2022 occupational mix survey data, we determined (in
Step 7 of the occupational mix calculation) the following:
National Percentage of Hospital Employees in the Nurse Category: 45%
National Percentage of Hospital Employees in the All Other Occupations
Category: 55%
E. Hospital Redesignations and Reclassifications
The following sections III.E.1 through III.E.4 discuss revisions to
the wage index based on hospital redesignations and reclassifications.
Specifically, hospitals may have their geographic area changed for wage
index payment by applying for urban to rural reclassification under
section 1886(d)(8)(E) of the Act (implemented at Sec. 412.103),
reclassification by the Medicare Geographic Classification Review Board
(MGCRB) under section 1886(d)(10) of the Act, Lugar status
redesignations under section 1886(d)(8)(B) of the Act, or a combination
of the foregoing.
1. Urban to Rural Reclassification Under Section 1886(d)(8)(E) of the
Act, Implemented at Sec. 412.103
Under section 1886(d)(8)(E) of the Act, a qualifying prospective
payment hospital located in an urban area may apply for rural status
for payment purposes separate from reclassification through the MGCRB.
Specifically, section 1886(d)(8)(E) of the Act provides that, not later
than 60 days after the receipt of an application (in a form and manner
determined by the Secretary) from a subsection (d) hospital that
satisfies certain criteria, the Secretary shall treat the hospital as
being located in the rural area (as defined in paragraph (2)(D)) of the
State in which the hospital is located. We refer readers to the
regulations at Sec. 412.103 for the general criteria and application
requirements for a subsection (d) hospital to reclassify from urban to
rural status in accordance with section 1886(d)(8)(E) of the Act (such
hospitals are referred to herein as ``Sec. 412.103 hospitals''). The
FY 2012 IPPS/LTCH PPS final rule (76 FR 51595 through 51596) includes
our policies regarding the effect of wage data from reclassified or
redesignated hospitals. We refer readers to the FY 2024 IPPS/LTCH final
rule (88 FR 58971 through 58977) for a review of our policy finalized
in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49004) to calculate the
rural floor with the wage data of urban hospitals reclassifying to
rural areas under Sec. 412.103, and discussion of our modification to
the calculation of the rural wage index and its implications for the
rural floor.
In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41369 through
41374), we codified certain policies regarding multicampus hospitals in
the regulations at Sec. Sec. 412.92, 412.96, 412.103, and 412.108. We
stated that reclassifications from urban to rural under Sec. 412.103
apply to the entire hospital (that is, the main campus and its remote
location(s)). We also stated that a main campus of a hospital cannot
obtain Sole Community Hospital (SCH), Rural Referral Center (RRC), or
Medicare Dependent Hospital (MDH) status, or rural reclassification
under Sec. 412.103, independently or separately from its remote
location(s), and vice versa. In the
[[Page 36845]]
FY 2023 IPPS/LTCH PPS final rule (87 FR 49012 and 49013), we added
Sec. 412.103(a)(8) to clarify that for a multicampus hospital,
approved rural reclassification status applies to the main campus and
any remote location located in an urban area, including a main campus
or any remote location deemed urban under section 1886(d)(8)(B) of the
Act. If a remote location of a hospital is located in a different CBSA
than the main campus of the hospital, it is CMS' longstanding policy to
assign that remote location a wage index based on its own geographic
area to comply with the statutory requirement to adjust for geographic
differences in hospital wage levels (section 1886(d)(3)(E) of the Act).
Hospitals are required to identify and allocate wages and hours based
on FTEs for remote locations located in different CBSAs on Worksheet S-
2, Part I, Lines 165 and 166 of form CMS-2552-10. In calculating wage
index values, CMS identifies the allocated wage data for these remote
locations in Table 2 with a ``B'' in the 3rd position of the CCN. These
remote locations of hospitals with Sec. 412.103 rural reclassification
status in a different CBSA are identified in Table 2, and hospitals
should evaluate potential wage index outcomes for their remote
location(s) when withdrawing or terminating MGCRB reclassification, or
canceling Sec. 412.103 rural reclassification status.
We also note that in the FY 2025 IPPS/LTCH PPS Final Rule (89 FR
69279 through 69280), we reminded hospitals located in rural areas
becoming urban under the adoption of the revised OMB delineations in FY
2025 that if they have SCH, MDH, or RRC status, they may choose to
apply for a Sec. 412.103 urban to rural reclassification if qualifying
criteria are met to maintain the SCH, MDH, or RRC status. We advised
hospitals to evaluate their options and if desired, apply for Sec.
412.103 urban to rural reclassification before the beginning of FY
2025, to avoid a lapse in SCH, MDH, or RRC status at the beginning of
FY 2025. We note that the ``Am I Rural'' tool currently available on
the Rural Health Information Hub\138\ website at https://www.ruralhealthinfo.org/am-i-rural was updated on November 21, 2024,
based on data provided by the Federal Office of Rural Health Policy
which is available at https://www.hrsa.gov/rural-health/about-us/what-is-rural/data-files. As discussed at Sec. 412.103(f), the duration of
an approved rural reclassification remains in effect without need for
reapproval unless there is a change in the circumstances under which
the classification was approved. If a hospital located in an urban area
was approved for a rural reclassification under Sec. 412.103(a)(1),
that reclassification will no longer be valid if the hospital is no
longer located within a rural census tract of an MSA as determined by
the Federal Office of Rural Health Policy (FORHP) of the Health
Resources and Services Administration (HRSA). Therefore, we encourage
all hospitals and CAHs with active rural reclassifications under
section 1886(d)(8)(E) of the Act to review their original
reclassification application and determine whether the reclassification
status will still apply.
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\138\ The Rural Health Information Hub is supported by the
Health Resources and Services Administration (HRSA) of HHS under
Grant Number U56RH05539 (Rural Assistance Center for Federal Office
of Rural Health Policy Cooperative Agreement). Any information,
content, or conclusions on this website are those of the authors and
should not be construed as the official position or policy of, nor
should any endorsements be inferred by HRSA, HHS or the U.S.
Government.
---------------------------------------------------------------------------
Finally, in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69280), CMS
finalized a policy regarding terminated or ``tied-out'' hospitals, to
address our concerns regarding the impacts these hospitals would have
on rural wage index values. Specifically, we finalized a policy that
Sec. 412.103 reclassifications would be considered cancelled for the
purposes of calculating the area wage index for any hospital with a CCN
listed as terminated or ``tied-out'' as of the date that the hospital
ceased to operate with an active CCN. We stated that we will obtain and
review the best available CCN termination status lists as of the Sec.
412.103(b)(6) ``lock-in'' date (60 days after the proposed rule for the
FY is displayed in the Federal Register), consistent with the wage
index development timeline. The lock-in date is used to determine
whether a hospital has been approved for Sec. 412.103 reclassification
in time for that status to be included in the upcoming year's wage
index development.
We noted that our policy to consider Sec. 412.103
reclassifications cancelled for the purposes of calculating area wage
index for any hospital with a CCN listed as terminated or ``tied-out''
is not intended to alter or affect the qualification for Critical
Access Hospital (CAH), Sole Community Hospital (SCH), or Rural
Emergency Hospital (REH) statuses or to have other effects unrelated to
hospital wage index calculations. The rural reclassification status
will remain in effect for any period that the original PPS hospital
remains in operation with an active CCN. For REH qualification
requirement purposes, this will include the date of enactment of the
Consolidated Appropriations Act, 2021 (Pub. L. 116-260), which was
December 27, 2020.
2. General Policies and Effects of MGCRB Reclassification and Treatment
of Dual Reclassified Hospitals
Under section 1886(d)(10) of the Act, the MGCRB considers
applications by hospitals for geographic reclassification for purposes
of payment under the IPPS. Hospitals must apply to the MGCRB to
reclassify not later than 13 months prior to the start of the fiscal
year for which reclassification is sought (usually by September 1).
Generally, hospitals must be proximate to the labor market area to
which they are seeking reclassification and must demonstrate
characteristics similar to hospitals located in that area. The MGCRB
issues its decisions not later than the end of February for
reclassifications that become effective for the following fiscal year
(beginning October 1). The regulations applicable to reclassifications
by the MGCRB are located in Sec. Sec. 412.230 through 412.280. (We
refer readers to a discussion in the FY 2002 IPPS final rule (66 FR
39874 and 39875) regarding how the MGCRB defines mileage for purposes
of the proximity requirements.) The general policies for
reclassifications and redesignations and the policies for the effects
of hospitals' reclassifications and redesignations on the wage index
are discussed in the FY 2012 IPPS/LTCH PPS final rule for the FY 2012
final wage index (76 FR 51595 and 51596).
In addition, in the FY 2012 IPPS/LTCH PPS final rule, we discussed
the effects on the wage index of urban hospitals reclassifying to rural
areas under Sec. 412.103. In the FY 2020 IPPS/LTCH PPS final rule (84
FR 42332 through 42336), we finalized a policy to exclude the wage data
of urban hospitals reclassifying to rural areas under Sec. 412.103
from the calculation of the rural floor, but we reverted to the pre-FY
2020 policy in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49002
through 49004). Hospitals that are geographically located in States
without any rural areas are ineligible to apply for rural
reclassification in accordance with the provisions of Sec. 412.103.
On April 21, 2016, we published an interim final rule with comment
period (IFC) in the Federal Register (81 FR 23428 through 23438) that
included provisions amending our regulations to allow hospitals
nationwide to have simultaneous Sec. 412.103 urban to rural and MGCRB
reclassifications. Prior to this amendment to the regulations,
hospitals had to choose between a Sec. 412.103 urban to rural
reclassification which confers other rural benefits
[[Page 36846]]
(Medicare provisions such as payments to disproportionate share
hospitals (DSHs), and non-Medicare payment provisions, such as the 340B
Drug Pricing Program administered by HRSA) besides the wage index under
section 1886(d) of the Act or a reclassification under the MGCRB to
solely increase its wage index. Under the amended regulations, a
hospital that has an active MGCRB reclassification and is then approved
for an urban to rural reclassification under Sec. 412.103 will not
lose its MGCRB reclassification. Additionally, a hospital is no longer
required to cancel its Sec. 412.103 reclassification in order to be
approved for an MGCRB reclassification. By amending the regulations and
allowing a hospital to pursue reclassification under the MGCRB while
also maintaining a rural reclassification under Sec. 412.103,
hospitals are accorded the benefits of a Sec. 412.103 urban to rural
reclassification and the ability to use distance and average hourly
wage criteria designated for rural hospitals to obtain a higher wage
index value through an MGCRB reclassification. We note, for wage index
calculation and payment purposes, when there is both a Sec. 412.103
reclassification and an MGCRB reclassification, the MGCRB
reclassification controls for wage index calculation and payment
purposes.
Prior to FY 2024, we excluded hospitals with Sec. 412.103 urban to
rural redesignations from the calculation of the reclassified rural
wage index if they also have an active MGCRB reclassification to
another area. That is, if an application for urban reclassification
through the MGCRB is approved and is not withdrawn or terminated by the
hospital within the established timelines, we considered the hospital's
geographic CBSA and the urban CBSA to which the hospital is
reclassified under the MGCRB for the wage index calculation. We refer
readers to the April 21, 2016, IFC (81 FR 23428 through 23438) and the
FY 2017 IPPS/LTCH PPS final rule (81 FR 56922 through 56930), in which
we finalized the April 21, 2016, IFC, for a full discussion of the
effect of simultaneous reclassifications under both the Sec. 412.103
and the MGCRB processes on wage index calculations. For FY 2024 and
subsequent years, we refer readers to the FY 2024 IPPS/LTCH PPS final
rule for discussion of our policy to include hospitals with a Sec.
412.103 reclassification that also have an active MGCRB
reclassification to another area in the calculation of the reclassified
rural wage index (88 FR 58971 through 58977).
3. MGCRB Reclassification Issues for FY 2026
a. FY 2026 Reclassification Application Requirements and Approvals
As previously stated, under section 1886(d)(10) of the Act, the
MGCRB considers applications by hospitals for geographic
reclassification for purposes of payment under the IPPS. The specific
procedures and rules that apply to the geographic reclassification
process are outlined in regulations under 42 CFR 412.230 through
412.280. There are 465 hospitals approved for wage index
reclassifications by the MGCRB starting in FY 2026. Because MGCRB wage
index reclassifications are effective for 3 years, for FY 2026,
hospitals reclassified beginning in FY 2024 or FY 2025 are eligible to
continue to be reclassified to a particular labor market area based on
such prior reclassifications for the remainder of their 3-year period.
There were 309 hospitals approved for wage index reclassifications in
FY 2024 that will continue for FY 2026, and 335 hospitals approved for
wage index reclassifications in FY 2025 that will continue for FY 2026.
Of all the hospitals approved for reclassification for FY 2024, FY
2025, and FY 2026, 1,109 hospitals (approximately 30 percent of IPPS
hospitals) are in a MGCRB reclassification status for FY 2026 (with 258
of these hospitals reclassified back to their urban geographic
location). We noted in the proposed rule that several hospitals
approved for MGCRB reclassifications may opt to withdraw this status
after the proposed rule,\139\ and in some cases prior year
reclassification would become effective in its place. There are 88
fewer hospitals in MGCRB reclassification status in this final rule
than in the proposed rule due to withdrawals and terminations of MGCRB
status. We refer readers to section III.F.3.b. of the preamble of this
final rule for information on the effects of implementation of new OMB
labor market area delineations on reclassified hospitals.
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\139\ We note that in the FY 2026 IPPS/LTCH PPS proposed rule
(82 FR 18228), we inadvertently stated that hospitals approved for
MGCRB reclassifications beginning in FY 2026 may opt to withdraw
this status after the final rule. This was an error, and the correct
statement should have read ``after the proposed rule''.
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Under the regulations at Sec. 412.273, hospitals that have been
reclassified by the MGCRB are permitted to withdraw their applications
if the request for withdrawal is received by the MGCRB any time before
the MGCRB issues a decision on the application, or after the MGCRB
issues a decision, provided the request for withdrawal is received by
the MGCRB within 45 days of the date of filing for public inspection of
the proposed rule at the website of the Office of the Federal Register,
or within 7 calendar days of receiving a decision of the
Administrator's in accordance with Sec. 412.273, whichever is later.
For information about the current process for withdrawing,
terminating, or canceling a previous withdrawal or termination of a 3-
year reclassification for wage index purposes, we refer readers to
Sec. 412.273, as well as section III.E.3.b. of the preamble of this
final rule, and the FY 2002 IPPS final rule (66 FR 39887 through 39888)
and the FY 2003 IPPS final rule (67 FR 50065 through 50066). Additional
discussion on withdrawals and terminations was included in the FY 2008
IPPS final rule (72 FR 47333) and the FY 2018 IPPS/LTCH PPS final rule
(82 FR 38148 through 38150).
Applications for FY 2027 reclassifications are due to the MGCRB by
September 2, 2025 (Note: While the deadline for reclassification
applications is not later than 13 months prior to the start of the
fiscal year for which reclassification is sought, usually by September
1, the Board has historically allowed submission up to the first
business day in September, which is September 2, 2025, due to Labor
Day). This is also the current deadline for canceling a previous wage
index reclassification withdrawal or termination under Sec. 412.273(d)
for the FY 2026 cycle.
Applications and other information about MGCRB reclassifications
may be obtained beginning in mid-July 2025 via the internet on the CMS
website at https://www.cms.gov/medicare/regulations-guidance/geographic-classification-review-board. This collection of information
was previously approved under OMB Control Number 0938-0573, which
expired on January 31, 2021. A reinstatement of this PRA package is
currently being developed. The public will have an opportunity to
review and submit comments regarding the reinstatement of this PRA
package through a public notice and comment period separate from this
rulemaking.
Comment: A commenter stated that the MGCRB decisions for FY 2026
were rendered earlier than in the past, which prevented hospitals from
submitting rural or rural referral center (RRC) approval letters prior
to the MGCRB's decision. The commenter stated that while the
Administrator reversed the MGCRB ruling on appeal, it did not do so in
time for the approved reclassification to be reflected in the proposed
rule datasets. Therefore, the
[[Page 36847]]
commenter contended that the FY 2026 proposed rule included inaccurate
or incomplete information that hospitals relied upon for withdrawal
decisions. Consequently, the commenter requested that CMS allow
hospitals a 15-day window following the release of the final rule to
withdraw MGCRB reclassification requests without penalty after
reassessing their decisions using the corrected and finalized data.
Response: As we stated in response to a comment in the FY 2024
IPPS/LTCH PPS final rule (88 FR 58983), we believe hospitals should
submit applications complete with supporting documentation at the time
MGCRB applications are due. We stated that hospitals taking advantage
of the MGCRB's practice of accepting supporting documentation to
supplement applications until the date of the MGCRB's review are aware
that the review is not held on the same date annually. Furthermore,
rural reclassification may be obtained at any time, and hospitals
seeking the benefits of rural status for MGCRB reclassification
purposes should plan accordingly.
In response to the commenter's specific request for CMS to allow
hospitals a 15-day window following the release of the final rule to
withdraw MGCRB reclassification requests, we stated in response to a
similar comment in the FY 2021 IPPS/LTCH PPS final rule (85 FR 58769
through 58770) that we maintain that the information provided in the
proposed rule constitutes the best available data to assist hospitals
in making reclassification decisions. In addition, section
1886(d)(8)(D) of the Act requires the Secretary to adjust the
standardized amounts to ensure that aggregate payments under the IPPS
after implementation of the provisions of certain sections of the Act,
including section 1886(d)(10) of the Act for geographic
reclassifications by the MGCRB, are equal to the aggregate prospective
payments that would have been made absent these provisions. If
hospitals were to withdraw or terminate reclassification statuses after
the publication of the final rule, as the commenter suggested CMS
permit, any resulting changes in the wage index would not have been
taken into account when calculating the IPPS standardized amounts in
the final rule in accordance with the statutory budget neutrality
requirement. Therefore, it is necessary that the values published in
the final rule represent the final wage index values reflective of
reclassification decisions.
b. Revisions to Sec. 412.273 To Simplify MGCRB Reinstatements
As discussed in the previous section, under the regulations at
Sec. 412.273, hospitals that have been reclassified by the MGCRB are
permitted to withdraw their applications if the request for withdrawal
is received by the MGCRB any time before the MGCRB issues a decision on
the application, or after the MGCRB issues a decision, provided the
request for withdrawal is received by the MGCRB within 45 days of the
date of filing for public inspection of the proposed rule at the
website of the Office of the Federal Register, or within 7 calendar
days of receiving a decision of the Administrator's in accordance with
Sec. 412.273, whichever is later. Hospitals may also terminate an
existing approved reclassification, effective for the second and third
year of the three year reclassification period or both, provided the
request for termination is received by the MGCRB within 45 days of the
date of filing for public inspection of the proposed rule at the
website of the Office of the Federal Register, or within 7 calendar
days of receiving a decision of the Administrator's in accordance with
Sec. 412.273, whichever is later.
Furthermore, these withdrawal and termination requests may be
cancelled by submitting a request by the next application deadline for
MGCRB application, reinstating the withdrawn or terminated
reclassification for the remaining years of the reclassification.
We believe this process allows hospitals to maintain flexibility in
choosing the optimal reclassification status for any given fiscal year,
while balancing the need for consistency and predictability of the wage
index system. However, we also believe the regulations Sec. 412.273
can be confusing and contain complicated definitions and language. We
proposed revisions to multiple paragraphs of Sec. 412.273 to clarify
current policy and revise definitions in a more straightforward and
understandable manner.
The first consideration is CMS's definitions of a withdrawal and a
termination in Sec. 412.273(a). Termination refers to the termination
of an already existing 3-year MGCRB reclassification where such
reclassification has already been in effect for 1 or 2 years, and there
are 1 or 2 years remaining on the 3-year reclassification. A
termination is effective only for the full fiscal year(s) remaining in
the 3-year period at the time the request is received. Requests for
terminations for part of a fiscal year are not considered. Withdrawal
refers to the withdrawal of a 3-year MGCRB reclassification that has
not yet gone into effect or where the MGCRB has not yet issued a
decision on the application.
Stated generally, a withdrawal is an action taken upon a
reclassification that has either not yet been reviewed by the MGCRB, or
an approved reclassification due to go into effect in that upcoming
fiscal year, and a termination is an action taken on an approved
reclassification that has already gone into effect. There are policy
considerations for defining withdrawals and terminations separately.
For example, county group reclassification withdrawals must include all
parties to the application, while a termination may be submitted by any
individual hospital that is party to the application. For reasons
discussed later in this section, we stated in the proposed rule that we
continue to believe this is the appropriate policy. However, we also
stated that we believe that specifically citing this policy exception
in regulation is more straightforward than maintaining differing
definitions for substantially similar actions. Therefore, for
consistency and simplicity we proposed to modify the definition of a
withdrawal to only include requests made prior to a decision being made
by the MGCRB. The definition of termination would encompass all post-
decision actions to forgo the upcoming years of an approved
reclassification. Specifically, we proposed to modify Sec. 412.273(a)
to provide that a termination refers to the termination of an approved
3-year MGCRB reclassification. A termination is effective only for the
full fiscal year(s) remaining in the 3-year period at the time the
request is received. Requests for terminations for part of a fiscal
year are not considered. We also specified that a withdrawal refers to
the withdrawal of a 3-year MGCRB reclassification where the MGCRB has
not yet issued a decision on the application.
We also proposed to remove Sec. 412.273(c)(1)(i) and (ii) and
revise paragraph (c)(1) to indicate that a request for withdrawal must
be received by the MGCRB at any time before the MGCRB issues a decision
on the application.
There is also a current process for cancelling an eligible
withdrawal or termination in order to make the reclassification
effective for any remaining years of the 3-year reclassification
period. We noted that this process is widely referring to as a request
for ``reinstatement.'' To provide clarity and consistency, we proposed
to modify several references in
[[Page 36848]]
Sec. 412.273(d) from ``cancelling'' or a ``cancellation'' to
``reinstating'' or ``reinstatement.'' As we proposed that withdrawals
be limited to applications prior to approval, a proposed reinstatement
will only apply to the proposed modified definition of a termination.
Therefore, we proposed to delete the references to withdrawals from
Sec. 412.273(d)(1).
As discussed earlier in this section, we continue to believe that
all parties to a county group reclassification must participate on any
action prior to the effective date of a group reclassification. Under
current policy, this will include whether to withdraw a
reclassification in the timeframe described at Sec. 412.273(c)), and
whether to cancel an approved reclassification withdrawal request to
reinstate the remaining second and third year of the approved group
reclassification, as described at Sec. 412.273(d)(2). In the proposed
rule, we stated that we believe that requiring these actions to include
all parties to the group reclassification reduces the possibility of
one or more parties withdrawing from a reclassification to the benefit
or detriment of other hospitals reclassified to that labor market area.
For example, a hospital may be incentivized to withdraw a potentially
beneficial reclassification if the exclusion of its wage data in the
reclassified area will increase the wage index value. This type of
manipulation of reclassification policy does not encourage stability or
predictability of wage index system and is contrary to the concept of
providing hospitals in a county an opportunity to obtain a
reclassification that they may not be able to obtain through an
individual reclassification. Therefore, we proposed to continue the
current policy by modifying the current regulation to explicitly state
that the proposed modified withdrawal requests and proposed modified
termination and reinstatement requests made prior to the effective date
of the reclassification (that is, any request made prior to the first
year the reclassification goes into effect), must include all parties
to the application. Specifically, we proposed to modify Sec.
412.273(e), by modifying paragraph (e)(2) to state that a request to
terminate an approved individual reclassification must be submitted in
writing to the MGCRB according to the method prescribed by the MGCRB
and adding a new paragraph (e)(3) specifying that a request to
terminate or reinstate an approved group reclassification must be
submitted in writing to the MGCRB according to the method prescribed by
the MGCRB. A request to terminate or reinstate an approved group
reclassification that has not yet gone into effect must include all
hospitals party to the reclassification. Termination requests for group
reclassification for the second or third year of the 3-year wage index
reclassification period and reinstatement requests for a group
reclassification effective for the third year of the 3-year wage index
reclassification period may be submitted by any individual hospital
that is party to the reclassification.
We stated that we believe that this proposal to explicitly state
this policy regarding county group reclassification in regulation
reduces confusion for hospitals and more clearly addresses our intent.
To provide clarity, we also proposed to state that a termination of
a 3-year reclassification defined at Sec. 412.273(d)(4) is not
eligible to be reinstated. This type of termination of an approved
reclassification occurs when a hospital receives a different MGCRB
reclassification in a subsequent fiscal year. Under current policy,
hospitals may effectively choose between accepting a newly approved
reclassification, or to withdraw it and ``fallback'' to a previously
approved reclassification. We stated in the proposed rule that we
believe this provides sufficient flexibility for hospitals to obtain
the most beneficial reclassification. However, once an approved
reclassification goes into effect, we believe it is appropriate to
permanently terminate other previously approved reclassifications.
Doing so provides a degree of predictability and consistency in the
wage index calculations by limiting hospitals to a total of two
potential MGCRB reclassification options. This is the current policy of
CMS and the current practice of the MGCRB. We proposed specifically to
state this policy in regulation by providing in Sec. 412.273(d)(4)
that the terminated reclassification in such a case is not eligible for
reinstatement.
We proposed the preceding changes to become effective for requests
made beginning in FY 2026. The current policies and definitions will
continue for the remainder of FY 2025. We noted that hospitals
currently use the Office of Hearings Case and Document Management
System (OH CDMS) to enter and maintain their MGCRB cases, and to
correspond with the Office of Hearings. We are aware that the proposed
changes would require system changes to the OH CDMS, and there could be
some delay in revising certain terminology. However, these changes are
not intended to significantly modify current policies and practices.
Instead, they serve to clarify and simplify the process of determining
whether an approved reclassification should be accepted and applied in
a given fiscal year. We also stated that we believe that in making
these changes, the regulation will provide clearer instructions to
hospitals.
Finally, we noted that under the current and proposed policies,
there is no negative effect for a hospital to reinstate (cancel a
withdrawal or termination) for a subsequent year, as the
reclassification could be terminated in the following year, and
hospitals are eligible to reapply for wage index reclassification to a
different labor market area. When eligible, a large majority of
hospitals already do this, as it provides greater flexibility and
options for wage index reclassification. Before the introduction of the
OH CDMS, these reinstatement requests were often submitted
simultaneously with a withdrawal or termination request. However, in
the online system, the option to reinstate is typically only made
available after all withdrawal and termination requests have been
processed. We stated that we have considered a policy modification to
make termination requests effective for only one fiscal year. That is,
all requests to withdraw or terminate a reclassification made in the
timeframe specified at Sec. 412.273(c) would automatically be
reinstated for any remaining fiscal years, without the need of a second
action to reinstate it. We have not fully evaluated the impact of such
a policy but may consider it in future rulemaking.
We did not receive any comments regarding the proposed changes to
Sec. 412.273 and are finalizing the proposed changes without revision.
These changes, including the revised definitions, will be effective for
all reclassification requests made on or after October 1, 2026 (FY
2026).
4. Redesignations Under Section 1886(d)(8)(B) of the Act
a. Lugar Status Determinations
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51599 through
51600), we adopted the policy that, beginning with FY 2012, an eligible
hospital that waives its Lugar status to receive the out-migration
adjustment has effectively waived its deemed urban status and, thus, is
rural for all purposes under the IPPS effective for the fiscal year in
which the hospital receives the outmigration adjustment. In addition,
in that rule, we adopted a minor
[[Page 36849]]
procedural change that will allow a Lugar hospital that qualifies for
and accepts the out-migration adjustment (through written notification
to CMS within 45 days from the issuance of the proposed rule in the
Federal Register) to waive its urban status for the full 3-year period
for which its out-migration adjustment is effective. By doing so, such
a Lugar hospital will no longer be required during the second and third
years of eligibility for the out-migration adjustment to advise us
annually that it prefers to continue being treated as rural and receive
the out-migration adjustment. In the FY 2017 IPPS/LTCH PPS final rule
(81 FR 56930), we further clarified that if a hospital wishes to
reinstate its urban status for any fiscal year within this 3-year
period, it must send a request to CMS within 45 days of the issuance of
the proposed rule in the Federal Register for that particular fiscal
year. We indicated that such reinstatement requests may be sent
electronically to [email protected]. In the FY 2018 IPPS/LTCH PPS
final rule (82 FR 38147 through 38148), we finalized a policy revision
to require a Lugar hospital that qualifies for and accepts the out-
migration adjustment, or that no longer wishes to accept the out-
migration adjustment and instead elects to return to its deemed urban
status, to notify CMS within 45 days from the date of public display of
the proposed rule at the Office of the Federal Register. These revised
notification timeframes were effective beginning October 1, 2017. In
addition, in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38148), we
clarified that both requests to waive and to reinstate Lugar status may
be sent to [email protected]. To ensure proper accounting, we
request hospitals to include their CCN, and either ``waive Lugar'' or
``reinstate Lugar'', in the subject line of these requests. When
applicable, this election will result in a cancelation of a hospital's
rural reclassification status under Sec. 412.103, effective October 1,
2025. We also inform hospitals that for the request to be approved, the
hospital must withdraw or terminate any active MGCRB reclassification.
All requests, once approved, will remain in effect for the remainder of
the 3-year out-migration adjustment period.
In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42314 and 42315), we
clarified that in circumstances where an eligible hospital elects to
receive the outmigration adjustment within 45 days of the public
display date of the proposed rule at the Office of the Federal Register
in lieu of its Lugar wage index reclassification, and the county in
which the hospital is located will no longer qualify for an
outmigration adjustment when the final rule (or a subsequent correction
notice) wage index calculations are completed, the hospital's request
to accept the outmigration adjustment will be denied, and the hospital
will be automatically assigned to its deemed urban status under section
1886(d)(8)(B) of the Act. We stated that final rule wage index values
will be recalculated to reflect this reclassification, and in some
instances, after taking into account this reclassification, the out-
migration adjustment for the county in question could be restored in
the final rule. However, as the hospital is assigned a Lugar
reclassification under section 1886(d)(8)(B) of the Act, it will be
ineligible to receive the county outmigration adjustment under section
1886(d)(13)(G) of the Act.
We received two timely requests from hospitals to accept the county
out-migration adjustment in lieu of its Lugar reclassification. The
requests were from CCNs 180056 and 320033. When applicable, we informed
the hospital that for the request to be approved, the hospital must
withdraw or terminate any active MGCRB reclassification. All requests
have been approved and will remain in effect for the remainder of the
3-year county outmigration adjustment period.
We receive one timely request from CCN 390183 to reinstate its
Lugar reclassification. This request was approved, and the hospital
will be reclassified to CBSA 39740 for FY 2026.
F. Wage Index Adjustments: Rural Floor, Imputed Floor, State Frontier
Floor, Out-Migration Adjustment, Low Wage Index Hospital, and Cap on
Wage Index Decrease Policies
The following adjustments to the wage index are listed in the order
that they are generally applied. First, the rural floor, imputed floor,
and state frontier floor provide a minimum wage index. The rural floor
at section 4410(a) of the Balanced Budget Act of 1997 (Pub. L. 105-33)
provides that the wage index for hospitals in urban areas of a State
may not be less than the wage index applicable to hospitals located in
rural areas in that State. The imputed floor at section
1886(d)(3)(E)(iv) of the Act provides a wage index minimum for all-
urban states. The state frontier floor at section 1886(d)(3)(E)(iii) of
the Act requires that hospitals in frontier states cannot be assigned a
wage index of less than 1.0000. Next, the out-migration adjustment at
section 1886(d)(13)(A) of the Act is applied, potentially increasing
the wage index for hospitals located in certain counties that have a
relatively high percentage of hospital employees who reside in the
county but work in a different county or counties with a higher wage
index. For FY 2026 and subsequent fiscal years, as discussed later in
this section, after considering the D.C. Circuit's decision in
Bridgeport Hosp. v. Becerra, we are finalizing as proposed to
discontinue the low wage index hospital policy. Because we are
finalizing as proposed to discontinue the low wage index hospital
policy for FY 2026 and subsequent fiscal years, we are no longer
applying a low wage index budget neutrality factor to the standardized
amounts. Finally, all hospital wage index decreases are capped at 95
percent of the hospital's final wage index in the prior fiscal year,
according to the policy finalized in the FY 2023 IPPS/LTCH PPS final
rule (87 FR 49018 through 49021).
1. Rural Floor
Section 4410(a) of the Balanced Budget Act of 1997 (Pub. L. 105-33)
provides that, for discharges on or after October 1, 1997, the area
wage index applicable to any hospital that is located in an urban area
of a State may not be less than the area wage index applicable to
hospitals located in rural areas in that State. This provision is
referred to as the rural floor. Section 3141 of the Patient Protection
and Affordable Care Act (Pub. L. 111-148) also requires that a national
budget neutrality adjustment be applied in implementing the rural
floor. Based on the FY 2026 wage index associated with this final rule
(which is available on the CMS website), and based on the calculation
of the rural floor including the wage data of hospitals that have
reclassified as rural under Sec. 412.103, we estimate that 961
hospitals will receive the rural floor in FY 2026. The budget
neutrality impact of the application of the rural floor is discussed in
section II.A.4.e. of Addendum A of this final rule.
In the FY 2023 IPPS/LTCH PPS final rule (87 FR 48784), CMS
finalized a policy change to calculate the rural floor in the same
manner as we did prior to the FY 2020 IPPS/LTCH PPS final rule, in
which the rural wage index sets the rural floor. We stated that for FY
2023 and subsequent years, we would include the wage data of Sec.
412.103 hospitals that have no Medicare Geographic Classification
Review Board (MGCRB) reclassification in the calculation of the rural
floor, and include the wage data of such hospitals in the calculation
of ``the wage index for rural areas in the State in which the
[[Page 36850]]
county is located'' as referred to in section 1886(d)(8)(C)(iii) of the
Act.
In the FY 2024 IPPS/LTCH final rule (88 FR 58971 through 58977), we
finalized a policy change beginning that year to include the data of
all Sec. 412.103 hospitals, even those that have an MGCRB
reclassification, in the calculation of the rural floor and the
calculation of ``the wage index for rural areas in the State in which
the county is located'' as referred to in section 1886(d)(8)(C)(iii) of
the Act. We explained that after revisiting the case law, prior public
comments, and the relevant statutory language, we agreed that the best
reading of section 1886(d)(8)(E)'s text that CMS ``shall treat the
[Sec. 412.103] hospital as being located in the rural area'' is that
it instructs CMS to treat Sec. 412.103 hospitals the same as
geographically rural hospitals for the wage index calculation.
Accordingly, in the FY 2024 IPPS/LTCH PPS final rule, we finalized
a policy to include hospitals with Sec. 412.103 reclassification along
with geographically rural hospitals in all rural wage index
calculations, and to exclude ``dual reclass'' hospitals (hospitals with
simultaneous Sec. 412.103 and MGCRB reclassifications) that are
implicated by the hold harmless provision at section 1886(d)(8)(C)(ii)
of the Act. (For additional information on these changes, we refer
readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR 58971 through
58977).)
Comment: Some commenters expressed continued support for CMS's
treatment of urban hospitals reclassified as rural under Sec. 412.103
in the same manner as geographically rural hospitals for the rural wage
index and rural floor calculations. These commenters stated that
restoring equality between a state's rural floor and its rural wage
index is an appropriate and fair implementation of the statute.
Conversely, several commenters expressed concern that the current
rural floor methodology and associated budget neutrality adjustment
exacerbates inequities. A commenter stated that the rural floor
magnifies Medicare underpayment to hospitals in high-cost regions,
since payments to such hospitals are reduced due to the budget
neutrality adjustment. Several commenters stated that hospitals in low-
wage states are hurt when their payments are reduced to drive inflated
reimbursement to hospitals in states gaming the rural floor. These
commenters cited examples of states with high-wage urban hospitals
reclassifying to rural to set the rural wage index for the state. The
commenters urged CMS to reverse its current policy and calculate the
rural wage index using wage data only from geographically rural
hospitals in the state.
Response: While we did not propose any changes to the rural floor
policy in the FY 2026 IPPS/LTCH PPS proposed rule, we appreciate the
commenters' continued support.
We understand the commenters' concerns regarding the effect that
the rural floor budget neutrality factor has on some hospitals as other
hospitals make reclassification decisions to take advantage of the
rural floor policy. As we noted in the FY 2024 IPPS/LTCH PPS final rule
(88 FR 58975 through 58976) and the FY 2025 IPPS/LTCH PPS final rule
(89 FR 69299), we expect that the number of IPPS hospitals assigned
their State's rural wage index will increase in future years as
hospitals adjust to the policy and as the relative value of States'
rural wage index values increase due to the inclusion of hospitals that
strategically obtain Sec. 412.103 reclassification. As a result, the
majority of hospitals (if not all) will be assigned identical wage
index values within their states. For example, in FY 2025, 58 percent
of geographically urban hospitals received a wage index equal to their
State's rural floor, imputed floor, or frontier floor prior to any
outmigration, or 5 percent decrease cap adjustments. For FY 2026,
approximately 70 percent of geographically urban hospitals will receive
a wage index equal to their State's rural floor, imputed floor, or
frontier floor prior to any outmigration, or 5 percent decrease cap
adjustments. As we stated in the FY 2024 IPPS/LTCH PPS final rule (88
FR 58975) and the FY 2025 IPPS/LTCH PPS final rule (89 FR 69299), as
substantially more hospitals receive the rural floor, there will be a
consequently greater budget neutrality impact. However, we believe this
result would be unavoidable given the requirement of section
1886(d)(8)(E) of the Act to treat Sec. 412.103 hospitals `as being
located in the rural area' of the state, as well as the requirement at
sections 4410(b) of the BBA 1997 and 3141 of the Patient Protection and
Affordable Care Act (Pub. L. 111-148) that a uniform, national budget
neutrality adjustment be applied in implementing the rural floor.
Comment: Several commenters disagreed with CMS' current application
of the rural floor and rural floor budget neutrality adjustment. These
commenters asserted that section 4410(b) of the Balanced Budget Act of
1997 (BBA) exempts urban and reclassified rural hospitals that receive
the rural floor from having their wage indexes reduced through the
application of the rural floor budget neutrality adjustment. According
to these commenters, the rural floor budget neutrality adjustment
should be applied only to the wage indexes of hospitals not receiving
the rural floor (that is, non- reclassified rural hospitals, and urban
hospitals with wage indexes above the rural floor).
Response: As we stated in the FY 2025 IPPS/LTCH PPS final rule (89
FR 69299) in response to similar comments that we had received, we
disagree with the commenters' assertion that urban and reclassified
rural hospitals that receive the rural floor should be excluded from
the application of the rural floor budget neutrality factor. We
considered this approach in the FY 2008 IPPS proposed and final rules
(72 FR 24787 and 72 FR 47325) and believe we have applied the rural
floor budget neutrality adjustment in a manner consistent with the
statute. Specifically, in the FY 2008 IPPS proposed rule, we rejected a
reading of section 4410(b) of the BBA requiring that the budget
neutrality adjustment would be applied only to those hospitals that do
not receive the rural floor, because urban hospitals receiving the
rural floor would receive a higher wage index than the rural hospitals
within the same State (because hospitals receiving the rural floor
would not be subject to budget neutrality, whereas rural hospitals
would be) (72 FR 24787). We continue to believe that such a reading
would not be consistent with the best reading of the statute. The
statute sets a floor for urban hospitals. The statute does not instruct
CMS to pay urban hospitals a wage index higher than the wage index
applicable to rural hospitals and contains no suggestion that the
general budget neutrality provisions of section 1886(d)(8)(D)--which
expressly apply to the adjustments made in section 1886(d)(C)--should
not apply. In the FY 2008 IPPS final rule, we adopted the current
approach to implement rural floor budget neutrality by applying a
uniform, national adjustment to the wage index (72 FR 47325). Since
then, Congress specifically endorsed our approach in section 3141 of
the Patient Protection and Affordable Care Act (Pub. L. 111-148), which
requires that the rural floor budget neutrality adjustment be applied
``in the same manner as the Secretary administered such [adjustment]
for discharges occurring during fiscal year 2008 (through a uniform,
national adjustment to the area wage index).'' In addition, we note
that section 4410 of the BBA to which the commenters refer provides
[[Page 36851]]
that the rural floor is equal to ``the area wage index applicable under
[section 1886(d)(3)(E) of the Social Security Act] to hospitals located
in rural areas in the State.'' Under our existing policy, the rural
floor and the rural wage index for the state are the same after
application of the rural floor budget neutrality adjustment factor, and
nothing in section 4410 of the BBA requires otherwise. Put differently,
CMS' methodology amounts to merely calculating the amount of the rural
floor such that it is the same as the final rural wage index for the
state, rather than reducing the wage indices of low wage urban
hospitals or reclassified rural hospitals that receive the rural floor
relative to what they would be otherwise--in that way it appropriately
implements both section 4410 of the BBA and section 3141 of the ACA.
Thus, consistent with our longstanding methodology for implementing the
rural floor, we believe it is appropriate to continue to apply a budget
neutrality adjustment to all hospitals' wage indexes.
2. Imputed Floor
In the FY 2005 IPPS final rule (69 FR 49109 through 49111), we
adopted the imputed floor policy as a temporary 3-year regulatory
measure to address concerns from hospitals in all-urban States that
have stated that they are disadvantaged by the absence of rural
hospitals to set a wage index floor for those States. We extended the
imputed floor policy eight times since its initial implementation, the
last of which was adopted in the FY 2018 IPPS/LTCH PPS final rule and
expired on September 30, 2018. We refer readers to further discussions
of the imputed floor in the IPPS/LTCH PPS final rules from FYs 2014
through 2019 (78 FR 50589 through 50590, 79 FR 49969 through 49971, 80
FR 49497 through 49498, 81 FR 56921 through 56922, 82 FR 38138 through
38142, and 83 FR 41376 through 41380, respectively) and to the
regulations at Sec. 412.64(h)(4). For FYs 2019, 2020, and 2021,
hospitals in all-urban states received a wage index that was calculated
without applying an imputed floor, and we no longer included the
imputed floor as a factor in the national budget neutrality adjustment.
Section 9831 of the American Rescue Plan Act of 2021 (Pub. L. 117-
2), enacted on March 11, 2021, amended section 1886(d)(3)(E)(i) of the
Act and added section 1886(d)(3)(E)(iv) of the Act to establish a
minimum area wage index for hospitals in all-urban States for
discharges occurring on or after October 1, 2021. Specifically, section
1886(d)(3)(E)(iv)(I) and (II) of the Act provides that for discharges
occurring on or after October 1, 2021, the area wage index applicable
to any hospital in an all-urban State may not be less than the minimum
area wage index for the fiscal year for hospitals in that State
established using the methodology described in Sec. 412.64(h)(4)(vi)
as in effect for FY 2018. Unlike the imputed floor that was in effect
from FYs 2005 through 2018, section 1886(d)(3)(E)(iv)(III) of the Act
provides that the imputed floor wage index shall not be applied in a
budget neutral manner. Section 1886(d)(3)(E)(iv)(IV) of the Act
provides that, for purposes of the imputed floor wage index under
clause (iv), the term all-urban State means a State in which there are
no rural areas (as defined in section 1886(d)(2)(D) of the Act) or a
State in which there are no hospitals classified as rural under section
1886 of the Act. Under this definition, given that it applies for
purposes of the imputed floor wage index, we consider a hospital to be
classified as rural under section 1886 of the Act if it is assigned the
State's rural area wage index value.
Effective beginning October 1, 2021 (FY 2022), section
1886(d)(3)(E)(iv) of the Act reinstated the imputed floor wage index
policy for all-urban States, with no expiration date, using the
methodology described in Sec. 412.64(h)(4)(vi) as in effect for FY
2018. We refer readers to the FY 2022 IPPS/LTCH PPS final rule (86 FR
45176 through 45178) for further discussion of the original imputed
floor calculation methodology implemented in FY 2005 and the
alternative methodology implemented in FY 2013.
Based on data available for this final rule, States that will be
all-urban States as defined in section 1886(d)(3)(E)(iv)(IV) of the
Act, and thus hospitals in such States that will be eligible to receive
an increase in their wage index due to application of the imputed floor
for FY 2026, are identified in Table 3 (which is available on the CMS
website) associated with this final rule. States with a value in the
column titled ``State Imputed Floor'' are eligible for the imputed
floor.
The regulations at Sec. 412.64(e)(1) and (4) and (h)(4) and (5)
implement the imputed floor required by section 1886(d)(3)(E)(iv) of
the Act for discharges occurring on or after October 1, 2021. The
imputed floor will continue to be applied for FY 2026 in accordance
with the policies adopted in the FY 2022 IPPS/LTCH PPS final rule. For
more information regarding our implementation of the imputed floor
required by section 1886(d)(3)(E)(iv) of the Act, we refer readers to
the discussion in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45176
through 45178).
Comment: We received comments supporting the application of the
imputed floor.
Response: We thank the commenters for their input. As discussed
earlier, the imputed floor is a statutory requirement under section
9831 of the American Rescue Plan Act of 2021 (Pub. L. 117-2) which
requires the Secretary to establish a minimum area wage index for
hospitals in all-urban States for discharges occurring on or after
October 1, 2021. We did not propose any changes to the methodology for
calculating the imputed floor as set forth in Sec. 412.64(e)(1) and
(4) and (h)(4) and (5). Therefore, in accordance with the statute and
existing regulations, we are applying the imputed floor for hospitals
in all-urban States for FY 2026.
3. State Frontier Floor for FY 2026
Section 10324 of Public Law 111-148 requires that hospitals in
frontier States cannot be assigned a wage index of less than 1.0000.
(We refer readers to the regulations at Sec. 412.64(m) and to a
discussion of the implementation of this provision in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50160 through 50161).) In the FY 2026 IPPS/
LTCH PPS proposed rule, we did not propose any changes to the frontier
floor policy for FY 2026. In the proposed rule we stated 40 hospitals
would receive the frontier floor value of 1.0000 for their FY 2026
proposed wage index. These hospitals are located in Montana, North
Dakota, South Dakota, and Wyoming.
We did not receive any public comments on the application of the
State frontier floor for FY 2026. In this final rule, 23 hospitals will
receive the frontier floor value of 1.0000 for their FY 2026 wage
index. These hospitals are located in Montana, North Dakota, South
Dakota, and Wyoming. We note that while Nevada meets the criteria of a
frontier State, all hospitals within the State currently receive a wage
index value greater than 1.0000.
The areas affected by the rural and frontier floor policies for the
final FY 2026 wage index are identified in Table 3 associated with this
final rule, which is available via the internet on the CMS website.
4. Out-Migration Adjustment Based on Commuting Patterns of Hospital
Employees
In accordance with section 1886(d)(13) of the Act, as added by
section 505 of Public Law 108-173, beginning with FY 2005, we
established
[[Page 36852]]
a process to make adjustments to the hospital wage index based on
commuting patterns of hospital employees (the ``out-migration''
adjustment). The process, outlined in the FY 2005 IPPS final rule (69
FR 49061), provides for an increase in the wage index for hospitals
located in certain counties that have a relatively high percentage of
hospital employees who reside in the county but work in a different
county (or counties) with a higher wage index.
Section 1886(d)(13)(B) of the Act requires the Secretary to use
data the Secretary determines to be appropriate to establish the
qualifying counties. When the provision of section 1886(d)(13) of the
Act was implemented for the FY 2005 wage index, we analyzed commuting
data compiled by the U.S. Census Bureau that were derived from a
special tabulation of the 2000 Census journey-to-work data for all
industries (CMS extracted data applicable to hospitals). These data
were compiled from responses to the ``long-form'' survey, which the
Census Bureau used at that time, and which contained questions on where
residents in each county worked (69 FR 49062). However, the 2010 Census
was ``short form'' only; information on where residents in each county
worked was not collected as part of the 2010 Census. The Census Bureau
worked with CMS to provide an alternative dataset based on the latest
available data on where residents in each county worked in 2010, for
use in developing a new out-migration adjustment based on new commuting
patterns developed from the 2010 Census data beginning with FY 2016.
To determine the out-migration adjustments and applicable counties
for FY 2016, we analyzed commuting data compiled by the Census Bureau
that were derived from a custom tabulation of the American Community
Survey (ACS), an official Census Bureau survey, utilizing 2008 through
2012 (5-year) Microdata. The data were compiled from responses to the
ACS questions regarding the county where workers reside and the county
to which workers commute. As we discussed in prior IPPS/LTCH PPS final
rules, we have applied the same policies, procedures, and computations
since FY 2012. We refer readers to the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49500 through 49502) for a full explanation of the revised data
source. We also stated that we will consider determining out-migration
adjustments based on data from the next Census or other available data,
as appropriate.
As discussed previously in section III.A.2., in the FY 2025 IPPS/
LTCH PPS final rule (89 FR 69253 through 69266), CMS adopted revised
delineations from the OMB Bulletin 23-01, published July 21, 2023. The
revised delineations incorporated population estimates based on the
2020 decennial census, as well as updated journey-to-work commuting
data. The Census Bureau once again worked with CMS to provide an
alternative dataset based on the latest available data on where
residents in each county worked, for use in developing a new out-
migration adjustment based on new commuting patterns. We analyzed
commuting data compiled by the Census Bureau that were derived from a
custom tabulation of the ACS, utilizing 2016 through 2020 data. The
Census Bureau produces county level commuting flow tables every 5 years
using non-overlapping 5-year ACS estimates. The data include
demographic characteristics, home and work locations, and journey-to-
work travel flows. The custom tabulation requested by CMS was specific
to general medical and surgical hospital and specialty (except
psychiatric and substance use disorder treatment) hospital employees
(hospital sector Census code 8191/NAICS code 6221 and 6223) who worked
in the 50 States, Washington, DC, and Puerto Rico and, therefore,
provided information about commuting patterns of workers at the county
level for residents of the 50 States, Washington, DC, and Puerto Rico.
For the ACS, the Census Bureau selects a random sample of addresses
where workers reside to be included in the survey, and the sample is
designed to ensure good geographic coverage. The ACS samples
approximately 3.5 million resident addresses per year.\140\ The results
of the ACS are used to formulate descriptive population estimates, and,
as such, the sample on which the dataset is based represents the actual
figures that will be obtained from a complete count.
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\140\ According to the Census Bureau, the effects of the public
health emergency (PHE) on ACS activities in 2020 resulted in a lower
number of addresses (~2.9 million) in the sample, as well as fewer
interviews than a typical year.
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In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69301), we finalized
that for FY 2025 and subsequent years, the out-migration adjustment
will be based on the data derived from the previously discussed custom
tabulation of the ACS utilizing 2016 through 2020 (5-year) Microdata.
As discussed earlier, we believe that these data are the most
appropriate to establish qualifying counties, because they are the most
accurate and up-to-date data that are available to us. For FY 2026, we
did not propose any changes to the methodology or data source for
calculating the out-migration adjustment. Specifically, we proposed
that the FY 2026 out-migration adjustments continue to be based on the
same policies, procedures, and computation that were used for the FY
2012 out-migration adjustment. We did not receive any comments on this
proposal. We are finalizing as proposed that the FY 2026 out-migration
adjustments continue to be based on the same policies, procedures, and
computation that were used for the FY 2012 out-migration adjustment. We
have applied these same policies, procedures, and computations since FY
2012, and we believe they continue to be appropriate for FY 2026. We
refer readers to a full discussion of the out-migration adjustment,
including rules on deeming hospitals reclassified under section
1886(d)(8) or section 1886(d)(10) of the Act to have waived the out-
migration adjustment, in the FY 2012 IPPS/LTCH PPS final rule (76 FR
51601 through 51602). Table 2 of this final rule (which is available on
the CMS website) lists the out-migration adjustments for the FY 2026
wage index. In addition, Table 4A associated with this final rule,
``List of Counties Eligible for the Out Migration Adjustment under
Section 1886(d)(13) of the Act'' (also available on the CMS website),
consists of the following: A list of counties that are eligible for the
outmigration adjustment for FY 2026 identified by FIPS county code, the
FY 2026 out-migration adjustment, and the number of years the
adjustment will be in effect. We refer readers to section V.I. of the
Addendum of this final rule for instructions on accessing IPPS tables
that are posted on the CMS websites identified in this final rule.
5. Discontinuation of the Low Wage Index Hospital Policy and Budget
Neutrality Adjustment
In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42325 through
42339), we finalized a policy to address increasing wage index
disparities, based in part on comments we received in response to our
request for information included in our FY 2019 IPPS/LTCH PPS proposed
rule (83 FR 20372 through 20377). Accordingly, we finalized a policy
that provided certain low wage index hospitals with an opportunity to
increase employee compensation without the usual lag in those increases
being reflected in the calculation of the wage index (as they would
expect to do if not for the lag). We accomplished this
[[Page 36853]]
by temporarily increasing the wage index values for certain hospitals
with low wage index values and doing so in a budget neutral manner
through an adjustment applied to the standardized amounts for all
hospitals. We increased the wage index for hospitals with a wage index
value below the 25th percentile wage index value for a fiscal year by
half the difference between the otherwise applicable final wage index
value for a year for that hospital and the 25th percentile wage index
value for that year across all hospitals (the low wage index hospital
policy).
When we adopted the low wage index hospital policy in the FY 2020
IPPS/LTCH PPS final rule (84 FR 42326 through 42328), we stated our
intention that this policy would be effective for at least 4 years,
beginning in FY 2020, to allow employee compensation increases
implemented by these hospitals sufficient time to be reflected in the
wage index calculation. We also stated we intended to revisit the issue
of the duration of this policy in future rulemaking as we gained
experience under the policy. For FY 2024, we continued to apply the low
wage index hospital policy and the related budget neutrality adjustment
(88 FR 58977 through 58980). In the FY 2025 IPPS/LTCH PPS final rule
(89 FR 69301 through 69308), we adopted an extension of the low wage
index hospital policy and the related budget neutrality adjustment
effective for at least three more years, beginning in FY 2025, in order
for sufficient wage data from after the end of the COVID-19 Public
Health Emergency to become available.
On July 23, 2024, the Court of Appeals for the D.C. Circuit held
that the Secretary lacked authority under section 1886(d)(3)(E) of the
Act or under the ``adjustments'' language of section 1886(d)(5)(I)(i)
of the Act to adopt the low wage index hospital policy for FY 2020, and
that the policy and related budget neutrality adjustment must be
vacated.\141\ After considering the D.C. Circuit's decision in
Bridgeport Hosp. v. Becerra, in the interim final action with comment
period (IFC) titled ``Medicare Program; Changes to the Fiscal Year 2025
Hospital Inpatient Prospective Payment System (IPPS) Rates Due to Court
Decision'' (referred to herein as the FY 2025 IFC) (89 FR 80405 through
80421), we recalculated the FY 2025 IPPS hospital wage index to remove
the low wage index hospital policy for FY 2025. We also removed the low
wage index budget neutrality factor from the FY 2025 standardized
amounts. We refer the reader to the applicable year final rule
discussions (FY 2020 IPPS/LTCH PPS final rule (84 FR 42325 through
42339); FY 2024 IPPS/LTCH PPS final rule (88 FR 58977 through 58980))
regarding the implementation of the low wage index hospital policy and
the FY 2025 IFC for a complete discussion regarding the removal of the
low wage index hospital policy for FY 2025.
---------------------------------------------------------------------------
\141\ Bridgeport Hosp. v. Becerra, 108 F.4th 882, 887-91 & n.6
(D.C. Cir. 2024).
---------------------------------------------------------------------------
For FY 2026 and subsequent fiscal years, after considering the D.C.
Circuit's decision in Bridgeport Hosp. v. Becerra, we proposed to
discontinue the low wage index hospital policy. Because we proposed to
discontinue the low wage index hospital policy for FY 2026 and
subsequent fiscal years, we stated that we would no longer apply a low
wage index budget neutrality factor to the standardized amounts.
Comment: Many commenters supported the discontinuation of the low
wage index hospital policy in light of the D.C. Circuit's decision in
Bridgeport Hosp. v. Becerra. Commenters agreed with the court that the
FY 2020 low wage index hospital policy is unlawful. These commenters
stated that ending the low wage index hospital policy, under which the
wage indexes of hospitals in the bottom quartile were raised at the
expense of all hospitals nationwide due to a budget neutrality
adjustment, would restore fairness and consistency to the wage index
and align the true cost of care within an area.
Other commenters strongly urged CMS to continue the low wage index
hospital policy. While most commenters acknowledged the court's
decision, they expressed concern regarding the impact of ending the
policy on low wage hospitals. They stated that the rationales for
implementing the low wage index hospital policy remain, and
discontinuing the policy will end critical support to vulnerable low
wage and often rural hospitals. Two commenters specifically asked CMS
to explore the impacts of discontinuing the low wage index hospital
policy on other policies and hospital payment programs before
finalizing, report on the effects of this policy change, and examine
how concurrent wage index adjustments may compound or offset the
effects. Similarly, another commenter supported the discontinuation of
the low wage index hospital policy but expressed concern regarding the
impact of ending the policy on rural hospitals. The commenter believes
that other programs such as the low volume payment adjustment should
provide support.
Response: We thank the commenters for their support for our
proposal. With regard to the commenters opposing the discontinuation of
the low wage index hospital policy, we understand the commenters'
concerns that the rationales for implementing the low wage index
hospital policy remain. However, as discussed in the FY 2025 IFC (89 FR
80407), although we respectfully disagree with the D.C. Circuit's
decision in Bridgeport Hosp. v. Becerra and believed that the low wage
index hospital policy and the related budget neutrality adjustment
should be effective for at least three more years for the reasons
stated in the FY 2025 IPPS rulemaking, after considering the D.C.
Circuit's decision in Bridgeport Hosp. v. Becerra, we proposed to
discontinue the low wage index hospital policy for FY 2026 and
subsequent fiscal years. In response to concerns regarding the impact
of ending the policy on low wage hospitals, we believe we have
addressed those concerns with policies to mitigate any large decline in
wage indexes. We refer readers to Section III.F.5 and III.F.6 for
detailed discussions of the cap on wage index decreases and transition
for the discontinuation of the low wage index hospital policy. With
regard to comments requesting that we explore and report on the effects
of discontinuing the low wage index hospital policy, we believe that
Table 2 associated with this final rule (which is available on the CMS
website) provides a clear analysis. Specifically, Table 2 contains
columns with each hospital's FY 2026 wage index without and with the 5
percent cap on any decrease to a hospital's wage index from its wage
index in the prior FY, and the value with the transitional payment
exception for the discontinuation of the low wage index hospital
policy, if applicable. With regard to examining how concurrent wage
index adjustments and payment programs like the low volume payment
adjustment may compound or offset the effects of discontinuing the low
wage index hospital policy, we believe this is a payment analysis best
performed by each hospital individually considering each hospital's
unique circumstances and eligibility for different adjustments.
Comment: Many commenters urged CMS to consider alternative policies
to help low wage hospitals, specifically permanent solutions that
address wage index inequities. Some commenters cited reports from the
Office of Inspector General (OIG), the Institute of Medicine (IOM), and
MedPAC that recognize flaws in the current wage
[[Page 36854]]
index system, and emphasized that comprehensive reform is necessary to
protect care in rural and underserved communities in the absence of the
low wage index hospital policy. Commenters requested that CMS develop a
permanent, statutory solution to address the circularity affecting low
wage hospitals by working with Congress to codify the low wage index
hospital policy in a manner that complies with the court's decision. A
commenter specifically asked CMS to expand on its administrative
discretion to assist low wage hospitals. Another commenter encouraged
CMS to continue developing policies that address low wage index
hospitals without negatively impacting other hospitals by soliciting
input from the hospital community. Similarly, many commenters also
encouraged CMS to further investigate the specific factors causing wage
disparities as part of developing a solution. A few commenters
suggested that CMS establish a wage index floor for all hospitals.
Response: We appreciate the varied solutions suggested by
commenters to help low wage hospitals and reduce wage index
disparities. We note that many of the suggested solutions may require
changes to the Medicare statute. We also note that exercising CMS's
administrative discretion in a manner that would help low wage
hospitals must consider the recent decision and analysis of the D.C.
Circuit in Bridgeport Hosp. v. Becerra. Regarding the commenters'
suggestions to solicit input from the hospital community and
investigate the causes of wage index disparities, we refer readers to
the FY 2019 IPPS/LTCH PPS proposed rule (83 FR 20372), in which we
invited the public to submit comments, suggestions, and recommendations
for regulatory and policy changes to the Medicare wage index, and to
the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19393 through 19394) for
a summary of the responses received from that request for information
(RFI). In response to the commenters' suggesting that CMS establish a
wage index floor for all hospitals, we refer readers to the FY 2020
IPPS/LTCH PPS final rule (84 FR 42326), where we considered that
alternative. Specifically, we stated that we believe the rank order of
wage indexes generally reflects meaningful distinctions between the
employee compensation costs faced by hospitals in different geographic
areas.
Comment: Many commenters requested that CMS implement a less
restrictive reclassification mechanism for the lowest wage index
hospitals (for a MGCRB reclassification). Specifically, commenters
suggested regulatory changes to Sec. 412.230(d) to allow a low wage
index hospital that is within 50 miles of a higher paid wage area
(urban or rural) to reclassify to that area and receive the wage index
that is paid to hospitals in that area. The commenters also suggested
CMS add a low wage hospital exception as Sec. 412.230(d)(6) for any
hospital that was in the lowest quartile of wage indexes nationally in
any of the FYs 2020 through 2025. As a policy justification, the
commenters stated that 50 miles reflect real-world commuting standards,
and that altering the average hourly wage comparison test for low wage
hospitals advances health equity. Overall, the commenters posited that
their suggested regulation text and policy change would reduce
disparities and enhance access to care.
Response: We thank the commenters for their suggested policy and
regulation changes to implement a less restrictive reclassification
mechanism for the lowest wage index hospitals (for a MGCRB
reclassification). We did not propose any changes to Sec. 412.230 in
the FY 2026 IPPS/LTCH PPS proposed rule. Additionally, under section
1886(d)(8)(D) of the Act, the Secretary is required to adjust the
standardized amount to ensure that aggregate payments under the IPPS
after implementation of the provisions of sections 1886(d)(8)(B) and
(C) and 1886(d)(10) of the Act are equal to the aggregate prospective
payments that would have been made absent these provisions. Any changes
that would allow more hospitals to reclassify would increase the budget
neutrality adjustment under section 1886(d)(8)(D) of the Act and would
further increase the adjustment made to the standardized amount for all
hospitals. We believe it is important to receive public comments with
regard to such changes.
We note that we received comments that were out of scope with
regard to our proposal to discontinue the low wage index hospital
policy for FY 2026 and subsequent fiscal years. Therefore, we are not
responding to these comments in this final rule.
After consideration of the public comments received and the D.C.
Circuit's decision in Bridgeport Hosp. v. Becerra, in this final rule,
we are finalizing without modification for FY 2026 and subsequent
fiscal years, our proposal to discontinue the low wage index hospital
policy. Because we are finalizing our proposal to discontinue the low
wage index hospital policy for FY 2026 and subsequent fiscal years, we
will no longer apply a low wage index budget neutrality factor to the
standardized amounts.
6. Cap on Wage Index Decreases and Budget Neutrality Adjustment
In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49018 through
49021), we finalized a wage index cap policy and associated budget
neutrality adjustment for FY 2023 and subsequent fiscal years. Under
this policy, we apply a 5-percent cap on any decrease to a hospital's
wage index from its wage index in the prior FY, regardless of the
circumstances causing the decline. A hospital's wage index will not be
less than 95 percent of its final wage index for the prior FY. If a
hospital's prior FY wage index is calculated with the application of
the 5-percent cap, the following year's wage index will not be less
than 95 percent of the hospital's capped wage index in the prior FY. We
note, the FY 2025 wage index was established in the FY 2025 IFC which
removed the low wage index hospital policy (89 FR 80405 through 80421).
Therefore, for FY 2026, the prior year wage index for purposes of the
cap will be based on the wage index established in the IFC. We also
note that in that same IFC, we established a transitional payment
exception for FY 2025. The 5-percent cap for FY 2026 will be applied
irrespective of the FY 2025 transitional payment exception. We finally
note, as discussed later in this section, that for FY 2026 we proposed
a transitional payment exception that addresses the effects of the
removal of the low wage index hospital policy. We proposed that this
transitional payment exception would be applied after the application
of the 5-percent cap.
Except for newly opened hospitals, we apply the cap for a FY using
the final wage index applicable to the hospital on the last day of the
prior FY. A newly opened hospital will be paid the wage index for the
area in which it is geographically located for its first full or
partial fiscal year, and it will not receive a cap for that first year,
because it will not have been assigned a wage index in the prior year.
The wage index cap policy is reflected at Sec. 412.64(h)(7). We apply
the cap in a budget neutral manner through a national adjustment to the
standardized amount each fiscal year. For more information about the
wage index cap policy and associated budget neutrality adjustment, we
refer readers to the discussion in the FY 2023 IPPS/LTCH PPS final rule
(87 FR 49018 through 49021).
For FY 2026, we will apply the wage index cap and associated budget
neutrality adjustment in accordance with the policies adopted in the FY
[[Page 36855]]
2023 IPPS/LTCH PPS final rule. We refer readers to the Addendum of this
final rule for further information regarding the budget neutrality
calculations.
Comment: Commenters, including MedPAC, supported the policy to cap
wage index decreases. MedPAC urged CMS to apply a cap to wage index
increases as well. Many commenters thanked CMS for recognizing that
significant year-to-year changes in the wage index can occur due to
external factors beyond a hospital's control and stated that this
policy increases predictability in IPPS payments. However, many
commenters urged CMS to apply this policy in a non-budget neutral
manner.
Response: We thank the commenters for their support. We note that
we did not propose any changes to this policy in the FY 2026 IPPS/LTCH
PPS proposed rule. We appreciate MedPAC's suggestion that the cap on
wage index changes should also be applied to increases in the wage
index. However, as we stated in the FY 2023 IPPS/LTCH PPS final rule
(87 FR 49021), one purpose of the policy is to help mitigate the
significant negative impacts of certain wage index changes. That is, we
cap decreases because we believe that a hospital would be able to more
effectively budget and plan when there is predictability about its
expected minimum level of IPPS payments in the upcoming fiscal year. We
do not have a policy to limit wage index increases because we do not
believe such a policy is needed to enable hospitals to more effectively
budget and plan their operations. Therefore, we believe it is
appropriate for hospitals that experience an increase in their wage
index value to receive that wage index value. With regard to the
commenters requesting that CMS apply this policy in a non-budget
neutral manner, we refer readers to our response to similar comments in
the FY 2024 IPPS/LTCH PPS final rule (88 FR 58981).
7. Transition for the Discontinuation of the Low Wage Index Hospital
Policy
As discussed previously, in the FY 2025 IFC we recalculated the FY
2025 IPPS hospital wage index to remove the low wage index hospital
policy for FY 2025. We also removed the low wage index budget
neutrality factor from the FY 2025 standardized amounts. For FY 2026
and subsequent fiscal years, consistent with the FY 2025 IFC, after
considering the D.C. Circuit's decision in Bridgeport Hosp. v. Becerra,
we proposed to discontinue the low wage index hospital policy. Because
we proposed to discontinue the low wage index hospital policy for FY
2026 and subsequent fiscal years, we would no longer apply the low wage
index budget neutrality factor to the standardized amounts.
In the past, we have established temporary transition policies when
there have been significant changes to payment policies, and we have
limited the duration of each transition in order to phase in the
effects of those payment policy changes. In taking this temporary
approach in the past, we have sought to mitigate short-term instability
and payment fluctuations that can negatively impact hospitals
consistent with principles of certainty and predictability under
prospective payment systems. For example, CMS has recognized that
hospitals in certain areas may experience a negative impact on their
IPPS payment due to the adoption of revised OMB delineations for wage
index purposes and has finalized transition policies to mitigate
negative financial impacts and provide stability to year-to-year wage
index variations. We refer readers to the FY 2015 IPPS/LTCH PPS final
rule (79 FR 49956 through 49962) for a discussion of the transition
period finalized when CMS adopted revised OMB delineations after the
2010 decennial census. For FY 2025, consistent with our past practice,
we established an interim transition policy for hospitals significantly
impacted by the removal of the FY 2025 low wage index hospital policy
using our authority under section 1886(d)(5)(I) of the Act.
Specifically, the transitional payment exception for FY 2025 for those
hospitals is equal to the additional FY 2025 amount a hospital would
have been paid under the IPPS if its FY 2025 wage index were equal to
95 percent of its FY 2024 wage index. For a discussion of the removal
of the low wage index hospital policy and the establishment of the
interim transition policy, we refer readers to the FY 2025 IFC (89 FR
80405 through 80421).
We currently have a wage index cap policy at 42 CFR 412.64(h)(7),
under which we apply a 5-percent cap on any decrease to a hospital's
wage index from its wage index in the prior FY in a budget neutral
manner, regardless of the circumstances causing the decline, so that a
hospital's final wage index for the upcoming fiscal year will not be
less than 95 percent of its final wage index from the prior fiscal
year. In accordance with 42 CFR 412.64(e)(1)(ii), CMS applies a budget
neutrality adjustment to offset the increase in total payments
resulting from the application of that cap.
We stated in the proposed rule that some hospitals that previously
benefitted from the low wage index hospital policy would experience
decreases of 10 percent or more over the two years from their FY 2024
wage index (with the low wage index hospital policy applied) to their
proposed FY 2026 wage index (that is, approximately 5 percent or more
per year over that time period). Similar to how 42 CFR 412.64(h)(7)
operates, and how our interim transitional policy established in the FY
2025 IFC for these hospitals operates in FY 2025, we proposed to
establish a narrow transitional exception to the calculation of FY 2026
payments for these hospitals.
As described previously, if the combined payment effect of the FY
2025 wage index and the transitional payment exception for FY 2025 had
been attributable solely to the FY 2025 wage index, then the wage index
cap policy at 42 CFR 412.64(h)(7) would have mitigated these FY 2026
wage index decreases and would have done so in a budget neutral manner
under our current regulations. As discussed in the FY 2025 IFC (89 FR
80407-80408), while CMS is not necessarily required by the statute to
budget neutralize every exception or adjustment under section
1886(d)(5)(I), it has often done so by exercising its discretion under
section 1886(d)(5)(I) of the Act twice: first to adopt an exception or
adjustment, and then again to make that exception or adjustment budget
neutral.\142\ For the FY 2025 interim transition policy, under the
unique circumstances and due to the timing of the appellate court's
decision in Bridgeport Hosp. v. Becerra so close to the beginning of FY
2025, we declined to exercise our discretion to budget neutralize that
interim FY 2025 transition policy. We stated that unlike most policies
relevant to the calculation of the hospital wage index, the timing of
the court's decision shortly before the beginning of the fiscal year
necessitated swift action by the agency via an IFC, rather than
providing for prior notice and opportunity for comment. The agency's
action in that IFC was intended to promote certainty regarding FY 2025
IPPS payments in light of the reasoning of Bridgeport, which risked
creating ongoing confusion for hospitals extending into FY 2025 about
the amount of their IPPS payments. In that circumstance, the lack of an
opportunity to notify interested parties in a notice of proposed
rulemaking about changes to their wage index that would result from
[[Page 36856]]
budget neutralizing the transition policy, and for the agency to
consider before the policy's effective date issues hospitals might
raise when commenting on those changes, weighed in favor of an approach
that did not adversely affect the significant majority of hospitals.
For these reasons, and as discussed in the IFC, we declined to budget
neutralize the interim FY 2025 transition policy.
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\142\ For example, CMS has stated in the past that it would
exercise its discretion under section 1886(d)(5)(I) of the Act to
make the low wage index hospital policy budget neutral even if
budget neutrality were not required by statute (88 FR 58979).
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In contrast, we proposed the FY 2026 transition policy under very
different circumstances. We are not facing the timing constraints of a
court decision issued shortly before the beginning of a fiscal year
that necessitated swift action through an IFC to promote certainty and
prevent ongoing confusion by hospitals. Rather, we proposed the FY 2026
transition policy through the normal course of our annual rulemaking
for the IPPS, which allows both for advance notice of the policy and
for us to consider issues interested parties might raise in comments on
the proposed rule. We proposed to make this policy budget neutral
through an adjustment applied to the standardized amount for all
hospitals because: (1) the wage index cap policy at 42 CFR 412.64(h)(7)
would have mitigated these FY 2026 wage index decreases had the
combined payment effect of the FY 2025 wage index and the transitional
payment exception been reflected solely in the FY 2025 wage index, and
it would have done so in a budget neutral manner under our current
regulations; and (2) the circumstances described previously that caused
us to decline to budget neutralize the interim FY 2025 transition
policy are not applicable to the proposed FY 2026 transition policy. In
addition, we noted that implementing the proposed FY 2026 transition
policy in a budget neutral manner would be consistent with past
practice. For example, we budget neutralized the FY 2015 wage index
transition budget neutrality policy discussed earlier (79 FR 49956
through 49962). As we have discussed in other instances (89 FR 19398),
we believed, and continue to believe, that transition policies should
not increase estimated aggregate Medicare payments beyond the payments
that would be made had we never proposed these transition policies.
Therefore, we proposed to use our authority under section
1886(d)(5)(I)(i) of the Act twice. First, we proposed to adopt a narrow
transitional exception to the calculation of FY 2026 IPPS payments for
low wage index hospitals significantly impacted by the discontinuation
of the low wage index hospital policy. Second, we proposed to exercise
our authority again to do so in a budget neutral
manner.143 144 We refer the reader to section II.A.4.g. of
the Addendum of this final rule for complete details regarding the
application of the transition for the discontinuation of the low wage
index hospital policy budget neutrality factor.
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\143\ We note that even more so than was the case for the FY
2025 interim transition policy, the scope and magnitude of the FY
2026 transitional policy are much smaller than the low wage index
hospital policy. As discussed in section VI. of the preamble of this
final rule, we estimate only 54 hospitals out of the over 3,000
hospitals paid under the IPPS will receive FY 2026 transitional
exception payments, and the total payment impact of the transitional
policy is an increase in IPPS operating payments by approximately
$27 million. For the FY 2025 interim transition policy the
corresponding figures were 113 hospitals and an increase in IPPS
operating payments by approximately $37 million (89 FR 80417).
\144\ We note that because creating an exception to the
calculation of the FY 2026 payments is in this circumstance
functionally equivalent to adjusting the FY 2026 payments, the
transitional exception can be alternatively considered a
transitional adjustment.
---------------------------------------------------------------------------
The transitional exception policy we proposed applies to hospitals
that benefitted from the FY 2024 low wage index hospital policy. For
those hospitals, we stated that we would compare the hospital's
proposed FY 2026 wage index to the hospital's FY 2024 wage index. If
the hospital is significantly impacted by the discontinuation of the
low wage index hospital policy, meaning the hospital's proposed FY 2026
wage index is decreasing by more than 9.75 percent \145\ from the
hospital's FY 2024 wage index, then the transitional payment exception
for FY 2026 for that hospital would be equal to the additional FY 2026
amount the hospital would be paid under the IPPS if its FY 2026 wage
index were equal to 90.25 percent \146\ of its FY 2024 wage index.\147\
We noted this proposed transitional payment exception would be applied
after the application of the 5-percent cap described at 42 CFR
412.64(h)(7). We provided the following example in the proposed rule:
assume the FY 2024 wage index for a hospital that benefitted from the
low wage index hospital policy is 0.7600, and the hospital's proposed
FY 2026 wage index is 0.6500. (If applicable, this proposed FY 2026
wage index value would include the 5-percent cap based on a comparison
of the hospital's FY 2026 wage index prior to application of the 5-
percent cap, to the hospital's FY 2025 wage index. We noted that the FY
2025 wage index that will be used in this comparison is generally the
FY 2025 wage index listed in Table 2 from the FY 2025 IFC in the column
labeled ``FY 2025 Wage Index With Cap''. We noted that all hospitals,
regardless of whether the cap was applied to their FY 2025 wage index,
have a value in the column ``FY 2025 Wage Index With Cap''. Hospitals
that did not have a cap applied to their FY 2025 wage index will
display a wage index in this column without the cap.) The hospital's
proposed FY 2026 wage index is decreasing by more than 9.75 percent
from the hospital's FY 2024 wage index [that is, 0.6500 < 0.6859 where
0.6859 = (0.9025 times 0.7600)]. The proposed transitional payment
exception for FY 2026 for this hospital is equal to the additional
amount the hospital would be paid under the IPPS if its FY 2026 wage
index were equal to 0.6859, which is 90.25 percent of 0.7600, its FY
2024 wage index.
---------------------------------------------------------------------------
\145\ Under the wage index cap policy at 42 CFR 412.64(h)(7), a
hospital's wage index for a FY cannot be lower than 0.95 * its wage
index from the prior FY. Over a 2-year period if its wage index were
decreasing by more than 5 percent each year, this will mean a
hospital's wage index for a FY cannot be lower than (0.95*0.95)
times its wage index from two years earlier. Similarly for our
proposed FY 2026 transitional exception policy, we proposed that a
hospital is significantly impacted by the discontinuation of the low
wage index hospital policy if its FY 2026 wage index is less than
(0.95*0.95) of its FY 2024 wage index, which equates to a decrease
of more than 9.75 percent.
\146\ 90.25 percent = 95 percent for FY 2025 * 95 percent for FY
2026.
\147\ We note that we are not proposing to change the FY 2026
wage index values under section 1886(d)(3)(E) for hospitals eligible
for the proposed FY 2026 transitional exception policy on the basis
of the exception; the proposed change will be applied as a separate
step only for purposes of determining the hospitals' FY 2026 IPPS
payments.
---------------------------------------------------------------------------
Under the capital IPPS, the adjustment for local cost variation is
based on the hospital wage index value that is applicable to the
hospital under the operating IPPS. We adjust the capital standard
Federal rate so that the effects of the annual changes in the
geographic adjustment factor (GAF) are budget neutral. The low wage
index hospital policy has been reflected in the capital IPPS GAFs since
FY 2020 (84 FR 42638). The removal of the low wage index hospital
policy for FY 2025 also affects the FY 2025 GAFs. Because we are now no
longer applying the low wage index hospital policy in FY 2025, we are
also no longer making an adjustment to the FY 2025 capital standard
Federal rate to ensure budget neutrality for the low wage index
hospital policy.
As discussed in the FY 2025 IFC (89 FR 80408), since FY 2023, the
GAFs reflect the wage index cap policy that limits any decrease to a
hospital's wage index from its wage index in the prior FY, regardless
of the circumstances causing the decline, to 95 percent of its prior
year value. As described previously, some hospitals that previously
benefitted from the low wage index hospital policy will experience
[[Page 36857]]
decreases of 10 percent or more over the two years from their FY 2024
wage index (with the low wage index hospital policy applied) to their
proposed FY 2026 wage index (that is, approximately 5 percent or more
per year over that time period). As such, similar to the FY 2025
interim transition policy established in the FY 2025 IFC, we proposed
to make a budget neutral equivalent exception under the capital IPPS.
Comment: Commenters generally supported a transition for the
discontinuation of the low wage index hospital policy. However, a few
commenters expressed concern that CMS's proposed transition for FY 2026
is too narrow in scope and duration and suggested that CMS extend the
transition for more years.
Response: We thank the commenters for their support. For FY 2026,
as discussed later in the section, we are finalizing as proposed
without modification the transitional payment exception for FY 2026 in
a budget neutral manner. With regard to extending the transition for
additional years, we may consider this in future rulemaking.
Comment: Regarding the budget neutrality adjustment for the
transition, a commenter was supportive and explained that the budget
neutrality adjustment will have only a very narrow impact. Most
commenters, however, urged CMS to adopt the transition policy on a non-
budget neutral basis. Some of these commenters stated that the statute
does not require CMS to implement the policy in a budget neutral
manner, and CMS could apply the transition in the same manner as in FY
2025. A few commenters maintained that CMS does not have the authority
under 1886(d)(5)(I)(i) to apply budget neutrality, stating that the
only authority for budget neutrality is under section 1886(d)(5)(I)(ii)
of the Act when making adjustments for transfer cases. Multiple
commenters maintained that a budget neutrality adjustment to fund the
transition perpetuates the same issue the courts rejected by increasing
payments to low wage hospitals at the expense of other hospitals.
Similarly, a commenter stated that if CMS lacks the authority to
implement the low wage index hospital policy, the burden should be on
CMS to pay for a transition for hospitals benefiting from the unlawful
policy, not on other hospitals. Other reasons given by commenters for a
non-budget neutral transition included avoiding additional instability
and the modest cost due to the relatively small number of hospitals
benefiting from the policy.
Response: We thank the commenter supportive of the budget
neutrality adjustment. In response to the commenters urging CMS to
finalize the transition without a budget neutrality adjustment like the
FY 2025 transition, we continue to believe that the circumstances that
caused us to decline to budget neutralize the interim FY 2025
transition policy are not applicable in FY 2026, and that the reasons
we stated in the proposed rule for budget neutralizing the transition
continue to apply.
Regarding the comments challenging CMS's authority under
1886(d)(5)(I)(i) to apply the transition for FY 2026 in a budget
neutral manner, we disagree with the commenters that we are not
permitted to make budget neutral exceptions under section
1886(d)(5)(I)(i) of the Act. Consistent with our response to similar
comments about the authority for budget neutrality in the FY 2021 IPPS/
LTCH PPS final rule (85 FR 58767), we believe that we have authority
under section 1886(d)(5)(I)(i) of the Act to promulgate a budget
neutrality adjustment to the national standardized amount and that this
authority is not limited to transfer cases.
In response to the commenters asserting that CMS should not budget
neutralize a transition from a policy that a court ruled exceeded the
Secretary's statutory authority, and other reasons given by commenters
in support of a non-budget neutral transition, we continue to believe
as we have stated in the past (89 FR 19398) that transition policies
should not increase estimated aggregate Medicare payments beyond the
payments that would have been made had we never proposed these
transition policies. Also, as noted earlier, this is a narrow
transition and the scope and magnitude of the FY 2026 transitional
policy are much smaller. This is an appropriate budget neutral
transition for hospitals.
After consideration of the public comments we received, we are
finalizing as proposed without modification to use our authority under
section 1886(d)(5)(I)(i) of the Act twice. First, to adopt a narrow
transitional exception to the calculation of FY 2026 IPPS payments for
low wage index hospitals that benefitted from the FY 2024 low wage
index hospital policy and are significantly impacted by the
discontinuation of the low wage index hospital policy. Second, we are
exercising our authority again to do so in a budget neutral manner
through an adjustment applied to the standardized amount for all
hospitals. We are also finalizing our proposal to make a budget neutral
equivalent exception under the capital IPPS.
G. FY 2026 Wage Index Tables
In this FY 2026 IPPS/LTCH PPS final rule, we have included the
following wage index tables: Table 2 titled ``Case-Mix Index and Wage
Index Table by CCN''; Table 3 titled ``Wage Index Table by CBSA'';
Table 4A titled ``List of Counties Eligible for the Out-Migration
Adjustment under Section 1886(d)(13) of the Act''; and Table 4B titled
``Counties redesignated under section 1886(d)(8)(B) of the Act (Lugar
Counties).'' We refer readers to section VI. of the Addendum to this
final rule for a discussion of the wage index tables for FY 2026.
H. Labor-Related Share for the FY 2026 Wage Index
Section 1886(d)(3)(E) of the Act directs the Secretary to adjust
the proportion of the national prospective payment system base payment
rates that are attributable to wages and wage-related costs by a factor
that reflects the relative differences in labor costs among geographic
areas. It also directs the Secretary to estimate from time to time the
proportion of hospital costs that are labor-related and to adjust the
proportion (as estimated by the Secretary from time to time) of
hospitals' costs that are attributable to wages and wage-related costs
of the DRG prospective payment rates. We refer to the portion of
hospital costs attributable to wages and wage-related costs as the
labor-related share. The labor-related share of the prospective payment
rate is adjusted by an index of relative labor costs, which is referred
to as the wage index.
Section 403 of Public Law 108-173 amended section 1886(d)(3)(E) of
the Act to provide that the Secretary must employ 62 percent as the
labor-related share unless this would result in lower payments to a
hospital than would otherwise be made. However, this provision of
Public Law 108-173 did not change the legal requirement that the
Secretary estimate from time to time the proportion of hospitals' costs
that are attributable to wages and wage-related costs. Thus, hospitals
receive payment based on either a 62-percent labor-related share, or
the labor-related share estimated from time to time by the Secretary,
depending on which labor-related share results in a higher payment.
In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45194 through
45208), we rebased and revised the hospital market basket to a 2018-
based IPPS hospital market basket, which replaced the 2014-
[[Page 36858]]
based IPPS hospital market basket, effective beginning October 1, 2021.
Using the 2018-based IPPS market basket, we finalized a labor-related
share of 67.6 percent for discharges occurring on or after October 1,
2021. In addition, in FY 2022, we implemented this revised and rebased
labor-related share in a budget neutral manner (86 FR 45193, 86 FR
45529 through 45530). However, consistent with section 1886(d)(3)(E) of
the Act, we did not take into account the additional payments that
would be made as a result of hospitals with a wage index less than or
equal to 1.0000 being paid using a labor-related share lower than the
labor-related share of hospitals with a wage index greater than 1.0000.
As described in section IV. of the preamble of this final rule,
effective beginning FY 2026, in the FY 2026 IPPS/LTCH proposed rule, we
proposed to rebase and revise the IPPS market basket to reflect a 2023
base year. We also proposed to recalculate the labor-related share for
discharges occurring on or after October 1, 2025, using the proposed
2023-based IPPS market basket. As discussed in Appendix A of this final
rule, we proposed this rebased and revised labor-related share in a
budget neutral manner. However, consistent with section 1886(d)(3)(E)
of the Act, we stated that we would not take into account the
additional payments that would be made as a result of hospitals with a
wage index less than or equal to 1.0000 being paid using a labor-
related share lower than the labor-related share of hospitals with a
wage index greater than 1.0000.
The labor-related share is used to determine the proportion of the
national IPPS base payment rate to which the area wage index is
applied. We include a cost category in the labor-related share if the
costs are labor intensive and vary with the local labor market. As
described in section IV. of the preamble of this final rule, beginning
with FY 2026, we proposed to include in the labor-related share the
national average proportion of operating costs that are attributable to
the following cost categories in the proposed 2023-based IPPS market
basket: Wages and Salaries; Employee Benefits; Professional Fees:
Labor-Related; Administrative and Facilities Support Services;
Installation, Maintenance, and Repair Services; and All Other: Labor-
Related Services as measured in the proposed 2023-based IPPS market
basket. Therefore, for FY 2026, we proposed to use a labor-related
share of 66.0 percent for discharges occurring on or after October 1,
2025.
As discussed in section VI.B. of the preamble of this final rule,
prior to January 1, 2016, Puerto Rico hospitals were paid based on 75
percent of the national standardized amount and 25 percent of the
Puerto Rico-specific standardized amount. As a result, we applied the
Puerto Rico-specific labor-related share percentage and nonlabor-
related share percentage to the Puerto Rico-specific standardized
amount. Section 601 of the Consolidated Appropriations Act, 2016 (Pub.
L. 114-113) amended section 1886(d)(9)(E) of the Act to specify that
the payment calculation with respect to operating costs of inpatient
hospital services of a subsection (d) Puerto Rico hospital for
inpatient hospital discharges on or after January 1, 2016, shall use
100 percent of the national standardized amount. Because Puerto Rico
hospitals are no longer paid with a Puerto Rico-specific standardized
amount as of January 1, 2016, under section 1886(d)(9)(E) of the Act as
amended by section 601 of the Consolidated Appropriations Act, 2016,
there is no longer a need for us to calculate a Puerto Rico-specific
labor-related share percentage and nonlabor-related share percentage
for application to the Puerto Rico-specific standardized amount.
Hospitals in Puerto Rico are now paid 100 percent of the national
standardized amount and, therefore, are subject to the national labor-
related share and nonlabor-related share percentages that are applied
to the national standardized amount. Accordingly, for FY 2026, we did
not propose a Puerto Rico-specific labor-related share percentage or a
nonlabor-related share percentage.
Comment: A commenter stated that while they understood that the
rebasing of the market basket to a 2023 base year requires
recalibrating cost weights, CMS is not required to reweight the labor
related share under section 1886(d)(2)(H) as part of that rebasing.
They urged CMS to maintain the current 67.6 percent labor-related share
in light of rising labor costs borne by essential hospitals. Some
commenters were concerned that the reduction to the labor-related share
from 67.6 percent to 66 percent would disproportionally negatively
impact hospitals with a wage index greater than 1.000.
Response: We thank the commenters for their comments. As stated
previously, in the FY 2006 IPPS final rule (70 FR 47403), in accordance
with section 404 of Public Law 108-173, CMS determined a new frequency
for rebasing the hospital market basket. We established a rebasing
frequency of every 4 years and, therefore, we rebase and revise the
IPPS market basket effective for the FY 2026 IPPS update since it was
last rebased effective for the FY 2022 IPPS update (the base year for
the cost weights is being updated from 2018 to 2023). Section
1886(d)(3)(E) of the Act directs the Secretary to adjust the proportion
of the national prospective payment system base payment rates that are
attributable to wages and wage-related costs by a factor that reflects
the relative differences in labor costs among geographic areas. It also
directs the Secretary to estimate from ``time to time'' the proportion
of hospital costs that are labor-related and to adjust the proportion
(as estimated by the Secretary from ``time to time'') of hospitals'
costs that are attributable to wages and wage-related costs of the DRG
prospective payment rates. In order to meet the statutory requirement
of ``time to time'', when we rebase and revise the IPPS market basket
it is our longstanding practice to also recalculate the labor-related
share using the rebased and revised IPPS market basket. Finally, we
believe it is appropriate for FY 2026 to update the labor-related share
to reflect the more recent cost structures of IPPS hospitals from the
2023-based IPPS market basket rather than continue to use the 2018-
based IPPS market basket.
After consideration of public comments, as discussed in section IV.
of the preamble of this final rule, we are finalizing the rebasing of
the 2023-based IPPS market basket without modification and the
derivation of a labor-related share of 66.0 percent based on the final
2023-based IPPS market basket. Therefore, we are finalizing a labor-
related share of 66.0 percent based on the 2023-based IPPS market
basket. We refer the reader to section IV. of the preamble of this
final rule for complete details regarding the rebasing of the labor-
related share.
Tables 1A and 1B, which are published in section VI. of the
Addendum to this FY 2026 IPPS/LTCH PPS final rule and available via the
internet on the CMS website, reflect the national labor-related share.
Table 1C, in section VI. of the Addendum to this FY 2026 IPPS/LTCH PPS
final rule and available via the internet on the CMS website, reflects
the national labor-related share for hospitals located in Puerto Rico.
For FY 2026, for all IPPS hospitals (including Puerto Rico hospitals)
whose wage indexes are less than or equal to 1.0000, we are finalizing
to apply the wage index to a labor-related share of 62 percent of the
national standardized amount. For all IPPS hospitals (including Puerto
Rico hospitals) whose wage indexes are greater than 1.000, for FY 2026,
we are finalizing to apply the wage index to a labor-related share of
66.0 percent of the national standardized amount.
[[Page 36859]]
IV. Rebasing and Revising of the Hospital Market Baskets for Acute Care
Hospitals
A. Background
Effective for cost reporting periods beginning on or after July 1,
1979, we developed and adopted a hospital input price index (that is,
the hospital market basket for operating costs). Although ``market
basket'' technically describes the mix of goods and services used in
providing hospital care, this term is also commonly used to denote the
input price index (that is, cost category weights and price proxies
combined) derived from that market basket. Accordingly, the term
``market basket'' as used in this document refers to the hospital input
price index.
The percentage change in the market basket reflects the average
change in the price of goods and services hospitals purchase in order
to provide inpatient care. We first used the market basket to adjust
hospital cost limits by an amount that reflected the average increase
in the prices of the goods and services used to provide hospital
inpatient care. This approach linked the increase in the cost limits to
the efficient utilization of resources.
Since the inception of the IPPS, the projected change in the
hospital market basket has been the integral component of the update
factor by which the prospective payment rates are updated every year.
An explanation of the hospital market basket used to develop the
prospective payment rates was published in the Federal Register on
September 1, 1983 (48 FR 39764). We also refer readers to the FY 2022
IPPS/LTCH PPS final rule (86 FR 45194 through 45207) in which we
discussed the most recent previous rebasing of the hospital input price
index.
The hospital 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 relative to the base period are not
measured.
The index itself is constructed in three steps. First, a base
period is selected (in the proposed rule, we proposed to use 2023 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 hospital services. The effects on total costs resulting from
changes in the mix of goods and services purchased subsequent to the
base period are not measured. For example, a hospital hiring more
nurses to accommodate the needs of patients would increase the volume
of goods and services purchased by the hospital but would not be
factored into the price change measured by a fixed-weight hospital
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 recent changes in the mix
of goods and services that hospitals purchase (hospital inputs) to
furnish inpatient care between base periods.
We last rebased the hospital market basket cost weights effective
for FY 2022 (86 FR 45194 through 45207), with 2018 data used as the
base period for the construction of the market basket cost weights.
Effective for FY 2026, we proposed to rebase the IPPS operating market
basket to reflect the 2023 cost structure for IPPS hospitals and to
revise applicable cost categories and price proxies used to determine
the IPPS market basket, as discussed in this final rule. We also
proposed to rebase and revise the Capital Input Price Index (CIPI) as
described in section IV.D. of the preamble of this final rule.
In the following discussion, we provide an overview of the proposed
IPPS market basket, describe the proposed methodologies for developing
the cost weights, and provide information on the proposed price
proxies. In each section, we describe any comments received, responses
to these comments, and our final policies for this final rule. Then, we
present the FY 2026 market basket update and labor-related share based
on the 2023-based IPPS market basket.
B. Rebasing and Revising the IPPS Market Basket
The terms ``rebasing'' and ``revising,'' while often used
interchangeably, actually denote different activities. ``Rebasing''
means moving the base year for the structure of costs of an input price
index (for example, in the proposed rule, we proposed to shift the base
year cost structure for the IPPS hospital index from 2018 to 2023).
``Revising'' means changing data sources or price proxies used in the
input price index. As published in the FY 2006 IPPS final rule (70 FR
47403), in accordance with section 404 of Public Law 108-173, CMS
determined a new frequency for rebasing the hospital market basket. We
established a rebasing frequency of every 4 years and, therefore, we
proposed to rebase and revise the IPPS market basket effective for the
FY 2026 IPPS update since it was last rebased effective for the FY 2022
IPPS update (the base year for the cost weights is being updated from
2018 to 2023). We note that comments we received on the overall market
basket method (including frequency of rebasings), transparency of the
method, and resulting market basket updates are discussed in section
IV.B.2. of the preamble of this final rule and comments we received on
the labor-related share are discussed in section IV.B.3. of the
preamble of this final rule.
1. Development of Cost Categories and Weights
a. Use of Medicare Cost Report Data
The major source of expenditure data for developing the proposed
rebased and revised hospital market basket cost weights is the 2023
Medicare cost reports. These 2023 Medicare cost reports are for cost
reporting periods beginning on and after October 1, 2022, and before
October 1, 2023. We proposed to use 2023 as the base year because we
believe that the 2023 Medicare cost reports represent the most recent,
complete set of Medicare cost report data available to develop cost
weights for IPPS hospitals at the time of rulemaking. As was done in
previous rebasings, these cost reports are from IPPS hospitals only
(hospitals excluded from the IPPS (including CAHs and rural emergency
hospitals) are not
[[Page 36860]]
included) and are based on IPPS Medicare-allowable operating costs.
IPPS Medicare-allowable operating costs are costs that are eligible to
be paid under the IPPS. For example, the IPPS market basket excludes
home health agency (HHA) costs as these costs would be paid under the
HHA PPS and, therefore, these costs are not IPPS Medicare-allowable
costs.
The current set of instructions for the Medicare cost reports for
hospitals (Form 2552-10, OMB Control Number 0938-0050) can be found in
Chapter 40 at the following website (https://www.cms.gov/Regulations-and-Guidance/Guidance/ManuFals/Paper-Based-Manuals-Items/CMS021935).
The major types of costs underlying the 2023-based IPPS market
basket are derived from the Medicare cost reports (Form 2552-10, OMB
Control Number 0938-0050). Specifically, we proposed to use the
Medicare cost reports for seven specific types of costs: Wages and
Salaries, Employee Benefits, Contract Labor, Pharmaceuticals,
Professional Liability Insurance (Malpractice), Blood and Blood
Products, and Home Office/Related Organization Contract Labor. A
residual category is then estimated and reflects all remaining costs
not captured in the seven types of costs identified previously. The
2018-based IPPS market basket similarly used the Medicare cost reports.
In order to create a market basket that is representative of IPPS
hospitals serving Medicare patients and to help ensure the major cost
weights accurately reflect the percent of total Medicare-allowable
operating costs, as defined in this final rule, we proposed to apply
edits to remove reporting errors and outliers. Specifically, the IPPS
Medicare cost reports used to calculate the market basket cost weights
exclude any providers that reported costs less than or equal to zero
for the following categories: total Medicare inpatient costs (Worksheet
D-1, Part II, column 1, line 49); Medicare PPS payments (Worksheet E,
Part A, column 1, line 59); Total salary costs (Worksheet S-3, Part II,
column 2, line 1). We also limited our sample to providers that had a
Medicare cost reporting period that was between 10 and 14 months. The
final sample used includes roughly 2,900 Medicare cost reports (about
93 percent of the universe of IPPS Medicare cost reports for 2023). The
sample of providers is representative of the national universe of
providers by ownership-type (proprietary, nonprofit, and government)
and by urban/rural status.
In the proposed rule, we proposed to calculate total Medicare-
allowable operating costs for each hospital to be equal to noncapital
costs (Worksheet B, Part I, column 26 less Worksheet B, Part II, column
26) that are attributable to the Medicare-allowable cost centers of the
hospital. We proposed that Medicare-allowable cost centers are lines 30
through 35, 50 through 60, 62 through 76, 90, 91, 92.01, 93, 96 and 97.
This is the same methodology that was used for the 2018-based IPPS
market basket.
(1) Wages and Salaries Costs
To derive wages and salaries costs for the Medicare-allowable cost
centers, we proposed to first calculate total unadjusted wages and
salaries costs as reported on Worksheet S-3, Part II, column 4, line 1.
We then proposed to remove the wages and salaries attributable to non-
Medicare-allowable cost centers (that is, excluded areas) as well as a
portion of overhead wages and salaries attributable to these excluded
areas. This is the same methodology that was used to derive wages and
salaries costs for the 2018-based IPPS market basket.
Specifically, we proposed to calculate excluded area wages and
salaries as equal to the sum of Worksheet S-3, Part II, column 4, lines
3, 4.01, 5, 6, 7, 7.01, 8, 9, and 10 less Worksheet A, column 1, lines
20 and 23. Overhead wages and salaries are attributable to the entire
IPPS facility. Therefore, we proposed to only include the proportion
attributable to the Medicare-allowable cost centers. Specifically, we
proposed to estimate the proportion of overhead wages and salaries that
are not attributable to Medicare-allowable cost centers (that is,
excluded areas) by first calculating the ratio of total Medicare-
allowable operating costs (as previously defined) to total facility
operating costs (Worksheet B, Part I, column 26, line 202 less
Worksheet B, Part I, column 0, lines 1 and 2). We then proposed to
multiply this ratio by total overhead wages and salaries (Worksheet S-
3, Part II, column 4, lines 26, 27, 29 through 32, 34, and 36 through
43) to estimate Medicare allowable overhead wages and salaries. The
difference between total overhead wages and salaries and Medicare
allowable overhead wages and salaries is equal to the overhead wages
and salaries attributable to the excluded areas.
Therefore, we proposed wages and salaries costs used for the 2023-
based IPPS market basket are equal to total wages and salaries costs
less: (a) excluded area wages and salaries costs; and (b) overhead
wages and salaries costs attributable to the excluded areas.
(2) Employee Benefits Costs
We proposed to derive employee benefits costs using a similar
methodology as the wages and salaries costs; that is, reflecting
employee benefits costs attributable to the Medicare-allowable cost
centers. First, we calculate total unadjusted employee benefits costs
as the sum of Worksheet S-3, Part II, column 4, lines 17, 18, 20, 22,
and 25.52.
We then exclude those employee benefits attributable to the
overhead wages and salaries for the non-Medicare-allowable cost centers
(that is, excluded areas). Employee benefits attributable to the non-
Medicare-allowable cost centers are derived by multiplying the ratio of
total employee benefits (equal to the sum of Worksheet S-3, Part II,
column 4, lines 17, 18, 19, 20, 21, 22, 22.01, 23, 24, 25, 25.50,
25.51, 25.52, and 25.53) to total wages and salaries (Worksheet S-3,
Part II, column 4, line 1) (which we hereafter refer to as the ``IPPS
benefits ratio'') by excluded overhead wages and salaries (as
previously described in section IV.B.1.a.(1). of the preamble of this
final rule for wages and salaries costs). The same methodology was used
in the 2018-based IPPS market basket.
Therefore, we proposed employee benefit costs used for the 2023-
based IPPS market basket are equal to total employee benefit costs
less: (a) excluded area benefit costs; and (b) overhead benefit costs
attributable to the excluded areas.
(3) Contract Labor Costs
Contract labor costs are primarily associated with direct patient
care services. Contract labor costs for services such as accounting,
billing, and legal are estimated using other government data sources as
described in this final rule. We proposed to derive contract labor
costs for the 2023-based IPPS market basket as the sum of Worksheet S-
3, Part II, column 4, lines 11, 13, and 15. The same methodology was
used in the 2018-based IPPS market basket.
(4) Professional Liability Insurance Costs
We proposed that professional liability insurance (PLI) costs
(often referred to as malpractice costs) be equal to premiums, paid
losses, and self-insurance costs reported on Worksheet S-2, Part I,
columns 1 through 3, line 118.01. The same methodology was used for the
2018-based IPPS market basket.
[[Page 36861]]
(5) Pharmaceuticals Costs
We proposed to calculate pharmaceuticals costs as total costs
reported for the Pharmacy cost center (Worksheet B, Part I, column 0,
line 15) and Drugs Charged to Patients cost center (Worksheet B, Part
I, column 0, line 73) less wages and salaries attributable to these two
cost centers (Worksheet S-3, Part II, column 4, line 40 and Worksheet
A, column 1, line 73) less estimated employee benefits attributable to
these two cost centers. We proposed to estimate the employee benefits
costs by multiplying the IPPS benefits ratio as described in section
IV.B.1.a.(2) of the preamble of this final rule by total wages and
salaries costs for the Pharmacy and Drugs Charged to Patients cost
centers (equal to the sum of Worksheet S-3, Part II, column 4, line 40
and Worksheet A, column 1, line 73). The same methodology was used for
the 2018-based IPPS market basket.
(6) Blood and Blood Products Costs
We proposed to calculate blood and blood products costs as total
costs reported for the Whole Blood & Packed Red Blood Cells cost center
(Worksheet B, Part I, column 0, line 62) and the Blood Storing,
Processing, & Transfusing cost center (Worksheet B, Part I, column 0,
line 63) less wages and salaries attributable to these two cost centers
(Worksheet A, column 1, lines 62 and 63) less estimated employee
benefits attributable to these two cost centers. We estimate these
employee benefits costs by multiplying the IPPS benefits ratio as
described in section IV.B.1.a.(2) of the preamble of this final rule by
total wages and salaries for the Whole Blood & Packed Red Blood Cells
and Blood Storing, Processing, & Transfusing cost centers (equal to the
sum of Worksheet A, column 1, lines 62 and 63). The same methodology
was used for the 2018-based IPPS market basket.
(7) Home Office/Related Organization Contract Labor Costs
We proposed to determine home office/related organization contract
labor costs using data reported on Worksheet S-3, Part II, column 4,
lines 14.01, 14.02, 25.50, and 25.51. The same methodology was used for
the 2018-based IPPS market basket.
b. Final Major Cost Category Computation
After we derived costs for the major cost categories for each
provider using the Medicare cost report data as previously described,
we proposed to address data outliers using the following steps.
First, for each of the major cost weights except the Home Office/
Related Organization Contract Labor cost weight, we proposed to trim
the data to remove outliers (a standard statistical process) by: (step
1) requiring that major expenses (such as Wages and Salaries costs) and
total Medicare-allowable operating costs be greater than zero; (step 2)
dividing the costs for each of the six categories (calculated as
previously described in this section) by total Medicare-allowable
operating costs to obtain cost weights for each PPS hospital; and (step
3) excluding the top and bottom 5 percent of the major cost weight (for
example, Wages and Salaries costs as a percent of total Medicare-
allowable operating costs). We note that missing values are assumed to
be zero consistent with the methodology for how missing values were
treated in the 2018-based IPPS market basket.
For the Home Office/Related Organization Contract Labor cost
weight, we proposed to exclude outliers using a slightly different
method by (step 1) requiring that total Medicare-allowable operating
costs are greater than zero; (step 2) dividing the home office/related
organization contract labor costs (calculated as previously described
in this section) by total Medicare-allowable operating costs to obtain
a cost weight for each PPS hospital; and (step 3) applying a trim that
excludes those reporters with a Home Office/Related Organization
Contract Labor cost weight above the 99th percentile. This allows all
providers' Medicare-allowable costs to be included, even if their home
office/related organization contract labor costs were reported to be
zero. The Medicare cost report data (Worksheet S-2, Part I, line 140)
indicate that not all hospitals have a home office. IPPS hospitals
without a home office would report administrative costs that might
typically be associated with a home office in the Wages and Salaries
and Employee Benefits cost weights, or these costs would be reflected
in the residual cost weight if they purchased these types of services
from external contractors. We believe the trimming methodology that
excludes those who report a Home Office/Related Organization Contract
Labor cost weight above the 99th percentile is appropriate as it
removes extreme outliers while also allowing providers with zero home
office/related organization contract labor costs to be included in the
Home Office/Related Organization Contract Labor cost weight
calculation.
After the outliers have been removed, we sum the costs for each
category across all remaining providers. We then divide this by the sum
of total Medicare-allowable operating costs across all remaining
providers to obtain a cost weight for the 2023-based IPPS market basket
for the given category. This is the same methodology used for the 2018-
based IPPS market basket.
The trimming process is done individually for each cost category so
that providers excluded from one cost weight calculation are not
automatically excluded from another cost weight calculation. We note
that these proposed trimming methods are the same types of edits
performed for the 2018-based IPPS market basket, as well as other PPS
market baskets (including but not limited to SNF market basket and home
health market basket). We note that for each of the cost weights we
evaluated the distribution of providers and costs by ownership-type,
and by urban/rural status. For all of the cost weights, the trimmed
sample was nationally representative.
Finally, we calculate the residual ``All Other'' cost weight that
reflects all remaining costs that are not captured in the seven cost
categories listed.
We received the following comments on our proposed methodology for
deriving the major cost weights of the proposed 2023-based IPPS market
basket.
Comment: A commenter stated that contract labor has been
substituted for employed labor in recent years and accelerated with the
COVID-19 PHE, and as a result their expectation would be that any
decrease in labor costs for employee benefits would be more than offset
by the increased costs for contract labor. The commenter requested that
CMS reexamine its methodology for allocating home office costs to
contract labor to ensure that it is appropriately resulting in an
increase that offsets the decline in employee benefits as contract
labor now represents a significantly higher share of total hospital
labor costs. The commenter stated that the Employee Benefits cost
weight is the largest factor in the decreasing labor-related share (1.2
percentage points).
Response: We note that the discussion of the labor-related share as
mentioned by the commenter is provided in section IV.B.3. of the
preamble of this final rule. Our analysis of the Medicare cost report
data indicates that the increase in the Home Office/Related
Organization Contract Labor cost weight of 0.8 percentage point from
2018 to 2023 is more than offset by the estimated overhead compensation
cost weight (excluding Home Office/Related Organization Contract Labor
costs), which decreased about 1.4 percentage points over the same
period. Overhead
[[Page 36862]]
compensation costs (as indicated in the FY 2026 IPPS/LTCH proposed rule
(90 FR 18238)) would be reflected in the Wages and Salaries and
Employee Benefits cost weights. Therefore, it is possible that
hospitals are substituting some of their in-house administrative
compensation costs for Home Office/Related Organization administrative
compensation costs as the commenter alluded. We note that direct
patient care contract labor costs are allocated to the Wages and
Salaries and Employee Benefits cost weights based on their relative
proportions for employed labor under the assumption that direct patient
care contract labor costs are comprised of both wages and salaries and
employee benefits and then these cost weights are proxied by the ECI
for All Civilian Workers in Hospitals. As stated in the FY 2026 IPPS/
LTCH proposed rule (90 FR 18245 through 18246), we proposed to allocate
the Home Office/Related Organization Contract Labor cost weight to the
Professional Fees: Labor-Related and Professional Fees: Nonlabor-
related cost weights (both of which are proxied by ECI for Total
Compensation for Private Industry Workers in Professional and Related).
After consideration of public comments, we are finalizing the major
cost weights without modification. We note that comments we received on
the overall market basket method (including frequency of rebasings),
transparency of the method, and resulting market basket updates are
discussed in section IV.B.2. of the preamble of this final rule and
comments on the labor-related share are discussed in section IV.B.3 of
the preamble of this final rule. Table IV-01 shows the resulting
proposed and final cost weights for these major cost categories of the
2023-based IPPS market basket compared to the 2018-based IPPS market
basket.
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From 2018 to 2023, the Wages and Salaries and Employee Benefits
cost weights as calculated directly from the Medicare cost reports
decreased by 1.9 percentage points and 1.5 percentage points,
respectively, while the Contract Labor cost weight increased by 1.6
percentage points.
As we did for the 2018-based IPPS market basket (86 FR 45198), we
proposed to allocate contract labor costs to the Wages and Salaries and
Employee Benefits cost weights based on their relative proportions for
employed labor under the assumption that contract labor costs are
comprised of both wages and salaries and employee benefits. The
contract labor allocation proportion for wages and salaries is equal to
the Wages and Salaries cost weight as a percent of the sum of the Wages
and Salaries cost weight and the Employee Benefits cost weight. Using
the 2023 Medicare cost report data, this percentage is 79 percent.
Therefore, we proposed to allocate approximately 79 percent of the
Contract Labor cost weight to the Wages and Salaries cost weight and 21
percent to the Employee Benefits cost weight. The 2018-based IPPS
market basket allocated 78 percent of the Contract Labor cost weight to
the Wages and Salaries cost weight. We received no comments on the
proposed methodology to allocate the Contract Labor cost weight to the
Wages and Salaries cost weight and Employee Benefits cost weight and
therefore, are finalizing this methodology without modification.
Table IV-02 shows the Wages and Salaries and Employee Benefits cost
weights after contract labor allocation for the 2018-based IPPS market
basket and the proposed and final 2023-based IPPS market basket. In
aggregate, the Compensation cost weight (calculated using more detailed
decimal places) decreased from 53.0 percent to 51.1 percent, or 1.9
percentage points.
[GRAPHIC] [TIFF OMITTED] TR04AU25.225
[[Page 36863]]
c. Derivation of the Detailed Cost Weights
To further divide the ``All Other'' residual cost weight estimated
from the 2023 Medicare cost report data into more detailed cost
categories, we proposed to use the 2017 Benchmark I-O, ``The Use Table
(Supply-Use Framework),'' for NAICS 622000, Hospitals, published by the
Bureau of Economic Analysis (BEA). These data are publicly available at
the following website: https://www.bea.gov/industry/input-output-accounts-data. The BEA Benchmark I-O data are generally scheduled for
publication every 5 years on a lagged basis, with the most recent data
available for 2017. The 2017 Benchmark I-O data are derived from the
2017 Economic Census and are the building blocks for BEA's economic
accounts. Therefore, they represent the most comprehensive and complete
set of data on the economic processes or mechanisms by which output is
produced and distributed.\148\ BEA also produces Annual I-O estimates.
However, while based on a similar methodology, these estimates reflect
less comprehensive and less detailed data sources and are subject to
revision when benchmark data become available. Instead of using the
less detailed Annual I-O data, we proposed to inflate the detailed 2017
Benchmark I-O data forward to 2023 by applying the annual price changes
from the respective price proxies to the appropriate market basket cost
categories that are obtained from the 2017 Benchmark I-O data and
calculated the cost shares that each cost category represents using the
inflated data. These resulting 2023 cost shares were applied to the
residual ``All Other'' cost weight to obtain the detailed cost weights
for the 2023-based IPPS market basket. For example, the cost for Food:
Direct Purchases represents 4.0 percent of the sum of the residual
``All Other'' 2017 Benchmark I-O Hospital Expenditures inflated to
2023. Therefore, the Food: Direct Purchases cost weight represents 4.0
percent of the 2023-based IPPS market basket's ``All Other'' cost
category (33.2 percent), yielding a Food: Direct Purchases proposed
cost weight of 1.3 percent in the 2023-based IPPS market basket (0.040
x 33.2 percent = 1.3 percent). For the 2018-based IPPS market basket
(86 FR 45198), we used the same methodology utilizing the 2012
Benchmark I-O data (aged to 2018).
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\148\ https://www.bea.gov/papers/pdf/IOmanual_092906.pdf.
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Using this methodology, we proposed to derive 17 detailed cost
categories from the 2023-based IPPS market basket residual cost weight
(33.2 percent). These categories are: (1) Fuel: Oil and Gas; (2)
Electricity and Other Non-Fuel Utilities; (3) Food: Direct Purchases;
(4) Food: Contract Services; (5) Chemicals; (6) Medical Instruments;
(7) Rubber and Plastics; (8) Paper and Printing Products; (9)
Miscellaneous Products; (10) Professional Fees: Labor-Related; (11)
Administrative and Facilities Support Services; (12) Installation,
Maintenance, and Repair Services; (13) All Other: Labor-Related
Services; (14) Professional Fees: Nonlabor-Related; (15) Financial
Services; (16) Telephone Services; and (17) All Other: Nonlabor-Related
Services. We note that these are the same categories that were used in
the 2018-based IPPS market basket.
We received a few specific comments on our derivation of the
Professional Fees: Labor-related and Professional Fees: Nonlabor-
related cost weights as they relate to the proposed labor-related
share. Those comments are summarized and responded to in section
IV.B.3. of the preamble of this final rule.
2. Selection of Proposed Price Proxies
After computing the 2023 cost weights for the IPPS market basket,
it was necessary to select appropriate wage and price proxies to
reflect the rate of price change for each expenditure category. With
the exception of the proxy for professional liability insurance (PLI),
all the proxies we proposed are based on Bureau of Labor Statistics
(BLS) data and are grouped into one of the following BLS categories:
Producer Price Indexes--Producer Price Indexes (PPIs)
measure the average change over time in the selling prices received by
domestic producers for their output. The prices included in the PPI are
from the first commercial transaction for many products and some
services (https://www.bls.gov/ppi/).
Consumer Price Indexes--Consumer Price Indexes (CPIs)
measure the average change over time in the prices paid by urban
consumers for a market basket of consumer goods and services (https://www.bls.gov/cpi/). CPIs are only used when the purchases are similar to
those of retail consumers rather than purchases at the producer level,
or if no appropriate PPIs are available.
Employment Cost Indexes--Employment Cost Indexes (ECIs)
measure the rate of change in employee wage rates and employer costs
for employee benefits per hour worked. These indexes are fixed-weight
indexes and strictly measure the change in wage rates and employee
benefits per hour. ECIs are superior to Average Hourly Earnings (AHE)
as price proxies for input price indexes because they are not affected
by shifts in occupation or industry mix, and because they measure pure
price change and are available by both occupational group and by
industry. The industry ECIs are based on the NAICS and the occupational
ECIs are based on the Standard Occupational Classification System
(SOC).
We evaluated the price proxies using the criteria of reliability,
timeliness, availability, and relevance:
Reliability. Reliability indicates that the index is based
on valid statistical methods and has low sampling variability. Widely
accepted statistical methods ensure that the data were collected and
aggregated in a way that can be replicated. Low sampling variability is
desirable because it indicates that the sample reflects the typical
members of the population. (Sampling variability is variation that
occurs by chance because only a sample was surveyed rather than the
entire population.)
Timeliness. Timeliness implies that the proxy is published
regularly, preferably at least once a quarter. The market basket levels
are updated quarterly, and therefore, it is important for the
underlying price proxies to be up-to-date, reflecting the most recent
data available. We believe that using proxies that are published
regularly (at least quarterly, whenever possible) helps to ensure that
we are using the most recent data available to update the market
basket. We strive to use publications that are disseminated frequently,
because we believe that this is an optimal way to stay abreast of the
most current data available.
Availability. Availability means that the proxy is
publicly available. We prefer that our proxies are publicly available
because this will help ensure that our market basket updates are as
transparent to the public as possible. In addition, this enables the
public to be able to obtain the price proxy data on a regular basis.
Relevance. Relevance means that the proxy is applicable
and representative of the cost category weight to which it is applied.
We believe the proposed PPIs, CPIs, and ECIs selected meet these
criteria. Therefore, we believe that they continue to be the best proxy
of price changes for the cost categories to which they would be
applied.
In this final rule, we present a detailed explanation of the price
proxies that we proposed for each cost category weight.
[[Page 36864]]
a. Wages and Salaries
We proposed to use the ECI for Wages and Salaries for All Civilian
Workers in Hospitals (BLS series code CIU1026220000000I) to proxy the
price growth of this cost category. This is the same price proxy used
in the 2018-based IPPS market basket.
b. Employee Benefits
We proposed to use the ECI for Total Benefits for All Civilian
Workers in Hospitals to proxy the price growth of this cost category.
This ECI is calculated using the ECI for Total Compensation for All
Civilian Workers in Hospitals (BLS series code CIU1016220000000I) and
the relative importance of wages and salaries within total
compensation. This is the same price proxy used in the 2018-based IPPS
market basket.
c. Fuel: Oil and Gas
For the 2023-based IPPS market basket, we proposed to use a blend
of the PPI Industry for Petroleum Refineries (NAICS 3241), PPI for
Other Petroleum and Coal Products (NAICS 32419) and the PPI Commodity
for Natural Gas. Our analysis of the Bureau of Economic Analysis' 2017
Benchmark I-O data for NAICS 622000 Hospitals shows that Petroleum
Refineries expenses account for approximately 86 percent, Other
Petroleum and Coal Products expenses account for about 7 percent and
Natural Gas expenses account for approximately 7 percent of Hospitals'
(NAICS 622000) total Fuel: Oil and Gas expenses. Therefore, we proposed
to use a blend of 86 percent of the PPI Industry for Petroleum
Refineries (BLS series code PCU324110324110), 7 percent of the PPI for
Other Petroleum and Coal Products (BLS series code PCU32419) and 7
percent of the PPI Commodity Index for Natural Gas (BLS series code
WPU0531) as the price proxy for this cost category. The 2018-based IPPS
market basket used a 90/10 blend of the PPI Industry for Petroleum
Refineries and PPI Commodity for Natural Gas, reflecting the 2012 I-O
data (86 FR 45199). We believe that the three proposed price proxies
are the most technically appropriate indices available to proxy the
price growth of the Fuel: Oil and Gas cost category in the 2023-based
IPPS market basket.
d. Electricity and Other Non-Fuel Utilities
We proposed to use the PPI Commodity for Commercial Electric Power
(BLS series code WPU0542) to proxy the price growth of this cost
category. This is the same price proxy used in the 2018-based IPPS
market basket.
e. Professional Liability Insurance
We proposed to proxy price changes in hospital professional
liability insurance premiums (PLI) using percentage changes as
estimated by the CMS Hospital Professional Liability Index. To generate
these estimates, we collect commercial insurance medical liability
premiums for a fixed level of coverage while holding nonprice factors
constant (such as a change in the level of coverage). This is the same
price proxy used in the 2018-based IPPS market basket.
f. Pharmaceuticals
We proposed to use the PPI Commodity for Pharmaceuticals for Human
Use, Prescription (BLS series code WPUSI07003) to proxy the price
growth of this cost category. This is the same price proxy used in the
2018-based IPPS market basket.
g. Food: Direct Purchases
We proposed to use the PPI Commodity for Processed Foods and Feeds
(BLS series code WPU02) to proxy the price growth of this cost
category. This is the same price proxy used in the 2018-based IPPS
market basket.
h. Food: Contract Services
We proposed to use the CPI for Food Away From Home (All Urban
Consumers) (BLS series code CUUR0000SEFV) to proxy the price growth of
this cost category. This is the same price proxy used in the 2018-based
IPPS market basket.
i. Chemicals
Similar to the 2018-based IPPS market basket, we proposed to use a
four-part blended PPI as the proxy for the Chemicals cost category in
the 2023-based IPPS market basket. The proposed blend is composed of
the PPI Industry for Industrial Gas Manufacturing, Primary Products
(BLS series code PCU325120325120P), the PPI Industry for Other Basic
Inorganic Chemical Manufacturing (BLS series code PCU32518-32518), the
PPI Industry for Other Basic Organic Chemical Manufacturing (BLS series
code PCU32519-32519), and the PPI Industry for Other Miscellaneous
Chemical Product Manufacturing (BLS series code PCU325998325998). For
the 2023-based IPPS market basket, we proposed to derive the weights
for the PPIs using the 2017 Benchmark I-O data. The 2018-based IPPS
market basket used the 2012 Benchmark I-O data to derive the weights
for the four PPIs (86 FR 45200). We did not receive comments on the
proposed methodology to derive the blended Chemicals price proxy using
the 2017 Benchmark I-O and therefore are finalizing this methodology
without modification.
Table IV-03 shows the proposed and final weights for each of the
four PPIs used to create the blended index compared to those used for
the 2018-based IPPS market basket.
[GRAPHIC] [TIFF OMITTED] TR04AU25.226
j. Blood and Blood Products
We proposed to use the PPI Industry for Blood and Organ Banks (BLS
series code PCU621991621991) to proxy the price growth of this cost
category. This is the same price proxy used in the 2018-based IPPS
market basket.
k. Medical Instruments
We proposed to use a blended price proxy for the Medical
Instruments category, as shown in Table IV-04. The 2017 Benchmark I-O
data shows the majority of medical instruments and supply costs are for
NAICS 339112--Surgical and medical instrument manufacturing costs
(approximately 64
[[Page 36865]]
percent) and NAICS 339113--Surgical appliance and supplies
manufacturing costs (approximately 36 percent). To proxy the price
changes associated with NAICS 339112, we proposed using the PPI
Commodity for Surgical and medical instruments (BLS series code
WPU1562). To proxy the price changes associated with NAICS 339113, we
proposed to use a 50/50 blend of the PPI Commodity for Medical and
surgical appliances and supplies (BLS series code WPU1563) and the PPI
Commodity for Miscellaneous products, Personal safety equipment and
clothing (BLS series code WPU1571). We proposed to include the latter
price proxy as it would reflect personal protective equipment including
but not limited to face shields and protective clothing. The 2017
Benchmark I-O data does not provide specific expenses for these
products. However, we recognize that this category reflects costs faced
by IPPS hospitals. These are the same price proxies used in the 2018-
based IPPS market basket. We did not receive comments on the proposed
methodology to derive the blended Medical Instruments price proxy using
the 2017 Benchmark I-O data and therefore are finalizing this
methodology without modification.
[GRAPHIC] [TIFF OMITTED] TR04AU25.227
l. Rubber and Plastics
We proposed to use the PPI Commodity for Rubber and Plastic
Products (BLS series code WPU07) to proxy the price growth of this cost
category. This is the same price proxy used in the 2018-based IPPS
market basket.
m. Paper and Printing Products
We proposed to use a 61/39 blend of the PPI Commodity for
Publications Printed Matter and Printing Material (BLS Series Code
WPU094) and the PPI Commodity for Converted Paper and Paperboard
Products (BLS series code WPU0915) to proxy the price growth of this
cost category. The 2017 Benchmark I-O data shows that 61 percent of
paper and printing expenses are for Printing (NAICS 323110) and the
remaining expenses are for Paper manufacturing (NAICS 322). The 2018-
based IPPS market basket (86 FR 45201) used the PPI Commodity for
Converted Paper and Paperboard Products (BLS series code WPU0915) as
this comprised the majority of expenses as reported in the 2012
Benchmark I-O data.
n. Miscellaneous Products
We proposed to use the PPI Commodity for Finished Goods Less Food
and Energy (BLS series code WPUFD4131) to proxy the price growth of
this cost category. This is the same price proxy used in the 2018-based
IPPS market basket.
o. Professional Fees: Labor-Related
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Professional and Related (BLS series code
CIU2010000120000I) to proxy the price growth of this category. It
includes occupations such as legal, accounting, and engineering
services. This is the same price proxy used in the 2018-based IPPS
market basket.
p. Administrative and Facilities Support Services
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Office and Administrative Support (BLS series code
CIU2010000220000I) to proxy the price growth of this category. This is
the same price proxy used in the 2018-based IPPS market basket.
q. Installation, Maintenance, and Repair Services
We proposed to use the ECI for Total Compensation for All Civilian
Workers in Installation, Maintenance, and Repair (BLS series code
CIU1010000430000I) to proxy the price growth of this cost category.
This is the same proxy used in the 2018-based IPPS market basket.
r. All Other: Labor-Related Services
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Service Occupations (BLS series code
CIU2010000300000I) to proxy the price growth of this cost category.
This is the same price proxy used in the 2018-based IPPS market basket.
s. Professional Fees: Nonlabor-Related
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Professional and Related (BLS series code
CIU2010000120000I) to proxy the price growth of this category. This is
the same price proxy that we proposed to use for the Professional Fees:
Labor-Related cost category and the same price proxy used in the 2018-
based IPPS market basket.
t. Financial Services
We proposed to use the ECI for Total Compensation for Private
Industry Workers in Financial Activities (BLS series code
CIU201520A000000I) to proxy the price growth of this cost category.
This is the same price proxy used in the 2018-based IPPS market basket.
u. Telephone Services
We proposed to use the CPI for Telephone Services (BLS series code
CUUR0000SEED) to proxy the price growth of this cost category. This is
the same price proxy used in the 2018-based IPPS market basket.
v. All Other: Nonlabor-Related Services
We proposed to use the CPI for All Items Less Food and Energy (BLS
series code CUUR0000SA0L1E) to proxy the price growth of this cost
category. We believe that using the CPI for All Items Less Food and
Energy avoids double counting of changes in food and energy prices as
they are already captured elsewhere in the market basket. This is the
same price proxy used in the 2018-based IPPS market basket.
We received the following comments on our proposed price proxies
for the 2023-based IPPS market basket.
Comment: Several commenters urged CMS to adjust its methodology for
calculating the annual payment update (including the adoption of
additional data elements in the IPPS market basket) to ensure it
provides a robust payment update that adequately incorporates the
effects of rising workforce costs on hospitals, which they believe is
not being captured by the ECI used in the IPPS market basket. The
commenters stated that the use of the ECI may not be adequately
capturing employment
[[Page 36866]]
and labor cost growth. Commenters stated that CMS should identify and
use data inputs that better capture these price increases--for example,
incorporating more recent wage data that include contract labor
expenses, which the ECI currently does not fully reflect. They stated
that they continue to stand ready to work with CMS to examine the
market basket compensation indices and proxies to improve the accuracy
of these measures.
Response: We believe that the ECI for wages and salaries for
hospital workers is accurately reflecting the price change associated
with the labor used to provide hospital care. The ECI appropriately
does not reflect other factors that might affect the rate of price
changes associated with labor costs, such as a shift in the occupations
that may occur due to increases in case-mix or shifts in hospital
purchasing decisions (for instance, to hire or to use contract labor).
We believe that the prices of employed staff and contract labor are
influenced by the same factors and should generally grow at similar
rates. In most periods when there are not significant occupational
shifts or significant shifts between employed and contract labor, the
data has shown that the growth in the ECI for wages and salaries for
hospital workers has generally been consistent with overall hospital
wage trends. For example, our more recent analysis of the Medicare cost
report data shows from 2018 to 2023, the compound annual growth rate of
IPPS Medicare allowable salaries, benefits and contract labor costs per
hour was about 4 percent, consistent with the growth rate of the
compensation price increases in the 2023-based IPPS market basket as
measured by the ECIs for hospital workers over the same period. For
this final rule, based on the more recent IGI second quarter 2025
forecast with historical data through the first quarter of 2025, the
projected 2023-based IPPS market basket increase factor for FY 2026
reflects a projected increase in compensation prices of 3.4 percent.
After consideration of public comments, we are finalizing the price
proxies for the 2023-based IPPS market basket as proposed without
modification. Table IV-05 sets forth the 2023-based IPPS market basket,
including the cost categories and their respective weights and price
proxies. For comparison purposes, the corresponding 2018-based IPPS
market basket cost weights also are listed.
BILLING CODE 4120-01-P
[[Page 36867]]
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[[Page 36868]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.229
BILLING CODE 4120-01-C
Table IV-06 compares both the historical and forecasted percent
changes in the 2018-based IPPS market basket and the final 2023-based
IPPS market basket. The forecasted growth rates in Table IV-06 are
based on IHS Global Inc.'s (IGI's) second quarter 2025 forecast with
historical data through first quarter 2025.
[GRAPHIC] [TIFF OMITTED] TR04AU25.230
The average historical percent change of the 2023-based IPPS market
basket is slightly lower than the average percent change of the 2018-
based IPPS market basket over the FY 2021 through FY 2024 time period.
The average projected percent change of the 2023-based IPPS market
basket is equal to the average percent change of the 2018-based IPPS
market basket over the FY 2025 through FY 2028 time period. For FY
2026, the 2023-based IPPS market basket is projected to increase 3.3
percent, which is the same as the FY 2026 projected increase of the
2018-based IPPS market basket. This is 0.1 percentage point higher than
the FY 2026 projected increase of 3.2 percent that we proposed in the
FY 2026 IPPS/LTCH PPS proposed rule. We note that while there are
multiple offsetting factors contributing to differences in the
forecasts underlying the proposed and final rules, the final FY 2026
IPPS market basket increase is slightly higher due to economic
uncertainty.
We summarize and respond to the public comments we received on the
adequacy of the proposed IPPS market basket increase in section VI.B.1.
of the preamble of this final rule. In this section, we summarize and
respond to comments we received regarding the proposal to rebase the
IPPS market basket.
Comment: A commenter appreciated CMS' efforts to rebase the IPPS
market basket this year, as scheduled, but the commenter expressed
concern that CMS' analyses are not fully representative of the input
costs for providing care. Another commenter requested CMS rebase the
market baskets more frequently and at least
[[Page 36869]]
every 3 years to ensure the market basket reflects the appropriate mix
of services provided to Medicare beneficiaries.
Several commenters stated that the 3.2 percent market basket
increase is lower than what it would have been absent the rebasing and
revising of the hospital market basket. They stated that based on the
growth in their costs that they expect to experience in the coming
federal fiscal year, they are concerned that this rebasing has
incorrectly lowered the calculated rate of growth of hospital costs.
Response: We appreciate the commenters' support for the rebasing
and revising of the IPPS market basket, which we believe appropriately
reflects a more recent input cost structure for IPPS hospitals for
providing care. The major cost weights (accounting for about 70 percent
of the proposed 2023-based IPPS operating market basket) were derived
using 2023 Medicare cost report data for IPPS hospitals. We then
supplement these data with Benchmark Input-Output data for NAICS
622000, Hospitals from ``The Use Table (Supply-Use Framework)'' to
derive more detailed cost weights that reflect the complex cost
structure of hospitals (reflecting costs such as compensation, food,
and medical supplies/equipment). We believe both of these data sources
are representative of the cost weights for IPPS hospitals providing
services to Medicare beneficiaries.
As discussed in the proposed rule, as published in the FY 2006 IPPS
final rule (70 FR 47403), in accordance with section 404 of Public Law
108-173, CMS determined a new frequency for rebasing the hospital
market basket. We established a rebasing frequency of every 4 years
based on our evaluation of data and methods at the time of the FY 2006
IPPS final rule and we continue to believe a rebasing frequency of
every 4 years is appropriate. We refer readers to the FY 2006 IPPS
final rule (70 FR 47404 through 47407) for the research we conducted at
the time to determine this, which included reviewing the frequency and
availability of the data needed to produce the market basket and
analyzing the impact on the market basket of determining the market
basket weights under various frequencies. Therefore, we proposed to
rebase and revise the IPPS market basket effective for the FY 2026 IPPS
update since it was last rebased effective for the FY 2022 IPPS update
(the base year for the cost weights is being updated from 2018 to
2023). Despite this established frequency, we regularly monitor the
Medicare cost report data to assess whether a rebasing is technically
appropriate, and we will continue to do so in the future.
The IPPS market basket is designed to measure price inflation for
IPPS hospitals and would not reflect increases in costs associated with
changes in the volume or intensity of input goods and services. As
noted by the commenters and stated in the FY 2026 IPPS/LTCH PPS
proposed rule (90 FR 18244), based on IGI's fourth quarter 2024
forecast with historical data through third quarter 2024, the proposed
2023-based IPPS market basket rate-of-increase was 0.1 percentage point
lower (after rounding to a tenth of a percentage point) compared to the
2018-based IPPS market basket rate-of-increase. Based on more recent
data available for this FY 2026 IPPS/LTCH PPS final rule (that is,
IGI's second quarter 2025 forecast of the 2023-based IPPS market basket
rate-of-increase with historical data through the first quarter of
2025), we estimate that the FY 2026 IPPS market basket update used to
determine the applicable percentage increase is 3.3 percent (the same
percentage increase of the 2018-based IPPS market basket after rounding
to a tenth of a percentage point).
3. Labor-Related Share
Under section 1886(d)(3)(E) of the Act, the Secretary estimates
from time to time the proportion of payments that are labor-related.
Section 1886(d)(3)(E) of the Act states that the Secretary shall adjust
the proportion (as estimated by the Secretary from time to time) of
hospitals' costs which are attributable to wages and wage-related
costs, of the DRG prospective payment rates. We refer to the proportion
of hospitals' costs that are attributable to wages and wage-related
costs as the ``labor-related share.''
The labor-related share is used to determine the proportion of the
national PPS base payment rate to which the area wage index is applied.
We include a cost category in the labor-related share if the costs are
labor intensive and vary with the local labor market. We proposed to
include in the labor-related share the national average proportion of
operating costs that are attributable to the following cost categories
in the 2023-based IPPS market basket: Wages and Salaries, Employee
Benefits, Professional Fees: Labor-Related, Administrative and
Facilities Support Services, Installation, Maintenance, and Repair
Services, and All Other: Labor-Related Services, as we did in the FY
2022 IPPS/LTCH PPS final rule (86 FR 45204).
Similar to the 2018-based IPPS market basket, for the 2023-based
IPPS market basket we proposed to classify expenses into the
Professional Fees: Labor-Related cost category using the Benchmark I-O
data, and then for this rebasing supplement these estimates with data
obtained from the Medicare hospital cost report regarding the
proportion of expenses classified as professional fees (for example,
advertising, legal services, accounting and auditing, engineering, and
management consulting) that are purchased within the local area labor
market. The 2018-based IPPS market basket (86 FR 45204 through 45205)
used a survey of hospitals conducted by CMS in 2008 (OMB Control Number
0938-1036) to supplement the Benchmark I-O data and determine this
proportion. Effective for transmittal 18 (https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Transmittals/r18p240i,
the hospital Medicare cost report (CMS Form 2552-10, OMB No. 0938-0050)
Worksheet S-2, Part I collects information on whether a hospital
purchased professional services (for example, legal, accounting, tax
preparation, bookkeeping, payroll, advertising, and management/
consulting services or both) from an unrelated organization and if the
majority of these expenses were purchased from unrelated organizations
located outside of the main hospital's local area labor market.
For the 2023-based IPPS market basket, we proposed to determine the
proportion of expenses classified as professional fees that meet our
definition of labor-related services based on the Medicare cost report
data. Based on these data, approximately 73 percent of IPPS hospitals
(approximately 2,100) purchased professional services from an unrelated
organization in 2023 as reported on Worksheet S-2, Part I, column 1,
line 123 (that is, answered Yes) and also indicated whether the
majority of these expenses are purchased outside their local labor
market (reported Yes or No on Worksheet S-2, Part I, column 2, line
123). Of those hospitals, 37 percent of them purchased the majority of
these expenses from unrelated organizations located in a CBSA outside
of the main hospital CBSA as reported on Worksheet S-2, Part I, column
2, line 123. For these reporters (which accounted for 32 percent of
total Medicare allowable operating costs) that indicated they purchased
the majority of these services outside of the local labor market, we
need to estimate a specific proportion of these services that are
purchased inside the local labor market. For these reporters, we use 25
percent
[[Page 36870]]
(the median of 1 percent to 49 percent range) to estimate the
proportion of these services that are purchased inside of the local
labor market. For the remaining reporters (which accounted for 68
percent of total Medicare allowable operating costs) that indicated
they purchased the majority of these services inside the local labor
market we use 75 percent (the median of 51 percent to 100 percent). To
estimate the overall proportion of expenses classified as professional
fees that meet our definition of labor-related services (that is,
reflects services purchased inside of the local labor market), for the
first group of reporters we multiply 32 percent times 25 percent, which
yields an estimate of 8 percent, and for the second group of reporters
multiply 68 percent times 75 percent, which yields an estimated
proportion of 51 percent. Combining these two measures yields 59
percent (8 percent plus 51 percent), which reflects the overall
proportion of total Medicare allowable operating expenses that are
purchased inside the local labor market and will be reflected in our
labor-related measure. Therefore, we proposed to allocate 59 percent of
the Benchmark I-O expenses classified as professional fees to estimate
Professional Fees: Labor-Related cost weight, and 41 percent of the
Benchmark I-O expenses classified as professional fees to estimate
Professional Fees: Nonlabor-Related cost weight.
In the 2023-based IPPS market basket, expenses classified as
professional fees that are subject to allocation represent
approximately 9.8 percent of total operating costs. Based on the
Medicare cost report results, we proposed to apportion 5.8 percentage
points of the 9.8 percentage point figure into the Professional Fees:
Labor-Related cost category (59 percent of 9.8 percent) and designate
the remaining approximately 4.0 percentage points into the Professional
Fees: Nonlabor-Related cost category (41 percent of 9.8 percent). We
note that in the 2018-based IPPS market basket given the data available
from the 2008 survey, we classified some expenses from the 2012
Benchmark I-O data as Professional Fees: Labor-Related, some expenses
as Professional Fees: Nonlabor-Related, and some expenses as
professional fees subject to allocation based on the survey. We then
applied the 2008 survey results to the following specific categories of
expenses: Legal services, Accounting, tax preparation, bookkeeping, and
payroll services, Architectural, engineering and related services, and
Management consulting services. However, for the 2023-based IPPS market
basket, we proposed to revise the methodology to now use the data as
reported on the Medicare cost reports (Worksheet S-2, Part I) to
allocate all of the expenses we proposed to classify as professional
fees costs from the 2017 Benchmark I-O data. The impact of this
proposed change is an increase in the 2023-based Professional Fees:
Labor-Related cost weight of about 1 percentage point.
In addition to the professional services listed earlier, we also
classify a proportion of the Home Office/Related Organization Contract
Labor cost weight into the Professional Fees: Labor-Related cost
category as was done in the previous rebasing. We believe that many of
these costs are labor-intensive and vary with the local labor market.
However, data indicate that not all IPPS hospitals with home offices
have home offices located in their local labor market. Therefore, we
proposed to include in the labor-related share only a proportion of the
Home Office/Related Organization Contract Labor cost weight based on
the methodology described in this final rule.
For the 2023-based IPPS market basket, based on Medicare cost
report data, we found that approximately 71 percent of IPPS hospitals
reported some type of home office information on their Medicare cost
report for 2023 (for example, city, State, and zip code). Using the
data reported on the Medicare cost report, we compared the location of
the hospital with the location of the hospital's home office. We then
determined the proportion of home office/related organization contract
labor cost that should be allocated to the labor-related share based on
the percent of the home office/related organization contract labor
costs for those hospitals that had home offices located in their
respective local labor markets--defined as being in the same MSA. We
determined a hospital's and home office's MSAs using their zip code
information from the Medicare cost report.
Based on these data, we determined the proportion of costs that
should be allocated to the labor-related share based on the percent of
hospital home office/related organization contract labor costs (equal
to the sum of Worksheet S-3, Part II, column 4, lines 14.01, 14.02,
25.50, and 25.51). Using this methodology, we determined that 62
percent of hospitals' home office compensation costs were for home
offices located in their respective local labor markets. Therefore, we
proposed to allocate 62 percent of Home Office/Related Organization
Contract Labor cost weight to the labor-related share. The 2018-based
IPPS market basket used a 60 percent proportion, which was based on the
same methodology and the 2018 Medicare cost report data.
In the 2023-based IPPS market basket, the Home Office/Related
Organization Contract Labor cost weight that is subject to allocation
based on the home office allocation methodology represented 6.7 percent
of total operating costs. Based on the results of the home office
analysis, as previously discussed, we apportioned approximately 4.2
percentage points of the 6.7 percentage points figure into the
Professional Fees: Labor-Related cost category and designated the
remaining approximately 2.6 percentage points into the Professional
Fees: Nonlabor-Related cost category.\149\ In summary, based on the two
previously mentioned allocations, we apportioned 10.0 percentage points
(sum of the professional fees (5.8 percentage points) and Home Office/
Related Organization Contract Labor cost weight (4.2 percentage
points)) into the Professional Fees: Labor-Related cost category. Using
these two methods, we then apportion 6.6 percentage points (sum of the
professional fees (4.0 percentage points) and Home Office/Related
Organization Contract Labor cost weight (2.6 percentage points)) to the
Professional Fees: Nonlabor-related cost category to be included with
other costs classified as Professional Fees: Nonlabor-Related
(approximately 0.4 percentage point), resulting in a Professional Fees:
Nonlabor-related cost weight of 7.0 percent. The resulting 2023-based
Professional Fees: Labor-related cost weight is about 1.4 percentage
points higher than the 2018-based Professional Fees: Labor-related cost
weight.
---------------------------------------------------------------------------
\149\ Note: The cost weights are calculated using 3 decimal
places. For presentational purposes, we are displaying one decimal
and therefore, the detail may not add to the total due to rounding.
---------------------------------------------------------------------------
Using the proposed 2023-based IPPS market basket cost weights, we
derived a proposed labor-related share of 66.0 percent based on the
proposed 2023-based IPPS market basket. We summarize and respond to the
public comments we received on our proposed methodology for deriving
the proposed labor-related share for FY 2026 here.
Comment: A commenter was supportive of the proposed update to the
labor-related share and encouraged CMS to review the labor-related
share of all states to ensure that the labor proportion is accurate to
current costs incurred by hospitals. Several commenters were concerned
about the downward adjustment of the labor-related share from 67.6
percent to 66
[[Page 36871]]
percent in FY 2026 stating that they believe it does not reflect
hospital labor and non-labor cost pressures. They stated that per-
discharge labor costs have dramatically increased in recent years,
citing that according to one study, 37 percent from 2019 to 2022.
A few commenters noted the labor-related share has declined in five
of the last six rebasings of the hospital market basket. The commenters
stated that this continued decline only negatively impacts hospitals
with a wage index over 1.0 without a clearly delineated budget
neutrality adjustment to ensure overall Medicare hospital reimbursement
is maintained. The commenters stated that given the current healthcare
workforce crisis and the growing wage demands on hospitals, labor costs
as a share of total hospital costs have grown since the 2018 base year,
not declined.
A few commenters stated that they understood the need for rebasing
the labor share but requested that CMS release additional information
on how it arrived at its proposed estimate for the national labor-
related share for FY 2026. Commenters stated that to accurately
replicate and verify the labor related share, they requested CMS
publish a table of their intermediate steps reflective of the
numerators and denominators utilized in each cost category and
calculation step. These commenters requested CMS include the dollar
values used to calculate the percentage of each cost category.
A commenter stated that the proposed reduction in the national
labor-related share could lead to lower payments for hospitals with
higher wage indexes, as a smaller share of the payment rate will
reflect local labor costs. Accordingly, the commenter requested that
CMS, at a minimum, reconsider labor expense calculations to provide a
more appropriate update based on growing and unsustainable costs.
Response: The purpose of the labor-related share is to reflect the
proportion of the national IPPS standardized amount that is adjusted by
the hospital's wage index (representing the relative costs of their
local labor market to the national average). We proposed to derive the
labor-related share using the 2023-based IPPS market basket, reflecting
average national cost weights for IPPS hospitals. As stated in the FY
2026 IPPS/LTCH PPS proposed rule (90 FR 18239), for each cost weight
included in the 2023-based IPPS market basket we utilized reported data
from all IPPS hospitals reporting Medicare IPPS payments and facility
operating costs with proposed trims to the data to remove outliers. For
each of the cost weights, we evaluated the distribution of providers
and costs by ownership-type and by urban/rural status to make sure they
were nationally representative.
We appreciate the commenters' request to explain the decrease in
the labor-related share in more detail. The decrease in the labor-
related share from 67.6 percent to 66.0 percent is primarily due to the
lower compensation cost weight (calculated using the Medicare cost
report data) in the 2023-based IPPS market basket (51.1 percent)
compared to the compensation cost weight in the 2018-based IPPS market
basket (53.0 percent) as these costs increased at a slower rate than
total operating costs. Our analysis of the Medicare cost report data
showed that on a per inpatient day basis, compensation costs, which
largely reflect direct patient care salaries, grew by about 4 percent
per year from 2018 to 2023 while total operating costs grew by about 5
percent per year. The slower growth in compensation costs also
reflected slower growth in employee benefit costs (particularly
qualified defined benefit plan costs) and overhead employee salaries at
about 3 percent per year. Contract labor costs for direct patient care,
on the other hand, offset some of this experience as costs grew nearly
18 percent per year over this same period. For noncompensation costs,
which grew nearly 6 percent per year from 2018-2023, key contributors
were costs for home office contract labor (about 8 percent growth per
year) and pharmaceuticals (about 6 percent growth per year). Consistent
with some of the commenter's findings, our analysis of the Medicare
cost report data shows that compensation costs have been increasing at
a faster rate between the 2018 to 2023 time period compared to the
prior 4-year period; however, these compensation costs have been
growing slower than noncompensation costs, which results in a decrease
in the compensation cost weight. In addition, from 2018 to 2023, we
have seen faster growth in the Professional Fees costs and Home Office/
Related Organization costs resulting in an increase in the professional
fees cost weights and Home Office/Related Organization cost weight,
which are partially offsetting the decrease in compensation cost weight
as shown in Table IV-05.
In response to commenters' request for additional information on
the methodology for calculating the labor related share, as stated in
the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18240), we derive the
Professional Fees cost weight using the 2017 Benchmark I-O, ``The Use
Table (Supply-Use Framework),'' for NAICS 622000, Hospitals, published
by the Bureau of Economic Analysis (BEA). First, to obtain an amount
for the Professional Fees costs subject to the allocation percentage
from the Medicare cost reports, we calculated the sum of I-O expenses
for Professional, Scientific, and Technical Services (NAICS 54)
excluding Veterinary services (which we include in the Professional
Fees: Nonlabor-Related), I-O expenses for Business Support Services
(NAICS 5614), Data Processing, Hosting and Related services (NAICS
5182) and I-O expenses for Lessors of Nonfinancial Intangible Assets
(NAICS 533). In addition, we also are adding in 34 percent of
Employment Services (NAICS 5613) as Census and BEA data indicate that
these expenses reflect more than just direct patient care contract
labor (which we directly obtain from Worksheet S-3, Part II, column 4,
lines 11, 13, and 15 from the Medicare cost report as noted in the
proposed rule). The sum of these costs reflect total Professional Fees
from the 2017 Benchmark I-O data that are subject to the allocation
percentage from the Medicare cost reports, or 30.2 percent of total
``All Other'' costs from the 2017 Benchmark I-O data. The ``All Other''
costs are equal to the sum of the Benchmark I-O data for the detailed
cost categories as described in section IV.B.c. of the preamble of the
FY 2026 IPPS/LTCH proposed rule.
Second, we proposed to inflate the detailed 2017 Benchmark I-O data
forward to 2023 by applying the annual price changes from the
respective price proxies to the appropriate market basket cost
categories that are obtained from the 2017 Benchmark I-O data (for
instance, for the Professional Fees category we applied the growth in
the ECI for Total Compensation for Private industry workers in
Professional and Related). After inflating the 2017 costs to 2023 and
calculating the cost shares we determined that the resulting cost share
was 29.5 percent of ``All Other'' costs in 2023 dollars.
Third, these resulting 2023 cost shares were applied to the
residual ``All Other'' cost weight to obtain the detailed cost weights
for the proposed 2023-based IPPS market basket. For example, we apply
the Professional Fees cost share (29.5 percent of total ``All Other''
costs) to the residual ``All Other'' cost weight of 33.2 percent,
resulting in a total Professional Fees cost weight from the Benchmark
I-O data of approximately 9.8 percent of the 2023-based IPPS market
basket.
Lastly, this is then allocated between Professional Fees: Labor-
Related and Professional Fees: Nonlabor-Related as
[[Page 36872]]
described later in this section. As stated in the FY 2026 IPPS/LTCH
proposed rule (90 FR 18245) for the 2018-based IPPS market basket given
the data available from the 2008 survey, we classified some expenses
from the 2012 Benchmark I-O data as Professional Fees: Labor-Related,
some expenses as Professional Fees: Nonlabor-Related, and some expenses
as professional fees subject to allocation based on the survey. We then
applied the 2008 survey results to the following specific categories of
expenses: Legal services, Accounting, tax preparation, bookkeeping, and
payroll services, Architectural, engineering and related services, and
Management consulting services (all of which are reported in NAICS 54).
However, for the 2023-based IPPS market basket, since we proposed to
revise the methodology to use the data as reported on the Medicare cost
reports (Worksheet S-2, Part I), we proposed to apply the allocation
percentage of 59 percent obtained from the Medicare cost reports to all
of the professional fees costs we identified from the 2017 Benchmark I-
O data as described previously. This proposal to apply the percentage
to all of the professional fees costs is a result of the revised scope
of expenses captured in the question when we switched to using the
Medicare cost report data. Specifically, the professional fees question
on Worksheet S-2, Part I of the Medicare cost report stated a wider
range of types of costs as an example (legal, accounting, tax
preparation, bookkeeping, payroll, advertising, and management/
consulting services) while the survey conducted by CMS in 2009 was more
limited and had specific questions for each type of cost (legal
services, accounting and auditing, engineering, and management
consulting). The impact of this proposed methodology change in order to
be consistent with the Medicare cost report professional fees question
is an increase in the proposed 2023-based Professional Fees: Labor-
Related cost weight of about 1 percentage point.
For even greater transparency, as requested by the commenter, we
are posting a table providing the calculations of the detailed cost
category weights for the 2023-based IPPS market basket using the
publicly available I-O data. This table along with other market basket
information can be found at https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information.
We believe it is technically appropriate to update the labor-
related share to reflect the cost structures of IPPS hospitals from the
2023-based IPPS market basket rather than continue to use the less
recent 2018-based IPPS market basket.
Comment: A few commenters were grateful that CMS proposed to use
Medicare cost report data to inform the determination of the proportion
of expenses classified as professional fees that are purchased within
the local area labor market rather than relying on survey data as had
been done in previous calculations of the labor-related share. However,
the commenters were disappointed that CMS has not revised the
calculation to reflect that professional fees purchased outside the
local area labor market are also ``related to, influenced by, or vary
with the local market.'' They believe the cost of professional fees
purchased outside of the hospital's local area market should be
considered labor-related, because providers of these professional
services must adjust their pricing to reflect what local markets are
able to bear. Commenters stated that an accounting firm will not
necessarily charge a hospital located in a major urban area the same
that it would charge a hospital in a small rural area for the same
services. Several commenters recommended CMS increase the labor-related
portion of professional fees from 59 percent (which reflects CMS's
estimate of the proportion of professional fees purchased within
hospitals' local area labor markets) to a higher percentage. Another
commenter stated that CMS should revise its methodology for rebasing
the labor-related share, to account for the geographic wage variation
inherent in all non-clinical professional services costs.
Response: We appreciate the commenters' support to use the Medicare
cost report data to determine the proportion of professional fees that
are purchased in the local labor market.
However, we disagree that the proportion of professional fees
services costs purchased by hospitals outside the local area labor
market should be included in the labor-related share. The labor-related
share of the IPPS standardized amount is adjusted to account for
geographic differences in area wage levels by applying the applicable
IPPS wage index. The purpose of the labor-related share is to reflect
the proportion of the national IPPS standardized amount that is
adjusted by the hospital's wage index (representing the relative costs
of their local labor market to the national average). Therefore, we
include a cost category in the labor-related share if the costs are
labor intensive and vary with the local labor market.
As acknowledged by the commenter and confirmed by the Medicare cost
report data for IPPS hospitals, professional services can be purchased
from local firms as well as national and regional professional services
firms. It is not necessarily the case, as asserted by the commenter,
that these national and regional firms have fees that match those in
the local labor market even though providers have the option to utilize
those firms. That is, fees for services purchased from firms outside
the local labor market may differ from those that would be purchased in
the local labor market for any number of reasons (including but not
limited to, the skill level of the contracted personnel, higher capital
costs, etc.). We believe it is reasonable to conclude that the 59
percent of those Professional Fees costs purchased directly within the
local labor market are directly related to local labor market
conditions and, thus, should be included in the labor-related share.
The remaining approximately 41 percent of Professional Fees costs,
which are purchased outside the local labor market, reflect different
and additional factors outside the local labor market and, thus, should
be excluded from the labor-related share. In addition, we note the
compensation costs of professional services provided by hospital
employees (which would reflect the local labor market) are included in
the labor-related share as they are included in the Wages and Salaries
and Employee Benefits cost weights. Therefore, for the reasons
discussed, we believe our proposed methodology of continuing to
allocate only a portion of Professional Fees to the Professional Fees:
Labor-Related cost category is appropriate.
After consideration of public comments, we are finalizing the
rebasing of the 2023-based IPPS market basket without modification and
the derivation of a labor-related share of 66.0 percent based on the
final 2023-based IPPS market basket. Table IV-07 presents a comparison
of the proposed and final 2023-based labor-related share and the 2018-
based labor-related share. As discussed in section IV.B.1.b. of the
preamble of this final rule, the Wages and Salaries and Employee
Benefits cost weights reflect contract labor costs.
[[Page 36873]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.231
Using the cost category weights from the 2023-based IPPS market
basket, we calculated a labor-related share of 66.0 percent, 1.6
percentage points lower than the current labor-related share of 67.6
percent. This downward revision to the labor-related share is primarily
the result of incorporating the more recent 2023 Medicare cost report
data for Wages and Salaries, Employee Benefits, and Contract Labor
costs. This is partially offset by an increase in the Professional
Fees: Labor-Related cost weight.
Therefore, we proposed and are finalizing a labor-related share of
66.0 percent based on the 2023-based IPPS market basket. We continue to
believe, as we have stated in the past, that these operating cost
categories are related to, influenced by, or vary with the local
markets. Therefore, our definition of the labor-related share continues
to be consistent with section 1886(d)(3) of the Act. We note that
section 403 of Public Law 108-173 amended sections 1886(d)(3)(E) and
1886(d)(9)(C)(iv) of the Act to provide that the Secretary must employ
62 percent as the labor-related share unless 62 percent would result in
lower payments to a hospital than will otherwise be made.
C. Market Basket for Certain Hospitals Presently Excluded From the IPPS
As explained in the FY 2006 IPPS final rule (70 FR 47396 through
47398), beginning with FY 2006, we have used the percentage increase in
the IPPS operating market basket to update the target amounts for
children's hospitals, the 11 cancer hospitals, and RNHCIs.
Consistent with the regulations at Sec. Sec. 412.23(g) and
413.40(a)(2)(ii)(A) and (c)(3)(viii), we also have used the percentage
increase in the IPPS operating market basket to update target amounts
for short-term acute care hospitals located in the U.S. Virgin Islands,
Guam, the Northern Mariana Islands, and American Samoa. In the FY 2018
IPPS/LTCH PPS final rule, we rebased and revised the IPPS operating
market basket to a 2014 base year, effective for FY 2018 and subsequent
fiscal years (82 FR 38158 through 38175), and finalized the use of the
percentage increase in the 2014-based IPPS operating market basket to
update the target amounts for children's hospitals, the 11 cancer
hospitals, RNHCIs, and short-term acute care hospitals located in the
U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American
Samoa for FY 2018 and subsequent fiscal years. Effective for the FY
2022 IPPS/LTCH PPS final rule (86 FR 45194 through 45207), we rebased
and revised the IPPS operating market basket to a 2018 base year.
Therefore, we used the percentage increase in the 2018-based IPPS
operating market basket to update the target amounts for children's
hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care
hospitals located in the U.S. Virgin Islands, Guam, the Northern
Mariana Islands, and American Samoa for FY 2022 and subsequent fiscal
years.
As discussed in this section IV. of the preamble of this final
rule, we proposed and are finalizing to rebase and revise the IPPS
operating market basket to a 2023 base year. We continue to believe
that it is appropriate to use the increase in the IPPS operating market
basket to update the target amounts for these excluded facilities, as
discussed in prior rulemaking. Therefore, we proposed to use the
percentage increase in the 2023-based IPPS operating market basket to
update the target amounts for children's hospitals, the 11 cancer
hospitals, RNHCIs, and short-term acute care hospitals located in the
U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American
Samoa for FY 2026 and subsequent fiscal years. Accordingly, for FY
2026, the rate-of increase percentage to be applied to the target
amount for these hospitals would be the FY 2026 percentage increase in
the 2023-based IPPS operating market basket.
We received no comments on this proposal and therefore are
finalizing this proposal without modification.
D. Rebasing and Revising the Capital Input Price Index (CIPI)
The CIPI was originally described in the FY 1993 IPPS final rule
(57 FR 40016). There have been subsequent discussions of the CIPI
presented in the IPPS proposed and final rules. The FY 2022 IPPS/LTCH
PPS final rule (86 FR 45208 through 45213) described the most recent
rebasing and revising of the CIPI to a 2018 base year, which reflected
the capital cost structure of IPPS hospitals available at that time.
Effective for FY 2026, we proposed to rebase and revise the CIPI to
a 2023 base year to reflect a more current structure of capital costs
for IPPS hospitals. This 2023-based CIPI was derived using data from
the 2023 cost reports for IPPS hospitals, which includes providers
whose cost reporting period began on or after October 1, 2022, and
prior to September 30, 2023. We also proposed to start with the same
subset of Medicare cost reports from IPPS hospitals as previously
described in section IV.B.1.a. of the preamble of this final rule. As
with the 2018-based index, we proposed to develop two sets of weights
to derive the 2023-based CIPI. The first set of weights identifies the
proportion of hospital capital expenditures attributable to each
expenditure category, while the second set of weights is a set of
relative vintage weights for depreciation and interest. The set of
vintage weights is used to identify the proportion of capital
expenditures within a cost category that is attributable to each year
over the
[[Page 36874]]
useful life of the capital assets in that category. A more thorough
discussion of vintage weights is provided later in this section.
Using 2023 Medicare cost reports (CMS Form 2552-10, OMB Control
number 0938-0050), we are able to obtain capital costs for the
following categories: Depreciation, Interest, Lease, and Other.
Specifically, we proposed to determine what proportion of total capital
costs that each category represents using the data reported by IPPS
hospitals on Worksheet A-7, Part III. We proposed that Depreciation
costs are equal to the sum of Worksheet A-7, Part III, column 9, lines
1 and 2. We proposed that Interest costs are equal to the sum of
Worksheet A-7, Part III, column 11, lines 1 and 2. We proposed that
Lease costs are equal to the sum of Worksheet A-7, Part III, column 10,
lines 1 and 2. We proposed that Other costs are equal to the sum of
Worksheet A-7, Part III, columns 12 through 14, lines 1 and 2. We
proposed that Total Capital costs are equal to the sum of Worksheet A-
7, Part III, column 15, lines 1 and 2. We proposed to derive cost
weights for each IPPS hospital for each CIPI cost category by
calculating the ratio of the costs reported for each cost category (for
example, Depreciation) to Total Capital costs. Finally, we proposed to
apply a set of simultaneous trims based on these derived cost weights
to remove outliers. Specifically, we proposed to only include cost
reports for providers where their Depreciation cost weight is between
25 percent and 90 percent; Interest cost weight is between 0 and 75
percent, Lease cost weight is between 0 and 50 percent and Total
Capital costs are greater than zero and less than Total Facility Costs
reported on Worksheet B, Part I, column 26, line 202. The trimming
process is done simultaneously on each cost category so that if a cost
weight is outside the specific range for one or more of the cost weight
criteria mentioned, the provider is excluded from the sample. We note
that these proposed trimming methods are the same types of edits
performed for the 2018-based CIPI. We then proposed to sum the costs
for each cost category (Depreciation, Interest, Lease, and Other) and
divide each sum by the sum of Total Capital costs for this same set of
IPPS hospitals. The ratio of the total costs for each category to the
sum of Total Capital costs represents the cost weight for each of the
Depreciation, Interest, Lease and Other cost categories. This is the
same methodology as was used for the 2018-based CIPI. As shown in the
left column of Table IV-08, in 2023 depreciation expenses accounted for
67.2 percent of total capital costs, interest expenses accounted for
15.2 percent, leasing expenses accounted for 11.6 percent, and other
capital expenses accounted for 6.0 percent.
We also proposed to allocate lease costs across each of the
remaining capital cost categories as was done in the 2018-based CIPI.
We proposed to proportionally distribute leasing costs among the cost
categories of Depreciation, Interest, and Other, reflecting the
assumption that the underlying cost structure of leases is similar to
that of capital costs in general. As was done for the 2018-based CIPI,
we proposed to assume that 10 percent of the lease costs as a
proportion of total capital costs represents overhead and to assign
those costs to the Other capital cost category accordingly. Therefore,
we are assuming that approximately 1.2 percent (11.6 percent x 0.1) of
total capital costs represent lease costs attributable to overhead, and
we proposed to add this 1.2 percent to the 6.0 percent Other cost
category weight. We then proposed to distribute the remaining lease
costs (10.4 percent, or 11.6 percent-1.2 percent) proportionally across
the three cost categories (Depreciation, Interest, and Other) based on
the proportion that these categories comprise of the sum of the
Depreciation, Interest, and Other cost categories (excluding lease
expenses). For example, the Other cost category represented 6.7 percent
of all three cost categories (Depreciation, Interest, and Other) prior
to any lease expenses being allocated. This 6.7 percent is applied to
the 10.4 percent of remaining lease expenses so that another 0.7
percent of lease expenses as a percent of total capital costs is
allocated to the Other cost category. Therefore, the resulting proposed
Other cost weight is 7.8 percent (calculated using unrounded numbers,
which is approximately equal to 6.0 percent + 1.2 percent + 0.7
percent). This is the same methodology used for the 2018-based CIPI.
We did not receive any comments on the proposed methodology to
derive the cost weights of the 2023-based CIPI and therefore are
finalizing this methodology without modification. The resulting cost
weights of the allocation of lease expenses are shown in the right
column of Table IV-08.
[GRAPHIC] [TIFF OMITTED] TR04AU25.232
Finally, we proposed to further divide the Depreciation and
Interest cost categories. We proposed to separate the Depreciation cost
category into the following two categories: (1) Building and Fixed
Equipment and (2) Movable Equipment. We also proposed to separate the
Interest cost category into the following two categories: (1)
Government/Nonprofit; and (2) For-profit. These are the same categories
used for the 2018-based CIPI.
To disaggregate the depreciation cost weight, we needed to
determine the percent of total depreciation costs for IPPS hospitals
(after the allocation of lease costs) that are attributable to building
and fixed equipment, which we hereafter refer to as the ``fixed
percentage.'' After applying the trim requiring that the Depreciation
cost weight is between 25 percent and 90 percent as described
previously, for the providers remaining, we calculate the fixed
percentage as the ratio of the sum of building and fixed equipment
depreciation (Worksheet A-7, Part III,
[[Page 36875]]
column 9, line 1) to the sum of total depreciation (sum of Worksheet A-
7, Part III column 9, lines 1 and 2). Based on the 2023 IPPS Medicare
cost reports, we have determined that depreciation costs for building
and fixed equipment account for approximately 52 percent of total
depreciation costs, while depreciation costs for movable equipment
account for approximately 48 percent of total depreciation costs. This
is the same methodology used for the 2018-based CIPI. As was done for
the 2018-based CIPI, we proposed to apply this fixed percentage to the
depreciation cost weight (after leasing costs are included) to derive a
Depreciation cost weight attributable to Building and Fixed Equipment
and a Depreciation cost weight attributable to Movable Equipment.
To disaggregate the Interest cost weight, we needed to determine
the percent of total interest costs for IPPS hospitals that are
attributable to government and nonprofit facilities, which we hereafter
refer to as the ``nonprofit percentage,'' because interest price
pressures tend to differ between nonprofit and for-profit facilities.
After applying the trim requiring that the Interest cost weight is
between 0 percent and 75 percent as described previously, for the
providers remaining, we calculate the nonprofit percentage as the ratio
of the sum of interest costs (Worksheet A-7, Part III, column 11, lines
1 and 2) for government and nonprofit facilities to the sum of total
interest costs for all facilities. This is the same methodology used
for the 2018-based CIPI. The nonprofit percentage determined using this
method is 91 percent.
We did not receive any comments on the proposed methodology to
disaggregate the Depreciation and Interest cost weights of the 2023-
based CIPI and therefore are finalizing this methodology without
modification.
Table IV-09 provides a comparison of the 2018-based CIPI cost
weights and the proposed and final 2023-based CIPI cost weights. After
the capital cost category weights were computed, it was necessary to
select appropriate price proxies to reflect the rate-of-increase for
each expenditure category. We proposed to use the same price proxies as
were used in the 2018-based CIPI, which are listed in Table IV-09. We
also proposed to continue to vintage weight the capital price proxies
for Depreciation and Interest to capture the long-term consumption of
capital. This vintage weighting method is the same general method that
was used for the 2018-based CIPI (with a proposed change to the data
source used to derive the vintage weights) and is described later in
this section of this final rule.
For the Depreciation--Building and Fixed Equipment cost category,
we proposed to continue to use the BEA Chained Price Index for Private
Fixed Investment in Structures, Nonresidential, Hospitals and Special
Care (BEA Table 5.4.4. Price Indexes for Private Fixed Investment in
Structures by Type) as the price proxy. This BEA index is intended to
capture prices for construction of facilities such as hospitals,
nursing homes, hospices, and rehabilitation centers. For the
Depreciation--Movable Equipment cost category, we proposed to continue
to use the PPI Commodity for Machinery and Equipment (BLS series code
WPU11) as the price proxy. This price index reflects price inflation
associated with a variety of machinery and equipment that will be
utilized by hospitals including but not limited to communication
equipment, computers, and medical equipment. For the Nonprofit Interest
cost category, we proposed to continue to use the average yield on
domestic municipal bonds (Bond Buyer 20-bond index) as the price proxy.
For the For-profit Interest cost category, we proposed to continue to
use the iBoxx AAA Corporate Bond Yield index as the price proxy. For
the Other capital cost category (including insurances, taxes, and other
capital-related costs), we proposed to continue to use the CPI for Rent
of Primary Residence (All Urban Consumers) (BLS series code
CUUS0000SEHA) as the price proxy. We believe that these price series
continue to be the most appropriate proxies for IPPS capital costs that
meet our selection criteria of relevance, timeliness, availability, and
reliability.
We did not receive any comments on our proposed price proxies for
the 2023-based CIPI and therefore are finalizing without modification.
[GRAPHIC] [TIFF OMITTED] TR04AU25.233
Because capital is acquired and paid for over time, capital
expenses in any given year are determined by both past and present
purchases of physical and financial capital. The vintage-weighted 2023-
based CIPI is intended to capture the long-term consumption of capital,
using vintage weights for depreciation (physical capital) and interest
(financial
[[Page 36876]]
capital). These vintage weights reflect the proportion of capital
purchases attributable to each year of the expected life of building
and fixed equipment, movable equipment, and interest.
Vintage weights are an integral part of the CIPI. Capital costs are
inherently complicated and are determined by complex capital purchasing
decisions, over time, based on such factors as interest rates and debt
financing. In addition, capital is depreciated over time instead of
being consumed in the same period it is purchased. By accounting for
the vintage nature of capital, we are able to provide an accurate and
stable annual measure of price changes. Annual nonvintage price changes
for capital are unstable due to the volatility of interest rate changes
and, therefore, do not reflect the actual annual price changes for IPPS
capital costs. The CIPI reflects the underlying stability of the
capital acquisition process.
To calculate the vintage weights for depreciation and interest
expenses, we first needed a time series of capital purchases for
building and fixed equipment and movable equipment. We found no single
source that provides an appropriate time series of capital purchases by
hospitals for all of the components of capital purchases previously
noted. For the 2018-based CIPI, we calculated capital purchases using
data on total expenses from the American Hospital Association (AHA) for
the years 1964 through 2018 and the method was described in the FY 2022
IPPS/LTCH PPS final rule (86 FR 45210). The data from AHA are no longer
available beyond 2020 and, therefore, for the 2023-based CIPI, we
proposed to use an alternative data source for deriving the capital
purchases needed to calculate the vintage weights. Specifically, we
proposed to obtain a time series of building and fixed equipment
acquisitions (that is, purchases) and movable equipment acquisitions
using two different data sources. For the years 1996 through 2023, we
proposed to use data from Worksheet A-7 on the Medicare cost report as
reported by IPPS hospitals (with the exception of 2002 through 2004 due
to the temporary discontinuation of Worksheet A-7 from the Medicare
cost report in those years). For the years 1977 through 1995 we
proposed to use the growth rates in the building and fixed equipment
and movable equipment acquisitions derived using our previous method
used for the 2018-based CIPI (based on AHA data) to extrapolate the
levels from the Medicare cost report back in time. We provide the
proposed steps for calculating capital acquisitions (that is, capital
purchases) used to derive the vintage weights for the 2023-based CIPI.
Step 1--We obtain data from Worksheet A-7 of the Medicare cost
reports and apply basic trims. Specifically, for 1996 through 2010 we
use the CMS Form 2552-96, OMB Control number 0938-0050 and for 2010
through 2023 we use the CMS Form 2552-10, OMB Control number 0938-0050
(where 2010 data were collected using both forms). Specific cost report
references in this discussion are based on the CMS Form 2552-10, OMB
Control number 0938-0050. For each of the years 1996 through 2001 and
2005 through 2023, we proposed to apply a set of general trims based on
data obtained from Worksheet A-7 requiring that total capital costs
(sum of Worksheet A-7, part III, column 15, lines 1 and 2) are greater
than zero; beginning values of building and fixed equipment (sum of
Worksheet A-7, part I, column 1, lines 2 through 5) and movable
equipment (sum of Worksheet A-7, part I, column 1, lines 6 and 7) are
greater than zero; ending asset values of building and fixed equipment
and movable equipment are greater than zero; building and fixed
equipment depreciation is greater than zero; movable equipment
depreciation is greater than zero; building and fixed equipment
acquisitions are greater than zero; movable equipment acquisitions are
greater than zero as well as total facility costs (Worksheet B, part I,
column 26, line 202) are greater than zero.
In addition to these basic edits, we also proposed to remove
outliers in the data by trimming separately the top and bottom 1
percent building and fixed equipment useful lives and top and bottom 1
percent movable equipment useful lives. We first calculate the building
and fixed equipment useful life and movable equipment useful life for
each hospital for the years 1996 through 2001 and 2005 through 2023.
The expected life of any asset can be determined by dividing the value
of the asset (excluding fully depreciated assets) by its current year
depreciation amount. This calculation yields the estimated expected
life of an asset if the rates of depreciation were to continue at
current year levels, assuming straight-line depreciation. We proposed
to calculate the building and fixed equipment useful life as the ending
value of fixed assets (sum of Worksheet A-7, part I, column 6, lines 2
through 5, less sum of Worksheet A-7, part I, column 7, lines 2 through
5) divided by fixed asset depreciation (Worksheet A-7, part III, column
9, line 1). We proposed to calculate the movable equipment useful life
as the ending value of movable assets (sum of Worksheet A-7, part I,
column 6, lines 6 through 7, less sum of Worksheet A-7, part I, column
7, lines 6 through 7) divided by movable depreciation (Worksheet A-7,
part III, column 9, line 2). For the remaining hospitals (after
applying the top and bottom 1 percent trim on useful lives), we obtain
a time series of building and fixed equipment acquisitions (sum of
Worksheet A-7, part I, columns 2 and 3, lines 2 through 5) and a time
series of movable equipment acquisitions (sum of Worksheet A-7, part I,
columns 2 and 3, lines 6 through 7).
Step 2--Due to the temporary discontinuation of Worksheet A-7 from
the Medicare cost reports for the years 2002 through 2004, we need to
derive the building and fixed equipment acquisitions and movable
equipment acquisitions using a slightly different methodology. First,
for each of the years 1996 through 2001 and 2005 through 2023 we
calculate the annual ratio of the sum of building and fixed equipment
acquisitions from Worksheet A-7 to the sum of building and fixed
equipment ending asset values from Worksheet G. We next estimate these
fixed ratios for 2002 through 2004 (when Worksheet A-7 data are not
available) by straight-line interpolating the ratios between 2001 and
2005. Finally, we multiply these fixed ratios for 2002 through 2004 by
the total ending building and fixed equipment asset values (as reported
on Worksheet G). This results in an estimate of building and fixed
equipment acquisitions for the years 2002 through 2004. We use this
same methodology to derive movable equipment acquisitions using the
movable equipment data. We note that the total ending asset values from
Worksheet G are calculated after the application of a set of general
trims (similar to those in Step 1) requiring total capital costs to be
greater than zero and ending asset values of building and fixed
equipment and movable equipment (as reported on Worksheet G) to be
greater than zero.
Step 3--As done with prior vintage weights (including those used in
the 2018-based CIPI), we proposed to use a time series of capital
acquisitions of more than 50 years in the derivation of the vintage
weights. Since we only have Medicare cost report data back to 1996, we
proposed to derive capital acquisitions for the prior period based on
the capital acquisitions used to derive the vintage weights for the
2018-based CIPI based on AHA data. Specifically, beginning with the
1996
[[Page 36877]]
acquisition level derived in Step 1 (first year of data available from
the Medicare cost reports) we proposed to apply the growth rate of
acquisitions derived using the prior method going back to 1977. We do
this separately for both building and fixed equipment acquisitions and
movable equipment acquisitions.
As done in prior CIPI rebasings (including the 2018-based CIPI), in
order to derive the proposed vintage weights, we need to calculate the
average useful lives for building and fixed equipment and movable
equipment based on the most recent Medicare cost report data. As
previously described in Step 1, we proposed to calculate the average
building and fixed equipment useful life using 2023 Medicare cost
report data as the ending asset value of building and fixed equipment
(sum of Worksheet A-7, part I, column 6, lines 2 through 5, less sum of
Worksheet A-7, part I, column 7, lines 2 through 5) divided by building
and fixed equipment depreciation (Worksheet A-7, part III, column 9,
line 1). We proposed to calculate the average movable equipment useful
life using 2023 Medicare cost report data as the ending asset value of
movable equipment (sum of Worksheet A-7, part I, column 6, lines 6
through 7, less sum of Worksheet A-7, part I, column 7, lines 6 through
7) divided by movable equipment depreciation (Worksheet A-7, part III,
column 9, line 2). Using this proposed method, we determined the
average expected life of building and fixed equipment to be equal to 28
years, and the average expected life of movable equipment to be equal
to 12 years. For the expected life of interest, we believe that vintage
weights for interest should represent the average expected life of
building and fixed equipment because, based on previous research
described in the FY 1997 IPPS final rule (61 FR 46198), the expected
life of hospital debt instruments and the expected life of buildings
and fixed equipment are similar. We note that the 2018-based CIPI was
based on an expected average life of building and fixed equipment of 27
years and an expected average life of movable equipment of 12 years.
For the building and fixed equipment and movable equipment vintage
weights, we proposed to use the real annual capital-related purchase
amounts for each asset type to capture the actual amount of the
physical acquisition, net of the effect of price inflation. These real
annual capital-related purchase amounts are produced by deflating the
nominal annual purchase amount (as calculated in Steps 1 through 3) by
the associated price proxy as provided earlier in this final rule. For
the interest vintage weights, we proposed to use the total nominal
annual capital-related purchase amounts to capture the value of the
debt instrument (including, but not limited to, mortgages and bonds).
Using these capital purchases time series specific to each asset type,
we proposed to calculate the vintage weights for building and fixed
equipment, for movable equipment, and for interest.
The vintage weights for each asset type are deemed to represent the
average purchase pattern of the asset over its expected life (in the
case of building and fixed equipment and interest, 28 years, and in the
case of movable equipment, 12 years). For each asset type, we proposed
to use the time series of annual capital purchases amounts available
from 1977 to 2023. These data allow us to derive twenty 28-year periods
of capital purchases for building and fixed equipment and interest, and
thirty-five 12-year periods of capital purchases for movable equipment.
For each 28-year period for building and fixed equipment and interest,
or 12-year period for movable equipment, we proposed to calculate
annual vintage weights by dividing the capital-related purchase amount
in any given year by the total amount of purchases over the entire 28-
year or 12-year period. This calculation was done for each year in the
28-year or 12-year period and for each of the periods for which we have
data. We then calculated the average vintage weight for a given year of
the expected life by taking the average of these vintage weights across
the multiple periods of data. This is the same methodology used for the
2018-based CIPI but using 27 years and 12 years and reflecting data
through 2018.
The vintage weights for the 2023-based CIPI and the 2018-based CIPI
are presented in Table IV-10. While we proposed an alternative
methodology for calculating the vintage weights due to the
discontinuation of AHA data, Table IV-10 shows this change had limited
impact on the results. We note that using the 2023-based vintage
weights instead of the 2018-based vintage weights has a minimal impact
on the overall CIPI update (averaging less than 0.1 percentage point
over FY 2021 through FY 2026).
We did not receive any comments on our proposed vintage weights and
therefore are finalizing without modification.
[[Page 36878]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.234
The process of creating vintage-weighted price proxies requires
applying the vintage weights to the price proxy index where the last
applied vintage weight in Table IV-10 is applied to the most recent
data point. We have provided on the CMS website an example of how the
vintage weighting price proxies are calculated, using example vintage
weights and example price indices. The example can be found under the
following CMS website link: https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information in the zip file titled ``Weight
Calculations as described in the IPPS FY 2010 Proposed Rule.''
Table IV-11 in this section of this final rule compares both the
historical and forecasted percent changes in the 2018-based CIPI and
the 2023-based CIPI. Over the most recent historical period, the 2023-
based CIPI increases at a slightly lower rate, on average, than the
2018-based CIPI primarily due to rebasing the CIPI from 2018 to 2023
and updating the base year cost weights.
[[Page 36879]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.235
IHS Global, Inc. forecasts a 2.8 percent increase in the 2023-based
CIPI for FY 2026, as shown in Table IV-11. This is 0.2 percentage point
higher than in the proposed rule due to higher projected price
inflation for machinery and fixed investment as well as higher expected
interest rates. The underlying vintage-weighted price increases for
depreciation (including building and fixed equipment and movable
equipment) and interest (including government/nonprofit and for-profit)
based on the 2023-based CIPI are included in Table IV-12.
[GRAPHIC] [TIFF OMITTED] TR04AU25.236
The FY 2026 percentage increase based on the 2023-based CIPI is 0.1
percentage point lower than the increase based on the 2018-based CIPI
when rounded, as shown in Table IV-11, primarily due to rebasing the
CIPI to reflect 2023 costs.
V. Payment Adjustment for Medicare Disproportionate Share Hospitals
(DSHs) for FY 2026 (Sec. 412.106)
A. General Discussion
Section 1886(d)(5)(F) of the Act provides for additional Medicare
payments to subsection (d) hospitals \150\ that serve a significantly
disproportionate number of low-income patients. The Act specifies two
methods by which a hospital may qualify for the Medicare
disproportionate share hospital (DSH) adjustment. Under the first
method, hospitals that are located in an urban area and have 100 or
more beds may receive a Medicare DSH payment adjustment if the hospital
can demonstrate that, during its cost reporting period, more than 30
percent of its net inpatient care revenues are derived from State and
local government payments for care furnished to patients with low
incomes. This method is commonly referred to as the ``Pickle method.''
The second method for qualifying for the DSH payment adjustment, which
is the more commonly used method, is based on the hospital's
disproportionate patient percentage (DPP), described later in this
section, under which the DSH payment adjustment is based a complex
statutory formula which includes the hospital's geographic designation,
the number of
[[Page 36880]]
beds in the hospital, and the level of the hospital's DPP.
---------------------------------------------------------------------------
\150\ See section 1886(d)(1)(B) of the Act for the definition of
a ``subsection (d) hospital''.
---------------------------------------------------------------------------
A hospital's DPP is the sum of two fractions: the ``Medicare
fraction'' and the ``Medicaid fraction.'' The Medicare fraction (also
known as the ``SSI fraction'' or ``SSI ratio'') is computed by dividing
the number of the hospital's inpatient days that are furnished to
patients who were entitled to both Medicare Part A and Supplemental
Security Income (SSI) benefits by the hospital's total number of
patient days furnished to patients entitled to benefits under Medicare
Part A. The Medicaid fraction is computed by dividing the hospital's
number of inpatient days furnished to patients who, for such days, were
eligible for Medicaid, but were not entitled to benefits under Medicare
Part A, by the hospital's total number of inpatient days in the same
period.
[GRAPHIC] [TIFF OMITTED] TR04AU25.237
Because the DSH payment adjustment is part of the IPPS, the
statutory references to ``days'' in section 1886(d)(5)(F) of the Act
have been interpreted to apply only to hospital acute care inpatient
days. Regulations located at 42 CFR 412.106 govern the Medicare DSH
payment adjustment and specify how the DPP is calculated as well as how
beds and patient days are counted in determining the Medicare DSH
payment adjustment. Under Sec. 412.106(a)(1)(i), the number of beds
for the Medicare DSH payment adjustment is determined in accordance
with bed counting rules for the IME adjustment under Sec. 412.105(b).
Section 3133 of the Patient Protection and Affordable Care Act
(Pub. L. 111-148), as amended by section 10316 of the same Act and
section 1104 of the Health Care and Education Reconciliation Act (Pub.
L. 111-152), added a section 1886(r) to the Act that modifies the
methodology for computing the Medicare DSH payment adjustment. We refer
to these provisions collectively as section 3133 of the Affordable Care
Act. Beginning with discharges in FY 2014, hospitals that qualify for
Medicare DSH payments under section 1886(d)(5)(F) of the Act receive 25
percent of the amount they previously would have received under the
statutory formula for Medicare DSH payments. This provision applies
equally to hospitals that qualify for DSH payments on the basis of the
hospital's DPP under section 1886(d)(5)(F)(i)(I) of the Act and those
hospitals that qualify under the Pickle method under section
1886(d)(5)(F)(i)(II) of the Act.
The remaining amount, equal to an estimate of 75 percent of what
otherwise would have been paid as Medicare DSH payments, reduced to
reflect changes in the percentage of individuals who are uninsured, is
available to make additional payments to each hospital that qualifies
for Medicare DSH payments and that has uncompensated care. The payments
to each hospital for a fiscal year are based on the hospital's amount
of uncompensated care for a given time period relative to the total
amount of uncompensated care for that same time period reported by all
hospitals that receive Medicare DSH payments for that fiscal year.
Since FY 2014, section 1886(r) of the Act has required that
hospitals that are eligible for DSH payments under section
1886(d)(5)(F) of the Act receive 2 separately calculated payments:
------------------------------------------------------------------------
------------------------------------------------------------------------
Medicare DSH Payment.............. An empirically justified DSH payment
equal to 25% of the amount
determined under the statutory
formula in section 1886(d)(5)(F) of
the Act.
Medicare DSH Uncompensated Care An uncompensated care payment
Payment. determined as the product of 3
factors, as discussed in this
section.
------------------------------------------------------------------------
Specifically, section 1886(r)(1) of the Act provides that the
Secretary shall pay to such subsection (d) hospital 25 percent of the
amount the hospital would have received under section 1886(d)(5)(F) of
the Act for DSH payments, which represents the empirically justified
amount for such payment, as determined by the MedPAC in its March 2007
Report to Congress.\151\ We refer to this payment as the ``empirically
justified Medicare DSH payment.''
---------------------------------------------------------------------------
\151\ https://www.medpac.gov/document/march-2007-report-to-the-congress-medicare-payment-policy/.
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In addition to this empirically justified Medicare DSH payment,
section 1886(r)(2) of the Act provides that, for FY 2014 and each
subsequent fiscal year, the Secretary shall pay to such subsection (d)
hospitals an additional amount equal to the product of three factors.
The first factor is the difference between the aggregate amount of
payments that would be made to subsection (d) hospitals under section
1886(d)(5)(F) of the Act if subsection (r) did not apply and the
aggregate amount of payments that are made to subsection (d) hospitals
under section 1886(r)(1) of the Act for such fiscal year. In other
words, the first factor of the uncompensated care payment calculation
is 75 percent of the payments that would otherwise be made as Medicare
DSH payments under section 1886(d)(5)(F) of the Act.
The second factor is, for FY 2018 and subsequent fiscal years, 1
minus the percent change in the percent of individuals who are
uninsured, as determined by comparing the percent of individuals who
were uninsured in 2013 (as estimated by the Secretary, based on data
from the Census Bureau
[[Page 36881]]
or other sources the Secretary determines appropriate, and certified by
the Chief Actuary of CMS) and the percent of individuals who were
uninsured in the most recent period for which data are available (as so
estimated and certified). As discussed in a later section, we note that
the second factor is computed based on estimates of the total U.S
population.
The third factor is a percent that, for each subsection (d)
hospital, represents the quotient of the amount of uncompensated care
for such hospital for a period selected by the Secretary (as estimated
by the Secretary, based on appropriate data), including the use of
alternative data where the Secretary determines that alternative data
are available which are a better proxy for the costs of subsection (d)
hospitals for treating the uninsured, and the aggregate amount of
uncompensated care for all subsection (d) hospitals that receive a
payment under section 1886(r) of the Act. Therefore, this third factor
represents a hospital's uncompensated care amount for a given time
period relative to the uncompensated care amount for that same time
period for all hospitals that receive Medicare DSH payments in the
applicable fiscal year, expressed as a percent.
For each hospital, the product of these three factors represents
its additional payment for uncompensated care for the applicable fiscal
year. We refer to the additional payment determined by these factors as
the ``uncompensated care payment.'' In brief, the uncompensated care
payment for an individual hospital is determined as the product of the
following 3 factors:
------------------------------------------------------------------------
------------------------------------------------------------------------
Factor 1.......................... 75% of the total amount of DSH
payments that would otherwise be
made under section 1886(d)(5)(F) of
the Act.
Factor 2.......................... 1 minus the percent change in the
percent of individuals who are
uninsured.
Factor 3.......................... The hospital's uncompensated care
amount relative to the
uncompensated care amount for all
hospitals that receive DSH
payments, expressed as a
percentage.
------------------------------------------------------------------------
Section 1886(r) of the Act applies to FY 2014 and each subsequent
fiscal year. In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50620
through 50647) and the FY 2014 IPPS interim final rule with comment
period (78 FR 61191 through 61197), we set forth our policies for
implementing the required changes to the Medicare DSH payment
methodology made by section 3133 of the Affordable Care Act for FY
2014. In those rules, we noted that, because section 1886(r) of the Act
modifies the payment required under section 1886(d)(5)(F) of the Act,
it affects only the DSH payment under the operating IPPS. It does not
revise or replace the capital IPPS DSH payment provided under the
regulations at 42 CFR part 412, subpart M, which was established
through the exercise of the Secretary's discretion in implementing the
capital IPPS under section 1886(g)(1)(A) of the Act.
Finally, section 1886(r)(3) of the Act provides that there shall be
no administrative or judicial review under section 1869, section 1878,
or otherwise of any estimate of the Secretary for purposes of
determining the factors described in section 1886(r)(2) of the Act or
of any period selected by the Secretary for the purpose of determining
those factors. Therefore, there is no administrative or judicial review
of the estimates developed for purposes of applying the three factors
used to determine uncompensated care payments, or of the periods
selected to develop such estimates.
B. Eligibility for Empirically Justified Medicare DSH Payments and
Uncompensated Care Payments
The payment methodology under section 3133 of the Affordable Care
Act applies to ``subsection (d) hospitals'' that would otherwise
receive a DSH payment made under section 1886(d)(5)(F) of the Act.
Therefore, hospitals must receive empirically justified Medicare DSH
payments in a fiscal year to receive an additional Medicare
uncompensated care payment for that year. Specifically, section
1886(r)(2) of the Act states that, in addition to the empirically
justified Medicare DSH payment made to a subsection (d) hospital under
section 1886(r)(1) of the Act, the Secretary shall pay to ``such
subsection (d) hospitals'' the uncompensated care payment. Section
1886(r)(2)'s reference to ``such subsection (d) hospitals'' refers to
hospitals that receive empirically justified Medicare DSH payments
under section 1886(r)(1) for the applicable fiscal year.
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and the FY
2014 IPPS interim final rule with comment period (78 FR 61193), we
explained that hospitals that are not eligible to receive empirically
justified Medicare DSH payments in a fiscal year will not receive
uncompensated care payments for that year. We also specified that we
would make a determination concerning eligibility for interim
uncompensated care payments based on each hospital's estimated DSH
status (that is, eligibility to receive empirically justified Medicare
DSH payments) for the applicable fiscal year (using the most recent
data that are available). For the IPPS/LTCH PPS proposed rule (90 FR
18254), we estimated DSH status for all hospitals using the most recent
available SSI ratios and information from the most recent available
Provider Specific File. We noted that FY 2021 SSI ratios available on
the CMS website were the most recent available SSI ratios at the time
of developing the proposed rule.\152\ We stated that if more recent
data on DSH eligibility became available before the final rule, we
would use such data in the final rule. The FY 2022 SSI ratios are the
most recent data available at the time of developing this FY 2026 IPPS/
LTCH PPS final rule, and so we have used this data to estimate DSH
status for all hospitals.
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\152\ https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.
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Our final determinations of a hospital's eligibility for
uncompensated care and empirically justified Medicare DSH payments will
be based on the hospital's actual DSH status at cost report settlement
for FY 2026.
In the FY 2014 IPPS/LTCH PPS final rule (78 FR 50622) and in the
rulemakings for subsequent fiscal years, we have specified our policies
for several specific classes of hospitals within the scope of section
1886(r) of the Act. Eligible hospitals include the following:
Subsection (d) Puerto Rico hospitals that are eligible for
DSH payments also are eligible to receive empirically justified
Medicare DSH payments and uncompensated care payments under section
1886(r) of the Act (78 FR 50623 and 79 FR 50006).
Sole community hospitals (SCHs) that are paid under the
IPPS Federal rate receive interim payments based on what we estimate
and project their DSH status to be prior to the beginning of the fiscal
year (based on the best available data at that time) subject to
settlement through the cost report. If they receive interim empirically
justified Medicare DSH payments in a fiscal year, they will also be
eligible to receive interim
[[Page 36882]]
uncompensated care payments for that fiscal year on a per discharge
basis. Final eligibility determinations will be made at the end of the
cost reporting period at settlement, and both interim empirically
justified Medicare DSH payments and uncompensated care payments will be
adjusted accordingly (78 FR 50624 and 79 FR 50007).
Medicare-dependent, small rural hospitals (MDHs) are paid
based on the IPPS Federal rate or, if higher, the IPPS Federal rate
plus 75 percent of the amount by which the Federal rate is exceeded by
the updated hospital-specific rate from certain specified base years
(FY 2012 IPPS/LTCH PPS final rule 76 FR 51684). The IPPS Federal rate
that is used in the MDH payment methodology is the same IPPS Federal
rate that is used in the SCH payment methodology. Because MDHs are paid
based on the IPPS Federal rate, they continue to be eligible to receive
empirically justified Medicare DSH payments and uncompensated care
payments if their DPP is at least 15 percent, and we apply the same
process to determine MDHs' eligibility for interim empirically
justified Medicare DSH and interim uncompensated care payments as we do
for all other IPPS hospitals. Recently enacted legislation has extended
the MDH program through September 30, 2025. We refer readers to section
V.F. of the preamble of this final rule for further discussion of the
MDH program. We will continue to make a determination concerning an
MDH's eligibility for interim empirically justified Medicare DSH and
uncompensated care payments based on the hospital's estimated DSH
status for the applicable fiscal year.
IPPS hospitals that elect to participate in the Bundled
Payments for Care Improvement Advanced (BPCI Advanced) model, will
continue to be paid under the IPPS and, therefore, are eligible to
receive empirically justified Medicare DSH payments and uncompensated
care payments until the Model's final performance year, which ends on
December 31, 2025. For further information regarding the BPCI Advanced
model, we refer readers to the CMS website at https://innovation.cms.gov/innovation-models/bpci-advanced.
Transforming Episode Accountability Model (TEAM) is a new
episode-based payment model. Hospitals participating in TEAM would
continue to be paid under the IPPS and, therefore, are eligible to
receive empirically justified Medicare DSH payments and uncompensated
care payments. The model's start date is January 1, 2026.
Ineligible hospitals include the following:
Maryland hospitals are not eligible to receive empirically
justified Medicare DSH payments and uncompensated care payments under
the payment methodology of section 1866(r) of the Act because they are
not paid under the IPPS. As discussed in the FY 2019 IPPS/LTCH PPS
final rule (83 FR 41402 through 41403), CMS and the State have entered
into an agreement to govern payments to Maryland hospitals under a new
payment model, the Maryland Total Cost of Care (TCOC) Model, which
began on January 1, 2019. Under the Maryland TCOC Model, which
concludes on December 31, 2026, Maryland hospitals are not paid under
the IPPS and are ineligible to receive empirically justified Medicare
DSH payments and uncompensated care payments under section 1886(r) of
the Act.
SCHs that are paid under their hospital-specific rate are
not eligible for Medicare DSH and uncompensated care payments (78 FR
50623 and 50624).
Hospitals participating in the Rural Community Hospital
Demonstration Program are not eligible to receive empirically justified
Medicare DSH payments and uncompensated care payments under section
1886(r) of the Act because they are not paid under the IPPS (78 FR
50625 and 79 FR 50008). The Rural Community Hospital Demonstration
Program was originally authorized for a 5-year period by section 410A
of the Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (MMA) (Pub. L. 108-173).\153\ The period of participation for
the last hospital in the demonstration under this most recent
legislative authorization will end on June 30, 2028. Under the payment
methodology that applies during this most recent extension of the
demonstration program, participating hospitals do not receive
empirically justified Medicare DSH payments, and they are excluded from
receiving interim and final uncompensated care payments. At the time of
development of the proposed rule, we stated we believed 16 hospitals
may participate in the demonstration program at the start of FY 2026.
We noted that if at the time of developing the final rule there is a
different number of hospitals projected to participate in the
demonstration program during FY 2026, we would use updated information
in the FY 2026 final rule. At the time of developing this FY 2026 final
rule, we believe 30 hospitals may participate in the demonstration
program during FY 2026.
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\153\ The Rural Community Hospital Demonstration Program was
extended for a subsequent 5-year period by sections 3123 and 10313
of the Affordable Care Act (Pub. L. 111-148). The period of
performance for this 5-year extension period ended on December 31,
2016. Section 15003 of the 21st Century Cures Act (Pub. L. 114-255),
enacted on December 13, 2016, again amended section 410A of Public
Law 108-173 to require a 10-year extension period (in place of the
5-year extension required by the Affordable Care Act), therefore
requiring an additional 5-year participation period for the
demonstration program. Section 15003 of Public Law 114-255 also
required a solicitation for applications for additional hospitals to
participate in the demonstration program. The period of performance
for this 5-year extension period ended December 31, 2021. The
Consolidated Appropriations Act, 2021 (Pub. L. 116-260) amended
section 410A of Public Law 108-173 to extend the demonstration
program for an additional 5-year period.
---------------------------------------------------------------------------
We received comments that are outside the scope of the proposed
rule. For example, we received comments related to the eligibility of
SCHs paid under hospital-specific rate and MDHs to receive DSH
payments, our policy related to patient days associated with Section
1115 demonstrations, and determination of patient SSI eligibility.
Because we consider these public comments to be outside the scope of
the proposed rule, we are not addressing these comments in this final
rule.
C. Empirically Justified Medicare DSH Payments
As we have discussed earlier, section 1886(r)(1) of the Act
requires the Secretary to pay 25 percent of the amount of the Medicare
DSH payment that would otherwise be made under section 1886(d)(5)(F) of
the Act to a subsection (d) hospital. Because section 1886(r)(1) of the
Act merely requires the Secretary to pay a designated percentage of
these payments, without revising the criteria governing eligibility for
DSH payments or the underlying payment methodology, we stated in the FY
2014 IPPS/LTCH PPS final rule that we did not believe that it was
necessary to develop any new operational mechanisms for making such
payments.
Therefore, in the FY 2014 IPPS/LTCH PPS final rule (78 FR 50626),
we implemented this provision by advising Medicare Administrative
Contractors (MACs) to simply adjust subsection (d) hospitals' interim
claim payments to an amount equal to 25 percent of what would have been
paid if section 1886(r) of the Act did not apply. We also made
corresponding changes to the hospital cost report so that these
empirically justified Medicare DSH payments could be settled at the
appropriate level at the time of cost report settlement. We provided
more detailed operational instructions and cost report instructions
following issuance of the FY 2014 IPPS/LTCH PPS final rule that are
available on the CMS website at https://
[[Page 36883]]
www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2014-
Transmittals-Items/R5P240.html.
D. Supplemental Payment for Indian Health Service (IHS) and Tribal
Hospitals and Puerto Rico Hospitals
In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49047 through
49051), we established a new supplemental payment for IHS/Tribal
hospitals and hospitals located in Puerto Rico for FY 2023 and
subsequent fiscal years. This payment was established to help to
mitigate the impact of the decision to discontinue the use of low-
income insured days as a proxy for uncompensated care costs for these
hospitals and to prevent undue long-term financial disruption for these
providers. The regulations located at 42 CFR 412.106(h) govern the
supplemental payment. In brief, the supplemental payment for a fiscal
year is determined as the difference between the hospital's base year
amount and its uncompensated care payment for the applicable fiscal
year as determined under Sec. 412.106(g)(1). The base year amount is
the hospital's FY 2022 uncompensated care payment adjusted by one plus
the percent change in the total uncompensated care amount between the
applicable fiscal year (that is, FY 2026 for purposes of this
rulemaking) and FY 2022, where the total uncompensated care amount for
a fiscal year is determined as the product of Factor 1 and Factor 2 for
that year. If the base year amount is equal to or lower than the
hospital's uncompensated care payment for the current fiscal year, then
the hospital would not receive a supplemental payment because the
hospital would not be experiencing financial disruption in that year as
a result of the use of uncompensated care data from the Worksheet S-10
in determining Factor 3 of the uncompensated care payment methodology.
In the FY 2026 IPPS/LTCH PPS proposed rule, we did not propose any
changes to the methodology for determining the amount of or hospital
eligibility for supplemental payments. For FY 2026, we will calculate
the supplemental payments to eligible IHS/Tribal and Puerto Rico
hospitals consistent with the methodology described in the FY 2023
IPPS/LTCH PPS final rule (87 FR 49047 through 49051) and Sec.
412.106(h).
As discussed in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49048
and 49049), the eligibility and payment processes for the supplemental
payment are consistent with the processes for determining eligibility
to receive interim and final uncompensated care payments adopted in FY
2014 IPPS/LTCH PPS final rule. We note that the MAC will make a final
determination with respect to a hospital's eligibility to receive the
supplemental payment for a fiscal year, in conjunction with its final
determination of the hospital's eligibility for DSH payments and
uncompensated care payments for that fiscal year.
Comment: A commenter reiterated their prior recommendation that was
submitted in response to the proposal to establish these supplemental
payments in the FY 2023 IPPS/LTCH PPS proposed rule. The commenter
recommended that CMS calculate the supplemental payment for Puerto Rico
hospitals using a base year amount determined using a Medicare SSI days
proxy of at least 42 percent, consistent with the local poverty level,
instead of the current value of 14 percent which incorporates the proxy
that was applied from FY 2017 through FY 2022 of 14 percent of the
hospital's Medicaid days and that was based on national data on the
relationship between Medicare SSI days and Medicaid days.
Another commenter reiterated similar comments submitted in response
to the FY 2025 IPPS/LTCH PPS proposed rule, thanking CMS for the
supplemental payments but requesting that CMS evaluate alternatives to
better support hospitals in Puerto Rico if uninsured days increased.
This commenter suggested reverting to the previous method of using a
proxy to determine uninsured days for hospitals in Puerto Rico, citing
ongoing challenges with collecting reliable Worksheet S-10 data for
hospitals in Puerto Rico.
Response: In the proposed rule, we did not propose any changes to
our methodology for calculating or determining hospital eligibility for
supplemental payments. Therefore, we consider these comments to be
outside the scope of the proposed rule. However, we refer readers to
our responses to substantially similar comments in the FY 2025 IPPS/
LTCH PPS final rule (89 FR 69314, FY 2024 IPPS/LTCH PPS final rule (88
FR 58992-58993) and FY 2023 IPPS/LTCH PPS final rule (87 FR 49047-
49048) for fulsome discussion on these issues.
E. Uncompensated Care Payments
As we discussed earlier, section 1886(r)(2) of the Act provides
that, for each eligible hospital in FY 2014 and subsequent years, the
uncompensated care payment is the product of three factors, which are
discussed in the next sections.
1. Calculation of Factor 1 for FY 2026
Section 1886(r)(2)(A) of the Act establishes Factor 1 in the
calculation of the uncompensated care payment. The regulations located
at 42 CFR 412.106(g)(1)(i) govern the Factor 1 calculation. Under a
prospective payment system, we would not know the precise aggregate
Medicare DSH payment amounts that would be paid for a fiscal year until
cost report settlement for all IPPS hospitals is completed, which
occurs several years after the end of the fiscal year. Therefore,
section 1886(r)(2)(A)(i) of the Act provides authority to estimate this
amount by specifying that, for each fiscal year to which the provision
applies, such amount is to be estimated by the Secretary. Similarly, we
would not know the precise aggregate empirically justified Medicare DSH
payment amounts that would be paid for a fiscal year until cost report
settlement for all IPPS hospitals is completed. Thus, section
1886(r)(2)(A)(ii) of the Act provides authority to estimate this
amount. In brief, Factor 1 is the difference between the Secretary's
estimates of: (1) the amount that would have been paid in Medicare DSH
payments for the fiscal year, in the absence of section 1886(r) of the
Act; and (2) the amount of empirically justified Medicare DSH payments
that are made for the fiscal year, which takes into account the
requirement to pay 25 percent of what would have otherwise been paid
under section 1886(d)(5)(F) of the Act.
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18255 through
18257), we proposed to continue the policy that has applied since the
FY 2014 final rule (78 FR 50627 through 50631), to determine Factor 1
from the most recently available estimates of the aggregate amount of
Medicare DSH payments that would be made for FY 2026 in the absence of
section 1886(r)(1) of the Act and the aggregate amount of empirically
justified Medicare DSH payments that would be made for FY 2026, both as
calculated by CMS' Office of the Actuary (OACT). Consistent with the
policy that has applied in previous years, these estimates will not be
revised or updated subsequent to publication of our final projections
in the FY 2026 IPPS/LTCH PPS final rule.
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18255 through
18257), to calculate both estimates, we used the most recently
available projections of Medicare DSH payments for the fiscal year, as
calculated by OACT using the most recently filed Medicare hospital cost
reports with
[[Page 36884]]
Medicare DSH payment information and the most recent DPPs and Medicare
DSH payment adjustments provided in the IPPS Impact File. The
projection of Medicare DSH payments for the fiscal year is also
partially based on OACT's Part A benefits projection model, which
projects, among other things, inpatient hospital spending. Projections
of DSH payments additionally require projections of expected increases
in utilization and case-mix. The assumptions that were used in making
these inpatient hospital spending, utilization, and case-mix
projections and the resulting estimates of DSH payments for FY 2023
through FY 2026 are discussed later in this section and in the table
titled ``Factors Applied for FY 2023 through FY 2026 to Estimate
Medicare DSH Expenditures Using FY 2022 Baseline.''
For purposes of calculating Factor 1 and modeling the impact of the
FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18255 through 18257), we
used OACT's January 2025 Medicare DSH estimates, which were based on
data from the December 2024 update of the Medicare Hospital Cost Report
Information System (HCRIS) and the FY 2025 IPPS/LTCH PPS final rule
IPPS Impact File, published in conjunction with the publication of the
FY 2025 IPPS/LTCH PPS final rule. Because SCHs that are projected to be
paid under their hospital-specific rate are ineligible for empirically
justified Medicare DSH payments and uncompensated care payments, they
were excluded from the January 2025 Medicare DSH estimates. Because
Maryland hospitals are not paid under the IPPS, they are also
ineligible for empirically justified Medicare DSH payments and
uncompensated care payments and were also excluded from OACT's January
2025 Medicare DSH estimates.
The 16 hospitals that CMS expects will participate in the Rural
Community Hospital Demonstration Program in FY 2026 were also excluded
from OACT's January 2025 Medicare DSH estimates because under the
payment methodology that applies during the demonstration, these
hospitals are not eligible to receive empirically justified Medicare
DSH payments or uncompensated care payments.
For the proposed rule, using the data sources previously discussed,
OACT's January 2025 estimates of Medicare DSH payments for FY 2026
without regard to the application of section 1886(r)(1) of the Act, as
corrected, was approximately $15.791 billion. (90 FR 18256 and 90 FR
23867). Therefore, also based on OACT's January 2025 Medicare DSH
estimates, the estimate of empirically justified Medicare DSH payments
for FY 2026, with the application of section 1886(r)(1) of the Act, as
corrected, was approximately $3.95 billion (or 25 percent of the total
amount of estimated Medicare DSH payments for FY 2026). (90 FR 18256
and 90 FR 23867.) Under Sec. 412.106(g)(1)(i), Factor 1 is the
difference between these two OACT estimates. Therefore, in the FY 2026
IPPS/LTCH PPS proposed rule (90 FR 18255 through 18257), as corrected,
we proposed that Factor 1 for FY 2026 would be $11.843 billion, which
is equal to 75 percent of the total amount of estimated Medicare DSH
payments for FY 2026 ($15.791 billion minus $3.95 billion). (90 FR
23867.) We noted that consistent with our approach in previous
rulemakings, OACT intended to use more recent data that may become
available for purposes of projecting the final Factor 1 estimates for
the FY 2026 IPPS/LTCH PPS final rule.
In the FY2026 IPPS/LTCH PPS proposed rule, we noted that the Factor
1 estimates for IPPS/LTCH PPS proposed rules are generally consistent
with the economic assumptions and actuarial analysis used to develop
the President's Budget estimates under current law, and Factor 1
estimates for IPPS/LTCH PPS final rules are generally consistent with
those used for the Midsession Review of the President's Budget.
Consistent with historical practice, we stated in the proposed rule
that we expected the Midsession Review will have updated economic
assumptions and actuarial analysis, which would be used for the
development of Factor 1 estimates in the FY 2026 IPPS/LTCH PPS final
rule.
For a general overview of the principal steps involved in
projecting future inpatient costs and utilization, we referred readers
to the ``2025 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplementary Medical Insurance Trust
Funds,'' available on the CMS website at https://www.cms.gov/oact/tr/2025.\1\ The actuarial projections contained in these reports are based
on numerous assumptions regarding future trends in program enrollment,
utilization and costs of health care services covered by Medicare, as
well as other factors affecting program expenditures. In addition,
although the methods used to estimate future costs based on these
assumptions are complex, they are subject to periodic review by
independent experts to ensure their validity and reasonableness.
In the FY 2026 IPPS/LTCH proposed rule (90 FR 18255 through 18257),
we included information regarding the data sources, methods, and
assumptions employed by OACT's actuaries in determining our estimate of
Factor 1. In summary, we indicated the historical HCRIS data update
OACT used to estimate Medicare DSH payments; we explained that the most
recent Medicare DSH payment adjustments provided in the IPPS Impact
File were used, and we provided the components of all the update
factors that were applied to the historical data to estimate the
Medicare DSH payments for the upcoming fiscal year, along with the
associated rationale and assumptions. The discussion also included
descriptions of the ``Other'' and ``Discharges'' assumptions and
provided additional information regarding how we address Medicaid
expansion.
We invited public comments on our proposed Factor 1 for FY 2026.
Comment: A few commenters thanked CMS for the increase in the
proposed Factor 1 amount for FY 2026. Some commenters requested
clarification on a discrepancy between the Factor 1 estimate cited in
the proposed rule's preamble and the figure provided in the
supplemental file.
Response: We thank the commenters for their support. Regarding the
discrepancy in Factor 1 estimates, we refer readers to the June 5, 2025
correction to the proposed rule (CMS-1833-CN) (90 FR 23867).
Comment: As in previous years, some commenters expressed concerns
with and requested greater transparency in the methodology used by CMS
and OACT to calculate Factor 1. A few commenters emphasized their
inability to accurately replicate CMS' calculations without clarity on
how inputs, such as the effects of the COVID-19 public health emergency
(PHE) on Medicare discharges, case mix, Medicaid enrollment and
subsequent disenrollment through redeterminations, impact Factor 1
estimates. Some of these commenters requested that CMS provide details
of its Factor 1 calculation in advance of the publication of the IPPS/
LTCH PPS final rule and in the IPPS/LTCH PPS proposed rule each year
going forward, so that sufficient data is available to replicate CMS'
DSH payment calculations and enable commenters to provide more informed
comments in future years. Another commenter requested that CMS provide
detailed explanations for how the agency calculates Factor 1 to ensure
safety net providers are not being disproportionately impacted.
A few commenters asserted that the lack of opportunity afforded to
hospitals to review the data used to estimate DSH
[[Page 36885]]
payment calculations in rulemaking is in violation of the
Administrative Procedure Act. These commenters expressed concerns about
the lack of transparency in how Factor 1 is calculated, arguing that
hospitals cannot meaningfully comment on the Factor 1 calculation
methodology given the lack of details provided by CMS in each IPPS/LTCH
PPS proposed rule. In particular, these commenters stated that the FY
2026 IPPS/LTCH proposed rule provided neither sufficient details nor a
complete explanation of the treatment of Medicaid expansions in the
calculation for Factor 1.
Additionally, several commenters stated that CMS failed to provide
sufficient details on how the ``Other'' factor, including both the
overall calculation and individual inputs used to determine the
estimate, is calculated. These commenters noted that although CMS
indicates Medicaid enrollment is included in the ``Other'' factor, the
agency does not explain its specific impact on the overall estimate.
One commenter emphasized the importance of interested parties
understanding how changes in Medicaid enrollment affect Medicare DSH
payments, particularly considering recent, significant shifts in
Medicaid enrollment. Other commenters specifically questioned whether
the ``Other'' factor accurately reflects the impact of the COVID-19
PHE. Some of these commenters requested that CMS publish a detailed
methodology of its ``Other'' calculation specifying how all the
components contribute to changes in its estimate from year to year. A
couple commenters requested that CMS clarify why the ``Other'' factor
frequently varies in successive rulemaking cycles. Some of these
commenters requested that this information be provided in advance of
the final rule publication and in the IPPS/LTCH PPS proposed rule each
year going forward to ensure the data is available to replicate CMS'
DSH calculation, allowing for sufficient ability to comment in future
years.
Response: We thank the commenters for their input. We disagree with
commenters' assertions regarding the lack of transparency with respect
to the methodology and assumptions used in the calculation of Factor 1.
As explained in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18255-
18257) and in this section of this final rule, we have been and
continue to be transparent about the methodology and data used to
estimate Factor 1. Regarding the commenters who reference the
Administrative Procedure Act, we note that under the Administrative
Procedure Act, a proposed rule is required to include either the terms
or substance of the proposed rule or a description of the subjects and
issues involved. In this case, the FY 2026 IPPS/LTCH PPS proposed rule
(90 FR 18002) included a detailed discussion of our proposed Factor 1
methodology and the data sources that would be used in making our final
estimate. Accordingly, we believe commenters were able to meaningfully
comment on our proposed estimate of Factor 1.
To provide additional context, and as we have explained in prior
rulemakings (see, for example, 89 FR 68986), we note that Factor 1 is
not estimated in isolation from other projections made by OACT. The
Factor 1 estimates for the proposed rules are generally consistent with
the economic assumptions and actuarial analyses used to develop the
President's Budget estimates under current law, and the Factor 1
estimates for the final rule are the latest estimates from OACT at the
time of development of this final rule. We recognize that our reliance
on the economic assumptions and actuarial analyses used to develop the
President's Budget in estimating Factor 1 has an impact on hospitals,
health systems, and other impacted parties that wish to replicate the
Factor 1 calculation by, for example, modeling the relevant Medicare
Part A portion of the President's Budget. Yet, we believe commenters
are able to meaningfully comment on our proposed estimate of Factor 1
without replicating the budget.
For a general overview of the principal steps involved in
projecting future inpatient costs and utilization, we refer readers to
the ``2025 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplementary Medical Insurance Trust
Funds,'' available under ``Downloads'' on the CMS website at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html. We note that the annual reports
of the Medicare Boards of Trustees to Congress represent the Federal
Government's official evaluation of the financial status of the
Medicare Program. The actuarial projections contained in these reports
are based on numerous assumptions regarding future trends in program
enrollment, utilization, and costs of health care services covered by
Medicare, as well as other factors affecting program expenditures. In
addition, given that the methods used to estimate future costs based on
these assumptions are complex, they are subject to periodic review by
independent experts to ensure their validity and reasonableness.
Additionally, in the FY 2026 IPPS/LTCH PPS proposed rule and
described in more detail later in this section, we included information
regarding the data sources, methods, and assumptions employed by the
actuaries to determine the OACT's estimate of Factor 1. We explained
that the most recent Medicare DSH payment adjustments provided in the
IPPS Impact File were used, and we provided the components of all
update factors that were applied to historical data to estimate the
Medicare DSH payments for the upcoming fiscal year, along with the
associated rationale and assumptions. This discussion also included a
description of the ``Other,'' ``Case-Mix,'' and ``Discharges''
assumptions, as well as additional information regarding the estimated
impact of the COVID-19 PHE.
Regarding the commenter who expressed concern that our proposed
calculation of Factor 1 would disproportionately impact safety net
providers, we continue to believe that estimating Factor 1 based on the
economic data and assumptions detailed in this final rule and the FY
2026 IPPS/LTCH PPS proposed rule is appropriate and consistent with the
requirements of section 1886(r)(2)(A) of the Act.
Comment: Some commenters requested that CMS provide additional
detail on the calculations and assumptions related to the ``Discharge''
component used in the Factor 1 formula so they can evaluate the impact
of Medicare Advantage (MA) growth on Medicare Fee for Service (FFS)
inpatient hospital payments. These commenters noted that the continued
expansion of MA has raised concerns--particularly around prior
authorization requirements imposed by plans, which often create burdens
for both patients and providers. The same commenters noted that these
issues have prompted broader questions about the sustainability of MA
growth and its implications for inpatient hospital payments, especially
for hospitals serving a disproportionate share of low-income
beneficiaries. The same commenters welcomed the opportunity to work
with CMS in examining the impacts of MA enrollment on FFS inpatient
hospital payments. Other commenters urged CMS to use more recent data
and update its estimates of Medicare DSH payment amounts to reflect
changes in the discharge volume more accurately.
Finally, a commenter, citing the Medicare Payment and Advisory
Commission's (MedPAC) draft recommendation for 2026 and its March 2025
report to Congress, urged CMS to increase the market basket updates for
[[Page 36886]]
2024 through 2026 used in the FY 2026 Factor 1 ``Update'' component by
at least 1 percentage point. The same commenter also requested that the
market basket update be increased by at least 1.5 percentage points per
MedPAC's March 2024 report to Congress. Another commenter argued that
the proposed 0.8 percent productivity adjustment used to offset the
projected 3.2 percent market basket increase in the ``Update''
component of Factor 1 was inappropriately high, given the significant
economic volatility caused by recent cost period outliers.
Response: We thank the commenters for their input. Regarding
commenters' requests for additional detail on the calculations and
assumptions underlying the ``Discharges'' factor, we refer the
commenters to the discussion elsewhere in this section of this final
rule and the relevant discussion in the FY 2026 IPPS/LTCH PPS proposed
rule (90 FR 18002), which detail the calculations and assumptions we
used to calculate the FY 2026 ``Discharges'' factor. We also note that
in updating our estimate of Factor 1 for this final rule, we
considered, as appropriate, the same set of factors that we used in the
FY 2025 IPPS/LTCH PPS proposed rule and in prior rulemakings (see
example, 89 FR 35934 35934 through 36649). As we stated we would do in
the FY 2026 IPPS/LTCH PPS proposed rule, we then updated our estimates
for the FY 2026 ``Discharges'' component, and other Factor 1
components, to incorporate the latest available data based on more
recent economic assumptions and actuarial analyses as available to us.
Regarding the comments on the impacts of MA enrollment on the
Medicare FFS discharge volume, we refer commenters to the actuarial
projections and assumptions regarding future trends in Medicare FFS and
MA program enrollment, utilization, and costs of health care services
covered by Medicare, as well as other factors affecting Medicare FFS
and MA program expenditures, contained in the ``2025 Annual Report of
the Boards of Trustees of the Federal Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds,'' available under
``Downloads'' on the CMS website at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html. We considered these projections,
assumptions, and other factors when developing our estimate of the
``Discharges'' factor for FY 2026. We also note that in this final
rule, consistent with prior years (see, for example, 89 FR 68986), our
estimate of the ``Discharges'' component for FY 2026 incorporates only
claims from the Medicare FFS program rather than claims from the MA
program. Accordingly, we believe that the FY 2026 ``Discharges'' factor
in this final rule accurately reflects trends in Medicare FFS
discharges.
Regarding the commenter who requested that CMS increase the FY 2026
Factor 1 ``Update'' component consistent with the MedPAC recommended
increases to the IPPS market basket used to estimate DSH payments for
FY 2024, FY 2025, and FY 2026, we note that consistent with the
inpatient hospital update discussion in section VI.B of the preamble of
this final rule, OACT is using the final inpatient hospital market
basket update and productivity adjustment for FY 2026, based on the
more recent data available for this final rule, for the final FY 2026
``Update'' component in the Factor 1 calculation. We refer readers to
the discussion of the finalized inpatient hospital update for FY 2026
in section VI.B of the preamble of this final rule. Regarding the
commenter expressing concern that the productivity adjustment used to
offset the projected market basket was inappropriately high, we also
refer to the discussion in section VI.B of the preamble of this final
rule.
After consideration of the public comments we received, we are
finalizing, as proposed, the methodology for calculating Factor 1 for
FY 2026. We discuss the resulting Factor 1 amount for FY 2026 in this
final rule. Consistent with prior rulemakings, for this final rule,
OACT used the most recently submitted Medicare cost report data from
the March 31, 2025, update of HCRIS to identify Medicare DSH payments
and the most recent Medicare DSH payment adjustments provided in the
Impact File and applied update factors and assumptions for projected
changes in utilization and case-mix to estimate Medicare DSH payments
for the upcoming fiscal year.
The June 2025 OACT estimate for Medicare DSH payments for FY 2026,
without regard to the application of section 1886(r)(1) of the Act, is
approximately $16.550 billion. This estimate excluded Maryland
hospitals, which participate in the Maryland Total Cost of Care Model
and are not paid under the IPPS, hospitals participating in the Rural
Community Hospital Demonstration, and SCHs paid under their hospital-
specific payment rate. Therefore, based on this June 2025 estimate, the
estimate of empirically justified Medicare DSH payments for FY 2026,
with the application of section 1886(r)(1) of the Act, is approximately
$4.14 billion (or 25 percent of the total amount of estimated Medicare
DSH payments for FY 2026). Under Sec. 412.106(g)(1)(i), Factor 1 is
the difference between these two OACT estimates. Therefore, the final
Factor 1 for FY 2026 is $12,412,500,000, which is equal to 75 percent
of the total amount of estimated Medicare DSH payments for FY 2026
($16,550,000,000 minus $4,137,500,000).
OACT's estimates for FY 2026 for this final rule began with a
baseline of $13.022 billion in Medicare DSH expenditures for FY 2022.
The following table shows the factors applied to update this baseline
through the current estimate for FY 2026:
[GRAPHIC] [TIFF OMITTED] TR04AU25.238
[[Page 36887]]
In this table, the discharges column shows the changes in the
number of Medicare FFS inpatient hospital discharges. The discharge
figures for FY 2023 and FY 2024 are based on Medicare claims data that
have been adjusted by a completion factor to account for incomplete
claims data. The discharge figures for FY 2025 and FY 2026 are
assumptions based on recent historical experience and assumptions
related to how many beneficiaries will be enrolled in MA plans.
The case-mix column shows the estimated change in case-mix for IPPS
hospitals. The case-mix figures for FY 2023 and FY 2024 are based on
actual claims data adjusted by a completion factor to account for
incomplete claims data. The case-mix figures for FY 2025 and for FY
2026 are assumptions based on the 2012 ``Review of Assumptions and
Methods of the Medicare Trustees' Financial Projections'' report by the
2010-2011 Medicare Technical Review Panel.\154\
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\154\ https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/reportstrustfunds/downloads/technicalpanelreport2010-2011.pdf.
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The ``Other'' column reflects the change in other factors that
contribute to the Medicare DSH estimates. These factors include the
difference between the total inpatient hospital discharges and IPPS
discharges and various adjustments to the payment rates that have been
included over the years but are not reflected in the other columns. In
addition, the ``Other'' column includes a factor for the estimated
changes in Medicaid enrollment through FY 2023.
The following table shows the factors that are included in the
``IPPS Hospital Market Basket Update Factor'' column of the previous
table:
[GRAPHIC] [TIFF OMITTED] TR04AU25.239
2. Calculation of Factor 2 for FY 2026
a. Background
Section 1886(r)(2)(B) of the Act establishes Factor 2 in the
calculation of the uncompensated care payment. Section
1886(r)(2)(B)(ii) of the Act provides that, for FY 2018 and subsequent
fiscal years, the second factor is 1 minus the percent change in the
percent of individuals who are uninsured, as determined by comparing
the percent of individuals who were uninsured in 2013 (as estimated by
the Secretary, based on data from the Census Bureau or other sources
the Secretary determines appropriate, and certified by the Chief
Actuary of CMS) and the percent of individuals who were uninsured in
the most recent period for which data are available (as so estimated
and certified).
We are continuing to use the methodology that was used in FY 2018
through FY 2025 to determine Factor 2 for FY 2026--to use the National
Health Expenditure Accounts (NHEA) data to determine the percent change
in the percent of individuals who are uninsured. We refer readers to
the FY 2018 IPPS/LTCH PPS final rule (82 FR 38197 and 38198) for a
complete discussion of the NHEA and why we determined, and continue to
believe, that it is the data source for the rate of uninsurance that,
on balance, best meets all our considerations and is consistent with
the statutory requirement that the estimate of the rate of uninsurance
be based on data from the Census Bureau or other sources the Secretary
determines appropriate.
In brief, the NHEA represents the government's official estimates
of economic activity (spending) within the health sector. The NHEA
includes comprehensive enrollment estimates for total private health
insurance (PHI) (including direct-purchase and employer-sponsored
plans), Medicare, Medicaid, the Children's Health Insurance Program
(CHIP), and other public programs, and estimates of the number of
individuals who are uninsured. The NHEA data are publicly available on
the CMS website at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/index.html.
To compute Factor 2 for FY 2026, the first metric that is needed is
the proportion of the total U.S. population that was uninsured in 2013.
For a complete discussion of the approach OACT used to prepare the
NHEA's estimate of the rate of uninsurance in 2013, including the data
sources used, we refer readers to the FY 2024 IPPS/LTCH PPS final rule
(88 FR 58998-58999).
The next metrics needed to compute Factor 2 for FY 2026 are
projections of the rate of uninsurance in both CY 2025 and CY 2026 for
the total U.S. population. On an annual basis, OACT projects enrollment
and spending trends for the coming 10-year period. The most recent
projections are for 2024 through 2033 and were published on June 25,
2025. Those projections used the latest NHEA historical data that were
available at the time of their construction (that is, historical data
through 2023). The NHEA projection methodology accounts for expected
changes in enrollment across all of the categories of insurance
coverage previously listed. For a complete discussion of how the NHEA
data account for expected changes in enrollment across all the
categories of insurance coverage previously listed, we refer readers to
the FY 2024 IPPS/LTCH PPS final rule (88 FR 58999).
b. Factor 2 for FY 2026
Using these data sources and the previously described
methodologies, at the time of developing the FY 2026 IPPS/LTCH proposed
rule, OACT had estimated that the uninsured rate for the historical,
baseline year of 2013 was 14 percent, and that the uninsured rates for
CYs 2025 and 2026 were 7.7 percent and 8.7 percent, respectively (90 FR
18258). As required by section 1886(r)(2)(B)(ii) of the Act, the Chief
Actuary of CMS certified these estimates. We refer readers to OACT's
Memorandum on Certification of Rates
[[Page 36888]]
of Uninsured prepared for the FY 2026 IPPS/LTCH PPS proposed rule for
further details on the methodology and assumptions that were used in
the projection of these rates of uninsurance.\155\
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\155\ https://www.cms.gov/files/document/certification-rates-uninsured-2026-proposed-rule.pdf.
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As with the CBO estimates on which we based Factor 2 for fiscal
years before FY 2018, the NHEA estimates are for a calendar year. Under
the approach originally adopted in the FY 2014 IPPS/LTCH PPS final
rule, we have used a weighted average approach to project the rate of
uninsurance for each fiscal year. We continue to believe that, in order
to estimate the rate of uninsurance during a fiscal year accurately,
Factor 2 should reflect the estimated rate of uninsurance that
hospitals will experience during the fiscal year, rather than the rate
of uninsurance during only one of the calendar years that the fiscal
year spans. Accordingly, in the FY 2026 IPPS/LTCH PPS proposed rule, we
proposed to continue to apply the weighted average approach used in
past fiscal years to estimate this final rule's rate of uninsurance for
FY 2026.
OACT certified the estimate of the rate of uninsurance for FY 2026
determined using this weighted average approach to be reasonable and
appropriate for purposes of section 1886(r)(2)(B)(ii) of the Act. In
the proposed rule (90 FR 18258), we noted that we may also consider the
use of more recent data that may become available for purposes of
estimating the rates of uninsurance used in the calculation of the
final Factor 2 for FY 2026.
In the proposed rule, we outlined the calculation of the proposed
Factor 2 for FY 2026 as follows:
Percent of individuals without insurance for CY 2013: 14
percent.
Percent of individuals without insurance for CY 2025: 7.7
percent.
Percent of individuals without insurance for CY 2026: 8.7
percent.
Percent of individuals without insurance for FY 2026:
(0.25 times 0.077) + (0.75 times 0.087) = 8.5 percent.
FY 2026's proposed Factor 2 is calculated as 1 minus the
percent change in the percent of individuals without insurance between
CY 2013 and FY 2026.
Proposed Factor 2 is as follows: 1-[verbar]((0.14-0.085)/
0.14)[verbar]= 1-0.3929 = 0.6071.
We proposed that Factor 2 for FY 2026 would be 60.71 percent.
The proposed FY 2026 uncompensated care amount was equivalent to
proposed Factor 1 multiplied by proposed Factor 2, which was $
7,190,037,075.
We invited public comments on our proposed Factor 2 for FY 2026.
Comment: Several commenters expressed their support for CMS'
proposed increase in Factor 2 and Medicare DSH uncompensated care
payments. Most commenters that discussed Factor 2 expressed their
concern that CMS has an underestimate of the uninsured rate for FY
2026. Commenters noted that the proposed Factor 2 amount does not
account for several finalized and proposed policy changes that could
dramatically increase the uninsured rates in FY 2026. These commenters
referenced the expiration of the American Rescue Plan's Marketplace
enhanced premium tax credits, the unwinding of the Medicaid continuous
coverage protections, pending or proposed federal policy changes that
may restrict Medicaid and marketplace insurance access, and
reconciliation bills and tax changes (that is, the One Big Beautiful
Bill Act) that could increase the uninsured population in FY 2026.
Many commenters also referenced data sources and analyses
estimating the impact of proposed federal legislation on the FY 2026
uninsured rate. Several commenters cited the Congressional Budget
Office's (CBO) projections, which estimated that the number of
uninsured individuals will increase by 2.2 million in 2026, 3.7 million
in 2027, and 3.8 million on average each year from 2026 to 2034 due to
the expiration of the enhanced premium tax credits. Other commenters
cited the CBO's projection that 16 million individuals will lose their
health insurance by 2034, and of these, almost 11 million will become
uninsured due to the One Big Beautiful Bill Act (as referred to by
commenters, which became Pub. L. 119-21), with the other 5 million
losing their insurance due to the expired enhanced premium tax credits.
A few commenters referenced a memorandum issued by the White House
Council of Economic Advisers, which projected an increase of 9.2
million in the uninsured population if the proposed reconciliation
budget bill does not pass by the end of Summer 2025. A commenter stated
that 35 percent of enrollees in Louisiana were disenrolled from
Medicaid between 2023 and 2024 according to a Kaiser Family Foundation
analysis. Accordingly, these commenters requested that CMS increase
Factor 2 to reflect the anticipated increase in the FY 2026 uninsured
population. A commenter requested that CMS use administrative
discretion to adjust Factor 2 upward in the final rule, stating that
the current NHEA projections were certified before the introduction of
recent legislative and regulatory proposals that could significantly
reshape the insurance coverage landscape. Another commenter requested
that CMS commit to recalculate the total DSH uncompensated payments for
FY 2026 once the fate of the reconciliation bill is known.
Citing CMS' statement in the proposed rule that the agency could
consider more recent data that may become available for the calculation
of Factor 2 in FY 2026, many commenters urged CMS to use more recent
and accurate data sources to account for the anticipated increase in
the uninsured rate. Some of these commenters urged CMS to consider
utilizing alternative data sources and calculations, such as real-world
data from interested parties and researchers, to ensure that the Factor
2 estimate appropriately reflects the current coverage landscape and
accurately estimates uninsured projections. A few commenters stated
that the current Factor 2 methodology may have been appropriate during
periods of stable insurance coverage but may no longer be adequate
given recent and anticipated policy-driven shifts in the uninsured
rate. As such, these commenters urged CMS to re-evaluate the current
data sources and methodologies used to estimate Factor 2. Given that
OACT updates its projected enrollment and spending trends for the
coming 10-year period, including the estimated uninsured rate for the
upcoming fiscal year, using NHEA data annually between the proposed and
final IPPS/LTCH rules, a few commenters requested that CMS update the
proposed rule's estimate of the uninsurance rate for the upcoming
fiscal year earlier in the rulemaking cycle issue an earlier update to
enhance the reliability of the proposed rule in projecting changes to
uncompensated care payments for upcoming fiscal years.
Response: We thank the commenters for their input and diligence
regarding the estimate of Factor 2 included in the proposed rule. In
response to comments concerning the NHEA data source used for
calculating Factor 2 for FY 2026, we refer readers to the FY 2018 IPPS/
LTCH PPS final rule (82 FR 38197 and 38198) for a complete discussion
of the NHEA and why we determined, and continue to believe, that it is
the data source for the rate of uninsurance that, on balance, best meet
all of our considerations for ensuring that the data source meets the
statutory requirement that the estimate
[[Page 36889]]
be based on data from the Census Bureau or other sources the Secretary
determines appropriate. We continue to believe that the NHEA will
provide reasonable estimates for the rate of uninsurance that are
available in conjunction with the IPPS rulemaking cycle.
In the FY 2026 IPPS/LTCH PPS proposed rule, we explained that we
used the most recent available estimates from the NHEA at that time
(that were released in June 2024), and we refer readers to the relevant
discussion in the proposed rule and OACT's memorandum on
``Certification of Rates of Uninsured'' prepared for the proposed rule
for further details on the methodology and assumptions used in the
proposed rule's calculation of the projected uninsured rate. In brief,
we indicated that our projection of the rates of uninsurance for CY
2025 and CY 2026 were from the latest NHEA historical data available
and accounted for expected changes in enrollment across all categories
of insurance coverage. We note, in particular, that OACT's estimates in
the proposed rule considered the expiration of the American Rescue
Plan's Marketplace enhanced premium tax credits and the latest Medicaid
projections publicly available at that time.
In response to commenters who requested that we update the Factor 2
estimates in the FY 2026 IPPS/LTCH PPS proposed rule to account for any
anticipated changes in the uninsured rate using more recent or
alternative data sources, in the proposed rule, we stated we may
consider the use of more recent data that may become available for
purposes of estimating the rates of uninsurance used in the calculation
of the final Factor 2 for FY 2026. In this final rule, we are using the
most recent NHEA estimates for the rate of uninsurance, which became
available on June 25, 2025 and account for all updates to the CY 2025
and CY 2026 uninsured rate, and reflect current law and administrative
actions as of March 25, 2025, including the legislative impacts of the
expiration of the American Rescue Plan's Marketplace enhanced premium
tax credits. At this stage of the FY 2026 IPPS/LTCH PPS final rule
development, there is not an available estimate of the impact of Public
Law 119-21 on the uninsured rate, and there is a wide range of
uncertainty associated with the demographic, economic and programmatic
outcomes. Consistent with prior final IPPS/LTCH PPS rulemakings (see,
for example, 89 FR 68986), we are using the updated NHEA data for the
final Factor 2 calculation because we believe that it is the most
appropriate measure of changes in the rate of uninsurance.
Regarding the comments requesting that CMS update the Factor 2
methodology and data sources and increase Factor 2 we continue to
believe that estimating Factor 2 based on the best available data is
appropriate and consistent with the requirements of Section
1886(r)(2)(B)(ii) of the Act.
Regarding the comments requesting that CMS issue an earlier update
of the uninsured rate for the upcoming FY during each annual rulemaking
cycle, we note that we use the most recent NHEA projections available
at the time of developing the proposed and final rules.
Comment: Several commenters urged CMS to be transparent in the
calculation of Factor 2 and how it accounts for the current coverage
landscape, while others urged CMS to be transparent regarding the data
sources used for calculating Factor 2 and the assumptions behind the
uninsured rate. One commenter asserted that the proposed rule did not
provide sufficient details nor an explanation of the treatment of
Medicaid expansions in the calculation for Factor 2. A few commenters
requested that CMS publish a detailed methodology on the calculation of
Factor 2 and how the NHEA projections are incorporated into the
estimate.
Response: In response to the comments concerning transparency, we
note that OACT's updated memorandum ``Certification of Rates of
Uninsured'' contains additional background describing the methods used
to derive the FY 2026 rate of uninsured for this final rule. Section
1886(r)(2)(B)(ii) of the Act permits us to use a data source other than
CBO estimates to determine the percent change in the rate of
uninsurance beginning in FY 2018. As explained elsewhere in this
section of this final rule, the NHEA data and methodology that were
used to estimate Factor 2 for this final rule are transparent and best
meet all our considerations for ensuring reasonable estimates for the
rate of uninsurance that are available in conjunction with the IPPS
rulemaking cycle, and we have concluded it is appropriate to update the
projection of the FY 2026 rate of uninsurance using the most recent
NHEA data. For additional information on the projection of the
uninsured rate, see the projection's methodology documentation.
(Available on the CMS website at: https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/downloads/projectionsmethodology.pdf).
After consideration of the public comments we received, we are
updating the calculation of Factor 2 for FY 2026 to incorporate the
most recent NHEA data. The final estimates of the percentage of
uninsured individuals have been certified by the Chief Actuary of CMS.
The calculation of the final Factor 2 for FY 2026 using a weighted
average of OACT's updated projections for CY 2025 and CY 2026 is as
follows:
Percent of individuals without insurance for CY 2013: 14.0
percent
Percent of individuals without insurance for CY 2025: 7.9
percent
Percent of individuals without insurance for CY 2026: 9.0
percent
Percent of individuals without insurance for FY 2026: (0.25
times 7.9) + (0.75 times 9.0) = 8.7 percent
Factor 2: 1-[verbar]((0.087-0.14)/0.14)[verbar] = 1-0.3786 =
0.6214 (62.14 percent)
Therefore, the final Factor 2 for FY 2026 is 62.14 percent. The
final FY 2026 uncompensated care amount is $12,412,500,000 * 0.6214 = $
7,713,127,500.
3. Calculation of Factor 3 for FY 2026
a. General Background
Section 1886(r)(2)(C) of the Act defines Factor 3 in the
calculation of the uncompensated care payment. As we have discussed
earlier, section 1886(r)(2)(C) of the Act states that Factor 3 is equal
to the percent, for each subsection (d) hospital, that represents the
quotient of: (1) the amount of uncompensated care for such hospital for
a period selected by the Secretary (as estimated by the Secretary,
based on appropriate data (including, in the case where the Secretary
determines alternative data are available that are a better proxy for
the costs of subsection (d) hospitals for treating the uninsured, the
use of such alternative data)); and (2) the aggregate amount of
uncompensated care for all subsection (d) hospitals that receive a
payment under section 1886(r) of the Act for such period (as so
estimated, based on such data).
Therefore, Factor 3 is a hospital-specific value that expresses the
proportion of the estimated uncompensated care amount for each
subsection (d) hospital and each subsection (d) Puerto Rico hospital
with the potential to receive Medicare DSH payments relative to the
estimated uncompensated care amount for all hospitals estimated to
receive Medicare DSH payments in the fiscal year for which the
uncompensated care payment
[[Page 36890]]
is to be made. Factor 3 is applied to the product of Factor 1 and
Factor 2 to determine the amount of the uncompensated care payment that
each eligible hospital will receive for FY 2014 and subsequent fiscal
years. In order to implement the statutory requirements for this factor
of the uncompensated care payment formula, it was necessary for us to
determine: (1) the definition of uncompensated care or, in other words,
the specific items that are to be included in the numerator (that is,
the estimated uncompensated care amount for an individual hospital) and
the denominator (that is, the estimated uncompensated care amount for
all hospitals estimated to receive Medicare DSH payments in the
applicable fiscal year); (2) the data source(s) for the estimated
uncompensated care amount; and (3) the timing and manner of computing
the quotient for each hospital estimated to receive Medicare DSH
payments. The statute instructs the Secretary to estimate the amounts
of uncompensated care for a period based on appropriate data. In
addition, we note that the statute permits the Secretary to use
alternative data in the case where the Secretary determines that such
alternative data are available that are a better proxy for the costs of
subsection (d) hospitals for treating individuals who are uninsured.
For a discussion of the methodology, we used to calculate Factor 3 for
fiscal years 2014 through 2022, we refer readers to the FY 2024 IPPS/
LTCH final rule (88 FR 59001 and 59002).
b. Background on the Methodology Used To Calculate Factor 3 for FY 2024
and Subsequent Years
Section 1886(r)(2)(C) of the Act governs the selection of the data
to be used in calculating Factor 3 and allows the Secretary the
discretion to determine the time periods from which we will derive the
data to estimate the numerator and the denominator of the Factor 3
quotient. Specifically, section 1886(r)(2)(C)(i) of the Act defines the
numerator of the quotient as the amount of uncompensated care for a
subsection (d) hospital for a period selected by the Secretary. Section
1886(r)(2)(C)(ii) of the Act defines the denominator as the aggregate
amount of uncompensated care for all subsection (d) hospitals that
receive a payment under section 1886(r) of the Act for such period. In
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50634 through 50647), we
adopted a process of making interim payments with final cost report
settlement for both the empirically justified Medicare DSH payments and
the uncompensated care payments required by section 3133 of the
Affordable Care Act. Consistent with that process, we also determined
the time period from which to calculate the numerator and denominator
of the Factor 3 quotient in a way that would be consistent with making
interim and final payments. Specifically, we must have Factor 3 values
available for hospitals that we estimate will qualify for Medicare DSH
payments for a fiscal year and for those hospitals that we do not
estimate will qualify for Medicare DSH payments for that fiscal year
but that may ultimately qualify for Medicare DSH payments for that
fiscal year at the time of cost report settlement.
As described in the FY 2022 IPPS/LTCH PPS final rule, commenters
expressed concerns that the use of only 1 year of data to determine
Factor 3 would lead to significant variations in year-to-year
uncompensated care payments. Some stakeholders recommended the use of 2
years of historical data from Worksheet S-10 data of the Medicare cost
report (86 FR 45237). In the FY 2022 IPPS/LTCH PPS final rule, we
stated that we would consider using multiple years of data when the
vast majority of providers had been audited for more than 1 fiscal year
under the revised reporting instructions. Audited FY 2020 cost reports
were available for the development of the FY 2024 IPPS/LTCH PPS
proposed and final rules. Feedback from previous audits and lessons
learned were incorporated into the audit process for the FY 2020
reports.
In consideration of the comments discussed in the FY 2022 IPPS/LTCH
PPS final rule, in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49036
through 49047), we finalized a policy of using a multi-year average of
audited Worksheet S-10 data to determine Factor 3 for FY 2023 and
subsequent fiscal years. We explained our belief that this approach
would be generally consistent with our past practice of using the most
recent single year of audited data from the Worksheet S-10, while also
addressing commenters' concerns regarding year-to-year fluctuations in
uncompensated care payments. Under this policy, we used a 2-year
average of audited FY 2018 and FY 2019 Worksheet S-10 data to calculate
Factor 3 for FY 2023. We also indicated that we expected FY 2024 would
be the first year that 3 years of audited data would be available at
the time of rulemaking. For FY 2024 and subsequent fiscal years, we
finalized a policy of using a 3-year average of the uncompensated care
data from the 3 most recent fiscal years for which audited data are
available to determine Factor 3. Consistent with the approach that we
followed when multiple years of data were previously used in the Factor
3 methodology, if a hospital does not have data for all 3 years used in
the Factor 3 calculation, we will determine Factor 3 based on an
average of the hospital's available data. For IHS and Tribal hospitals
and Puerto Rico hospitals, we use the same multi-year average of
Worksheet S-10 data to determine Factor 3 for FY 2024 and subsequent
fiscal years as is used to determine Factor 3 for all other DSH-
eligible hospitals (in other words, hospitals eligible to receive
empirically justified Medicare DSH payments for a fiscal year) to
determine Factor 3.
In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49033 through
49047), we also modified our policy regarding cost reports that start
in one fiscal year and span the entirety of the following fiscal year.
Specifically, in the rare cases when we use a cost report that starts
in one fiscal year and spans the entirety of the subsequent fiscal year
to determine uncompensated care costs for the subsequent fiscal year,
we would not use the same cost report to determine the hospital's
uncompensated care costs for the earlier fiscal year. We explained that
using the same cost report to determine uncompensated care costs for
both fiscal years would not be consistent with our intent to smooth
year-to-year variation in uncompensated care costs. As an alternative,
we finalized our proposal to use the hospital's most recent prior cost
report, if that cost report spans the applicable period.\156\
---------------------------------------------------------------------------
\156\ For example, in determining Factor 3 for FY 2023, we did
not use the same cost report to determine a hospital's uncompensated
care costs for both FY 2018 and FY 2019. Rather, we used the cost
report that spanned the entirety of FY 2019 to determine
uncompensated care costs for FY 2019 and used the hospital's most
recent prior cost report to determine its uncompensated care costs
for FY 2018, provided that cost report spanned some portion of FY
2018.
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(1) Scaling Factor
In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69323), we continued
the policy finalized in the FY 2023 IPPS/LTCH PPS final rule (87 FR
49042) to address the effects of calculating Factor 3 using data from
multiple fiscal years, in which we apply a scaling factor to the Factor
3 values calculated for all DSH-eligible hospitals so that total
uncompensated care payments to hospitals that are projected to be DSH-
eligible for a fiscal year will be consistent with the estimated amount
available to make uncompensated care payments for that fiscal year.
Pursuant to that policy, we divide 1 (the expected sum of all DSH-
eligible hospitals' Factor
[[Page 36891]]
3 values) by the actual sum of all DSH-eligible hospitals' Factor 3
values and then multiply the quotient by the uncompensated care payment
determined for each DSH-eligible hospital to obtain a scaled
uncompensated care payment amount for each hospital. This process is
designed to ensure that the sum of the scaled uncompensated care
payments for all hospitals that are projected to be DSH-eligible is
consistent with the estimate of the total amount available to make
uncompensated care payments for the applicable fiscal year.
(2) New Hospital Policy for Purposes of Factor 3
In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69323), we continued
our new hospital policy that was modified in the FY 2023 IPPS/LTCH PPS
final rule (87 FR 49042) and initially adopted in the FY 2020 IPPS/LTCH
PPS final rule (84 FR 42370 through 42371) to determine Factor 3 for
new hospitals. Consistent with our policy of using multiple years of
cost reports to determine Factor 3, we defined new hospitals as
hospitals that do not have cost report data for the most recent year of
data being used in the Factor 3 calculation. Under this definition, the
cut-off date for the new hospital policy is the beginning of the fiscal
year after the most recent year for which audits of the Worksheet S-10
data have been conducted. For FY 2026, the FY 2022 cost reports are the
most recent year of cost reports for which audits of Worksheet S-10
data have been conducted. Thus, hospitals with CMS Certification
Numbers (CCNs) established on or after October 1, 2022, would be
subject to the new hospital policy for FY 2026.
Under our modified new hospital policy, if a new hospital has a
preliminary projection of being DSH-eligible based on its most recent
available disproportionate patient percentage, it may receive interim
empirically justified DSH payments. However, new hospitals will not
receive interim uncompensated care payments because we would have no
uncompensated care data on which to determine what those interim
payments should be. The MAC will make a final determination concerning
whether the hospital is eligible to receive Medicare DSH payments at
cost report settlement. In FY 2025, while we continued to determine the
numerator of the Factor 3 calculation using the new hospital's
uncompensated care costs reported on Worksheet S-10 of the hospital's
cost report for the current fiscal year, we determined Factor 3 for new
hospitals using a denominator based solely on uncompensated care costs
from cost reports for the most recent fiscal year for which audits have
been conducted. In addition, we applied a scaling factor to the Factor
3 calculation for a new hospital.\157\
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\157\ In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49042), we
explained our belief that applying the scaling factor is appropriate
for purposes of calculating Factor 3 for all hospitals, including
new hospitals and hospitals that are treated as new hospitals, to
improve consistency and predictability across all hospitals.
---------------------------------------------------------------------------
(3) Newly Merged Hospital Policy
In the FY 2025 IPPS/LTCH PPS final rule (89 FR 690323 through
690324), we continued our policy of treating hospitals that merge after
the development of the final rule for the applicable fiscal year
similar to new hospitals. As explained in the FY 2015 IPPS/LTCH PPS
final rule (79 FR 50021), for these newly merged hospitals, we do not
have data currently available to calculate a Factor 3 amount that
accounts for the merged hospital's uncompensated care burden. In the FY
2015 IPPS/LTCH PPS final rule (79 FR 50021 and 50022), we finalized a
policy under which Factor 3 for hospitals that we do not identify as
undergoing a merger until after the public comment period and
additional review period following the publication of the final rule or
that undergo a merger during the fiscal year will be recalculated
similar to new hospitals.
Consistent with the policy adopted in the FY 2015 IPPS/LTCH PPS
final rule, in the FY 2025 IPPS/LTCH PPS final rule (89 FR 690323
through 690324), we stated that we would continue to treat newly merged
hospitals in a similar manner to new hospitals, such that the newly
merged hospital's final uncompensated care payment will be determined
at cost report settlement where the numerator of the newly merged
hospital's Factor 3 will be based on the cost report of only the
surviving hospital (that is, the newly merged hospital's cost report)
for the current fiscal year. However, if the hospital's cost reporting
period includes less than 12 months of data, the data from the newly
merged hospital's cost report will be annualized for purposes of the
Factor 3 calculation. Consistent with the methodology used to determine
Factor 3 for new hospitals described in section IV.E.3. of the preamble
of this final rule, we continued our policy for determining Factor 3
for newly merged hospitals using a denominator that is the sum of the
uncompensated care costs for all DSH-eligible hospitals, as reported on
Worksheet S-10 of their cost reports for the most recent fiscal year
for which audits have been conducted. In addition, we apply a scaling
factor, as discussed in section IV.E.3. of the preamble of this final
rule, to the Factor 3 calculation for a newly merged hospital. In the
FY 2025 IPPS/LTCH PPS final rule, we explained that consistent with
past policy, interim uncompensated care payments for the newly merged
hospital would be based only on the data for the surviving hospital's
CCN available at the time of the development of the final rule.
We received comments on the newly merged hospital policy.
Comment: A few commenters expressed support for the new hospital
and newly merged hospital policies currently in place.
Response: We appreciate the continued support of our policies for
new and newly merged hospitals.
(4) CCR Trim Methodology
The calculation of a hospital's total uncompensated care costs on
Worksheet S-10 requires the use of the hospital's cost to charge ratio
(CCR). In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69324), we
continued the policy of trimming CCRs, which we adopted in the FY 2023
IPPS/LTCH PPS final rule (87 FR 49043), for FY 2025. Under this policy,
we apply the following steps to determine the applicable CCR separately
for each fiscal year that is included as part of the multi-year average
used to determine Factor 3:
Step 1: Remove Maryland hospitals. In addition, we will remove all-
inclusive rate providers because their CCRs are not comparable to the
CCRs calculated for other IPPS hospitals.
Step 2: Calculate a CCR ``ceiling'' for the applicable fiscal year
with the following data: for each IPPS hospital that was not removed in
Step 1 (including hospitals that are not DSH-eligible), we use cost
report data to calculate a CCR by dividing the total costs on Worksheet
C, Part I, Line 202, Column 3 by the charges reported on Worksheet C,
Part I, Line 202, Column 8. (Combining data from multiple cost reports
from the same fiscal year is not necessary, as the longer cost report
will be selected.) The ceiling is calculated as 3 standard deviations
above the national geometric mean CCR for the applicable fiscal year.
This approach is consistent with the methodology for calculating the
CCR ceiling used for high-cost outliers. Remove all hospitals that
exceed the ceiling so that these aberrant CCRs do not skew the
calculation of the statewide average CCR.
Step 3: Using the CCRs for the remaining hospitals in Step 2,
[[Page 36892]]
determine the urban and rural statewide average CCRs for the applicable
fiscal year for hospitals within each State (including hospitals that
are not DSH-eligible), weighted by the sum of total hospital discharges
from Worksheet S-3, Part I, Line 14, Column 15.
Step 4: Assign the appropriate statewide average CCR (urban or
rural) calculated in Step 3 to all hospitals, excluding all-inclusive
rate providers, with a CCR for the applicable fiscal year greater than
3 standard deviations above the national geometric mean for that fiscal
year (that is, the CCR ``ceiling'').
Step 5: For hospitals that did not report a CCR on Worksheet S-10,
Line 1, we assign them the statewide average CCR for the applicable
fiscal year as determined in step 3.
After completing these steps, we re-calculate the hospital's
uncompensated care costs (Line 30) for the applicable fiscal year using
the trimmed CCR (the statewide average CCR (urban or rural, as
applicable)).
(5) Uncompensated Care Data Trim Methodology
After applying the CCR trim methodology, there are rare situations
where a hospital has potentially aberrant uncompensated care data for a
fiscal year that are unrelated to its CCR. Therefore, under the trim
methodology for potentially aberrant uncompensated care costs (UCC)
that was included as part of the methodology for purposes of
determining Factor 3 in the FY 2021 IPPS/LTCH PPS final rule (85 FR
58832), if the hospital's uncompensated care costs for any fiscal year
that is included as a part of the multi-year average are an extremely
high ratio (greater than 50 percent) of its total operating costs in
the applicable fiscal year, we will determine the ratio of
uncompensated care costs to the hospital's total operating costs from
another available cost report, and apply that ratio to the total
operating expenses for the potentially aberrant fiscal year to
determine an adjusted amount of uncompensated care costs for the
applicable fiscal year.\158\
---------------------------------------------------------------------------
\158\ For example, if a hospital's FY 2018 cost report is
determined to include potentially aberrant data, data from its FY
2019 cost report would be used for the ratio calculation.
---------------------------------------------------------------------------
However, we note that we have audited the Worksheet S-10 data that
will be used in the Factor 3 calculation for a number of hospitals.
Because the UCC data for these hospitals have been subject to audit, we
believe that there is increased confidence that if high uncompensated
care costs are reported by these audited hospitals, the information is
accurate. Therefore, as we explained in the FY 2021 IPPS/LTCH PPS final
rule (85 FR 58832), we determined it is unnecessary to apply the UCC
trim methodology for a fiscal year for which a hospital's UCC data have
been audited.
In rare cases, hospitals that are not currently projected to be
DSH-eligible and that do not have audited Worksheet S-10 data may have
a potentially aberrant amount of insured patients' charity care costs
(line 23 column 2). In the FY 2025 IPPS/LTCH PPS final rule (89 FR
69324 through 69325), we stated that in addition to the UCC trim
methodology, we will continue to apply an alternative trim specific to
certain hospitals that do not have audited Worksheet S-10 data for one
or more of the fiscal years that are used in the Factor 3 calculation.
For FY 2023 and subsequent fiscal years, in the rare case that a
hospital's insured patients' charity care costs for a fiscal year are
greater than $7 million and the ratio of the hospital's cost of insured
patient charity care (line 23 column 2) to total uncompensated care
costs (line 30) is greater than 60 percent, we will not calculate a
Factor 3 for the hospital at the time of proposed or final rulemaking.
This trim will only impact hospitals that are not currently projected
to be DSH-eligible; and therefore, are not part of the calculation of
the denominator of Factor 3, which includes only uncompensated care
costs for hospitals projected to be DSH-eligible. Consistent with the
approach adopted in the FY 2022 IPPS/LTCH PPS final rule, if a hospital
would be trimmed under both the UCC trim methodology and this
alternative trim, we will apply this trim in place of the existing UCC
trim methodology. We continue to believe this alternative trim more
appropriately addresses potentially aberrant insured patient charity
care costs compared to the UCC trim methodology, because the UCC trim
is based solely on the ratio of total uncompensated care costs to total
operating costs and does not consider the level of insured patients'
charity care costs.
Similar to the approach initially adopted in the FY 2022 IPPS/LTCH
PPS final rule (86 FR 45245 and 45246), in the FY 2025 IPPS/LTCH PPS
final rule (89 FR 69324), we also stated that we would continue to use
a threshold of 3 standard deviations from the mean ratio of insured
patients' charity care costs to total uncompensated care costs (line 23
column 2 divided by line 30) and a dollar threshold that is the median
total uncompensated care cost reported on most recent audited cost
reports for hospitals that are projected to be DSH-eligible. We stated
that we continued to believe these thresholds are appropriate to
address potentially aberrant data. We also continued to include
Worksheet S-10 data from IHS/Tribal hospitals and Puerto Rico hospitals
consistent with our policy finalized in the FY 2023 IPPS/LTCH PPS final
rule (87 FR 49047 through 49051). In addition, we continued our policy
adopted in the FY 2023 IPPS/LTCH PPS final rule (87 FR 49044) of
applying the same threshold amounts originally calculated for the FY
2019 reports to identify potentially aberrant data for FY 2025 and
subsequent fiscal years to facilitate transparency and predictability.
If a hospital subject to this trim is determined to be DSH-eligible at
cost report settlement, the MAC will calculate the hospital's Factor 3
using the same methodology used to calculate Factor 3 for new
hospitals.
c. Methodology for Calculating Factor 3 for FY 2026
For FY 2026, consistent with Sec. 412.106(g)(1)(iii)(C)(11), we
are following the same methodology as applied in FY 2024 and described
in the previous section of the preamble of this final rule to determine
Factor 3 using the most recent 3 years of audited cost reports, from FY
2020, FY 2021, and FY 2022. Consistent with our approach for FY 2025,
for FY 2026, we are also applying the scaling factor, new hospital,
newly merged hospital, CCR trim methodology, UCC trim, and alternative
trim methodology policies discussed in the previous section of the
preamble of this final rule. For purposes of the FY 2026 IPPS/LTCH PPS
proposed rule, we used reports from the December 2024 HCRIS extract to
calculate Factor 3. In the proposed rule, we noted that we intended to
use the March 2025 update of HCRIS to calculate the final Factor 3 for
the FY 2026 IPPS/LTCH PPS final rule.
Thus, for FY 2026, we will use 3 years of audited Worksheet S-10
Part 1 data to calculate Factor 3 for all eligible hospitals, including
IHS and Tribal hospitals and Puerto Rico hospitals that have a cost
report for 2013, following steps. We note that we are clarifying in
these steps our use of Worksheet S-10, Part I, rather than Worksheet S-
10, Part II, to calculate Factor 3.
Step 1: Select the hospital's longest cost report for each of the
most recent 3 years of fiscal year (FY) audited cost reports (FY 2020,
FY 2021, and FY 2022). Alternatively, in the rare case when the
hospital has no cost report for a particular year because the cost
report for the previous fiscal year spanned the
[[Page 36893]]
more recent fiscal year, the previous fiscal year cost report will be
used in this step. In the rare case that using a previous fiscal year
cost report results in a period without a report, we would use the
prior year report, if that cost report spanned the applicable
period.\159\ In general, we note that, for purposes of the Factor 3
methodology, references to a fiscal year cost report are to the cost
report that spans the relevant fiscal year.
---------------------------------------------------------------------------
\159\ For example, if a hospital does not have a FY 2020 cost
report because the hospital's FY 2019 cost report spanned the FY
2020 time period, we will use the FY 2019 cost report that spanned
the FY 2020 time period for this step. Using the same example, where
the hospital's FY 2019 report is used for the FY 2020 time period,
we will use the hospital's FY 2018 report if it spans some of the FY
2019 time period. We will not use the same cost report for both the
FY 2020 and the FY 2019 time periods.
---------------------------------------------------------------------------
Step 2: Annualize the UCC from Worksheet S-10, Part I, Line 30, if
a cost report is more than or less than 12 months. (If applicable, use
the statewide average CCR (urban or rural) to calculate uncompensated
care costs.)
Step 3: Combine adjusted and/or annualized uncompensated care costs
for hospitals that merged using the merger policy.
Step 4: Calculate Factor 3 for all DSH-eligible hospitals using
annualized uncompensated care costs (Worksheet S-10, Part I, Line 30)
based on cost report data from the most recent 3 years of audited cost
reports (from Step 1, 2 or 3). New hospitals and other hospitals that
are treated as if they are new hospitals for purposes of Factor 3 are
excluded from this calculation.
Step 5: Average the Factor 3 values from Step 4; that is, add the
Factor 3 values, and divide that amount by the number of cost reporting
periods with data to compute an average Factor 3 for the hospital.
Multiply by a scaling factor, as discussed in the previous section of
the preamble of this final rule.
We received comments regarding the Factor 3 calculation, including
Worksheet S-10 cost report audits and uncompensated care cost report
instructions.
Comment: Several commenters expressed their support for CMS'
proposal to calculate Factor 3 for FY 2026 based on a three-year
average of audited FY 2020, FY 2021, and FY 2022 Worksheet S-10 data.
Supporters of this proposal specified that the use of a multi-year
average of Worksheet S-10 data significantly reduces year-to-year
volatility in uncompensated care payments.
Notably, no commenters expressed opposition to using a three-year
average of Worksheet S-10 data to calculate uncompensated care
payments.
Response: We are grateful to those commenters who expressed their
support for our policy of using a three-year average of audited FY
2020, FY 2021, and FY 2022 Worksheet S-10 data to determine each
hospital's share of uncompensated care costs in FY 2026. As explained
in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18002), we believe
that using a multi-year average of Worksheet S-10 data will provide
assurance that hospitals' uncompensated care payments remain stable and
predictable, while mitigating unpredictable swings and anomalies in a
hospital's uncompensated care costs.
Comment: A commenter urged CMS to monitor trends in uncompensated
care as reported on Worksheet S-10 during the COVID-19 Public Health
Emergency (PHE). This commenter encouraged CMS to assess how
disruptions in care during the COVID-19 PHE affected Factor 3
calculations and consider steps to dampen the effect of any large
reductions in uncompensated care costs attributable to the PHE and
ensure that the inclusion of FY 2020-2022 data does not reduce Factor 3
for essential hospitals.
Response: Regarding requests for CMS to monitor and account for the
impact of the COVID-19 PHE on Worksheet S-10 cost report data, we will
continue to monitor the impact of the PHE and will consider this issue
further in future rulemaking, as appropriate. We refer readers to our
responses to similar comments in the FY 2025 IPPS/LTCH PPS final rule
(89 FR 69325-39326), and we note that we will continue to use the
three-year average of the most recently audited cost report data for FY
2026 and subsequent years, consistent with the policy finalized in the
FY 2023 IPPS/LTCH PPS final rule (87 FR 48780) and Sec.
412.106(g)(1)(iii)(C)(11).
Comment: A commenter expressed their support for the continued
distribution of the uncompensated care payments based on each DSH
hospital's share of total uncompensated care.
Response: We appreciate the support for our policies on the
distribution of uncompensated care payments.
Comment: We received comments that were outside the scope of
previously discussed methodological concepts concerning the blending of
historical Worksheet S-10 data to calculate Factor 3. A commenter
recommended that CMS distribute current DSH and uncompensated care
payments using the Medicare Safety-Net Index (MSNI) framework outlined
by the Medicare Payment Advisory Commission (MedPAC) in its 2024 Report
to Congress. Another commenter urged CMS to explore additional policy
levers to increase DSH and/or uncompensated care payments, such as
temporarily directing supplemental funds--beyond empirically justified
DSH payments and/or uncompensated care payments--to hospitals that
serve the highest proportion of low-income patients.
Response: Regarding the commenters' suggestions unrelated to the
previously discussed methodological concepts for the blending of
historical Worksheet S-10 data to calculate Factor 3, we consider these
public comments to be outside the scope of the proposed rule and are
not addressing them in this final rule. However, we appreciate the
commenters' input and note that we may consider these suggestions in
future rulemaking, as appropriate.
Comment: Commenters reiterated comments from prior years suggesting
modifications to the Worksheet S-10 audit process. Specifically, a
commenter requested that CMS publicly disseminate comprehensive audit
policy and protocols that must be employed by all auditors and MACs and
disclose these through notice and comment rulemaking. The same
commenter requested that CMS implement a workable appeal or review
process to correct errors and inconsistent audit disallowances in a
timely manner. Another commenter requested that CMS provide clear
guidelines on its audit protocols and ensure Worksheet S-10 reviews
impose minimal burden and are uniformly applied across all hospitals.
The commenter urged CMS to disclose the criteria it uses to identify
hospitals for audits and ensure audits are conducted consistently and
equitably. Lastly, a commenter encouraged CMS to continuously take
steps to improve Worksheet S-10 data auditing accuracy.
Response: We thank commenters for their feedback on the audits of
the Worksheet S-10 data and their recommendations for future audits,
which we will take into consideration for future rulemaking. We note
that as we have stated in previous rulemakings in response to comments
regarding audit protocols (see, for example, 88 FR 58640), audit
protocols are provided to MACs in advance of the audit to ensure
consistency and timeliness in the audit process.
Regarding the request to make public the audit policies and
protocols, as we previously explained most recently in the FY 2024
IPPS/LTCH PPS final rule (88 FR 58640), we do not make our protocols
public as CMS desk review and audit protocols are confidential and are
for CMS and MAC use only. In addition, there is no requirement under
either the Administrative Procedure Act
[[Page 36894]]
or the Medicare statute that CMS adopt audit policies or protocols
through notice and comment rulemaking. Finally, as noted in the FY 2024
IPPS/LTCH PPS final rule (88 FR 58640), to most efficiently and
appropriately utilize our limited audit resources, we do not plan to
introduce an audit appeal process at this time.
Comment: Commenters thanked CMS for recent revisions to the
Worksheet S-10 audit protocols but expressed concern about recent
changes that require more detailed information. A commenter expressed
concerns regarding cost report exhibits and the Worksheet S-10 audits,
in particular the commenter stated that they should not have to put
unnecessary effort into exhibits if the MAC asks for different
information during the Worksheet S-10 audits. Another commenter
requested clarification on how the exhibits will be utilized. The
commenter requested that CMS consider making some fields as optional
rather than mandatory to reduce administrative burden.
Response: Regarding commenters' concerns about cost report
instructions, we note that to ensure the accuracy and integrity of the
cost reports, all hospitals are required to maintain documentation for
the Worksheet S-10, such as exhibits and Exhibits 3B and 3C (PRM 15-2,
4012.2) in particular. Regarding commenters' concerns about exhibits,
we refer commenters to the ``Justification'' section of the Paperwork
Reduction Act (PRA) revision request and approval of the existing
information collection requirement (ICR) for cost reports (OMB control
number 0938-0050 with an expiration date September 30, 2025).
Comment: Regarding Worksheet S-10 instructions and guidance, a
commenter requested that CMS clarify inconsistent Worksheet S-10
instructions on line 29 so that non-Medicare bad debt is not multiplied
by the CCR. The commenter stated that while CMS' revised cost report
instructions indicate that non-reimbursed Medicare bad debt is not
multiplied by the CCR, CMS' September 2017 transmittal \160\ states
that non-Medicare bad debt should be multiplied by the CCR.
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\160\ https://www.cms.gov/regulations-and-guidance/guidance/transmittals/2017downloads/r11p240.pdf.
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Response: We appreciate the commenter's concern regarding the need
for clarification of the Worksheet S-10 instructions and refer the
commenter to our response to a substantially similar comment in the FY
2025 IPPS/LTCH PPS final rule (89 FR 69327).
Comment: Some commenters reiterated concerns previously raised in
response to the FY 2025 IPPS/LTCH PPS proposed rule (89 FR 35934),
proposing technical revisions to how CMS defines and calculates
uncompensated care costs on Worksheet S-10. They recommended that CMS
include all patient care costs, such as costs related to training
medical residents, supporting physician and professional services, and
paying provider taxes associated with Medicaid revenue, when converting
costs to charges. These commenters suggested specific revisions to
Worksheet S-10 to incorporate all patient care costs, such as utilizing
the total of worksheet A, column 3, lines 1 through 117 (reduced by the
amount on worksheet A-8, line 10) as the cost component and worksheet
C, column 8, line 200, as the charge component. Additionally, some of
these commenters requested that CMS include Graduate Medical Education
(GME) costs when calculating a hospital's CCR.
The same commenters further urged CMS to treat the unreimbursed
portion of state or local indigent care programs as charity care and
revise Worksheet S-10 such that data on Medicaid shortfalls resembles
actual shortfalls incurred by hospitals. Specifically, they requested
that hospitals be allowed to reduce their Medicaid revenue reported on
Worksheet S-10 by the amount of any contributions to the nonfederal
share of Medicaid funding, whether through provider taxes,
intergovernmental transfers (IGTs), or certified public expenditures
(CPEs).
Response: We appreciate commenters' suggestions for revisions and/
or modifications to Worksheet S-10. We will consider the modifications
as necessary to further improve and refine the information that is
reported on Worksheet S-10 to support the collection of information
regarding uncompensated care costs.
Regarding the request to include costs for teaching and providing
physician and other professional services, including GME costs, when
calculating the CCR, as stated in past final rules (see, for example,
85 FR 58826, 86 FR 44774, and 89 FR 68986), we continue to believe that
it is not appropriate to modify the calculation of the CCR on Line 1 of
Worksheet S-10 to include any additional costs in the numerator of the
CCR calculation. We refer readers to those prior rules for further
discussion on this issue.
With regard to the comments requesting that payment shortfalls from
Medicaid and state and local indigent care programs be included in
uncompensated care cost calculations, we have consistently explained in
past final rules (85 FR 58826, 86 FR 44774, and 89 FR 68986) in
response to similar comments that we believe there are compelling
arguments for excluding such shortfalls from the definition of
uncompensated care. We refer readers to those prior rules for further
discussion on this issue.
As we explained previously in this section, for FY 2026, we are
also applying the scaling factor, new hospital, newly merged hospital,
CCR trim methodology, UCC trim, and alternative trim methodology
policies discussed in the previous section of the preamble of this
final rule. For a hospital that is subject to either of the trims for
potentially aberrant data (the UCC trim and alternative trim
methodology explained in the previous section of the preamble of this
final rule) and is ultimately determined to be DSH-eligible at cost
report settlement, its uncompensated care payment will be calculated
only after the hospital's reporting of insured charity care costs on
its FY 2026 Worksheet S-10 has been reviewed. Accordingly, the MAC will
calculate a Factor 3 for the hospital only after reviewing the
uncompensated care information reported on Worksheet S-10 of the
hospital's FY 2026 cost report. Then we will calculate Factor 3 for the
hospital using the same methodology used to determine Factor 3 for new
hospitals. Specifically, the numerator will reflect the uncompensated
care costs reported on the hospital's FY 2026 cost report, while the
denominator will reflect the sum of the uncompensated care costs
reported on Worksheet S-10 of the FY 2022 cost reports of all DSH-
eligible hospitals. In addition, we will apply a scaling factor, as
discussed previously, to the Factor 3 calculation for the hospital.
Under the CCR trim methodology, for purposes of the FY 2026 IPPS/
LTCH proposed rule and this final rule, the statewide average CCR was
applied to 8 hospitals' FY 2020 reports, of which 2 hospitals had FY
2020 Worksheet S-10 data. The statewide average CCR was applied to 10
hospitals' FY 2021 reports, of which 4 hospitals had FY 2021 Worksheet
S-10 data. The statewide average CCR was applied to 8 hospitals' FY
2022 reports, of which 2 hospitals had FY 2022 Worksheet S-10 data.
We received comments on the trim methodology.
Comment: A commenter expressed their support for CMS' CCR trim and
UCC methodologies to address unusual and atypical data.
Response: We appreciate the support for our policies on the CCR
trim
[[Page 36895]]
methodology and the UCC trim methodology.
For purposes of this FY 2026 IPPS/LTCH PPS final rule, consistent
with our Factor 3 methodology since the FY 2014 IPPS/LTCH PPS final
rule (78 FR 50642), we intend to use data from the March 2025 HCRIS
extract for this calculation, which would be the latest quarterly HCRIS
extract that is publicly available at the time of the development of
this FY 2026 IPPS/LTCH PPS final rule.
Regarding requests from providers to amend and/or reopen previously
audited Worksheet S-10 data for the most recent 3 cost reporting years
that are used in the methodology for calculating Factor 3, in the
proposed rule, we noted that MACs follow normal timelines and
procedures. For purposes of the Factor 3 calculation for the FY 2026
IPPS/LTCH PPS final rule, any amended reports and/or reopened reports
would need to have completed the amended report and/or reopened report
submission processes by the end of March 2025. In other words, if the
amended report and/or reopened report is not available for the March
HCRIS extract, then that amended and/or reopened report data would not
be part of the FY 2026 IPPS/LTCH PPS final rule's Factor 3 calculation.
We also noted in the proposed rule that the March HCRIS data extract
would be available during the comment period for the proposed rule if
providers wanted to verify that their amended and/or reopened data is
reflected in the March HCRIS extract.
d. Per-Discharge Amount of Interim Uncompensated Care Payments for FY
2026
Since FY 2014, we have made interim uncompensated care payments
during the fiscal year on a per-discharge basis. Typically, we use a 3-
year average of the number of discharges for a hospital to produce an
estimate of the amount of the hospital's uncompensated care payment per
discharge. Specifically, the hospital's total uncompensated care
payment amount for the applicable fiscal year is divided by the
hospital's historical 3-year average of discharges computed using the
most recent available data to determine the uncompensated care payment
per discharge for that fiscal year.
As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69328-
69329), we finalized a policy to use a 3-year average of the most
recent years of available historical discharge data to calculate a per-
discharge payment amount that would be used to make interim
uncompensated care payments to each projected DSH-eligible hospital
during FY 2026 and subsequent fiscal years, codified at 42 CFR
412.106(i)(1). We are applying this policy for FY 2026. Interim
uncompensated care payments made to a hospital during the fiscal year
are reconciled following the end of the year to ensure that the final
payment amount is consistent with the hospital's prospectively
determined uncompensated care payment for the fiscal year.
We received comments on the proposed per discharge payment amount
used to make interim uncompensated care payments.
Comment: A commenter raised their concern that CMS has understated
the per-discharge amount of interim uncompensated care payments in the
FY 2026 proposed rule, given the overestimation of discharges from past
data years. This commenter also expressed opposition to using a three-
year average for determining the discharge volume and requested that
CMS project a reasonable estimation of discharges.
Response: We thank the commenter for their feedback. As discussed
in the FY 2025 IPPS/LTCH PPS final rule (89 FR 68986), we believe using
an average of the most recent three-years of available historical
discharge data will appropriately reflect year-to-year variations in
discharge volumes in FY 2026 and subsequent fiscal years, and this
approach is consistent with 42 CFR 412.106(i)(1). We refer the
commenter to that final rule for additional discussion on this subject.
We also refer the commenter to our response in that rulemaking (89 FR
69329) to similar comments stating that CMS overestimated discharge
volume in recent years. Consistent with 42 CFR 412.106(i)(1), we are
finalizing our proposal as is and will calculate the per-discharge
amount of uncompensated care payments based on a three-year average of
discharge data.
As we explained in the FY 2025 IPPS/LTCH PPS final rule (89 FR
69329 through 69330), we also finalized a voluntary process in the FY
2021 IPPS/LTCH PPS final rule (85 FR 58833 and 58834), through which a
hospital may submit a request to its MAC for a lower per-discharge
interim uncompensated care payment amount, including a reduction to
zero, once before the beginning of the fiscal year and/or once during
the fiscal year. In conjunction with this request, the hospital must
provide supporting documentation demonstrating that there would likely
be a significant recoupment at cost report settlement if the per-
discharge amount is not lowered (for example, recoupment of 10 percent
or more of the hospital's total uncompensated care payment, or at least
$100,000). For example, a hospital might submit documentation showing a
large projected increase in discharges during the fiscal year to
support reduction of its per-discharge uncompensated care payment
amount. As another example, a hospital might request that its per-
discharge uncompensated care payment amount be reduced to zero midyear
if the hospital's interim uncompensated care payments during the year
have already surpassed the total uncompensated care payment calculated
for the hospital.
Under the policy we finalized in the FY 2021 IPPS/LTCH PPS final
rule (85 FR 58833 through 58834), the hospital's MAC will evaluate
these requests and the supporting documentation before the beginning of
the fiscal year and/or with midyear requests when the historical
average number of discharges is lower than the hospital's projected
discharges for the current fiscal year. If, following review of the
request and the supporting documentation, the MAC agrees that there
likely would be significant recoupment of the hospital's interim
Medicare uncompensated care payments at cost report settlement, the
only change that will be made is to lower the per-discharge amount
either to the amount requested by the hospital or another amount
determined by the MAC to be appropriate to reduce the likelihood of a
substantial recoupment at cost report settlement. If the MAC determines
it would be appropriate to reduce the interim Medicare uncompensated
care payment per-discharge amount, that updated amount will be used for
purposes of the outlier payment calculation for the remainder of the
fiscal year. We are continuing to apply this policy for FY 2026. We
refer readers to the Addendum in the FY 2023 IPPS/LTCH final rule for a
more detailed discussion of the steps for determining the operating and
capital Federal payment rate and the outlier payment calculation (87 FR
49431 through 49432). No change would be made to the total
uncompensated care payment amount determined for the hospital on the
basis of its Factor 3. In other words, any change to the per-discharge
uncompensated care payment amount will not change how the total
uncompensated care payment amount will be reconciled at cost report
settlement.
We received comments related to the uncompensated care payment
reconciliation process.
Comment: Some commenters reiterated their recommendation that
[[Page 36896]]
CMS use the traditional payment reconciliation process to calculate
final payments for uncompensated care costs pursuant to section
1886(r)(2) of the Act. These commenters did not object to CMS using
prospective estimates, derived from the best data available, to
calculate interim payments for uncompensated care costs. However, the
commenters stated that interim payments should be subject to later
reconciliation based on estimates derived from actual data from the
federal fiscal year. The commenters also stated that CMS' current IPPS/
LTCH PPS rulemaking process is flawed because CMS may use data and
calculations in final rules that were not included in the relevant
proposed rules without providing advance notice to hospitals. The
commenters claim that this limits the hospitals' ability to provide
informed comments. These same commenters stated that CMS fails to
provide meaningful explanations of its uncompensated care payment
calculations and is in violation of the Administrative Procedure Act.
These commenters recommended that CMS satisfy its legal obligation by
providing hospitals with the opportunity to review and comment on the
more recent data used to calculate Factors 1, 2, and 3 in each final
rulemaking before the agency publishes the final rule.
Response: Consistent with the position that we have taken in past
rulemaking, we continue to believe that applying our best estimates of
the three factors used in the calculation of uncompensated care
payments to determine payments prospectively is most conducive to
administrative efficiency, finality, and predictability in payments (83
FR 41144; 84 FR 42044; 85 FR 58432; 86 FR 44774; 87 FR 48780; 88 FR
58640; and 89 FR 68986). We continue to believe that, in affording the
Secretary the discretion of estimating the three factors used to
determine uncompensated care payments and by including a prohibition
against administrative and judicial review of those estimates in
section 1886(r)(3) of the Act, Congress recognized the importance of
finality and predictability under a prospective payment system.
As a result, we do not agree with the commenter's suggestion that
we should establish a process for reconciling our estimates of
uncompensated care payments, which would be contrary to the notion of
prospectivity in a payment system. Furthermore, we note that this
rulemaking has been conducted consistent with the requirements of the
Administrative Procedure Act and Title XVIII of the Act. Under the
Administrative Procedure Act, a proposed rule is required to include
either the terms or substance of the proposed rule, or a description of
the subjects and issues involved. In this case, the FY 2026 IPPS/LTCH
PPS proposed rule (90 FR 18002) included a detailed discussion of our
proposed methodology for calculating Factors 1-3 and the data that
would be used. We made public the best data available at the time of
the proposed rule to allow hospitals to understand the anticipated
impact of the proposed methodology and submit comments, and we have
considered those comments in determining our final policies for FY
2026.
e. Process for Notifying CMS of Merger Updates and To Report Upload
Issues
As we have done for every proposed and final rule beginning in FY
2014, in conjunction with this final rule, we will publish on the CMS
website a table listing Factor 3 for hospitals that we estimate will
receive empirically justified Medicare DSH payments in FY 2026 (that
is, those hospitals that will receive interim uncompensated care
payments during the fiscal year), and for the remaining subsection (d)
hospitals and subsection (d) Puerto Rico hospitals that have the
potential of receiving an uncompensated care payment in the event that
they receive an empirically justified Medicare DSH payment for the
fiscal year as determined at cost report settlement. However, we note
that a Factor 3 will not be published for new hospitals and hospitals
that are subject to the alternative trim for hospitals with potentially
aberrant data that are not projected to be DSH-eligible.
We will also publish a supplemental data file containing a list of
the mergers that we are aware of and the computed uncompensated care
payment for each merged hospital. In the DSH uncompensated care
supplemental data file, we list new hospitals and the 7 hospitals that
would be subject to the alternative trim for hospitals with potentially
aberrant data that are not projected to be DSH-eligible, with a N/A in
the Factor 3 column.
Hospitals had 60 days from the date of public display of the FY
2026 IPPS/LTCH PPS proposed rule in the Federal Register to review the
table and supplemental data file published on the CMS website in
conjunction with the proposed rule and to notify CMS in writing of
issues related to mergers and/or to report potential upload
discrepancies due to MAC mishandling of Worksheet S-10 data during the
report submission process.\161\ In the proposed rule, we stated that
comments raising issues or concerns that are specific to the
information included in the table and supplemental data file should be
submitted by email to the CMS inbox at [email protected]. We
indicated that we would address comments related to mergers and/or
reporting upload discrepancies submitted to the CMS DSH inbox as
appropriate in the table and the supplemental data file that we publish
on the CMS website in conjunction with the publication of the FY 2026
IPPS/LTCH PPS final rule. We also stated that all other comments
submitted in response to our proposals for FY 2026 must be submitted in
one of the three ways found in the ADDRESSES section of the proposed
rule before the close of the comment period in order to be assured
consideration. In addition, we noted that the CMS DSH inbox is not
intended for Worksheet S-10 audit process related emails, which should
be directed to the MACs.
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\161\ For example, if the report does not reflect audit results
due to MAC mishandling, or the most recent report differs from a
previously accepted, amended report due to MAC mishandling.
---------------------------------------------------------------------------
VI. Other Decisions and Changes to the IPPS for Operating Costs
A. Changes to MS-DRGs Subject to Postacute Care Transfer Policy and MS-
DRG Special Payments Policies (Sec. 412.4)
1. Background
Existing regulations at 42 CFR 412.4(a) define discharges under the
IPPS as situations in which a patient is formally released from an
acute care hospital or dies in the hospital. Section 412.4(b) defines
acute care transfers, and Sec. 412.4(c) defines postacute care
transfers. Our policy set forth in Sec. 412.4(f) provides that when a
patient is transferred and his or her length of stay is less than the
geometric mean length of stay for the MS-DRG to which the case is
assigned, the transferring hospital is generally paid based on a
graduated per diem rate for each day of stay, not to exceed the full
MS-DRG payment that would have been made if the patient had been
discharged without being transferred.
The per diem rate paid to a transferring hospital is calculated by
dividing the full MS-DRG payment by the geometric mean length of stay
for the MS-DRG. Based on an analysis that showed that the first day of
hospitalization is the most expensive (60 FR 45804), our policy
generally provides for payment that is twice the per diem amount for
the first day, with
[[Page 36897]]
each subsequent day paid at the per diem amount up to the full MS-DRG
payment (Sec. 412.4(f)(1)). Transfer cases also are eligible for
outlier payments. In general, the outlier threshold for transfer cases,
as described in Sec. 412.80(b), is equal to (Fixed-Loss Outlier
threshold for Nontransfer Cases adjusted for geographic variations in
costs/Geometric Mean Length of Stay for the MS-DRG) *(Length of Stay
for the Case plus 1 day).
We established the criteria set forth in Sec. 412.4(d) for
determining which DRGs qualify for postacute care transfer payments in
the FY 2006 IPPS final rule (70 FR 47419 through 47420). The
determination of whether a DRG is subject to the postacute care
transfer policy was initially based on the Medicare Version 23.0
GROUPER (FY 2006) and data from the FY 2004 MedPAR file. However, if a
DRG did not exist in Version 23.0 or a DRG included in Version 23.0 is
revised, we use the current version of the Medicare GROUPER and the
most recent complete year of MedPAR data to determine if the DRG is
subject to the postacute care transfer policy. Specifically, if the MS-
DRG's total number of discharges to postacute care equals or exceeds
the 55th percentile for all MS-DRGs and the proportion of short-stay
discharges to postacute care to total discharges in the MS-DRG exceeds
the 55th percentile for all MS-DRGs, CMS will apply the postacute care
transfer policy to that MS-DRG and to any other MS-DRG that shares the
same base MS-DRG. The statute at subparagraph 1886(d)(5)(J) of the Act
directs CMS to identify MS-DRGs based on a high volume of discharges to
postacute care facilities and a disproportionate use of postacute care
services. As discussed in the FY 2006 IPPS final rule (70 FR 47416), we
determined that the 55th percentile is an appropriate level at which to
establish these thresholds. In that same final rule (70 FR 47419), we
stated that we will not revise the list of DRGs subject to the
postacute care transfer policy annually unless we are making a change
to a specific MS-DRG.
To account for MS-DRGs subject to the postacute care policy that
exhibit exceptionally higher shares of costs very early in the hospital
stay, Sec. 412.4(f) also includes a special payment methodology. For
these MS-DRGs, hospitals receive 50 percent of the full MS-DRG payment,
plus the single per diem payment, for the first day of the stay, as
well as a per diem payment for subsequent days (up to the full MS-DRG
payment (Sec. 412.4(f)(6))). For an MS-DRG to qualify for the special
payment methodology, the geometric mean length of stay must be greater
than 4 days, and the average charges of 1-day discharge cases in the
MS-DRG must be at least 50 percent of the average charges for all cases
within the MS-DRG. MS-DRGs that are part of an MS-DRG severity level
group will qualify under the MS-DRG special payment methodology policy
if any one of the MS-DRGs that share that same base MS-DRG qualifies
(Sec. 412.4(f)(6)).
Prior to the enactment of the Bipartisan Budget Act of 2018 (Pub.
L. 115-123), under section 1886(d)(5)(J) of the Act, a discharge was
deemed a ``qualified discharge'' if the individual was discharged to
one of the following postacute care settings:
A hospital or hospital unit that is not a subsection (d)
hospital.
A skilled nursing facility.
Related home health services provided by a home health
agency provided within a timeframe established by the Secretary
(beginning within 3 days after the date of discharge).
Section 53109 of the Bipartisan Budget Act of 2018 amended section
1886(d)(5)(J)(ii) of the Act to also include discharges to hospice care
provided by a hospice program as a qualified discharge, effective for
discharges occurring on or after October 1, 2018. In the FY 2019 IPPS/
LTCH PPS final rule (83 FR 41394), we made conforming amendments to
Sec. 412.4(c) of the regulation to include discharges to hospice care
occurring on or after October 1, 2018, as qualified discharges. We
specified that hospital bills with a Patient Discharge Status code of
50 (Discharged/Transferred to Hospice--Routine or Continuous Home Care)
or 51 (Discharged/Transferred to Hospice, General Inpatient Care or
Inpatient Respite) are subject to the postacute care transfer policy in
accordance with this statutory amendment.
2. Changes for FY 2026
As discussed in the proposed rule and section II.C. of the preamble
of this final rule, based on our analysis of FY 2024 MedPAR claims
data, CMS proposed to make changes to a number of MS-DRGs, effective
for FY 2026. Specifically, we proposed the following changes:
Adding ICD-10-PCS codes describing restriction and
replacement of the thoracic aorta, and bypass and occlusion of the
subclavian and carotid arteries, to proposed new MS-DRG 209 (Complex
Aortic Arch Procedures).
Adding ICD-10-PCS codes describing restriction of the
abdominal aorta and restriction of the iliac artery to proposed new MS-
DRG 213 (Endovascular Abdominal Aorta with Iliac Branch Procedures).
Reassigning ICD-10-PCS codes describing extirpation of
matter from coronary arteries to proposed new MS-DRG 318 (Percutaneous
Coronary Atherectomy without Intraluminal Device).
Reassigning ICD-10-PCS codes describing extirpation of
matter from coronary arteries and adding ICD-10-PCS codes describing
dilation of coronary arteries and insertion of an intraluminal or other
device to proposed new MS-DRGs 359 and 360 (Percutaneous Coronary
Atherectomy with Intraluminal Device with MCC and without MCC,
respectively).
Adding ICD-10-CM diagnosis codes describing periprosthetic
joint infection and ICD-10-PCS procedure codes describing hip or knee
procedures to proposed new MS-DRGs 403 and 404 (Hip or Knee Procedures
with Principal Diagnosis of Periprosthetic Joint Infection with MCC and
without MCC, respectively).
Deleting MS-DRGs 294 and 295 (Deep Vein Thrombophlebitis
with CC/MCC and without CC/MCC, respectively) and reassigning the ICD-
10-CM codes to MS-DRGs 299, 300, and 301 (Peripheral Vascular Disorders
with MCC, with CC, and without CC/MCC, respectively).
Deleting MS-DRG 509 (Arthroscopy) and reassigning the ICD-
10-PCS codes describing inspection of various anatomic sites to their
respective clinically appropriate MS-DRGs.
Adding ICD-10-CM diagnosis codes describing the insertion
of a radioactive element into the brain to MS-DRG 023 (Craniotomy with
Major Device Implant or Acute Complex CNS Principal Diagnosis with MCC
or Chemotherapy Implant or Epilepsy with Neurostimulator).
When proposing changes to MS-DRGs that involve adding, deleting,
and reassigning procedure or diagnosis codes between proposed new and
revised MS-DRGs, we stated in the proposed rule that we continue to
believe it is necessary to evaluate the affected MS-DRGs to determine
whether they should be subject to the postacute care transfer policy.
Considering the proposed changes to the MS-DRGs for FY 2026, according
to the regulations under Sec. 412.4(d), we evaluated the proposed new
MS-DRGs using the general postacute care transfer policy criteria and
data from the FY 2024 MedPAR file. We continue to believe it is
appropriate to assess new MS-DRGs and reassess revised MS-DRGs when
proposing reassignment of procedure codes or diagnosis codes that would
result in material changes to an
[[Page 36898]]
MS DRG. We evaluated any current MS-DRGs if we estimate that more than
5 percent of the current cases would shift from the current assigned
MS-DRGs to proposed new MS-DRGs, or to a current MS-DRG from a proposed
revised or deleted MS-DRG.
For existing MS-DRGs 321 and 322 (Percutaneous Cardiovascular
Procedures with Intraluminal Device with MCC or 4+ arteries/
intraluminal devices, and without MCC, respectively), we determined
that more than 5 percent of the current cases would shift from the
current assigned MS-DRGs to proposed new MS-DRGs 359 and 360. We also
determined that for MS-DRGs 463, 464, and 465 (Wound Debridement and
Skin Graft Except Hand for Musculoskeletal and Connective Tissue
Disorders with MCC, with CC, and without MCC/CC, respectively), more
than 5 percent of the current cases would shift from the current
assigned MS-DRGs to proposed new MS-DRGs 403 and 404. We noted that for
all other proposed changes, the relative volume of cases shifting to or
from current MS-DRGs did not exceed the 5 percent threshold.
If an MS-DRG qualified for the postacute care transfer policy, we
also evaluated that MS-DRG under the special payment methodology
criteria according to regulations at Sec. 412.4(f)(6).
In the proposed rule, we noted that proposed new MS-DRGs 403 and
404 would qualify to be included on the list of MS-DRGs that are
subject to the postacute care transfer policy (90 FR 18264). We
therefore proposed to add new MS-DRGs 403 and 404 to the list of MS-
DRGs that are subject to the postacute care transfer policy.
We also noted that MS-DRGs 463, 464 and 465 are currently subject
to the postacute care transfer policy. As a result of our review, these
revised MS-DRGs would continue to qualify to be included on the list of
MS-DRGs that are subject to the postacute care transfer policy.
As discussed in section II.C. of the preamble of this final rule,
we are finalizing these proposed changes to the MS-DRGs, with exception
of the proposal to create new MS-DRGs 403 and 404 (Hip or Knee
Procedures with Principal Diagnosis of Periprosthetic Joint Infection
with MCC and without MCC, respectively) for FY 2026. We have therefore
removed MS-DRGs 403 and 404 from further analysis. We are also removing
MS-DRGs 463, 464, and 465 (Wound Debridement and Skin Graft Except Hand
for Musculoskeletal and Connective Tissue Disorders with MCC, with CC,
and without MCC/CC, respectively) from further analysis for purposes of
this final rule as we included them in our initial review due to our
determination that more than 5 percent of the current cases would shift
from these MS-DRGs to proposed new MS-DRGs 403 and 404 (which are not
being finalized).
Using the March 2025 update of the FY 2024 MedPAR file, we have
developed the following table which sets forth the most recent analysis
of the postacute care transfer policy criteria completed for this final
rule with respect to each of these finalized new or revised MS-DRGs.
BILLING CODE 4120-01-P
[[Page 36899]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.240
BILLING CODE 4120-01-C
During our annual review of proposed new or revised MS-DRGs and
analysis of the December 2024 update of the FY 2024 MedPAR file, we
reviewed the list of proposed revised or new MS-DRGs that qualify to be
included on the list of MS-DRGs subject to the postacute care transfer
policy for FY 2026 to determine if any of these MS-DRGs would also be
subject to the special payment methodology policy for FY 2026 (90 FR
18265).
Based on our analysis of the proposed changes to the MS-DRGs
included in the proposed rule, we determined that proposed new and
revised MS-DRGs 404 and 464 met the criteria for the MS-DRG special
payment methodology. As described in the regulations at Sec.
412.4(f)(6)(iv), MS-DRGs that share the same base MS-DRG will all
qualify under the MS-DRG special payment policy if any one of the MS-
DRGs that
[[Page 36900]]
share that same base MS-DRG qualifies. Therefore, we proposed that MS-
DRGs 403, 404, 463, 464, and 465 would be subject to the MS-DRG special
payment methodology, effective for FY 2026. As new MS-DRGs 403 and 404
are not being finalized, MS-DRGs 403 and 404 have been removed from
further analysis. As discussed previously, MS-DRGs 463, 464, and 465
were also removed from further analysis for purposes of this final rule
as their inclusion in our review of postacute care transfer policy
status was due to an expected shift in cases to the proposed new MS-
DRGS 403 and 404, which are not being finalized. As a result, there are
no remaining MS-DRGs to evaluate for special payment policy for FY
2026.
Comment: We received a comment requesting CMS to not apply the
post-acute transfer policy to proposed new MS-DRGs 403 and 404 for FY
2026 in order to avoid disincentivizing proper care for patients with
complex joint infections.
Response: As discussed previously, the proposed new MS-DRGs 403 and
404 are not being finalized for FY 2026.
Based on the finalized changes to the MS-DRGs for FY 2026 and the
updated analysis, we are not finalizing to add MS-DRGs to the postacute
care transfer or the special payment policies for FY 2026. We note that
MS-DRGs 463, 464 and 465 will continue to be subject to the postacute
care transfer policy.
The postacute care transfer and special payment policy status of
all MS-DRGs is reflected in Table 5 associated with this final rule,
which is listed in section VI. of the Addendum to this final rule and
available on the CMS website.
B. Changes in the Inpatient Hospital Update for FY 2026 (Sec.
412.64(d))
1. FY 2026 Inpatient Hospital Update
In accordance with section 1886(b)(3)(B)(i) of the Act, each year
we update the national standardized amount for inpatient hospital
operating costs by a factor called the ``applicable percentage
increase.'' For FY 2026, we stated in the proposed rule that we are
setting the applicable percentage increase by applying the adjustments
listed in this section in the same sequence as we did for FY 2025. (We
note that section 1886(b)(3)(B)(xii) of the Act required an additional
reduction each year only for FYs 2010 through 2019.) Specifically,
consistent with section 1886(b)(3)(B) of the Act, as amended by
sections 3401(a) and 10319(a) of the Affordable Care Act, we stated
that we are setting the applicable percentage increase by applying the
following adjustments in the following sequence. The applicable
percentage increase under the IPPS for FY 2026 is equal to the rate-of-
increase in the hospital market basket for IPPS hospitals in all areas,
subject to all of the following:
A reduction of one-quarter of the applicable percentage
increase (prior to the application of other statutory adjustments; also
referred to as the market basket update or rate-of-increase (with no
adjustments)) for hospitals that fail to submit quality information
under rules established by the Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act.
A reduction of three-quarters of the applicable percentage
increase (prior to the application of other statutory adjustments; also
referred to as the market basket update or rate-of-increase (with no
adjustments)) for hospitals not considered to be meaningful EHR users
in accordance with section 1886(b)(3)(B)(ix) of the Act.
An adjustment based on changes in economy-wide multifactor
productivity (MFP) (the productivity adjustment) in accordance with
section 1886(b)(3)(B)(xi)(II) of the Act.
Section 1886(b)(3)(B)(xi) of the Act, as added by section 3401(a)
of the Affordable Care Act, states that application of the productivity
adjustment may result in the applicable percentage increase being less
than zero.
As published in the FY 2006 IPPS final rule (70 FR 47403), in
accordance with section 404 of Public Law 108-173, CMS determined a new
frequency for rebasing the hospital market basket of every 4 years. In
compliance with section 404 of Public Law 108-173, in the FY 2022 IPPS/
LTCH PPS final rule (86 FR 45194 through 45204), we replaced the 2014-
based IPPS operating and capital market baskets with the rebased and
revised 2018-based IPPS operating and capital market baskets beginning
in FY 2022. Consistent with our established frequency of rebasing the
IPPS market basket every 4 years, in the FY 2026 IPPS/LTCH PPS proposed
rule, we proposed to rebase and revise the IPPS market basket to a 2023
base year, effective beginning in FY 2026.
We proposed to base the FY 2026 market basket update used to
determine the applicable percentage increase for the IPPS on IHS Global
Inc.'s (IGI's) fourth quarter 2024 forecast of the proposed 2023-based
IPPS market basket rate-of-increase with historical data through third
quarter 2024, which was estimated to be 3.2 percent. We also proposed
that if more recent data subsequently became available (for example, a
more recent estimate of the market basket update), we would use such
data, if appropriate, to determine the FY 2026 market basket update in
this final rule. We received public comments regarding the rebasing and
revising of the IPPS operating market basket and refer readers to
section IV.B. of the preamble of this final rule for a complete
discussion on the rebasing and revising of the market basket. As stated
in section IV.B. of the preamble of this final rule, we are finalizing
our proposals without modification and, therefore, are using the
finalized rebased and revised 2023-based IPPS market basket rate-of
increase for FY 2026 based on more recent data available.
Comment: Several commenters appreciated the proposed net increase
in operating payment rates for hospitals. Several commenters stated
that CMS's reliance on the current market basket and productivity
assumptions fails to capture the financial pressure facing DRG-based
hospitals, particularly those providing high-acuity complex, resource-
intensive care including the safety-net and rural hospitals which
commenters stated often face higher fixed costs, narrower operating
margins, and increased demand for services. They stated that the
proposed 2.4 percent increase is simply too low and fails to account
for the enduring impacts of high price inflation and cost increases.
Commenters expressed specific concerns regarding compensation costs
(highlighting increased contract labor utilization, employee burnout
and a tight labor market (which the commenter stated would persist well
into the future)), administrative costs (including what they described
as unnecessary administrative costs for prior authorizations, claims
appeals and denials from large commercial health insurers, including
Medicare Advantage and Medicaid managed care plans), and
pharmaceuticals costs. Commenters stated that the AHA found that in
2024 alone, hospital expenses grew by 5.1 percent of which a large
portion was labor expenses, and that prices for nearly 2,000 drugs
increased an average of 15.2 percent from 2017 through 2023, notably
faster than the rate of general inflation. The commenters also referred
to other economic headwinds creating uncertainty such as tariffs, which
commenters stated would impact the prices of pharmaceuticals, medical
equipment/supplies prices, and construction materials. They stated that
their concerns are further compounded by the likelihood of additional
funding reductions resulting from reconciliation legislation (affecting
health insurance
[[Page 36901]]
coverage and Medicaid funding) currently under consideration in
Congress.
In addition, several commenters stated that CMS did not consider
the Medicare Payment Advisory Commission (MedPAC)'s recommendation to
Congress to add 1 percent to the annual market basket which the
commission stated is merited given that even ``relatively efficient''
hospitals have negative Medicare margins. In its March 2025 report,
commenters noted that MedPAC reported Medicare fee-for-service margins
of -13 percent in 2023 (and -14 percent for nonprofit hospitals),
virtually unchanged from the record-low -13.1 percent margins in 2022.
Several commenters stated that Medicare reimbursement continues to
lag behind inflation. A commenter stated that Medicare underpayments
reached $100 billion in 2023 (covering just 83 cents per dollar)
according to AHA analysis of AHA Annual Survey data (https://www.aha.org/costsofcaring). A commenter stated that according to the
Kaiser Family Foundation, Medicare payments have not accommodated
market increases for at least the last 10 years.
Several commenters urged CMS to focus on appropriately accounting
for recent and future trends in inflationary pressures and cost
increases in the hospital payment update, which they stated is
essential to ensure that Medicare payments for acute care services more
accurately reflect the cost of providing hospital care.
Several commenters stated CMS calculates the market basket based on
forecasts rather than actual labor and supply cost increases, thus
failing to incorporate the challenging circumstances brought on by
unprecedented labor, supply, and drug cost increases. They recommended
CMS look to alternative data sources that better reflect true labor and
input cost increases in a timelier manner. At a minimum, they requested
CMS provide additional publicly available data on the assumptions and
inputs that go into developing a market basket update.
Commenters also stated that due to the timing of the projections
that the CMS Office of the Actuary used for the proposed rule, which
were made in December 2024, the effects of tariffs on hospital costs
are not accounted for in the IPPS market basket projection. They stated
CMS must ensure that its final market basket update for FY 2026
appropriately includes the cost increases attributable to tariffs.
Many commenters requested CMS use its exceptions and adjustments
authority to increase the market basket increase from the proposed rate
of 2.4 percent.
In addition, a commenter stated that given the continued rise in
input costs and the inadequate market basket updates derived from use
of the ECI, CMS may consider using the weighted average growth rate in
allowable Medicare costs per risk-adjusted discharge for IPPS hospitals
to calculate the final or future market basket update for IPPS
hospitals.
Several commenters requested CMS increase the FY 2026 market basket
update to reflect historic inflationary increases more accurately with
a commenter stating it should be no less than the FY 2024 final rule
market basket rate of 3.6 percent. However, a commenter stated that
when historical data is no longer a good predictor of future changes,
the market basket becomes inadequate citing the high inflation, as
measured by the consumer price index, of 9.1 percent in June 2022. They
urged CMS to use a factor to update the historical data to ensure that
rates align with the real-time costs that health systems are
experiencing and, therefore requested that CMS include an additional
increase to the 2023 historical data to help offset the significant
increased costs that providers are currently experiencing.
Commenters recommended CMS consider how it can use its regulatory
authority to boost payments to rural hospitals. They believe the market
basket update of 2.4 percent is inadequate given inflation, workforce
shortages, and labor and supply chain cost pressures that rural
hospitals continue to face. They stated nearly 50 percent of rural
hospitals are operating with negative margins and the median operating
margin for rural hospitals is 1 percent.
Several commenters recommended CMS work with Congress to address
economic pressures and reform the Medicare reimbursement formula to
better reflect the actual cost of delivering quality care to an ageing
population. A commenter urged CMS to evaluate whether the proposed
update sufficiently supports operational stability across hospitals
with high social risk indicators or atypical cost structures. If
disparities emerge, the commenter stated that future rulemaking should
explore targeted adjustments to preserve service availability and
financial solvency.
Response: Section 1886(b)(3)(B)(iii) of the Act states the
Secretary shall update IPPS payments based on a market basket
percentage increase estimated by the Secretary before the beginning of
the period or fiscal year, by which the cost of the mix of goods and
services (including personnel costs but excluding nonoperating costs)
comprising routine, ancillary, and special care unit inpatient hospital
services, based on an index of appropriately weighted indicators of
changes in wages and prices which are representative of the mix of
goods and services included in such inpatient hospital services, for
the period or fiscal year will exceed the cost of such mix of goods and
services for the preceding 12-month cost reporting period or fiscal
year. As described in section IV. of the preamble of this final rule,
we believe that the proposed 2023-based IPPS market basket (including
the ECI) is consistent with the statute as it is a fixed-weight,
Laspeyres-type price index that measures the change in price, over
time, while maintaining a mix of goods and services purchased by
hospitals consistent with a base period. Therefore, the market basket
is designed to measure price inflation for IPPS hospitals and would not
reflect increases in costs associated with changes in the volume or
intensity of input goods and services. Likewise, the commenter's
suggestion that a weighted average growth rate in allowable Medicare
costs per risk-adjusted discharge for IPPS hospitals be used to
calculate the final or future market basket update for IPPS hospitals
would not be consistent with the IPPS hospital market basket as
described in section 1886(b)(3)(B)(iii) of the Act which reflects
changes in wages and prices.
CMS understands that the market basket updates may differ from
other overall inflation indexes such as the topline CPI; however, we
would reiterate that these topline indexes are not comparable since
they measure different mixes of products, services, or wages than the
legislatively defined CMS IPPS hospital market basket. Additionally,
the market basket updates appropriately differ from other payment
updates that would reflect anticipated volume and intensity of
services.
CMS welcomes feedback on alternative data sources for the market
basket price proxies that measure price inflation. For the FY 2026
IPPS/LTCH PPS proposed rule, we proposed to rebase and revise the
market basket to reflect a 2023 base year and provided a detailed
methodology for calculating the cost weights as well as proposed
specific price proxies for each of the cost weights. We note that we
did not receive any alternative data sources for measuring the prices
of the cost weights in the market basket.
We appreciate the commenters' request for CMS to provide additional
[[Page 36902]]
publicly available data on the assumptions and inputs that go into
developing a market basket update. As noted, the detailed market basket
cost weights (including the methodology) and price proxies used in the
market baskets were set forth in the proposed rule and in section IV.
of the preamble of this final rule. Additionally, shortly after the
publication of the proposed rule, we made available on the CMS website
(https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-data) the detailed
historical growth rates for the market baskets as well as price
forecasts for the aggregated cost weights (such as compensation,
utilities). As stated previously, the detailed price proxies used in
the market basket are forecasted by IGI (a nationally recognized
economic and financial forecasting firm). We also note that general
inquiries on the forecasting methodology can be emailed to
[email protected], as is also noted in the market basket spreadsheets on
the CMS website.
We would highlight that the market basket percentage increase is a
forecast of the price pressures that hospitals are expected to face in
FY 2026 based on IGI's consideration of industry-specific and overall
economic conditions, which is notably uncertain in FY 2026. More
specifically for the ECI for hospital workers, IGI considers overall
labor market conditions (including the impact of wage pressures on
skill mix) as well as trends in contract labor wages, which both have
an impact on wage pressures for workers employed directly by the
hospital.
As stated in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18266)
we proposed a FY 2026 applicable percentage increase of 2.4 percent,
reflecting the proposed 2023-based IPPS market basket rate-of-increase
of 3.2 percent and productivity adjustment of 0.8 percentage point,
consistent with current law. We also proposed that if more recent data
became available, we would use such data, if appropriate, to derive the
final FY 2026 IPPS market basket update for the final rule. We
appreciate the commenter's concern regarding inflationary pressure and
the request to use more recent data to determine the FY 2026 IPPS
market basket update. For this final rule (as proposed), we are using
an updated forecast of the price proxies underlying the market basket
that incorporates more recent historical data and reflects a revised
outlook regarding the U.S. economy (including the impact of economic
uncertainty). As discussed in section IV.A. of the preamble of this
final rule, based on more recent data available for this FY 2026 IPPS/
LTCH PPS final rule (that is, IGI's second quarter 2025 forecast of the
2023-based IPPS market basket rate-of-increase with historical data
through the first quarter of 2025), we estimate that the FY 2026 market
basket increase used to determine the applicable percentage increase
for the IPPS is 3.3 percent. As discussed later in this section, based
on more recent data available for this FY 2026 IPPS/LTCH PPS final rule
(that is, IGI's second quarter 2025 forecast of the productivity
adjustment), the current estimate of the productivity adjustment for FY
2026 is 0.7 percentage point. Therefore, the applicable percentage
increase applied to the standardized amount for hospitals that are
considered to be a meaningful EHR user under section 1886(b)(3)(B)(ix)
of the Act and submit quality information under rules established by
the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act
is 2.6 percent, which is 0.2 percentage point higher than the proposed
rule.
For these reasons, we believe that the 2023-based IPPS market
basket appropriately reflects IPPS cost structures (we note, as
described in section IV. of the preamble of this final rule, effective
beginning FY 2026, we are finalizing to rebase and revise the IPPS
market basket to reflect a 2023 base year), and we believe the price
proxies used (such as those from BLS that reflect wage and benefit
price growth) are an appropriate representation of price changes for
the inputs used by hospitals in providing services. Given that we
believe the rebased and revised 2023-based IPPS market basket reflects
an index of appropriately weighted indicators of changes in wages and
prices that are representative of the mix of goods and services
included in such inpatient hospital services and the percentage change
of the rebased and revised 2023-based IPPS market basket is based on
IGI's more recent forecast reflecting the prospective price pressures
for FY 2026, we do not believe it would be appropriate to use our
exceptions and adjustment authority to create a separate payment that
would have the effect of modifying the current law update.
Comment: Many commenters urged CMS to use its special exceptions
and adjustments authority under Section 1886(d)(5)(I)(i) of the Act to
implement a retrospective adjustment for FY 2026 to account for the
difference between the market basket update that was implemented, and
the actual market basket increase in prior years. Commenters stated an
adjustment would reset hospital losses over the last four years and
realign IPPS payments with hospitals' costs. They stated MedPAC's March
2025 report to Congress found that fee-for-service (FFS) Medicare
payments in 2023 continued the trend below hospitals' actual costs with
a hospital FFS Medicare margin of - 13 percent in 2023 (- 14 percent
for nonprofit hospitals) and median FFS Medicare margin of - 2 percent
even for efficient providers. They stated hospitals cannot continue to
take on losses on their Medicare business and also be expected to keep
up with rising costs and inflation that has affected the entire
economy. Commenters also stated that the missed forecasts have a
significant and permanent impact on hospitals as they are permanently
established in the standard payment rate for IPPS and absent action
from CMS will continue to compound. Many commenters noted that MedPAC
recommended for 2026 to update the 2025 Medicare base payment rates for
general acute care hospitals by the amount specified in current law
plus 1 percent.
Commenters recommended that CMS implement various one-time
adjustments to account for underpayments in 1 or more years between FY
2021 and FY 2024 as well as for forecasted underpayments for FY 2025.
The commenters stated the underestimation is, in large part, because
the market basket is a time-lagged estimate that cannot fully account
for unexpected changes that occur, such as historic inflation and
increased labor and supply costs. They stated this is exactly what
occurred at the end of the CY 2021 into CY 2022, which resulted in a
large forecast error in the FY 2022 market basket update.
Commenters also noted that CMS makes forecast error adjustments
under the SNF PPS and the capital IPPS update. In both payment systems,
CMS applies the forecast error adjustment based on previously
established policy if the difference between the update and the actual
rate of inflation, using after-the-fact data, differs by more than a
threshold amount (0.5 percentage point for the SNF update and 0.25
percentage point for the capital IPPS update). They noted the forecast
errors for FY 2021 through FY 2023 for IPPS exceeded the 0.5 percentage
point threshold that is used for the SNF forecast error adjustment
policy. A commenter recommended CMS establish a forecast error
threshold of 1.5 percentage points and retroactively adjust payments
for that year. Commenters stated that while CMS has not developed an
analogous
[[Page 36903]]
policy for the IPPS operating update, they believe such a forecast
error adjustment to the FY 2026 IPPS operating update could be adopted
under CMS' rulemaking authority. A commenter requested that CMS apply a
positive adjustment of 4.6 percentage points to the IPPS update taking
into account the combined forecast error for the years FY 2021 through
FY 2024. The commenter stated that if CMS were to adopt this
recommendation, the update would be the market basket update of 3.2
percent plus 4.6 percentage points for forecast error correction less
0.8 percentage point for productivity or a net 7.0 percent.
Response: While the projected IPPS hospital market basket updates
have been under forecast (actual increases less forecasted increases
were positive) for this most recent period, over longer periods the
forecasts have generally averaged close to the historical measures (for
instance, from FY 2014 through FY 2023 the cumulative forecast error
was 0.0 percentage point). CMS will continue to monitor the methods
associated with the market basket forecasts to ensure there are not
underlying systematic issues in the forecasting approach.
We note that the under forecast of the IPPS market basket increase
in the recent time period was largely due to unanticipated inflationary
and labor market pressures as the economy emerged from the COVID-19
PHE. However, an analysis of the forecast error of the IPPS market
basket over a longer period of time shows the forecast error has been
both positive and negative. Only considering the forecast error for
years when the final hospital market basket update was lower than the
actual market basket update does not consider the full experience and
impact of forecast error, in particular the numerous years that
providers benefited from the forecast error. Relatedly, as we discussed
in the FY 2024 IPPS/LTCH PPS final rule in response to similar comments
(88 FR 59034), the capital IPPS and SNF PPS forecast error adjustments
were adopted very early in both payment systems and, unlike what
commenters are requesting here for the IPPS, forecast errors over many
years have been consistently addressed within each of the Capital IPPS
and SNF PPS.
For these reasons, we continue to believe it is not appropriate to
include adjustments to the market basket update for future years based
on the difference between the actual and forecasted market basket
increase in prior years. After consideration of the comments received
and consistent with our proposal, we are finalizing to use more recent
data to determine the FY 2026 market basket update for the final rule.
Specifically, based on more recent data available, we determined final
applicable percentage increases to the standardized amount for FY 2026,
as specified in the table that appears later in this section.
In the FY 2012 IPPS/LTCH PPS final rule (76 FR 51689 through
51692), we finalized our methodology for calculating and applying the
productivity adjustment. As we explained in that rule, section
1886(b)(3)(B)(xi)(II) of the Act, as added by section 3401(a) of the
Affordable Care Act, defines this productivity adjustment as equal to
the 10-year moving average of changes in annual economy-wide, private
nonfarm business MFP (as projected by the Secretary for the 10-year
period ending with the applicable fiscal year, calendar year, cost
reporting period, or other annual period). The U.S. Department of
Labor's Bureau of Labor Statistics (BLS) publishes the official
measures of private nonfarm business productivity for the U.S. economy.
We note that previously the productivity measure referenced in section
1886(b)(3)(B)(xi)(II) of the Act was published by BLS as private
nonfarm business multifactor productivity. Beginning with the November
18, 2021, release of productivity data, BLS replaced the term
multifactor productivity (MFP) with total factor productivity (TFP).
BLS noted that this is a change in terminology only and will not affect
the data or methodology. As a result of the BLS name change, the
productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the
Act is now published by BLS as private nonfarm business total factor
productivity. However, as mentioned, the data and methods are
unchanged. Please see www.bls.gov for the BLS historical published TFP
data. A complete description of IGI's TFP projection methodology is
available on the CMS website at https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information. In addition, we note that beginning
with the FY 2022 IPPS/LTCH PPS final rule, we refer to this adjustment
as the productivity adjustment rather than the MFP adjustment, to more
closely track the statutory language in section 1886(b)(3)(B)(xi)(II)
of the Act. We note that the adjustment continues to rely on the same
underlying data and methodology.
For FY 2026, we proposed a productivity adjustment of 0.8 percent.
Similar to the market basket rate-of-increase, for the proposed rule,
the estimate of the proposed FY 2026 productivity adjustment was based
on IGI's fourth quarter 2024 forecast. As noted previously, we proposed
that if more recent data subsequently became available, we would use
such data, if appropriate, to determine the FY 2026 productivity
adjustment for the final rule. Based on more recent data available for
this FY 2026 IPPS/LTCH PPS final rule (that is, IGI's second quarter
2025 forecast of the productivity adjustment), the current estimate of
the productivity adjustment for FY 2026 is 0.7 percentage point.
Comment: Commenters expressed concerns about the application of the
productivity adjustment stating it is flawed because it is based on a
measure for the private nonfarm business sector. Several commenters
stated that the use of private nonfarm business total factor
productivity effectively assumes the hospital field can mirror
productivity gains achieved by private nonfarm businesses. Other
commenters stated that private-sector productivity trends do not
reflect the complex operational realities of hospital care,
particularly during a time of sustained labor shortages and wage
inflation. Several commenters also claimed that it is well proven by
the economic literature that the hospital and health care field cannot
achieve the same productivity gains as the total economy. For example,
the commenters stated that by focusing only on private businesses, this
measure excludes nonprofit and government businesses, which account for
more than 60 percent of hospitals and health systems. Thus, the
commenter stated that this measure is not an appropriate or reliable
predictor of productivity for the hospital field. The commenters stated
that an Office of the Actuary memo indicated that hospitals are unable
to achieve the same productivity gains as the general economy over the
long run. Specifically, some commenters requested CMS consider its own
findings that hospitals historically have not achieved the same level
of productivity as the general economy referencing the June 2, 2022
memorandum where CMS's Office of the Actuary stated hospital TFP ranged
from 0.2 percent to 0.5 percent compared to the average growth of
private nonfarm business TFP of 0.8 percent. Commenters also referred
to the BLS publication on a TFP measure for the combined Hospitals and
Nursing and Residential Care Facilities industry, which indicated
average TFP growth from 1990-2019 of -0.5 percent, even
[[Page 36904]]
lower than either of OACT's estimates. A commenter stated that the
productivity adjustment penalizes hospitals for their cost-saving
efforts and further compounds their fears of adequate funding.
Therefore, commenters stated that using the private nonfarm business
sector TFP to adjust the market basket inappropriately exacerbates
Medicare's chronic underpayments to hospitals.
Other commenters expressed concern regarding the increase in the
productivity adjustment for FY 2026 relative to prior years. Commenters
requested CMS explain the magnitude of the proposed productivity
adjustment stating it is the largest CMS has used since FY 2019 and is
the second largest in the 15 years for which CMS has published data. A
commenter stated CMS should evaluate how the rolling average
experienced such a significant increase when compared with the
productivity adjustments ranging from 0.2 to 0.5 percentage point in
the last three years. Several commenters stated that it is puzzling how
an indicator based on a 10-year moving average could yield such an
increase in the productivity cut from FY 2025 to FY 2026 and stated
that they were unable to fully analyze the projections due to a lack of
transparency from CMS. A few commenters requested that CMS explain the
large increase to the productivity offset relative to its historical
average application in the final rule. Some commenters stated that the
application of variables as wide as this ten-year range is no longer
appropriate due to the unprecedented cost of goods and services during
the COVID-19 pandemic and claimed that prices have never leveled back
down to pre-pandemic rates. Another commenter requested that CMS
reevaluate the calculation of the productivity adjustment, paying
particular attention to what it described as the inconsistency in cost
during FYs beginning in FY 2020.
Given their concerns about the productivity adjustment, commenters
requested CMS use its discretion under section 1886(d)(5)(I)(i) of the
Act to reduce or eliminate the productivity adjustment of 0.8
percentage point for FY 2026.
A commenter requested a FY 2026 productivity adjustment of 0.2
percentage point while another commenter urged CMS to consider an
alternative or blended productivity adjustment such as a hospital-
specific productivity measure.
Response: Section 1886(b)(3)(B)(xi) of the Act requires the
application of the productivity adjustment. As required by statute, the
FY 2026 productivity adjustment is derived based on the 10-year moving
average growth in economy-wide private nonfarm business total factor
productivity for the period ending FY 2026.
As previously discussed, the general method for calculating the
productivity adjustment is made available on the CMS website at https://www.cms.gov/data-research/statistics-trends-and-reports/medicare-program-rates-statistics/market-basket-research-and-information. The
most recent BLS historical TFP data is available at http://www.bls.gov/productivity/, which allows interested parties to obtain historical TFP
annual index levels for 1987 through 2024. We also provided the IGI
projection model (https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/medicareprogramratesstats/downloads/tfp_methodology.pdf), which is used to derive annual TFP
growth rates for 2025 and 2026. The annual index level derived from
this method is then interpolated to quarterly levels, and the FY 2026
productivity adjustment is equal to the percent change in the 40-
quarter moving average projected level for the period ending September
30, 2026 relative to the 40-quarter moving average projected level for
the period ending September 30, 2025. We believe our methodology for
the productivity adjustment is consistent with section
1886(b)(3)(B)(xi)(II) of the Act which states that the productivity
adjustment is equal to the 10-year moving average of changes in annual
economy-wide private nonfarm business multi-factor productivity (as
projected by the Secretary for the 10-year period ending with the
applicable fiscal year, year, cost reporting period, or other annual
period).
At the time of this final rule, the FY 2026 productivity adjustment
reflects BLS historical TFP data through 2024 (released on March 21,
2025) and IGI's forecasted TFP growth for 2025 and 2026. The average
annual growth rate of historical TFP published by BLS for 2017 through
2024 is currently 0.9 percent and IGI is projecting average TFP growth
of about 0.0 percent for 2025 and 2026 based on IGI's second-quarter
2025 forecast. Combining the historical and projected TFP data over the
entire 10-year time period results in a compound annual growth rate of
TFP of 0.7 percent for 2026. The productivity adjustment (based on the
10-year period ending with FY 2026) for the FY 2026 IPPS/LTCH PPS final
rule is 0.1 percentage point lower than for the FY 2026 IPPS/LTCH PPS
proposed rule and primarily reflects the incorporation of a revised
outlook from IGI that has lower projected economic growth over 2025 and
2026. The 0.7 percentage point productivity adjustment in this FY 2026
final rule is larger than the productivity adjustment in prior final
rules for FY 2023 and FY 2024 mainly due to the incorporation of
updated BLS historical data.
We thank the commenters for their comments. After consideration of
the comments received and consistent with our proposal, we are
finalizing as proposed to use more recent data to determine the FY 2026
productivity adjustment for the final rule.
In summary, based on more recent data available for this FY 2026
IPPS/LTCH PPS final rule (that is, IGI's second quarter 2025 forecast
of the 2023-based IPPS market basket rate-of- increase with historical
data through the first quarter of 2025), we estimate that the FY 2026
market basket update used to determine the applicable percentage
increase for the IPPS is 3.3 percent. Based on more recent data
available for this FY 2026 IPPS/LTCH PPS final rule (that is, IGI's
second quarter 2025 forecast of the productivity adjustment), the
current estimate of the productivity adjustment for FY 2026 is 0.7
percentage point. Based on these more recent data, for this final rule,
we have determined four applicable percentage increases to the
standardized amount for FY 2026, as specified in the following table:
[[Page 36905]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.241
In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42344), we revised
our regulations at 42 CFR 412.64(d) to reflect the current law for the
update for FY 2020 and subsequent fiscal years. Specifically, in
accordance with section 1886(b)(3)(B) of the Act, we added paragraph
(d)(1)(viii) to Sec. 412.64 to set forth the applicable percentage
increase to the operating standardized amount for FY 2020 and
subsequent fiscal years as the percentage increase in the market basket
index, subject to the reductions specified under Sec. 412.64(d)(2) for
a hospital that does not submit quality data and Sec. 412.64(d)(3) for
a hospital that is not a meaningful EHR user, reduced by a productivity
adjustment.
Section 1886(b)(3)(B)(iv) of the Act provides that the applicable
percentage increase to the hospital-specific rates for SCHs and MDHs
equals the applicable percentage increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all
other hospitals subject to the IPPS). Therefore, the update to the
hospital-specific rates for SCHs and MDHs is also subject to section
1886(b)(3)(B)(i) of the Act, as amended by sections 3401(a) and
10319(a) of the Affordable Care Act.
As discussed in section V.F. of the preamble of this final rule,
section 2202 of the Full-Year Continuing Appropriations and Extensions
Act, 2025 extended the MDH program through FY 2025. Therefore, under
current law, the MDH program will expire for discharges on or after
October 1, 2025. We refer readers to section V.F. of the preamble of
this final rule for further discussion of the MDH program. We note that
if the MDH program were to be extended by law into FY 2026, the
finalized updates to the hospital-specific rates for SCHs as described
in this section would also apply to the hospital-specific rates for
MDHs for FY 2026.
For FY 2026, we proposed the following updates to the hospital-
specific rates applicable to SCHs: A proposed update of 2.4 percent for
a hospital that submits quality data and is a meaningful EHR user (as
defined in section 1886(n) of the Act); a proposed update of 0.0
percent for a hospital that submits quality data and is not a
meaningful EHR user; a proposed update of 1.6 percent for a hospital
that fails to submit quality data and is a meaningful EHR user; and a
proposed update of -0.8 percent for a hospital that fails to submit
quality data and is not an meaningful EHR user. As previously
discussed, we proposed that if more recent data subsequently became
available (for example, a more recent estimate of the market basket
update and the productivity adjustment), we would use such data, if
appropriate, to determine the market basket update and the productivity
adjustment in the final rule.
We did not receive any public comments on our proposed updates to
hospital-specific rates applicable to SCHs and MDHs. The general
comments we received on the proposed FY 2026 update (including the
proposed market basket update and productivity adjustment) are
discussed earlier in this section. For FY 2026, we are finalizing the
proposal to determine the update to the hospital specific rates for
SCHs and MDHs in this final rule using the more recent available data,
as previously discussed.
For this final rule, based on more recent available data, we are
finalizing the following updates to the hospital specific rates
applicable to SCHs and MDHs: An update of 2.6 percent for a hospital
that submits quality data and is a meaningful EHR user; an update of
1.775 percent for a hospital that fails to submit quality data and is a
meaningful EHR user; an update of 0.125 percent for a hospital that
submits quality data and is not a meaningful EHR user; and an update of
-0.7 percent for a hospital that fails to submit quality data and is
not a meaningful EHR user.
2. FY 2026 Puerto Rico Hospital Update
Section 602 of Public Law 114-113 amended section 1886(n)(6)(B) of
the Act to specify that subsection (d) Puerto Rico hospitals are
eligible for incentive payments for the meaningful use of certified EHR
technology, effective beginning FY 2016. In addition, section
1886(n)(6)(B) of the Act was amended to specify that the adjustments to
the applicable percentage increase under section 1886(b)(3)(B)(ix) of
the Act apply to subsection (d) Puerto Rico hospitals that are not
meaningful EHR users, effective beginning FY 2022. Accordingly, for FY
2022, section 1886(b)(3)(B)(ix) of the Act in conjunction with section
602(d) of Public Law 114-113 requires that any subsection (d) Puerto
Rico hospital that is not a meaningful EHR user as defined in section
1886(n)(3) of the Act and not subject to an exception under section
1886(b)(3)(B)(ix) of the Act will have ``three-quarters'' of the
applicable percentage increase (prior to the application of other
statutory adjustments), or three-quarters of the applicable market
basket rate-of-increase, reduced by 33 \1/3\ percent. The reduction to
three-quarters of the applicable percentage increase for subsection (d)
Puerto Rico hospitals that are not meaningful EHR users increases to 66
\2/3\ percent for FY 2023, and, for FY 2024 and subsequent fiscal
years, to 100 percent. (We note that section 1886(b)(3)(B)(viii) of the
Act, which specifies the adjustment to the applicable percentage
increase for ``subsection (d)'' hospitals that do not submit quality
data under the rules established by the Secretary, is not applicable to
hospitals located in Puerto Rico.) The regulations at 42 CFR
412.64(d)(3)(ii) reflect the current law for the update for subsection
(d) Puerto Rico hospitals for FY 2022 and subsequent fiscal years. In
the FY 2019 IPPS/LTCH PPS final rule, we finalized the payment
reductions (83 FR 41674).
[[Page 36906]]
For FY 2026, consistent with section 1886(b)(3)(B) of the Act, as
amended by section 602 of Public Law 114-113, we are setting the
applicable percentage increase for Puerto Rico hospitals by applying
the following adjustments in the following sequence. Specifically, the
applicable percentage increase under the IPPS for Puerto Rico hospitals
will be equal to the rate of-increase in the hospital market basket for
IPPS hospitals in all areas, subject to a reduction of three-quarters
of the applicable percentage increase (prior to the application of
other statutory adjustments; also referred to as the market basket
update or rate-of-increase (with no adjustments)) for Puerto Rico
hospitals not considered to be meaningful EHR users in accordance with
section 1886(b)(3)(B)(ix) of the Act, and then subject to the
productivity adjustment at section 1886(b)(3)(B)(xi) of the Act. As
noted previously, section 1886(b)(3)(B)(xi) of the Act states that
application of the productivity adjustment may result in the applicable
percentage increase being less than zero.
In the FY 2026 IPPS/LTCH PPS proposed rule, based on IGI's fourth
quarter 2024 forecast of the proposed 2023-based IPPS market basket
update with historical data through third quarter 2024, in accordance
with section 1886(b)(3)(B) of the Act, as discussed previously, for
Puerto Rico hospitals we proposed a market basket update of 3.2 percent
reduced by a productivity adjustment of 0.8 percentage point. For FY
2026, depending on whether a Puerto Rico hospital is a meaningful EHR
user, there are two possible applicable percentage increases that could
be applied to the standardized amount. Based on these data, we
determined the following proposed applicable percentage increases to
the standardized amount for FY 2026 for Puerto Rico hospitals:
For a Puerto Rico hospital that is a meaningful EHR user,
we proposed a FY 2026 applicable percentage increase to the operating
standardized amount of 2.4 percent (that is, the FY 2026 estimate of
the proposed market basket rate-of-increase of 3.2 percent less 0.8
percentage point for the proposed productivity adjustment).
For a Puerto Rico hospital that is not a meaningful EHR
user, we proposed a FY 2026 applicable percentage increase to the
operating standardized amount of 0.0 percent (that is, the FY 2026
estimate of the proposed market basket rate-of-increase of 3.2 percent,
less an adjustment of 2.4 percentage points (the proposed market basket
rate-of-increase of 3.2 percent x 0.75 for failure to be a meaningful
EHR user), and reduced by 0.8 percentage point for the proposed
productivity adjustment).
As noted previously, we proposed that if more recent data
subsequently became available, we would use such data, if appropriate,
to determine the FY 2026 market basket update and the productivity
adjustment for the FY 2026 IPPS/LTCH PPS final rule. We did not receive
any public comments on our proposed updates to the standardized amount
for FY 2026 for Puerto Rico hospitals. The general comments we received
on the proposed FY 2026 update (including the proposed market basket
update and productivity adjustment) are discussed in greater detail
earlier in this section. For FY 2026, we are finalizing the proposal to
determine the update to the standardized amount for FY 2026 for Puerto
Rico hospitals in this final rule using the more recent available data,
as previously discussed.
As previously discussed in section VI.B. of the preamble of this
final rule, based on more recent data available for this final rule
(that is, IGI's second quarter 2025 forecast of the 2023-based IPPS
market basket rate-of-increase with historical data through the first
quarter of 2025), we estimate that the FY 2026 market basket update
used to determine the applicable percentage increase for the IPPS is
3.3 percent and a productivity adjustment of 0.7 percent. For FY 2026,
depending on whether a Puerto Rico hospital is a meaningful EHR user,
there are two possible applicable percentage increases that can be
applied to the standardized amount. Based on these data, in accordance
with section 1886(b)(3)(B) of the Act, we determined the following
applicable percentage increases to the standardized amount for FY 2026
for Puerto Rico hospitals:
For a Puerto Rico hospital that is a meaningful EHR user,
an applicable percentage increase to the operating standardized amount
of 2.6 percent (that is, the FY 2026 estimate of the market basket
rate-of-increase of 3.3 percent reduced by 0.7 percentage point for the
productivity adjustment).
For a Puerto Rico hospital that is not a meaningful EHR
user, an applicable percentage increase to the operating standardized
amount of 0.125 percent (that is, the FY 2026 estimate of the market
basket rate-of-increase of 3.3 percent, less an adjustment of 2.475
percentage point (the market basket rate-of-increase of 3.3 percent x
0.75 for failure to be a meaningful EHR user), and reduced by an
adjustment of 0.7 percentage point for the productivity adjustment).
[GRAPHIC] [TIFF OMITTED] TR04AU25.242
C. Rural Referral Centers (RRCs) Annual Updates to Case-Mix Index (CMI)
and Discharge Criteria (Sec. 412.96)
Under the authority of section 1886(d)(5)(C)(i) of the Act, the
regulations at 42 CFR 412.96 set forth the criteria that a hospital
must meet to qualify under the IPPS as a rural referral center (RRC).
RRCs receive special treatment under both the DSH payment adjustment
and the criteria for geographic reclassification.
Section 402 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Pub. L. 108-173) raised the DSH payment
adjustment for RRCs such that they are not subject to the 12-percent
cap on DSH payments that is applicable to other rural hospitals. RRCs
also are not subject to the proximity criteria when
[[Page 36907]]
applying for geographic reclassification. In addition, they do not have
to meet the requirement that a hospital's average hourly wage must
exceed, by a certain percentage, the average hourly wage of the labor
market area in which the hospital is located.
Section 4202(b) of the Balanced Budget Act of 1997 (Pub. L. 105-33)
states, in part, that any hospital classified as an RRC by the
Secretary for FY 1991 shall be classified as such an RRC for FY 1998
and each subsequent fiscal year. In the August 29, 1997, IPPS final
rule with comment period (62 FR 45999 through 46000), we reinstated RRC
status for all hospitals that lost that status due to triennial review
or MGCRB reclassification. However, we did not reinstate the status of
hospitals that lost RRC status because they were now urban for all
purposes because of the OMB designation of their geographic area as
urban. Subsequently, in the August 1, 2000, IPPS final rule (65 FR
47087), we indicated that we were revisiting that decision.
Specifically, we stated that we would permit hospitals that previously
qualified as an RRC and lost their status due to OMB redesignation of
the county in which they are located from rural to urban, to be
reinstated as an RRC. Otherwise, a hospital seeking RRC status must
satisfy all of the other applicable criteria. We use the definitions of
``urban'' and ``rural'' specified in subpart D of 42 CFR part 412. One
of the criteria under which a hospital may qualify as an RRC is to have
275 or more beds available for use (42 CFR 412.96(b)(1)(ii)). A rural
hospital that does not meet the bed size requirement can qualify as an
RRC if the hospital meets two mandatory prerequisites (a minimum case-
mix index (CMI) and a minimum number of discharges), and at least one
of three optional criteria (relating to specialty composition of
medical staff, source of inpatients, or referral volume). (We refer
readers to 42 CFR 412.96(c)(1) through (5) and the September 30, 1988,
Federal Register (53 FR 38513) for additional discussion.) With respect
to the two mandatory prerequisites, a hospital may be classified as an
RRC if the hospital's--
CMI is at least equal to the lower of the median CMI for
urban hospitals in its census region, excluding hospitals with approved
teaching programs, or the median CMI for all urban hospitals
nationally; and
Number of discharges is at least 5,000 per year, or, if
fewer, the median number of discharges for urban hospitals in the
census region in which the hospital is located. The number of
discharges criterion for an osteopathic hospital is at least 3,000
discharges per year, as specified in section 1886(d)(5)(C)(i) of the
Act.
In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45217), in light of
the COVID-19 PHE, we amended the regulations at 42 CFR 412.96(h)(1) to
provide for the use of the best available data rather than the latest
available data in calculating the national and regional CMI criteria.
We also amended the regulations at 42 CFR 412.96(c)(1) to indicate that
the individual hospital's CMI value for discharges during the same
Federal fiscal year used to compute the national and regional CMI
values is used for purposes of determining whether a hospital qualifies
for RRC classification. We also amended the regulations 42 CFR
412.96(i)(1) and (2), which describe the methodology for calculating
the number of discharges criteria, to provide for the use of the best
available data rather than the latest available or most recent data
when calculating the regional discharges for RRC classification.
1. Case-Mix Index (CMI)
Section 412.96(c)(1) provides that CMS establish updated national
and regional CMI values in each year's annual notice of prospective
payment rates for purposes of determining RRC status. The methodology
we used to determine the national and regional CMI values is set forth
in the regulations at 42 CFR 412.96(c)(1)(ii). The national median CMI
value for FY 2026 is based on the CMI values of all urban hospitals
nationwide, and the regional median CMI values for FY 2026 are based on
the CMI values of all urban hospitals within each census region,
excluding those hospitals with approved teaching programs (that is,
those hospitals that train residents in an approved GME program as
provided in 42 CFR 413.75). These values are based on discharges
occurring during FY 2024 (October 1, 2023, through September 30, 2024),
and include bills posted to CMS' records through March 2025. We believe
that this is the best available data for use in calculating the
national and regional median CMI values and is consistent with our use
of the FY 2024 MedPAR claims data for FY 2026 ratesetting.
In the FY 2026 IPPS/LTCH PPS proposed rule, we proposed that, in
addition to meeting other criteria, if rural hospitals with fewer than
275 beds are to qualify for initial RRC status for cost reporting
periods beginning on or after October 1, 2025, they must have a CMI
value for FY 2024 that is at least--
1.7802 (national--all urban); or
The median CMI value (not transfer-adjusted) for urban
hospitals (excluding hospitals with approved teaching programs as
identified in 42 CFR 413.75) calculated by CMS for the census region in
which the hospital is located. (We refer readers to the table set forth
in the FY 2026 IPPS/LTCH PPS proposed rule at 90 FR 18269). In the
proposed rule we stated that we intended to update the proposed CMI
values in the FY 2026 IPPS/LTCH PPS final rule to reflect the updated
FY 2024 MedPAR file, which contains data from additional bills received
through March 2025.
Comment: Commenters supported our proposal to use FY 2024 data to
calculate the national and regional median CMI values for FY 2026.
Response: We appreciate the commenters' support.
Therefore, based on the best available data (FY 2024 bills received
through March 2025), in addition to meeting other criteria, if rural
hospitals with fewer than 275 beds are to qualify for initial RRC
status for cost reporting periods beginning on or after October 1,
2025, they must have a CMI value for FY 2024 that is at least:
1.7801 (national--all urban); or
The median CMI value (not transfer-adjusted) for urban
hospitals (excluding hospitals with approved teaching programs as
identified in Sec. 413.75) calculated by CMS for the census region in
which the hospital is located.
The final CMI values by region are set forth in the following
table.
------------------------------------------------------------------------
Case-mix index
Region value
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)................. 1.4962
2. Middle Atlantic (PA, NJ, NY)......................... 1.558
3. East North Central (IL, IN, MI, OH, WI).............. 1.6264
4. West North Central (IA, KS, MN, MO, NE, ND, SD)...... 1.7413
5. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).. 1.6352
6. East South Central (AL, KY, MS, TN).................. 1.5965
[[Page 36908]]
7. West South Central (AR, LA, OK, TX).................. 1.7594
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............ 1.807
9. Pacific (AK, CA, HI, OR, WA)......................... 1.78045
------------------------------------------------------------------------
A hospital seeking to qualify as an RRC should obtain its hospital-
specific CMI value (not transfer-adjusted) from its MAC. Data are
available on the Provider Statistical and Reimbursement (PS&R) System.
In keeping with our policy on discharges, the CMI values are computed
based on all Medicare patient discharges subject to the IPPS MS-DRG-
based payment.
2. Discharges
Section 412.96(c)(2)(i) provides that CMS set forth the national
and regional numbers of discharges criteria in each year's annual
notice of prospective payment rates for purposes of determining RRC
status. As specified in section 1886(d)(5)(C)(ii) of the Act, the
national standard is set at 5,000 discharges. In the FY 2026 IPPS/LTCH
PPS proposed rule (90 FR 18269), we proposed to update the regional
standards based on discharges for urban hospitals' cost reporting
periods that began during FY 2023 (that is, October 1, 2022, through
September 30, 2023), which are the latest cost report data available at
the time this final rule was developed. We believe that this is the
best available data for use in calculating the median number of
discharges by region and is consistent with our finalized data proposal
to use cost report data from cost reporting periods beginning during FY
2023 for FY 2026 ratesetting. In the FY 2026 IPPS/LTCH PPS proposed
rule, we proposed that, in addition to meeting other criteria, a
hospital, if it is to qualify for initial RRC status for cost reporting
periods beginning on or after October 1, 2025, must have, as the number
of discharges for its cost reporting period that began during FY 2023,
at least--
5,000 (3,000 for an osteopathic hospital); or
If less, the median number of discharges for urban
hospitals in the census region in which the hospital is located. (We
refer readers to the table set forth in the FY 2026 IPPS/LTCH PPS
proposed rule at 90 FR 18269). In the proposed rule, we stated that we
intended to update these numbers in the FY 2026 final rule based on the
latest available cost report data.
Comment: Commenters supported our proposal to use FY 2023 data to
calculate median number of discharges by region for FY 2026.
Response: We appreciate the commenters' support.
Therefore, based on the best available discharge data at this time,
that is, for cost reporting periods that began during FY 2023, the
final median number of discharges for urban hospitals by census region
are set forth in the following table.
------------------------------------------------------------------------
Number of
Region discharges
------------------------------------------------------------------------
1. New England (CT, ME, MA, NH, RI, VT)................. 8,535
2. Middle Atlantic (PA, NJ, NY)......................... 9,844
3. East North Central (IL, IN, MI, OH, WI).............. 7,918
4. West North Central (IA, KS, MN, MO, NE, ND, SD)...... 7,414
5. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).. 10,897
6. East South Central (AL, KY, MS, TN).................. 8,511
7. West South Central (AR, LA, OK, TX).................. 6,002
8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)............ 7,901
9. Pacific (AK, CA, HI, OR, WA)......................... 9,100
------------------------------------------------------------------------
We note that because the median number of discharges for hospitals
in each census region is greater than the national standard of 5,000
discharges, under this final rule, 5,000 discharges is the minimum
criterion for all hospitals, except for osteopathic hospitals for which
the minimum criterion is 3,000 discharges.
D. Payment Adjustment for Low-Volume Hospitals (Sec. 412.101)
1. Background
Section 1886(d)(12) of the Act provides for an additional payment
to each qualifying low-volume hospital under the IPPS beginning in FY
2005. The low-volume hospital payment adjustment is implemented in the
regulations at 42 CFR 412.101. The additional payment adjustment to a
low-volume hospital provided for under section 1886(d)(12) of the Act
is in addition to any payment calculated under section 1886 of the Act
and is based on the per discharge amount paid to the qualifying
hospital. In other words, the low-volume hospital payment adjustment is
based on total per discharge payments made under section 1886 of the
Act, including capital, DSH, IME, and outlier payments. For SCHs and
MDHs, the low-volume hospital payment adjustment is based in part on
either the Federal rate or the hospital-specific rate, whichever
results in a greater operating IPPS payment. The payment adjustment for
low-volume hospitals is not budget neutral.
As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69348
through 69352), Section 306 of the Consolidated Appropriations Act,
2024 (CAA, 2024) (Pub. L. 118-42), extended the temporary changes to
the low-volume hospital qualifying criteria and payment adjustment
under the IPPS, that is the modified definition of low-volume hospital
and the methodology for calculating the payment adjustment for low-
volume hospitals under section 1886(d)(12), through December 31, 2024.
Section 3201 of the American Relief Act, 2025 (Pub. L. 118-158),
further extended those temporary changes through March 31, 2025. Most
recently, section 2201 of the Full-Year Continuing Appropriations and
Extensions Act, 2025 (Pub. L. 119-4), enacted on March 15, 2025,
provides an extension of those temporary changes to the qualifying
criteria and payment adjustment methodology for certain low-volume
hospitals through September 30, 2025. Absent further Congressional
action, beginning October 1, 2025, the low-volume hospital
[[Page 36909]]
qualifying criteria and payment adjustment are set to revert to the
statutory requirements that were in effect prior to FY 2011, and the
preexisting low-volume hospital payment adjustment methodology and
qualifying criteria, as implemented in FY 2005 and discussed later in
this section, will resume. We discuss the payment policies for FY 2026,
in section V.D.3. of the preamble of this final rule.
[GRAPHIC] [TIFF OMITTED] TR04AU25.243
2. Extension of Temporary Changes to Low-Volume Hospital Payment
Definition and Payment Adjustment Methodology and Conforming Changes to
Regulations
As discussed previously, prior to the enactment of the American
Relief Act, 2025, the temporary changes to the low-volume hospital
qualifying criteria and payment adjustment provided by section 306 of
CAA, 2024 were set to expire on January 1, 2025. Section 3201 of the
American Relief Act, 2025 extended the temporary changes to the low-
volume hospital qualifying criteria and payment adjustment under the
IPPS for the portion of FY 2025 beginning on January 1, 2025, and
ending on March 31, 2025 (that is, for discharges occurring before
April 1, 2025). We note that we addressed the extension provided by
section 3201 of the American Relief Act, 2025, in Change Request 13949
(Transmittal 13035), issued January 6, 2025. For additional
information, please refer to the transmittal https://www.cms.gov/medicare/regulations-guidance/transmittals/2025-transmittals/r13035otn.
Subsequently, section 2201 of the Full-Year Continuing Appropriations
and Extensions Act, 2025 further extended the temporary changes to the
low-volume hospital qualifying criteria and payment adjustment under
the IPPS for the remainder of FY 2025 (that is, for discharges
occurring before October 1, 2025). We note the extension provided by
section 2201 of the Full-Year Continuing Appropriations and Extensions
Act, 2025 was addressed in Change Request 14045 (Transmittal 13151),
issued May 5, 2025. For additional information, please refer to the
transmittal https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/CMS/r13151otn.pdf.
Under section 1886(d)(12)(C)(i) of the Act, as amended by the Full-
Year Continuing Appropriations and Extensions Act, 2025, for FYs 2019
through FY 2025, a subsection (d) hospital qualifies as a low-volume
hospital if it is more than 15 road miles from another subsection (d)
hospital and has less than 3,800 total discharges during the fiscal
year. In accordance with the existing regulations at Sec. 412.101(a),
we define the term ``road miles'' to mean ``miles'' as defined at Sec.
412.92(c)(1). Under section 1886(d)(12)(D) of the Act, as amended, for
discharges occurring in FYs 2019 through 2025, the Secretary determines
the applicable percentage increase using a continuous, linear sliding
scale ranging from an additional 25 percent payment adjustment for low-
volume hospitals with 500 or fewer discharges to a zero percent
additional payment for low volume hospitals with more than 3,800
discharges in the fiscal year. Consistent with the requirements of
section 1886(d)(12)(C)(ii) of the Act, the term ``discharge'' for
purposes of these provisions refers to total discharges, regardless of
payer (that is, Medicare and non-Medicare discharges).
In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41399), we specified
a continuous, linear sliding scale formula to determine the low volume
payment adjustment, as reflected in the regulations at Sec.
412.101(c)(3)(ii). Consistent with the statute, we provided that
qualifying hospitals with 500 or fewer total discharges will receive a
low-volume hospital payment adjustment of 25. For qualifying hospitals
with fewer than 3,800 discharges but more than 500 discharges, the low-
volume payment adjustment is calculated by subtracting from 25 percent
the proportion of payments associated with the discharges in excess of
500. For qualifying hospitals with fewer than 3,800 total discharges
but more than 500 total discharges, the low-volume hospital payment
adjustment is calculated using the formula at Sec. 412.101(c)(3)(ii)
(which is shown in the Table V.D.-01). For this purpose, the term
``discharge'' refers to total discharges, regardless of payer (that is,
Medicare and non-Medicare discharges). The hospital's most recently
submitted cost report is used to determine if the hospital meets the
discharge criterion to receive the low volume payment adjustment in the
current year (Sec. 412.101(b)(2)(iii)). The low-volume hospital
payment adjustment for FYs 2019 through 2024 and the portion-of FY 2025
beginning on October 1, 2024, and ending on December 31, 2024, is set
forth in the current regulations at Sec. 412.101(c)(3).
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18271), we
proposed to make conforming changes to the regulation text in Sec.
412.101 to reflect the extensions of the changes to the qualifying
criteria and the payment adjustment methodology for low-volume
hospitals in accordance with provisions of the American Relief Act,
2025 and the Full-Year Continuing Appropriations and Extensions Act,
2025. Specifically, we proposed to make conforming changes to
paragraphs (b)(2)(iii) and (c)(3) introductory text of Sec. 412.101 to
reflect that the low-volume hospital payment adjustment policy in
effect through FY 2025 is the same low-volume hospital payment
adjustment policy in effect for FYs 2019 through December 31, 2024 (as
described in the FY 2019 IPPS/LTCH PPS final rule (83 FR 41398 through
41399) and in the FY 2025 IPPS/LTCH final rule (89 FR 69348 through
69352)). In addition, in accordance with the provisions of the Full-
Year Continuing Appropriations and Extensions Act, 2025, we proposed to
make conforming changes to
[[Page 36910]]
paragraphs (b)(2)(i) and (c)(1) of Sec. 412.101 to reflect that for FY
2026 and subsequent fiscal years, the low-volume hospital payment
adjustment policy will revert back to the low-volume hospital payment
adjustment policy in effect for FYs 2005 through 2010, as described in
section V.D.3. of the preamble of the FY 2026 IPPS/LTCH PPS proposed
rule (90 FR 18002). We further proposed that if the temporary changes
to the low-volume payment adjustment are extended through legislation
beyond September 30, 2025, we would make the conforming changes to the
regulations at Sec. 412.101(b)(2)(i) and (iii) and (c)(1) and (3) to
reflect any further extension.
In the next section, we discuss the comments we received on the
extension of the temporary changes to the low-volume hospital payment
definition and payment adjustment methodology. We received no comments
on our proposed conforming changes to the regulations to codify this
extension and we are finalizing the proposed changes to the regulations
text in Sec. 412.101 without modification.
3. Payment Adjustment for FY 2026 and Subsequent Fiscal Years
In accordance with section 1886(d)(12) of the Act, as amended by
section 2201 of the Full-Year Continuing Appropriations and Extensions
Act, 2025, beginning with discharges occurring on or after October 1,
2025, the low-volume hospital definition and payment adjustment
methodology will revert to the statutory requirements that were in
effect prior to the amendments made by the Affordable Care Act and
subsequent legislation. Specifically, section 1886(d)(12)(B) of the Act
requires, for discharges occurring in FYs 2005 through 2010 and for
discharges occurring in FY 2026 and subsequent years, that the
Secretary determine an applicable percentage increase for these low-
volume hospitals based on the ``empirical relationship'' between the
standardized cost-per-case for such hospitals and the total number of
discharges of such hospitals and the amount of the additional
incremental costs (if any) that are associated with such number of
discharges. The statute thus mandates that the Secretary develop an
empirically justifiable adjustment based on the relationship between
costs and discharges for these low-volume hospitals.
Therefore, absent further Congressional action, effective FY 2026
and subsequent years, under current policy at Sec. 412.101(b), to
qualify as a low-volume hospital, a subsection (d) hospital must be
more than 25 road miles from another subsection (d) hospital and have
less than 200 discharges (that is, less than 200 discharges total,
including both Medicare and non-Medicare discharges) during the fiscal
year. For FY 2026 and subsequent years, the statute specifies that a
low-volume hospital must have less than 800 discharges during the
fiscal year. However, as required by section 1886(d)(12)(B)(i) of the
Act, the Secretary has developed an empirically justifiable payment
adjustment based on the relationship, for IPPS hospitals with less than
800 discharges, between the additional incremental costs (if any) that
are associated with a particular number of discharges. Based on an
analysis we conducted for the FY 2005 IPPS final rule (69 FR 49099
through 49102), a 25-percent low-volume adjustment to all qualifying
hospitals with less than 200 discharges was found to be most consistent
with the statutory requirement to provide relief for low-volume
hospitals where there is empirical evidence that higher incremental
costs are associated with low numbers of total discharges. (Under the
policy we established in that same final rule, hospitals with between
200 and 799 discharges do not receive a low-volume hospital
adjustment.)
As discussed previously, for FYs 2005 through 2010 and FY 2019 and
subsequent years, the discharge determination is made based on the
hospital's number of total discharges, that is, Medicare and non-
Medicare discharges. The hospital's most recently submitted cost report
is used to determine if the hospital meets the discharge criterion to
receive the low-volume payment adjustment in the current year (Sec.
412.101(b)(2)(i)). We use cost report data to determine if a hospital
meets the discharge criterion because this is the best available data
source that includes information on both Medicare and non-Medicare
discharges. We note that, for FYs 2011 through 2018, we used the most
recently available MedPAR data to determine the hospital's Medicare
discharges because only Medicare discharges were used to determine if a
hospital met the discharge criterion for those years.
In addition to the discharge criterion, a hospital must also meet
the mileage criterion to qualify for the low-volume payment adjustment.
As specified by section 1886(d)(12)(C)(i) of the Act, a low-volume
hospital must be more than 25 road miles (or 15 road miles for FYs 2011
through 2025) from another subsection (d) hospital. Accordingly, for FY
2026 and subsequent fiscal years, in addition to the discharge
criterion, the eligibility for the low-volume payment adjustment is
also dependent upon the hospital meeting the mileage criterion at Sec.
412.101(b)(2)(i), which specifies that a hospital must be located more
than 25 road miles from the nearest subsection (d) hospital, consistent
with section 1886(d)(12)(C)(i) of the Act. We define, at Sec.
412.101(a), the term ``road miles'' to mean ``miles'' as defined at
Sec. 412.92(c)(1) (75 FR 50238 through 50275 and 50414). As previously
noted, we proposed to make conforming changes to paragraphs (b)(2)(i)
and (c)(1) of Sec. 412.101 to reflect that for FY 2026 and subsequent
fiscal years, the low-volume hospital payment adjustment policy is the
same as that in effect for FYs 2005 through 2010.
Comment: Many commenters supported the legislative extension of the
temporary changes to the definition and payment adjustment for low-
volume hospitals through September 30, 2025 and expressed support for
additional legislative extensions. Many commenters requested that CMS
collaborate with Congress to extend or make permanent the temporary
modifications to the low-volume hospital payment policy. Several
commenters expressed concerns that hospitals, particularly those in
rural areas or that serve primarily Medicare patients, would face
financial instability in the absence of an extension of the temporary
modifications to the low-volume hospital payment policy. Several
commenters asked CMS to clarify how it would handle any legislation
that would provide a continuation of the modified low-volume hospital
payment policy beyond the end of the fiscal year. Another commenter
urged CMS to expeditiously process claims and provide instructions to
MACs for any subsequent extensions, especially in instances when
extensions are made retroactively. A few commenters requested CMS
provide a transition payment to hospitals impacted by the expiration of
the temporary modifications to the low-volume hospital payment policy.
Response: We appreciate the commenters sharing their support for
legislative action and the commenters' concerns about the expiration of
the temporary changes to the low-volume hospital policy and the
corresponding financial impact. As previously discussed, section
1886(d)(12) of the Act sets forth the applicable low-volume hospital
policy beginning FY 2026. As we have said in the past, we make every
effort to implement any extension of the low-volume hospital payment
policy as expeditiously as possible. However, we believe it would be
premature to opine on exactly how any subsequent extension would be
implemented. As
[[Page 36911]]
with past extensions, we would continue to work to implement any
subsequent extensions as quickly and seamlessly as possible based on
the specific legislative requirements of the particular extension.
Comment: Several commenters stated that it is not the intent of
Congress for the low-volume hospital payment policy to revert to the
historical statutory requirements. Some of these commenters believe
that CMS is ignoring the congressional intent of this policy and
denying a group of IPPS providers low-volume hospital payments with the
reversion to the policy that was originally established for FY 2005. A
few commenters also stated that CMS did not explain why limiting the
low-volume hospital payment adjustment to hospitals with fewer than 200
discharges is ``most consistent'' with statute. These commenters
requested expanding eligibility for the discharge criteria to match the
statutory requirement to include IPPS hospitals with 200-799
discharges.
Response: We disagree that it is contrary to the congressional
intent for the low-volume hospital policy to revert to the policy
established under the original historical statutory requirements. As
previously discussed, section 2201 of the Full-Year Continuing
Appropriations and Extensions Act, 2025 (Pub. L. 119-4), enacted on
March 15, 2025, provided an extension of the temporary changes to the
qualifying criteria and payment adjustment methodology for certain low-
volume hospitals through September 30, 2025 only. Consistent with the
discussion in the FY 2005 IPPS final rule (69 FR 49100), despite the
statutory definition of a low-volume hospital as a subsection (d)
hospital that has less than 800 discharges during the fiscal year for
FYs 2026 and subsequent years, the statutory provision mandating this
adjustment also requires the Secretary to determine the empirical
relationship between the standardized cost-per-case, the total number
of discharges, and the amount of incremental costs (if any) associated
with the number of discharges. In addition, the statute requires that
the applicable percentage increase shall be based upon such
relationship in a manner that reflects such incremental costs. We
continue to believe that the statutory language thus gives the
Secretary the flexibility to set the percentage increase at zero for a
given number of discharges if the empirical evidence shows that
hospitals experience no higher incremental costs when they reach that
number of discharges. In other words, the statute does not require the
Secretary to provide an adjustment in the absence of empirical evidence
that an adjustment is warranted by higher incremental costs.
As discussed in response to public comments in the FY 2013 IPPS/
LTCH PPS final rule (77 FR 53408 through 53409), the FY 2014 IPPS/LTCH
PPS final rule (78 FR 50612 through 50613), and the FY 2018 IPPS/LTCH
PPS final rule (82 FR 38184 through 38189), to implement the original
low-volume hospital payment adjustment provision, and as mandated by
statute, we developed an empirically justified adjustment based on the
relationship between costs and total discharges of hospitals with less
than 800 total (Medicare and non-Medicare) discharges. Specifically, we
performed several regression analyses to evaluate the relationship
between hospitals' costs per case and discharges, and found that an
adjustment for hospitals with less than 200 total discharges is most
consistent with the statutory requirement to provide for additional
payments to low-volume hospitals where there is empirical evidence that
higher incremental costs are associated with lower numbers of
discharges (69 FR 49101 through 49102). Based on these analyses, we
established a low-volume hospital policy under which qualifying
hospitals with less than 200 total discharges receive a payment
adjustment of an additional 25 percent. (Section 1886(d)(12)(B)(iii) of
the Act limits the applicable percentage increase adjustment to no more
than 25 percent.) At this time, we are not aware of any analysis or
empirical evidence that would support expanding the originally
established low-volume hospital adjustment policy and we did not make
any proposals regarding the low-volume hospital payment adjustment for
FY 2026. For these reasons, we are not making any changes to the low-
volume hospital payment adjustment policy in this final rule.
Comment: A few commenters expressed support for the methodology for
calculating the low-volume payment adjustment using a single, non-
sliding scale adjustment of 25 percent for qualifying hospitals
discharges beginning in FY 2026. A commenter requested that CMS publish
disaggregated impact analyses to help stakeholders and legislators
understand the projected consequences of expiration.
Response: We appreciate commenters' support for the single, non-
sliding scale payment adjustment for qualifying hospitals beginning in
FY 2026. In response to the comment requesting that CMS publish
disaggregated impact analyses to help stakeholders and legislators
understand the projected financial effect of expiration, we refer the
commenter to the provider data used in creating Table I--Impact
Analysis of Changes to the IPPS for Operating Costs for FY 2026, in
Appendix A of this final rule, which can be used to estimate individual
hospital's payments for FY 2026 and is available on the CMS website for
this final rule at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.
After consideration of the public comments we received regarding
the changes to the qualifying criteria and the payment adjustment
methodology for low-volume hospitals for FY 2026, we are finalizing our
proposals without modification.
4. Process for Requesting and Obtaining the Low-Volume Hospital Payment
Adjustment for FY 2026
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275
and 50414) and subsequent rulemaking, most recently in the FY 2025
IPPS/LTCH PPS final rule (89 FR 69348 through 69352), we discussed the
process for requesting and obtaining the low-volume hospital payment
adjustment. Under this previously established process, a hospital makes
a written request for the low-volume payment adjustment under Sec.
412.101 to its MAC. This request must contain sufficient documentation
to establish that the hospital meets the applicable mileage and
discharge criteria. The MAC will determine if the hospital qualifies as
a low-volume hospital by reviewing the data the hospital submits with
its request for low-volume hospital status in addition to other
available data. Under this approach, a hospital will know in advance
whether or not it will receive a payment adjustment under the low-
volume hospital policy. The MAC and CMS may review available data such
as the number of discharges, in addition to the data the hospital
submits with its request for low-volume hospital status, to determine
whether or not the hospital meets the qualifying criteria. (For
additional information on our existing process for requesting the low-
volume hospital payment adjustment, we refer readers to the FY 2019
IPPS/LTCH PPS final rule (83 FR 41399 through 41401).)
As explained earlier, for FY 2019 and subsequent fiscal years, the
discharge determination is made based on the hospital's number of total
discharges, that is, Medicare and non-Medicare discharges, as was the
case for FYs 2005
[[Page 36912]]
through 2010. Under Sec. 412.101(b)(2)(i) and (iii), a hospital's most
recently submitted cost report is used to determine if the hospital
meets the discharge criterion to receive the low-volume payment
adjustment in the current year. As discussed in the FY 2019 IPPS/LTCH
PPS final rule (83 FR 41399 and 41400), we use cost report data to
determine if a hospital meets the discharge criterion because this is
the best available data source that includes information on both
Medicare and non-Medicare discharges. (For FYs 2011 through 2018, the
most recently available MedPAR data were used to determine the
hospital's Medicare discharges because non-Medicare discharges were not
used to determine if a hospital met the discharge criterion for those
years.) Therefore, a hospital must refer to its most recently submitted
cost report for total discharges (Medicare and non-Medicare) to decide
whether or not to apply for low-volume hospital status for a particular
fiscal year.
In addition to the discharge criterion, eligibility for the low-
volume hospital payment adjustment is also dependent upon the hospital
meeting the applicable mileage criterion specified in section
1886(d)(12)(C)(i) of the Act, which is codified at Sec. 412.101(b)(2),
for the fiscal year. To meet the mileage criterion to qualify for the
low-volume hospital payment adjustment for FY 2026, a hospital must be
located more than 25 road miles from the nearest subsection (d)
hospital. (We define in Sec. 412.101(a) the term ``road miles'' to
mean ``miles'' as defined in Sec. 412.92(c)(1) (75 FR 50238 through
50275 and 50414).) For establishing that the hospital meets the mileage
criterion, the use of a web-based mapping tool as part of the
documentation is acceptable. The MAC will determine if the information
submitted by the hospital, such as the name and street address of the
nearest hospital(s), location on a map, and distance from the hospital
requesting low-volume hospital status, is sufficient to document that
it meets the mileage criterion. If not, the MAC will follow up with the
hospital to obtain additional necessary information to determine
whether or not the hospital meets the applicable mileage criterion.
In accordance with our previously established process, a hospital
must make a written request for low-volume hospital status that is
received by its MAC by September 1 immediately preceding the start of
the Federal fiscal year for which the hospital is applying for low-
volume hospital status in order for the applicable low-volume hospital
payment adjustment to be applied to payments for its discharges for the
fiscal year beginning on or after October 1 immediately following the
request (that is, the start of the Federal fiscal year). For a hospital
whose request for low-volume hospital status is received after
September 1, if the MAC determines the hospital meets the criteria to
qualify as a low-volume hospital, the MAC will apply the applicable
low-volume hospital payment adjustment to determine payment for the
hospital's discharges for the fiscal year, effective prospectively
within 30 days of the date of the MAC's low-volume status
determination.
Consistent with this previously established process, for FY 2026,
we proposed that a hospital must submit a written request for low-
volume hospital status to its MAC that includes sufficient
documentation to establish that the hospital meets the applicable
mileage and discharge criteria (as described earlier). Specifically,
for FY 2026, a hospital must make a written request for low-volume
hospital status that is received by its MAC no later than September 1,
2025, in order for the 25-percent, low-volume, add-on payment
adjustment to be applied to payments for its discharges beginning on or
after October 1, 2025. If a hospital's written request for low-volume
hospital status for FY 2026 is received after September 1, 2025, and if
the MAC determines the hospital meets the criteria to qualify as a low-
volume hospital, the MAC would apply the low-volume hospital payment
adjustment to determine the payment for the hospital's FY 2026
discharges, effective prospectively within 30 days of the date of the
MAC's low-volume hospital status determination.
Under this process, a hospital that qualified for the low-volume
hospital payment adjustment for FY 2025, may continue to receive a low-
volume hospital payment adjustment for FY 2026 without reapplying if it
meets both the discharge criterion and the mileage criterion applicable
for FY 2026 (that is, the preexisting low-volume hospital qualifying
criteria as implemented in FY 2005 and specified in the existing
regulations at Sec. 412.101(b)(2)(i), as discussed previously). In
such a case, we proposed that the hospital must send written
verification that is received by its MAC no later than September 1,
2025, stating that it meets the mileage criterion for FY 2026,
consistent with our process in previous years. If a hospital's request
for low-volume hospital status for FY 2026 is received after September
1, 2025, and if the MAC determines the hospital meets the criteria to
qualify as a low-volume hospital, the MAC will apply the applicable
low-volume add-on payment adjustment to determine the payment for the
hospital's discharges for the applicable portion of FY 2026, effective
prospectively within 30 days of the date of the MAC's low-volume
hospital status determination. We received no comments on our proposed
process for requesting and obtaining the low-volume hospital payment
adjustment for FY 2026 and therefore are finalizing this proposal
without modification.
E. Changes in the Medicare-Dependent, Small Rural Hospital (MDH)
Program (Sec. 412.108)
1. Background for the MDH Program
Section 1886(d)(5)(G) of the Act provides special non-budget
neutral payment protections, under the IPPS, to a Medicare-dependent,
small rural hospital (MDH). MDHs are paid for their hospital inpatient
services based on the higher of the Federal rate or a blended rate
based in part on the Federal rate and in part on the MDH's hospital
specific rate. (For additional information on the MDH program and the
payment methodology, we refer readers to the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51683 through 51684).) Section 2202 of the Full-Year
Continuing Appropriations and Extensions Act, 2025 (Pub. L. 119-4),
enacted on March 15, 2025, extended the MDH program through September
30, 2025 (that is, for discharges occurring before October 1, 2025).
Prior to enactment of the Full-Year Continuing Appropriations and
Extensions Act, 2025, the MDH program was only to be in effect for FY
2025 discharges occurring before April 1, 2025. Under current law, the
MDH program provisions at section 1886(d)(5)(G) of the Act will expire
for discharges on or after October 1, 2025. Beginning with discharges
occurring on or after October 1, 2025, absent further Congressional
action, all hospitals that previously qualified for MDH status will be
paid based on the Federal rate.
Since the extension of the MDH program through FY 2012 provided by
section 3124 of the Affordable Care Act, the MDH program had been
extended by subsequent legislation as follows: section 606 of the
American Taxpayer Relief Act (Pub. L. 112-240) extended the MDH program
through FY 2013 (that is, for discharges occurring before October 1,
2013). Section 1106 of the Pathway for SGR Reform Act of 2013 (Pub. L.
113-67) extended the MDH program through the first half of FY 2014
(that is, for discharges occurring before April 1, 2014). Section 106
of the Protecting Access to Medicare Act (Pub.
[[Page 36913]]
L. 113-93) extended the MDH program through the first half of FY 2015
(that is, for discharges occurring before April 1, 2015). Section 205
of the MACRA (Pub. L. 114-10) extended the MDH program through FY 2017
(that is, for discharges occurring before October 1, 2017). Section
50205 of the Bipartisan Budget Act (Pub. L. 115-123) extended the MDH
program through FY 2022 (that is for discharges occurring before
October 1, 2022). Section 102 of the Continuing Appropriations and
Ukraine Supplemental Appropriations Act, 2023 (Pub. L. 117-180)
extended the MDH program through December 16, 2022. Section 102 of the
Further Continuing Appropriations and Extensions Act, 2023 (Pub. L.
117-229) extended the MDH program through December 23, 2022. Section
4102 of the Consolidated Appropriations Act, 2023 (Pub. L. 117-328)
extended the MDH program through FY 2024 (that is for discharges
occurring before October 1, 2024). Section 307 of the CAA, 2024 (Pub.
L. 118-42) extended the MDH program through December 31, 2024 (that is,
for discharges occurring before January 1, 2025). Section 3202 of the
American Relief Act, 2025 (Pub. L. 118-158) extended the MDH program
through March 31, 2025 (that is, for discharges occurring before April
1, 2025). Lastly, under current law, section 2202 of the Full-Year
Continuing Appropriations and Extensions Act, 2025 (Pub. L. 119-4)
extended the MDH program through September 30, 2025 (that is, for
discharges occurring before October 1, 2025).
For additional information on the extensions of the MDH program
after FY 2012, we refer readers to the following Federal Register
documents: The FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through
53405 and 53413 through 53414); the FY 2013 IPPS notice (78 FR 14689);
the FY 2014 IPPS/LTCH PPS final rule (78 FR 50647 through 50649); the
FY 2014 interim final rule with comment period (79 FR 15025 through
15027); the FY 2014 notice (79 FR 34446 through 34449); the FY 2015
IPPS/LTCH PPS final rule (79 FR 50022 through 50024); the August 2015
interim final rule with comment period (80 FR 49596); the FY 2017 IPPS/
LTCH PPS final rule (81 FR 57054 through 57057); the FY 2018 notice (83
FR 18303 through 18305); the FY 2019 IPPS/LTCH PPS final rule (83 FR
41429); the FY 2024 IPPS/LTCH PPS final rule (88 FR 59045); and the FY
2025 IPPS/LTCH PPS final rule (89 FR 69352).
2. Implementation of Legislative Extension of MDH Program
Prior to the enactment of Public Law 119-4, under section 3202 of
Public Law 118-158, the MDH program authorized by section 1886(d)(5)(G)
of the Act was set to expire on April 1, 2025. Section 2202 of Public
Law 119-4 amended sections 1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II)
of the Act by striking ``April 1, 2025'' and inserting ``October 1,
2025''. Section 2202 of Public Law 119-4 also made conforming
amendments to sections 1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the
Act.
Therefore, in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18273), we proposed to make conforming changes to the regulations
governing the MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and
the general payment rules at Sec. 412.90(j) to reflect the extension
of the MDH program through September 30, 2025.
As a result of the extension of the MDH program through September
30, 2025, as provided by section 2202 of Public Law 119-4, a provider
that was classified as an MDH as of March 31, 2025, will continue to be
classified as an MDH as of April 1, 2025, with no need to reapply for
MDH classification. We addressed the extension provided by section 3202
of the American Relief Act, 2025, in Change Request 13949 (Transmittal
13035), issued January 6, 2025. For additional information, please
refer to the transmittal https://www.cms.gov/medicare/regulations-guidance/transmittals/2025-transmittals/r13035otn. We addressed the
extension provided by section 2202 of the Full-Year Continuing
Appropriations and Extensions Act, 2025 (Pub. L. 119-4) in Change
Request 14045 (Transmittal 13151), issued May 5, 2025. For additional
information, please refer to the transmittal https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/CMS/r13151otn.pdf.
3. Expiration of the MDH Program
Because section 2202 of the Full-Year Continuing Appropriations and
Extensions Act, 2025 extended the MDH program through September 30,
2025, only, beginning October 1, 2025, the MDH program will no longer
be in effect. Since the MDH program is not authorized by statute beyond
September 30, 2025, absent Congressional action, beginning October 1,
2025, all hospitals that previously qualified for MDH status under
section 1886(d)(5)(G) of the Act will no longer have MDH status and
will be paid based on the Federal rate.
When the MDH program was set to expire at the end of FY 2012, in
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53404 through 53405), we
revised our sole community hospital (SCH) policies to allow MDHs to
apply for SCH status in advance of the expiration of the MDH program
and be paid as such under certain conditions. We codified these changes
in the regulations at Sec. 412.92(b)(2)(i) and (v). For additional
information, we refer readers to the FY 2013 IPPS/LTCH PPS final rule
(77 FR 53404 through 53405 and 53674). We note that a MDH that
classifies as a SCH in anticipation of the MDH program expiration would
have to reapply for MDH classification in accordance with the
regulations at 42 CFR 412.108(b) and meet the classification criteria
at 42 CFR 412.108(a) in the event that the MDH program is further
extended, and the provider wishes to return to its classification as a
MDH.
As noted, in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18273),
we proposed to make conforming changes to the regulations governing the
MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and the general
payment rules at Sec. 412.90(j) to reflect the extension of the MDH
program through September 30, 2025. We also proposed that if the MDH
program were to be extended by law beyond September 30, 2025, similar
to how it was extended by prior legislation as described previously, we
would, depending on timing of such legislation in relation to the final
rule, modify our proposed conforming changes to the regulations
governing the MDH program at Sec. 412.108(a)(1) and (c)(2)(iii) and
the general payment rules at Sec. 412.90(j) to reflect any such
further extension of the MDH program. We also noted that these
modifications to our proposed conforming changes would only be made if
the MDH program were to be extended by statute beyond September 30,
2025.
Comment: Many commenters expressed support for extending the MDH
program or making the MDH program permanent and noted that they would
continue supporting congressional efforts to protect the MDH program. A
few commenters urged CMS to advocate for action to be taken to ensure
that the MDH program is extended. Several state hospital associations
expressed their concern that hospitals in their states would experience
significant payment decreases as a result of the expiration of the MDH
program. One commenter stated that if CMS moves forward with the
proposed changes, any transitional payments must be meaningful and
implemented over a multi-year period to
[[Page 36914]]
prevent harmful disruptions in patient care. Another commenter asked
that CMS consider whether any alternative regulatory flexibilities
exist to assist these hospitals if the program is not renewed. Some
commenters also expressed support for increasing the base rates for
these hospitals. Others supported an additional base rate for
calculating MDH payments.
Response: While we appreciate the commenters' concerns about the
expiration of the MDH program and the financial impact to affected
providers if the MDH program is not extended beyond FY 2025, CMS does
not have the authority under current law to extend the MDH program
beyond the September 30, 2025 statutory expiration date. Similarly,
section 1886(b)(3)(D) of the Act specifies the applicable base years or
``target amounts'' for hospitals classified as MDHs. These comments are
similar to comments we received previously, prior to the most recent
statutory extension of the MDH program for FY 2025. We refer commenters
to our discussion in the FY 2025 IPPS/LTCH PPS final rule (89 FR
69353). In response to the comment requesting CMS explore other
regulatory support options, should Congress not act, we may consider
this for future rulemaking.
Comment: Several commenters expressed support for CMS' policy that
allows MDHs to apply for SCH status in advance of the expiration of the
MDH program and be paid as such under certain conditions. A commenter
requested that CMS provide technical assistance to MDHs seeking to
transition to SCH classification. Commenters requested that CMS
explicitly clarify how it would handle the MDH program should Congress
extend it and requested that CMS expedite restoration of MDH status and
expeditiously process claims in the event the program lapses.
Commenters also urged CMS to ensure that affected hospitals have access
to technical assistance and timely guidance to minimize confusion.
Other commenters requested that CMS provide instructions to MACs during
program extensions, especially in instances when extensions are made
retroactively. A commenter requested that CMS publish disaggregated
impact analyses to help stakeholders and legislators understand the
projected consequences of expiration.
Response: We appreciate the commenters' support of our policy
allowing MDHs to apply for SCH status in advance of the expiration of
the MDH program and to be paid as such under certain conditions and
allow for a seamless transition from MDH classification to SCH
classification. MDHs looking to apply for SCH classification should
contact their individual MACs for assistance on the application
requirements or for any technical assistance. We appreciate the
commenters' sharing their concerns relating to a retroactive
restoration of the MDH program. As with past extensions, CMS will
evaluate enacted legislation to determine the most appropriate approach
to implement changes to the law, including issuing instructions to the
MACs to reinstate MDH status to eligible hospitals and to communicate
with affected hospitals. As in the past, we will make every effort to
implement any extension of the MDH program as expeditiously as
possible. In response to the comment requesting that CMS publish
disaggregated impact analyses to help stakeholders and legislators
understand the projected financial effect of expiration, we refer the
commenter to the provider data used in creating Table I--Impact
Analysis of Changes to the IPPS for Operating Costs for FY 2026, in
Appendix A of this final rule and posted on the web which can be used
to estimate individual hospital's payments for FY 2026. The data can be
found on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps.
In addition, we note in Table I in Appendix A of this final rule,
the lines reflecting the changes for ``Bed Size (Rural)'' with 0-49
beds and 50-99 beds generally reflect the expected impact for hospitals
classified as MDH prior to the expiration on October 1, 2025 under
current law.
In summary, under current law, beginning October 1, 2025, all
hospitals that previously qualified for MDH status will no longer have
MDH status. After consideration of the public comments we received, we
are adopting as final the proposed conforming changes to the
regulations text at Sec. Sec. 412.90 and 412.108 to reflect the
extension of the MDH program through September 30, 2025 in accordance
with section 2202 of the Full-Year Continuing Appropriations and
Extensions Act, 2025 (Pub. L. 119-4). We are finalizing the proposed
changes in paragraphs (a)(1) and (c)(2)(iii) of Sec. 412.108 and
paragraph (j) of Sec. 412.90 without modification.
F. Payment for Indirect and Direct Graduate Medical Education Costs
(Sec. Sec. 412.105 and 413.75 through 413.83)
1. Background
Section 1886(h) of the Act, as added by section 9202 of the
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (Pub. L.
99-272) and as currently implemented in the regulations at 42 CFR
413.75 through 413.83, establishes a methodology for determining
payments to hospitals for the direct costs of approved graduate medical
education (GME) programs. Section 1886(h)(2) of the Act sets forth a
methodology for the determination of a hospital-specific base-period
per resident amount (PRA) that is calculated by dividing a hospital's
allowable direct costs of GME in a base period by its number of full-
time equivalent (FTE) residents in the base period. The base period is,
for most hospitals, the hospital's cost reporting period beginning in
FY 1984 (that is, October 1, 1983, through September 30, 1984). The
base year PRA is updated annually for inflation.
In general, Medicare direct GME payments are calculated by
multiplying the hospital's updated PRA by the weighted number of FTE
residents working in all areas of the hospital complex (and at non-
provider sites, when applicable), and the hospital's Medicare share of
total inpatient days. Section 1886(d)(5)(B) of the Act provides for a
payment adjustment known as the indirect medical education (IME)
adjustment under the IPPS for hospitals that have residents in an
approved GME program, in order to account for the higher indirect
patient care costs of teaching hospitals relative to nonteaching
hospitals. The regulations regarding the calculation of this additional
payment are located at 42 CFR 412.105. The hospital's IME adjustment
applied to the DRG payments is calculated based on the ratio of the
hospital's number of FTE residents training in either the inpatient or
outpatient departments of the IPPS hospital (and, for discharges
occurring on or after October 1, 1997, at non-provider sites, when
applicable) to the number of inpatient hospital beds.
The calculation of both direct GME payments and the IME payment
adjustment is affected by the number of FTE residents that a hospital
is allowed to count. Generally, the greater the number of FTE residents
a hospital counts, the greater the amount of Medicare direct GME and
IME payments the hospital will receive. In an attempt to end the
implicit incentive for hospitals to increase the number of FTE
residents, Congress established a limit on the number of allopathic and
osteopathic residents that a hospital could include in its FTE resident
count for direct GME and IME payment purposes in the Balanced Budget
Act of 1997 (Pub. L. 105-33). Under section 1886(h)(4)(F) of the Act,
for cost
[[Page 36915]]
reporting periods beginning on or after October 1, 1997, a hospital's
unweighted FTE count of residents for purposes of direct GME cannot
exceed the hospital's unweighted FTE count for direct GME in its most
recent cost reporting period ending on or before December 31, 1996.
Under section 1886(d)(5)(B)(v) of the Act, a similar limit based on the
FTE count for IME during that cost reporting period is applied,
effective for discharges occurring on or after October 1, 1997. Dental
and podiatric residents are not included in this statutorily mandated
cap.
We received some comments related to IME and direct GME payment
that were outside the scope of the proposed rule, including comments
related to the eligibility of SCHs and MDHs paid under the hospital-
specific rate to receive IME payments. Because we consider these public
comments to be outside the scope of the proposed rule, we are not
addressing these comments in this final rule.
2. Calculating Full-time Equivalent Counts and Caps for Cost Reporting
Periods Other Than Twelve Months
CMS's full-time equivalent (FTE) counting regulations, as
established in the September 29, 1989, Federal Register (54 FR 40291),
specify that no individual should be counted as more than one FTE, and
that FTE status is based on the total time necessary to fill a
residency slot and the share of total time spent training at each
training site (see 42 CFR 412.105(f)(1)(iii)(A) for IME and 42 CFR
413.78(b)(1) for DGME). The requirements for what constitutes full-time
participation may vary from specialty to specialty, or among different
programs in the same specialty. Additionally, full-time equivalency may
be computed based on various increments, such as hours, days, weeks, or
months, in order for a hospital to obtain the full-time equivalent
which it is allowed to count.
Full-time equivalency for each resident is computed by determining
the portion of total allowable training time that may be claimed by
each hospital. In general, these data are sourced from a ``master''
rotation schedule for each approved residency program. Each rotation
may consist of both allowable and non-allowable training time. For
example, the time that a resident spends in a hospital's distinct-part
unit is allowable to the hospital for purposes of DGME, but not for
purposes of IME, while time spent in research activities at an offsite
nonpatient care facility is not allowable for either DGME or IME.
Additionally, a hospital cannot claim the time spent by residents
training at another hospital. Consistent with the regulations at 42 CFR
413.75(d), hospitals that cross-train residents in the same program
need to agree on the method of computing FTEs to ensure that no
resident is counted as more than one FTE.
For purposes of completing the Medicare cost report (Worksheet E,
Part A, for IME and Worksheet E-4 for DGME of Form CMS-2552-10), full-
time equivalency is typically calculated on the basis of 365 days (or
366 days, in the case of a leap year) for DGME versus the actual number
of days in the cost reporting period for IME. Thus, for a standard 12-
month cost reporting period, there is no difference in the calculation
of the DGME and IME FTE counts.
In the case of a cost reporting period other than 12 months in
length, the statute for both DGME and IME instructs the Secretary to
make ``appropriate modifications'' to ensure that the FTE counts are
based on the equivalent of 12 months. Specifically, for DGME, section
1886(h)(4)(G)(ii) states that if any cost reporting period beginning on
or after October 1, 1997, is not equal to 12 months, the Secretary
shall make appropriate modifications to ensure that the average full-
time equivalent resident counts pursuant to section 1886(h)(4)(G)(i)
are based on the equivalent of full 12-month cost reporting periods.
Similarly, for IME, section 1886(d)(5)(B)(vii) states that if any cost
reporting period beginning on or after October 1, 1997, is not equal to
12 months, the Secretary shall make appropriate modifications to ensure
that the average full-time equivalent residency count pursuant to
section 1886(d)(5)(B)(vi)(II) is based on the equivalent of full 12-
month cost reporting periods.
The procedures for determining the total DGME and IME FTE counts
for a non-12-month cost reporting period reflect the underlying
differences in the two payment methodologies. A hospital's DGME count
represents the number of FTE residents working in the healthcare
complex over the course of an entire cost reporting period, and the
total DGME payment is based on the hospital's PRA, which reflects the
average costs incurred per resident during a 12-month base period or
equivalent (see discussion at 54 FR 40290). Accordingly, the DGME FTE
count must be prorated to reflect the length of a short or long cost
reporting period, as illustrated in the following section of this
preamble. By contrast, the IME adjustment reflects the average
intensity of teaching activity in a hospital at any given time, and the
total IME payment is based on the hospital's DRG payments during a cost
reporting period. Because the size of a hospital's DRG payments already
reflects the amount of patient care furnished during a short or long
cost reporting period, it is not necessary to prorate the IME FTE count
in the same manner as the DGME FTE count.
Similarly, as explained later in this section, proration must be
applied to a hospital's DGME FTE cap (but not the IME FTE cap) to
account for a non-12-month cost reporting period, as well as to the
prior- and penultimate-year DGME FTE counts (but not the IME FTE
counts) for the purpose of calculating the three-year rolling average
FTE count. We also note that, while these methodological distinctions
become apparent in the context of calculating the counts and caps for a
non-12-month cost reporting period, they are equally applicable in the
case of a standard 12-month cost reporting period.
In the FY 2026 IPPS/LTCH PPS Proposed Rule (90 FR 18274 through
18277), we stated that while CMS's FTE counting policy is long-
established and widely used in existing cost reporting software and the
Intern and Resident Information System (IRIS) software, we were taking
the opportunity to restate and clarify our FTE counting policy in
rulemaking. We did not propose any changes to the FTE counting policy
in the proposed rule.
a. Calculating FTE Counts
To determine the unweighted FTE count for DGME, whether or not the
cost reporting period is 12 months, or more or less, the following
steps should be used:
For each resident and each of that resident's individual
rotations, determine the ratio of total days allowable to the hospital
in that rotation, to total days in that entire rotation, consistent
with the regulations at 42 CFR 413.78.
Multiply the ratio from Step 1 by the ratio of (total days
in the entire rotation divided by 365) (or 366, in the case of a leap
year).\162\ This represents the portion of total FTE time for this
rotation that may be claimed by the hospital for purposes of DGME
payment, prorated for the length of the cost reporting period.
---------------------------------------------------------------------------
\162\ 366 days should be used when the cost reporting period
includes February 29.
---------------------------------------------------------------------------
Calculate the sum of the products from Step 2 for all
residents and rotations in the hospital's programs to arrive at the
hospital's total unweighted
[[Page 36916]]
DGME FTE count for the cost reporting period.
Stated formulaically:
Unweighted DGME FTE count = Sum of [(Allowable days in a rotation/Total
days in the rotation) x (Total days in the rotation/365)]
Note: This portion of the FTE calculation is not weighted for
years outside of the Initial Residency Period, as the application of
weighting factors is a separate step in the calculation of DGME
payment on the cost report. See 42 CFR 413.79(a) for more
information about the Initial Residency Period.
Example: A resident worked in a rotation at Hospital A for 4 weeks
(28 days) but spent 1 week (7 days) offsite engaged in non-patient care
research.
Step 1: Consistent with the DGME regulations, the total
time allowable to Hospital A for this rotation is 21 days. The ratio is
(21 days/28 days) = 0.75.
Step 2: The portion of total FTE time for this rotation
that Hospital A may claim for purposes of DGME payment is 0.75 x (28/
365) = 0.06 FTE. (Note: In the case of a leap year, divide by 366
days.)
Step 3: Repeat Steps 1 and 2 for all residents and
rotations in the hospital's programs and sum the results from Step 2 to
arrive at Hospital A's total unweighted DGME FTE count for the cost
reporting period.
As stated previously, 365 or 366 days is used as the denominator in
Step 2 of the calculation regardless of the actual number of days in
the cost reporting period. Thus, in computing the DGME FTE count, the
length of the cost reporting period can affect the full-time
equivalency determined for a given number of residents training at the
hospital. For example, there would be fewer total rotations in a 3-
month cost reporting period than in a 12-month period, and thus a
commensurately smaller DGME count calculated in accordance with the
procedure outlined previously.
Note that the hospital's updated PRA is always used and is not
prorated, as it represents that hospital's average cost to train an FTE
resident determined in a base period and is not dependent upon the
length of cost reporting periods subsequent to the PRA base period.
In this manner, the DGME FTE count continues to be based on the
``equivalent of 12 months,'' as required by section 1886(h)(4)(G)(ii)
of the Act. This procedure is performed to determine the total
unweighted DGME FTE count on Form CMS-2552-10, Worksheet E-4, line 6
and line 7, as well as for the weighted FTE counts on lines 8 through
11, lines 15 and 16, and lines 21 and 22. For lines that record
weighted FTE counts, the appropriate weighting factors are applied
consistent with the regulations at 42 CFR 413.79(a).
As mentioned previously, the procedure for determining the 12-month
equivalent IME FTE count, in accordance with section 1886(d)(5)(B)(vii)
of the Act, is different in that the number of days used in the
denominator of the calculation in Step 2 depends on the length of the
cost reporting period. For 12-month cost reporting periods, a
denominator of 365 days is used (or 366 days in the case of a leap
year), while for cost reporting periods of different lengths, the
denominator is equal to the actual number of days in the cost reporting
period. The resulting FTE count represents the average number of
residents in the hospital at any given time, and in turn is multiplied
by the DRG payments in that same cost reporting period to obtain the
hospital's total IME payment.
Accordingly, to determine the FTE count for IME, whether or not the
cost reporting period is 12 months, or more or less, the following
steps should be used:
For each resident and each of that resident's individual
rotations, determine the ratio of total days allowable to the hospital
in that rotation, to total days in that entire rotation, consistent
with the regulations at 42 CFR 412.105(f).
Multiply the ratio from Step 1 by the ratio of (total days
in the entire rotation divided by the actual number of days in the cost
reporting period). This represents the portion of total FTE time for
this rotation that may be claimed by the hospital for purposes of IME
payment.
Calculate the sum of the products from Step 2 for all
residents and rotations in the hospital's programs to arrive at the
hospital's total IME FTE count for the cost reporting period.
Stated formulaically:
IME FTE count = Sum of [(Allowable days in a rotation/Total days in the
rotation) x (Total days in the rotation/Days in cost reporting period)]
Example 1: 12-Month Cost Reporting Period (365 Days):
A resident worked in a rotation at Hospital A for 4 weeks (28 days)
but spent 1 week (7 days) offsite engaged in non-patient care research.
Step 1: Consistent with the IME regulations, the total time
allowable to Hospital A for this rotation is 21 days. The ratio is (21
days/28 days) = 0.75.
Step 2: The portion of total FTE time for this rotation that
Hospital A may claim for purposes of IME payment is 0.75 x (28/365) =
0.06 FTE. (Note: In the case of a leap year, divide by 366 days.)
Step 3: Repeat Steps 1 and 2 for all residents and rotations in the
hospital's programs and sum the results from Step 2 to arrive at
Hospital A's total IME FTE count for the cost reporting period.
Example 2: 3-Month Cost Reporting Period (92 Days):
During a 92-day cost reporting period, a resident worked in a
rotation at Hospital A for 4 weeks (28 days) but spent 1 week (7 days)
offsite engaged in non-patient care research.
Step 1: Consistent with the IME regulations, the total time
allowable to Hospital A for this rotation is 21 days. The ratio is (21
days/28 days) = 0.75.
Step 2: The portion of total FTE time for this rotation that
Hospital A may claim for purposes of IME payment is 0.75 x (28/92) =
0.23 FTE.
Step 3: Repeat Steps 1 and 2 for all residents and rotations in the
hospital's programs and sum the results from Step 2 to arrive at
Hospital A's total IME FTE count for the 3-month cost reporting period.
Consistent with the regulations at 42 CFR 412.105(b), the bed count
used in the denominator of the intern and resident to bed (IRB) ratio
is determined by counting the number of available bed days during the
cost reporting period and dividing that number by the number of days in
the cost reporting period.
While the IME FTE count itself is not prorated, the final amount of
a hospital's IME payment nonetheless will be commensurate with the cost
reporting period by virtue of the total amount of its DRG payments,
which will generally increase or decrease as a result of the length of
the period. For example, if a cost reporting period is 12 months long,
the DRG payments by which the IME adjustment factor is multiplied to
derive the total IME payment will also reflect 12 months of patient
care. By contrast, the DRG payments for the 3-month (or 92-day) cost
reporting period in Example 2 would reflect just 3 months of patient
care.
This procedure is performed to determine the total IME FTE count on
Form CMS-2552-10, Worksheet E, Part A, lines 10 through 12, as well as
the FTE counts on lines 16 and 17 and lines 24 and 25.
[[Page 36917]]
b. Calculating FTE Caps for Cost Reporting Periods Other Than Twelve
Months
Just as the DGME FTE counts are prorated on the basis of a standard
365- or 366-day cost reporting period, a hospital's DGME FTE cap must
similarly be prorated for cost reporting periods other than 12 months
in length. To calculate the prorated cap, the hospital's regular 12-
month DGME FTE cap is divided by 365 days (or 366 days, in the case of
a leap year) and then multiplied by the actual number of days in the
cost reporting period. For example, if a hospital has a regular DGME
FTE cap of 270 FTEs, then the prorated DGME cap for a 3-month cost
reporting period with 92 days would be: (270/365) x (92) = 68.05 FTEs.
(If the hospital subsequently had a 9-month cost report with 273 days,
the DGME FTE cap for the 9-month cost report would be calculated as
follows: (270/365) x (273) = 201.95 FTEs. Note that 68.05 + 201.95 =
270, equivalent to the total DGME cap for 12 months (totals may be
slightly off due to rounding)). Proration applies similarly to all
lines on Worksheet E-4 that are associated with the FTE cap, including
lines 1 through 5 and line 20.
For reasons similar to those explained previously in the discussion
of the FTE counts, it is not necessary to prorate the IME FTE caps for
a non-12-month cost reporting period; the same IME FTE cap and any
associated cap adjustments apply to a cost reporting period that is
less than or more than 12 months.
c. Calculating the Three-Year Rolling Average for Cost Reporting
Periods of Unequal Lengths
Sections 1886(d)(5)(B)(vi)(II) and 1886(h)(4)(G)(i) of the Act
require that a hospital's FTE counts for IME and DGME payment,
respectively, in the current cost reporting period be based on a three-
year rolling average. That is, the FTE counts in the current cost
reporting period, prior cost reporting period, and penultimate cost
reporting period are summed, then divided by 3. These provisions phase
in any reductions or increases in payment over a three-year period for
hospitals that experience a change in the number of residents they
train. The regulations are at 42 CFR 412.105(f)(1)(v) for IME and 42
CFR 413.79(d)(3) for DGME.
For reasons similar to those discussed previously, no adjustments
need to be made to the prior and penultimate years when calculating the
rolling average IME count. However, if the current, prior and/or
penultimate year cost reporting periods are of different lengths,
adjustments must be made to the respective DGME FTE counts so that the
rolling average is based on quantities that are comparable with one
another. Accordingly, if the current cost reporting period is other
than 12 months in length, the prior- and penultimate-year DGME FTE
counts must be prorated, yielding 3 years of comparable FTE counts from
which to calculate the rolling average:
For the prior year, take the FTE count that would be reported on
Worksheet E-4, line 12, and divide by 365 (or 366, if the prior year
cost reporting period includes February 29), and then multiply that
quotient by the number of days in the current non-12-month cost
reporting period. Report this prorated FTE count on Worksheet E-4, line
12, of the current year cost report.
For the penultimate year, take the FTE count that would be reported
on Worksheet E-4, line 13, and divide by 365 (or 366, if the
penultimate year cost reporting period includes February 29), and then
multiply that quotient by the number of days in the current non-12-
month cost reporting period. Report this prorated FTE count on
Worksheet E-4, line 13, of the current year cost report.
Stated formulaically:
Prorated DGME FTE count = [(Total annual DGME FTE count/365 or 366) x
(Number of days in current cost reporting period)]
For example, if the current year cost reporting period is 3 months
(92 days), while the prior year cost reporting period was 12 months,
and the hospital's total capped DGME FTE count in the prior year was
300, then the prorated FTE count for the prior year would be: [(300/
365) x (92)] = 75.62. That is, a DGME FTE count of 300 in a 12-month
cost reporting period would be the equivalent of 75.62 FTEs in the
current year 3-month cost reporting period. On the current year cost
report, the hospital would enter 75.62 on line 12 of Worksheet E-4
(prior year FTE count). If the total capped DGME FTE count in the
penultimate cost reporting period was 302, and the penultimate year was
also 12 months, then the prorated FTE count for the penultimate year
would be: [(302/365) x (92)] = 76.12. On the current year cost report,
the hospital would enter 76.12 on line 13 of Worksheet E-4 (penultimate
year FTE count).
We note that in this scenario, if either the prior or penultimate
year cost reporting period was also other than 12 months in length,
then it would be necessary to adjust the calculation to account for
that difference. For instance, suppose that the hospital's penultimate
year cost reporting period was 9 months or 273 days long, and its
capped DGME FTE count during that period (prorated on a 12-month basis
as described earlier in this preamble) was 225. In this case, rather
than dividing by 365 days, the hospital would divide the penultimate-
year DGME FTE count by 273 days, as follows: [(225/273) x (92)] = 75.82
FTEs. Thus, the hospital would enter 75.82 on line 13 of Worksheet E-4
of the current year cost report.
Conversely, if the current year is a full cost reporting period,
but the prior and/or penultimate cost reporting period was other than
12 months, then the prior and/or penultimate year DGME FTE counts
(which have been prorated on a 12-month basis as described earlier in
this preamble) must be annualized to yield 12-month equivalents. This
procedure avoids understatement (or overstatement) of the DGME FTE
count in the current year and, similar to the proration of DGME counts
in the preceding scenario, results in 3 years of comparable FTE counts
from which to calculate the DGME rolling average:
For the prior year, take the FTE count that would be reported on
Worksheet E-4, line 12, and divide by the number of days in the non-12-
month cost reporting period, and then multiply that quotient by 365 (or
366, if the current cost reporting period includes February 29). Report
this annualized FTE count on Worksheet E-4, line 12 of, the current
year cost report.
For the penultimate year, take the FTE count that would be reported
on Worksheet E-4, line 13, and divide by the number of days in the non-
12-month cost reporting period, and then multiply that quotient by 365
(or 366, if the current cost reporting period includes February 29).
Report this annualized FTE count on Worksheet E-4, line 13 of the
current year cost report.
Stated formulaically:
Annualized DGME FTE count = [(Prorated DGME FTE count/Number of days in
the non-12-month cost reporting period) x (365 or 366)]
For example, if the current year cost reporting period is 12 months
(365 days), while the prior year cost reporting period was 3 months (92
days), and the prior-year capped DGME FTE count (prorated on a 12-month
basis) was 75, then the annualized FTE count for the prior year would
be: [(75/92) x (365)] = 297.55. On the current year cost report, the
hospital would enter 297.55 on line 12 of Worksheet E-4 (prior year FTE
count).
Comment: Commenters expressed support for our proposed
clarification of
[[Page 36918]]
the policy for determining the DGME and IME FTE resident counts for 12-
month and non-12-month cost reporting periods.
Response: We thank the commenters for their support.
As noted previously, we did not propose any changes to our existing
FTE counting policies. Accordingly, we are finalizing our proposed
clarification with no change to the regulations at 42 CFR 412.105 or
Sec. Sec. 413.75 through 81.
G. Reasonable Cost Payment for Nursing and Allied Health Education
Programs (Sec. 413.85 and Sec. 413.87)
1. General
Under section 1861(v) of the Act, Medicare has historically paid
providers for Medicare's share of the costs that providers incur in
connection with approved educational activities. The costs of these
activities are excluded from the definition of ``inpatient hospital
operating costs'' and are not included in the calculation of payment
rates for hospitals or hospital units paid under the IPPS, IRF PPS, or
IPF PPS, and are excluded from the rate-of-increase ceiling for certain
facilities not paid on a PPS. These costs are separately identified and
``passed through'' (that is, paid separately on a reasonable cost
basis).
Under the existing regulations at 42 CFR 413.85, approved nursing
and allied health (NAH) education programs must meet State licensure
requirements or be accredited by a recognized national professional
organization. Additionally, an approved NAH education program must be
operated by a provider. The most recent substantive rulemakings on
these regulations were in the January 12, 2001, final rule (66 FR 3358
through 3374), and in the August 1, 2003, final rule (68 FR 45423 and
45434). The regulations regarding Medicare Advantage (MA) add-on
payments for NAH education programs are at 42 CFR 413.87.
2. Medicare Advantage Nursing and Allied Health Education Payments
Section 541 of the Balanced Budget Refinement Act (BBRA) of 1999
provides for additional payments to hospitals for costs of nursing and
allied health education associated with services to Medicare+Choice
(now called Medicare Advantage (MA)) \163\ enrollees. Hospitals that
operate approved nursing or allied health education programs and
receive Medicare reasonable cost reimbursement for these programs may
receive additional payments to account for MA enrollees. Section 541 of
the BBRA limits total spending under the provision for MA enrollees to
no more than $60 million in any calendar year (CY). (In this document,
we refer to the total amount of $60 million or less as the payment
``pool''.) Section 541 of the BBRA also provides that direct graduate
medical education (GME) payments for Medicare+Choice (now MA)
utilization be reduced to the extent that these additional payments are
made for nursing and allied health education programs. This provision
was effective for portions of cost reporting periods occurring in a
calendar year, on or after January 1, 2000.
---------------------------------------------------------------------------
\163\ The M+C program in Part C of Medicare was renamed the
Medicare Advantage (MA) Program under the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 (MMA), which was
enacted in December 2003.
---------------------------------------------------------------------------
Section 512 of the Benefits Improvement and Protection Act (BIPA)
of 2000 changed the formula for determining the additional amounts to
be paid to hospitals for Medicare+Choice (now MA) nursing and allied
health costs. Under section 541 of the BBRA, the additional payment
amount was determined based on the proportion of each individual
hospital's nursing and allied health education payment to total nursing
and allied health education payments made to all hospitals. However,
this formula did not account for a hospital's specific Medicare+Choice
(now MA) utilization. Section 512 of the BIPA revised this payment
formula to specifically account for each hospital's Medicare+Choice
(now MA) utilization. This provision was effective for portions of cost
reporting periods occurring in a calendar year, beginning with CY 2001.
The regulations at 42 CFR 413.87 implement both statutory
provisions. We first implemented the BBRA NAH Medicare+Choice (now MA)
provision in the August 1, 2000, IPPS interim final rule with comment
period (IFC) (65 FR 47036 through 47039), and subsequently implemented
the BIPA provision in the August 1, 2001 IPPS final rule (66 FR 39909
and 39910). In those rules, we outlined the qualifying conditions for a
hospital to receive the NAH Medicare+Choice (now MA) payment, how we
would calculate the NAH Medicare+Choice (now MA) payment pool, and how
a qualifying hospital would calculate its ``share'' of payment from
that pool. Determining a hospital's NAH MA payment essentially involves
applying a ratio of the hospital-specific NAH Part A payments, total
inpatient days, and MA inpatient days, to national totals of those same
variables, from cost reporting periods ending in the fiscal year that
is 2 years prior to the current calendar year. The formula is as
follows:
(((Hospital NAH pass-through payment/Hospital Part A Inpatient Days)
*(Hospital MA Inpatient Days))
divided by
((National NAH pass-through payment/National Part A Inpatient Days) *
(National MA Inpatient Days))) * Current Year Payment Pool.
With regard to determining the total national amounts for NAH pass-
through payment, Part A inpatient days, and MA inpatient days, we note
that section 1886(l) of the Act, as added by section 541 of the BBRA,
gives the Secretary the discretion to ``estimate'' the national
components of the formula noted previously. For example, section
1886(l)(2)(A) of the Act states that the Secretary shall estimate the
ratio of payments for all hospitals for portions of cost reporting
periods occurring in the year under section 1886(h)(3)(D) of the Act to
total direct GME payments estimated for the same portions of periods
under section 1886(h)(3) of the Act.
Accordingly, we stated in the August 1, 2000, IFC (65 FR 47038)
that each year, we would determine and publish in a final rule the
total amount of nursing and allied health education payments made
across all hospitals during the fiscal year 2 years prior to the
current calendar year. We would use the best available cost reporting
data for the applicable hospitals from the Hospital Cost Report
Information System (HCRIS) for cost reporting periods in the fiscal
year that is 2 years prior to the current calendar year.
To calculate the pool, in accordance with section 1886(l) of the
Act, we stated that we would ``estimate'' a total amount for each
calendar year, not to exceed $60 million (65 FR 47038). To calculate
the proportional reduction to Medicare+Choice (now MA) direct GME
payments, we stated that the percentage is estimated by calculating the
ratio of the Medicare+Choice nursing and allied health payment ``pool''
for the current calendar year to the projected total Medicare+Choice
direct GME payments made across all hospitals for the current calendar
year. We stated that the projections of Medicare+Choice direct GME and
Part A direct GME payments are based on the best available cost report
data from the HCRIS (for example, for CY 2000, the projections are
based on the best available cost report data from FY 1998 HCRIS), and
these payment amounts are increased using the increases allowed by
section 1886(h) of the Act for these services (using the percentage
applicable for the
[[Page 36919]]
current calendar year for Medicare+Choice direct GME and the Consumer
Price Index (CPI-U) increases for Part A direct GME). We also stated
that we would publish the applicable percentage reduction each year in
the IPPS proposed and final rules (65 FR 47038).
Thus, in the August 1, 2000, IFC, we described our policy regarding
the timing and source of the national data components for the NAH
Medicare+Choice (now MA) add-on payment and the percent reduction to
the direct GME Medicare+Choice payments, and we stated that we would
publish the rates for each calendar year in the IPPS proposed and final
rules. While the rates for CY 2000 were published in the August 1,
2000, IFC (see 65 FR 47038 and 47039), the rates for subsequent CYs
were only issued through Change Requests (CRs) (CR 2692, CR 11642, CR
12407). After recent issuance of the CY 2019 rates in CR 12407 on
August 19, 2021, we reviewed our update procedures, and were reminded
that the August 1, 2000, IFC states that we would publish the NAH
Medicare+Choice (now MA) rates and direct GME percent reduction every
year in the IPPS rules. Accordingly, for CY 2020 and CY 2021, we
proposed and finalized the NAH MA add-on rates in the FY 2023 IPPS/LTCH
PPS proposed and final rules. We stated that for CYs 2022 and after, we
would similarly propose and finalize the respective NAH MA rates and
direct GME percent reductions in subsequent IPPS/LTCH PPS rulemakings
(see 87 FR 49073, August 10, 2022).
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18278 through
18280), we proposed the rates for CY 2024. Consistent with the use of
HCRIS data for past calendar years, we proposed to use data from cost
reports ending in FY 2022 HCRIS (the fiscal year that is 2 years prior
to CY 2024) to compile these national amounts: NAH pass-through
payment, Part A Inpatient Days, MA Inpatient Days.
For the proposed rule, we accessed the FY 2022 HCRIS data from the
fourth quarterly HCRIS update of 2024. However, to calculate the
``pool'' and the direct GME MA percent reduction, we ``projected'' Part
A direct GME payments and MA direct GME payments for the current
calendar year, which in the proposed rule and in this final rule is CY
2024, based on the ``best available cost report data from the HCRIS''
(65 FR 47038). Next, consistent with the method we described previously
in the August 1, 2000, IFC, we increased these payment amounts from
midpoint to midpoint of the appropriate calendar year using the
increases allowed by section 1886(h) of the Act for these services
(using the percentage applicable for the current calendar year for MA
direct GME, and the Consumer Price Index-Urban (CPI-U) increases for
Part A direct GME). For CY 2024, the direct GME projections are based
on the fourth quarterly update of CY 2022 HCRIS, adjusted for the CPI-U
and for increasing MA enrollment.
For CY 2024, the proposed national rates and percentages, and their
data sources, are set forth in this table. We stated in the proposed
rule that we intended to update these numbers in the FY 2026 final rule
based on the latest available cost report data.
[GRAPHIC] [TIFF OMITTED] TR04AU25.244
Comment: We received a few comments in support of our proposed
calculation of the NAH MA payment rates for CY 2024.
Response: We thank the commenters for their support.
For this final rule, consistent with the use of HCRIS data for past
calendar years, for CY 2024, we use data from cost reports ending in FY
2022 HCRIS (the fiscal year that is 2 years prior to CY 2024) to
compile these national amounts: NAH pass-through payment, Part A
Inpatient Days, and MA Inpatient Days. For this final rule, we accessed
the HCRIS data from the first quarterly update of 2025. However, to
calculate the ``pool'' and the direct GME MA percent reduction, we
``project'' Part A direct GME payments and MA direct GME payments for
the current calendar year, which in this final rule in CY 2024, based
on the best available cost report data. Next, consistent with the
method we described previously from the August 1, 2000 IFC, we increase
these payment amounts from midpoint to midpoint of the appropriate
calendar year using the increases allowed by section 1886(h) of the Act
for these services (using the percentage applicable for the current
calendar year for MA direct GME, and the Consumer Price Index-Urban
(CPI-U) increases for Part A direct GME). For CY 2024, the direct GME
projections are based on the first quarterly update of CY 2022 HCRIS,
adjusted for the CPI-U and for increasing MA enrollment.
For CY 2024, the final national rates and percentages, and their
data sources, are set forth in this table.
[GRAPHIC] [TIFF OMITTED] TR04AU25.245
[[Page 36920]]
3. Regulatory Changes Regarding the Calculation of Net Cost of NAH
Education Programs (42 CFR 413.85(d)(2)(i) and (ii))
In the January 12, 2001, final rule (66 FR 3358), we codified the
payment regulations regarding NAH education program costs at 42 CFR
413.85. With regard to determining the net costs which are allowed for
``pass-through'' payment, 42 CFR 413.85(d)(2)(i) states that the net
cost of approved educational activities is determined by deducting the
revenues that a provider receives from tuition and student fees from
the provider's total allowable educational costs that are directly
related to approved educational activities. Section 413.85(d)(2)(ii)
further states that a provider's total allowable educational costs are
those costs incurred by the provider for trainee stipends, compensation
of teachers, and other costs of the activities as determined under the
Medicare cost-finding principles in Sec. 413.24. These costs do not
include patient care costs, costs incurred by a related organization,
or costs that constitute a redistribution of costs from an educational
institution to a provider or costs that have been or are currently
being provided through community support. Worksheet A of the Medicare
cost report captures the direct costs associated with a hospital's
various cost centers, including its NAH education programs. The direct
costs associated with operating a hospital's approved NAH education
programs are reported on Worksheet A, line 20 (nursing programs) and
line 23 (paramedical/allied health education programs). The
instructions to these lines state--
Lines 20 and 23--If you have an approved nursing or allied health
education program that meets the criteria of 42 CFR 413.85(e),
classroom and clinical portions of the costs may be allowable as pass-
through costs as defined in 42 CFR 413.85(d)(2). . . . (CMS Pub. 15-2,
section 4013)
In addition to direct costs, hospitals also incur indirect or
overhead costs associated with their operations. Overhead costs are
assigned to the general service cost centers on lines 1 through 23 of
Worksheet A, which are a hospital's non-patient care/non-revenue
producing cost centers, and which include the Administrative & General
(A&G) cost center on line 5. The general cost report instructions for
Worksheet A state--
Lines 1 through 23--These lines are for the general service cost
centers. These costs are expenses incurred in operating the facility as
a whole that are not directly associated with furnishing patient care
such as, but not limited to mortgage, rent, plant operations,
administrative salaries, utilities, telephone charges, computer
hardware and software costs, etc. General service cost centers furnish
services to both general service areas and to other cost centers in the
provider (emphasis added).
Because the costs of operating a hospital's NAH education programs
are not directly associated with furnishing patient care, these cost
centers are also included among the general service cost centers on
Worksheet A. As noted in the cost report instructions cited previously,
general service cost centers may furnish services to other general
service areas. Thus, for example, a hospital's Administrative and
General cost center may furnish services to its Nursing and Allied
Health Education cost centers.
The regulations and cost report instructions require that, prior to
allocating overhead costs to the revenue producing cost centers, a
provider must make appropriate reclassifications and adjustments to its
direct costs. Worksheet A-6 is used to reclassify costs between cost
centers on the cost report, while Worksheet A-8 is used to adjust both
a provider's revenue producing and non-revenue producing cost centers,
and remove non-allowable costs. The cost report instructions for
Worksheet A-8 state, in relevant part--
Types of adjustments entered on this worksheet include (1) those
needed to adjust expenses to reflect actual expenses incurred; (2)
those items which constitute recovery of expenses through sales,
charges, fees, etc.; (3) those items needed to adjust expenses in
accordance with the Medicare principles of reimbursement; and (4) those
items which are provided for separately in the cost apportionment
process (emphasis added). (CMS Pub. 15-2, section 4016.)
Adjustments, including the recovery of expenses through various
forms of revenue, occur prior to cost finding, which is the process by
which indirect costs (that is, the costs of the general service cost
centers) are allocated to other cost centers (both other general
service cost centers and revenue producing cost centers). Worksheets B,
Part I, and B-1 have been designed to accommodate the stepdown method
of cost finding described at 42 CFR 413.24(d)(1). Certain other cost
adjustments, referred to as post-stepdown adjustments, occur after the
allocation of indirect and overhead costs and are reported separately
on Worksheet B-2.
On November 17, 2017, CMS issued Transmittal 12, which contained
updates to the hospital cost report instructions at CMS-2552-10, Pub.
15-2, chapter 40. It added the following instructions to line 19 of
Worksheet A-8:
Line 19--For each NAHE program on Worksheet A, line 20, and its
subscripts, and Worksheet A, line 23, and its subscripts, enter the
revenue adjustments (for tuition, fees, books, etc.) to be applied
against total allowable costs that are directly related to the approved
NAHE activities. Subscript this line to separately report the revenue
offset for each NAHE program reported on line 20 and line 23. (See CMS
Pub. 15-1, chapter 4, Sec. 414, and 42 CFR 413.85(d)(2)(i).)
Transmittal 12 also added to Worksheet B-2 specific instructions
for post-stepdown adjustments for certain costs associated with NAHE
non-provider-operated programs under 42 CFR 413.85(g)(2), with the
following note:
Note: Do not use this worksheet to reduce the total allowable costs
that are directly related to the NAHE programs by the revenue received
from tuition and student fees. Use Worksheet A-8 to offset NAHE program
costs by tuition and student fees (42 CFR 413.85(d)(2)(i)). Do not use
a post step-down adjustment.
By issuing these cost report clarifications in Transmittal 12, CMS
was clarifying the rules regarding ensuring the appropriate order of
operations for allocations and post-stepdown adjustments of overhead to
the NAH education pass-through cost centers. Specifically, Transmittal
12 made it clear that adjustments to the direct costs of NAH education
programs as a result of revenue received from tuition, student fees and
other sources should occur on Worksheet A-8, prior to the allocation of
overhead costs, and not as post-stepdown adjustments on Worksheet B-2.
On February 9, 2024, the U.S. District Court for the District of
Columbia (DC) issued a decision involving five plaintiff hospitals
(Mercy Health--St. Vincent Medical Center LLC d/b/a Mercy St. Vincent
Medical Center, et al., v. Xavier Becerra, 717 F.Supp.3d 33 (D.D.C.
2024)). The providers disputed the order of operations for determining
``net costs'' under 42 CFR 413.85(d)(2)(i). The providers disagreed
with the instructions in Transmittal 12, and argued that the offsets
for revenue from tuition and student fees should be made after indirect
costs are allocated, using Worksheet B-2, which follows the allocation
of indirect costs on
[[Page 36921]]
Worksheet B, Part I. According to the providers, the regulations
require that indirect costs be included as part of a provider's total
allowable educational costs before tuition and student fees are offset,
and the change to the cost reporting instructions in 2017 was a change
in policy that conflicts with the regulations.
The U.S. District Court for D.C. sided with the providers, arguing
that the plain reading of the regulations text at 42 CFR
413.85(d)(2)(i) is consistent with the providers' interpretation of the
order of operations, which is to allow direct and indirect costs to be
summed, and tuition and fees to be subtracted from that sum. In the FY
2026 IPPS/LTCH PPS proposed rule (90 FR 18280 through 18282), we stated
that we disagree with the Court's ruling and asserted that the cost
report instructions at PRM 15-2 sec. 4016 are clear that revenue that
is a recovery of expenses should be offset via Worksheet A-8, prior to
the allocation of indirect costs, and that these instructions are
consistent with the regulations and Medicare cost reporting policy
broadly.
Nevertheless, to further clarify the regulations, we proposed to
change the regulations text at 42 CFR 413.85(d)(2)(i) to state that the
net cost of approved educational activities is determined as follows:
Determine allowable direct costs incurred by the provider
for trainee stipends and compensation of teachers employed by the
provider.
Subtract from allowable direct costs the revenues the
provider receives from students or on behalf of students enrolled in
the program, such as, but not limited to, tuition, student fees, or
textbooks purchased for resale.
Add indirect costs of the activities as determined under
the Medicare cost-finding principles in 42 CFR 413.24, but limited to
indirect costs that the provider itself incurs as a consequence of
operating the approved educational activities.
We noted that as a result of this proposal, we would be modifying
and moving the first sentence of existing 42 CFR 413.85(d)(2)(ii),
which defines a provider's total allowable educational costs as those
costs incurred by the provider for trainee stipends, compensation of
teachers, and other costs of the activities as determined under the
Medicare cost-finding principles in Sec. 413.24, up to proposed 42 CFR
413.85(d)(2)(i). However, we did not propose to revise the portion of
existing regulations text at 42 CFR 413.85(d)(2)(ii) which states that
the direct and indirect allowable costs of educational activities do
not include patient care costs, costs incurred by a related
organization, or costs that constitute a redistribution of costs from
an educational institution to a provider or costs that have been or are
currently being provided through community support.
The effective date of this proposed regulatory change would have
been cost reporting periods beginning on or after October 1, 2025.
We received many comments in opposition to our proposal to
determine the net cost of approved nursing and allied health education
programs by deducting tuition and other revenue from direct costs prior
to the allocation of indirect costs. Commenters objected that the
proposed policy is inconsistent with general cost-finding principles
and would result in the NAH cost centers receiving less than their
share of institutional overhead. We thank the commenters for their
feedback. Due to the number and nature of the comments that we
received, and after further consideration of this issue, we have
decided not to finalize changes to our existing policy in this final
rule. We expect to revisit the treatment of NAH education costs in
future rulemaking and we encourage interested parties to submit
comments on any proposed policy changes at that time.
H. Payment Adjustment for Certain Immunotherapy Cases (Sec. Sec.
412.85 and 412.312)
Effective for FY 2021, we created MS-DRG 018 for cases that include
procedures describing CAR T-cell therapies, which were reported using
ICD-10-PCS procedure codes XW033C3 or XW043C3 (85 FR 58599 through
58600). Effective for FY 2022, we revised MS-DRG 018 to include cases
that report the procedure codes for CAR T-cell and non-CAR T-cell
therapies and other immunotherapies (86 FR 44798 through 448106).
Effective for FY 2021, we modified our relative weight methodology
for MS-DRG 018 to develop a relative weight that is reflective of the
typical costs of providing CAR T-cell therapies relative to other IPPS
services. Specifically, under our finalized policy we do not include
claims determined to be clinical trial claims that group to MS-DRG 018
when calculating the average cost for MS-DRG 018 that is used to
calculate the relative weight for this MS-DRG, with the additional
refinements that: (a) when the CAR T-cell therapy product is purchased
in the usual manner, but the case involves a clinical trial of a
different product, the claim will be included when calculating the
average cost for MS DRG 018 to the extent such claims can be identified
in the historical data; and (b) when there is expanded access use of
immunotherapy, these cases will not be included when calculating the
average cost for MS-DRG 018 to the extent such claims can be identified
in the historical data (85 FR 58600). The term ``expanded access''
(sometimes called ``compassionate use'') is a potential pathway for a
patient with a serious or immediately life-threatening disease or
condition to gain access to an investigational medical product (drug,
biologic, or medical device) for treatment outside of clinical trials
when, among other criteria, there is no comparable or satisfactory
alternative therapy to diagnose, monitor, or treat the disease or
condition (21 CFR 312.305).\164\
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\164\ https://www.fda.gov/news-events/expanded-access/expanded-access-keywords-definitions-and-resources.
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Effective FY 2021, we also finalized an adjustment to the payment
amount for applicable clinical trial and expanded access immunotherapy
cases that group to MS-DRG 018 using the same methodology that we used
to adjust the case count for purposes of the relative weight
calculations (85 FR 58842 through 58844). (As previously noted,
effective beginning FY 2022, we revised MS-DRG 018 to include cases
that report the procedure codes for CAR T-cell and non-CAR T-cell
therapies and other immunotherapies (86 FR 44798 through 448106).)
Specifically, under our finalized policy we apply a payment adjustment
to claims that group to MS-DRG 018 and include ICD-10-CM diagnosis code
Z00.6, with the modification that when the CAR T-cell, non-CAR T-cell,
or other immunotherapy product is purchased in the usual manner, but
the case involves a clinical trial of a different product, the payment
adjustment will not be applied in calculating the payment for the case.
We also finalized that when there is expanded access use of
immunotherapy, the payment adjustment will be applied in calculating
the payment for the case. This payment adjustment is codified at 42 CFR
412.85 (for operating IPPS payments) and 412.312 (for capital IPPS
payments), for claims appropriately containing Z00.6, as described
previously, and reflects that the adjustment is also applied for cases
involving expanded access use immunotherapy, and that the payment
adjustment only applies to applicable clinical trial cases; that is,
the adjustment is not applicable to cases where the CAR T-cell, non-CAR
T-cell, or other immunotherapy product is
[[Page 36922]]
purchased in the usual manner, but the case involves a clinical trial
of a different product. The regulations at 42 CFR 412.85(c) also
specify that the adjustment factor will reflect the average cost for
cases to be assigned to MS-DRG 018 that involve expanded access use of
immunotherapy or are part of an applicable clinical trial to the
average cost for cases to be assigned to MS-DRG 018 that do not involve
expanded access use of immunotherapy and are not part of a clinical
trial (85 FR 58844).
For FY 2026, we proposed to continue to apply an adjustment to the
payment amount for expanded access use of immunotherapy and applicable
clinical trial cases that group to MS-DRG 018, calculated using the
same methodology, as modified in the FY 2024 IPPS/LTCH PPS final rule
(88 FR 59062), that we proposed to use to adjust the case count for
purposes of the relative weight calculations, including our proposed
modifications to that methodology for FY 2026, as described in section
II.D. of the preamble of this final rule.
As discussed in the FY 2024 IPPS/LTCH PPS final rule, the MedPAR
claims data now includes a field that identifies whether or not the
claim includes expanded access use of immunotherapy. For the FY 2023
MedPAR data and for subsequent years, this field identifies whether or
not the claim includes condition code 90. The MedPAR files now also
include information for claims with the payer-only condition code
``ZC'', which is used by the IPPS Pricer to identify a case where the
CAR T-cell, non-CAR T-cell, or other immunotherapy product is purchased
in the usual manner, but the case involves a clinical trial of a
different product so that the payment adjustment is not applied in
calculating the payment for the case (for example, see Change Request
11879, available at https://www.cms.gov/files/document/r10571cp.pdf).
We refer the readers to section II.D. of this final rule for further
discussion of our methodology for identifying clinical trial claims and
expanded access use claims in MS-DRG 018 and our methodology used to
adjust the case count for purposes of the relative weight calculations,
as modified in the FY 2024 IPPS/LTCH PPS final rule, and as further
proposed to be modified for FY 2026 to identify other claims for which
the immunotherapy product was not purchased in the usual manner, such
as obtained at no cost.
In the FY 2025 IPPS/LTCH PPS final rule, we summarized a comment
requesting that CMS establish a mechanism for hospitals to report when
a product is not purchased in the usual manner, such as obtained at no
cost, for reasons other than participation in a clinical trial or
expanded access use (89 FR 69112). We indicated we may consider this
request in future rulemaking. We agree that the same adjustment that
applies to expanded access use of immunotherapy and applicable clinical
trial cases should apply to other cases where the immunotherapy product
is not purchased in the usual manner, such as obtained at no cost, and
therefore proposed that, beginning in FY 2026, the payment adjustment
would also be applied in calculating the payment for such cases. We
intend to issue billing instructions in separate guidance that would
allow a provider to indicate, for that case, that the immunotherapy
product was not purchased in the usual manner so that MACs would apply
the same adjustment to the payment amount that is applied for expanded
access use of immunotherapy and applicable clinical trial cases that
group to MS-DRG 018. We also proposed to modify our regulations at 42
CFR 412.85 (for operating IPPS payments) and 412.312 (for capital IPPS
payments) to codify this proposed payment adjustment for other cases
where the immunotherapy product is not purchased in the usual manner,
such as obtained at no cost. Specifically, we proposed to modify the
section heading and paragraphs (b) and (c) at 42 CFR 412.85 to include
other cases where the immunotherapy product is not purchased in the
usual manner, such as obtained at no cost, and to make additional
technical revisions to paragraph (c). We also proposed to modify
paragraph (f) at 42 CFR 412.312 to include cases where the
immunotherapy product is not purchased in the usual manner, such as
obtained at no cost.
We also refer readers to section II.D. of the preamble of this
final rule for further discussion of our proposed and finalized changes
to our methodology for calculating the relative weight for MS-DRG 018
to identify other cases where the immunotherapy product is not
purchased in the usual manner, such as obtained at no cost and to
adjust the case count for purposes of the relative weight calculations.
Using the same methodology that we proposed to use to adjust the
case count for purposes of the relative weight calculations, including
our proposed modifications as discussed in section II.D. of the
preamble of this final rule, we proposed to calculate the adjustment to
the payment amount for expanded access use of immunotherapy, applicable
clinical trial cases, and other cases where the immunotherapy product
is not purchased in the usual manner, such as obtained at no cost as
follows:
Calculate the average cost for cases assigned to MS-DRG
018 that (a) contain ICD-10-CM diagnosis code Z00.6 and do not contain
condition code ``ZC'', (b) contain condition code ``90'', or (c)
contain standardized drug charges below the median standardized drug
charge of clinical trial cases in MS-DRG 018.
Calculate the average cost for all other cases assigned to
MS-DRG 018.
Calculate an adjustor by dividing the average cost
calculated in step 1 by the average cost calculated in step 2.
Apply this adjustor when calculating payments for expanded
access use of immunotherapy, applicable clinical trial cases, and other
cases where the immunotherapy product is not purchased in the usual
manner, such as obtained at no cost, that group to MS-DRG 018 by
multiplying the relative weight for MS-DRG 018 by the adjustor.
We refer the readers to section II.D. of the preamble of this final
rule for further discussion of our methodology.
Consistent with our calculation of the proposed adjustor for the
relative weight calculations, for the proposed rule we proposed to
calculate this adjustor based on the December 2024 update of the FY
2024 MedPAR file for purposes of establishing the FY 2026 payment
amount. Specifically, in accordance with proposed revised 42 CFR 412.85
(for operating IPPS payments) and 412.312 (for capital IPPS payments),
we proposed to multiply the FY 2026 relative weight for MS-DRG 018 by a
proposed adjustor of 0.23 as part of the calculation of the payment for
claims determined to be applicable clinical trial claims, expanded
access use immunotherapy claims, or other cases where the immunotherapy
product is not purchased in the usual manner, such as obtained at no
cost, that group to MS-DRG 018, which includes CAR T-cell and non-CAR
T-cell therapies and other immunotherapies. We also proposed to update
the value of the adjustor based on more recent data for the final rule.
We did not receive any comments specifically relating to the
proposed payment adjustment for applicable clinical trial cases,
expanded access use immunotherapy cases, and other cases where the
immunotherapy product is not purchased in the usual manner, such as
obtained at no cost, and are therefore finalizing our proposal without
modification. We are also finalizing our proposed modifications to our
regulations at 42 CFR 412.85 and
[[Page 36923]]
412.312 to codify this payment adjustment for other cases where the
immunotherapy product is not purchased in the usual manner, such as
obtained at no cost, without modification. We are also finalizing our
proposal to update the value of this adjustor based on more recent data
for this final rule. Therefore, using the March 2025 update of the FY
2024 MedPAR data, we are finalizing an adjustor of 0.16 for FY 2026,
which will be multiplied by the final FY 2026 relative weight for MS-
DRG 018 as part of the calculation of the payment for claims determined
to be applicable clinical trial cases, expanded use access
immunotherapy claims, and other cases where the immunotherapy product
is not purchased in the usual manner, such as obtained at no cost, that
group to MS-DRG 018.
K. Hospital Readmissions Reduction Program Updates and Changes
1. Regulatory Background
Section 1886(q) of the Act sets forth the requirements of the
Hospital Readmissions Reduction Program effective for discharges from
applicable hospitals beginning on or after October 1, 2012. Under the
Hospital Readmissions Reduction Program, payments to applicable
hospitals must be reduced to account for certain excess readmissions.
We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80 FR 49530
through 49543) and the FY 2018 IPPS/LTCH PPS final rule (82 FR 38221
through 38240) for a general overview of the Hospital Readmissions
Reduction Program. We also refer readers to 42 CFR 412.152 through
412.154 for codified Hospital Readmissions Reduction Program
requirements.
2. Hospital Readmissions Reduction Program Measures
a. Integration of Medicare Advantage (MA) Beneficiaries Into the
Cohorts of the Hospital Readmissions Reduction Program Measure Set
Beginning With the FY 2027 Program Year
(1) Background
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18283 through
18286), we proposed to adopt substantive updates to the Hospital 30-
Day, All-Cause, Risk-Standardized Readmission Rate (RSRR) Following
Acute Myocardial Infarction (AMI) Hospitalization; Hospital 30-Day,
All-Cause, RSRR Following Heart Failure (HF) Hospitalization; Hospital
30-Day, All-Cause, RSRR Following Pneumonia (PN) Hospitalization;
Hospital-Level, 30-Day, All-Cause, RSRR Following Chronic Obstructive
Pulmonary Disease (COPD) Hospitalization; Hospital 30-Day, All-Cause,
RSRR Following Total Hip Arthroplasty (THA) and Total Knee Arthroplasty
(TKA) Hospitalization; and Hospital 30-Day, All-Cause, RSRR Following
Coronary Artery Bypass Graft (CABG) Surgery measures, hereinafter
referred to as the Hospital Readmissions Reduction Program measure set,
beginning with the FY 2027 Program Year. The proposed updates to the
Hospital Readmissions Reduction Program measure set would include
integrating MA beneficiaries into each measure's cohorts and reducing
the applicable period from a three-year period to a two-year period. In
addition, we proposed to make a non-substantive modification; we would
update the risk adjustment model to use individual International
Classification of Diseases (ICD)-10 codes instead of Hierarchical
Condition Categories (HCCs). For the purposes of describing the
substantive change of the Hospital Readmissions Reduction Program
measure set, we note that ``cohort'' is defined as the
hospitalizations, or ``index admissions,'' that are included when
calculating each measure. This cohort is the set of hospitalizations
that meet all the inclusion and exclusion criteria. For measure cohort
details of the most recent versions of the Hospital Readmissions
Reduction Program measure set, we refer readers to the measure
methodology report and measure risk adjustment statistical model on our
website at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology.
Including MA beneficiaries in hospital outcome measures would help
ensure that hospital quality would be measured across all Medicare
beneficiaries and not just the Fee-For-Service (FFS) population. In
2024, 50 percent of eligible Medicare beneficiaries--or 34.3 million
people--were covered by MA plans.\165\ It is projected that nearly two-
thirds of all Medicare enrollees will be enrolled in MA plans by
2030.\166\ Consequently, using FFS-only beneficiaries may exclude a
large segment of the focus population for quality measurement.
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\165\ Centers for Medicaid & Medicare Services. Medicare
Enrollment for September 2024 (Accessed on February 5, 2025).
Available at: https://data.cms.gov/tools/medicare-enrollment-dashboard.
\166\ Hale J, Hong N, Hopkins B, et al. (2024) Health Insurance
Coverage Projections for the US Population and Sources of Coverage,
by Age, 2024-34. Health Affairs. 43(7); 922-932. https://doi.org/10.1377/hlthaff.2024.00460.
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Additionally, studies comparing readmission rates between MA and
FFS-only have shown mixed results. While several studies report lower
readmissions for MA enrollees,167 168 others have found no
difference or even higher risk-adjusted readmission rates for certain
conditions.169 170 Due to these differing research study
conclusions, adding the MA cohort to the Hospital Readmissions
Reduction Program measures would allow for a more robust and holistic
view of quality of care provided to all Medicare beneficiaries.\171\
Most importantly, the FFS and MA data in our hospital outcome measures
would empower patients and caregivers to make informed decisions about
their healthcare by giving them additional comparative data on
hospitals.
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\167\ Jacobs PD, Basu J. Medicare Advantage and Post discharge
Quality: Evidence From Hospital Readmissions. American Journal of
Managed Care, 2020;26(12):524-529. Available at: https://www.ajmc.com/view/medicare-advantage-and-postdischarge-quality-evidence-from-hospital-readmissions.
\168\ Huckfeldt PJ, Escarce JJ, Rabideau B, et al. Less Intense
Postacute Care, Better Outcomes for Enrollees in Medicare Advantage
Than Those in Fee-For-Service. Health Affairs. 2017;26(1):91-100.
https://doi.org/10.1377/hlthaff.2016.1027.
\169\ Yayac MF, Harrer SL, Janiec DA, et al. Costs and Outcomes
of Medicare Advantage and Traditional Medicare Beneficiaries After
Total Hip and Knee Arthroplasty. Journal of American Academy of
Orthopedic Surgeons. 2020;28(20):e910-e916. https://doi.org/10.5435/JAAOS-D-19-00609.
\170\ Henke RM, Karaca Z, Gibson TB, et al. Medicare Advantage
and Traditional Medicare Hospitalization Intensity and Readmissions.
Medical Care Research and Review. 2018;75(4):434-453. https://doi.org/10.1177%2F1077558717692103.
\171\ Panagiotou OA, Kumar A, Gutman R, et al. Hospital
Readmission Rates in Medicare Advantage and Traditional Medicare: A
Retrospective Population-Based Analysis. Annals of Internal
Medicine. 2019;171(2):99-106. https://doi.org/10.7326/M18-1795.
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(2) Overview of Measure Updates
We refer readers to the CMS Measures Inventory Tool and Hospital
Readmissions Reduction Program readmission measures specification
manuals for more information on the Hospital Readmissions Reduction
Program measure set, including background on each measure and a
complete summary of measure specifications.172 173
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\172\ CMS Measures Inventory Tool. Available at: https://cmit.cms.gov/cmit/#.
\173\ CMS Quality Net. Available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology.
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We proposed to adopt updates to the Hospital Readmissions Reduction
Program measure set in the Hospital Readmissions Reduction Program
beginning with the FY 2027 program year. The newly refined versions of
the Hospital Readmissions Reduction
[[Page 36924]]
Program measure set would expand the measures' inclusion criteria to
include MA beneficiaries. Currently, the measure denominator for the
Hospital Readmissions Reduction Program measure set includes
beneficiaries ``Enrolled in Medicare FFS Part A and Part B for the
first 12 months prior to the date of admission and enrolled in Part A
during the index admission.'' \174\ We proposed to modify the measure
cohort to ``Enrolled in Medicare FFS and/or MA for the 12 months prior
to the date of admission; and enrolled in FFS or MA during the index
admission.'' \175\ The addition of MA data to the measure doubles the
cohort size and more accurately reflects the quality of care for both
FFS and MA beneficiaries.
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\174\ CMS Measures Inventory Tool. Available at: https://cmit.cms.gov/cmit/#.
\175\ 2024 Measures Under Consideration List. Available at:
https://mmshub.cms.gov/2024/2024-11/2024-measures-under-consideration-list-now-available.
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We are also providing a non-substantive update which would re-
specify the risk model for each measure to primarily use individual
ICD-10 codes, leveraging the specificity of individual ICD-10 coding in
place of the previously used HCCs. This technical update would improve
the performance of the risk adjustment models for condition- and
procedure-specific mortality and complication measures.\176\ We refer
readers to QualityNet for more on the list of ICD-10 codes used in the
risk adjustment model, available at: https://qualitynet.cms.gov/inpatient/measures/readmission/resources.\177\
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\176\ Krumholz HM, Coppi AC, Warner F, et al. Comparative
effectiveness of new approaches to improve mortality risk models
from Medicare claims data. JAMA Network Open. 2019;2(7):e197314-
e197314 Available at: https://pmc.ncbi.nlm.nih.gov/articles/PMC6647547/.
\177\ In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18284),
we referred readers to the CMS Measures Management System, available
at: https://mmshub.cms.gov/measure-lifecycle/measure-implementation/pre-rulemaking/lists-and-reports/2024-MUC-List-materials for the
list of ICD-10 codes used. Subsequently, we issued a correction
notice, available at 90 FR 23867.
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(3) Pre-Rulemaking Process and Measure Endorsement
(a) Recommendation From the PRMR Process
We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR
69457 through 69458) for details on the Pre-Rulemaking Measure Review
(PRMR) process, including the voting procedures that the PRMR process
uses to reach consensus on measure recommendations. The PRMR Hospital
Committee, comprised of the PRMR Hospital Advisory Group and PRMR
Hospital Recommendation Group, reviewed the proposed updated versions
of the Hospital Readmissions Reduction Program measure set. Consensus
is reached when there is 75 percent or higher agreement among members
of a committee.\178\ The PRMR Hospital Recommendation Group reviewed
the proposed updated Hospital Readmissions Reduction Program measure
set specifications (MUC2024-030, MUC2024-032, MUC2024-040, MUC2024-041,
MUC2024-045, MUC2024-046) during a meeting on January 16, 2025, to vote
on a recommendation about use of these measures for the Hospital
Readmissions Reduction Program.\179\
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\178\ Battelle--Partnership for Quality Measurement. (February
2025). Guidebook of Policies and Procedures for Pre-Rulemaking
Measure Review (PRMR) and Measure Set Review (MSR). Available at:
https://p4qm.org/sites/default/files/2024-12/Final-Draft-Multi-Stakeholder-Group-Guidebook-of-Policies-and-Procedures.pdf.
\179\ Battelle--Partnership for Quality Measurement. (February
2025). PRMR 2024 MUC Recommendations Spreadsheet Final. Available
at: https://p4qm.org/PRMR/Resources.
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The PRMR Hospital Recommendation Group reached consensus for each
of the measures. For each measure, they voted to recommend the addition
of MA data to each measure, with conditions.\180\
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\180\ Battelle--Partnership for Quality Measurement. (February
2025). PRMR 2024 MUC Recommendations Spreadsheet Final. Available
at: https://p4qm.org/media/3891.
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The voting results of the PRMR Hospital Recommendation Group for
the proposed updates to the Hospital 30-Day, All-Cause, RSRR Following
AMI Hospitalization measure were: 18 members of the group recommended
adopting the updates without conditions; 9 members recommended adoption
with conditions; and 0 members voted not to recommend the updates for
adoption. Taken together, 100 percent of the votes were between
``recommend'' and ``recommend with conditions.'' Thus, the committee
reached consensus and recommended with conditions the updates to the
Hospital 30-Day, All-Cause, RSRR Following AMI Hospitalization measure.
The voting results of the PRMR Hospital Recommendation Group for
the proposed updates to the Hospital 30-Day, All-Cause, RSRR Following
HF Hospitalization measure were: 17 members of the group recommended
adopting the updates without conditions; 10 members recommended
adoption with conditions; and 0 members voted not to recommend the
updates for adoption. Taken together, 100 percent of the votes were
between ``recommend'' and ``recommend with conditions.'' Thus, the
committee reached consensus and recommended with conditions the updates
to the Hospital 30-Day, All-Cause, RSRR Following HF Hospitalization
measure.
The voting results of the PRMR Hospital Recommendation Group for
the proposed updates to the Hospital-Level, 30-Day, All-Cause, RSRR
Following COPD Hospitalization measure were: 18 members of the group
recommended adopting the updates without conditions; 9 members
recommended adoption with conditions; and 0 members voted not to
recommend the updates for adoption. Taken together, 100 percent of the
votes were between ``recommend'' and ``recommend with conditions.''
Thus, the committee reached consensus and recommended with conditions
the updates to the Hospital-Level, 30-Day, All-Cause, RSRR Following
COPD Hospitalization measure.
The voting results of the PRMR Hospital Recommendation Group for
the proposed updates to the Hospital 30-Day, All-Cause, RSRR Following
THA and/or TKA Hospitalization measure were: 19 members of the group
recommended adopting the updates without conditions; 7 members
recommended adoption with conditions; and 1 member voted not to
recommend the updates for adoption. Taken together, 96 percent of the
votes were between ``recommend'' and ``recommend with conditions.''
Thus, the committee reached consensus and recommended with conditions
the updates to the Hospital 30-Day, All-Cause, RSRR Following THA and/
or TKA Hospitalization measure.
The voting results of the PRMR Hospital Recommendation Group for
the proposed updates to the Hospital 30-Day, All-Cause, RSRR Following
PN Hospitalization measure were: 17 members of the group recommended
adopting the updates without conditions; 10 members recommended
adoption with conditions; and 0 members voted not to recommend the
updates for adoption. Taken together, 100 percent of the votes were
between ``recommend'' and ``recommend with conditions.'' Thus, the
committee reached consensus and recommended with conditions the updates
to the Hospital 30-Day, All-Cause, RSRR Following PN Hospitalization
measure.
The voting results of the PRMR Hospital Recommendation Group for
the proposed updates to the Hospital 30-Day, All-Cause, RSRR Following
CABG Surgery measure were: 19 members of the group recommended adopting
the updates without conditions; 8 members
[[Page 36925]]
recommended adoption with conditions; and 0 members voted not to
recommend the updates for adoption. Taken together, 100 percent of the
votes were between ``recommend'' and ``recommend with conditions.''
Thus, the committee reached consensus and recommended with conditions
the updates to the Hospital 30-Day, All-Cause, RSRR Following CABG
Surgery measure.
The measure set was discussed as a group during the Hospital
Recommendation Group meeting, with committee members providing
recommendations that spanned across measures. The conditions submitted
included: revising the inclusion criteria to include care provided in
ambulatory settings; stratification of measure data by MA and FFS;
consideration of a shorter 7- or 14-day readmission time period; and
conducting additional testing to evaluate whether the measure is topped
out for all subgroups reporting.
After taking these conditions into account, we proposed to adopt
the updated Hospital Readmissions Reduction Program measure set in the
Hospital Readmissions Reduction Program. We note that the conditions
were not specific to the addition of MA data into the measures but
addressed the measures in totality. Therefore, we will review the
applicability of stratifying the measures by MA or FFS data and provide
that information through the confidential feedback reports for
hospitals. We will also evaluate a shorter 7- or 14-day readmission
time period and review the criteria to include care provided in
ambulatory settings and its applicability to each measure. We continue
to review each measure's topped out status through our internal measure
evaluation reports.
(b) Measure Endorsement
We refer readers to FY 2025 IPPS/LTCH PPS final rule (89 FR 69457
through 69458) for details on the endorsement and maintenance (E&M)
process including the procedures the CBE's E&M Committees use to
evaluate measures and whether they meet endorsement criteria. The
currently implemented version of these measures in the Hospital
Readmissions Reduction Program were previously evaluated and endorsed
by the CBE.\181\ The proposed updated measures that include MA
beneficiaries in the patient cohorts will each be considered for future
endorsement.
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\181\ Hospital 30-Day, All-Cause, RSRR Following PN
Hospitalization (CBE #0506), Hospital 30-Day, All-Cause, RSRR
Following HF Hospitalization (CBE #0330), Hospital 30-Day, All-
Cause, RSRR Following THA and/or TKA Hospitalization (CBE #1551),
Hospital 30-Day, All-Cause, RSRR Following CABG Surgery (CBE #2515),
Hospital-Level, 30-Day, All-Cause, RSRR Following COPD
Hospitalization (CBE #1891), and Hospital 30-Day, All-Cause, RSRR
Following AMI Hospitalization (CBE #0505) can all be found at
https://cmit.cms.gov/cmit/#/MeasureInventory.
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(4) Data Submission and Reporting
The proposed updated Hospital Readmissions Reduction Program
measure set would use index admission diagnoses and in-hospital
comorbidity data from Medicare FFS Part A, hospital-submitted MA
claims, and MAO-submitted encounter data. Additional comorbidities
prior to the index admission are assessed using Part A and Part B
Medicare claims and/or MA encounters in the 12 months prior to index
(initial) admission. A patient's Medicare FFS or MA enrollment status
would be obtained from the Medicare enrollment data which contains
beneficiary demographic, benefit/coverage, and vital status
information. We proposed to use claims and encounter data with
admission dates beginning from July 1, 2023, through June 30, 2025,
which is associated with the FY 2027 program year. By using CMS
administrative data, hospitals would not be required to submit
additional data for calculating the measures. If these measure updates
are finalized, we would continue to publicly report readmission rates
by posting the readmission measure results for the applicable
conditions for a fiscal year for each applicable hospital on the
Compare tool or successor website(s), currently available at https://www.medicare.gov/care-compare/, and on the Provider Data Catalog,
available at https://data.cms.gov/provider-data/, as codified at Sec.
412.154(f).
We invited public comment on this proposal.
Comment: Many commenters supported the inclusion of MA
beneficiaries into the Hospital Readmissions Reduction Program measure
set stating that inclusion would result in a fairer, more
representative evaluation of hospital performance; improve data
accuracy and timeliness; and align with broader initiatives in value-
based care. Commenters stated that this inclusion enhances
representativeness and fairness by creating a more comprehensive view
of the Medicare population since MA beneficiaries comprise a growing
share of Medicare beneficiaries. A commenter supported the inclusion
because the PRMR Hospital Committee reviewed and supported these
changes.
Response: We thank these commenters for their support.
Comment: A few commenters recommended that CMS stratify performance
results by payer type, which would allow comparison of performance
between MA and FFS populations. A commenter stated that stratification
by payer would allow analysis of the effects of MA plan design on
readmissions rates. Some elements of MA plan design cited by the
commenter were a limited post-acute care network, a limited specialty
network, referral restrictions, and denials of post-acute care
coverage.
Response: We thank commenters for this recommendation. Consistent
with the recommendation from the PRMR Hospital Recommendation Group, we
intend to review the applicability of stratifying the measures by MA or
FFS data. We note that stratifying the model by FFS and MA did not
yield meaningful differences in performance, supporting the decision to
model them together with an indicator variable. Finally, keeping FFS
and MA patients together for purposes of this measure's calculation
will keep the hospitals' total volume higher for more reliable measure
scores. We would provide data regarding payer for hospitals to review
through annual confidential feedback reports provided as part of
participation in the Hospital Readmissions Reduction Program.
Comment: A commenter supported inclusion of index admissions for MA
beneficiaries in the measure cohorts but did not support stratifying by
Medicare FFS and MA data. This commenter stated that the measures were
not developed and have not been tested for reporting at the health plan
level.
Response: We understand the commenter's concern about potential
stratification of measure results and will consider whether the lack of
testing at the health plan level affects the applicability of
stratifying the measures by MA or FFS data. We would only make data
regarding payer available through the confidential feedback reports for
hospitals. Any potential public reporting of stratified measure data
would be through future notice-and-comment rulemaking.
Comment: Several commenters expressed concern that MA plans do not
follow the same readmission calculation methodologies and reimbursement
policies as traditional Medicare. These commenters recommended
requiring MA plans to adhere to traditional Medicare payment policies
prior to incorporating index admissions for MA beneficiaries into the
cohorts for Hospital Readmissions Reduction
[[Page 36926]]
Program measures. Commenters specifically expressed concern that MA
plans bundle multiple admissions into one or refuse to pay for
readmissions within defined windows which could result in hospitals
being penalized for events related to MA plan policies. Some commenters
requested clarification regarding whether admissions for which MA plans
denied payments would be excluded as readmissions for the purposes of
the Hospital Readmissions Reduction Program.
Response: We acknowledge commenters concerns regarding readmission
calculation methodologies and reimbursement policies differences
between MA plans and traditional Medicare. However, adding MA
beneficiaries into the cohorts of the Hospital Readmissions Reduction
Program measure set will provide a more robust and holistic view of
quality of care provided to all Medicare beneficiaries despite
reimbursement differences. For measure calculation, we identify index
admissions and subsequent admissions (that is, readmissions) for
patients enrolled in MA plans using MA encounter data and information-
only claims for MA inpatient stays. We note that neither of these data
sources are dependent on the MA plan's coverage determinations
(including bundling or denying coverage) for that admission. Therefore,
the measures would continue to encourage hospitals to focus on
preventing readmissions, which are often an adverse event for patients
and impose a financial burden on the patient and the healthcare system.
Because an increasing portion of Medicare beneficiaries are covered by
MA plans, including index admissions for these patients in our measure
cohorts is an important step in ensuring high-quality, safe care for
all Medicare beneficiaries. Including index admissions for Medicare
beneficiaries enrolled in MA also increases the cohort size for the
Hospital Readmissions Reduction Program measures, which in turn
improves the measures' precision for each hospital. Due to the benefits
of improving accuracy and reliability of the measures, we do not think
it is appropriate to exclude any readmissions for which MA plans may
have denied payment for the readmission if the administrative data
reflect that a readmission occurred.
Comment: A few commenters recommended the development of separate
or modified quality measures designed specifically for MA's capitated
payment model.
Response: While separate quality measures designed specifically for
MA's capitated payment model could be possible, the Hospital
Readmissions Reduction Program is designed to encourage hospitals to
improve communication and care coordination to better engage patients
and caregivers in discharge plans and, in turn, reduce avoidable
readmissions. As previously stated, adding the MA cohort to the
Hospital Readmissions Reduction Program measures would provide a more
robust and holistic view of quality of care provided to all Medicare
beneficiaries. Therefore, we find the addition of the MA cohort to the
Hospital Readmissions Reduction Program measures to further the
Hospital Readmissions Reduction Program goals.
Comment: A few commenters requested that CMS clarify whether
readmissions data regarding MA beneficiaries would be based on shadow
claims that hospitals submit to CMS or whether the MA plan would be
responsible for reporting readmissions.
Response: For determining readmissions for the Hospital
Readmissions Reduction Program, we would evaluate the detailed data
regarding enrollee health care encounters that MA plans are already
required to submit to CMS as well as the information-only claims that
hospitals submit (that is, ``shadow claims''). We would use index
admission diagnoses from Medicare FFS Part A claims and MA encounter
data as well as data from hospital inpatient information-only claims,
outpatient and physician Medicare FFS claims (information-only claims),
and MA encounter data from the 12 months prior to the index admission
to identify comorbidities for risk adjustments. We would use the MA
encounter data, information-only claims, and Medicare Part A claims to
identify index admissions and applicable readmissions such that neither
hospitals nor MA plans would be required to submit any additional data
for this cohort expansion.
Comment: Many commenters expressed concern that MA encounter data
are neither as complete nor as reliable as FFS claims, which they
stated could affect the fairness and accuracy of Hospital Readmissions
Reduction Program performance assessments. Some commenters expressed
concern that basing performance calculations on data which could be
incomplete or unreliable could cause financial or reputational harm to
hospitals. Some commenters noted that MedPAC and the Government
Accountability Office (GAO) have found that variations in coding
practices, historical discrepancies, and a lack of data validation have
impacted the completeness and reliability of MA encounter data. Some
commenters also stated that under the current Health Effectiveness Data
and Information Set (HEDIS) data submission requirements, MA plans are
not obligated to report all hospital readmissions, only those for which
they have approved payment, which could potentially undercount
readmissions for index admissions for beneficiaries enrolled in MA
plans.
Response: We refer readers to the Announcement of Calendar Year
(CY) 2022 Medicare Advantage (MA) Capitation Rates and Part C and Part
D Payment Policies where CMS discussed the efforts undertaken to
improve the completeness and validity of encounter data, and
transitioned to calculating 100 percent of the risk score using
diagnoses from encounter data and FFS (see discussion in Attachment
III, Sections G and M of this Announcement). We respectfully disagree
that the level of completeness of the MA data presents a significant
issue with regard to measure reliability. We have been evaluating the
MA data for use in quality measurement since 2017, and we note recent
CMS policies have aimed to improve timeliness, completeness, and
accuracy of MA data, thereby further enhancing its usability for
hospital outcome measures.182 183 Hospital-submitted MA
claims data are currently already in use for DSH and GME payment
calculations and Medicare Advantage Organization (MAO)-submitted
encounter data are currently already in use for calculating MA
beneficiary risk scores.\184\ In calculating both the Hybrid Hospital-
Wide All-Cause Readmission and Hybrid Hospital-Wide All-Cause Risk
Standardized Mortality measures in the Hospital Inpatient Quality
Reporting Program, we specify that for each MA admission, we would use
either the hospital-submitted MA claim or the
[[Page 36927]]
MAO-submitted MA encounter data record, whichever is available. If the
MA admission information for a patient is available in both sources, we
would use the hospital-submitted MA claim because it is timelier and
already associated with the applicable hospital's CMS Certification
Number (CCN).
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\182\ Centers for Medicare & Medicaid Services. Calendar Year
(CY) 2024 Advance Notice of Methodological Changes for Medicare
Advantage (MA) Capitation Rates and Part C and Part D Payment
Policies (the Advance Notice). Accessed March 5, 2023. Available
from: https://www.cms.gov/files/document/2024-advance-notice.pdf.
\183\ Medicare Payment Advisory Commission. March 2022 report to
the Congress: Medicare Payment Policy: The Medicare Advantage
program: Status Report and mandated report on dual-eligible special
needs plans. May 30, 2022. Available from: https://www.medpac.gov/wp-content/uploads/2022/03/Mar22_MedPAC_ReportToCongress_Ch12_SEC.pdf.
\184\ Medicare monthly enrollment data available at: https://data.cms.gov/summary-statistics-on-beneficiary-enrollment/medicare-and-medicaid-reports/medicare-monthly-enrollment
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More generally, we have found that incorporating data regarding MA
patients into the readmission measures improve reliability, narrow the
confidence intervals of measure scores, and lead to more hospitals and
beneficiaries being included in the measures. Based on internal
analyses of MA data reported to CMS by hospitals and MAOs for the years
2017 through 2021, we determined that it is feasible to use MA
admissions in CMS hospital outcome measures. Hospitals and MAOs submit
the data on a schedule that allows for their use. National Provider
Identifiers (NPIs) from inpatient MA encounter data in CMS' Integrated
Data Repository (IDR) can be matched to CMS CCNs currently used to
identify hospitals in the CMS outcome measures. A high percentage of MA
encounter data were submitted within the three-month time frame needed
for reporting hospital measures and has improved over time (90.3% in
2018 compared to 95.2% in 2021 for inpatient encounters for acute care
and critical access hospitals). Our internal analysis found a high rate
of matching diagnoses between the MAO-submitted MA encounter data and
the hospital-submitted MA claims, supporting the use of either data
source for a given admission for measure calculation As stated
previously, the measures will capture readmissions from information-
only hospital claims and/or MA encounter data regardless of whether the
plan paid for them or reported (or not reported) them in other
information sets, such as HEDIS.
Generally, while HEDIS evaluates the quality of care at the
population plan level where MA plans submit HEDIS-required data
elements to evaluate quality across the enrolled population, the
Hospital Readmissions Reduction Program uses fee-for-service claims,
hospital-submitted MA claims or the MAO-submitted MA encounter records
to calculate condition or procedure-specific hospital-level readmission
rates to hold hospitals directly accountable for excess readmission
rates. Essentially, HEDIS focuses on broad plan quality, while the
Hospital Readmissions Reduction Program focuses on condition- and
procedure-specific hospital outcomes at the facility-level. The
fundamental difference is that HEDIS measures evaluate how well MA
plans manage their members' overall health and care experience, while
the Hospital Readmissions Reduction Program condition- and procedure-
specific measures evaluate how well individual hospitals prevent
unnecessary readmissions after discharge.
Comment: Many commenters expressed concern about the proposal,
stating that MA beneficiaries experience different benefit designs,
network restrictions, utilization management requirements, and prior
authorization practices than beneficiaries covered under Medicare FFS.
Some commenters were also concerned that MA plan policies may affect
readmissions, leading to higher readmission rates, due to policies such
as restrictive formularies, denials or delays in home care services, or
limited specialist access. Commenters stated that this could cause
hospitals to be penalized for delays or denials that originate in MA
plan policies rather than from substandard hospital care.
Response: We recognize that Medicare Advantage payment policies are
not the same as Medicare FFS payment policies, and by design, MAOs are
given more flexibility in benefit and provider reimbursement design.
However, from a patient's perspective, a readmission is an adverse
outcome irrespective of benefit or payment policies. It is important to
measure and provide transparency as to readmission rates for all
Medicare beneficiaries. Using data from calendar year (CY) 2022 to
2023, internal analyses showed no statistical difference in the average
risk-standardized readmission rates (RSRR) across the condition- and
procedure-specific measures for the FFS-only and MA-only patients.
While we understand that MA enrollees are subject to different benefits
design and payment approaches than FFS enrollees, we do not agree that
these differences mean that their clinical outcomes are beyond the
hospital's control. We continue to encourage hospitals to work closely
with insurers, including MA plans, to coordinate the highest quality
care for their patients.
Comment: Some commenters requested that CMS communicate any shifts
in benchmarks, distributions, or penalty thresholds that result from
the inclusion of MA data. A few commenters also requested analysis of
the impact of including index admissions for beneficiaries enrolled in
MA plans in the measure cohort on hospital reimbursement, including
identification of regional and local trends.
Response: We note that there is no baseline or benchmark period
under the Hospital Readmissions Reduction Program. We will continue to
use excess readmission ratios (ERRs) to assess a hospital's excess
readmissions during the applicable period for each of the conditions or
procedures included in the program. The ERR is a measure of a
hospital's relative performance compared with an average hospital with
a patient case mix similar to that hospital's (that is, if patients
with the same characteristics had been treated at an average hospital,
rather than at that hospital).
Additionally, under the peer grouping methodology as required by
section 1886(q)(3)(D) of the Act, we assess hospitals' performance
relative to other hospitals with a similar proportion of stays for
beneficiaries who are dually eligible for Medicare and full Medicaid
benefits during the applicable period. Under the peer grouping
methodology, we use the peer group median ERR (that is, the median ERR
within a peer group) as the threshold to assess hospital performance on
each measure. We will continue to communicate information on peer
groups and peer group median ERRs during the Review and Correction
period.
Comment: Some commenters expressed concern that inclusion of index
admissions for MA beneficiaries in the measure cohort would
disproportionately affect hospitals in regions with high MA adoption
rates.
Response: Table VI.K-02 of this final rule displays a comparison of
hospital performance under the proposed updates to performance under
the current methodology. This table analyzes performance across a
number of hospital characteristics, including geographic region. The
table shows that the number of penalized hospitals increases moderately
(up to 7 percentage points) among all regions, with the exception of
hospitals in the West South Central and Mountain regions. Additionally,
although the penalty as a share of payments, which indicates the
estimated financial impact on hospitals, increases for hospitals in the
Middle Atlantic, East North Central, West North Central, and Pacific
regions, no region is disproportionately impacted by the addition of MA
beneficiaries in the measure cohort. With respect to the concern that
this update would disproportionately affect hospitals in regions with
high MA adoption rates, we note that MA beneficiaries comprise a
majority of Medicare enrollees (51.2 percent as of
[[Page 36928]]
March 2025 \185\) and that hospitals are responsible for providing high
quality care to all their patients, regardless of payer. We continue to
encourage hospitals to work closely with insurers, including MA plans,
to coordinate the highest quality care for their patients. By adding
the MA cohort to the Hospital Readmissions Reduction Program measures
we would provide a more robust and holistic view of quality of care
provided to all Medicare beneficiaries. We note that our analysis of
the mean risk-standardized readmission rates (RSRRs) using calendar
years (CYs) 2022 and 2023, the rates are similar between FFS-only and
MA-only patients for most conditions and procedures. The largest
difference was 0.5 percentage points for performance both on the
Hospital 30-Day, All-Cause, RSRR Following CABG Surgery measure and the
Hospital 30-Day, All-Cause, RSRR Following HF Hospitalization measure
(the results were statistically significant at the 0.05 level).\186\
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\185\ Medicare monthly enrollment data available at: https://data.coms.gov/summary-statistics-on-beneficiary-enrollment/medicare-and-medicaid-reports//medicare-monthly-enrollment.
\186\ CMS internal analysis. February 2025.
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Comment: A commenter requested clarification on when baseline
reports including the MA patient cohort data will be distributed.
Response: We assume the commenter is referring to baseline reports
such as are used in the Hospital VBP Program and note that the Hospital
Readmissions Reduction Program does not use baseline reports. For the
Hospital Readmissions Reduction Program, hospitals will receive annual
confidential feedback reports that include details such as a hospital's
payment reduction percentage, payment adjustment factors, dual
proportion, peer group assignment, measure results, ratio of base
operating DRG payments per measure to total payments, national
readmission rates, detailed discharge-level data, and risk factor
information for the readmission measures, and a flag to indicate
whether the index admission data originated from FFS or MA.
Comment: A few commenters requested CMS clarify how risk adjustment
methodologies will be adapted to account for differences in MA
populations and ensure that hospitals are not unfairly penalized.
Response: The risk adjustment for each readmission measure in the
Hospital Readmissions Reduction Program is based on patient
comorbidities as identified through an analysis of the admission
diagnoses and in-hospital comorbidity data as well as clinical data
(currently assessed from Medicare Part A and Part B claims) for the 12
months prior to the index admission. Under this updated measure cohort,
we would also include MA encounter data for the index admission and the
12 months prior to the index admission to identify clinical risk
factors to risk adjust the measures. Internal analyses showed that
stratification of the model by FFS and MA did not yield meaningful
differences in risk profiles. And as previously discussed, we saw
similar readmission rates between FFS-only and MA-only patients for
most conditions and procedures. Therefore, the clinical variables for
risk adjustment were identified through an analysis of a combined MA
and FFS cohort.\187\ This cohort was approximately evenly split between
FFS and MA beneficiaries, and the prevalence of clinical risk factors
and their associations with readmission outcomes were similar across
both groups. The final models also included an indicator for MA versus
FFS enrollment to adjust for any potential residual case-mix
differences between the two beneficiary groups.
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\187\ 2024 Condition- and Procedure-Specific Readmission
Measures Supplemental Methodology Report (available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology).
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Comment: A commenter expressed concern that the URL provided in the
proposed rule for the CMS Measures Management System does not actually
display the list of applicable ICD-10 codes used in the risk adjustment
model. The commenter requested that CMS clearly identify the location
or provide a document containing those ICD-10 codes so that
stakeholders may verify the standards underlying risk adjustment.
Response: The commenter is correct that the cited website did not
display the list of applicable ICD-10 codes used in the risk adjustment
model. We subsequently issued a correction notice to correctly refer
readers to the QualityNet website for a crosswalk between ICD-10 codes
and condition categories used for risk adjustment (90 FR 23867). This
crosswalk is available at: https://qualitynet.cms.gov/inpatient/measures/readmission/resources.
Comment: A few commenters stated that adding MA beneficiaries to
the Hospital Readmissions Reduction Program would likely increase
administrative burden on hospitals. Some commenters stated that the
incorporation of MA data would require significant updates to reporting
systems, staff training, and potentially new infrastructure, thereby
diverting resources from direct patient care.
Response: These measures will continue to be calculated using
administrative data already reported to CMS by hospitals and MA plans.
Therefore, we do not agree that hospitals would be required to invest
in reporting systems, staff training, or new infrastructure. In
addition, we note that MA plans have been using hospital readmission
measures and hospitals have been preparing for the addition of MA data
to several Hospital IQR Program measures, including the Hybrid
Hospital-Wide All-Cause Readmission and Hybrid Hospital-Wide All-Cause
Risk Standardized Mortality measures (88 FR 59161 through 59168) and
the Thirty-day Risk-Standardized Death Rate among Surgical Inpatients
with Complications measure (89 FR 69545 through 69552).
Comment: Many commenters recommended a phased implementation
approach with a confidential review period during which hospitals could
assess the data's accuracy and understand its impact on performance.
Some commenters further requested that CMS release detailed,
provider[hyphen]level data and analyses before final adoption of the
new methodology. A few commenters urged a phased rollout which
initially integrates MA data in quality reporting programs (such as the
Hospital IQR Program) rather than in pay-for-performance programs. A
few commenters recommended that CMS establish stakeholder workgroups to
harmonize definitions and reporting requirements across Medicare
populations.
Response: As discussed previously, several Hospital IQR Program
measures have integrated MA data similar to our proposal for the
Hospital Readmissions Reduction Program measure set. We are also
finalizing the integration of MA data for the Hospital-level Risk-
Standardized Complication Rate Following Elective Primary Total Hip
Arthroplasty and/or Total Knee Arthroplasty measure in the Hospital IQR
and Hospital VBP programs, as discussed in section X.C.3.b and
VI.L.2.a., respectively, of the preamble of this final rule. We note
that restricting the measure cohort to only include index admissions
for patients covered by Medicare FFS does not incentivize hospitals to
improve care-coordination for Medicare beneficiaries enrolled in MA
plans. Expanding the measure cohort to include index admissions for
this patient population will enable us to address this, and encourage
high-quality, safe care for all Medicare beneficiaries regardless of
[[Page 36929]]
payer. Therefore, we believe it is appropriate to include these index
admissions in the measure cohort as early as technically feasible. We
will continue to monitor and evaluate the effects of including these
data in the cohorts for the Hospital Readmissions Reduction Program
measures. We welcome continued input on harmonizing definitions and
reporting requirements to ensure that our quality programs serve the
largest number of patients possible.
Comment: A few commenters supported CMS's technical update to
transition from Hierarchical Condition Categories (HCCs) to
International Classification of Diseases (ICD)-10 codes, stating that
this would reduce incentives for upcoding and improve comparisons.
Another commenter stated that the transition would increase precision
and clinical relevance, particularly for high[hyphen]variability
conditions, as well as promote more accurate modeling and benchmarking,
potentially allowing for better differentiation between hospitals
serving complex and socially vulnerable patient populations.
Response: We thank commenters for their support.
Comment: A commenter expressed concern that removing key clinical
risk adjustment covariates from the Excess Readmission Ratio (ERR)
calculation would unfairly penalize hospitals that serve complex and
vulnerable populations. The commenter recommended retaining the current
clinical risk adjustment until Z-codes and comprehensive social risk
data are available to avoid unwarranted penalties. A commenter noted
that the projected increase in aggregate penalties may signal that the
program thresholds are too stringent or not sufficiently adjusted for
social risk.
Response: We note that the technical update does not remove risk
adjustment for the ERRs, rather the update transitions to the more
specific ICD-10-CM codes as opposed to the grouped HCC. This risk
adjustment continues to be based on patient-level comorbidities as
identified through an analysis of the admission diagnoses and in-
hospital comorbidity data as well as clinical data for the 12 months
prior to the index admission. The Hospital Readmissions Reduction
Program is intended to encourage high-quality, safe care for all
Medicare beneficiaries, and beginning in FY 2019, CMS used the peer
grouping methodology to evaluate a hospital's performance by assessing
hospitals' performance relative to the performance of other hospitals
with a similar proportion of stays for beneficiaries who are dually
eligible for Medicare and full Medicaid benefits. Our analysis of the
estimated impact of adding MA data to the readmission measures,
shortening the performance period to two years, the technical updates
to the measures, and adding MA data to the aggregate payments for each
condition/procedure and all discharges indicated that, while those
changes are likely to increase payment reductions, the addition of MA
data to the aggregate payments for each condition/procedure and all
discharges is the largest driver of payment reduction increases. Refer
to section VI.K.3.b.(1) for more detailed information about our
analysis.
Comment: Several commenters raised concerns about CMS's technical
update to base the risk adjustment model directly on individual ICD-10-
CM diagnosis codes instead of on HCC[hyphen]based variables for the
measures in the Hospital Readmissions Reduction Program. Some
commenters stated that this is inconsistent with CMS's continued use of
HCC models for some payment models. Some commenters expressed concern
that the transition to ICD-10-CM diagnosis codes could result in
unintended changes in reported outcomes, particularly for smaller,
rural, or safety net hospitals. Some commenters urged CMS either to
postpone the switch to an ICD-10-based model or to implement a
transition period during which both HCC and ICD[hyphen]10-based risk
models are reported to monitor impact. Some commenters requested that
CMS conduct clinical validations and implement rigorous testing and
consistent application of risk adjustment methodology across all
programs to ensure transparency and comparability. A commenter further
advised caution and transparency in model development, recommending
that CMS clearly document the rationale and process for ICD-10 code
selection and grouping.
Response: We note that individual ICD-10 codes are more specific
than HCCs. By re-specifying the risk models for each measure with
individual ICD-10 codes, we improve the performance of the risk
adjustment models for our condition- and procedure-specific measures.
We understand that some payment models continue to use HCC models to
calculate payments and note that because different programs are focused
on achieving different elements of our priorities, it is sometimes
appropriate to use different methods of calculating risk. We note that
we conduct annual measure re-evaluations to ensure that the risk-
standardized complication model is continually assessed and remains
valid, given possible changes in clinical practice and coding standards
over time.\188\ Modifications made to the measure cohort, risk model,
and outcomes are informed by review of the most recent literature
related to measure conditions or outcomes, feedback from various
stakeholders, empirical analyses, and assessment of coding trends that
reveal shifts in clinical practice or billing patterns.\189\ Input is
solicited from a workgroup composed of up to 20 clinical and measure
experts, inclusive of internal and external consultants and
subcontractors. As a part of annual re-evaluations, one of the
activities we undertook was reviewing select pre-existing ICD-10 code-
based specifications with our workgroup to confirm appropriateness
unaffected by the updates, as well as review any potentially clinically
relevant codes that ``neighbor'' existing codes used in the measure to
identify any warranted specification changes.\190\ As a part of our
routine monitoring and evaluation, we will watch for any unintended
consequences from this updated risk model.
---------------------------------------------------------------------------
\188\ Centers for Medicare & Medicaid Services. 2025 Condition-
Specific Readmission Measures Updates and Specifications Reports.
Available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology.
\189\ Ibid.
\190\ Ibid.
---------------------------------------------------------------------------
After consideration of the public comments we received, we are
finalizing our proposal to integrate Medicare Advantage (MA)
beneficiaries into the cohorts of the Hospital Readmissions Reduction
Program measure set beginning with the FY 2027 program year as
proposed.
b. Technical Updates to the Specifications of the Hospital Readmissions
Reduction Program Measures Beginning With the FY 2027 Program Year
During the COVID-19 public health emergency (PHE), in the FY 2022
IPPS/LTCH PPS final rule (86 FR 45256 through 45258), we updated the
Hospital 30-Day All-Cause RSRR Following AMI Hospitalization; Hospital
30-Day, All-Cause, RSRR Following CABG Surgery; Hospital-Level, 30-Day,
All-Cause, RSRR Following COPD Hospitalization; Hospital 30-Day, All-
Cause, RSRR Following HF Hospitalization; and Hospital 30-Day, All-
Cause, RSRR Following THA and/or TKA Hospitalization measures to
exclude patients diagnosed with COVID-19, including a primary or
secondary diagnosis present on admission (POA) of COVID-19, from both
index
[[Page 36930]]
admissions and readmissions (86 FR 45257 through 45258). In the FY 2023
IPPS/LTCH PPS final rule, we provided an update regarding the technical
specifications for the Hospital 30-Day, All-Cause, RSRR Following PN
Hospitalization measure to exclude patients with either principal or
secondary diagnosis POA of COVID-19 from both index admissions and
readmissions (87 FR 49083 through 49086). Additionally, in the FY 2023
IPPS/LTCH PPS final rule, we modified the technical measure
specifications of each of the six readmission measures to include a
covariate adjustment for patient history of COVID-19 in the 12 months
prior to the admission beginning with the FY 2023 program year (87 FR
49086 through 49088).
We stated that we were making these updates pursuant to the
technical updates policy we finalized in the FY 2015 IPPS/LTCH PPS
final rule. Under this policy, we finalized a subregulatory process to
incorporate technical measure specification updates into the measure
specifications we had previously adopted for the Hospital Readmissions
Reduction Program (79 FR 50039). We reiterated this policy in the FY
2020 IPPS/LTCH PPS final rule, stating our continued belief that the
subregulatory process is the most expeditious manner possible to ensure
that quality measures remain fully up to date while preserving the
public's ability to comment on updates that so fundamentally change a
measure that it is no longer the same measure that we originally
adopted (84 FR 42385 through 42387).
We are providing notice in this final rule that we intend to remove
the COVID-19 exclusion from the readmission measures beginning with the
FY 2027 program year. This technical update will modify these
readmission measures to remove the exclusion of COVID-19 diagnosed
patients from the index admissions and readmissions, including the
removal of the exclusion of certain ICD-10 Codes that represented
patients with a secondary diagnosis of COVID-19, and the history of
COVID-19 risk variable.
The exclusion began as a response to the COVID-19 PHE which expired
May 11, 2023. We believe that hospitals have had adequate time to
adjust to the presence of COVID-19 as an ongoing virus. Using data from
the last four years, July 2020-June 2024, our internal analysis showed
a decline over time of the number of patients excluded from the various
measure cohorts. Therefore, we believe that removing the exclusion of
COVID-19 patients will ensure that these readmission measures continue
to account for readmissions as intended and meet the goals of the
Hospital Readmissions Reduction Program.
Additional resources about current measure technical specifications
and the methodology for the Hospital Technical specification of the
current readmission measures are provided at our website in the Measure
Methodology Reports (available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology). Hospital Readmissions
Reduction Program resources are located at the Resources web page of
the QualityNet website (available at: https://qualitynet.cms.gov/inpatient/hrrp/resources). An updated measure methodology report will
be made available in May 2026.
While we are not required to solicit comments for technical
updates, we received public comment on this proposed update.
Comment: Many commenters supported the technical update to remove
COVID-19 exclusions from the Hospital Readmissions Reduction Program
measure set as part of the transition from a public health emergency to
managing COVID-19 as an endemic risk. A commenter stated that
eliminating the exclusion of COVID-19 diagnosed patients from index
admissions and readmissions will reflect a more accurate depiction of
all Medicare patients, improve data collection, and therefore measure
hospitals more accurately and fairly. In addition, a commenter noted
that the removal of these exclusions will incentivize hospitals to
implement robust infection prevention strategies and ensure that care
for all Medicare patients is measured consistently.
Response: We thank commenters for their support.
Comment: Several commenters emphasized the need for careful risk
adjustment given the potential long-term clinical effects of COVID-19.
Commenters noted that patients with prior COVID-19 exposure may
experience persistent complications that could influence post-acute
outcomes and readmission rates and recommended that CMS update its risk
adjustment models to account for the long-term clinical effects of
COVID-19 to avoid penalizing hospitals that care for a higher
proportion of post COVID patients. A commenter recommended that CMS
continue to closely monitor the data to ensure that the removal of this
exclusion accurately reflects hospital performance, and that hospitals
are not being penalized due to variation in local disease spread.
Another commenter recommended incorporating COVID-19 on the co-
condition list for risk adjustment stratification.
Response: We thank commenters for their recommendations. As a part
of our routine monitoring and evaluation, we will watch for any
unintended consequences from this updated risk model. We note that we
conduct annual measure re-evaluations to ensure that the risk-
standardized complication model is continually assessed and remains
valid, given possible changes in clinical practice and coding standards
over time.\191\
---------------------------------------------------------------------------
\191\ Centers for Medicare & Medicaid Services. 2025 Condition-
Specific Readmission Measures Updates and Specifications Reports.
Available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology.
---------------------------------------------------------------------------
Comment: A few commenters recommended that CMS provide a phased
implementation approach to ensure data integrity and support hospitals
in adapting to the COVID-19 exclusion removal. A few commenters
recommended that the phased implementation contain one to two reporting
cycles of data for internal review, delay public reporting of measures
that include COVID-19 as a secondary diagnosis, and exclude these
measures from the Hospital Readmissions Reduction Program during the
initial reporting periods to avoid financial implications.
Response: We do not believe that delaying technical updates to the
measures will help meet the goals the commenters specify--that is,
ensuring that accurate and reliable data are scored under the Hospital
Readmissions Reduction Program. Rather, including COVID-19 patients
provides a broader view of the care that hospitals provide to Medicare
beneficiaries. Hospitals will also have the chance to review their
measure data during the 30-day review and correction period each year
prior to application of payment adjustments and public reporting.
Comment: A commenter did not support the technical update to remove
COVID-19 exclusions from the Hospital Readmissions Reduction Program
measure set because clinical and operational impacts of COVID-19
continue to affect hospital performance; patients with COVID-19 often
present with complex conditions, extended lengths of stay, and
increased risk of complications; added cases may lead to skewed
performance data, especially for those hospitals that serve a
disproportionate share of medically complex or underserved populations;
and the health care system is still contending with the long-term
effects of COVID-19 on workforce capacity, patient outcomes, and
systemic
[[Page 36931]]
challenges with access to post-acute care.
Response: We appreciate the commenter's concerns. However, while
hospitals and other types of health care facilities may face continuing
challenges due to the long-term effects of the COVID-19 pandemic, we do
not agree that these challenges represent such a significant threat to
health care operations that patients with a principal or secondary
COVID-19 diagnosis should be excluded from these measures' cohorts.
Based on data from July 2021 to June 2024, internal analyses for the
Hospital Readmissions Reduction Program measure set showed a small
percentage of patients, ranging in cases from 0.15 percent for THA/TKA
and 2.5 percent for PN met the COVID-19 exclusion criteria. Please note
that some of these cases could also have been excluded for other
reasons besides the COVID-19 exclusion. More importantly, such
patients, as with all patients treated by hospitals, should receive the
best quality care from their providers, and incorporating them into
quality measures represents the best way for us to incentivize high-
quality care for all. Rather than unfairly penalizing hospitals,
including patients with a principal or secondary diagnosis of COVID-19
will encourage them to provide the best care to a broader patient
population.
We appreciate commenters' input on our technical update to remove
the COVID-19 exclusion from the readmission measures beginning with the
FY 2027 program year.
3. Additional Policies for the Hospital Readmissions Reduction Program
a. Modification of the Applicable Period for the Hospital Readmissions
Reduction Program Measures Set
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18286), we
proposed to modify the definition of ``applicable period'' as specified
at Sec. 412.152. Currently, the ``applicable period'' is the 3-year
period from which data are being collected to calculate excess
readmission ratios (ERRs) and payment adjustment factors for the fiscal
year; this includes aggregate payments for excess readmissions and
aggregate payments for all discharges used in the calculation of the
payment adjustment. In the FY 2013 IPPS/LTCH PPS final rule, we noted
that the 3-year period provided an increase in the number of cases per
hospital used for measure calculation, which improved the precision of
each hospital's readmission estimate (77 FR 53379 through 53382). The
``applicable period for dual eligibility'' is the same as the
``applicable period'' that we otherwise adopted for purposes of the
Hospital Readmissions Reduction Program.
However, in the FY 2026 IPPS/LTCH PPS proposed rule we proposed to
reduce the applicable period from 3 to 2 years (90 FR 18286). The
proposed update would allow for more recent data when assessing
performance. With the proposed inclusion of MA patients in the cohort,
we assessed whether the reliability of the measures could reach a
satisfactory level when the applicable period is shortened. In testing,
all measures showed better between-hospital variance using the 2-year
FFS and MA combined cohort as compared to the current measure
specifications of a 3-year applicable period and the FFS-only cohort.
Beginning in FY 2027, we proposed that the ``applicable period''
for the Hospital Readmissions Reduction Program would be the 2-year
period beginning 1 year advanced from the previous program fiscal
year's start of the ``applicable period.'' For example, for the FY 2027
program determination, claims/encounter data with admission dates
beginning from July 1, 2023, through June 30, 2025, would be used.
Under this policy, for all subsequent years, we would advance this
2-year period by 1 year unless otherwise specified by the Secretary,
which we would revise through notice and comment rulemaking. Similarly,
the ``applicable period for dual eligibility'' would continue to
correspond to the ``applicable period'' for the Hospital Readmissions
Reduction Program, unless otherwise specified by the Secretary.
We invited public comment on this proposal.
Comment: Many commenters supported the proposal to reduce the
applicable period from three years to two years. Some commenters stated
that a shorter window will ensure that hospital performance metrics
reflect more current quality improvements and care practices while
maintaining acceptable reliability. A few commenters also stated that a
two[hyphen]year applicable period enables hospitals to implement more
responsive and sustainable improvements, promoting more effective
allocation of resources and ultimately supporting improved health
outcomes. Additionally, a few commenters stated that the proposed
update to shorten the applicable period, when considered with the
inclusion of MA beneficiaries and enhanced risk adjustment based on
individual ICD-10 codes, would improve the measures by creating a
larger, more representative patient cohort with more recent, accurate,
and actionable information.
Response: We thank commenters for their support.
Comment: A few commenters stated that decreasing the applicable
period to two years may reduce the reliability of hospital comparisons
and increase performance variability. A commenter recommended that CMS
monitor the statistical reliability of this change for low-volume
hospitals. Another commenter recommended a phased implementation or
pilot evaluation of the impact on measurement validity for a 2-year
applicable period.
Response: We appreciate commenters' concerns and recommendations.
We reiterate that reducing the applicable period to two years will
continue to preserve reliability while ensuring that hospital
performance metrics reflect more recent quality improvements and care
practices. We note that prior to proposing to shorten the applicable
period to 2 years, we assessed whether the reliability of the measures
could reach a satisfactory level. In testing, all measures showed
better between-hospital variance using the 2-year FFS and MA combined
cohort as compared to the current measure specifications of a 3-year
applicable period and the FFS-only cohort. The measure reliability
remains robust despite the change from a 3-year period to a 2-year
period for several key reasons. More low-volume hospitals meet the 25
or more criteria for reporting despite the reduction from 3 to 2 years
of data due to the inclusion of MA admissions resulting in nearly
doubling of the annual cohort size. The combined effect is a roughly
one-third increase in overall hospital volume. Empirical comparisons of
the 3-year FFS-only cohort (July 2021-June 2024 FFS data) and the 2-
year FFS+MA cohort (CY 2022 and CY 2023) showed that the median
hospital volume and number of hospitals included for public reporting
were similar to or higher in the 2-year FFS+MA cohort, and median
reliability scores improved for every measure except THA/TKA (for
example, AMI (0.5589 for 2-year FFS+MA versus 0.4458 for 3-year FFS-
only) and HF (0.5832 for 2-year FFS+MA versus 0.4914 for 3-year FFS-
only)). Our analysis of THA/TKA procedures under the combined FFS+MA
cohort did not demonstrate the anticipated volume increases. This
outcome can be attributed to the ongoing migration of these procedures
from inpatient to outpatient care settings, reflecting broader trends
in healthcare delivery patterns. Given the evolving nature of care
delivery for these procedures, we acknowledge uncertainty regarding
[[Page 36932]]
future volume trends and care setting distributions. The continued
shift toward outpatient settings presents challenges for accurate
volume projections and measure implementation. To ensure consistency
across our quality measurement framework, the applicable period for
TKA/THA measure with a 2-year applicable period ensures consistency and
alignment with the program's measure set.
However, we intend to monitor the effects of the applicable period
length for hospitals, including for low-volume hospitals, and make any
future refinements as needed.
Comment: A commenter did not support the proposal to reduce the
applicable period from 3 years to 2 years stating that this change,
along with the addition of MA beneficiaries into the Hospital
Readmissions Reduction Program measure set and the transition of the
risk adjustment model from Hierarchical Condition Categories (HCCs) to
individual ICD-10 codes, could increase hospitals' risk of incurring
penalties. This commenter expressed concern that these proposals did
not include adequate transparency, impact modeling, or data reliability
safeguards.
Response: Including MA beneficiaries and enhancing the risk
adjustment based on individual ICD-10 codes would generate a broader,
more representative patient population with more precise and actionable
insights for both the public and providers. Because of the expanded
cohort of index admissions, we can obtain the same or better measure
precision with a shorter applicable period. We note that we performed
impact modeling, as shown in Table VI.K-02. of the proposed rule (90 FR
18287 through 18288) and reprinted below in this final rule.
Furthermore, as discussed above in response to concerns in the section
that discusses the Modification of the Applicable Period for the
Hospital Readmissions Reduction Program Measures Set, all measures
displayed better between-hospital variance with the 2-year FFS+MA
combined cohort compared to the current measure specifications of 3-
year FFS-only cohort, more low-volume hospitals now meet the 25 or more
criteria for reporting despite the shorter timeframe, MA inclusion
nearly doubles the annual cohort size, resulting in roughly one-third
increase in overall hospital volume despite the reduction from 3 to 2
years of data. CMS intends to monitor the effects of this change,
particularly for low-volume hospitals, and will make refinements as
needed. This represents a significant methodological improvement that
maintains statistical reliability while providing more timely quality
assessments by incorporating a broader patient population.
After consideration of the public comments we received, we are
finalizing our proposal to reduce the applicable period from 3 years to
2 years, as proposed.
b. Identification of Aggregate Payments for Each Condition/Procedure
and All Discharges for FY 2027 and Subsequent Years
When calculating the numerator (aggregate payments for excess
readmissions), we determine the base operating DRG payment amount for
an individual hospital for the applicable period for each condition/
procedure using Medicare FFS inpatient claims from the MedPAR file with
discharge dates that are within the applicable period. Under our
established methodology, we use the update of the MedPAR file for each
Federal fiscal year, which is updated 6 months after the end of each
Federal fiscal year within the applicable period, as our data source.
In identifying discharges for the applicable conditions/procedures
to calculate the aggregate payments for excess readmissions, we apply
the same exclusions to the claims in the MedPAR file as are applied in
the measure methodology for each of the applicable conditions/
procedures. For example, for the FY 2025 applicable period, this
included the discharge diagnoses for each applicable condition/
procedure based on the list of specific ICD-10-CM and ICD-10-PCS code
sets, as applicable, for that condition/procedure, as specified in the
2024 version of the measure methodology reports.\192\
---------------------------------------------------------------------------
\192\ CMS Quality Net. Available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology.
---------------------------------------------------------------------------
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18286 through
18288), we proposed to include payment data for Medicare FFS and MA
beneficiaries that meet the criteria as previously described for each
applicable condition/procedure to calculate the aggregate payments for
excess readmissions. We would rely on the MedPAR and/or the latest
available data source that would provide the most up-to-date
comprehensive information on payment information for Medicare FFS and
MA beneficiaries. This proposal resulted from our proposal to include
MA beneficiaries in the Hospital Readmissions Reduction Program measure
set cohorts.
We noted that Sec. 412.152 defines the terms ``aggregate payments
for excess readmissions'' and ``excess readmissions ratio'' (ERR)
broadly enough to allow us to include MA beneficiaries in the
calculation without requiring us to revise the regulatory definition.
(1) Analysis of Estimated Impacts on Aggregate Payments
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18286 through
18288), to assess the expected impact on hospital payment adjustments
resulting from the changes to the readmission measures, the
``applicable period'', and calculations for aggregate payments for
excess readmissions, we estimated hospitals' payment adjustment factors
using the proposed measures updates to include MA data, the proposed 2-
year applicable period, and the proposed updates to the calculations
for aggregate payments for each condition/procedure to include MA data.
In the proposed rule, we showed the estimated total Medicare savings
under the current payment adjustment factor calculations and the
proposed payment adjustment factor calculations which would use a 2-
year applicable period and include MA data in the ERR calculations and
calculations for aggregate payments for each condition/procedure. Based
on our analysis, the estimated average change in Medicare savings per
hospital from the proposed updates was $15,579, with 1,424 hospitals
having a greater penalty amount and 1,547 hospitals having the same or
lower penalty amount.
[[Page 36933]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.246
Our proposed rule analysis also assessed the impact of the proposed
updates to the number of eligible hospitals, number and percentage of
penalized hospitals, and penalties as a share of payments overall and
by hospital characteristics. The first and fifth columns in Table VI.K-
02 of the proposed rule (90 FR 18287 through 18288) and reprinted in
the table below indicate the total number of hospitals eligible for a
penalty under the Hospital Readmissions Reduction Program. In FY 2025,
approximately 3,000 subsection (d) hospitals were included in the
Hospital Readmissions Reduction Program. Poorly performing hospitals
included in the program may receive a penalty if they are non-Maryland
subsection (d) hospitals with 25 or more eligible discharges for at
least one measure during the applicable period. The second and sixth
columns in the table indicated the total number of non-Maryland
hospitals with available data for each characteristic that have an
estimated payment adjustment factor less than 1 (that is, penalized
hospitals). The third and seventh columns in the table indicated the
estimated percentage of penalized hospitals among those eligible to
receive a penalty by hospital characteristic. The fourth and eighth
columns in the table estimated the financial impact on hospitals by
hospital characteristic, referred to as the penalty as a share of
payments. The penalty as a share of payments is calculated as the sum
of penalties for all hospitals with that characteristic over the sum of
all base operating DRG payments for those hospitals. For example, under
the current methodology, the penalty as a share of payments for urban
hospitals is 0.42 percent, and with the proposed updates, the penalty
as a share of payments for urban hospitals is 0.46 percent. This means
that total penalties for all urban hospitals is 0.42 percent of total
payments for urban hospitals under the current methodology and 0.46
percent with the proposed updates. Measuring the financial impact on
hospitals as a percentage of total base operating DRG payments accounts
for differences in the amount of base operating DRG payments for
hospitals with the characteristic when comparing the financial impact
of the program on different groups of hospitals.
BILLING CODE 4120-01-P
[[Page 36934]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.247
[[Page 36935]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.248
[[Page 36936]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.249
[[Page 36937]]
BILLING CODE 4120-01-C
We invited public comment on this proposal.
Comment: A few commenters expressed concerns over the use of
hospital submitted information-only claims for MA patients in the
MedPAR data to calculate aggregated payments for excess readmissions.
These commenters stated that while some hospitals (such as teaching
hospitals and safety net hospitals) are required to submit information-
only claims for MA inpatient stays, other hospitals may not submit
complete information-only claims. These commenters stated that this
could introduce bias in the data used to calculate aggregate payments
and urged CMS to only use data reported consistently across all
hospitals in calculating aggregate payments.
Response: We acknowledge that not all hospitals in the Hospital
Readmissions Reduction Program use information-only claims for MA
inpatient stays and not all types of hospitals are required to submit
complete data on such information-only claims. Further, our analysis on
2023 data showed that approximately 94% of IPPS hospitals submitted
information-only claims for MA inpatient stays.\193\ Due to this
current state, we understand commenters' concern with our proposal to
use the information-only claims to calculate aggregate payments for
excess readmissions, potentially leading to some types of hospitals
being more likely to be subject to increased penalties under the
Hospital Readmissions Reduction Program than other hospital types. Due
to this concern, we are not finalizing our proposal to include MA data
in the calculations of aggregate payments for excess readmissions at
this time. We will continue to evaluate the consistency of data
reported across hospital types.
---------------------------------------------------------------------------
\193\ CMS internal analysis of CY 2023 IPPS hospital FFS and
information-only claims.
---------------------------------------------------------------------------
Comment: Several commenters expressed concern that CMS has not
clearly explained the proposed changes to the calculation of aggregate
payments for excess readmissions. These commenters stated that the
terminology used in the methodology is unclear and that CMS has not
provided sufficient data for hospitals to accurately assess the impact
of the proposed changes. A few of these commenters noted that hospitals
would need access to MA encounter data to replicate the impact
estimates.
Response: We note that we are not finalizing the proposed changes
to the calculation of aggregate payments for excess readmissions.
However, we did provide sufficient data in the FY 2026 IPPS/LTCH PPS
proposed rule (90 FR 18286 through 18289) to allow hospitals to
accurately assess the impact of the proposed changes by providing TABLE
VI.K-01 and TABLE VI.K-02, along with relevant resources. In connection
with the other program changes we are finalizing in this final rule, we
present the newly estimated impacts to payments in TABLE VI.K-03 and
TABLE VI.K-04 below along with relevant resources. Please refer to the
program's payment reduction methodology on the CMS web page for
additional information (https://qualitynet.cms.gov/inpatient/hrrp/methodology) and the payment reduction methodology infographic resource
document (https://qualitynet.cms.gov/inpatient/hrrp/resources). If we
revisit this policy in future rulemaking, we will consider ways to
clarify our proposal and our intended data sources.
Comment: Several commenters expressed concerns that blending MA and
FFS data in DRG calculations may inflate penalty calculations due to
differences in patient mix and utilization characteristics rather than
hospital performance. Several commenters expressed concern that
penalties would be impacted by MA plan coverage determinations rather
than the quality of hospital care and recommended basing DRG ratio
calculations exclusively on FFS data. Some commenters expressed concern
that hospitals serving MA beneficiaries may experience two impacts to
payments, one from the MA plans denial of coverage for a readmission
and the second from an increased penalty in the Hospital Readmissions
Reduction Program. Some commenters expressed concern that inclusion of
index admissions for MA beneficiaries in DRG calculations would
disproportionately affect hospitals located in regions with high MA
adoption rates. A few commenters stated their belief that the inclusion
of MA patients in the DRG ratio is inconsistent with the broader design
of the program.
Response: We note that MA beneficiaries comprise a growing share of
Medicare enrollees and that hospitals are responsible for providing
high quality care to all their patients, regardless of payer. Hospitals
must work closely with insurers, including MA plans, to ensure high
quality care for all their patients. By adding the MA cohort to the
Hospital Readmissions Reduction Program measures we would provide a
more robust and holistic view of quality of care provided to all
Medicare beneficiaries. However, we note that we are not finalizing the
proposed changes to the calculation of aggregate payments for excess
readmissions.
After consideration of the public comments we received, we are not
finalizing our proposal to include MA data in the calculations of
aggregate payments for excess readmissions, and instead we will
continue to use Medicare FFS claims in the calculations of aggregate
payments for excess readmissions and include MA data only in the ERR
calculations.
To assess the expected impact on hospital payment adjustments
resulting from the changes to the readmission measures and the
``applicable period'' only and excluding the proposed updates to the
calculations for aggregate payments, we have updated our estimation of
hospitals' payment adjustment factors using the measures updates to
include MA data and the 2-year applicable period. Later in this section
we show the updated estimated total Medicare savings under the current
payment adjustment factor calculations and the newly finalized payment
adjustment factor calculations which use a 2-year applicable period and
include MA data only in the ERR calculations. Based on our analysis, as
shown in TABLE VI.K-03, the updated estimated average change in
Medicare savings per hospital from the newly finalized updates is
$2,265, with 1,305 hospitals having a greater penalty amount and 1,666
hospitals having the same or lower penalty amount.
[[Page 36938]]
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As shown in TABLE VI.K-04, our analysis also assesses the impact of
the newly finalized updates to the number of eligible hospitals, number
and percentage of penalized hospitals, and penalties as a share of
payments overall and by hospital characteristics. The first and fifth
columns in the below table indicate the total number of hospitals
eligible for a penalty under the Hospital Readmissions Reduction
Program. In FY 2025, approximately 3,000 subsection (d) hospitals were
included in the Hospital Readmissions Reduction Program. Poorly
performing hospitals included in the program may receive a penalty if
they are non-Maryland subsection (d) hospitals with 25 or more eligible
discharges for at least one measure during the applicable period. The
second and sixth columns in the table indicate the total number of non-
Maryland hospitals with available data for each characteristic that
have an estimated payment adjustment factor less than 1 (that is,
penalized hospitals). The third and seventh columns in the table
indicate the estimated percentage of penalized hospitals among those
eligible to receive a penalty by hospital characteristic. The fourth
and eighth columns in the table estimate the financial impact on
hospitals by hospital characteristic, referred to as the penalty as a
share of payments. The penalty as a share of payments is calculated as
the sum of penalties for all hospitals with that characteristic over
the sum of all base operating DRG payments for those hospitals. For
example, under the current methodology (FY 2025), the penalty as a
share of payments for urban hospitals is 0.42 percent, and with the
newly finalized updates, the penalty as a share of payments for urban
hospitals is 0.41 percent. This means that total penalties for all
urban hospitals is 0.42 percent of total payments for urban hospitals
under the current methodology (FY 2025) and 0.41 percent with the
finalized updates. Measuring the financial impact on hospitals as a
percentage of total base operating DRG payments accounts for
differences in the amount of base operating DRG payments for hospitals
with the characteristic when comparing the financial impact of the
program on different groups of hospitals.
BILLING CODE 4120-01-P
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BILLING CODE 4120-01-C
c. Updates and Codification of the Extraordinary Circumstance Exception
(ECE) Policy for the Hospital Readmissions Reduction Program
(1) Background
Under our current Extraordinary Circumstances Exception (ECE)
regulations, we have granted exceptions to exclude data from Hospital
Readmissions Reduction Program payment reduction calculations (FY 2016
IPPS/LTCH PPS final rule, 80 FR 49542 through 49543). An exception may
be granted for extraordinary circumstances including, but not limited
to, natural disasters or systemic problems with CMS data collection
systems that directly affected the ability of facilities to submit
data.\194\ We refer readers to the FY 2016 IPPS/LTCH PPS final rule (80
FR 49542 through 49544); FY 2018 IPPS/LTCH PPS final rule (82 FR 38239
through 38240), and FY 2022 IPPS/LTCH PPS final rule (86 FR 45260
through 45262) for further background and details of our ECE policy. We
also refer readers to the QualityNet website for the specific
requirements for submission of an ECE request in the Hospital
Readmissions Reduction Program.\195\ Hospitals can request a CMS
Quality Program ECE for multiple programs based on the same
extraordinary circumstance using one ECE request form, including the
Hospital Inpatient Quality Reporting (IQR) Program, the Hospital VBP
Program, and the HAC Reduction Program.
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\194\ Centers for Medicare & Medicaid Services (CMS) Quality
Program Extraordinary Circumstances Exceptions (ECE) Request Form.
(2025). QualityNet. Available at: https://qualitynet.cms.gov/files/677e843f50ed8df7419f60e1?filename=HQR_ECE_Req_Form_CY_2025.pdf.
\195\ CMS QualityNet. Available at: https://qualitynet.cms.gov/inpatient/hrrp/participation#tab2.
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Our ECE policy provides flexibility for Hospital Readmissions
Reduction Program participants to ensure continuity of quality care
delivery and measure reporting in the event of an extraordinary
circumstance. For instance, we recognize that, in circumstances where
an exclusion of data from the calculation of a hospital's payment
reduction for the applicable period is not applicable, it is beneficial
for a hospital to submit data for use in payment reduction calculations
later than the Hospital Readmissions Reduction Program data submission
deadline. Delayed data submission for use in payment reduction
calculations authorized under the ECE policy would allow temporary
relief for a hospital experiencing an extraordinary circumstance while
preserving data reporting such as transparency and informed decision-
making for beneficiaries and providers alike. Accordingly, in the FY
2026 IPPS/LTCH PPS proposed rule (90 FR 18289), we proposed to update
our regulations to specify that an ECE could take the form of an
extension of time for a hospital to comply with a data reporting
requirement if CMS determines that this type of relief would be
appropriate under the circumstances.
(2) Updates and Codification of the Extraordinary Circumstances
Exception (ECE) Policy for the Hospital Readmissions Reduction Program
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18289), we
proposed to update and codify our ECE policy at 42 CFR 412.154(d) to
include extensions of time as a form of relief and to further clarify
the policy. Specifically, at Sec. 412.154(d)(1), we proposed that CMS
may grant an ECE with respect to reporting requirements in the event of
an extraordinary circumstance--defined as an event beyond the control
of a hospital (for example a natural or man-made disaster such as a
hurricane, tornado, earthquake, terrorist attack, or bombing)--that
affected the ability of the hospital to comply with one or more
applicable reporting requirements with respect to a fiscal year.
We proposed that the process for requesting or granting an ECE
would remain the same as the current ECE process, detailed by CMS at
the QualityNet website or a successor website.\196\ At Sec.
412.154(d)(2)(i), we proposed that a hospital may request an ECE within
30 calendar days of the date that the extraordinary circumstance
occurred. Under this finalized policy, we clarify that CMS retains the
authority to grant an ECE as a form of relief at any time after the
extraordinary circumstance has occurred. At Sec. 412.154(d)(2)(ii), we
proposed that CMS notify the requestor with a decision, in writing, via
email. In the event that CMS grants an ECE to the hospital, the written
decision will specify whether the hospital is exempted from one or more
reporting requirements or whether CMS has granted the hospital an
extension of time to comply with one or more reporting requirements.
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\196\ CMS QualityNet. Available at: https://qualitynet.cms.gov/inpatient/hrrp/participation#tab2.
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Additionally, at Sec. 412.154(d)(3), we proposed that CMS may
grant an ECE to one or more hospitals that have not requested an ECE,
if CMS determines that: a systemic problem with CMS data collection
system directly impacted the ability of the hospital to comply with a
quality data reporting requirement; or that an extraordinary
circumstance has affected an entire region or locale. As is the case
under our current policy, any ECE granted will specify whether the
affected hospitals are exempted from one or more reporting requirements
or whether CMS has granted the hospitals an extension of time to comply
with one or more reporting requirements.
This ECE policy will provide further reporting flexibility for
hospitals and clarify the ECE process for participants of the Hospital
Readmissions Reduction Program. We refer readers to sections X.C.8.,
VI.L.5., VI.M.3.b., and X.D.4. in this final rule for similar updates
to the ECE policy in the Hospital IQR Program, Hospital VBP Program,
HAC Reduction Program, and PCHQR Program, respectively.
We invited public comment on our proposals.
We received many general comments regarding our ECE related
proposals. We did not receive any comments specific to these updates
for the Hospital Readmissions Reduction Program. For our responses to
general comments we refer readers to our responses in the Hospital IQR
Program section of this final rule (section X.C.8). As stated in
section X.C.8 of this final rule in response to commenter concerns
regarding the proposed 30-day deadline, we recognize that hospitals may
not have the ability to assess the impact on quality data submissions
and complete the necessary paperwork within 30 days of the
extraordinary circumstance. Due to concerns regarding hospitals'
ability to complete the ECE request within 30 days of the extraordinary
circumstance and a commenter suggestion to increase to a 60-day
deadline, we are modifying the timeframe to allow for 60 days to submit
an ECE request. We believe this timeframe will provide sufficient time
for hospitals to assess the impact on quality reporting without
disrupting operational and care needs.
After consideration of the public comments we received, we are
finalizing our proposals as proposed, except for the proposed 30-day
deadline. In lieu of the 30-day deadline, we are finalizing an ECE
request deadline of 60 days following an extraordinary circumstance. We
are making conforming amendments to our regulation text at Sec.
412.154(d)(2)(i) to reflect this policy change.
[[Page 36943]]
L. Hospital Value-Based Purchasing (VBP) Program
1. Background
a. Overview
For background on the Hospital VBP Program, we refer readers to the
CMS website at: https://www.cms.gov/medicare/quality/initiatives/hospital-quality-initiative/hospital-value-based-purchasing. We also
refer readers to our codified requirements for the Hospital VBP Program
at 42 CFR 412.160 through 412.168.
b. FY 2026 Program Year Payment Details
Under section 1886(o)(7)(C)(v) of the Act, the applicable percent
for the FY 2026 program year is 2.00 percent. Using the methodology we
adopted in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53571 through
53573), we estimated in the proposed rule (90 FR 18289) that the total
amount available for value-based incentive payments for FY 2026 is
approximately $1.7 billion, based on the December 2024 update of the FY
2024 MedPAR file.
As finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53573
through 53576), we utilize a linear exchange function to translate this
estimated amount available into a value-based incentive payment
percentage for each hospital, based on its Total Performance Score
(TPS). We are publishing proxy value-based incentive payment adjustment
factors in Table 16 associated with this final rule (which is available
via the internet on the CMS website). We note that these proxy
adjustment factors will not be used to adjust hospital payments. These
proxy value-based incentive payment adjustment factors were calculated
using the proposed FY 2026 Hospital VBP program methodology and
historical baseline and performance periods for the FY 2025 Hospital
VBP Program and the SEP-1 measure. These proxy factors were calculated
using the March 2025 update to the FY 2024 MedPAR file. The slope of
the linear exchange function used to calculate these proxy factors was
4.5252441909, and the estimated amount available for value-based
incentive payments to hospitals for FY 2026 remains approximately $1.7
billion. We stated our intent to include an update to this table, as
Table 16A, with the FY 2026 IPPS/LTCH PPS final rule, to reflect
changes based on the March 2025 update to the FY 2024 MedPAR file and
the finalized FY 2026 Hospital VBP program methodology as discussed in
section VI.L.6. of the preamble of this final rule. We will add Table
16B to display the actual value-based incentive payment adjustment
factors, exchange function slope, and estimated amount available for
the FY 2026 Hospital VBP Program. We expect that Table 16B will be
posted on the CMS website in Fall 2025.
2. Hospital VBP Program Measures
a. Proposed Measure Updates to the Hospital-Level Risk-Standardized
Complication Rate (RSCR) Following Elective Primary Total Hip
Arthroplasty (THA) and/or Total Knee Arthroplasty (TKA)
(1) Background
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18290 through
18291), we proposed to adopt substantive measure updates to the
Hospital-level Risk-Standardized Complication Rate (RSCR) Following
Elective Primary Total Hip Arthroplasty (THA) and/or Total Knee
Arthroplasty (TKA) (hereinafter referred to as the COMP-HIP-KNEE
measure), beginning with the FY 2033 program year. We proposed these
updates contingent on our adopting the same updates to the COMP-HIP-
KNEE measure for use in the Hospital IQR Program beginning with the FY
2027 payment determination, which we discuss further in section X.C. of
the preamble of this final rule.
We adopted the COMP-HIP-KNEE measure in the FY 2015 IPPS/LTCH PPS
final rule beginning with the FY 2019 program year for use in the
Hospital VBP Program (79 FR 50062 through 50063). We previously adopted
substantive updates to the COMP-HIP-KNEE measure in the FY 2024 IPPS/
LTCH PPS final rule (88 FR 59067 through 59070) to include index
admission diagnoses and in-hospital comorbidity data from Medicare Part
A claims which expanded the measure outcome to include 26 additional
mechanical complications as identified from 10th revision of the
International Classification of Diseases (ICD-10) codes. We continue to
consider the clinical outcomes of the COMP-HIP-KNEE measure a high
priority, providing important data on patient safety and adverse
events, which is why we proposed to adopt additional updates to the
COMP-HIP-KNEE measure in the Hospital VBP Program under the Clinical
Outcomes Domain beginning with the FY 2033 program year. In Table
VI.L.-01, we illustrate the program years for which we have adopted the
COMP-HIP-KNEE measure, and the modifications we previously adopted, as
well as the additional modifications we proposed in the FY 2026 IPPS/
LTCH PPS proposed rule.
[GRAPHIC] [TIFF OMITTED] TR04AU25.254
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(2) Overview of Measure Updates
The proposed substantive updates to the COMP-HIP-KNEE measure would
(1) expand the measure's inclusion criteria to include Medicare
Advantage (MA) patients and (2) shorten the performance period from 3
years to 2 years. The addition of MA data to the measure would
approximately double the cohort size, demonstrate measure reliability,
and more accurately reflect the quality of care for both FFS and MA
beneficiaries. Additionally, the proposed update to reduce the
performance period from 3 to 2 years would allow for more recent data
for assessing performance. Being able to report measures with only 2
years of data with satisfactory reliability would provide more relevant
and up to date quality information for actionable quality improvement
insights.
With the inclusion of MA patients in the cohort, we assessed
whether the reliability of the measure could reach a satisfactory level
when the performance period is shortened. Signal-to-noise reliability
testing was calculated for all hospitals in the testing sample (n=
3,124) and hospitals with at least 25 cases (n= 1,777), using 2 years
of data for analysis (CY 2022/2023). For hospitals with at least 25
cases, the median reliability score was 0.784, ranging from 0.545 to
0.997. The 25th and 75th percentiles were 0.673 and 0.883,
respectively. Therefore 75 percent of hospitals exceed a 0.6
reliability score, using the 2 year FFS and MA combined cohort, and we
believe that this reliability score demonstrates that 2 years of data
provide satisfactory reliability.
The proposed updated COMP-HIP-KNEE measure would use index
admission diagnoses and procedure codes from Medicare FFS claims and MA
encounter data to determine cohort inclusion criteria, complications
outcomes, and present on admission (POA) comorbidities. We would assess
additional comorbidities prior to the index (initial) admission using
Part A inpatient, outpatient, and Part B office visit Medicare claims
and MA encounters in the 12 months prior to index admission. We would
obtain enrollment status from the Medicare Enrollment Database which
contains beneficiary demographic, benefit/coverage, and vital status
information. We refer readers to section X.C. of the preamble of this
final rule for more information on the proposed updates. As stated
previously, these proposed updates in the Hospital VBP Program are
contingent on our adopting them in the Hospital IQR Program.
(3) Pre-Rulemaking Process and Measure Endorsement
We listed this updated COMP-HIP-KNEE measure in the publicly
available document entitled ``List of Measures Under Consideration for
December 1, 2024'' (the ``MUC List'') with identification number
MUC2024-042.197 198 199 We refer readers to section X.C. of
the preamble of this final rule for a discussion of the Pre-Rulemaking
Measure Review (PRMR) meeting for this measure.
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\197\ Centers for Medicare & Medicaid Services. (2024) Overview
of the List of Measures Under Consideration December 1, 2024.
Available at: https://mmshub.cms.gov/sites/default/files/2024-MUC-List-Overview.pdf.
\198\ Centers for Medicare and Medicaid Services. (2024) 2024
MUC List. Available at: https://mmshub.cms.gov/sites/default/files/2024-MUC-List.xlsx.
\199\ We note that the measure denominator of the updated COMP-
HIP-KNEE measure, as described in the MUC List, excludes patients
with a principal diagnosis code of COVID-19 ICD-10 code (U07.1) or
with a secondary diagnosis code of COVID-19 coded as present on
admission (POA) on the index admission claim. As discussed further
below, we are providing notice of our intent to remove this
exclusion from the measure.
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The CBE previously re-endorsed the original measure in July of
2021.\200\ We submitted the measure with the proposed modifications
(CBE #1550) for re-endorsement for the Fall 2024 cycle. The CBE's
Endorsement & Maintenance Cost and Efficiency Committee convened in the
Fall 2024 cycle to review the COMP-HIP-KNEE measure that was submitted
to the CBE for re-endorsement. The E&M Cost and Efficiency Committee
voted on this measure on February 10, 2025, but did not reach consensus
because only 73 percent of the committee voted to endorse or endorse
with conditions, below the 75 percent required by the CBE to reach
consensus.\201\ As a result, the measure was not re-endorsed by the
CBE. The E&M Cost and Efficiency Committee discussed concerns about the
case mix of patients, noting the shift from inpatient to outpatient for
these elective procedures and that healthier patients may be directed
to ambulatory surgical centers, leaving acute care hospitals with
higher-risk individuals, which could affect case mix and measure
outcomes. Another concern discussed was the limited scope of the
measure which only includes inpatient complications, and whether this
limited scope provides utility and relevance for patients. Additional
concerns discussed include the overall approach to adjusting low-volume
provider performance to the average, and that scores for lower volume
providers may be misleading to patients.
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\200\ Centers for Medicare & Medicaid Services. (2022) MAP 2021-
2022 Considerations for Implementing Measures Final Report--
Clinicians, Hospitals, and PAC-LTC. Available at: https://www.qualityforum.org/Publications/2022/03/MAP_2021-2022_Considerations_for_Implementing_Measures_Final_Report_-_Clinicians,_Hospitals,_and_PAC-LTC.aspx.
\201\ Battelle--Partnership for Quality Measurement. (2025).
Fall 2024 Cycle Endorsement and
Maintenance (E&M) Technical Report: Management of Acute Events
and Chronic Conditions. Available at: https://p4qm.org/sites/default/files/Cost%2C%20Resource%20Use%2C%20and%20Efficiency/material/EM-Fall-2024-Cost-and-Efficiency-Final-Project-Report.pdf.
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The measure developer then submitted an appeal of the decision not
to re-endorse the measure, citing the following rationales: (1)
procedural error in the endorsement process with an excessive focus on
outpatient setting exclusions; and (2) misapplication of measure
evaluation criteria, particularly risk adjustment. The CBE convened the
E&M Fall 2024 Appeals Committee meeting on March 31, 2025. The Appeals
Committee voted to grant the appeal request, with a vote of 100 percent
for both rationales, and overturn the decision not to re-endorse the
measure. Thus, the COMP-HIP-KNEE measure was endorsed with the
following conditions: (1) explore the proportion of procedures done in
the ambulatory surgical centers and hospital outpatient department
setting and evaluate the need for adjustment based on the impact of
case mix; and (2) explore additional approaches to the reliability
assessment to account for low-volume facilities.
Regarding the impact of case mix, we note that this measure focuses
on higher-risk patients and is intentionally narrow to capture
significant complications, such as sepsis, pulmonary embolism, or a
second surgery, which should be treated in the inpatient setting. We
wish to emphasize that those having elective THA or TKA procedures
within the inpatient setting must meet certain criteria, resulting in a
smaller cohort of patients, and in communities where there are no
ambulatory care centers the patient would be treated in the hospital
outpatient department and would not be counted in this measure.
Regarding the second condition for endorsement, to explore additional
approaches to the reliability assessment to account for low-volume
facilities, we emphasize that the goal of this measure and adjusting
for low volume is to make performance scores available for as many
providers as possible while trying to avoid misclassification or
profiling of providers. We note that scores are not available for
facilities with fewer than 25 cases, because the number of cases may be
too small for meaningful results.
[[Page 36945]]
We wish to emphasize that this measure has been an important patient
safety measure that has provided meaningful quality and patient safety
information for patients on the hospital inpatient setting for a
substantial period of time. Further, we are committed to continually
improving quality and patient safety for as many patients as possible
within the inpatient setting. Based on our evaluation of the
endorsement criteria, the conditions for endorsement have been met.
(4) Data Source, Submission and Public Reporting
To continue to assess clinical outcomes, we proposed to adopt these
measure updates to the COMP-HIP-KNEE measure in the Hospital VBP
Program under the Clinical Outcomes Domain beginning with the FY 2033
program year, contingent on our adoption of these changes in the
Hospital IQR Program as described in section X.C. of the preamble of
this final rule. We stated that, if finalized, we would begin posting
the updated measure data on the Compare tool beginning in July 2026,
which would enable us to post data on the substantive updates to the
measure for at least one year before the proposed adoption beginning
with the April 1, 2029-March 31, 2031, performance period which is
associated with the FY 2033 payment determination, as required by
section 1886(o)(2)(C)(i) of the Act.\202\ We also proposed that the
performance standards calculation methodology for the updated COMP-HIP-
KNEE measure would be the same as that which we currently use for the
measure. The performance standards for the updated measure for FY 2033
are not yet available.
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\202\ We noted that this performance period would only be 2
years instead of 3 if the proposed updates to the COMP-HIP-KNEE
measure, which includes shortening of the performance period, are
adopted.
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We invited public comment on this proposal. Below, we summarize the
public comments that we received and our responses.
Comment: Many commenters supported CMS's plans to include MA
patients in the COMP-HIP-KNEE measure contingent on adoption of this
update in the Hospital IQR Program. The commenters noted that this
cohort change will more fully capture care quality in the Medicare
Program and more accurately reflect the care quality provided in
hospitals with high proportions of MA patients.
Response: We thank the commenters for their support.
Comment: Some commenters cautioned that CMS should ensure MA
encounter data provides enough information to assess quality
performance.
Response: We have studied the feasibility of incorporating MA
encounter data and concluded MA data are feasible for use in CMS's
claims-based hospital outcome measures. We refer readers to published
methodology of incorporating MA inpatient data \203\ for more
information. We will continue monitoring MA encounter data as we
incorporate it into the measure's cohort.
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\203\ See Kyanko et. al. ``Processing and validation of
inpatient Medicare Advantage data for use in hospital outcome
measures.'' Health Services Research, vol. 59, issue 6. Available
at: https://doi.org/10.1111/1475-6773.14350.
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Comment: A commenter supported CMS's proposal to update quality
measure populations to include MA beneficiaries, though the commenter
also expressed concern that the new population has the potential to
shift performance distributions meaningfully if not accounted for in
risk adjustment. The commenter stated that some areas of the country
have lower MA penetration and benchmarks, which may impact those
hospitals disproportionately. The commenter recommended CMS continue
with the proposal and communicate benchmark adjustments transparently,
while also ensuring the risk model fully reflects the population's
characteristics.
Response: We thank the commenter for their support. We note that
the risk adjustment model has been updated to account for case mix in
both fee-for-service (FFS) and MA. The clinical variables included in
the risk adjustment model were selected based on analyses using a
combined FFS and MA cohort, approximately evenly split between FFS and
MA beneficiaries. This approach ensures the model captures the key risk
factors relevant to the combined population. The model includes an
indicator variable for FFS versus MA enrollment status, which accounts
for any potential differences in readmission risk between these groups.
We found that the prevalence of clinical risk factors and their
associations with readmission outcomes were similar across FFS and MA
beneficiaries. Stratifying the model by FFS and MA did not yield
meaningful improvements in performance, supporting the decision to
model them together with an indicator variable. Finally, keeping FFS
and MA patients together for purposes of this measure's calculation
will keep the hospitals' total volume higher for more precise measure
scores.
We proposed for these changes to take effect beginning with the FY
2033 Hospital VBP Program year to provide time and data to monitor for
any unintended consequences. We intend to provide hospitals with
measure performance data with the expanded measure's patient cohort
based on data collected while the `Modification 2' version of the
measure is in use in the Hospital IQR Program via annual confidential
hospital-specific reports beginning with the FY 2027 program year, as
well as via annual Provider Participation Summary Reports under the
Hospital VBP Program beginning with the FY 2033 program year. In
addition, Hospital VBP Program performance standards for this measure
will be published at least 60 days prior to the beginning of each
applicable performance period as required by section 1886(o)(3)(C) of
the Act.
Comment: Several commenters supported improved measure reliability
and accuracy by adding MA patients to the measure calculations, though
urged caution given their questions about data collection. The
commenters urged CMS to monitor MA data and its impact on quality
measures carefully. A commenter expressed concern about data
completeness due to the increased likelihood of MA patients having
incomplete or missing Medicare Beneficiary Identifiers (MBIs) at the
time of submission, which can lead to challenges in claims
documentation. While supportive of adding MA data, the commenter stated
hospitals could be penalized due to factors outside their control in
high-penetration markets for MA beneficiaries.
Response: As stated above, we have studied the feasibility of
incorporating MA encounter data and concluded that MA data are feasible
for use in CMS's claims-based hospital outcome measures.\204\ We intend
to monitor the effects of the updated patient cohort for this measure
carefully, including the impact of using MBIs, and will provide as much
information as possible to participating hospitals. We would also like
to clarify that the MA encounter data and FFS claims used in the
measure are submitted by Medicare Advantage Organizations and
providers, respectively, and already include MBIs. These data are
processed and validated through CMS systems prior to being made
available for use in quality measurement. Hospitals are not required to
submit any additional data or ensure MBI completeness beyond their
usual billing practices. As such, the inclusion of MA data does not
introduce a new
[[Page 36946]]
responsibility for hospitals with respect to MBI submission. The
modifications are intended to increase reliability and more accurately
reflect the quality of care for both FFS and MA beneficiaries, thus
providing hospitals more accurate data. We will continue working with
hospitals to ensure that they fully understand any effects this change
may have on their performance assessment under the Hospital VBP
Program.
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\204\ See Kyanko et. al. ``Processing and validation of
inpatient Medicare Advantage data for use in hospital outcome
measures.'' Health Services Research, vol. 59, issue 6. Available
at: https://doi.org/10.1111/1475-6773.14350.
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Comment: A commenter supported the addition of MA beneficiaries to
this measure, noting the measure is episode-specific and reflects all
of the major complications that can arise following elective THA/TKA
procedures. The commenter recommended CMS consider reporting the
inverse complication rate in the future, or the rate without major
complications, to support the public's understanding of the measure's
results, along with volume of associated procedures and patient risk
profiles.
Response: We thank the commenter for this feedback and will
consider it as we continue refining our public reporting policies in
the future.
Comment: Several commenters requested that CMS conduct a dry run
with scoring reports or a phased-in approach showing how the change
would affect hospitals' performance before finalizing the update. The
commenters requested that CMS provide a clearer understanding of data
collections, assess the associated burden, and analyze potential shifts
in performance. A few commenters opposing the proposed measure changes
suggested, if we choose to move forward, CMS adopt a phased
implementation approach focused on the Hospital IQR Program first,
including a multi-cycle impact analysis, and postpone public reporting
and payment adjustments.
Response: We thank the commenters for this feedback. We would like
to clarify that the inclusion of MA data does not require any
additional data collection or submission from hospitals beyond what is
already reported for administrative and billing purposes. Specifically,
the MA encounter data used for this measure are submitted by Medicare
Advantage Organizations (MAOs) to CMS. Hospitals that receive
disproportionate-share hospital or medical education payments from
Medicare are required to submit information-only claims for inpatient
stays of MA beneficiaries for years already. Similarly, FFS claims are
submitted through existing hospital billing processes. As such, the
proposed modifications do not impose additional data submission burden
on hospitals.
We have also conducted testing to evaluate the effects of including
MA data on the measure cohort and the results are detailed in the 2024
Readmission Measures Supplemental Methodology Report. This analysis
found that, overall, more than 80% of hospitals remained in the same
performance quintile or shifted by no more than one quintile after the
addition of MA data. These findings suggest that the inclusion of MA
data results in minimal disruption to hospital performance
classification while offering a more comprehensive view of quality for
hospitals serving both FFS and MA beneficiaries.
As proposed, we are finalizing these changes to take effect
beginning with the FY 2033 Hospital VBP Program year. Per section
1886(o)(2)(C)(i) of the Act, measures must be specified for use in the
Hospital IQR Program and publicly reported for at least one year prior
to use in the Hospital VBP Program. This updated measure is being
adopted in the Hospital IQR Program beginning with the FY 2027 payment
determination, and hospitals will be able to preview their data on this
measure in the Hospital IQR Program prior to it being publicly
reported. This delay will give hospitals time and data to identify any
performance impacts before this updated measure impacts payment under
the Hospital VBP Program. We intend to continue to monitor and evaluate
the performance of this measure for changes that may be a result of the
measure updates, along with any unintended consequences.
Comment: A couple of commenters agreed with the reasoning of the
Endorsement & Maintenance Cost and Efficiency Committee for not
reaching initial consensus on endorsement of the updated measure and
expressed concern endorsement was ultimately granted in the appeal
process, and recommended CMS reconsider the measure in the Hospital VBP
Program.
Response: On February 10, 2025,\205\ the Endorsement & Maintenance
Cost and Efficiency Committee voted, and did not reach consensus on
this measure, resulting in the measure not being re-endorsed. The
decision was appealed and the Appeals Committee unanimously voted to
grant the appeal, overturning the initial endorsement decision and
endorsing the measure with conditions. The two conditions for
endorsement were: (1) explore the proportion of procedures done in the
ambulatory surgical centers and hospital outpatient department setting
and evaluate the need for adjustment based on the impact of case mix;
and (2) explore additional approaches to the reliability assessment to
account for low-volume facilities.
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\205\ Battelle--Partnership for Quality Measurement. (2025).
Fall 2024 Cycle Endorsement and Maintenance (E&M) Technical Report:
Management of Acute Events and Chronic Conditions. Available at:
https://p4qm.org/articles/now-available-final-fall-2024-e-m-reports.
---------------------------------------------------------------------------
Comment: A commenter, who generally supported CMS's plans to
include MA beneficiaries in the measure's cohort, urged CMS to
reconsider the utility of the measure in the Hospital VBP Program given
complications may result from a variety of factors outside the
hospital's control.
Response: We thank the commenter for their feedback and support. We
continue to consider clinical outcomes for this measure a priority,
including clinical outcomes for Medicare patients in MA, as the measure
provides important patient safety and adverse events data to providers
and patients. Empirically, fee for service and MA patients each
represent approximately half of the cohort for this measure. The two
groups have similar outcome rates, similar risk variable prevalence,
and, with the addition of the MA indicator for risk adjustment, model
performance and calibration was good in the combined cohort. Using the
modified measure not only in the Hospital IQR Program, but also the
Hospital VBP Program under which a portion of payments to hospitals is
tied to measure performance, serves as an important incentive for
quality improvement.
Comment: A commenter expressed concerns with the use of mortality
measures and the COMP-HIP-KNEE measure for low reliability results. The
commenter suggested that none of those measures reached what the
commenter described as the minimum acceptable threshold of 0.7 for
reliability.
Response: We thank the commenter for their feedback. The measure
developer conducted rigorous testing and concluded that the addition of
MA patients into the measure's cohort, in conjunction with the
performance period changes, resulted in 75 percent of hospitals
exceeding a 0.6 reliability score. Based on measures in the program, a
0.7 reliability score does not represent the minimum threshold for a
measure's reliability in the Hospital VBP Program, and we note further
that the CBE describes 0.6 as the accepted threshold for reliability
when evaluating quality measures.\206\ This result demonstrates the
proposed measure
[[Page 36947]]
updates balance a focus on more recent data with a sufficiently
reliable measure calculation that accurately reflects the quality of
care provided by hospitals.
---------------------------------------------------------------------------
\206\ Table 4, Endorsement and Maintenance (E&M) Guidebook, June
2025. Partnership for Quality Measurement. Available at: https://www.p4qm.org/e-m-guidebook/e-m/e-m-guidebook-version-3-0.
---------------------------------------------------------------------------
Comment: Some commenters opposed inclusion of MA data in quality
measure cohorts until hospitals can validate and become comfortable
with the data. While the commenters acknowledged MA enrollment is now
over 50 percent of Medicare beneficiaries, the commenters stated that
MA encounter data is less accessible and sometimes less accurate than
FFS claims data. The commenters also noted that MA plans often use
their own utilization management tools like lengthy authorization
processes that can alter care patterns and recommended that CMS
implement a transition period before fully including MA data in
measurement. Other commenters requested that CMS allow time for
hospitals to review MA performance data to understand how their
performance cohorts have changed, stating that hospitals need time to
determine MA patient data will not skew their performance assessments
due to issues beyond the hospital's control. The commenters requested
CMS delay implementation until CMS can provide more information for
hospital's review and understanding or reconsider the proposal
entirely.
Response: The Hospital VBP Program intends to drive quality
improvement for the entire Medicare population and by extension, to all
patients served by hospitals. As MA enrollment grows, it becomes
necessary to expand the cohort population to more accurately reflect
the quality of care for all beneficiaries. As stated earlier, we
conducted testing to evaluate the effects of including MA data on the
measure cohort and found more than 80% of hospitals remained in the
same performance quintile or shifted by no more than one quintile after
the addition of MA data. These findings suggest that the inclusion of
MA data results in minimal disruption to hospital performance
classification while offering a more comprehensive view of quality for
hospitals serving both FFS and MA beneficiaries.
CMS is finalizing changes to the COMP-HIP-KNEE measure's cohort to
take effect with the FY 2033 Hospital VBP Program year, following their
implementation in the Hospital IQR Program beginning with the FY 2027
payment determination. This effective date will provide hospitals with
sufficient time to understand if and how the new patient cohort will
affect their performance assessment under the Hospital VBP Program.
Comment: Several commenters cautioned CMS about incorporating MA
outcomes in FFS quality programs, arguing this policy could lead to
duplicative penalties on hospitals. The commenters explained MA plans
have their own value-based programs and MA patients often experience
different post-acute care options due to MA plan structures. A
commenter encouraged us to analyze performance variations between MA
and FFS beneficiaries and provide annual confidential feedback reports
to hospitals on any differences. Another commenter suggested that CMS
work to develop improved measures of key outcomes rather than using MA
data and requested that it not publicly report current measures by
insurance type as such reporting contradicts the stated purpose of
combining the populations.
Response: We thank the commenters for sharing their concerns and we
intend to monitor the potential for differences between the MA and FFS
populations' on this measure. While we understand MA plans have their
own quality program, we remain concerned that omitting MA patients from
the measure provides an incomplete picture of the care quality provided
to Medicare beneficiaries by participating hospitals. As we stated in
the proposed rule (90 FR 18290), the addition of MA data in the measure
would approximately double the cohort size, and we have concluded that
including these patients in the measure provides CMS, providers,
patients, caregivers, and others a broader view of care quality. We
appreciate the commenter's concern about public reporting and will take
it into account as we refine our public reporting policies in the
future.
Comment: Some commenters requested CMS release data on the modified
THA/TKA measure and how performance changes with the addition of MA
patients. The commenters were concerned that MA benefit design means
hospitals will have less control over their MA patients' care,
especially due to prior authorization requirements. A commenter
recommended that CMS tie outcomes to fee-for-service patient
performance within the hospital's control. The commenter explained that
MA enrollees accept different benefit design than FFS patients and
expressed concern that hospitals cannot control MA plans' requirements
like prior authorization. The commenters also asked CMS to confirm that
it does not intend to use MA payment information to assess hospitals
under the Hospital VBP Program and suggested that CMS limit the
expanded patient cohort for this measure to the Hospital IQR Program.
Response: We intend to provide annual confidential feedback reports
to hospitals on their measured performance that they can use to assess
the effects of the cohort change on their measure rates. We acknowledge
commenters concerns regarding benefit design differences between MA
plans and traditional Medicare, however, adding MA beneficiaries into
the cohorts of the Hospital VBP Program measure set will provide a more
robust and holistic view of quality of care provided to all Medicare
beneficiaries despite these differences. For measure calculation, we
identify index and subsequent admissions for patients enrolled in MA
plans using MA encounter data and information-only claims for MA
inpatient stays. We note, neither of these data sources are dependent
on the MA plan's coverage determinations (including bundling or denying
coverage) for that admission. Therefore, the measures would continue to
encourage hospitals to focus on preventing readmissions, which are
often an adverse event for patients and impose a financial burden on
the patient and the healthcare system. Because an increasing portion of
Medicare beneficiaries are covered by MA plans, including index
admissions for these patients in our measure cohorts is an important
step in ensuring high-quality, safe care for all Medicare
beneficiaries. Including index admissions for Medicare beneficiaries
enrolled in MA also increases the cohort size for the Hospital VBP
Program measures, which in turn improves the measures' precision for
each hospital.
CMS continues to encourage hospitals to work closely with insurers,
including MA plans, to coordinate the highest quality care for their
patients. We further note that this measure will not incorporate MA
payment information into hospitals' assessments.
Comment: Several commenters supported our proposal to shorten the
performance period of the COMP-HIP-KNEE measure. Commenters stated the
change will more accurately reflect current care and simplify public
reporting, thus providing hospitals and patients with more recent data.
With this change, the hospitals will see results more quickly from
their quality improvement efforts and avoid being scored on older
information.
Response: We thank the commenters for their support.
After consideration of the public comments we received, we are
finalizing the updates to the COMP-HIP-KNEE measure's cohort and
performance period as proposed
[[Page 36948]]
beginning with the FY 2033 payment determination.
b. Technical Updates to the Specifications of the COMP-HIP-KNEE Measure
To Update the Risk Adjustment Model Beginning With the FY 2033 Program
Year \207\
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\207\ In the proposed rule, the section header was erroneously
shown with the FY 2027 Program Year. We corrected this error in a
Correction Notice that we published on June 5, 2025 (90 FR 23867).
---------------------------------------------------------------------------
In addition to the updates discussed previously and further updates
we discuss below, we provided notice in the FY 2026 IPPS/LTCH PPS
proposed rule (90 FR 18291 through 18292) of our intent to make a non-
substantive modification, as permitted under Sec. 412.164(c)(1), to
the COMP-HIP-KNEE measure to update the risk adjustment model to use
individual International Classification of Diseases (ICD)-10 codes
instead of Hierarchical Condition Categories (HCCs). Under this
technical updates policy, we use a subregulatory process to incorporate
technical measure specification updates into the measure specifications
we have adopted for the Hospital VBP Program (79 FR 50077 through
50079). We continue to believe that this policy, codified at 42 CFR
412.164(c)(1), is the most expeditious manner possible to ensure that
quality measures remain fully up to date while preserving the public's
ability to comment on substantive updates, which so fundamentally
change a measure that it is no longer the same measure that we
originally adopted. The current risk adjustment strategy for this
measure involves grouping ICD-10 diagnosis codes from CMS's HCC system
into clinically relevant categories. We then evaluate the HCCs for
statistical association with the measure's outcome.\208\ However,
research has indicated that using individual ICD codes in place of HCCs
could significantly improve the model performance of the mortality
measures.\209\ To better leverage the data and analytical advances
since the measure was initially developed, we created a new approach to
use individual ICD-10 codes for risk adjustment instead of grouping
them into categories. With this new approach, the discriminative
performance of the risk adjustment model as measured by c-statistic was
significantly better and the calibration performance also proved to be
satisfactory.
---------------------------------------------------------------------------
\208\ Centers for Medicare & Medicaid Services. 2024 Condition-
Specific Measure Updates and Specifications Report. Available at:
https://qualitynet.cms.gov/inpatient/measures/mortality/methodology.
\209\ Krumholz, H. M., Coppi, A. C., Warner, F., Triche, E. W.,
Li, S. X., Mahajan, S., Li, Y., Bernheim, S. M., Grady, J., Dorsey,
K., Lin, Z., & Normand, S. T. (2019). Comparative Effectiveness of
New Approaches to Improve Mortality Risk Models From Medicare Claims
Data. JAMA network open, 2(7), e197314. https://doi.org/10.1001/jamanetworkopen.2019.7314.
---------------------------------------------------------------------------
We received several comments on this technical update.
Comment: Many commenters supported our technical updates, noting
that using ICD-10 codes rather than HCCs will allow more granular and
individualized risk stratification. Some commenters stated that the
increased granularity of ICD-10 coding better captures patients'
clinical complexities, which results in fairer and more accurate
evaluations of hospitals' performance.
Response: We thank the commenters for their support.
Comment: A commenter also suggested that CMS consider an active
diagnosis of COVID-19 as a risk variable where appropriate.
Response: As we discuss in the following subsection of this final
rule, we are removing the exclusion of patients with a principal or
secondary diagnosis of COVID-19 in the measure denominators. We have
concluded a risk variable is not appropriate because the broader
patient cohort captured by the updated measures provides a more
complete picture of the care quality provided in hospitals, which meets
the goals of the Hospital VBP Program.
Comment: A commenter requested additional transparency when CMS
develops new models, including clinical validation and extensive
testing before public reporting.
Response: We intend to be transparent in developing models by
providing feedback to participating hospitals and will continue
providing feedback reports detailing hospitals' performance in the
Hospital VBP Program so they fully understand how risk adjustment
models affect their measured performance.
Comment: Some commenters expressed concern about CMS's plan to
change the risk adjustment model from HCC to ICD-10. Concerns included
misalignment of risk adjustment methods across programs and models and
potential for unintended consequences. A commenter cautioned this was
not a minor technical refinement and instead represented a foundational
departure from the methods used in many CMS programs, including the
TEAM model, deserving a phased approach to avoid operational risk and
threats to data continuity and integrity.
Response: We do not agree that this risk adjustment change
represents a foundational departure from prior CMS methods. As we
discussed in the proposed rule (90 FR 18292), in depth data analysis
conducted by the measure developer has indicated that using individual
ICD codes in place of HCCs could significantly improve the model
performance of mortality measures. Further, as discussed in the 2024
Condition[hyphen] and Procedure[hyphen]Specific Mortality/Complication
Measures Supplemental Methodology Report, the new variable selection
approach using ICD-10 codes in place of condition categories
significantly improved the discriminative performance of the risk
adjustment models, as measured by c-statistics, for stroke mortality
while performance remained the same for THA/TKA complications.\210\
Better risk adjustment models help quality measures more accurately
reflect the quality of care provided to Medicare beneficiaries,
allowing CMS to better leverage data and analytical advances since the
measure was initially developed and hospitals and patients to receive
more accurate quality data. We intend to keep participating hospitals
informed about the effects of this policy change through our customary
hospital-specific reports.
---------------------------------------------------------------------------
\210\ Centers for Medicare & Medicaid Services. 2024 Condition-
and Procedure-Specific Mortality/Complication Measures Supplemental
Methodology Report, Stroke/Elective Primary Total Hip Arthroplasty
(THA) and/or Total Knee Arthroplasty (TKA). Available at: https://qualitynet.cms.gov/inpatient/measures/complication/methodology
---------------------------------------------------------------------------
Comment: Some commenters expressed specific concern about the
burden imposed on hospitals by the change in risk adjustment model.
Response: We note that hospitals are already submitting these data
points through claims and there is no additional burden associated with
this change to risk adjustment model. The change will only affect how
CMS calculates measured performance.
We thank the commenters for their feedback on this technical
update. We will implement the technical updates as notified in the
proposed rule.
c. Technical Updates to the Specifications of the Five Condition- and
Procedure-Specific Mortality Measures and the COMP-HIP-KNEE Measure
Beginning With the FY 2027 Program Year
During the COVID-19 public health emergency, in the FY 2022 IPPS/
LTCH PPS final rule, we stated that we were updating the Hospital 30-
Day, All-Cause, Risk-Standardized Mortality Rate Following Acute
Myocardial Infarction (AMI) Hospitalization (MORT-30-AMI), Hospital 30-
Day, All-Cause, Risk-
[[Page 36949]]
Standardized Mortality Rate Following Coronary Artery Bypass Graft
(CABG) Surgery (MORT-30-CABG), Hospital 30-Day, All-Cause, Risk-
Standardized Mortality Rate Following Chronic Obstructive Pulmonary
Disease (COPD) Hospitalization (MORT-30 COPD), Hospital 30-Day, All-
Cause, Risk-Standardized Mortality Rate Following Heart Failure (HF)
Hospitalization (MORT-30-HF), and Hospital-Level Risk-Standardized
Complication Rate Following Elective Primary Total Hip Arthroplasty
(THA) and/or Total Knee Arthroplasty (TKA) (COMP-HIP-KNEE) measures to
exclude admissions with either a principal or secondary diagnosis of
COVID-19 present on admission from the measure denominators (86 FR
45279 through 45281). In the FY 2023 IPPS/LTCH PPS final rule, we also
updated the technical specifications for the Hospital 30-Day, All-
Cause, Risk-Standardized Mortality Rate Following Pneumonia
Hospitalization (MORT-30-PN) measure to exclude patients with either
principal or secondary diagnoses of COVID-19 from the measure
denominator (87 FR 49109 through 49110). Additionally, we further
modified the technical measure specifications for all six measures in
the Clinical Outcomes domain, the MORT-30-AMI, MORT-30-CABG, MORT-30-
COPD, MORT-30-HF, MORT-30-PN, and COMP-HIP-KNEE measures, in the FY
2023 IPPS/LTCH PPS final rule to include a covariate adjustment for
patient history of COVID-19 in the 12 months prior to the admission
beginning with the FY 2023 program year (87 FR 49106 through 49109).
We stated that we were making these updates pursuant to the
technical updates policy we finalized in the FY 2015 IPPS/LTCH PPS
final rule. We refer readers to the previous section of the preamble of
this final rule for more details on our subregulatory technical updates
policy.
Accordingly, we are providing notice in this final rule that we
intend to remove the COVID-19 exclusions from the five condition- and
procedure-specific mortality measures and one procedure-specific
complication measure beginning with the FY 2027 program year. This
technical update will modify the technical specifications of the MORT-
30-AMI, MORT-30-CABG, MORT-30-COPD, MORT-30-HF, and MORT-30-PN measures
to include the ICD-10 codes that identify patients with a principal
diagnosis code of COVID-19 or with a secondary diagnosis code of COVID-
19 coded as present on admission on the index admission claim. The
technical update will also modify the technical specifications of the
COMP-HIP-KNEE measure to include the ICD-10 codes that identify
patients with a principal or secondary diagnosis of COVID-19 in both
the measure numerator and denominator. Lastly, the technical update
will remove the covariate adjustment for patient history of COVID-19 in
the 12 months prior to the admission for all six measures in the
Clinical Outcomes domain for the Hospital VBP Program beginning with
the FY 2027 program year.
Including COVID-19 patients in the measure specifications for the
measures in the Clinical Outcomes domain beginning with the FY 2027
program year provides a more complete picture of the care quality
provided in hospitals, which meets the goals of the Hospital VBP
Program. Technical specifications of the Hospital VBP Program mortality
and complication measures are provided on our website under the Measure
Methodology Reports section (available at: https://qualitynet.cms.gov/inpatient/measures/mortality/methodology and https://qualitynet.cms.gov/inpatient/measures/complication/methodology).
Additional resources about the measure technical specifications and
methodology for the Hospital VBP Program are on the QualityNet website
(available at: https://qualitynet.cms.gov/inpatient/hvbp).
We received several public comments on this technical update.
Comment: Many commenters supported the technical update to remove
the COVID-19 exclusion from the Hospital VBP Program, a few commenting
on the end of the public health emergency (PHE) and minimal impact to
data.
Response: We thank the commenters for their support.
Comment: A commenter, supporting the removal of COVID-19 as an
exclusion, suggested CMS consider whether an active diagnosis of COVID-
19 should be a risk variable where appropriate.
Response: Given the analysis, we have concluded a risk variable is
not appropriate because the broader patient cohort captured by the
updated measures provides a more complete picture of the care quality
provided in hospitals, which meets the goals of the Hospital VBP
Program.
Comment: Some commenters recommended CMS adopt a phased
implementation approach to ensure data integrity and support hospitals
in adapting to the COVID-19 exclusion removal. The commenters requested
CMS provide hospitals with reporting cycles of data for internal
review, delay public reporting of measures with COVID-19 as a secondary
diagnosis, and exclude these measures from value-based purchasing
programs during initial reporting periods to avoid financial
implications and ensure data accuracy.
Response: We appreciate concerns regarding the removal of the
COVID-19 exclusion and its potential impact on hospital measure scores
and financial implications. To inform this discussion, we conducted an
analysis of the effect of removing the COVID-19 exclusion for the
Hybrid Hospital-Wide Readmission (HKC) measure. Between July 2021 and
June 2024, only 371 admissions out of 261,616 total index admissions
(approximately 0.14%) were excluded due to a COVID-19 diagnosis. This
demonstrates that the exclusion applied to a very small proportion of
cases and, therefore, the impact of its removal on hospital-level
measure scores is expected to be minimal. Given the limited number of
affected admissions, we do not anticipate meaningful shifts in
performance results due to this change. We will continue to monitor the
impact over time, but current data indicate the removal of the
exclusion does not warrant a phased implementation or exclusion from
value-based purchasing programs. Hospitals will also have the chance to
review their measure data during the 30-day preview period prior to
public reporting. Additionally, including COVID-19 patients in the
measure's cohort provides a broader view of the care quality hospitals
provide to Medicare beneficiaries and meets the goals of the Hospital
VBP Program.
Comment: A commenter was concerned about the removal of the COVID-
19 exclusion, stating the clinical and operational impacts of the
COVID-19 PHE continue to affect hospital performance, such as the long-
term effects of COVID-19 on workforce capacity, patient outcomes, and
systemic challenges, including access to post-acute care, all of which
can affect quality outcomes independently of provider performance. The
commenter suggested removing this exclusion may unfairly penalize
hospitals that continue to admit high-acuity, complex patients. Another
commenter suggested updated risk adjustment models account for the
long-term clinical effects of COVID-19 to avoid unfairly penalizing
hospitals with a higher number of post-COVID patients.
Response: We appreciate the commenters' concerns. Given the end of
the federal COVID-19 PHE on May 11, 2023, it is important CMS provide
hospitals and beneficiaries with a
[[Page 36950]]
complete picture of the care quality provided for all patients. While
hospitals and other types of health care facilities may face continuing
challenges due to the long-term effects of the COVID-19 PHE, we do not
agree these challenges represent such a significant threat to health
care operations that patients with a secondary COVID-19 diagnosis
should be excluded from these measures' cohorts.
We thank the commenters for their feedback on the technical update
to remove the COVID-19 exclusion from the five Condition- and
Procedure-Specific Mortality Measures and the COMP-HIP-KNEE Measure
Beginning with the FY 2027 Program Year. We will implement the updates
as outlined in the proposed rule.
d. Summary of Previously Adopted Quality Measures for the Hospital VBP
Program
We refer readers to the FY 2025 IPPS/LTCH PPS final rule for
summaries of the previously adopted measures for the FY 2026 through FY
2030 program years (89 FR 69402). We did not propose any changes to the
measure set. Table VI.L.-02 summarizes the previously adopted Hospital
VBP Program measure set for the FY-2026 program year.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR04AU25.255
Table VI.L.-03 summarizes the previously adopted Hospital VBP
Program measures for the FY 2027 through FY 2031 program years.
[[Page 36951]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.256
3. Baseline and Performance Periods for the FY 2027 Through FY 2031
Program Years
a. Background
We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR
69403 through 69405) for previously adopted baseline and performance
periods for the FY 2026 through FY 2030 program years. We also refer
readers to the FY 2017 IPPS/LTCH PPS final rule (81 FR 56998) in which
we finalized a schedule for all future baseline and performance
periods.
b. Summary of Baseline and Performance Periods for the FY 2027 through
FY 2031 Program Years
Tables VI.L.-04, VI.L.-05, VI.L.-06, VI.L.-07, and VI.L.-08
summarize the baseline and performance periods that we have previously
adopted.
[[Page 36952]]
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[[Page 36953]]
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[[Page 36954]]
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BILLING CODE 4120-01-C
4. Performance Standards for the Hospital VBP Program
a. Background
We refer readers to the FY 2024 IPPS/LTCH PPS final rule (88 FR
59089) for previously established performance standards for the FY 2026
program year. We also refer readers to the FY 2025 IPPS/LTCH PPS final
rule (89 FR 69406 through 69407) for the previously established
performance standards for the FY 2027 program year.
We received one general comment on our performance standards
updates.
Comment: A commenter stated their support for the updates to
Hospital VBP performance standards for the FY 2027 through FY 2031
program years.
Response: We thank the commenter for their support.
b. Technical Update to the Five National Healthcare Safety Network
(NHSN) Healthcare-Associated Infection (HAI) Measures
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18296 through
18297), we provided information regarding upcoming changes to the
standard population data that are used to calculate the standardized
infection ratio (SIR) for the CDC's NHSN measures. These changes are
occurring as part of routine measure maintenance.
CDC's NHSN measures are used to monitor hospital performance on
prevention of HAIs. For each NHSN measure, CDC calculates the
standardized infection ratio (SIR), which compares a hospital's
observed number of HAIs to the number of infections predicted for the
hospital, adjusting for several risk factors. The predicted number of
infections is determined using the amount of exposure (for example, the
number of central line days when predicting CLABSI events) for a given
hospital according to the relevant observed risk factors and infection
rates for the same combination of risk factors that occurred among a
standard population during a specified period as reflected by the
appropriate risk adjustment model (this is sometimes referred to as a
``baseline,'' \211\ but referred to here as ``standard population
data''). This set of rates forms standard population data that promotes
timely comparisons to measure change in an outcome. Since 2016, CDC has
been using data collected in CY 2015 to determine the standard
population and, currently, the 2015 standard population is used to
calculate the HAI measures in the Hospital VBP Program.\212\ Prior to
2016, calculated SIRs had different standard population years for each
infection type and facility type.\213\
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\211\ ``Rebaseline'' is a term that CDC's NHSN staff use to
describe the process of updating the national HAI baseline data and
risk adjustment models developed using these data. As part of
routine measure maintenance, CDC has updated the baseline to ensure
the number of predicted infections used in SIR calculations reflects
the current state of HAIs in the United States using CY 2022 data.
The CDC released its initial announcement of this rebaseline in June
2023. Resources and training regarding the 2015 and 2022 standard
population data can be found at: https://www.cdc.gov/nhsn/nhsnrebaseline/index.html.
\212\ Centers for Disease Control and Prevention. CHARTING THE
COURSE: 2022 HAI REBASELINE. Available at: https://www.cdc.gov/nhsn/pdfs/rebaseline/22-Rebaseline-FAQs-Final-Version.pdf.
\213\ Centers for Disease Control and Prevention. Paving the
Path Forward: 2015 Rebaseline. Available at:
https://www.cdc.gov/nhsn/2015rebaseline/index.html.
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During this update, HAI SIR calculations of infections reported
beginning in CY 2025 will reflect the use of both the new 2022 standard
population data and the 2015 standard population data.
Because the Hospital VBP Program calculates improvement points
using comparisons between data collected from hospitals in a baseline
period and data collected in a performance period, the Hospital VBP
Program must treat CDC's baseline update differently than other quality
programs. We have determined that we cannot equally compare CDC's new
baseline data to the current baseline data to calculate improvement
points. If we do not address the CDC's measure update, we will be
unable to compare the baseline and performance periods for NHSN
measures in the FY 2027 through FY 2028 program years. To address the
problem, we intend to use the 2015 baseline data to calculate
performance standards as well as to calculate and publicly report
measure scores until the FY 2029 program year, as depicted in the
table. For the FY 2029 program year and subsequent years, the Hospital
VBP Program will use the ``new standard population data'' (that is, CY
2022 data) to calculate performance standards and calculate and
publicly report measure scores.
[[Page 36955]]
[GRAPHIC] [TIFF OMITTED] TR04AU25.262
We received public comments on the technical update.
Comment: Many commenters supported CMS's notification of the update
to the standardized baseline year for the Hospital VBP Program's HAI
measures, agreeing 2022 is a reasonable, recent, post-COVID-19 baseline
for updated quality measurement. Some commenters acknowledged the
importance of updating the baseline year for NHSN measures' risk
adjustment. The commenters encouraged CMS to evaluate the potential
impacts of CY 2022 data for the commenters' information.
Response: We thank the commenters for their support. Hospitals will
receive confidential reports on their measure performance.
We thank the commenters for their feedback on this technical update
and we will implement the updates as outlined in the proposed rule.
c. Previously and Newly Established Performance Standards for the FY
2027 Program Year
We have adopted certain measures for the Safety domain, Clinical
Outcomes domain, and the Efficiency and Cost Reduction domain for
future program years to ensure that we can adopt baseline and
performance periods of sufficient length for performance scoring
purposes. In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45294 through
45295), we established performance standards for the FY 2027 program
year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30-
HF, MORT-30-PN (updated cohort), MORT-30-COPD, MORT-30-CABG, and COMP-
HIP-KNEE) and the Efficiency and Cost Reduction domain measure (MSPB).
Additionally, in the FY 2025 IPPS/LTCH PPS final rule, we established
the performance standards for the FY 2027 program year for the Safety
domain measures (CAUTI, CLABSI, CDI, MRSA Bacteremia, Colon and
Abdominal Hysterectomy SSI, and SEP-1) and the Person and Community
Engagement Domain (the HCAHPS Survey Dimensions) (89 FR 69406 through
69407).
While we are making technical updates to the measures in the
Clinical Outcomes domain beginning with the FY 2027 program year as
discussed previously, the FY 2027 performance standards that we
previously adopted for measures in this domain are unchanged because
the applicable baseline period does not include COVID-19 impacted data
after applying the national ECE. For the reader's reference, the
performance standards for the measures in the Clinical Outcomes domain
for the FY 2027 program year are set out in Table VI.L.-10.
[GRAPHIC] [TIFF OMITTED] TR04AU25.263
d. Newly Established and Estimated Performance Standards for the FY
2028 Program Year
We have adopted certain measures for the Safety domain, Clinical
Outcomes domain, and the Efficiency and Cost Reduction domain for
future program years to ensure that we can adopt baseline and
performance periods of sufficient length for performance scoring
purposes. In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49118), we
established performance standards for the FY 2028 program year for the
Clinical Outcomes domain measures (MORT-30-AMI, MORT-30-HF, MORT-30-PN,
MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and
Cost Reduction domain measure (MSPB Hospital). However, given the
technical update to the measures in the Clinical Outcomes domain
beginning with the FY 2027 program year as discussed previously in
section VI.L.2.c., we are establishing new performance standards for
the measures in the Clinical Outcomes domain for the FY 2028 program
year. We note that the performance standards for the MSPB Hospital
measure are based on performance period data. Therefore, we are unable
to provide numerical equivalents for the standards at this time. The
newly established performance standards for these
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measures are set out in Table VI.L.-11.\214\
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BILLING CODE 4120-01-P
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BILLING CODE 4120-01-C
We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR
69507-69508) where we finalized the policy to modify the scoring of the
HCAHPS Survey for the FY 2027 through FY 2029 program years while
updates to the survey are publicly reported under the Hospital IQR
Program. Scoring is modified to only score hospitals on the six
unchanged Hospital VBP dimensions of the HCAHPS Survey until the
updates to the HCAHPS Survey have been publicly reported for one year.
The six unchanged dimensions of the HCAHPS Survey for the Hospital VBP
Program are as follows:
``Communication with Nurses''.
``Communication with Doctors''.
``Communication about Medicines''.
``Discharge Information''.
``Cleanliness and Quietness''.
``Overall Rating.''
Scoring is modified such that for each of the six unchanged
dimensions, Achievement Points (0-10 points) and Improvement Points (0-
9 points) will be calculated, the larger of which will be summed across
these six dimensions to create a pre-normalized HCAHPS Base Score of 0-
60 points (as compared to 0-80 points with the current eight
dimensions). The pre-normalized HCAHPS Base Score will then be
multiplied by \8/6\ (1.3333333) and rounded according to standard rules
[[Page 36957]]
(values of 0.5 and higher are rounded up, values below 0.5 are rounded
down) to create the normalized HCAHPS Base Score. Each of the six
unchanged dimensions will be of equal weight, so that, as currently
scored, the normalized HCAHPS Base Score will range from 0 to 80
points. HCAHPS Consistency Points will be calculated in the same manner
as the current method and will continue to range from 0 to 20 points.
Like the Base Score, the Consistency Points Score will consider scores
across the six unchanged dimensions of the Person and Community
Engagement domain. The final element of the scoring formula, which will
remain unchanged from the current formula, will be the sum of the
HCAHPS Base Score and the HCAHPS Consistency Points Score for a total
score that ranges from 0 to 100 points. The method for calculating the
performance standards for the six dimensions will remain unchanged. We
refer readers to the Hospital Inpatient VBP Program final rule (76 FR
26511 through 26512) for our methodology for calculating performance
standards. The performance standards for the six unchanged dimensions
for the FY 2028 program year are set out in Table VI.L.-12.\215\
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\215\ NOTE TO REVIEWERS: Table VI.L.-12 has been updated.
[GRAPHIC] [TIFF OMITTED] TR04AU25.265
e. Newly Established Performance Standards for Certain Measures for the
FY 2029 Program Year
We have adopted certain measures for the Safety domain, Clinical
Outcomes domain, and the Efficiency and Cost Reduction domain for
future program years to ensure that we can adopt baseline and
performance periods of sufficient length for performance scoring
purposes. In the FY 2024 IPPS/LTCH PPS final rule (88 FR 59091 through
59092), we established performance standards for the FY 2029 program
year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30-
HF, MORT-30-PN, MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the
Efficiency and Cost Reduction domain measure (MSPB Hospital). However,
given the technical update to the measures in the Clinical Outcomes
domain beginning with the FY 2027 program year as discussed previously,
we are newly establishing the performance standards for the measures in
the Clinical Outcomes domain for the FY 2029 program year to now
include COVID-19 patients in the measure data. We note that the
performance standards for the MSPB Hospital measure are based on
performance period data. Therefore, we are unable to provide numerical
equivalents for the standards at this time. The newly established
performance standards for these measures are set out in Table VI.L.-
13.\216\
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[GRAPHIC] [TIFF OMITTED] TR04AU25.266
f. Newly Established Performance Standards for Certain Measures for the
FY 2030 Program Year
We have adopted certain measures for the Safety domain, Clinical
Outcomes domain, and the Efficiency and Cost Reduction domain for
future program years to ensure that we can adopt baseline and
performance periods of sufficient length for performance scoring
purposes. In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69409 through
69410), we established performance standards for the FY 2030 program
year for the Clinical Outcomes domain measures (MORT-30-AMI, MORT-30-
HF, MORT-30-PN, MORT-30-COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the
Efficiency and Cost Reduction domain measure (MSPB Hospital). However,
given the technical update to the measures in the Clinical Outcomes
domain beginning with the FY 2027 program year as discussed previously,
we are newly establishing the performance standards for the measures in
the Clinical Outcomes domain for the FY 2030 program year. We note that
the performance standards for the MSPB Hospital measure are based on
performance period data. Therefore, we are unable to provide numerical
equivalents for the standards at this time. The newly established
performance standards for these measures are set out in Table VI.L.-
14.\217\
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g. Newly Established Performance Standards for Certain Measures for the
FY 2031 Program Year
As discussed previously, we have adopted certain measures for the
Clinical Outcomes domain (MORT-30-AMI, MORT-30-HF, MORT-30-PN, MORT-30-
COPD, MORT-30-CABG, and COMP-HIP-KNEE) and the Efficiency and Cost
Reduction domain (MSPB Hospital) for future program years to ensure
that we can adopt baseline and performance periods of sufficient length
for performance scoring purposes. In accordance with our methodology
for calculating performance standards discussed more fully in the
Hospital Inpatient VBP Program final rule (76 FR 26511 through 26512),
which is codified at 42 CFR 412.160, we are establishing the following
performance standards for the FY 2031 program year for the Clinical
Outcomes domain and the Efficiency and Cost Reduction domain. We note
that the performance standards for the MSPB Hospital measure are based
on performance period data. Therefore, we are unable to provide
numerical equivalents for the standards at this time. The newly
established performance standards for these measures are set out in
Table VI.L.-15.\218\
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5. Update to the Extraordinary Circumstance Exception (ECE) Policy for
the Hospital VBP Program
(a) Background
Under our current Extraordinary Circumstances Exception (ECE)
regulations, we have granted exceptions with respect to Hospital VBP
Program requirements in the event of certain extraordinary
circumstances beyond the control of the hospital. We refer readers to
the FY 2022 IPPS/LTCH PPS final rule (86 FR 45298 through 45299) and 42
CFR 412.165(c) for additional details related to the Hospital VBP
Program ECE policy. We also refer readers to the QualityNet website for
the specific requirements for submission of an ECE request in the
Hospital VBP Program.\219\
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\219\ https://qualitynet.cms.gov/inpatient/hvbp/participation#tab6.
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Our ECE policies provide flexibility for Hospital VBP program
participants to ensure continuity of quality care delivery and measure
scoring in the event of an extraordinary circumstance. For instance, we
recognize that, in circumstances where a full exception is not
applicable, it is beneficial for a hospital to report data later than
the reporting deadline. Delayed reporting authorized under our ECE
policy allows temporary relief for a hospital experiencing an
extraordinary circumstance while preserving the benefits of data
reporting such as transparency and informed decision-making for
beneficiaries and providers alike. Accordingly, we proposed to update
our regulations to specify that an ECE could take the form of an
extension of time for a hospital to comply with a data reporting
requirement if CMS determines that this type of relief would be
appropriate under the circumstances.
(b) Update to the Extraordinary Circumstances Exception (ECE) Policy
for the Hospital VBP Program
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18300 through
18301), we proposed to update the current ECE policy codified at 42 CFR
412.165(c) to include extensions of time as a form of relief and to
further clarify the policy. Specifically, at proposed Sec.
412.165(c)(1), we proposed that CMS may grant an ECE with respect to
reporting requirements in the event of an extraordinary circumstance--
defined as an event beyond the control of a hospital (for example, a
natural or man-made disaster such as a hurricane, tornado, earthquake,
terrorist attack, or bombing)--that affected the ability of the
hospital to comply with one or more applicable reporting requirements
with respect to a fiscal year.
We proposed that the process for requesting or granting an ECE
would remain the same as the current ECE process, detailed by CMS at
the QualityNet website or a successor website.\220\ At proposed Sec.
412.165(c)(2)(i), we proposed that a hospital may request an ECE within
30 calendar days of the date that the extraordinary circumstance
occurred. Our current policy allows a request within 90 days; however,
this proposed change would align to CMS systems implementation
requirements across all quality reporting programs. Under this proposed
codified policy, we clarified that CMS retains the authority to grant
an ECE as a form of relief at any time after the extraordinary
circumstance has occurred. At proposed Sec. 412.165(c)(2)(ii), we
proposed that CMS notify the requestor with a decision in writing. In
the event that CMS grants an ECE to the hospital, the written decision
would specify whether the hospital is exempted from one or more
reporting requirements or whether CMS has granted the hospital an
[[Page 36961]]
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Additionally, at Sec. 412.165(c)(3), we noted that CMS may grant
an ECE to one or more hospitals that have not requested an ECE if CMS
determines either of the following: a systemic problem with a CMS data
collection system directly impacted the ability of the hospital to
comply with a quality data reporting requirement, or that an
extraordinary circumstance has affected an entire region or locale. As
is the case under our current policy, any ECE granted will specify
whether the affected hospitals are exempted from one or more reporting
requirements or whether CMS has granted the hospitals an extension of
time to comply with one or more reporting requirements.
This ECE policy would provide further reporting flexibility for
hospitals and clarify the ECE process.
We invited public comment on our proposals. We received many
general comments regarding our ECE-related proposals. However, we did
not receive any comments specific to these updates for the Hospital VBP
Program. For our responses to general comments, we refer readers to our
responses in the Hospital IQR section of this final rule (section X.C).
After consideration of the public comments, we will finalize our
ECE proposals as proposed, except for the proposed 30-day deadline. In
lieu of the 30-day deadline and as discussed further in the Hospital
IQR section of this final rule (section X.C.), we will finalize an ECE
deadline of 60 days following an extraordinary circumstance. We are
making conforming amendments to our regulation text (at
412.165(c)(2)(i)) to reflect this policy change.
6. Proposed Removal of the Health Equity Adjustment From the Hospital
VBP Program
In the FY 2024 IPPS/LTCH PPS final rule (88 FR 59092 through
59106), we adopted a Health Equity Adjustment (HEA) that, beginning
with the FY 2026 program year, rewards top performing hospitals that
serve higher proportions of patients with dual eligibility status. We
codified the HEA at Sec. Sec. 412.160 and 412.165(b) of our
regulations. Section 1886(o)(5)(A) of the Act authorizes the Secretary
to develop the methodology for assessing hospital performance based on
performance standards established with respect to the measures selected
for the Hospital VBP Program.
As discussed in the FY 2024 IPPS/LTCH PPS final rule, by providing
the HEA to hospitals that serve higher proportions of patients with
dual eligibility status and that perform well on quality measures, the
HEA would appropriately recognize the resource intensity expended to
achieve high performance on quality measures by hospitals that serve a
high proportion of patients with dual eligibility status, while also
mitigating the worse health outcomes experienced by dually eligible
patients through incentivizing better care across all hospitals.
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18301), we
proposed to remove the HEA because simplifying the Hospital VBP
Program's scoring methodology by removing the HEA would improve
hospitals' understanding of the program and provide clearer incentives
to hospitals as they seek to improve the quality of care for all
patients. As noted in section I.G. of Appendix A of the proposed rule,
in Table I.G.6.-01 and Table I.G.6.-02, the overall impact of the HEA
on the overall payment adjustments is small. With the HEA, the average
net percentage payment adjustment from the Hospital VBP Program for FY
2026 is 0.170 percent and without the HEA, the average net percentage
payment adjustment is 0.168 percent. Given this relatively small
impact, and in light of the Administration's priority to streamline
regulations and reduce burdens on those participating in the Medicare
program, we proposed to remove the HEA. We refer readers to
``Supplementary Information'' section of this final rule for the
Unleashing Prosperity Through Deregulation of the Medicare Program--
Request for Information for more information.
We considered altering the structure of the adjustment methodology
to simplify it, but that process would require time to develop and test
a new adjustment and, if pursued, would be addressed in future
rulemaking.
We did not anticipate any serious reliance interests as a result of
this proposal since the HEA does not require any additional reporting
burden.
We proposed to codify this removal of the HEA by removing the
definition of ``Health equity adjustment bonus points'' in Sec.
412.160 of our regulations and revising Sec. 412.165(b) to remove the
calculation and addition of health equity adjustment bonus points from
the Total Performance Score calculation beginning with the FY 2026
program year. We referred readers to Table I.G.6.-01 (90 FR 18471
through 18472) and Table I.G.6.-02 (90 FR 18473) in Section 6: Effects
of Changes Under the FY 2026 Hospital Value-Based Purchasing (VBP)
Program in the proposed rule, which reflected an estimated impact
analysis of base operating DRG payment amounts resulting from the FY
2026 Hospital VBP Program with and without the HEA, respectively.
We invited public comment on these proposals.
Comment: A few commenters supported the proposal to remove the HEA,
while noting their continued commitment to providing high-quality care
for all, and did not suggest other alternative adjustments.
Response: We thank the commenters for their feedback and support
their commitment to providing high-quality care to all patients.
Comment: Several commenters acknowledged the importance of
providing additional resources to hospitals serving a high proportion
of dually eligible beneficiaries but did not take a strong position on
supporting or opposing the proposal to removal HEA. Instead, the
commenters suggested CMS explore other mechanisms, such as the
beneficiary economic risk adjustment variable proposed for TEAM, noting
the importance of transparency and simplicity. One commenter
acknowledged the calculation's complexity but suggested that other
policies such as the dual-eligible patient index have also created
confusion.
Response: We thank the commenters for this feedback. As stated in
the proposed rule (90 FR 18301), it would require time to develop and
test an alternative, simplified structure for the HEA's bonus
methodology. If we decide to propose a different adjustment in the
future, we would review adjustments adopted in other CMS quality
programs to enhance cross-program alignment whenever feasible and
effective and then propose the adjustment in future rulemaking.
Comment: Most commenters strongly opposed the proposal to eliminate
the HEA, noting the HEA shifted much-needed financial support towards
hospitals operating on thin margins and serving high-risk, complex
communities. Some commenters recommended CMS delay the HEA's removal
until a robust, data-driven alternative is in place, and suggested CMS
convene stakeholder panels to develop the new adjustment.
Response: As we discussed in the proposed rule (90 FR 18301), the
effect of the HEA on the average net percentage payment adjustment
provided by the Hospital VBP Program is small. We proposed to remove
the adjustment beginning with the FY 2026 program year. This timing
avoids burden by removing it before it was implemented for the first
time. If we were to delay removal, burden would be incurred in the
years the adjustment
[[Page 36962]]
was in effect. As described above, if we decide to propose a different
payment adjustment in the future, we would review other programs'
adjustments as well as stakeholder input and propose in future
rulemaking.
Comment: Many commenters opposed the proposal to remove the HEA,
stating HEA helps hospitals that face challenges providing care to the
patients in their communities. The commenters also suggested that CMS
has not had sufficient time to evaluate the adjustment's impact on
health outcomes and expressed worry that the removal may have
unintended consequences for health outcomes. A commenter recommended
that CMS continue the HEA for at least five years to fully evaluate the
impact of the adjustment on health outcomes. Other commenters worried
that the adjustment's removal would have a disproportionate effect on
safety net hospitals that often care for dually eligible beneficiaries
and hospitals in rural areas, both of which frequently operate under
financial strain because they provide critical but unprofitable
services.
Response: As we explained in the proposed rule, we are addressing
the additional complexity provided by the HEA in the Hospital VBP
Program. As stated in the proposed rule, simplifying the program's
scoring methodology by removing the HEA will enhance providers'
understanding of the program's quality incentives and its quality
improvement goals, and we do not believe it would be appropriate to
wait five years to simplify the program. We will continue monitoring
safety net hospitals and rural hospitals as part of our monitoring and
evaluation work as we work to maintain access to high-quality care for
all Medicare beneficiaries. We remind commenters that, as we discussed
above, the effect of the HEA on the average net percentage payment
adjustment provided by the Hospital VBP Program is small, and by
removing it effective for the FY 2026 Hospital VBP program year before
it has taken effect, we will avoid burdening participating hospitals
with the adjustment's complexity.
Comment: A commenter stated that removing the HEA would return
healthcare provision to an era where healthcare systems that provide
care for the most medically and socially complex patients are no longer
recognized for that additional burden. A few commenters rejected the
need to remove HEA as a means of simplifying the scoring methodology,
providing clearer incentives to hospitals, or reducing burden, thus
opposing HEA removal and disagreeing with the intended goals of its
removal. One commenter suggested CMS could resolve that complexity by
providing better education to hospitals.
Response: We appreciate the commenters' concerns for hospitals that
care for the most medically and socially complex patients. As outlined
in the proposal, simplifying the program's scoring methodology by
removing the HEA will enhance providers' understanding of the program's
quality incentives and its quality improvement goals, and is consistent
with the Administration's priority to streamline regulations on those
participating in the Medicare program. We intend to continue working to
educate participating providers on the mechanics of our quality
programs to promote their understanding and their ability to compete
for quality incentive payments. We note, however, that the complexity
added to the program's scoring methodology by the Health Equity
Adjustment makes such educational efforts, particularly for new
hospitals, more challenging.
Comment: Some commenters opposed HEA removal and stated that the
Hospital VBP Program should consider differences in a provider's
patient population, including social risk factors, to counter the
challenges faced in achieving good clinical outcomes. The commenters
recommended considering an alternative design for the Hospital VBP
Program if HEA is removed, with one commenter suggesting a new hospital
value incentive program that accounts for social risk factors through a
peer grouping approach and another suggesting the alternative design
focus on upstream factors related to patients' health.
Response: We thank commenters for their feedback and suggestions on
potential Hospital VBP Program methodology adjustments. The program
remains a pay-for-performance quality program designed to make the
quality of care better for hospital patients and hospital stays a
better experience by encouraging hospitals to improve the quality,
efficiency, patient experience and safety of care that Medicare
beneficiaries receive during acute care inpatient stay. We note further
that the program's design is specified by statute and is intended to
address the care quality provided by inpatient hospitals. CMS will
continue to evaluate the Hospital VBP program and support alignment
between the program's goals and methodology.
Comment: Some commenters opposed the proposal to remove HEA,
arguing the adjustment helps protect vulnerable and historically
underserved populations, including patients with severe mental illness,
complex social needs, low socioeconomic status, and dual eligibility
status. Multiple commenters noted the adjustment will help underfunded
safety net hospitals and hospitals in rural communities drive culture
change and serve patients with medical complexities and financial
hardships. Other commenters stated that the HEA encourages hospitals to
focus on providing high-quality care to vulnerable patients, including
maternal and psychiatric patients, and can lead to reduced health care
costs in the long run. A commenter stated that hospitals working on
care quality issues for vulnerable patients need appropriate
infrastructure to be sustainable for all the communities they serve and
suggested that eliminating the HEA risks penalizing hospitals that are
working to address gaps in health outcomes.
Response: We appreciate the commenters' insights and remarks on
safety net hospitals' financial needs, as well as the complexities
associated with high-risk patient populations. CMS will continue
monitoring the quality of care provided by these hospitals and the
effects of the Hospital VBP Program as parts of our monitoring and
evaluation efforts. However, as discussed above, we note that the
average net percentage payment adjustment provided by the Hospital VBP
Program is small. We have concluded that the merits of the additional
payment adjustment are outweighed by the complexity it adds to the
program's scoring methodology. We expect that all hospitals strive to
provide the best possible care to all of their patients and we do not
agree that the adjustment's removal will impair those efforts by
hospitals, doctors, and other medical staff.
We agree with the commenter that hospitals need appropriate
infrastructure to be able to serve all their patient communities. We
will continue monitoring the effects of Medicare payment policy on
numerous aspects of care quality and delivery, including maternal
health and mortality.
Comment: A commenter stated that the Hospital VBP Program
represents a step towards a ``total cost of care'' model, and that
removing the HEA would harm hospitals that serve higher proportions of
dually eligible patients. The commenter estimated that safety-net
hospitals will receive an estimated $29 million in additional payment
adjustments from the HEA and that as a result, those hospitals and
their patients will bear the brunt of the negative impact if the
adjustment is removed. The commenter suggested that the HEA was a
notable step to
[[Page 36963]]
strengthen value-based care reforms and aligns with the Trump
Administration's repeated emphasis on a new approach to health care
that factors in nutrition and environmental impacts.
Response: The original intention of the adjustment was to develop a
methodology to reward top performing hospitals serving higher
proportions of patients with dual eligibility status. However, we do
not view the incorporation of these additional topics as a new payment
model. CMS intends to identify potential avenues for the Hospital VBP
Program to address nutrition, environmental impacts, and other
potential factors that may affect the provision of high-quality health
care in the inpatient hospital setting in the future. We will continue
to evaluate the program's methodology for alignment with the program's
objectives.
After consideration of the public comments that we received, we are
finalizing our proposal to remove the Health Equity Adjustment from the
Hospital VBP Program effective with the FY 2026 program year. We are
also finalizing our proposal to codify this policy by removing the
definition of ``Health equity adjustment bonus points'' in Sec.
412.160 of our regulations and revising Sec. 412.165(b) to remove the
calculation and addition of health equity adjustment bonus points from
the Total Performance Score calculation beginning with the FY 2026
program year. We refer readers to Table I.G.6.-01 in Section 6: Effects
of Changes Under the FY 2026 Hospital Value-Based Purchasing (VBP)
Program, which reflect an estimated impact analysis of base operating
DRG payment amounts resulting from the FY 2026 Hospital VBP Program
without the HEA.
M. Hospital-Acquired Condition Reduction Program Updates and Changes
(HAC Reduction Program)
1. Regulatory Background
We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR
50707 through 50709) for a general overview of the Hospital-Acquired
Condition (HAC) Reduction Program and a detailed discussion of the
statutory basis for the Program. We also refer readers to 42 CFR
412.170 through 412.172 for codified HAC Reduction Program
requirements.
2. Measures for FY 2026 and Subsequent Years in the HAC Reduction
Program
a. Current Measures
The previously finalized measures for the HAC Reduction Program for
FY 2026 and subsequent years are shown in table VI.M.-01. Technical
specifications for the CMS Patient Safety and Adverse Events Composite
(CMS PSI 90) measure can be found on the QualityNet website available
at: https://qualitynet.cms.gov/inpatient/measures/psi/resources.
Technical specifications for the Centers for Disease Control and
Prevention's (CDC) National Healthcare Safety Network (NHSN)
healthcare-associated infection (HAI) measures can be found at the
CDC's NHSN website at: https://www.cdc.gov/nhsn/acute-care-hospital/index.html and on the QualityNet website available at: https://qualitynet.cms.gov/inpatient/measures/hai/resources. These web pages
provide measure updates and other information necessary to guide
hospitals participating in the collection of HAC Reduction Program
data.
[GRAPHIC] [TIFF OMITTED] TR04AU25.269
We did not propose to add or remove any measures in the FY 2026
IPPS/LTCH PPS proposed rule (90 FR 18302). We refer readers to section
I.G.7. of Appendix A of this final rule for an updated estimate of the
impact of the Program policies on the proportion of hospitals in the
worst performing quartile of Total HAC Scores for the FY 2026 HAC
Reduction Program.
b. Technical Update to CDC's National Healthcare Safety Network
Healthcare-Associated Infection Measures for the HAC Reduction Program
In this section, we provide information regarding upcoming changes
to the standard population data that are used to calculate the
standardized infection ratio (SIR) for the CDC's NHSN measures. These
changes are occurring as part of routine measure maintenance.
CDC's NHSN measures are used to monitor hospital performance on
prevention of healthcare-associated infections (HAIs). For each NHSN
measure, CDC calculates the SIR, which compares a hospital's observed
number of HAIs to the number of infections predicted for the hospital,
adjusting for several risk factors. The predicted number of infections
is determined using the amount of exposure (for example, the number of
central line days when predicting CLABSI events) for a given hospital
according to the relevant observed risk factors and infection rates for
the same combination of risk factors that occurred among a standard
population during a specified period as reflected by the appropriate
risk adjustment model (this is sometimes referred to as a ``baseline,''
\221\ but referred to here as
[[Page 36964]]
``standard population data''). This set of rates forms standard
population data that promotes timely comparisons to measure change in
an outcome. Since 2016, CDC has been using data collected in CY 2015 to
determine the standard population and, currently, the 2015 standard
population is used to calculate the HAI measures in the HAC Reduction
Program.\222\ Prior to 2016, calculated SIRs had different standard
population years for each infection type and facility type.\223\
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\221\ ``Rebaseline'' is a term that CDC's NHSN staff use to
describe the process of updating the national HAI baseline data and
risk adjustment models developed using these data. As part of
routine measure maintenance, CDC has updated the baseline to ensure
the number of predicted infections used in SIR calculations reflects
the current state of HAIs in the United States using CY 2022 data.
The CDC released its initial announcement of this rebaseline in June
2023. Resources and training regarding the 2015 and 2022 standard
population data can be found at: https://www.cdc.gov/nhsn/nhsnrebaseline/index.html.
\222\ Centers for Disease Control and Prevention. CHARTING THE
COURSE: 2022 HAI REBASELINE. Available at: https://www.cdc.gov/nhsn/pdfs/rebaseline/22-Rebaseline-FAQs-Final-Version.pdf.
\223\ Centers for Disease Control and Prevention. Paving the
Path Forward: 2015 Rebaseline. Available at: https://www.cdc.gov/nhsn/2015rebaseline/index.html.
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During this update, HAI SIR calculations of infections reported
beginning in CY 2025 will reflect the use of both the new 2022 standard
population data and the 2015 standard population data. We anticipate
that the new 2022 standard population data will affect the HAC
Reduction Program beginning with the FY 2028 program year when both
years of the 2-year applicable period (also referred to as the
``performance period'' of the measures), CY 2025 and CY 2026, will use
the 2022 update to the standard population for the CDC's NHSN measures.
Under the HAC Reduction Program, confidential reports are made
available to hospitals with respect to HACs of the hospital during the
applicable period (78 FR 50708 through 50709). In the FY 2019 IPPS/LTCH
PPS final rule (83 FR 41484 through 41489), we clarified the Scoring
Calculations Review and Correction Period (83 FR 41484) for the HAC
Reduction Program, which provides hospitals with detailed HAC Reduction
Program data and results in confidential Hospital-Specific Reports
(HSRs). We give hospitals 30 days to review their HAC Reduction Program
data, submit questions about the calculation of their results, and
request corrections prior to such information being made public.\224\
The HAI measures using the 2022 update to the standard population in
the FY 2028 HAC Reduction Program dataset would be publicly reported on
the Provider Data Catalog in early 2028.
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\224\ For more information on the Scoring Calculations Review
and Correction Period, see: https://qualitynet.cms.gov/inpatient/hac/payment#tab2.
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For the HAI measure information publicly reported on the Compare
tool on Medicare.gov, it will continue to display on a quarterly basis
calculated from a rolling four quarters of data. The HAI measures using
the 2022 update to the standard population data will begin to be
publicly reported on the Compare tool in fall 2026 using four quarters
of CY 2025 data.
[GRAPHIC] [TIFF OMITTED] TR04AU25.270
As we stated in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38324),
our current policy has been to report data as soon as it is feasible on
CMS websites such as the Compare tool and the Provider Data Catalog,
after a 30-day preview period.\225\ Table VI.M.-03 summarizes the HAI
performance periods, the standard population data year, HAC Reduction
Program year, and public reporting timeframe for the CDC's NHSN
measures.
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\225\ For more information on the Care Compare Preview period,
see: https://qualitynet.cms.gov/inpatient/public-reporting/public-reporting/hospital-compare-preview.
[GRAPHIC] [TIFF OMITTED] TR04AU25.271
We refer readers to section VI.L.4.b of this final rule, where we
provided notice of technical updates to the standard population data
for the CDC's NHSN HAI measures in the Hospital Value-Based Purchasing
(VBP) Program.
While we are not required to solicit comments on technical updates,
we invited public comment on this technical update.
Comment: Many commenters expressed strong support for updating the
CDC NHSN HAI measure baseline year from 2015 to 2022 baseline data.
Commenters emphasized that utilizing current CDC data not only enhances
the accuracy of infection control performance measurement in a post-
pandemic context but also aligns benchmarks with modern clinical
practices. A commenter recommended that CMS publish comparative data
showing the impact of the updated baseline on historical performance,
stratified by hospital type and size.
Response: We thank commenters for their support. We agree that
utilizing current CDC data enhances the accuracy of infection control
performance measurement in a post-pandemic context and aligns
benchmarks with modern clinical practices. We appreciate commenters'
recommendation to publish comparative data showing the impact of the
updated baseline on historical performance, stratified by hospital type
and size. We will take this recommendation into consideration to
determine the feasibility of providing that data.
Comment: A few commenters expressed support for updating the CDC
[[Page 36965]]
NHSN HAI measure baseline year from 2015 to 2022 baseline data but
recommended postponing implementation of the technical update. A few of
these commenters recommended aligning the baseline year for the HAC
Reduction Program with that of the Hospital VBP Program, beginning with
FY 2029 for both programs, as it would allow for a coordinated approach
that would enhance clarity, reduce administrative burden, and ensure
more meaningful comparisons across programs using the same underlying
measures. Another commenter stated that there were challenges and
delays that had been noted by healthcare providers updating to the new
baseline due to technical issues with the NHSN reporting system. These
issues include frequent changes to module tables, acceptance of
incomplete data, and errors during data uploads. Another commenter
noted that some of the rebaseline models were not yet published at the
time of the proposed rule. These commenters recommended that CMS delay
implementation of the 2022 baseline in the HAC Reduction Program to
provide time for hospitals to understand their data and align with
federal requirements and reimbursement practices without penalty.
Response: We thank commenters for their support. While we
understand commenters' recommendation to align with the Hospital VBP
Program, we note that the Hospital VBP Program's scoring methodology
differs from the HAC Reduction Program in that it uses a one year
performance period and that it calculates improvement points using
comparisons between data collected from hospitals in a baseline period
and data collected in a performance period. At this time, we still
anticipate that the new 2022 standard population data will affect the
HAC Reduction Program beginning with the FY 2028 program year when both
years of the 2-year applicable period, CY 2025 and CY 2026, will use
the 2022 update to the standard population for the CDC's NHSN measures.
We appreciate commenters' input on the technical updates to the
standard population data for the CDC's NHSN HAI measures for the HAC
Reduction Program.
3. Codification of the Extraordinary Circumstances Exception Policy for
the HAC Reduction Program
a. Background
In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45309 through
45310), we clarified that an Extraordinary Circumstances Exception
(ECE) granted under the HAC Reduction Program may allow an exception
from quality data reporting requirements and may grant a request to
exclude any data submitted (whether submitted for claims purposes or to
the CDC's NHSN) from the calculation of a hospital's measure results or
Total HAC Score for the applicable period or both, depending on the
exact circumstances under which the request was made. We intend to
provide relief for a hospital whose ability to accurately collect
quality measure data and to report those data in a timely manner has
been negatively impacted as a direct result of experiencing a
significant disaster or other extraordinary circumstance beyond the
control of a hospital (80 FR 49579 through 49581) or both. An exception
may be granted for extraordinary circumstances including, but not
limited to, natural disasters or systemic problems with data collection
systems.\226\ We refer readers to the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49579 through 49581), FY 2018 IPPS/LTCH PPS final rule (82 FR
38276 through 38278), and FY 2022 IPPS/LTCH PPS final rule (86 FR 45308
through 45310) for further background and details of our ECE policy. We
also refer readers to the QualityNet website for the specific
requirements for submission of an ECE request in the HAC Reduction
Program.\227\ Hospitals can request a CMS Quality Program ECE for
multiple programs based on the same extraordinary circumstance using
one ECE request form, including the Hospital IQR Program, the Hospital
VBP Program, and the Hospital Readmissions Reduction Program.
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\226\ Centers for Medicare & Medicaid Services (CMS) Quality
Program Extraordinary Circumstances Exceptions (ECE) Request Form.
(2025). QualityNet. Available at: https://qualitynet.cms.gov/files/677e843f50ed8df7419f60e1?filename=HQR_ECE_Req_Form_CY_2025.pdf.
\227\ CMS QualityNet. Available at: https://qualitynet.cms.gov/inpatient/hac/participation#tab2.
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Our ECE policy provides flexibility for HAC Reduction Program
participants to ensure continuity of quality care delivery and measure
reporting in the event of an extraordinary circumstance. For instance,
we recognize that, in circumstances where an exclusion of any data
submitted from the calculation of a hospital's measure results or Total
HAC Score for the applicable period is not applicable, it may be
beneficial for a hospital to report data later than the reporting
deadline. Delayed reporting authorized under the ECE policy would allow
temporary relief for a hospital experiencing an extraordinary
circumstance, while preserving data reporting benefits such as
transparency and informed decision-making for beneficiaries and
providers alike. Accordingly, in the FY 2026 IPPS/LTCH PPS proposed
rule (90 FR 18303 and 18304), we proposed to specify that an ECE could
take the form of an extension of time for a hospital to comply with a
data reporting requirement if CMS determines that this type of relief
would be appropriate under the circumstances.
b. Codification of the Extraordinary Circumstances Exception (ECE)
Policy for the HAC Reduction Program
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18303 and 18304),
we proposed to codify the ECE policy at 42 CFR 412.172(c) and include
extensions of time as a form of relief. Specifically, at Sec.
412.172(c)(1), we proposed that CMS may grant an ECE with respect to
reporting requirements in the event of an extraordinary circumstance--
defined as an event beyond the control of a hospital (for example a
natural or man-made disaster such as a hurricane, tornado, earthquake,
terrorist attack, or bombing)--that affected the ability of the
hospital to comply with one or more applicable reporting requirements
with respect to a fiscal year.
We proposed that the process for requesting or granting an ECE
would remain the same as the current ECE process, detailed by CMS at
the QualityNet website or a successor website.\228\ At Sec.
412.172(c)(2)(i), we proposed that a hospital may request an ECE within
30 calendar days of the date that the extraordinary circumstance
occurred. Under this proposed policy, we clarify that CMS retains the
authority to grant an ECE as a form of relief at any time after the
extraordinary circumstance has occurred. At Sec. 412.172(c)(2)(ii), we
proposed that CMS notify the requestor with a decision in writing, via
email. In the event that CMS grants an ECE to the hospital, the written
decision will specify whether the hospital is exempted from one or more
reporting requirements or whether CMS has granted the hospital an
extension of time to comply with one or more reporting requirements.
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\228\ CMS QualityNet. Available at: https://qualitynet.cms.gov/inpatient/iqr/participation#tab3.
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Additionally, at Sec. 412.172(c)(3), we note that CMS may grant an
ECE to one or more hospitals that have not requested an ECE if CMS
determines that: a systemic problem with a CMS
[[Page 36966]]
data collection system directly impacted the ability of the hospital to
comply with a quality data reporting requirement, or that an
extraordinary circumstance has affected an entire region or locale. Any
ECE granted will specify whether the affected hospitals are exempted
from one or more reporting requirements or whether CMS has granted the
hospitals an extension of time to comply with one or more reporting
requirements.
The ECE policy is intended to provide hospitals with further
reporting flexibility and clarity regarding expectations when
submitting ECE requests for participants of the HAC Reduction Program.
We refer readers to sections X.C.8, VI.L.5, VI.K.3.c., and X.D.4. of
the preamble of this final rule for similar ECE policy changes in the
Hospital IQR Program, Hospital VBP Program, Hospital Readmissions
Reduction Program, and PCHQR Program, respectively.
We invited public comment on our proposals.
Comment: Many commenters supported the proposal to formally codify
and clarify the ECE policy in the HAC Reduction Program. Commenters
stated that this policy will provide hospitals with needed clarity and
flexibility when facing events beyond their control that impede timely
data submission, is practical, and recognizes the varying needs of
different facilities and different circumstances.
Response: We thank commenters for their support.
Comment: Several commenters recommended that CMS explicitly include
cyber-attacks as a qualifying event for granting an ECE because cyber-
attacks can disable data systems for extended periods. Another
commenter recommended that ECE include infectious disease emergencies
due to their downstream impacts on health care systems.
Response: We thank commenters for their recommendations. We note
that extraordinary circumstances are not limited to the examples
provided in the CFR language and proposal. We have received and
accepted multiple ECE requests due to cyber-attacks across reporting
programs. We recommend that hospitals submit an ECE request anytime an
event beyond the control of a hospital affected the ability of the
hospital to comply with one or more reporting requirements with respect
to a fiscal year regardless of whether it was included in the examples
provided in the CFR language and proposal.
Comment: Several commenters, while supporting this proposal,
expressed concern that CMS may replace reporting exemptions with
extensions, regardless of the circumstances, and recommended that CMS
continue to grant complete reporting exemptions in the case of an
extraordinary circumstance, and to use extensions when appropriate.
Commenters requested that CMS provide additional details on how the
determination of an exception versus an extension will be made.
Response: We thank commenters for their recommendation. We will
continue to consider ECE applications on a case-by-case basis and offer
any exception or extension based on the nature of the extraordinary
circumstance and the capacity of the provider, as well as CMS
operational feasibility to grant an exception versus an extension. We
note our preference to grant an extension when it can be feasibly
granted because of the importance of having quality measure data
particularly for public reporting purposes, as transparency is a
paramount goal of the program.
Comment: A few commenters recommended that CMS produce publicly
available guidance for ECE requests to set consistent expectations to
ensure that ECE eligibility criteria are applied equitably across all
facilities, with particular attention to hospitals serving medically
complex, high-risk, or underserved patient populations in order to
maintain fairness in the HAC Reduction Program that carries financial
penalties for hospitals in the bottom quartile of performance. One
commenter requested CMS provide additional clarification on its
processes and policies associated with approving ECE requests related
to cyberattacks, including publicly posting any supplemental ECE
questionnaires that could aid a hospital in an initial ECE application.
Response: We thank commenters for their recommendations. We note
that QualityNet provides the ECE Request Form, ECE Information and
Resources document, and ECE Quick Reference document, all of which are
updated as necessary. We will continue to update these documents to
provide updated information, resources, and references.\229\
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\229\ We note that the HACRP ECE QualityNet site is available
at: https://qualitynet.cms.gov/inpatient/hac/participation#tab2,
which links to the Hospital IQR ECE web page, available at: https://qualitynet.cms.gov/inpatient/iqr/participation#tab3 for reference
materials.
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Comment: Several commenters did not support the reduced timeframe
for hospitals to submit an ECE request from 90 days to 30 days.
Commenters stated that, following these extraordinary events, hospitals
focus on staying operational and continuing to provide care for their
patients and communities, and they do not have sufficient bandwidth to
assess the impact on quality data submissions and complete the
necessary paperwork within 30 days. For example, one commenter cited
recent flooding in Virginia and North Carolina, noting that hospitals
remained in crisis mode even 30 days after the event, and suggested
that a 60-day deadline might be a more realistic compromise. Another
commenter cited a significant ransomware attack which adversely
affected their Certified Electronic Health Record Technology (CEHRT)
applications and multiple data systems across their health system which
caused them to request multiple ECEs related to various data reporting
requirements during that time. Commenters also recommended that CMS
retain the discretion to accept late requests in truly extraordinary
circumstances, thereby safeguarding hospitals from unfair penalties for
delayed submissions amid disasters.
A few commenters supported the 30-day time period to request an
exemption.
Response: We appreciate commenters' responses. After reviewing the
concerns raised by commenters regarding the timeframe for making an ECE
request, we have further considered what constitutes an appropriate
number of days based on commenters' feedback and examples.
Nevertheless, we wish to reduce the timeframe for ECE applications
across hospital settings for operational improvement while balancing
the possible need for additional time by providers depending on the
particular extraordinary circumstance. Therefore, we are finalizing a
modified policy that states that a hospital may request an ECE within
60 calendar days of the date that the extraordinary circumstance
occurred. We believe this timeframe will provide significant time for
hospitals to assess the impact on quality reporting without disrupting
operational and care needs.
After consideration of the public comments we received, we are
finalizing our proposal to codify and update our ECE proposal with
modification. After consideration of concerns identified in public
comments regarding the proposed 30 calendar day timeframe during which
a hospital may request an ECE, and for the reasons described above, we
are finalizing a different timeframe in which an ECE can be requested.
We will allow up to 60 calendar days for ECE requests after the
precipitating event. We amended the
[[Page 36967]]
proposed CFR text to reflect this extended deadline.
N. Rural Community Hospital Demonstration Program
1. Introduction
The Rural Community Hospital Demonstration was originally
authorized by section 410A of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173). The
demonstration has been extended three times since the original 5-year
period mandated by the MMA, each time for an additional 5 years. These
extensions were authorized by sections 3123 and 10313 of the Affordable
Care Act (Pub. L. 111-148), section 15003 of the 21st Century Cures Act
(Pub. L. 114-255) (Cures Act) enacted in 2016, and most recently, by
section 128 of the Consolidated Appropriations Act, 2021 (Pub. L. 116-
260), which also reauthorized the RCHD for five years. Later in this
section we summarize the status of the demonstration program and the
current methodologies for implementation and calculating budget
neutrality, and propose the amount to be subtracted from the national
IPPS payment rates to account for the costs of the demonstration in FY
2026. The amount would include the reconciled amount of demonstration
costs for FY 2020 in the FY 2026 IPPS/LTCH final rule. All finalized
cost reports for FY 2020 were available for the FY 2026 IPPS/LTCH final
rule at this time.
Last year we published a new solicitation (89 FR 105049, December
26, 2024) to select 10 additional qualifying hospitals to participate
in the Rural Community Hospital Demonstration. We only accepted
applications to this solicitation from hospitals in the 20 least
densely populated States, according to data for 2020 from the U.S.
Census Bureau. These States are: Alaska, Arizona, Arkansas, Colorado,
Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New
Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Vermont,
and Wyoming. We did not accept applications from hospitals located in
other States or in the U.S. territories. Applications were due March 1,
2025; 11 additional hospitals were selected to join the demonstration
on a rolling basis beginning May 1, 2025. Given the upcoming statutory
termination of the model, we are aligning performance dates for the
selected hospitals with the last performance day for the currently
authorized extension; therefore, although previous agreements ran for
5-year periods, agreements for hospitals selected under the December
26, 2024 solicitation will run until June 30, 2028.
2. Background
Section 410A(a) of the MMA (Pub. L. 108-173) required the Secretary
to establish a demonstration program to test the feasibility and
advisability of establishing rural community hospitals to furnish
covered inpatient hospital services to Medicare beneficiaries. The
demonstration pays rural community hospitals under a reasonable cost-
based methodology for Medicare payment purposes for covered inpatient
hospital services furnished to Medicare beneficiaries. A rural
community hospital, as defined in section 410A(f)(1), is a hospital
that--
Is located in a rural area (as defined in section
1886(d)(2)(D) of the Act) or is treated as being located in a rural
area under section 1886(d)(8)(E) of the Act;
Has fewer than 51 beds (excluding beds in a distinct part
psychiatric or rehabilitation unit) as reported in its most recent cost
report;
Provides 24-hour emergency care services; and
Is not designated or eligible for designation as a CAH
under section 1820 of the Act.
Our policy for implementing the 5-year extension period authorized
by the CAA, 2021 (Pub. L. 116-260) follows upon the previous extensions
under the Affordable Care Act (Pub. L. 111-148) and the Cures Act (Pub.
L. 114-255). Section 410A of the MMA (Pub. L. 108-173) initially
required a 5-year period of performance. Subsequently, sections 3123
and 10313 of the Affordable Care Act (Pub. L. 111-148) required the
Secretary to conduct the demonstration program for an additional 5-year
period, to begin on the date immediately following the last day of the
initial 5-year period. In addition, the Affordable Care Act (Pub. L.
111-148) limited the number of hospitals participating to no more than
30. Section 15003 of the Cures Act (Pub. L. 114-255) required a 10-year
extension period in place of the 5-year extension period under the
Affordable Care Act (Pub. L. 111-148), thereby extending the
demonstration for another 5 years. Section 128 of CAA, 2021 (Pub. L.
116-260), in turn, revised the statute to indicate a 15-year extension
period, instead of the 10-year extension period mandated by the Cures
Act (Pub. L. 114-255). Please refer to the FY 2023 IPPS proposed and
final rules (87 FR 28454 through 28458 and 87 FR 49138 through 49142,
respectively) for an account of hospitals entering into and withdrawing
from the demonstration with these re-authorizations. In CY 2025, there
are currently 30 hospitals participating in the demonstration. In
addition to the ten selected initially, one additional hospital was
selected to replace one that voluntarily withdrew from the
demonstration; in total, we added 11 new hospitals from the new
solicitation.
2. Budget Neutrality
a. Statutory Budget Neutrality Requirement
Section 410A(c)(2) of the MMA (Pub. L. 108-173) requires that, in
conducting the demonstration program under this section, the Secretary
shall ensure that the aggregate payments made by the Secretary do not
exceed the amount that the Secretary would have paid if the
demonstration program under this section was not implemented. This
requirement is commonly referred to as ``budget neutrality.''
Generally, when we implement a demonstration program on a budget
neutral basis, the demonstration program is budget neutral on its own
terms; in other words, the aggregate payments to the participating
hospitals do not exceed the amount that would be paid to those same
hospitals in the absence of the demonstration program. We note that the
payment methodology for this demonstration, that is, cost-based
payments to participating small rural hospitals, made it unlikely that
increased Medicare outlays would produce an offsetting reduction to
Medicare expenditures elsewhere. Therefore, in the IPPS final rules
spanning the period from FY 2005 through FY 2016, we adjusted the
national IPPS rates by an amount sufficient to account for the added
costs of this demonstration program, thus applying budget neutrality
across the payment system as a whole rather than merely across the
participants in the demonstration program. (We applied a different
methodology for FY 2017, with the demonstration expected to end prior
to the Cures Act extension.) As we discussed in the FYs 2005 through
2017 IPPS/LTCH PPS final rules (69 FR 49183; 70 FR 47462; 71 FR 48100;
72 FR 47392; 73 FR 48670; 74 FR 43922, 75 FR 50343, 76 FR 51698, 77 FR
53449, 78 FR 50740, 77 FR 50145; 80 FR 49585; and 81 FR 57034,
respectively), we believe that the statutory language of the budget
neutrality requirements permits the agency to implement the budget
neutrality provision in this manner.
We resumed this methodology of offsetting demonstration costs
against the national payment rates in the IPPS final rules from FY 2018
through FY 2025. Please see the FY 2025 IPPS final
[[Page 36968]]
rule for an account of how we applied the budget neutrality requirement
for these fiscal years (89 FR 69412 through 69413).
b. General Budget Neutrality Methodology
We have generally incorporated two components into the budget
neutrality offset amounts identified in the final IPPS rules in
previous years. First, we have estimated the costs of the demonstration
for the upcoming fiscal year, generally determined from historical,
``as submitted'' cost reports for the hospitals participating in that
year. Updated factors representing nationwide trends in cost and volume
increases have been incorporated into these estimates, as specified in
the methodology described in the final rule for each fiscal year.
Second, as finalized cost reports became available, we determined the
amount by which the actual costs of the demonstration for an earlier,
given year differed from the estimated costs for the demonstration set
forth in the final IPPS rule for the corresponding fiscal year, and
incorporated that amount into the budget neutrality offset amount for
the upcoming fiscal year. If the actual costs for the demonstration for
the earlier fiscal year exceeded the estimated costs of the
demonstration identified in the final rule for that year, this
difference was added to the estimated costs of the demonstration for
the upcoming fiscal year when determining the budget neutrality
adjustment for the upcoming fiscal year. Conversely, if the estimated
costs of the demonstration set forth in the final rule for a prior
fiscal year exceeded the actual costs of the demonstration for that
year, this difference was subtracted from the estimated cost of the
demonstration for the upcoming fiscal year when determining the budget
neutrality adjustment for the upcoming fiscal year.
We note that we have calculated this difference for FYs 2005
through 2018 between the actual costs of the demonstration as
determined from finalized cost reports once available, and estimated
costs of the demonstration as identified in the applicable IPPS final
rules for these years.
c. Budget Neutrality Methodology for the Extension Period Authorized by
CAA, 2021
For the most-recently enacted extension period, under the CAA,
2021, we have continued upon the general budget neutrality methodology
used in previous years, as described previously in the citations to
earlier IPPS final rules. In this final rule, we outline the
methodology to be used for determining the offset to the national IPPS
payment rates for FY 2026.
(1) Methodology for Estimating Demonstration Costs for FY 2026
Consistent with the general methodology from previous years, we are
estimating the costs of the demonstration for the upcoming fiscal year,
and proposing to incorporate this estimate into the budget neutrality
offset amount to be applied to the national IPPS rates for the upcoming
fiscal year, that is, FY 2026. We are conducting this estimate for FY
2026 based on 20 hospitals. The methodology for calculating this amount
for FY 2026 proceeds according to the following steps:
Step 1: For each of these 20 hospitals, we identify the reasonable
cost amount calculated under the reasonable cost-based methodology for
covered inpatient hospital services, including swing beds, as indicated
on the ``as submitted'' cost report for the most recent cost reporting
period available. The ``as submitted'' cost report, submitted by each
of the 20 hospitals, with a report end date in CY2023 is used. We sum
these hospital -specific amounts to arrive at a total general amount
representing the costs for covered inpatient hospital services,
including swing beds, across the total 20 hospitals eligible to
participate during FY 2026.
Then, we multiply the total general amount by the FYs 2024, 2025,
and 2026 IPPS market basket percentage increases, which are calculated
by the CMS Office of the Actuary. (We are using the final market basket
percentage increase for FY 2026, which can be found at section VI.B.1.
of the preamble to this final rule). The result for the 20 hospitals is
the general estimated reasonable cost amount for covered inpatient
hospital services for FY 2026.
Consistent with our methods in previous years for formulating this
estimate, we are applying the IPPS market basket percentage increases
for FYs 2024 through 2026 to the applicable estimated reasonable cost
amount (previously described) to model the estimated FY 2026 reasonable
cost amount under the demonstration. We believe that the IPPS market
basket percentage increases appropriately indicate the trend of
increase in inpatient hospital operating costs under the reasonable
cost methodology for the years involved.
Step 2: For each of the participating hospitals, we identify the
estimated amount that would otherwise have been paid in FY 2026 under
applicable Medicare payment methodologies for covered inpatient
hospital services, including swing beds (as indicated on the same set
of ``as submitted'' cost reports as in Step 1), if the demonstration
had not been implemented. We sum these hospital specific-amounts, and,
in turn, multiply this sum by the FYs 2024, 2025, and 2026 IPPS
applicable percentage increases. (For FY 2026, we are using the final
applicable percentage increase, per section VI.B.1. of the preamble of
this final rule). This methodology differs from Step 1, in which we
apply the market basket percentage increases to the hospitals'
applicable estimated reasonable cost amount for covered inpatient
hospital services. We believe that the IPPS applicable percentage
increases are appropriate factors to update the estimated amounts that
generally would otherwise be paid without the demonstration because
IPPS payments constitute the majority of payments that would otherwise
be made without the demonstration and the applicable percentage
increase is the factor used under the IPPS to update the inpatient
hospital payment rates.
Step 3: We subtract the amount derived in Step 2 from the amount
derived in Step 1. According to our methodology, the resulting amount
indicates the total difference for the 20 hospitals (for covered
inpatient hospital services, including swing beds), which will be the
general estimated amount of the costs of the demonstration for FY 2026.
For this final rule, the resulting amount is $47,586,847 and will
be incorporated into the budget neutrality offset adjustment for FY
2026. An offset of $47,527,557 was proposed in the FY 2026 IPPS/LTCH
PPS proposed rule, and this has adjusted slightly based on the
incorporation of the final FY 2026 market basket percentage increase
(0.1 percentage point higher than the proposed rule) and the final FY
2026 applicable percentage increase (0.2 percentage point higher than
the proposed rule). This estimated amount is based on the specific
assumptions regarding the data sources used, that is, recently
available ``as submitted'' cost reports and historical update factors
for cost and payment. We proposed to include final costs of the
demonstration for FY 2026 for all participating hospitals, to include
those participating as a result of the current solicitation, in the
budget neutrality offset adjustment in the FY 2026 IPPS proposed and
final rules.
[[Page 36969]]
(2) Reconciling Actual and Estimated Costs of the Demonstration for
Previous Years
As described earlier, we have calculated the difference for FYs
2005 through 2018 between the actual costs of the demonstration, as
determined from finalized cost reports once available, and estimated
costs of the demonstration as identified in the applicable IPPS final
rules for these years.
At this time, for the FY2026 final rule, all of the FY2020
finalized cost reports are available and will be reconciled in FY2026.
(3) Total Proposed Budget Neutrality Offset Amount for FY 2026
For this FY 2026 IPPS/LTCH PPS final rule, the proposed budget
neutrality offset amount for FY 2026 is the amount determined under
section X.2.c.(2). of the preamble of this final rule, representing the
difference applicable to FY 2026 between the sum of the estimated
reasonable cost amounts that would be paid under the demonstration for
covered inpatient services to the 20 hospitals eligible to participate
in the fiscal year and the sum of the estimated amounts that would
generally be paid if the demonstration had not been implemented. This
amount is $47,586,847.
After consideration of the public comments we received, primarily
requesting to expand the number of hospitals participating in the
program, we are finalizing our policy without modification.
VII. Changes to the IPPS for Capital-Related Costs
A. Overview
Section 1886(g) of the Act requires the Secretary to pay for the
capital-related costs of inpatient acute hospital services in
accordance with a prospective payment system established by the
Secretary. Under the statute, the Secretary has broad authority in
establishing and implementing the IPPS for acute care hospital
inpatient capital-related costs. We initially implemented the IPPS for
capital-related costs in the FY 1992 IPPS final rule (56 FR 43358). In
that final rule, we established a 10-year transition period to change
the payment methodology for Medicare hospital inpatient capital-related
costs from a reasonable cost-based payment methodology to a prospective
payment methodology (based fully on the Federal rate).
FY 2001 was the last year of the 10-year transition period that was
established to phase in the IPPS for hospital inpatient capital-related
costs. For cost reporting periods beginning in FY 2002, capital IPPS
payments are based solely on the Federal rate for almost all acute care
hospitals (other than hospitals receiving certain exception payments
and certain new hospitals). (We refer readers to the FY 2002 IPPS final
rule (66 FR 39910 through 39914) for additional information on the
methodology used to determine capital IPPS payments to hospitals both
during and after the transition period.)
The basic methodology for determining capital prospective payments
using the Federal rate is set forth in the regulations at 42 CFR
412.312. For the purpose of calculating capital payments for each
discharge, the standard Federal rate is adjusted as follows:
(Standard Federal Rate) x (DRG Weight) x (Geographic Adjustment
Factor (GAF) x (COLA for hospitals located in Alaska and Hawaii) x (1 +
Capital DSH Adjustment Factor + Capital IME Adjustment Factor, if
applicable).
In addition, under Sec. 412.312(c), hospitals also may receive
outlier payments under the capital IPPS for extraordinarily high-cost
cases that qualify under the thresholds established for each fiscal
year.
B. Additional Provisions
1. Exception Payments
The regulations at 42 CFR 412.348 provide for certain exception
payments under the capital IPPS. The regular exception payments
provided under Sec. 412.348(b) through (e) were available only during
the 10-year transition period. For a certain period after the
transition period, eligible hospitals may have received additional
payments under the special exceptions provisions at Sec. 412.348(g).
However, FY 2012 was the final year hospitals could receive special
exceptions payments. For additional details regarding these exceptions
policies, we refer readers to the FY 2012 IPPS/LTCH PPS final rule (76
FR 51725).
Under Sec. 412.348(f), a hospital may request an additional
payment if the hospital incurs unanticipated capital expenditures in
excess of $5 million due to extraordinary circumstances beyond the
hospital's control. Additional information on the exception payment for
extraordinary circumstances in Sec. 412.348(f) can be found in the FY
2005 IPPS final rule (69 FR 49185 and 49186).
2. New Hospitals
Under the capital IPPS, the regulations at 42 CFR 412.300(b) define
a new hospital as a hospital that has operated (under previous or
current ownership) for less than 2 years and lists examples of
hospitals that are not considered new hospitals. In accordance with
Sec. 412.304(c)(2), under the capital IPPS, a new hospital is paid 85
percent of its allowable Medicare inpatient hospital capital related
costs through its first 2 years of operation, unless the new hospital
elects to receive full prospective payment based on 100 percent of the
Federal rate. We refer readers to the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51725) for additional information on payments to new hospitals
under the capital IPPS.
3. Payments for Hospitals Located in Puerto Rico
In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57061), we revised
the regulations at 42 CFR 412.374 relating to the calculation of
capital IPPS payments to hospitals located in Puerto Rico beginning in
FY 2017 to parallel the change in the statutory calculation of
operating IPPS payments to hospitals located in Puerto Rico, for
discharges occurring on or after January 1, 2016, made by section 601
of the Consolidated Appropriations Act, 2016 (Pub. L. 114-113). Section
601 of Pub. L. 114-113 increased the applicable Federal percentage of
the operating IPPS payment for hospitals located in Puerto Rico from 75
percent to 100 percent and decreased the applicable Puerto Rico
percentage of the operating IPPS payments for hospitals located in
Puerto Rico from 25 percent to zero percent, applicable to discharges
occurring on or after January 1, 2016. As such, under revised Sec.
412.374, for discharges occurring on or after October 1, 2016, capital
IPPS payments to hospitals located in Puerto Rico are based on 100
percent of the capital Federal rate.
C. Annual Update for FY 2026
The annual update to the national capital Federal rate, as provided
in 42 CFR 412.308(c), for FY 2026 is discussed in section III. of the
Addendum to this FY 2026 IPPS/LTCH PPS final rule.
We also note that in section II.D. of the preamble of this final
rule, we discuss our revision to the adjustment to the payment amount
for certain clinical trial or expanded access use immunotherapy cases
to include other cases where the immunotherapy product is not purchased
in the usual manner (such as provided at no cost)
[[Page 36970]]
that will group to MS-DRG 018 for both operating IPPS payments and
capital IPPS payments. We refer readers to section II.D. of this
preamble of this final rule for additional details on the finalized
payment adjustment for these cases.
VIII. Changes for Hospitals Excluded From the IPPS
A. Rate-of-Increase in Payments To Excluded Hospitals for FY 2026
Certain hospitals excluded from a prospective payment system,
including children's hospitals, 11 cancer hospitals, and hospitals
located outside the 50 States, the District of Columbia, and Puerto
Rico (that is, hospitals located in the U.S. Virgin Islands, Guam, the
Northern Mariana Islands, and American Samoa) receive payment for
inpatient hospital services they furnish on the basis of reasonable
costs, subject to a rate-of-increase ceiling. A per discharge limit
(the target amount, as defined in Sec. 413.40(a) of the regulations)
is set for each hospital based on the hospital's own cost experience in
its base year, and updated annually by a rate-of-increase percentage.
For each cost reporting period, the updated target amount is multiplied
by total Medicare discharges during that period and applied as an
aggregate upper limit (the ceiling as defined in Sec. 413.40(a)) of
Medicare reimbursement for total inpatient operating costs for a
hospital's cost reporting period. In accordance with Sec. 403.752(a)
of the regulations, religious nonmedical health care institutions
(RNHCIs) also are subject to the rate-of-increase limits established
under Sec. 413.40 of the regulations discussed previously.
Furthermore, in accordance with Sec. 412.526(c)(3) of the regulations,
extended neoplastic disease care hospitals (formerly classified as
``Subclause II LTCs'') also are subject to the rate-of-increase limits
established under Sec. 413.40 of the regulations discussed previously.
As explained in the FY 2006 IPPS final rule (70 FR 47396 through
47398), beginning with FY 2006, we have used the percentage increase in
the IPPS operating market basket to update the target amounts for
children's hospitals, the 11 cancer hospitals, and RNHCIs.
Consistent with the regulations at Sec. Sec. 412.23(g) and
413.40(a)(2)(ii)(A) and (c)(3)(viii), we also have used the percentage
increase in the IPPS operating market basket to update target amounts
for short-term acute care hospitals located in the U.S. Virgin Islands,
Guam, the Northern Mariana Islands, and American Samoa. In the FY 2022
IPPS/LTCH PPS final rule (86 FR 45194 through 45207), we rebased and
revised the IPPS operating market basket to a 2018 base year, and
finalized the use of the percentage increase in the 2018-based IPPS
operating market basket to update the target amounts for children's
hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care
hospitals located in the U.S. Virgin Islands, Guam, the Northern
Mariana Islands, and American Samoa for FY 2022 and subsequent fiscal
years. As discussed in section IV. of the preamble of this FY 2026
IPPS/LTCH PPS final rule, we proposed to rebase and revise the IPPS
operating basket to a 2023 base year. Therefore, as discussed in the FY
2026 IPPS/LTCH PPS proposed rule (90 FR 18246 through 18247 and 18307
through 18308), we proposed to use the percentage increase in the
proposed 2023-based IPPS operating market basket to update the target
amounts for children's hospitals, the 11 cancer hospitals, RNHCIs, and
short-term acute care hospitals located in the U.S. Virgin Islands,
Guam, the Northern Mariana Islands, and American Samoa for FY 2026 and
subsequent fiscal years. Accordingly, for FY 2026, the rate-of-increase
percentage to be applied to the target amount for these hospitals would
be the FY 2026 percentage increase in the proposed 2023-based IPPS
operating market basket.
For the FY 2026 IPPS/LTCH PPS proposed rule, based on IGI's 2024
fourth quarter forecast, we estimated that the proposed 2023-based IPPS
operating market basket percentage increase for FY 2026 was 3.2 percent
(that is, the estimate of the market basket rate-of-increase). Based on
this estimate, the FY 2026 rate-of-increase percentage that would be
applied to the FY 2025 target amounts in order to calculate the FY 2026
target amounts for children's hospitals, the 11 cancer hospitals,
RNHCIs, and short-term acute care hospitals located in the U.S. Virgin
Islands, Guam, the Northern Mariana Islands, and American Samoa was 3.2
percent, in accordance with the applicable regulations at 42 CFR
413.40. However, we proposed that if more recent data became available
for the FY 2026 IPPS/LTCH PPS final rule, we would use such data, if
appropriate, to calculate the final IPPS operating market basket update
for FY 2026.
As discussed in section IV of the preamble of this FY 2026 IPPS/
LTCH PPS final rule, we finalized the rebasing of the IPPS operating
market basket to a 2023 base year without modification. However, more
recent data has become available. Based on IGI's second quarter 2025
forecast, we estimate that the 2023-based IPPS operating market basket
percentage increase for FY 2026 is 3.3 percent (that is, the estimate
of the market basket rate-of-increase). Accordingly, the FY 2026 rate-
of-increase percentage that we will apply to the FY 2025 target amounts
in order to calculate the FY 2026 target amounts for children's
hospitals, the 11 cancer hospitals, RNHCIs, and short-term acute care
hospitals located in the U.S. Virgin Islands, Guam, the Northern
Mariana Islands, and American Samoa is 3.3 percent, which is based on
IGI's second quarter 2025 forecast.
We received no comments on this proposal and therefore are
finalizing this provision without modification. Incorporating more
recent data available for this final rule, as we proposed, we are
adopting a 3.3 percent update for FY 2026.
In addition, payment for inpatient operating costs for hospitals
classified under section 1886(d)(1)(B)(vi) of the Act (which we refer
to as ``extended neoplastic disease care hospitals'') for cost
reporting periods beginning on or after January 1, 2015, is to be made
as described in 42 CFR 412.526(c)(3), and payment for capital costs for
these hospitals is to be made as described in 42 CFR 412.526(c)(4).
(For additional information on these payment regulations, we refer
readers to the FY 2018 IPPS/LTCH PPS final rule (82 FR 38321 through
38322).) Section 412.526(c)(3) provides that the hospital's Medicare
allowable net inpatient operating costs for that period are paid on a
reasonable cost basis, subject to that hospital's ceiling, as
determined under Sec. 412.526(c)(1), for that period. Under Sec.
412.526(c)(1), for each cost reporting period, the ceiling was
determined by multiplying the updated target amount, as defined in
Sec. 412.526(c)(2), for that period by the number of total Medicare
discharges paid during that period. Section 412.526(c)(2)(i) describes
the method for determining the target amount for cost reporting periods
beginning during FY 2015. Section 412.526(c)(2)(ii) specifies that, for
cost reporting periods beginning during fiscal years after FY 2015, the
target amount will equal the hospital's target amount for the previous
cost reporting period updated by the applicable annual rate-of-increase
percentage specified in Sec. 413.40(c)(3) for the subject cost
reporting period (79 FR 50197).
For FY 2026, in accordance with Sec. Sec. 412.22(i) and
412.526(c)(2)(ii) of the regulations, for cost reporting periods
beginning during FY 2026, the proposed update to the target amount for
extended neoplastic disease care
[[Page 36971]]
hospitals (that is, hospitals described under Sec. 412.22(i)) was the
applicable annual rate-of-increase percentage specified in Sec.
413.40(c)(3), which was estimated to be the proposed percentage
increase in the proposed 2023-based IPPS operating market basket (that
is, the estimate of the market basket rate-of-increase). Accordingly,
the proposed update to an extended neoplastic disease care hospital's
target amount for FY 2026 was 3.2 percent, which was based on IGI's
fourth quarter 2024 forecast. Furthermore, we proposed that if more
recent data became available for the FY 2026 IPPS/LTCH PPS final rule,
we would use such data, if appropriate, to calculate the IPPS operating
market basket rate of increase for FY 2026.
As discussed in section IV of the preamble of this FY 2026 IPPS/
LTCH PPS final rule, we finalized the rebasing of the IPPS operating
market basket to a 2023 base year without modification. However, more
recent data has become available. Based on IGI's second quarter 2025
forecast, we estimate that the 2023-based IPPS operating market basket
percentage increase for FY 2026 is 3.3 percent (that is, the estimate
of the market basket rate-of-increase). Accordingly, the FY 2026 rate-
of-increase percentage that we will apply to the FY 2025 target amounts
in order to calculate the FY 2026 target amounts to an extended
neoplastic disease care hospital is 3.3 percent, which is based on
IGI's second quarter 2025 forecast.
We received no comments on this proposal and therefore are
finalizing this provision without modification. Incorporating more
recent data available for this final rule, as we proposed, we are
adopting a 3.3 percent update for FY 2026.
B. Report on Adjustment (Exception) Payments
Section 4419(b) of Public Law 105-33 requires the Secretary to
publish annually in the Federal Register a report describing the total
amount of adjustment payments made to excluded hospitals and hospital
units by reason of section 1886(b)(4) of the Act during the previous
fiscal year.
The process of requesting, reviewing, and awarding an adjustment
payment is likely to occur over a 2-year period or longer. First,
generally, an excluded hospital must file its cost report for the
fiscal year in accordance with Sec. 413.24(f)(2) of the regulations.
The MAC reviews the cost report and issues a notice of provider
reimbursement (NPR). Once the hospital receives the NPR, if its
operating costs are in excess of the ceiling, the hospital may file a
request for an adjustment payment. After the MAC receives the
hospital's request in accordance with applicable regulations, the MAC
or CMS, depending on the type of adjustment requested, reviews the
request and determines if an adjustment payment is warranted. This
determination is sometimes not made until more than 180 days after the
date the request is filed because there are times when the request
applications are incomplete and additional information must be
requested in order to have a completed request application. However, in
an attempt to provide interested parties with data on the most recent
adjustment payments for which we have data, we are publishing data on
adjustment payments that were processed by the MAC or CMS during FY
2024.
The table that follows includes the most recent data available from
the MACs and CMS on adjustment payments that were adjudicated during FY
2024. As indicated previously, the adjustments made during FY 2024 only
pertain to cost reporting periods ending in years prior to FY 2024.
Total adjustment payments made to IPPS-excluded hospitals during FY
2024 are $93,308,651. The table depicts for each class of hospitals, in
the aggregate, the number of adjustment requests adjudicated, the
excess operating costs over the ceiling, and the amount of the
adjustment payments.
[GRAPHIC] [TIFF OMITTED] TR04AU25.272
C. Critical Access Hospitals (CAHs)
1. Background
Section 1820 of the Act provides for the establishment of Medicare
Rural Hospital Flexibility Programs (MRHFPs), under which individual
States may designate certain facilities as critical access hospitals
(CAHs). Facilities that are so designated and meet the CAH conditions
of participation under 42 CFR part 485, subpart F, will be certified as
CAHs by CMS. Regulations governing payments to CAHs for services to
Medicare beneficiaries are located in 42 CFR part 413.
2. Frontier Community Health Integration Project Demonstration
a. Introduction
The Frontier Community Health Integration Project Demonstration was
originally authorized by section 123 of the Medicare Improvements for
Patients and Providers Act of 2008 (Pub. L. 110-275). The demonstration
has been extended by section 129 of the Consolidated Appropriations
Act, 2021 (Pub. L. 116-260) for an additional 5 years. In this final
rule, we are summarizing the status of the demonstration program, and
the ongoing methodologies for implementation and budget neutrality for
the demonstration extension period.
b. Background and Overview
As discussed in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69416
through 69419), section 123 of the Medicare Improvements for Patients
and Providers Act of 2008, as amended by section 3126 of the Affordable
Care Act, authorized a demonstration project to allow eligible entities
to develop and test new models for the delivery of health care services
in eligible counties in order to improve access to and better integrate
the delivery of acute care, extended care and other health care
services to Medicare beneficiaries. The demonstration was titled
``Demonstration Project on Community Health Integration Models in
Certain Rural Counties,'' and commonly known as the Frontier Community
Health Integration Project (FCHIP) Demonstration.
[[Page 36972]]
The authorizing statute stated the eligibility criteria for
entities to be able to participate in the demonstration. An eligible
entity, as defined in section 123(d)(1)(B) of Public Law 110-275, as
amended, is a Medicare Rural Hospital Flexibility Program (MRHFP)
grantee under section 1820(g) of the Act (that is, a CAH); and is
located in a State in which at least 65 percent of the counties in the
state are counties that have 6 or less residents per square mile.
The authorizing statute stipulated several other requirements for
the demonstration. In addition, section 123(g)(1)(B) of Public Law 110-
275 required that the demonstration be budget neutral. Specifically,
this provision stated that, in conducting the demonstration project,
the Secretary shall ensure that the aggregate payments made by the
Secretary do not exceed the amount which the Secretary estimates would
have been paid if the demonstration project under the section were not
implemented. Furthermore, section 123(i) of Public Law 110-275 stated
that the Secretary may waive such requirements of titles XVIII and XIX
of the Act as may be necessary and appropriate for the purpose of
carrying out the demonstration project, thus allowing the waiver of
Medicare payment rules encompassed in the demonstration. CMS selected
CAHs to participate in four interventions, under which specific waivers
of Medicare payment rules would allow for enhanced payment for
telehealth, skilled nursing facility/nursing facility beds, ambulance
services, and home health services. These waivers were formulated with
the goal of increasing access to care with no net increase in costs.
Section 123 of Public Law 110-275 initially required a 3-year
period of performance. The FCHIP Demonstration began on August 1, 2016,
and concluded on July 31, 2019 (referred to in this section of the
proposed rule as the ``initial period''). Subsequently, section 129 of
the Consolidated Appropriations Act, 2021 (Pub. L. 116-260) extended
the demonstration by 5 years (referred to in this section of the
proposed rule as the ``extension period''). The Secretary is required
to conduct the demonstration for an additional 5-year period. CAHs
participating in the demonstration project during the extension period
began such participation in their cost reporting year that began on or
after January 1, 2022.
As described in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69416
through 69419), 10 CAHs were selected for participation in the
demonstration initial period. The selected CAHs were located in three
States--Montana, Nevada, and North Dakota--and participated in three of
the four interventions identified in the FY 2025 IPPS/LTCH PPS final
rule. Each CAH was allowed to participate in more than one of the
interventions. None of the selected CAHs were participants in the home
health intervention, which was the fourth intervention.
In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through
45328), CMS concluded that the initial period of the FCHIP
Demonstration (covering the performance period of August 1, 2016, to
July 31, 2019) had satisfied the budget neutrality requirement
described in section 123(g)(1)(B) of Public Law 110-275. Therefore, CMS
did not apply a budget neutrality payment offset policy for the initial
period of the demonstration.
Section 129 of Public Law 116-260 stipulates that only the 10 CAHs
that participated in the initial period of the FCHIP Demonstration are
eligible to participate during the extension period. Among the eligible
CAHs, five have elected to participate in the extension period. The
selected CAHs are located in two States--Montana and North Dakota--and
are implementing three of the four interventions. The eligible CAH
participants elected to change the number of interventions and payment
waivers they would participate in during the extension period. CMS
accepted and approved the CAHs intervention and payment waiver updates.
For the extension period, five CAHs are participants in the telehealth
intervention, three CAHs are participants in the skilled nursing
facility/nursing facility bed intervention, and three CAHs are
participants in the ambulance services intervention. As with the
initial period, each CAH was allowed to participate in more than one of
the interventions during the extension period. None of the selected
CAHs are participants in the home health intervention, which was the
fourth intervention.
c. Intervention Payment and Payment Waivers
As described in the FY 2025IPPS/LTCH PPS final rule (89 FR 69416
through 69419), CMS waived certain Medicare rules for CAHs
participating in the demonstration initial period to allow for
alternative reasonable cost-based payment methods in the three distinct
intervention service areas: telehealth services, ambulance services,
and skilled nursing facility/nursing facility (SNF/NF) beds expansion.
The payments and payment waiver provisions only apply if the CAH is a
participant in the associated intervention. CMS Intervention Payment
and Payment Waivers for the demonstration extension period consist of
the following:
(1) Telehealth Services Intervention Payments
CMS waives section 1834(m)(2)(B) of the Act, which specifies the
facility fee to the originating site for Medicare telehealth services.
CMS modifies the facility fee payment specified under section
1834(m)(2)(B) of the Act to make reasonable cost-based reimbursement to
the participating CAH where the participating CAH serves as the
originating site for a telehealth service furnished to an eligible
telehealth individual, as defined in section 1834(m)(4)(B) of the Act.
CMS reimburses the participating CAH serving as the originating site at
101 percent of its reasonable costs for overhead, salaries and fringe
benefits associated with telehealth services at the participating CAH.
CMS does not fund or provide reimbursement to the participating CAH for
the purchase of new telehealth equipment.
CMS waives section 1834(m)(2)(A) of the Act, which specifies that
the payment for a telehealth service furnished by a distant site
practitioner is the same as it would be if the service had been
furnished in-person. CMS modifies the payment amount specified for
telehealth services under section 1834(m)(2)(A) of the Act to make
reasonable cost-based reimbursement to the participating CAH for
telehealth services furnished by a physician or practitioner located at
distant site that is a participating CAH that is billing for the
physician or practitioner professional services. Whether the
participating CAH has or has not elected Optional Payment Method II for
outpatient services, CMS would pay the participating CAH 101 percent of
reasonable costs for telehealth services when a physician or
practitioner has reassigned their billing rights to the participating
CAH and furnishes telehealth services from the participating CAH as a
distant site practitioner. This means that participating CAHs that are
billing under the Standard Method on behalf of employees who are
physicians or practitioners (as defined in section 1834(m)(4)(D) and
(E) of the Act, respectively) would be eligible to bill for distant
site telehealth services furnished by these physicians and
practitioners. Additionally, CAHs billing under the Optional Method
would be reimbursed based on 101 percent of reasonable costs, rather
than paid based on the
[[Page 36973]]
Medicare physician fee schedule, for the distant site telehealth
services furnished by physicians and practitioners who have reassigned
their billing rights to the CAH. For distant site telehealth services
furnished by physicians or practitioners who have not reassigned
billing rights to a participating CAH, payment to the distant site
physician or practitioner would continue to be made as usual under the
Medicare physician fee schedule. Except as described herein, CMS does
not waive any other provisions of section 1834(m) of the Act for
purposes of the telehealth services intervention payments, including
the scope of Medicare telehealth services as established under section
1834(m)(4)(F) of the Act.
(2) Ambulance Services Intervention Payments
CMS waives 42 CFR 413.70(b)(5)(i)(D) and section 1834(l)(8) of the
Act, which provides that payment for ambulance services furnished by a
CAH, or an entity owned and operated by a CAH, is 101 percent of the
reasonable costs of the CAH or the entity in furnishing the ambulance
services, but only if the CAH or the entity is the only provider or
supplier of ambulance services located within a 35-mile drive of the
CAH, excluding ambulance providers or suppliers that are not legally
authorized to furnish ambulance services to transport individuals to or
from the CAH. The participating CAH would be paid 101 percent of
reasonable costs for its ambulance services regardless of whether there
is any provider or supplier of ambulance services located within a 35-
mile drive of the participating CAH or participating CAH-owned and
operated entity. CMS would not make cost-based payment to the
participating CAH for any new capital (for example, vehicles)
associated with ambulance services. This waiver does not modify any
other Medicare rules regarding or affecting the provision of ambulance
services.
(3) SNF/NF Beds Expansion Intervention Payments
CMS waives 42 CFR 485.620(a) and 485.645(a)(2) and section
1820(c)(2)(B)(iii) of the Act which limit CAHs to maintaining no more
than 25 inpatient beds, including beds available for acute inpatient or
swing bed services. CMS waives section 1820(f) of the Act permitting
designating or certifying a facility as a critical access hospital for
which the facility at any time is furnishing inpatient beds which
exceed more than 25 beds. Under this waiver, if the participating CAH
has received swing bed approval from CMS, the participating CAH may
maintain up to ten additional beds (for a total of 35 beds) available
for acute inpatient or swing bed services; however, the participating
CAH may only use these 10 additional beds for nursing facility or
skilled nursing facility level of care. CMS would pay the participating
CAH 101 percent of reasonable costs for its SNF/NF services furnished
in the 10 additional beds.
d. Budget Neutrality
(1) Budget Neutrality Requirement
In the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through
45328), we finalized a policy to address the budget neutrality
requirement for the demonstration initial period. As explained in the
FY 2022 IPPS/LTCH PPS final rule, we based our selection of CAHs for
participation in the demonstration with the goal of maintaining the
budget neutrality of the demonstration on its own terms meaning that
the demonstration would produce savings from reduced transfers and
admissions to other health care providers, offsetting any increase in
Medicare payments as a result of the demonstration. However, because of
the small size of the demonstration and uncertainty associated with the
projected Medicare utilization and costs, the policy we finalized for
the demonstration initial period of performance in the FY 2022 IPPS/
LTCH PPS final rule provides a contingency plan to ensure that the
budget neutrality requirement in section 123 of Public Law 110-275 is
met.
In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49144 through
49147), we adopted the same budget neutrality policy contingency plan
used during the demonstration initial period to ensure that the budget
neutrality requirement in section 123 of Public Law 110-275 is met
during the demonstration extension period. If analysis of claims data
for Medicare beneficiaries receiving services at each of the
participating CAHs, as well as from other data sources, including cost
reports for the participating CAHs, shows that increases in Medicare
payments under the demonstration during the 5-year extension period are
not sufficiently offset by reductions elsewhere, we would recoup the
additional expenditures attributable to the demonstration through a
reduction in payments to all CAHs nationwide.
As explained in the FY 2023 IPPS/LTCH PPS final rule, because of
the small scale of the demonstration, we indicated that we did not
believe it would be feasible to implement budget neutrality for the
demonstration extension period by reducing payments to only the
participating CAHs. Therefore, in the event that this demonstration
extension period is found to result in aggregate payments in excess of
the amount that would have been paid if this demonstration extension
period were not implemented, CMS policy is to comply with the budget
neutrality requirement finalized in the FY 2023 IPPS/LTCH PPS final
rule, by reducing payments to all CAHs, not just those participating in
the demonstration extension period.
In the FY 2023 IPPS/LTCH PPS final rule (87 FR 49144 through
49147), we stated that we believe it is appropriate to make any payment
reductions across all CAHs because the FCHIP Demonstration was
specifically designed to test innovations that affect delivery of
services by the CAH provider category. We explained our belief that the
language of the statutory budget neutrality requirement at section
123(g)(1)(B) of Public Law 110-275 permits the agency to implement the
budget neutrality provision in this manner. The statutory language
merely refers to ensuring that aggregate payments made by the Secretary
do not exceed the amount which the Secretary estimates would have been
paid if the demonstration project was not implemented and does not
identify the range across which aggregate payments must be held equal.
In the FY 2023 IPPS/LTCH PPS final rule, we finalized a policy that
in the event the demonstration extension period is found not to have
been budget neutral, any excess costs would be recouped within one
fiscal year. We explained our belief that this policy is a more
efficient timeframe for the government to conclude the demonstration
operational requirements (such as analyzing claims data, cost report
data or other data sources) to adjudicate the budget neutrality payment
recoupment process due to any excess cost that occurred as result of
the demonstration extension period.
(2) FCHIP Budget Neutrality Methodology and Analytical Approach
As explained in the FY 2022 IPPS/LTCH PPS final rule, we finalized
a policy to address the demonstration budget neutrality methodology and
analytical approach for the initial period of the demonstration. In the
FY 2023 IPPS/LTCH PPS final rule, we finalized a policy to adopt the
budget neutrality methodology and analytical approach used during the
demonstration initial period to ensure budget neutrality for the
extension period. The analysis of
[[Page 36974]]
budget neutrality during the initial period of the demonstration
identified both the costs related to providing the intervention
services under the FCHIP Demonstration and any potential downstream
effects of the intervention-related services, including any savings
that may have accrued.
The budget neutrality analytical approach for the demonstration
initial period incorporated two major data components: (1) Medicare
cost reports; and (2) Medicare administrative claims. As described in
the FY 2022 IPPS/LTCH PPS final rule (86 FR 45323 through 45328), CMS
computed the cost of the demonstration for each fiscal year of the
demonstration initial period using Medicare cost reports for the
participating CAHs, and Medicare administrative claims and enrollment
data for beneficiaries who received demonstration intervention
services.
In addition, in order to capture the full impact of the
interventions, CMS developed a statistical modeling, Difference-in-
Difference (DiD) regression analysis to estimate demonstration
expenditures and compute the impact of expenditures on the intervention
services by comparing cost data for the demonstration and non-
demonstration groups using Medicare administrative claims across the
demonstration period of performance under the initial period of the
demonstration. The DiD regression analysis would compare the direct
cost and potential downstream effects of intervention services,
including any savings that may have accrued, during the baseline and
performance period for both the demonstration and comparison groups.
Second, the Medicare administrative claims analysis would be
reconciled using data obtained from auditing the participating CAHs'
Medicare cost reports. We would estimate the costs of the demonstration
using ``as submitted'' cost reports for each hospital's financial
fiscal year participation within each of the demonstration extension
period performance years. Each CAH has its own Medicare cost report end
date applicable to the 5-year period of performance for the
demonstration extension period. The cost report is structured to gather
costs, revenues and statistical data on the provider's financial fiscal
period. As a result, we finalized a policy in the FY 2023 IPPS/LTCH PPS
final rule that we would determine the final budget neutrality results
for the demonstration extension once complete data is available for
each CAH for the demonstration extension period.
e. Policies for Implementing the 5-year Extension and Provisions
Authorized by Section 129 of the Consolidated Appropriations Act, 2021
(Pub. L. 116-260)
As stated in the FY 2025 IPPS/LTCH PPS final rule (89 FR 69416
through 69419), our policy for implementing the 5-year extension period
for section 129 of Public Law 116-260 follows same budget neutrality
methodology and analytical approach as the demonstration initial period
methodology. While we expect to use the same methodology that was used
to assess the budget neutrality of the FCHIP Demonstration during
initial period of the demonstration to assess the financial impact of
the demonstration during this extension period, upon receiving data for
the extension period, we may update and/or modify the FCHIP budget
neutrality methodology and analytical approach to ensure that the full
impact of the demonstration is appropriately captured.
Comment: Commenters expressed support of the FCHIP demonstration,
and conveyed the demonstration ``Intervention Payment and Payment
Waivers'' are vital for improving access and care coordination in
extremely rural communities, where workforce shortages, travel
distances, and infrastructure limitations pose persistent barriers to
timely, high-quality care.
Commenters recommended CMS publicly report key findings from the
FCHIP evaluation and/or preliminary reports. The commenters expressed
these reports would be essential to understanding whether the
demonstration has improved access and reduced disparities in the
targeted regions. Commenters expressed lessons learned from the
demonstration findings could be essential to help inform future
innovations in rural health care delivery and to ensure that Medicare
payment policy supports sustainable models of care in frontier
communities. The commenters expressed the importance of transparency as
CMS implements the demonstration project to help build trust and to
maintain stable participation among rural stakeholders. Commenters urge
CMS, as the demonstration progresses, to clearly communicate the
demonstration budget neutrality methodology and analytical approach
timeline and describe any potential future budget neutrality payment
adjustments associated with FCHIP demonstration and payment waivers.
In addition, the commenters requested CMS to increase the number of
hospitals participating in the demonstration. Specifically, commenters
explained CMS should explore options for scaling successful components
of the FCHIP model more broadly, particularly to other rural areas with
similar access challenges.
Response: We appreciate the commenter's support of the
demonstration project and the demonstration intervention payment and
payment waivers. The authorizing legislation under section 123(h)(2) of
Public Law 110-275 requires CMS to submit a final report to the
Congress, no later than 1 year after the completion of the
demonstration project. In 2020, CMS published a final report to
Congress and an evaluation report covering the initial period of the
demonstration. CMS will submit a final report to Congress covering the
demonstration extension period of performance no later than 1 year
after completion of the extension period. Currently, rural stakeholders
may monitor the progress of the demonstration, and any preliminary
findings and reports via the FCHIP demonstration website.
We acknowledge the commenter's request for CMS to expand the number
of hospitals participating in the demonstration. However, we note that
section 129(b)(2)(C) of Public Law 116-260, stipulates ``[a]n entity
shall only be eligible to participate in the demonstration project
under this section during the extension period if the entity
participated in the demonstration project under this section during the
initial period.'' As such, expanding the number of hospitals
participating within the demonstration would require legislative action
to increase the number of eligible entities, as defined in section
129(b)(2)(C) of Public Law 116-260. After consideration of the public
comments we received, we are continuing our previously stated policy to
adopt the same budget neutrality methodology and analytical approach
used during the demonstration initial period for the demonstration
extension period without modification.
f. Total Budget Neutrality Offset Amount for FY 2026
At this time, for the FY 2026 IPPS/LTCH PPS final rule, while this
discussion represents our anticipated approach to assessing the
financial impact of the demonstration extension period based on upon
receiving data for the full demonstration extension period, we may
update and/or modify the FCHIP Demonstration budget neutrality
methodology and analytical approach to
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ensure that the full impact of the demonstration is appropriately
captured.
Therefore, we did not propose to apply a budget neutrality payment
offset to payments to CAHs in FY 2026. This policy would have no impact
for any national payment system for FY 2026.
IX. Changes to the Long-Term Care Hospital Prospective Payment System
(LTCH PPS) for FY 2026
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
Section 123 of the Medicare, Medicaid, and SCHIP (State Children's
Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106-113), as amended by section 307(b) of the Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000
(BIPA) (Pub. L. 106-554), provides for payment for both the operating
and capital-related costs of hospital inpatient stays in long-term care
hospitals (LTCHs) under Medicare Part A based on prospectively set
rates. The Medicare prospective payment system (PPS) for LTCHs applies
to hospitals that are described in section 1886(d)(1)(B)(iv) of the
Act, effective for cost reporting periods beginning on or after October
1, 2002.
Section 1886(d)(1)(B)(iv)(I) of the Act originally defined an LTCH
as a hospital that has an average inpatient length of stay (as
determined by the Secretary) of greater than 25 days.
Section 1886(d)(1)(B)(iv)(II) of the Act also provided an
alternative definition of LTCHs (``subclause II'' LTCHs). However,
section 15008 of the 21st Century Cures Act (Pub. L. 114-255) amended
section 1886 of the Act to exclude former ``subclause II'' LTCHs from
being paid under the LTCH PPS and created a new category of IPPS-
excluded hospitals, which we refer to as ``extended neoplastic disease
care hospitals,'' to be paid as hospitals that were formally classified
as ``subclause (II)'' LTCHs (82 FR 38298).
Section 123 of the BBRA requires the PPS for LTCHs to be a ``per
discharge'' system with a diagnosis-related group (DRG) based patient
classification system that reflects the differences in patient resource
use and costs in LTCHs.
Section 307(b)(1) of the BIPA, among other things, mandates that
the Secretary shall examine, and may provide for, adjustments to
payments under the LTCH PPS, including adjustments to DRG weights, area
wage adjustments, geographic reclassification, outliers, updates, and a
disproportionate share adjustment.
In the August 30, 2002, Federal Register (67 FR 55954), we issued a
final rule that implemented the LTCH PPS authorized under the BBRA and
BIPA. For the initial implementation of the LTCH PPS (FYs 2003 through
2007), the system used information from LTCH patient records to
classify patients into distinct long-term care-diagnosis-related groups
(LTCDRGs) based on clinical characteristics and expected resource
needs. Beginning in FY 2008, we adopted the Medicare severity-long-term
care-diagnosis related groups (MS-LTC-DRGs) as the patient
classification system used under the LTCH PPS. Payments are calculated
for each MS-LTC-DRG and provisions are made for appropriate payment
adjustments. Payment rates under the LTCH PPS are updated annually and
published in the Federal Register.
The LTCH PPS replaced the reasonable cost-based payment system
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
(Pub. L. 97-248) for payments for inpatient services provided by an
LTCH with a cost reporting period beginning on or after October 1,
2002. (The regulations implementing the TEFRA reasonable-cost-based
payment provisions are located at 42 CFR part 413.) With the
implementation of the PPS for acute care hospitals authorized by the
Social Security Amendments of 1983 (Pub. L. 98-21), which added section
1886(d) to the Act, certain hospitals, including LTCHs, were excluded
from the PPS for acute care hospitals and paid their reasonable costs
for inpatient services subject to a per discharge limitation or target
amount under the TEFRA system. For each cost reporting period, a
hospital specific ceiling on payments was determined by multiplying the
hospital's updated target amount by the number of total current year
Medicare discharges. (Generally, in this section of the preamble of
this final rule, when we refer to discharges, we describe Medicare
discharges.) The August 30, 2002, final rule further details the
payment policy under the TEFRA system (67 FR 55954).
In the August 30, 2002, final rule, we provided for a 5-year
transition period from payments under the TEFRA system to payments
under the LTCH PPS. During this 5-year transition period, an LTCH's
total payment under the PPS was based on an increasing percentage of
the Federal rate with a corresponding decrease in the percentage of the
LTCH PPS payment that is based on reasonable cost concepts, unless an
LTCH made a one-time election to be paid based on 100 percent of the
Federal rate. Beginning with LTCHs' cost reporting periods beginning on
or after October 1, 2006, total LTCH PPS payments are based on 100
percent of the Federal rate.
In addition, in the August 30, 2002, final rule, we presented an
in-depth discussion of the LTCH PPS, including the patient
classification system, relative weights, payment rates, additional
payments, and the budget neutrality requirements mandated by section
123 of the BBRA. The same final rule that established regulations for
the LTCH PPS under 42 CFR part 412, subpart O, also contained LTCH
provisions related to covered inpatient services, limitation on charges
to beneficiaries, medical review requirements, furnishing of inpatient
hospital services directly or under arrangement, and reporting and
recordkeeping requirements. We refer readers to the August 30, 2002,
final rule for a comprehensive discussion of the research and data that
supported the establishment of the LTCH PPS (67 FR 55954).
In the FY 2016 IPPS/LTCH PPS final rule (80 FR 49601 through
49623), we implemented the provisions of the Pathway for Sustainable
Growth Rate (SGR) Reform Act of 2013 (Pub. L. 113-67), which mandated
the application of the ``site neutral'' payment rate under the LTCH PPS
for discharges that do not meet the statutory criteria for exclusion
beginning in FY 2016. For cost reporting periods beginning on or after
October 1, 2015, discharges that do not meet certain statutory criteria
for exclusion are paid based on the site neutral payment rate.
Discharges that do meet the statutory criteria continue to receive
payment based on the LTCH PPS standard Federal payment rate. For more
information on the statutory requirements of the Pathway for SGR Reform
Act of 2013, we refer readers to the FY 2016 IPPS/LTCH PPS final rule
(80 FR 49601 through 49623) and the FY 2017 IPPS/LTCH PPS final rule
(81 FR 57068 through 57075).
In the FY 2018 IPPS/LTCH PPS final rule, we implemented several
provisions of the 21st Century Cures Act (``the Cures Act'') (Pub. L.
114-255) that affected the LTCH PPS. (For more information on these
provisions, we refer readers to (82 FR 38299).)
In the FY 2019 IPPS/LTCH PPS final rule (83 FR 41529), we made
conforming changes to our regulations to implement the provisions of
section 51005 of the Bipartisan Budget Act of 2018 (Pub. L. 115-123),
which extends the transitional blended payment rate
[[Page 36976]]
for site neutral payment rate cases for an additional 2 years. We refer
readers to section VII.C. of the preamble of the FY 2019 IPPS/LTCH PPS
final rule for a discussion of our final policy. In addition, in the FY
2019 IPPS/LTCH PPS final rule, we removed the 25-percent threshold
policy under 42 CFR 412.538, which was a payment adjustment that was
applied to payments for Medicare patient LTCH discharges when the
number of such patients originating from any single referring hospital
was in excess of the applicable threshold for given cost reporting
period.
In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42439), we further
revised our regulations to implement the provisions of the Pathway for
SGR Reform Act of 2013 (Pub. L. 113-67) that relate to the payment
adjustment for discharges from LTCHs that do not maintain the requisite
discharge payment percentage and the process by which such LTCHs may
have the payment adjustment discontinued.
2. Criteria for Classification as an LTCH
a. Classification as an LTCH
Under the regulations at Sec. 412.23(e)(1), to qualify to be paid
under the LTCH PPS, a hospital must have a provider agreement with
Medicare. Furthermore, Sec. 412.23(e)(2)(i), which implements section
1886(d)(1)(B)(iv) of the Act, requires that a hospital have an average
Medicare inpatient length of stay of greater than 25 days to be paid
under the LTCH PPS. In accordance with section 1206(a)(3) of the
Pathway for SGR Reform Act of 2013 (Pub. L. 113-67), as amended by
section 15007 of Public Law 114-255, we amended our regulations to
specify that Medicare Advantage plans' and site neutral payment rate
discharges are excluded from the calculation of the average length of
stay for all LTCHs, for discharges occurring in cost reporting period
beginning on or after October 1, 2015.
b. Hospitals Excluded From the LTCH PPS
The following hospitals are paid under special payment provisions,
as described in Sec. 412.22(c) and, therefore, are not subject to the
LTCH PPS rules:
Veterans Administration hospitals.
Hospitals that are reimbursed under State cost control
systems approved under 42 CFR part 403.
Hospitals that are reimbursed in accordance with
demonstration projects authorized under section 402(a) of the Social
Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1),
section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92-
603) (42 U.S.C. 1395b1 (note)) (Statewide-all payer systems, subject to
the rate-of increase test at section 1814(b) of the Act), or section
3021 of the Patient Protection and Affordable Care Act (Pub. L. 111-
148) (42 U.S.C. 1315a).
Nonparticipating hospitals furnishing emergency services
to Medicare beneficiaries.
3. Limitation on Charges to Beneficiaries
In the August 30, 2002, final rule, we presented an in-depth
discussion of beneficiary liability under the LTCH PPS (67 FR 55974
through 55975). This discussion was further clarified in the RY 2005
LTCH PPS final rule (69 FR 25676). In keeping with those discussions,
if the Medicare payment to the LTCH is the full LTC-DRG payment amount,
consistent with other established hospital prospective payment systems,
Sec. 412.507 currently provides that an LTCH may not bill a Medicare
beneficiary for more than the deductible and coinsurance amounts as
specified under Sec. Sec. 409.82, 409.83, and 409.87, and for items
and services specified under Sec. 489.30(a). However, under the LTCH
PPS, Medicare will only pay for services furnished during the days for
which the beneficiary has coverage until the short-stay outlier (SSO)
threshold is exceeded. If the Medicare payment was for a SSO case (in
accordance with Sec. 412.529), and that payment was less than the full
LTC-DRG payment amount because the beneficiary had insufficient
coverage as a result of the remaining Medicare days, the LTCH also is
currently permitted to charge the beneficiary for services delivered on
those uncovered days (in accordance with Sec. 412.507). In the FY 2016
IPPS/LTCH PPS final rule (80 FR 49623), we amended our regulations to
expressly limit the charges that may be imposed upon beneficiaries
whose LTCHs' discharges are paid at the site neutral payment rate under
the LTCH PPS. In the FY 2017 IPPS/LTCH PPS final rule (81 FR 57102), we
amended the regulations under Sec. 412.507 to clarify our existing
policy that blended payments made to an LTCH during its transitional
period (that is, an LTCH's payment for discharges occurring in cost
reporting periods beginning in FYs 2016 through 2019) are considered to
be site neutral payment rate payments.
We received comments that are outside the scope of the proposed
rule. For example, we received comments related to providing additional
payments for end-stage renal disease (ESRD) patients in LTCHs, similar
to the ESRD add-on payment for IPPS hospitals. Because we did not make
any proposals related to additional payments for ESRD patients in LTCHs
in the proposed rule, we consider these public comments to be outside
the scope of the proposed rule, therefore we are not addressing the
comment in this final rule.
B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-
DRG) Classifications and Relative Weights for FY 2026
1. Background
Section 123 of the BBRA required that the Secretary implement a PPS
for LTCHs to replace the cost-based payment system under TEFRA. Section
307(b)(1) of the BIPA modified the requirements of section 123 of the
BBRA by requiring that the Secretary examine the feasibility and the
impact of basing payment under the LTCH PPS on the use of existing (or
refined) hospital DRGs that have been modified to account for different
resource use of LTCH patients.
Under both the IPPS and the LTCH PPS, the DRG-based classification
system uses information on the claims for inpatient discharges to
classify patients into distinct groups (for example, DRGs) based on
clinical characteristics and expected resource needs. When the LTCH PPS
was implemented for cost reporting periods beginning on or after
October 1, 2002, we adopted the same DRG patient classification system
utilized at that time under the IPPS. We referred to this patient
classification system as the ``long-term care diagnosis-related groups
(LTC-DRGs).'' As part of our efforts to better recognize severity of
illness among patients, in the FY 2008 IPPS final rule with comment
period (72 FR 47130), we adopted the MS-DRGs and the Medicare severity
long-term care diagnosis-related groups (MS-LTC-DRGs) under the IPPS
and the LTCH PPS, respectively, effective beginning October 1, 2007 (FY
2008). For a full description of the development, implementation, and
rationale for the use of the MS-DRGs and MS-LTC-DRGs, we refer readers
to the FY 2008 IPPS final rule with comment period (72 FR 47141 through
47175 and 47277 through 47299). (We note that, in that same final rule,
we revised the regulations at Sec. 412.503 to specify that for LTCH
discharges occurring on or after October 1, 2007, when applying the
provisions of 42 CFR part 412, subpart O, applicable to LTCHs for
policy descriptions and payment calculations, all references to LTC-
DRGs would be considered a reference
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to MS-LTC-DRGs. For the remainder of this section, we present the
discussion in terms of the current MS-LTC-DRG patient classification
system unless specifically referring to the previous LTC-DRG patient
classification system that was in effect before October 1, 2007.)
Consistent with section 123 of the BBRA, as amended by section
307(b)(1) of the BIPA, and Sec. 412.515 of the regulations, we use
information derived from LTCH PPS patient records to classify LTCH
discharges into distinct MS-LTC-DRGs based on clinical characteristics
and estimated resource needs. As noted previously, we adopted the same
DRG patient classification system utilized at that time under the IPPS.
The MS-DRG classifications are updated annually, which has resulted in
the number of MS-DRGs changing over time. For FY 2026, there will be
772 MS-DRG, and by extension, MS-LTC-DRG, groupings based on the
changes, as discussed in section II.C. of the preamble of this final
rule.
Although the patient classification system used under both the LTCH
PPS and the IPPS are the same, the relative weights are different. The
established relative weight methodology and data used under the LTCH
PPS result in relative weights under the LTCH PPS that reflect the
differences in patient resource use of LTCH patients, consistent with
section 123(a)(1) of the BBRA. That is, we assign an appropriate weight
to the MS-LTC-DRGs to account for the differences in resource use by
patients exhibiting the case complexity and multiple medical problems
characteristic of LTCH patients.
2. Patient Classifications Into MS-LTC-DRGs
a. Background
The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under
the LTCH PPS) are based on the CMS DRG structure. As noted previously
in this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs
although they are structurally identical to the MS-DRGs used under the
IPPS.
The MS-DRGs are organized into 25 major diagnostic categories
(MDCs), most of which are based on a particular organ system of the
body; the remainder involve multiple organ systems (such as MDC 22,
Burns). Within most MDCs, cases are then divided into surgical DRGs and
medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy
that orders operating room (O.R.) procedures or groups of O.R.
procedures by resource intensity. The GROUPER software program does not
recognize all ICD-10-PCS procedure codes as procedures affecting DRG
assignment. That is, procedures that are not surgical (for example,
EKGs) or are minor surgical procedures (for example, a biopsy of skin
and subcutaneous tissue (procedure code 0JBH3ZX)) do not affect the MS-
LTC-DRG assignment based on their presence on the claim.
Generally, under the LTCH PPS, a Medicare payment is made at a
predetermined specific rate for each discharge that varies based on the
MS-LTC-DRG to which a beneficiary's discharge is assigned. Cases are
classified into MS-LTC-DRGs for payment based on the following six data
elements:
Principal diagnosis.
Additional or secondary diagnoses.
Surgical procedures.
Age.
Sex.