[Federal Register Volume 91, Number 71 (Tuesday, April 14, 2026)]
[Proposed Rules]
[Pages 19312-19887]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-07203]
[[Page 19311]]
Vol. 91
Tuesday,
No. 71
April 14, 2026
Part III
Department of Health and Human Services
-----------------------------------------------------------------------
Centers for Medicare & Medicaid Services
-----------------------------------------------------------------------
42 CFR Parts 405, 412, 413, et al.
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) 2027 Rates;
Requirements for Quality Programs; and Other Policy Changes; Proposed
Rule
Federal Register / Vol. 91 , No. 71 / Tuesday, April 14, 2026 /
Proposed Rules
[[Page 19312]]
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 405, 412, 413, 415, 419, 495, and 512
[CMS-1849-P]
RINs 0938-AV79
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) 2027
Rates; Requirements for Quality Programs; and Other Policy Changes
AGENCY: Centers for Medicare & Medicaid Services (CMS) and Department
of Health and Human Services (HHS).
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This proposed rule would revise the Medicare hospital
inpatient prospective payment systems (IPPS) for operating and capital-
related costs of acute care hospitals; make changes relating to
Medicare graduate medical education (GME) for teaching hospitals;
update 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); update and make
changes to requirements for certain quality programs; and make other
policy-related changes.
DATES: To be assured consideration, comments must be received at one of
the addresses provided in the ADDRESSES section, no later than 5 p.m.
EDT on April 10, 2026.
ADDRESSES: In commenting, please refer to file code CMS-1849-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
Comments, including mass comment submissions, must be submitted in
one of the following three ways (please choose only one of the ways
listed):
1. Electronically. You may (and we encourage you to) submit
electronic comments on this regulation to https://www.regulations.gov.
Follow the instructions under the ``submit a comment'' tab.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-1849-P, P.O. Box 8013,
Baltimore, MD 21244-8013.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments via
express or overnight mail to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1849-P, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
For information on viewing public comments, we refer readers to the
beginning of the SUPPLEMENTARY INFORMATION section.
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, and Low-Volume Hospital
Payment Adjustment.
Emily Lipkin, Jim Mildenberger and Michael Raftery,
[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.
David O'Reilly, [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 and Hospital Acquired Condition Reduction Program--
Administration Issues.
Ngozi Uzokwe, [email protected], Hospital Acquired Condition
Reduction Program and Hospital Readmissions 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.
John Green, [email protected], PPS-Exempt Cancer Hospital
Quality Reporting Program--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.
[email protected], Transforming Episode Accountability Model
(TEAM).
[email protected], Comprehensive Care for Joint Replacement
Expanded (CJR-X) Model.
Katherine McDonald, [email protected], Amanda Michael,
[email protected], and Kellie Shannon,
[email protected], Organ Acquisition Payment, Reasonable Cost
Payment, and Appeals for Independent Organ Procurement Organizations
(IOPOs) and Histocompatibility Laboratories (HCLs).
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following
website as soon as possible after they have been received: https://www.regulations.gov. Follow the search instructions on that website to
view public comments. CMS will not post on Regulations.gov public
comments that make threats to individuals or institutions or suggest
that the commenter will take actions to harm an individual. CMS
continues to encourage individuals not to submit duplicative comments.
We will post acceptable comments from multiple unique commenters even
if the content is identical or nearly identical to other comments.
Plain Language Summary: In accordance with 5 U.S.C. 553(b)(4), a
[[Page 19313]]
plain language summary of this rule may be found at https://www.regulations.gov/.
Tables Available on the CMS Website
The IPPS tables for this fiscal year (FY) 2027 proposed 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 2027 IPPS Proposed Rule Home
Page'' or ``Acute Inpatient--Files for Download.'' The LTCH PPS tables
for this FY 2027 proposed 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-1849-P. For further details on the contents of the tables
referenced in this proposed rule, we refer readers to section VI. of
the Addendum to this FY 2027 IPPS/LTCH PPS proposed 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 2027 IPPS/LTCH PPS proposed rule would make payment and
policy changes under the Medicare inpatient 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 would make 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 proposed rule also would make policy changes to
programs associated with Medicare IPPS hospitals, IPPS-excluded
hospitals, and LTCHs. We are also proposing to make changes relating to
Medicare graduate medical education (GME) and nursing and allied health
(NAH) education payments.
We are proposing to adopt the Advance Care Planning electronic
clinical quality measure (eCQM) in the Hospital Inpatient Quality
Reporting, PPS-Exempt Cancer Hospital (PCH) Quality Reporting, and
Medicare Promoting Interoperability Programs. We are proposing to adopt
five modified claims-based, risk-standardized mortality measures in the
Hospital Inpatient Quality Reporting Program and subsequently modify
these measures in the Hospital Value-Based Purchasing Program.
Other than these cross-program proposals, we are not proposing any
updates for the Hospital Value-Based Purchasing Program or the Hospital
Acquired-Conditions Reduction Program.
In the Hospital Readmissions Reduction Program, we are proposing to
adopt the Hospital 30-Day, All-Cause, Risk-Standardized Readmission
Rate Following Sepsis Hospitalization measure.
In addition to the cross-program proposals previously listed, in
the Hospital Inpatient Quality Reporting Program, we are proposing to
adopt two new quality measures, remove three measures, and modify three
current measures. We are also proposing to modify the data reporting
and submission requirements for electronic clinical quality measures
(eCQMs) and the Maternal Morbidity structural measure.
In addition to the cross-program proposal previously listed in the
PCH Quality Reporting Program, we are proposing to adopt one new
measure and remove one measure. We are also proposing to adopt data
reporting and submission requirements for eCQMs.
In addition to the cross-program proposal previously listed, in the
Medicare Promoting Interoperability Program, we propose to remove two
measures and two attestations; adopt a measure; modify one measure;
adopt one additional eCQM in alignment with the Hospital Inpatient
Quality Reporting Program; and remove three eCQMs in alignment with the
Hospital Inpatient Quality Reporting Program.
In the LTCH Quality Reporting Program (QRP), we are proposing to
remove two measures, beginning with the FY 2028 LTCH QRP. We also
propose the revision of the LTCH QRP Data Submission Deadlines
beginning with the FY 2029 LTCH QRP. Finally, we are soliciting public
comments on one Request for Information (RFI) on future measure
concepts for 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 tests
whether financial accountability for these episode categories reduces
Medicare expenditures while preserving or enhancing the quality of care
for Medicare beneficiaries. In this proposed rule, we propose updates
to TEAM that would modify policies affecting episode category triggers,
quality measure assessment, and the construction of target prices.
Additionally, we are soliciting public feedback on two Request for
Information (RFIs) regarding ambulatory surgical center episodes and
voluntary participation of hospitals with physician ownership.
The Comprehensive Care for Joint Replacement CJR Expanded (CJR-X)
Model builds upon the CJR Model test that ran from April 1, 2016 to
December 31, 2024. Based on the strength of evidence from the CJR
Model, the CMS Innovation Center is proposing to expand the model
nationally, including U.S. Territories in FY 2028. The model would
continue to focus on improving care and reducing spending for Medicare
beneficiaries undergoing lower extremity joint replacement (LEJR)
procedures. Participating hospitals would be held accountable for
spending and quality of care during an inpatient stay or hospital
outpatient procedure and for the 90 days following hospital discharge.
If finalized, the CJR-X Model would be mandatory for acute care
hospitals, except for those participating in TEAM, and acute care
hospitals located in Maryland. CJR-X would include some modifications
to the CJR Model. Some quality measures and payment methodology
policies have been updated in response to CJR Model evaluation results,
stakeholder feedback, and changes to national care delivery patterns
among both CJR and non-CJR hospitals.
Under various statutory authorities, we either discuss continued
program implementation or propose changes to the Medicare IPPS, the
LTCH PPS, other related payment methodologies and programs for FY 2027
and subsequent fiscal years, and other policies and provisions included
in this proposed 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).
[[Page 19314]]
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
2015, 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(r) of the Act, as added by section 3133 of
the Affordable Care Act, which provides for a reduction to 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)(6) of the Act, as added by section
1206(a)(1) of the Pathway for Sustainable Growth Rate (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 2027.
Section 1899B of the Act, which provides for the
establishment of standardized data reporting for certain post-acute
care providers, including LTCHs.
Section 1886(b)(3)(B)(viii) of the Act, which establishes
the Hospital Inpatient Quality Reporting Program, 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 establishes
payment adjustments under the Medicare Promoting Interoperability
Program by requiring 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. Additionally, Section
1886(n) of the Act establishes the requirements for an eligible
hospital to be treated as a meaningful EHR user of CEHRT for an EHR
reporting period for a payment adjustment year or, for purposes of
subsection (b)(3)(B)(ix) of the Act, for a fiscal 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(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 compare hospitals
with respect to the number of their Medicare-Medicaid dual-eligible
beneficiaries in determining the extent of excess readmissions.
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
[[Page 19315]]
measures in the form, manner, and at a time, specified by the
Secretary.
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 proposed
rule. In general, these major provisions are being proposed 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 proposed rule is presented in section I.D. of the
preamble of this proposed rule.
a. Proposed Requirements To Prohibit Unlawful Discrimination by
Graduate Medical Education Programs and Nursing and Allied Health
Education Programs
In section V.F.2. of the preamble of this proposed rule, we discuss
our proposal to require that, in addition to meeting other applicable
requirements, an approved medical residency training program must not
discriminate, or promote or encourage discrimination, on the basis of
race, color, national origin, sex, age, disability, or religion,
including the use of those characteristics or intentional proxies for
those characteristics as a selection criterion for employment, program
participation, resource allocation, or similar activities,
opportunities, or benefits. In V.G.3. of the preamble of this proposed
rule, we discuss similar proposals with respect to approved nursing and
allied health education programs and accreditors.
b. Proposed Modifications to the Criteria for New Residency Programs
In section V.F.3. of the preamble of this proposed rule, we discuss
our proposed modifications to the criteria for identifying new
residency programs under 42 CFR 413.79(l). We propose that, in addition
to receiving initial accreditation by the appropriate accrediting body,
for a residency program to be considered new, at least 90 percent of
the individual residents must not have previous experience training in
another program in the same specialty. The proposed requirement
includes exceptions for small residency programs, displaced residents,
and residents admitted via a binding third-party matching program. In
determining whether a program is genuinely new for cap-building
purposes, we would also no longer consider the previous employment of
the program director or faculty.
c. Hospital Readmissions Reduction Program (HRRP)
In this FY 2027 IPPS/LTCH PPS proposed rule, we are proposing to
adopt the Hospital 30-Day, All-Cause, Risk-Standardized Readmission
Rate Following Sepsis Hospitalization measure beginning with an early
look for the FY 2028 program year, and use beginning with the FY 2029
program year.
d. Hospital Value-Based Purchasing (VBP) Program
In this FY 2027 IPPS/LTCH PPS proposed rule, we are proposing
modifications to five condition-specific and procedure-specific
mortality measures beginning with the FY 2032 program year: (1)
Hospital 30-Day, All-Cause, Risk-Standardized Mortality Rate Following
Acute Myocardial Infarction (AMI) Hospitalization measure; (2) Hospital
30-Day, All-Cause, Risk-Standardized Mortality Rate Following Heart
Failure Hospitalization measure; (3) Hospital 30-Day, All-Cause, Risk-
Standardized Mortality Rate Following Pneumonia Hospitalization
measure; (4) Hospital 30-Day, All-Cause, Risk-Standardized Mortality
Rate Following Chronic Obstructive Pulmonary Disease (COPD)
Hospitalization measure; and (5) Hospital 30-Day, All-Cause, Risk-
Standardized Mortality Rate Following Coronary Artery Bypass Graft
(CABG) Surgery measure. We also include requests for information on two
topics: (1) measuring emergency room access and timeliness in Hospital
Inpatient Quality Reporting and Value-Based Purchasing Programs; (2)
potential future use of the Adult Community-Onset Sepsis Standardized
Mortality Ratio measure in the Hospital Inpatient Quality Reporting
Program.
e. Hospital Inpatient Quality Reporting Program
In this FY 2027 IPPS/LTCH PPS proposed rule, we are proposing
several changes to the Hospital Inpatient Quality Reporting Program. We
are proposing to adopt three new measures: (1) Excess Days in Acute
Care After Hospitalization for Diabetes measure beginning with the FY
2029 payment determination; (2) Advance Care Planning eCQM beginning
with the FY 2030 payment determination; (3) Hospital Harm-Postoperative
Venous Thromboembolism eCQM beginning with the FY 2030 payment
determination. We are also proposing to adopt five modified mortality
measures in the Hospital Inpatient Quality Reporting Program beginning
with the FY 2028 payment determination before subsequently modifying
them in the Hospital Value-Based Purchasing Program: (1) Hospital 30-
Day, All-Cause, Risk-Standardized Mortality Rate Following Acute
Myocardial Infarction (AMI) Hospitalization measure; (2) Hospital 30-
Day, All-Cause, Risk-Standardized Mortality Rate Following Heart
Failure Hospitalization measure; (3) Hospital 30-Day, All-Cause, Risk-
Standardized Mortality Rate Following Pneumonia Hospitalization
measure; (4) Hospital 30-Day, All-Cause, Risk-Standardized Mortality
Rate Following Chronic Obstructive Pulmonary Disease (COPD)
Hospitalization measure; and (5) Hospital 30-Day, All-Cause, Risk-
Standardized Mortality Rate Following Coronary Artery Bypass Graft
(CABG) Surgery measure. We are proposing modifications to three claims-
based measures beginning with the FY 2028 payment determination: (1)
Excess Days in Acute Care after Hospitalization for Acute Myocardial
Infarction; (2) Excess Days in Acute Care after Hospitalization for
Heart Failure; and (3) Excess Days in Acute Care after Hospitalization
for Pneumonia. We are proposing to remove three measures: (1) Venous
Thromboembolism Prophylaxis (VTE-1) eCQM; (2) Intensive Care Unit
Venous Thromboembolism Prophylaxis (VTE-2) eCQM; and (3) Discharged on
Antithrombotic Therapy (STK-02) eCQM beginning with the FY 2030 payment
determination. We are also proposing changes to data reporting and
submission requirements for eCQMs and structural measures: (1)
mandatory reporting for the Malnutrition Care Score eCQM beginning with
the FY 2030 payment determination; (2) mandatory reporting for the
Hospital Harm eCQMs after 2 years of self-selected reporting beginning
with the FY 2030 payment determination; and (3) an update to the
reporting of the Maternal Morbidity Structural measure beginning with
the FY 2028 payment determination. We also include requests for
information on three topics: (1) measuring emergency room access and
timeliness in Hospital Inpatient Quality Reporting and Value-Based
Purchasing Programs; (2) potential future use of the Adult Community-
Onset Sepsis Standardized Mortality Ratio measure in the Hospital
Inpatient Quality Reporting Program; and (3) Birthing-Friendly Hospital
designation modification to expand designation criteria.
[[Page 19316]]
f. PPS-Exempt Cancer Hospital (PCH) Quality Reporting Program
In this FY 2027 IPPS/LTCH PPS proposed rule, we are proposing to
adopt two new measures: (1) Advance Care Planning eCQM beginning with
the FY 2030 program year; and (2) Malnutrition Care Score eCQM
beginning with the FY 2030 program year. We are also proposing to
remove the COVID-19 Vaccination Coverage Among Healthcare Personnel
(HCP COVID-19 Vaccination) measure beginning with the FY 2028 program
year. In addition, we propose establishing reporting and submission
requirements for eCQMs in this program.
g. Long-Term Care Hospital Quality Reporting Program (LTCH QRP)
In the LTCH QRP, we are proposing to remove two measures, beginning
with the FY 2028 LTCH QRP. We also propose the revision of the LTCH QRP
Data Submission Deadlines beginning with the FY 2029 LTCH QRP. We are
also soliciting public comments on one Request for Information (RFI) on
future measure concepts for the LTCH QRP.
h. Medicare Promoting Interoperability Program
We are proposing several changes to the Medicare Promoting
Interoperability Program. Specifically, we are proposing: (1) to revise
the definition of certified EHR technology (CEHRT) for the Medicare
Promoting Interoperability Program based on Assistant Secretary for
Technology Policy and Office of the National Coordinator for Health
Information Technology (ASTP/ONC) proposals to update the ONC Health IT
Certification Program; (2) to remove attestations related to ONC Direct
Review and ONC-Authorized Certification Body (ONC-ACB) Surveillance;
(3) to remove the Support Electronic Referral Loops by Sending Health
Information measure and the Support Electronic Referral Loops by
Receiving and Reconciling Health Information measure; (4) to modify the
Electronic Prior Authorization measure; (5) to adopt the Unique Device
Identifiers (UDIs) for Implantable Medical Devices measure within the
Public Health and Clinical Data Exchange objective; (6) to adopt two
new eCQMs in alignment with the Hospital Inpatient Quality Reporting
Program; and (7) to remove three eCQMs in alignment with the Hospital
Inpatient Quality Reporting Program.
i. Transforming Episode Accountability Model (TEAM)
In section X.A. of the preamble of this proposed rule, we discuss
the changes we propose for the Transforming Episode Accountability
Model (TEAM). TEAM is a 5-year mandatory model tested under the
authority of section 1115A of the Act, that started on January 1, 2026,
and will end on December 31, 2030. We propose changes to a few areas of
the model, including: (1) adding X Medicare Severity Diagnosis Related
Groups (MS-DRGs) that would initiate a spinal fusion anchor
hospitalization; (2) clarifying quality measure performance periods for
certain quality measures; (3) using a rolling historical Composite
Quality Score (CQS) baseline period for certain quality measures; (4)
adding an Ambulatory Payment Classification (APC) and MS-DRG update
factor to target prices; and (5) using the full baseline period to
construct the prospective normalization factor. We are also soliciting
feedback on two Request for Information (RFIs) for ambulatory surgical
center episodes and potential voluntary participation of physician
owned hospitals in future years of the model.
j. Comprehensive Care for Joint Replacement Expanded (CJR-X) Model
In section X.C. of the preamble of this proposed rule, we propose
expansion of the CJR Model. The CJR-X Model would be a mandatory model
that would be tested under the authority of section 1115A of the Act,
beginning on October 1, 2027 for acute care hospitals paid under the
IPPS and OPPS with limited exclusions. Participating hospitals would be
accountable for the cost and quality of care for LEJR episodes from the
hospital inpatient or hospital outpatient admission through 90 days
after the beneficiary is discharged from the hospital or hospital
outpatient procedure. We propose multiple policies for CJR-X,
including: (1) an October 1, 2027 start date; (2) acute care hospitals
as the participant and accountable entity; (3) LEJR as the episode of
care; (4) five quality measures and a composite quality score (CQS) to
assess quality performance; (5) regional risk-adjusted target prices
that include capped normalization and trend factors; (6) pricing-
specific policies for certain hospitals, such as low volume hospitals
and high duals hospitals; (7) provider and beneficiary overlap
permitted with most models; (8) allowing participant hospitals to have
financial arrangements; (9) waiving certain Medicare Program
requirements; (10) permitting beneficiary-identifiable and regional
aggregated data sharing; and (11) options for Alternative Payment Model
(APM) participation.
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 proposed rule.
BILLING CODE 4120-01-P
[[Page 19317]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.000
[[Page 19318]]
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 6202 of the Consolidated
Appropriations Act (CAA), 2026 (Pub. L. 119-75), under current law, the
Medicare-dependent, small rural hospital (MDH) program is effective
through December 31, 2026. For discharges occurring on or after October
1, 2007, but before January 1, 2027, 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 6202 of the CAA, 2026 extended the MDH program through December
31, 2026, beginning on January 1, 2027, the MDH program will no longer
be in effect absent a change in law. Because the MDH program is not
authorized by statute beyond December 31, 2026, beginning January 1,
2027, 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, the District of Columbia, and Puerto
Rico (that is, hospitals located in the
[[Page 19319]]
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 Proposed Rule--Consolidated Appropriations Act, 2026 (Pub. L. 119-
75)
Section 6201 of the Consolidated Appropriations Act (CAA), 2026
extended through the portion of FY 2027 occurring on October 1, 2026,
through December 31, 2026, 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 2025.
Specifically, under section 1886(d)(12)(C)(i) of the Act, as amended,
for FYs 2019 through 2026 and the portion of FY 2027 occurring on
October 1, 2026 through December 31, 2026, 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 December
31, 2026, 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 6202 of the CAA, 2026 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 the first quarter of FY 2027 (that is, through December
31, 2026).
D. Summary of the Proposed Provisions
In this proposed rule, we set forth proposed payment and policy
changes to the Medicare IPPS for FY 2027 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 2027.
The following is a general summary of the changes that we are
proposing 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 2027.
Proposed recalibration of the MS-DRG relative weights.
A discussion of the proposed FY 2027 status of new
technologies approved for add-on payments for FY 2026, a presentation
of our evaluation and analysis of the FY 2027 applicants for add-on
payments for high-cost new medical services and technologies (including
public input, as directed by
[[Page 19320]]
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) with proposals
for certain FDA market authorized technologies, and a discussion of the
proposed status of FY 2027 new technology applicants under the
alternative pathways for certain medical devices and certain
antimicrobial products.
A proposal to repeal the alternative pathway for new
technology add-on payment and OPPS device pass-through applications,
and require all applicants for new technology add-on payments and OPPS
device pass-through payments to demonstrate that they meet all
eligibility requirements to receive add-on payments and/or pass-through
payments (as discussed in section II.E.7. of the preamble of this
proposed rule).
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 2027 wage index update using wage data
from cost reporting periods beginning in FY 2023.
Calculation, analysis, and implementation of the proposed
occupational mix adjustment to the wage index for acute care hospitals
for FY 2027 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 2027 based on commuting patterns of hospital employees
who reside in a county and work in a different area with a higher wage
index.
The proposed transition for the discontinuation of the low
wage index hospital policy.
Proposed labor-related share for applying the FY 2027 wage
index.
3. Payment Adjustment for Medicare Disproportionate Share Hospitals
(DSHs) for FY 2027
In section IV. of the preamble of the proposed rule, we discuss the
following:
Proposed calculation of Factor 1 and Factor 2 of the
uncompensated care payment methodology.
Proposed methodology for determining Factor 3 of the
uncompensated care payment for FY 2027, which is the same methodology
that was used for FY 2026.
Proposed methodology for determining the amount of interim
uncompensated care payments, using the average of the most recent 3
years of discharge data.
4. Other Decisions and Proposed Changes to the IPPS for Operating Costs
In section V. 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
2027.
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 December 31, 2026.
Proposed conforming amendments to reflect the statutory
extension of the MDH program through December 31, 2026.
Proposed requirements to prohibit unlawful discrimination
by graduate medical education programs and nursing and allied health
education programs.
Proposed modifications to the criteria for identifying new
residency programs for purposes of direct graduate medical education
(GME) and indirect medical education (IME) payments; proposed
clarifications of the methodology for calculating direct GME and IME
payments following a teaching hospital merger; and a notice of closure
of two teaching hospitals and opportunities to apply for available
slots.
Proposed nursing and allied health (NAH) education program
Medicare Advantage (MA) add-on rates and direct GME MA percent
reductions for CY 2024; and proposed changes to the regulations for
determining net costs of approved NAH education programs and changes to
the procedures for allocating indirect NAH costs.
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 2027 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 2027 Hospital Value-Based Purchasing
Program.
Proposed changes to the requirements of the Hospital-
Acquired Condition Reduction Program--Updating the proposed estimate of
the financial impacts for the FY 2027 Hospital-Acquired Conditions
Reduction Program.
Discussion of and proposed changes relating to the
implementation of the Rural Community Hospital Demonstration Program in
FY 2027.
5. Proposed FY 2027 Policy Governing the IPPS for Capital-Related Costs
In section VI. of the preamble of the proposed rule, we discuss the
proposed payment policy requirements for capital-related costs and
capital payments to hospitals for FY 2027.
6. 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 discuss
the following:
Proposed changes to payments to certain excluded hospitals
for FY 2027.
Proposed continued implementation of the Frontier
Community Health Integration Project (FCHIP) Demonstration.
7. Proposed Changes to the LTCH PPS
In section VIII. 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 2027.
8. Proposed Changes Relating to Quality Data Reporting for Specific
Providers and Suppliers
In section IX. of the preamble of the proposed rule, we addressed
the following:
Proposed changes to the requirements for the Hospital
Inpatient Quality Reporting Program.
Proposed changes to the requirements for the PCH Quality
Reporting Program.
[[Page 19321]]
Proposed changes to the requirements for the Long-Term
Care Hospital Quality Reporting Program.
Proposed changes to requirements pertaining to eligible
hospitals and CAHs participating in the Medicare Promoting
Interoperability Program.
9. Other Proposals and Comment Solicitations Included in the Proposed
Rule
Section X.A. of the preamble of this proposed rule includes
proposed changes to TEAM that would affect episodes, quality measure
assessment, and pricing methodology. We are also soliciting comment on
an ambulatory surgical center episode RFI and a voluntary hospitals
with physician ownership RFI.
Section X.B. of the preamble of the proposed rule, includes a
proposed revision to the provider-based location criteria regulations
applicable to off-campus facilities or organizations (Sec. 413.65).
Section X.C. of the preamble of the proposed rule includes
proposals for the CJR-X Model with policies affecting participation,
episodes, quality measure and assessment, pricing methodology, model
overlap, financial arrangements, waivers of Medicare Program
requirements, data sharing, and APM options.
In section X.D. of the preamble of this proposed rule, we are
proposing the following:
To reconcile non-renal organ acquisition costs for
independent organ procurement organizations (IOPOs) and
histocompatibility laboratories (HCLs), and to require the Medicare
Administrative Contractor to establish, adjust if necessary, and
publish the IOPO non-renal standard acquisition charges (SACs) and the
HCL testing rates.
To change certain existing policy and proposing to codify
certain longstanding Medicare reasonable cost reimbursement policies,
applicable to all providers reimbursed for all or for some of their
services on a reasonable cost basis.
To clarify and codify cost allocation principles.
To codify the discretionary Administrator review of CMS
reviewing official determinations with respect to appeals under Sec.
413.420(g) for IOPOs and HCLs.
10. Other Provisions of the Proposed Rule
Section X.A. of the preamble of the proposed rule includes our
discussion of the MedPAC Recommendations.
Section X.B. of the preamble of the proposed rule includes a
descriptive listing of the public use files associated with the
proposed rule.
Section XI. of the preamble of the proposed rule includes the
collection of information requirements for entities based on our
proposals.
11. 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 this proposed rule, we
set forth proposed changes to the amounts and factors for determining
the proposed FY 2027 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 propose to establish the threshold amounts for outlier
cases. In addition, in section V. of the Addendum of the proposed rule,
we address the proposed update factors for determining the rate-of-
increase limits for cost reporting periods beginning in FY 2027 for
certain hospitals excluded from the IPPS.
12. Determining Prospective Payment Rates for LTCHs
In section V. of the Addendum of this proposed rule, we set forth
proposed changes to the amounts and factors for determining the
proposed FY 2027 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
2027. We propose 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.
13. Impact Analysis
In Appendix A of this proposed rule, we set forth an analysis of
the impact the proposed changes would have on affected acute care
hospitals, LTCHs, and other entities.
14. Recommendation of Update Factors for Operating Cost Rates of
Payment for Hospital Inpatient Services
In Appendix B of this proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the
appropriate percentage changes for FY 2027 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.
15. 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 2026 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 address these recommendations in Appendix B of the proposed rule.
For further information relating specifically to the MedPAC March 2026
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.
II. Proposed 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
[[Page 19322]]
adjustments are made to reflect changes in treatment patterns,
technology, and any other factors that may change the relative use of
hospital resources.
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 2026 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; 89 FR
69000 through 69109; 90 FR 36549 through 36649, 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).
C. Proposed Changes to Specific MS-DRG Classifications
1. Discussion of Changes to Coding System and Basis for Proposed FY
2027 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 Proposed FY 2027 MS-DRG Updates
The deadline for interested parties to submit MS-DRG classification
change requests for FY 2027 was October 20, 2025. 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 01/31/2029.
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.
As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36550),
beginning with FY 2027 rulemaking we are no longer summarizing in the
proposed and final rules those requests that are not able to be
considered for the upcoming FY. As noted, requests that 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.
In December 2025, we informed requestors via MEARISTM if
their MS-DRG classification change request was not able to be
considered with the FY 2027 rulemaking cycle.
Interested parties should submit any MS-DRG classification change
requests, including any comments and suggestions for FY 2028
consideration by October 20, 2026 via MEARISTM at: https://mearis.cms.gov/public/home. We will inform requestors via MEARIS\TM\ if
the MS-DRG classification change request is not able to be considered
with the upcoming fiscal year rulemaking cycle.
As we did for the FY 2026 IPPS/LTCH PPS proposed rule, for this FY
2027 IPPS/LTCH PPS proposed rule we are providing a test version of the
ICD-10 MS-DRG GROUPER Software, Version 44, so that the public can
better analyze and understand the impact of the proposals included in
this FY 2027 IPPS/LTCH PPS proposed rule. We note that this test
software reflects the proposed GROUPER logic for FY 2027. Therefore, it
includes the new diagnosis and procedure codes that are effective for
FY 2027 as reflected in Table 6A.--New Diagnosis Codes--FY 2027 and
Table 6B.--New Procedure Codes--FY 2027 associated with this FY 2027
IPPS/LTCH PPS proposed rule and does not include the diagnosis codes
that are invalid beginning in FY 2027 as reflected in Table 6C.--
Invalid Diagnosis Codes--FY 2027 and Table 6D.--Invalid Procedure
Codes--FY 2027 associated with this FY 2027 IPPS/LTCH PPS proposed
rule. These tables are not published in the Addendum to this FY 2027
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 this FY 2027 IPPS/LTCH PPS proposed rule. Because the
diagnosis and procedure codes no longer valid for FY 2027 are not
reflected in the test software, we are making available a supplemental
file in Table 6P.1a that includes the mapped Version 44 FY 2027 ICD-10-
CM codes and the deleted Version 43 FY 2026 ICD-10-CM codes and Table
6P.1b that includes the mapped Version 44 FY 2027 ICD-10-PCS codes and
the deleted Version 43.1 FY 2026 ICD-10-PCS codes that should be used
for testing purposes with users' available claims data. Therefore,
users will have access to the test software allowing them to build case
examples that reflect the proposals included in this FY 2027 IPPS/LTCH
PPS proposed rule. In addition, users will be able to view the draft
version of the ICD-10 MS-DRG
[[Page 19323]]
Definitions Manual, Version 44 that contains the documentation for
proposed FY 2027 ICD-10 MS-DRG GROUPER Version 44 logic changes and
will also be 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 2027. 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. We are making available the draft FY 2027 ICD-10 MCE
Version 44 Manual file on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software.
The MCE manual is comprised of two chapters: Chapter 1: Edit code
lists provides a listing of each edit, an 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. 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.
The test version of the ICD-10 MS-DRG GROUPER Software, Version 44,
the draft version of the ICD-10 MS-DRG Definitions Manual, Version 44,
the draft version of the Definitions of Medicare Code Edits Manual,
Version 44, and the supplemental mapping files in Tables 6P.1a and
6P.1b of the FY 2026 and FY 2027 ICD-10-CM diagnosis codes and ICD-10-
PCS procedure codes are available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/MS-DRG-Classifications-and-Software.
The following are the changes that we are proposing to the MS-DRGs
for FY 2027. We are inviting 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 this FY 2027 IPPS/
LTCH PPS proposed rule. In some cases, we are proposing changes to the
MS-DRG classifications based on our analysis of claims data and
clinical appropriateness. In other cases, we are proposing to maintain
the existing MS-DRG classifications based on our analysis of claims
data and clinical appropriateness. For this FY 2027 IPPS/LTCH PPS
proposed rule, our MS-DRG analysis was based on ICD-10 claims data from
the September 2025 update of the FY 2025 MedPAR file, which contains
hospital bills received from October 1, 2024 through September 30,
2025. In our discussion of the proposed MS-DRG reclassification
changes, we refer to these claims data as the ``September 2025 update
of the FY 2025 MedPAR file.''
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 2027 that we
received by October 20, 2025, 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.
[[Page 19324]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.001
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 this FY 2027 IPPS/LTCH PPS proposed rule, our
MS-DRG analysis was based on ICD-10 claims data from the September 2025
update of the FY 2025 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 two years of data. This analysis includes two 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.
2. MDC 04 (Diseases and Disorders of the Respiratory System)
a. Short-Term External Heart Assist Systems
For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request
to reassign cases reporting procedure codes describing the insertion of
a short-term external heart assist device from MDC 04 MS-DRGs 163, 164,
and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC,
respectively) to MDC 05 (Diseases and Disorders of the Circulatory
System) MS-DRG 215 (Other Heart Assist System Implant). According to
the requestor, when patients are admitted with pulmonary conditions,
such as pulmonary embolism, and have Impella[supreg] Ventricular
Support Systems inserted for cardiac support during a thrombectomy
procedure, MS-DRGs 163, 164, or 165 are assigned. The requestor stated
that cases reporting procedure codes describing the insertion of
Impella[supreg] Ventricular Support Systems that are assigned to MS-
DRGs 163, 164, or 165 require resources similar to cases that are
assigned to MS-DRG 215. The requestor further requested that if CMS
does not reassign cases reporting procedure codes describing the
insertion of a short-term external heart assist device to MS-DRG 215,
in the alternative, CMS should consider creating new MS-DRGs for cases
reporting procedure codes describing the insertion of a short-term
external heart assist device and major chest procedures.
In reviewing this request, we note that acute massive pulmonary
embolism can lead to right ventricular (RV) failure and cardiogenic
shock, requiring urgent treatment. Thrombolytic therapy is the standard
treatment for high-risk pulmonary embolism in hemodynamically unstable
patients. However, in cases where thrombolytics are contraindicated or
ineffective, mechanical circulatory support can serve as a rescue
therapy. While extracorporeal membrane oxygenation (ECMO) is commonly
utilized, Impella[supreg] Ventricular Support Systems can offer right
ventricular support in patients with pulmonary embolism-induced
cardiogenic shock.\1\ Impella[supreg] Ventricular Support Systems are
[[Page 19325]]
temporary heart assist devices intended to provide mechanical
circulatory support by temporarily assisting the pumping function of
the heart to provide adequate circulation of blood to critical organs
while also allowing damaged heart muscle the opportunity to rest and
recover in patients who need short-term support.
---------------------------------------------------------------------------
\1\ Pandey, Asim MBBSa,*; Parajuli, Samriddhi
MBBS\b\; Khanal, Prajwal MBBS\c\; Khanal, Kunjan MBBS\d\; Yadav,
Ramsinhasan Prasad MBBS\e\. Hemodynamic improvement with Impella RP
in acute massive pulmonary embolism: a narrative review of
cardiovascular outcomes and pulmonary catheter pressure assessment.
Annals of Medicine & Surgery 87(7):p 4303-4309, July 2025. [verbar]
DOI: 10.1097/MS9.0000000000003431.
---------------------------------------------------------------------------
The requestor identified cases reporting procedure codes describing
the insertion of a short-term external heart assist device as reporting
ICD-10-PCS codes 02HA3RZ (Insertion of short-term external heart assist
system into the heart, percutaneous approach) and 5A0221D (Assistance
with cardiac output using impeller pump, continuous). While we agree
with the requestor that procedure code 02HA3RZ describes the insertion
of a short-term external heart assist device, we note that there are
additional ICD-10-PCS codes in the classification that also describe
the insertion of a short-term external heart assist device. Therefore,
in reviewing this request, we identified the five additional ICD-10-PCS
procedure codes that also describe the insertion of a short-term
external heart assist device listed in the following table and included
these codes in our analysis.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.002
To begin our analysis, we examined claims data from the September
2025 update of the FY 2025 MedPAR file for MS-DRGs 163, 164, and 165 to
identify cases reporting ICD-10-PCS codes 02HA0RS, 02HA0RZ, 02HA3RS,
02HA3RZ, 02HA4RS, or 02HA4RZ. We agree with the requestor that when a
patient is admitted and has an Impella[supreg] external heart assist
device inserted, two ICD-10-PCS codes are assigned: a code that
describes the insertion of the short-term external heart assist device
and code 5A0221D that describes assistance with an impeller pump.
Because the assistance with an Impella[supreg] is always coded with
ICD-10-PCS code 5A0221D, we did not include this code in our analysis
as the presence of the code would be expected to be identified in all
cases. Our findings are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TP14AP26.003
As shown in the table, we identified a total of 13,396 cases within
MS-DRG 163 with an average length of stay of 8.2 days and average costs
of $40,641. Of these 13,396 cases, there were 17 cases that reported a
procedure code describing the insertion of a short-term external heart
assist device with an average length of stay of 8.4 days and average
costs of $81,960. There were zero cases reporting a procedure code
describing the insertion of a short-term external heart assist device
in MS-DRGs 164 and 165. The data analysis shows that for the cases in
MS-DRG 163 reporting a procedure code describing the insertion of a
short-term external heart assist device, the average length of stay is
longer, and the average costs are higher when compared to all cases in
that MS-DRG.
To further review the consumption of hospital resources for cases
reporting a procedure code describing the insertion of a short-term
external heart assist device with a principal diagnosis of a pulmonary
condition, we reviewed the claims data to identify cases reporting ICD-
10-PCS codes 02HA0RS, 02HA0RZ, 02HA3RS, 02HA3RZ, 02HA4RS, or 02HA4RZ in
other MS-DRGs in MDC 04 (Diseases and Disorders of the Respiratory
System), specifically MS-DRGs 166, 167, and 168 (Other Respiratory
System O.R. Procedures with MCC, with CC, and without CC/MCC,
respectively) and MS-DRG 173 (Ultrasound Accelerated and Other
Thrombolysis with Principal Diagnosis Pulmonary Embolism). We refer the
reader to the ICD-10 MS-DRG Definitions Manual Version 43.1 (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 listing of the MS-DRGs in MDC 04. There were
zero cases reporting a procedure code describing the insertion of a
short-term external heart assist device with a principal diagnosis of a
pulmonary condition in MS-DRGs 166, 167, 168 or MS-DRG 173.
We then reviewed the claims data to further identify the principal
diagnoses that were reported to determine what factors may also be
contributing to the
[[Page 19326]]
higher average costs for the subset of cases that reported a procedure
code describing the insertion of a short-term external heart assist
device in MS-DRG 163. Our findings for the principal diagnoses that
were reported within the claims data from the September 2025 update of
the FY 2025 MedPAR file for this subset of cases are shown in the
following table:
[GRAPHIC] [TIFF OMITTED] TP14AP26.004
BILLING CODE 4120-01-C
As reflected in the table, all 17 cases reported a principal
diagnosis of pulmonary embolism. While the results of the claims
analysis as previously summarized indicate that the average costs of
cases that reported a procedure code describing the insertion of a
short-term external heart assist device are higher compared to the
average costs for all cases in MS-DRG 163, we cannot ascertain from the
claims data the additional resource use specifically attributable to
the insertion of the short-term external heart assist device during the
hospital stay as compared to the severity of illness of the patient and
other circumstances of the admission. These data show that while cases
that reported a procedure code describing the insertion of a short-term
external heart assist device and a principal diagnosis of pulmonary
embolism required greater resource utilization, there is a wide
variance in average costs and average length of stay depending on the
ICD-10-CM code reported as principal diagnosis. For example, the three
cases that reported a principal diagnosis of I26.02 (Saddle embolus of
pulmonary artery with acute cor pulmonale) had an average length of
stay of 7.3 days and average costs of $61,956, while the two cases that
reported a principal diagnosis of I26.92 (Saddle embolus of pulmonary
artery without acute cor pulmonale) had an average length of stay of
11.5 days and average costs of $111,452. When reviewing consumption of
hospital resources for this subset of cases, it is unclear to what
degree the higher average costs for these cases are attributable to the
severity of illness of the patient and other circumstances of the
admission as opposed to the insertion of a short-term external heart
assist device. There may have been other factors contributing to the
higher costs.
During our review of this issue and the examination of the cases
reporting procedure codes describing the insertion of a short-term
external heart assist device found in MS-DRG 163, as noted previously,
we found these cases all reported principal diagnosis of pulmonary
embolism. The ICD-10-codes that describe pulmonary embolism are
currently assigned to MDC 04 (Diseases and Disorders of the Respiratory
System). The diagnoses assigned to MDC 04 reflect conditions associated
with the respiratory system. In ICD-10 the body or organ system is the
axis of the classification, and diagnosis codes are classified by the
body or organ system affected. The concept of clinical coherence
generally requires that the patient characteristics included in the
definition of each MS-DRG relate to a common organ system or etiology
and that a specific medical specialty should typically provide care to
the patients in the DRG. These diagnosis codes would require
reassignment to MDC 05 (Diseases and Disorders of the Circulatory
System) to group to MDC 05 MS-DRG 215.
Although MDC 04 diagnoses such as pulmonary embolism can lead to RV
failure and cardiogenic shock, which might be reasonable indications
for the insertion of a short-term external heart assist device, it
would not be appropriate to move these diagnoses into MDC 05 because it
could inadvertently cause cases reporting these same MDC 04 diagnoses
with a respiratory system procedure to be assigned to an ``unrelated''
MS-DRG because whenever there is a surgical procedure reported on the
claim that is unrelated to the MDC to which the case was assigned based
on the principal diagnosis, it results in a MS-DRG assignment to a
surgical class referred to as ``unrelated operating room procedures''.
To further examine the impact of moving the diagnosis codes
describing pulmonary embolism into MDC 05, we analyzed claims data for
cases reporting a respiratory system O.R. procedure and a principal
diagnosis of pulmonary embolism. Our findings are reflected in the
following table.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.005
[[Page 19327]]
As shown in the table, we identified 8,652 cases reporting a
respiratory system O.R. procedure and a principal diagnosis of
pulmonary embolism. If we were to move the diagnosis codes describing
pulmonary embolism to MDC 05, these cases would be assigned to the
surgical class referred to as ``unrelated operating room procedures''
as an unintended consequence because the surgical procedure reported on
the claim would be considered unrelated to the MDC to which the case
was assigned based on the principal diagnosis. The data also indicates
that there were more cases that reported an O.R. procedure assigned to
MDC 04 with a principal diagnosis describing pulmonary embolism than
there were cases that reported a procedure code describing the
insertion of a short-term external heart assist device, and a principal
diagnosis of pulmonary embolism in MDC 04 (8,652 cases versus 17 cases)
demonstrating that inpatient admissions for pulmonary embolism more
typically have an O.R. procedure assigned to MDC 04 performed and do
not report a procedure code describing the insertion of a short-term
external heart assist device.
We also reviewed the cases reporting an O.R. procedure assigned to
MDC 04 and a principal diagnosis describing pulmonary embolism to
identify the top ten O.R. procedures assigned to MDC 04 that were
reported within the claims data for these cases. Our findings are shown
in the following table:
[GRAPHIC] [TIFF OMITTED] TP14AP26.006
BILLING CODE 4120-01-C
As noted previously, if we were to move the diagnosis codes
describing pulmonary embolism to MDC 05, cases reporting one of the
O.R. procedures assigned to MDC 04 shown in the table would be assigned
to the surgical class referred to as ``unrelated operating room
procedures'' as an unintended consequence. Based on the results of our
analysis, we believe that the diagnosis codes describing pulmonary
embolism are most clinically aligned with the other diagnosis codes
assigned to MDC 04 (where they are currently assigned). Considering the
impact that moving the diagnoses describing pulmonary embolism to MDC
05 from MDC 04 would have, we also believe it would not be appropriate
to move these diagnoses into MDC 05 because it would inadvertently
cause cases reporting pulmonary embolism with O.R. procedures assigned
to MDC 04 to be assigned to an unrelated MS-DRG.
We then explored alternative options, as was requested. We noted
that the 17 cases reporting a procedure code describing the insertion
of a short-term external heart assist device had an average length of
stay of 8.4 days and average costs of $81,960, as compared to the
13,396 cases in MS-DRG 163 that had an average length of stay of 8.2
days and average costs of $40,641. While these cases reporting a
procedure code describing the insertion of a short-term external heart
assist device had average costs that were $41,319 higher than the
average costs of all cases in MS-DRG 163 (the highest severity level
``with MCC'' MS-DRG), there were only a total of 17 cases. The results
of the claims analysis demonstrate that there is not sufficient claims
data in the MedPAR file on which to assess the resource use of cases
reporting a procedure code describing the insertion of a short-term
external heart assist device with a principal diagnosis from MDC 04 to
consider the creation of a new MS-DRG. As noted previously, we cannot
ascertain from the claims data the resource use specifically
attributable to the insertion of a short-term external heart assist
device during the hospital stay. Accordingly, we do not believe that
the small subset of cases reporting a procedure code describing the
insertion of a short-term external heart assist device with a principal
diagnosis from MDC 04 warrants the creation of a new MS-DRG for these
cases at this time.
Lastly, we explored reassigning cases reporting a procedure code
describing the insertion of a short-term external heart assist device
with an O.R. procedure assigned to MDC 04 and a principal diagnosis
from MDC 04 to other MS-DRGs within MDC 04. However, our review did not
support reassignment of these cases to any other
[[Page 19328]]
surgical MS-DRGs in MDC 04, as MS-DRGs 163, 164 and 165, where the
cases are currently assigned, represent the highest surgical class in
the surgical hierarchy of MDC 04. The surgical hierarchy is an ordering
of surgical classes from most resource-intensive to least resource-
intensive. 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. We note that discussion of
the surgical hierarchy is in section II.C.14. of the preamble of this
FY 2027 IPPS/LTCH PPS proposed rule.
While the data analysis reflects that cases that report a procedure
code describing the insertion of a short-term external heart assist
device with an O.R. procedure assigned to MDC 04 and a principal
diagnosis from MDC 04 demonstrate higher average costs in their
respective MS-DRGs, 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 further note that section 1886(d)(5)(A) of the Act provides
for Medicare payments to Medicare-participating hospitals in addition
to the basic prospective payments for cases incurring extraordinarily
high costs. We will continue to evaluate the clinical coherence and
resource consumption costs that impact this subset of cases and their
current MS-DRG assignment.
Therefore, for the reasons stated previously, we are not proposing
to reassign cases reporting procedure codes describing the insertion of
a short-term external heart assist device from MDC 04 MS-DRGs 163, 164,
and 165 (Major Chest Procedures with MCC, with CC, and without CC/MCC,
respectively) to MDC 05 MS-DRG 215 (Other Heart Assist System Implant)
for FY 2027.
b. Fluorescence Guided Procedures of the Trunk Region Using
Pafolacianine
CYTALUX[supreg] (pafolacianine) is a folate receptor-targeted
fluorescent optical imaging agent used as an adjunct for the
identification of malignant and non-malignant pulmonary lesions in
adult patients with known or suspected lung cancer. CYTALUX[supreg]
binds to the folate receptors on these cancer cells and is endocytosed
into folate receptor positive cancer cells. CYTALUX[supreg] is
administered intravenously prior to thoracic resection procedures and
requires use of a near-infrared imaging (NIR) system to illuminate,
thereby making cancer visible within the surgical field.
CYTALUX[supreg] received FDA approval and is indicated as an adjunct
for intraoperative identification of malignant and non-malignant
pulmonary lesions in adult patients with known or suspected cancer in
the lung. We note that CYTALUX[supreg] for the lung indication was
approved for new technology add-on payments for FY 2024 (88 FR 58810
through 58818), FY 2025 (89 FR 69120 through 69126), and FY 2026 (90 FR
36668). We refer readers to section II.E.5 of the preamble of this FY
2027 IPPS/LTCH PPS proposed rule for a discussion regarding the
proposed FY 2027 status of technologies approved for FY 2026 new
technology add-on payments, including CYTALUX[supreg] for the lung
indication.
We received a request from the manufacturer of CYTALUX[supreg] to
modify the GROUPER logic of MS-DRGs 163, 164, and 165 (Major Chest
Procedures with MCC, with CC, and without CC/MCC, respectively) by
reassigning cases with an ICD-10-PCS code that describes fluorescence
guided surgery using CYTALUX[supreg] (pafolacianine) for the lung
indication that currently map to the lower severity level MS-DRG 165
(without CC/MCC) to the higher severity level MS-DRG 163 (with MCC) or
MS-DRG 164 (with CC). According to the requestor, the utilization of
CYTALUX[supreg] does not change the surgical procedure but adds
significant value and cost to the procedure by improving the surgeon's
ability to identify and completely resect malignant tissue. The
requestor performed their own analysis of Medicare claims data from 10/
1/2023-3/31/2025 and stated they found approximately 135 cases that
used CYTALUX[supreg] in thoracic resections and that they expect
adoption to accelerate as NIR systems become more widely available.
Additionally, the requestor stated they found 35% of the cases using
CYTALUX[supreg] within MS-DRG 165, and the average costs of these cases
exceeded the average costs of cases that did not report the usage of
CYTALUX[supreg]. When controlling for procedural and facility
variation, the requestor stated they found that CYTALUX cases in MS-DRG
165 were $1,515 (8%) higher in cost and that 60% of the cases using
CYTALUX[supreg] in MS-DRG DRG 165 received new technology add-on
payments averaging approximately $2,300. The requestor further asserted
that their review of the Inpatient Standard Analytical Files (SAF)
indicated underreporting of CYTALUX[supreg] costs due to unclear
inpatient drug billing guidance. The requestor stated they found that
64% of cases reporting an ICD-10-PCS code that describes fluorescence
guided surgery using CYTALUX[supreg] (pafolacianine) for the lung
indication fall into MS-DRGs 163 or 164. Additionally, the requestor
stated while they found that the average length of stay for cases
reporting CYTALUX[supreg] in MS-DRG 165 is lower (1.9 vs. 2.3 days),
the cost profile of these cases aligns more closely with the higher-
severity MS-DRGs 164 and 163. According to the requestor, this
misalignment leads to underpayment when CYTALUX[supreg] cases are
grouped into MS-DRG 165, therefore CMS should reassign cases with an
ICD-10-PCS code that describes fluorescence guided surgery using
CYTALUX[supreg] (pafolacianine) for the lung indication from MS-DRG 165
to MS-DRGs 163 or 164 to prevent barriers to hospital adoption of
CYTALUX[supreg] as NIR system availability expands nationwide.
The following ICD-10-PCS procedure codes describe fluorescence
guided surgery using CYTALUX[supreg] (pafolacianine) for the lung
indication.
BILLING CODE 4120-01-P
[[Page 19329]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.007
In the ICD-10 MS-DRGs Definitions Manual Version 43.1, procedure
codes 8E0W0EN, 8E0W3EN, 8E0W4EN, 8E0W7EN and 8E0W8EN are designated as
non-O.R. procedures for purposes of MS-DRG assignment, therefore when
CYTALUX[supreg] is utilized during a procedure for the lung indication,
the ICD-10-PCS code describing the surgical procedure will determine
the surgical MS-DRG assignment based on the principal diagnosis
reported.
We examined claims data from the September 2025 update of the FY
2025 MedPAR file for MS-DRGs 163, 164, and 165 to identify cases
reporting one of the five procedure codes listed previously that
describe fluorescence guided surgery using CYTALUX[supreg]
(pafolacianine). Our findings are shown in the following table:
[GRAPHIC] [TIFF OMITTED] TP14AP26.008
BILLING CODE 4120-01-C
As shown in the table, in MS-DRG 163, we identified a total of
13,396 cases with an average length of stay of 8.2 days and average
costs of $40,641. Of those 13,396 cases, there were 14 cases reporting
one of five procedure codes that describe fluorescence guided surgery
using CYTALUX[supreg] (pafolacianine), with average costs lower than
the average costs in the FY 2025 MedPAR file for MS-DRG 163 ($30,818
compared to $40,641) and a shorter average length of stay (4.6 days
compared to 8.2 days). In MS-DRG 164, we identified a total of 14,384
cases with an average length of stay of 4 days and average costs of
$23,393. Of those 14,384 cases, there were 87 cases reporting one of
five procedure codes that describe fluorescence guided surgery using
CYTALUX[supreg] (pafolacianine), with average costs lower than the
average costs in the FY 2025 MedPAR file for MS-DRG 164 ($22,426
compared to $23,393) and a shorter average length of stay (2.7 days
compared to 4 days). In MS-DRG 165, we identified a total of 6,431
cases with an average length of stay of 2.3 days and average costs of
$17,981. Of those 6,431 cases, there were 58 cases reporting one of
five procedure codes that describe fluorescence guided surgery using
CYTALUX[supreg] (pafolacianine), with average costs higher than the
average costs in the FY 2025 MedPAR file for MS-DRG 165 ($20,854
compared to $17,981), and a shorter average length of stay (1.9 days
compared to 2.3 days).
The 58 cases in MS-DRG 165 reporting one of five procedure codes
that describe fluorescence guided surgery using CYTALUX[supreg]
(pafolacianine), without a secondary diagnosis code designated as a CC
or MCC, have a shorter average length of stay (1.9 days versus 4 days)
and lower average costs ($20,854 versus $23,393) when compared to all
the cases in MS-DRG 164. Similarly, the 58 cases in MS-DRG 165
reporting one of five procedure codes that describe fluorescence guided
surgery using CYTALUX[supreg] (pafolacianine) have a shorter average
length of stay (1.9 days versus 8.2 days) and lower average costs
($20,854 versus $40,641) when compared to all the cases in MS-DRG 163.
While the data analysis reflects that cases that report one of five
procedure codes that describe fluorescence guided surgery using
CYTALUX[supreg] (pafolacianine), without a secondary diagnosis code
designated as a CC or MCC, demonstrate slightly higher average costs
compared to all the cases in MS-DRG 165, we believe these cases are
more suitably grouped to MS-DRG 165, 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 further note that section
1886(d)(5)(A) of the Act provides for Medicare payments to Medicare-
participating hospitals in addition to the basic prospective payments
for cases
[[Page 19330]]
incurring extraordinarily high costs. Moreover, the data do not
indicate cases reporting procedure codes that describe fluorescence
guided surgery using CYTALUX[supreg] (pafolacianine), without a
secondary diagnosis code designated as a CC or MCC, utilize similar
resources when compared to the cases assigned to MS-DRGs 163 and 164.
We believe it would be advantageous to allow for more claims data to be
analyzed in consideration of any future modifications to the MS-DRGs
for which fluorescence guided surgeries using CYTALUX[supreg]
(pafolacianine) are assigned. We will continue to evaluate the clinical
coherence and resource consumption costs that impact this subset of
cases and their MS-DRG assignment.
Therefore, for the reasons stated, for FY 2027, we are proposing to
maintain the current structure of MS-DRGs 163, 164, and 165.
3. MDC 05 (Diseases and Disorders of the Circulatory System):
WiSE[supreg] CRT System
The WiSE[supreg] CRT System is an implantable cardiac pacing system
that delivers left ventricular endocardial pacing (LVEP) specifically
for cardiac resynchronization therapy (CRT) without the use of wires or
leads going into the heart. The WiSE[supreg] CRT System was designed to
stimulate the endocardial surface of the left ventricle (LV) without a
transvenous LV lead. Working in conjunction with previously implanted
standard commercially available pacemakers or defibrillators, the
WiSE[supreg] CRT System utilizes a wireless ultrasound-based energy
transmission to a small, implanted electrode in the LV endocardium,
which converts the ultrasound signal into pacing energy. According to
the requestor, the WiSE[supreg] CRT System is engineered to benefit
patients with heart failure who were previously untreatable with
conventional CRT or who are considered at high risk for placement of a
coronary sinus (CS) lead for CRT upgrades. The WiSE[supreg] CRT system
consists of four components: the receiver, also known as the receiver
electrode or electrode (implanted via catheter), delivery sheath,
battery and transmitter. An external programmer is used to adjust
parameters of the battery. The WiSE[supreg] CRT System was approved for
new technology add-on payments for FY 2026 (90 FR 36821 through 36823).
We refer readers to section II.E.4.a of the preamble of this proposed
rule for a discussion regarding the proposed FY 2027 status of
technologies approved for FY 2026 new technology add-on payments,
including the WiSE[supreg] CRT System.
In support of the new technology add-on payment application that
was submitted for FY 2026 consideration, we received a request to
create new ICD-10-PCS codes to differentiate cardiac procedures that
involve the insertion of an implantable endocardial pacing system, such
as the WiSE[supreg] CRT System, and a code proposal was displayed in
association with the Spring 2025 ICD-10 Coordination and Maintenance
Committee Update. As a result, effective October 1, 2025 (FY 2026), we
implemented the following ICD-10-PCS procedure codes to identify the
insertion of the WiSE[supreg] CRT System: 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). In the ICD-10 MS-DRGs Version 43.1, this
procedure code combination is assigned to MS-DRGs 242, 243, and 244
(Permanent Cardiac Pacemaker Implant with MCC, with CC, without MCC
respectively) in a logic list referred to as ``CARDIAC PACEMAKER
DEVICE'' that includes 720 other ICD-10-PCS procedure code combinations
that identify the insertion of cardiac pacemakers. When reported as
standalone procedures, ICD-10-PCS code X2HN37B is assigned to MDC 05
MS-DRGs 264 (Other Circulatory System O.R. Procedures) and ICD-10-PCS
code XHH80HB is assigned to MDC 05 MS-DRGs 258 and 259 (Cardiac
Pacemaker Device Replacement with and without MCC, respectively). We
refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1,
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 242, 243, 244, 259, 259 and 264.
For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request
to reassign the ICD-10-PCS procedure codes that describe the insertion
of the WiSE[supreg] CRT System from MS-DRGs 242, 243, and 244 to MS-
DRGs 228 and 229 (Other Cardiothoracic Procedures with and without MCC,
respectively). The requestor stated that insertion of the WiSE[supreg]
CRT System electrode, which is described by ICD-10-PCS code X2HN37B, is
similar both clinically and in terms of resource utilization, to the
procedure codes that describe the insertion of leadless pacemakers that
are currently assigned to MS-DRGs 228 and 229. The requestor further
stated that the cases assigned to MS-DRGs 242, 243, and 244 involve
traditional pacemaker devices with leads and are dissimilar to the
WiSE[supreg] CRT System. According to the requestor, based on clinical
function, implant methodology, and patient profile, the WiSE[supreg]
CRT System more closely aligns with leadless pacemaker technology than
with traditional pacemaker procedures as the use of multi-modality
imaging, arterial navigation, and ultrasound-guided transmitter
placement adds to both time and resource utilization, paralleling the
procedural profile of leadless pacemaker implantation rather than
traditional pacemaker surgery. Therefore, the requestor suggested that
CMS reassign ICD-10-PCS code X2HN37B that describes the insertion of
the electrode of the WiSE[supreg] CRT System to MS-DRGs 228 and 229 to
appropriately group the procedure with the leadless pacemaker cases.
To begin our analysis, we reviewed the procedure codes. As noted
previously, a code proposal was displayed as part of the ICD-10
Coordination and Maintenance Committee Spring 2025 update process to
create unique ICD-10-PCS codes to describe the insertion of an
implantable endocardial pacing system such as the WiSE[supreg] CRT
System. As discussed in prior rulemaking (86 FR 44805), we used our
established process to examine the MS-DRG assignment for the
predecessor codes to determine the most appropriate MS-DRG assignment
of new procedure codes X2HN37B and XHH80HB for FY 2026. 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. 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.
Because the codes that describe the insertion of the WiSE[supreg]
CRT System were effective October 1, 2025 (FY 2026), we would not
expect the codes to be reported in the FY 2025 claims data used for
this proposed rule. We examined claims data from the September 2025
update of the FY 2025
[[Page 19331]]
MedPAR file for MS-DRGs 242, 243, and 244 and confirmed that there were
zero cases reporting the procedure codes describing the insertion of
the WiSE[supreg] CRT System across MS-DRGs 242, 243, and 244.
We reviewed this issue and note the requestor is correct that the
ICD-10-PCS codes that describe the insertion of intracardiac
pacemakers, also known as ``leadless'' pacemakers, are currently
assigned to MS-DRGs 228 and 229. In leadless pacemakers, the components
are combined into a single device implanted within a heart chamber.
They do not require a chest incision, a subcutaneous pocket or a
tunneled lead. These devices are implanted via a femoral vein
transcatheter approach and then advanced into the heart chamber, fixed
to the chamber wall, and released. Conventional pacemakers are
comprised of a metal generator (battery + electronics) placed under the
skin in the upper chest, connected by one or more insulated wires
(leads) threaded into the heart. We agree that leadless pacemakers and
the WiSE[supreg] CRT System electrode are clinically coherent in that
both eliminate the need for traditional, wire-based leads that run from
the device to the heart muscle to transmit electrical impulses to the
heart. We believe that the electrode of the WiSE[supreg] CRT System is
more closely aligned with the leadless pacemakers assigned to MS-DRGs
228 and 229 as compared to the insertion of conventional pacemakers
assigned to MS-DRGs 242, 243, and 244. While our analysis did not
identify any cases reporting the procedure code that describes the
insertion of the electrode of the WiSE[supreg] CRT System, based on our
review of the clinical issues, and recognizing that it is expected that
some Medicare patients will receive the WiSE[supreg] CRT System on an
inpatient basis, we believe reassigning ICD-10-PCS code X2HN37B that
describes the insertion of the endocardiac pacing electrode into the
left ventricle from MS-DRG 264 to MDC 05 MS-DRGs 228 and 229 would
improve clinical coherence in these MS-DRGs.
For these reasons, for FY 2027, we are proposing to reassign
procedure code X2HN37B (Insertion of endocardiac pacing electrode into
left ventricle, percutaneous approach, new technology group 11) from
MS-DRG 264 to MS-DRGs 228 and 229 for clinical coherence and to better
account for the anticipated resources required. We are also proposing
to delete the procedure code combination of X2HN37B and XHH80HB from
the GROUPER logic of MS-DRGs 242, 243, and 244. Under this proposal,
procedure code X2HN37B will not need to be reported as part of a
procedure code combination or procedure code ``cluster'' to satisfy the
logic for assignment to MS-DRGs 228 and 229. When reported as a
standalone procedure, ICD-10-PCS code XHH80HB (Insertion of ultrasound
transmitter and battery for endocardiac pacing electrode into chest
subcutaneous tissue and fascia, open approach, new technology group 11)
will be assigned to proposed new MDC 05 MS-DRG 210 (Cardiac Pacemaker
Revision or Device Replacement with MCC) and proposed new MS-DRG 211
(Cardiac Pacemaker Revision or Device Replacement without MCC), which
are discussed later in this section.
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. In our review of the claims data from the September 2025
update of the FY 2025 MedPAR file for this request, we identified a low
volume of cases for MS-DRGs 258 and 259 (Cardiac Pacemaker Device
Replacement with MCC and without MCC, respectively), where procedure
code XHH80HB is assigned when reported as a standalone procedure in
Version 43.1. Our findings are shown in the following table.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.009
In light of the initial findings of only 35 cases for MS-DRG 258
and 68 cases in MS-DRG 259, we further reviewed the MedPAR claims data
for cases assigned to MS-DRGs 258 and 259 for the past 5 fiscal years.
As reflected in the following tables, these data indicate that the
number of cases grouping to MS-DRGs 258 and 259 has generally declined.
[GRAPHIC] [TIFF OMITTED] TP14AP26.010
[GRAPHIC] [TIFF OMITTED] TP14AP26.011
[[Page 19332]]
We note 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
clinically 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 258 and 259, we
believed it was appropriate to further analyze how to potentially
reclassify these cases.
Accordingly, using the September 2025 update of the FY 2025 MedPAR
file, we examined whether there were other MS-DRGs to which these cases
could appropriately be reassigned. We note that surgical MS-DRGs 260,
261, and 262 (Cardiac Pacemaker Revision Except Device Replacement with
MCC, with CC, and without CC/MCC, respectively) also include procedure
codes related to cardiac pacemakers. A cardiac pacemaker device
replacement (generator change) is a procedure to change an old battery
(generator) for a new one. A cardiac pacemaker revision is a procedure
that may involve replacing, moving, or adding leads, or fixing the
pocket of the generator. While the terms are distinct, both cardiac
pacemaker revision and cardiac pacemaker replacement procedures are
performed in order to improve the way the cardiac pacemaker system
works.
As such, we reviewed the claims data from the September 2025 update
of the FY 2025 MedPAR file for MS-DRGs 260, 261, and 262 to examine the
resource utilization associated with cases assigned to these MS-DRGs.
Our findings are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TP14AP26.012
As part of this analysis, we also reviewed the MS-DRGs for cases
reporting ICD-10-PCS codes describing cardiac pacemaker device
replacement procedures by severity claims data for MS-DRG 259 because
this MS-DRG includes cases reporting a CC as well as cases reporting a
NonCC. Therefore, we analyzed the claims data to determine the number
of cases, the average length of stay, and average costs for the cases
in MS-DRG 258 and 259 by severity level (1=MCC, 2=CC, and 3=NonCC). Our
findings are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TP14AP26.013
As shown in the data, the 35 cases reporting an MCC in MS-DRG 258
have an average length of stay of 7 days with average costs of $28,275,
which is comparable to the cases in MS-DRG 260 reporting an MCC that
have an average length of stay of 7.5 days with average costs of
$29,313. The 42 cases reporting a CC in MS-DRG 259 have an average
length of stay of 4 days with average costs of $18,246, which is
comparable to the cases in MS-DRG 261 reporting an CC that have an
average length of stay of 3.5 days with average costs of $17,151. The
26 cases not reporting a CC or an MCC in MS-DRG 259 have an average
length of stay of 2 days with average costs of $14,552, which is
comparable to the cases in MS-DRG 262 not reporting a CC or an MCC that
have an average length of stay of 2.5 days with average costs of
$15,119.
We reviewed these findings and believe that it may no longer be
necessary to subdivide these MS-DRGs based on the cardiac pacemaker
revision or device replacement procedure codes reported. We note that
DRGs that differentiate cases reporting procedure codes describing
cardiac pacemaker device replacement from cases reporting procedure
codes describing cardiac pacemaker revisions have existed since 1983
(48 FR 39878) when Congress amended the Social Security Act to include
a national DRG-based hospital prospective payment system for all
Medicare patients.
Our analysis of claims data from the September 2025 update of the
FY 2025 MedPAR file shows that in the 43 years since the DRGs for cases
reporting cardiac pacemaker revision procedures and cases reporting
cardiac pacemaker device replacement procedures were created, the
resource utilization appears to now be aligned, and the cases are
clinically coherent, and therefore we believe it is appropriate to now
restructure these MS-DRGs accordingly. Specifically, we believe it
would be appropriate to delete MS-DRGs 258, 259, 260, 261, and 262, and
to create new MS-DRGs for cases reporting ICD-10-PCS codes describing
cardiac pacemaker revision or device replacement procedures, based on
our analysis and review of the cases grouping to these MS-DRGs.
The following table illustrates our simulation of the proposal.
[GRAPHIC] [TIFF OMITTED] TP14AP26.014
[[Page 19333]]
Consistent with our established process as discussed in section
II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule,
once the decision has been made to propose to make further
modifications to the MS-DRGs, such as creating a new base MS-DRG, all
five criteria to create subgroups must be met for the base MS-DRG to be
split (or subdivided) by a CC subgroup. Therefore, we applied the
criteria to create subgroups in a base MS-DRG as discussed in section
II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed 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% difference in average costs
between the CC and NonCC subgroup.
[GRAPHIC] [TIFF OMITTED] TP14AP26.015
As discussed in section II.C.1.b. of the preamble of this FY 2027
IPPS/LTCH PPS proposed 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] TP14AP26.016
BILLING CODE 4120-01-C
For the proposed new MS-DRGs for cases reporting procedure codes
describing cardiac pacemaker revision or device replacement, there is
at least (1) 500 cases in the MCC group and 500 cases in the without
MCC group; (2) 5 percent of the cases in the MCC group and 5 percent in
the without MCC group; (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.
Therefore, for FY 2027, we are proposing to delete MS-DRGs 258,
259, 260, 261, and 262 and to create two new MS-DRGs with a two-way
severity level split for cases reporting procedure codes describing
cardiac pacemaker revision or device replacement in MDC 05. These
proposed new MS-DRGs are proposed new MS-DRG 210 (Cardiac Pacemaker
Revision or Device Replacement with MCC) and proposed new MS-DRG 211
(Cardiac Pacemaker Revision or Device Replacement without MCC). We
refer the reader to Table 6P.2a associated with this FY 2027 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 are
proposing to define in the logic for the proposed new MS-DRGs. We note
that discussion of the surgical hierarchy for the proposed modification
is discussed in section II.C.14. of the preamble of this FY 2027 IPPS/
LTCH PPS proposed rule.
In our evaluation of this MS-DRG classification request, we also
noted that we identified 7,772 cases in base MS-DRG 264 (Other
Circulatory System O.R. Procedures) with an average length of stay of
9.4 days and average costs of $29,545. Accordingly, in connection with
our analysis we applied the five criteria as described in section
II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule
to determine if it would be appropriate to subdivide cases currently
assigned to base MS-DRG 264 into severity levels. This analysis
includes two 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. Therefore, we reviewed the
claims data for base MS-DRG 264 using the September 2024 update of the
FY 2024 MedPAR file and the September 2025 update of the FY 2025 MedPAR
file, which were used in our analysis of claims data for MS-DRG
reclassification requests for FY 2026 and FY 2027, respectively. Our
findings are shown in the following table:
[GRAPHIC] [TIFF OMITTED] TP14AP26.017
First, we applied the criteria to create subgroups for the three-
way severity level split. We found that the criterion that there be at
least 5% of the patients are in each of the MCC, CC, and NonCC
subgroups failed based on the data in both the FY 2024 and FY 2025
MedPAR files. The criterion that there be at least 500 cases for each
subgroup also was
[[Page 19334]]
not met, as shown in the table for both years. Specifically, for the
``with MCC'', ``with CC'', and ``without CC/MCC'' split, there were
only 154 cases in the ``without CC/MCC'' subgroup based on the data in
the FY 2024 MedPAR file and only 145 cases in the ``without CC/MCC''
subgroup based on the data in the FY 2025 MedPAR file.
As discussed in section II.C.1.b. of the preamble of this FY 2027
IPPS/LTCH PPS proposed 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 for both years. For both years, there are at
least (1) 500 cases in the MCC group and 500 cases in the without MCC
group; (2) 5 percent of the cases in the MCC group and 5 percent in the
without MCC group; (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 a ``with MCC''
and ``without MCC'' severity level split increases the explanatory
power of the base MS-DRG in capturing differences in expected cost
between the MS-DRG severity level splits by at least 3 percent and thus
improves the overall accuracy of the IPPS payment system.
As the claims data supports a two-way severity level split for
cases reporting other circulatory system O.R. Procedures, for FY 2027,
we are proposing to delete base MS-DRG 264 and proposing to create two
new MS-DRGs with a two-way severity level split for cases reporting
other circulatory system O.R. Procedures in MDC 05. These proposed new
MS-DRGs are proposed new MS-DRG 361 (Other Circulatory System O.R.
Procedures with MCC) and proposed new MS-DRG 362 (Other Circulatory
System O.R. Procedures without MCC). Under this proposal, we would
reassign the 1,447 listed procedure codes in the GROUPER logic of MS-
DRG 264 to new MS-DRGs 361 and 362. We refer the reader to the ICD-10
MS-DRG Version 43.1 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 GROUPER logic for MS-DRG
264. We note that discussion of the surgical hierarchy for the proposed
modification is discussed in section II.C.14. of the preamble of this
FY 2027 IPPS/LTCH PPS proposed rule.
4. MDC 08 (Diseases and Disorders of the Musculoskeletal System and
Connective Tissue)
a. Spinal Fusion and Pelvic Fixation Procedures
As discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18012 through 108013) and final rule (90 FR 36550 through 36552), we
received a request to 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.
In the FY 2026 IPPS/LTCH PPS final rule (90 FR 36552), we noted
that we would continue to consider the request in connection with
future rulemaking. We stated that the logic for MS-DRGs 456, 457, and
458 is defined by extensive fusions, in addition to specific diagnosis
code logic and that MS-DRGs 426, 427, 428, 447, and 448 had recently
become effective October 1, 2024, which we were continuing to monitor.
We also stated that the data analysis necessary to examine the
intricate logic within the spinal fusion MS-DRGs outlined in the
request is complex and would require 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.
For this FY 2027 IPPS/LTCH PPS proposed rule, we received another
request from the same manufacturer to reassign cases reporting the use
of the iFuse BedrockTM Granite Implant System (also referred
to as tulip connector) in spinal fusion procedures that currently map
to the lower severity level MS-DRG to the highest severity level (with
MCC) MS-DRG for the previously listed MS-DRGs that were discussed in
connection with the FY 2026 IPPS/LTCH PPS rulemaking; MS-DRGs 426, 427,
428, 447, 448, 456, 457, and 448.
The requestor stated that historically, the junction between the
lumbar spine and the sacrum (the L5-S1 spinal level), has been the most
challenging level in which to achieve fusion. One of the primary
reasons is because of our upright posture and normal spinal curvature
that causes the L5-S1 intervertebral disc to become significantly
inclined (tilted forward). The requester indicated that this results in
significant shear load at this level, making this the level most likely
to break down, and the level most challenging to stabilize during a
fusion procedure. Per the requestor, the L5-S1 level is the junction
between the mobile spine above and the much more rigid sacrum/pelvis
below, leading to stress concentration at this level. The L5-S1 level
experiences the most axial load as it is the base of the spine
supporting the weight of the entire torso. Finally, the L5-S1 level
experiences progressively more stress/load with more levels of the
spine that are fused. The requestor stated that including additional
levels in the fusion construct results in additional lengthening of the
lever arm and increasing the loads acting at the L5-S1 level.
The requestor stated that anchorage of spinal instrumentation into
the sacrum is also challenging. The sacrum is narrow in the posterior
to anterior dimension, resulting in the need to place shorter screws.
The pedicles are larger diameter which results in diminished cortical
engagement of the screws. According to the requestor, the bone
structure of the sacrum is also suboptimal for screw anchorage as the
density of the sacrum is frequently diminished, particularly in older
adults, and especially in those with osteoporosis. The requestor stated
that the problem also exists for older adults without osteoporosis.
The requestor indicated that historically, surgeons added
additional spinal instrumentation fixation anchor points into the
pelvis (ilium and sacrum) to try and help solve the biomechanical and
anatomic challenges previously described. These anchors (typically
longer, larger diameter
[[Page 19335]]
pedicle-type screws) are placed into the ilium or placed crossing
through the sacrum and then into the ilium. These screws are then
connected to the spinal instrumentation and improve the biomechanical
stability of the spinal instrumentation construct. The requestor stated
that clinical practice has evolved to include pelvic fixation as an
integral part of spinal instrumentation with multi-level fusions ending
at the sacrum. The requestor stated that the current standard is to
include pelvic fixation in fusions of four levels or more.\2\ The
requestor added that recently, recommendations have been suggested to
include pelvic fixation in some instances if the fusion includes three
or more levels.\3\ The requestor stated that pelvic fixation is also
considered in shorter level fusion procedures in clinical scenarios
when there is increased risk of fusion failure, including patients with
high pelvic incidence (PI), high body mass index (BMI), and conditions
with sagittal plane deformity such as spondylolisthesis. The requestor
stated that surgeons performing revision lumbar surgery to treat an
existing pseudarthosis (that is, nonunion or failed fusion) commonly
include pelvic fixation to provide additional stability in these
challenging clinical situations.
---------------------------------------------------------------------------
\2\ Lee CS, Chung SS, Choi SW, Yu JW, Sohn MS. Critical length
of fusion requiring additional fixation to prevent nonunion of the
lumbosacral junction. Spine (Phila Pa 1976). 2010 Mar 15;35(6):E206-
11. doi: 10.1097/BRS.0b013e3181bfa518. PMID: 20195201.
\3\ Jankowski PP, Hashmi SZ, Lord EL, Heller JE, Essig DA,
Passias PG, Tahmasebpour P, Capobianco RA, Kleck CJ, Polly DW,
Zuckerman SL; Spinopelvic Study Group. Trends in Lumbosacral-Pelvic
Fixation Strategies. Int J Spine Surg. 2025 Sep 2;19(4):402-408.
doi: 10.14444/8765. PMID: 40514223.
---------------------------------------------------------------------------
According to the requestor, although pelvic fixation strategies and
implants have evolved since they were first introduced in the 1970s,
including the development of sacro-alar-iliac (SAI) screws in 2007,\4\
challenges with pelvic fixation persist. Studies indicate a 17%-23%
complication rate, including screw or rod breakages, loose screws, L5-
S1 pseudoarthrosis, and high revision rates.5 6 Many
patients also experience sacroiliac (SI) joint pain and degeneration
after multilevel fusions to the sacrum.\7\ The SI joint often exhibits
pathological increased motion in spinal deformity patients \8\ and
continues to move even after single-implant pelvic fixation
9 10 leading to suboptimal outcomes and loss of correction.
---------------------------------------------------------------------------
\4\ Kebaish, Khaled M. MD (Johns Hopkins Hospital); Gunne,
Albert Pull ter MD; Mohamed, Ahmed S. MD; Zimmerman, Ryan; Ko, Phebe
S. BS; Skolasky, Richard L. ScD; O'Brien, Joseph R. MD, MPH;
Sponseller, Paul D. MD. A New Low Profile Sacro-Pelvic Fixation
Using S2 Alar Iliac (S2AI) Screws in Adult Deformity Fusion to the
Sacrum: A Prospective Study with Minimum Two-Year Follow-Up: E-
Poster #21. Spine: Affiliated Society Meeting Abstracts 10( ):p 170,
September 2009.
\5\ Eastlack RK, Soroceanu A, Mundis GM Jr, et al. Rates of
Loosening, Failure, and Revision of Iliac Fixation in Adult
Deformity Surgery. Spine (Phila Pa 1976). 2022;47(14):986-994.
doi:10.1097/BRS.0000000000004356.
\6\ Odland K, Chanbour H, Zuckerman SL, Polly DW Jr. Spinopelvic
fixation failure in the adult spinal deformity population:
systematic review and meta-analysis. Eur Spine J. 2024
Jul;33(7):2751-2762. doi: 10.1007/s00586-024-08241-6. Epub 2024 Apr
15. Erratum in: Eur Spine J. 2025 Sep 18. doi: 10.1007/s00586-025-
09232-x. PMID: 38619634.
\7\ Manzetti M, Ruffilli A, Barile F, et al. Sacroiliac Joint
Degeneration and Pain After Spinal Arthrodesis: A Systematic Review.
Clin Spine Surg. 2023;36(4):169-182. doi:10.1097/
BSD.0000000000001341.
\8\ Mikula AL, Fogelson JL, Oushy S, Pinter ZW, Peters PA,
Abode-Iyamah K, Sebastian AS, Freedman B, Currier BL, Polly DW,
Elder BD. Change in pelvic incidence between the supine and standing
positions in patients with bilateral sacroiliac joint vacuum signs.
J Neurosurg Spine. 2021 Jan 15;34(4):617-622. doi: 10.3171/
2020.8.SPINE20742. PMID: 33450735.
\9\ Wei C, Zuckerman SL, Cerpa M, Ma H, Yang M, Yuan S, Lenke
LG. Can pelvic incidence change after spinal deformity correction to
the pelvis with S2-alar-iliac screws? Eur Spine J. 2021
Sep;30(9):2486-2494. doi: 10.1007/s00586-020-06658-3. Epub 2020 Nov
11. PMID: 33179128.
\10\ Cunningham BW, Sponseller PD, Murgatroyd AA, Kikkawa J,
Tortolani PJ. A comprehensive biomechanical analysis of sacral alar
iliac fixation: an in vitro human cadaveric model. J Neurosurg
Spine. 2019 Jan 4;30(3):367-375. doi: 10.3171/2018.8.SPINE18328.
PMID: 30611149.
---------------------------------------------------------------------------
The requestor stated that currently, greater biomechanical loads
are being placed on spinopelvic constructs and surgeons are performing
an increasing number of multilevel fusions. Evolving surgical
techniques and instrumentation now allow for treatment of more severe
deformities, as well as the performance of surgery on patients with a
higher BMI and poor bone quality. According to the requestor, the iFuse
BedrockTM Granite Implant System represents a next-
generation solution that allows for both pelvic fixation and sacroiliac
joint fusion. The requestor stated this implant is the first Food and
Drug Administration (FDA) cleared device designed for both
purposes,\11\ featuring a composite construction that includes a strong
inner threaded screw component and a 3D-printed porous fusion sleeve to
promote osseointegration. The requestor reported that there have been
no reported breakages of the implant in over 8,500 cases.\12\
---------------------------------------------------------------------------
\11\ U.S. Food and Drug Administration. 510(k) Premarket
Notification: iFuse Bedrock GraniteTM Implant System.
Published May 26, 2022. Accessed October 15, 2024.
www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?id=K220195
\12\ Eastlack RK, Menger RP, Turner JD, Ashcraft KR, Carlton
Recking W, Kleck CJ. Spinopelvic Fixation Using an Osseointegrative
Implant: Analysis of Postmarket Surveillance to Determine the
Failure Rate. Int J Spine Surg. 2025 Jun 12;19(3):273-278. doi:
10.14444/8720. PMID: 39890424; PMCID: PMC12268591.
---------------------------------------------------------------------------
The requestor asserted the iFuse BedrockTM Granite
Implant System provides clinical advantages such as immediate and
durable stability of the spinal instrumentation construct, reducing the
likelihood of implant breakage due to its larger diameter and stronger
construction. The requestor stated the porous fusion sleeve facilitates
osseous integration, enhancing stability over time as it is designed
for permanent fusion of the SI joint. Per the requestor, multiple
implants can be placed on each side, either connected to a single rod
or to separate rods, providing multiple points of fixation across the
SI joints which increases construct stability and decreases SI joint
motion. According to the requestor, the iFuse BedrockTM
Granite Implant System requires no changes to physician workflow,
requires no additional surgical dissection, does not increase surgical
time, or alter the length of hospital stay. The requestor stated that
the iFuse BedrockTM Granite Implant System is cleared for
use with two navigation systems most frequently used in surgical
facilities across the country.
The ICD-10-PCS codes that may be reported to describe the iFuse
BedrockTM Granite tulip connector device are:
[[Page 19336]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.018
The previously listed procedure codes describing ``Insertion''
(ICD-10-PCS codes XNH6058, XNH6358, XNH7058, and XNH7358) are assigned
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) and the procedure codes describing ``Fusion'' (ICD-
10-PCS codes XRGE058, XRGE358, XRGF058, and XRGF358) are assigned to
MS-DRGs 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) and MS-DRGs 402, 426, 427, 428, 447, 448, 450, 451, 456, 457,
and 458 under MDC 08. We note that because the ICD-10-PCS codes
describing ``Insertion'' of internal fixation device with tulip
connector are not assigned to one of the spinal fusion MS-DRGs as a
standalone procedure, another ICD-10-PCS code describing a spinal
fusion procedure would need to be reported on the same claim to group
to one of the previously listed spinal fusion MS-DRGs. We refer the
reader to the ICD-10 MS-DRG Definitions Manual, Version 43.1, 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 the
previously listed MS-DRGs.
For this FY 2027 IPPS/LTCH PPS proposed rule, we also received a
separate, but related request, from another manufacturer of devices
used in the performance of a spinal fusion procedure. Specifically, we
received a request to reassign cases reporting the use of the
aprevo[supreg] Intervertebral Body Fusion Device (hereafter referred to
as aprevo[supreg]) from MS-DRG 402 (Single Level Combined Anterior and
Posterior Spinal Fusion Except Cervical) to MS-DRG 450 (Single Level
Spinal Fusion Except Cervical with MCC or Custom-Made Anatomically
Designed Interbody Fusion Device) or alternatively, to reassign cases
reporting the use of aprevo[supreg] from MS-DRG 402 to MS-DRG 428, and
separately, to reassign cases reporting the use of aprevo[supreg] from
MS-DRG 428 to the higher severity level (with MCC) MS-DRG 426. We note
that we have previously discussed the reassignment of cases reporting
the use of the aprevo[supreg] technology in the FY 2024 IPPS/LTCH PPS
proposed rule (88 FR 26726 through 26729) and final rule (88 FR
58731through 58735, as corrected in the FY 2024 final rule correction
notice at 88 FR 77211), and in the FY 2025 IPPS/LTCH PPS proposed rule
(89 FR 35971 through 39585) and final rule (89 FR 69034 through 69061).
We also note that the aprevo[supreg] technology was approved for new
technology add-on payments for FY 2022 (86 FR 45127 through 45133), FY
2023 (87 FR 49468 through 49469) and FY 2024 (88 FR 58802). We refer
the reader to those rulemaking discussions for additional detailed
information regarding the aprevo[supreg] technology.
The ICD-10-PCS codes that may be reported to describe lumbar fusion
procedures that use the aprevo[supreg] device are:
[[Page 19337]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.019
We note that for the Spring 2026 ICD-10-PCS code update, the
manufacturer of the aprevo[supreg] custom-made anatomically designed
interbody fusion device submitted a request to revise the descriptions
for the procedure codes that describe use of the aprevo[supreg] device.
The manufacturer requested that the description of the previously
listed codes (and nine other procedure codes that describe a cervical
fusion using a custom-made anatomically designed interbody fusion
device) be revised to specifically identify that the technology is
designed from a virtual anatomic model. The agenda and related meeting
materials for these specific topics are available on the CMS website
at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials. We note that the deadline
for receipt of public comments for the proposals included in the Spring
2026 procedure code update is April 17, 2026; therefore, the final code
decisions on these proposals are not yet available for inclusion in
Table 6B.--New Procedure Codes associated with this FY 2027 IPPS/LTCH
PPS proposed rule. Under our established process, if the new and
revised procedure code proposals are finalized after review and
consideration of public comments following the Spring procedure code
update, the codes are specifically identified with a footnote in Table
6B.--New Procedure Codes and Table 6F.--Revised Procedure Code Titles
along with the MDC, MS-DRG assignment(s), and operating room (O.R.) or
non-operating room (non-O.R.) designation that is made publicly
available in association with the final rule on the CMS website at
https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. This established process includes initially reviewing
the predecessor codes' MS-DRG assignment and designation, while
considering other relevant factors (for example, severity of illness,
treatment difficulty, complexity of service and the resources utilized
in the diagnosis and/or treatment of the condition). The public may
provide feedback on these finalized assignments, which is then taken
into consideration for the following fiscal year.
Each of the previously listed procedure codes is currently assigned
to MDC 01 in MS-DRGs 028, 029, and 030, and to MDC 08 in MS-DRGs 402,
426, 427, 428, 447, 448, 450, 451, 456, 457, and 458.
As previously discussed, in the FY 2026 IPPS/LTCH PPS final rule
(90 FR 36552), we noted that we would continue to consider the request
to modify the GROUPER logic of MS-DRGs 426, 427, and 428 (with regard
to the reassignment of 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) in connection with future rulemaking
and stated that the logic for MS-DRGs 456, 457, and 458 is defined by
extensive fusions. Under ICD-10-PCS, an extensive fusion procedure is
defined as a spinal fusion procedure involving 8 or more thoracic
vertebral joint levels. For example, ICD-10-PCS code 0RG8070 (Fusion of
8 or more thoracic vertebral joints with autologous tissue substitute,
anterior approach, anterior column, open approach) describes an
extensive fusion procedure. An extensive fusion procedure may also be
reported with a combination of codes (cluster) that includes at least
one code describing fusion at the thoracic vertebral joint levels and
at least one code describing fusion at the lumbar vertebral joint
levels, such as ICD-10-PCS code 0RG7070 (Fusion of 2 to 7 thoracic
vertebral joints with autologous tissue substitute, anterior approach,
anterior column, open approach) and ICD-10-PCS code 0SG1070 (Fusion of
2 or more lumbar vertebral joints with autologous tissue substitute,
anterior approach, anterior column, open approach). We refer the reader
to Table 6P. 3a that is publicly available in association with this FY
2027 IPPS/LTCH PPS proposed rule on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps for the list of procedure codes we analyzed to identify
an extensive fusion that is also reflected in the ICD-10 MS-DRG
Definitions
[[Page 19338]]
Manual, Version 43.1 under MS-DRGs 456, 457, and 458.
In review of these requests, we first analyzed claims data from the
September 2025 update of the FY 2025 MedPAR file for MS-DRGs 028, 029,
and 030 and for cases reporting a spinal fusion procedure with a
custom-made anatomically designed interbody fusion device, cases
reporting an SI joint fusion or spinal fusion procedure with insertion
of an internal fixation device with tulip connector, and cases
reporting an extensive fusion. We found zero cases reporting either
technology across MS-DRGs 028, 029, and 030. We found 4 cases reporting
an extensive fusion in MS-DRG 028, 4 cases reporting an extensive
fusion in MS-DRG 029, and zero cases reporting an extensive fusion in
MS-DRG 030. Findings from our analysis are shown in the following
table.
[GRAPHIC] [TIFF OMITTED] TP14AP26.020
As shown in the table, for MS-DRG 028, the four cases reporting an
extensive fusion had a longer average length of stay (16.8 days versus
12.2 days) and higher average costs ($122,802 versus $54,697) compared
to the average length of stay and average costs of all the cases in MS-
DRG 028. After further review of the data we considered three of the
four cases to be outlier cases (that is, unusually expensive cases)
because the costs for each of the three cases exceeded $100,000 and the
length of stay for each of the three cases was twice as long or longer
than the average length of stay of all the cases in MS-DRG 028. For MS-
DRG 029, the four cases reporting an extensive fusion had a comparable
average length of stay (6.8 days versus 6.1 days) and lower average
costs ($31,250 versus $32,288) compared to the average length of stay
and average costs of all the cases in MS-DRG 029.
We note that although the logic for case assignment to MS-DRGs 028,
029, and 030 includes procedure codes that describe a spinal fusion
procedure with a custom-made anatomically designed interbody fusion
device and procedure codes that describe an SI joint fusion with
insertion of an internal fixation device with tulip connector, as well
as procedure codes that describe an extensive fusion procedure, the MS-
DRG assigned is based on an MDC 01 principal diagnosis code that
describes a disease or disorder of the nervous system, therefore, we
would not expect to see a significant volume of cases reporting the
procedure codes that describe a spinal fusion procedure with a custom-
made anatomically designed interbody fusion device, an SI joint fusion
with insertion of an internal fixation device with tulip connector, or
an extensive fusion procedure in the data. Additionally, we note that
the indications for the aprevo[supreg] custom-made anatomically
designed interbody fusion device include adults with spinal deformities
and degenerative conditions and the indications for the iFuse
BedrockTM Granite Implant System include patients with
sacroiliac joint dysfunction that is a direct result of SI joint
disruption and degenerative sacroiliitis as well as patients with
acute, non-acute, and non-traumatic fractures involving the SI joint.
The diagnosis codes describing these conditions are assigned to MDC 08,
therefore, it is expected that the majority of cases reporting the
procedure codes that describe a spinal fusion procedure with a custom-
made anatomically designed interbody fusion device, an SI joint fusion
with insertion of an internal fixation device with tulip connector, or
an extensive fusion procedure would group to the MDC 08 MS-DRGs instead
of to MDC 01 MS-DRGs 028, 029, and 030. We refer the reader to the ICD-
10 MS-DRG Definitions Manual Version 43.1 (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 MDC 01 and MDC 08.
We then analyzed claims data for MS-DRGs 402, 426, 427, 428, 447,
448, 450, 451, 456, 457, and 458 and for: (1) cases reporting a spinal
fusion procedure with a custom-made anatomically designed interbody
fusion device, (2) cases reporting an SI joint fusion or spinal fusion
procedure with insertion of an internal fixation device with tulip
connector, (3) cases reporting a fusion procedure with both
technologies (that is, a single case reporting a procedure code
describing a spinal fusion procedure with a custom-made anatomically
designed interbody fusion device and another procedure code(s)
describing an SI joint fusion or a spinal fusion procedure with
insertion of an internal fixation device with tulip connector, (4)
cases reporting an extensive fusion without either technology (that is,
aprevo[supreg] or iFuse BedrockTM Granite Implant System),
(5) cases reporting an extensive fusion with a custom-made anatomically
designed interbody fusion device, (6) cases reporting an extensive
fusion with an SI joint fusion or spinal fusion procedure with
insertion of an internal fixation device with tulip connector, and (7)
cases reporting an extensive fusion with both technologies.
We note that the logic for case assignment to MS-DRGs 402, 447,
448, 450 and 451 does not include the procedure codes or the procedure
code clusters that describe an extensive fusion; therefore, no data for
extensive fusion cases are reflected in the table that follows for
those MS-DRGs. There were also zero cases found reporting both
technologies in MS-DRG 402. In addition, because the logic for case
assignment to MS-DRGs 426, 447, and 450 includes the reporting of a
custom-made anatomically designed interbody fusion device to group to
the respective MCC severity level MS-DRG, no data for cases reporting a
custom-made anatomically designed interbody fusion device are reflected
in the table that follows for MS-DRGs 427, 448, and 451. Findings from
our analysis are shown in the following table.
BILLING CODE 4120-01-P
[[Page 19339]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.021
[[Page 19340]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.022
BILLING CODE 4120-01-C
The findings show that the cases reporting a spinal fusion
procedure with the custom-made anatomically designed interbody fusion
device, cases reporting an SI joint fusion or spinal fusion procedure
with an internal fixation device with tulip connector, and cases
reporting both technologies generally had higher average costs with
variation in the average length of stay in comparison to the average
costs and average length of stay of all the cases in their respective
MS-DRG. The findings also show that cases reporting an extensive spinal
fusion procedure with or without either of the technologies had average
costs that are higher in
[[Page 19341]]
comparison to the average costs of all the cases in their respective
MS-DRG and generally had a comparable or longer average length of stay
in comparison to the average length of stay of all the cases in their
respective MS-DRG.
With regard to the request to reassign cases reporting a spinal
fusion procedure with the custom-made anatomically designed interbody
fusion device from MS-DRG 402 to MS-DRG 450 and the alternative request
to reassign cases reporting a spinal fusion procedure with the custom-
made anatomically designed interbody fusion device from MS-DRG 402 to
MS-DRG 428, we note that MS-DRG 402 is a base MS-DRG and therefore is
not subdivided into severity level subgroups. Additionally, the logic
for MS-DRG 402 is defined by single level combined anterior and
posterior spinal fusion procedures (except cervical) and the logic for
MS-DRG 428 is defined by multiple level combined anterior and posterior
spinal fusion procedures. Therefore, the reassignment of cases
reporting the use of a custom-made anatomically designed interbody
fusion device from MS-DRG 402 to MS-DRG 428 would not be feasible and
would not be consistent with the logic of these recently formed MS-DRGs
which is intended to differentiate a single level combined anterior and
posterior fusion from a multiple level combined anterior and posterior
spinal fusion. As discussed in the FY 2025 IPPS/LTCH PPS final rule (89
FR 69058 through 69059), in response to public comments, we previously
reviewed a request to reassign cases from the then proposed MS-DRG 402
to the then proposed MS-DRG 428 (both subsequently finalized) from this
same manufacturer.
Although the findings from our analysis show that the average costs
of the cases reporting the use of a custom-made anatomically designed
interbody fusion device in MS-DRG 402 are higher compared to all the
cases in MS-DRG 402 ($59,906 versus $38,483) with a longer average
length of stay (3.3 days versus 2.9 days), and are more similar to the
average costs of all the cases in MS-DRG 450 which are $48,325 with an
average length of stay of 7.9 days, we disagree with the requested
reassignment of cases reporting a spinal fusion procedure with the
custom-made anatomically designed interbody fusion device from MS-DRG
402 to MS-DRG 450 because MS-DRG 450 is subdivided into two severity
level subgroups and defined by single level spinal fusions (except
cervical), meaning either the anterior column of the spine or the
posterior column of the spine is fused in a single operative episode.
As previously discussed, the logic for case assignment to MS-DRG 402
reflects single level combined anterior and posterior spinal fusion
procedures, meaning both the anterior column of the spine and the
posterior column of the spine are fused in a single operative episode.
MS-DRG 402 is also not subdivided into severity levels. As such, the
logic for case assignment to MS-DRGs 402 and 450 reflects two different
types of spinal fusions that are clinically distinct procedures with
different resources.
As shown in our review of the requested reassignment of cases
reporting the use of a custom-made anatomically designed interbody
fusion device from MS-DRG 428 to MS-DRG 426, the average costs of the
51 cases in MS-DRG 428 are higher compared to all the cases in MS-DRG
428 ($75,595 versus $56,192) with a comparable average length of stay
(3.2 days versus 3.0 days), and the average costs of all the cases in
MS-DRG 426 are $99,235 with an average length of stay of 8.9 days.
However, we also note that there are 142 cases reporting the use of a
custom-made anatomically designed interbody fusion device in MS-DRG 426
with average costs of $103,797 and an average length of stay of 5.6
days. Because the logic for MS-DRG 426 includes cases that are
reassigned from MS-DRG 427 reporting the use of a custom-made
anatomically designed interbody fusion device with a CC, we expanded
our analysis to identify how many of the 142 cases would otherwise have
grouped to MS-DRG 427 in the absence of the current logic. Of the 142
cases reporting the use of a custom-made anatomically designed
interbody fusion device in MS-DRG 426, we found 22 cases were reported
with an MCC secondary diagnosis with average costs of $143,062 and an
average length of stay of 8.8 days and 120 cases were reported with a
CC secondary diagnosis with average costs of $96,598 and an average
length of stay of 5.1 days. We note that, as reflected in the
previously displayed table, the average costs of all the cases in MS-
DRG 427 is $68,506.
As shown in our review of MS-DRG 426, the 154 cases reporting a
fusion procedure with an internal fixation device with tulip connector
had average costs of $134,327 with an average length of stay of 9.3
days in comparison to the average costs of all the cases in MS-DRG 426
of $99,235 with an average length of stay of 8.9 days. We also
recognized a similar pattern in MS-DRGs 427, 428, 447, 448, 456, 457,
and 458 where the average costs for cases reporting a fusion procedure
with an internal fixation device with tulip connector had higher
average costs and a longer or comparable average length of stay
compared to the average costs and average length of stay of all the
cases in their respective MS-DRG.
Relatedly, our findings for cases reporting an extensive fusion
without either technology and our findings for cases reporting an
extensive fusion with either or both technologies for MS-DRGs 426, 427,
and 428 and MS-DRGs 456, 457, and 458 demonstrate higher average costs
in comparison to the average costs of all the cases in their respective
MS-DRG, including at the MCC level. Specifically, our data analysis
shows that cases reporting an extensive fusion without either
technology currently grouping to MS-DRGs 426, 427, and 428 have higher
average costs ($128,537, $103,226, and $81,054, respectively) compared
to the average costs of all the cases in their respective MS-DRG
($99,235, $68,506, and $56,192, respectively). Similarly, cases
reporting an extensive fusion without either technology currently
grouping to MS-DRGs 456, 457, and 458 have higher average costs
($92,132, $66,745, and $57,964, respectively) compared to the average
costs of all the cases in their respective MS-DRG ($79,972, $56,069,
and $40,771, respectively). Our data analysis also shows that cases
reporting an extensive fusion with either or both technologies
currently grouping to MS-DRGs 426, 427, and 428 have higher average
costs compared to the average costs of all the cases in their
respective MS-DRG. Overall, the 229 cases (65 + 151 + 13 = 229) in MS-
DRG 426 reporting an extensive fusion with either or both technologies
have average costs of $153,092 and an average length of stay of 10.3
days compared to the average cost and average length of stay of all the
cases in MS-DRG 426 ($99,235 and 8.9 days, respectively). The 247 cases
in MS-DRG 427 reporting an extensive fusion with either or both
technologies have costs of $129,777 and a length of stay of 7.0 days
compared to the average cost and average length of stay of all the
cases in MS-DRG 427 ($68,506 and 4.7 days, respectively). The 26 cases
(2 + 22 + 2 = 26) in MS-DRG 428 reporting an extensive fusion with
either or both technologies have average costs of $91,261 and an
average length of stay of 6.1 days compared to the average cost and
average length of stay of all the cases in MS-DRG 428 ($56,192 and 3.0
days, respectively). Additionally, cases reporting an extensive fusion
with either or both technologies currently grouping to MS-DRGs 456,
457, and 458
[[Page 19342]]
have higher costs and a longer length of stay compared to the average
costs and average length of stay of all the cases in their respective
MS-DRG. The 60 cases in MS-DRG 456 reporting an extensive fusion with
either or both technologies have a cost of $136,660 and a length of
stay of 12.7 days, the 121 cases in MS-DRG 457 reporting an extensive
fusion with either or both technologies have a cost of $91,823 and a
length of stay of 6.6 days, and the 10 cases in MS-DRG 458 reporting an
extensive fusion with either or both technologies have a cost of
$62,304 and a length of stay of 4.2 days.
Based on our review and analysis, we disagree with the requested
reassignment of cases from the lower severity level to the higher
severity level MS-DRG for cases reporting use of the aprevo[supreg]
custom-made anatomically designed interbody fusion device, as well as
for cases reporting use of the iFuse BedrockTM Granite
Implant System. We believe that each technology is indicated for use in
complex spinal fusion procedures and requires increased resource
utilization. If we were to reassign cases from the lower severity level
to the higher severity level, that would not account for the cases at
the MCC level that are unable to be reassigned. Specifically, the cases
reporting use of the aprevo[supreg] custom-made anatomically designed
interbody fusion device and cases reporting use of the iFuse
BedrockTM Granite Implant System at the MCC level would
continue to have higher average costs and a longer average length of
stay compared to all the other cases at the MCC level.
We also believe that extensive spinal fusion procedures, with or
without the use of either or both technologies, also demonstrate
increased resource utilization because extensive spinal fusion
procedures address various spinal deformities across multiple spinal
vertebral joint levels.
As such, to address the differences in resource utilization and
additional treatment options for the patients whose spinal condition
requires an extensive fusion procedure or a complex spinal fusion
procedure that uses either the aprevo[supreg] custom-made anatomically
designed interbody fusion device or the iFuse BedrockTM
Granite Implant System, we are proposing a new base MS-DRG.
Consistent with our established process as discussed in section
II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule,
once the decision has been made to propose to make further
modifications to the MS-DRGs, such as creating a new base MS-DRG, all
five criteria to create subgroups must be met for the base MS-DRG to be
split (or subdivided) by a CC subgroup. Therefore, we applied the
criteria to create subgroups in a base MS-DRG. We note that, as shown
in the table that follows, a three-way split of this proposed new base
MS-DRG was met.
[GRAPHIC] [TIFF OMITTED] TP14AP26.023
For the proposed new MS-DRGs for cases reporting an extensive
fusion or a complex spinal fusion procedure with either the
aprevo[supreg] custom-made anatomically designed interbody fusion
device or the iFuse BedrockTM Granite Implant System, there
is at least (1) 500 cases in the MCC group, 500 cases in the with CC
group, and 500 cases in the without CC/MCC group; (2) 5 percent of the
cases in the MCC group, 5 percent of the cases in the CC group, and 5
percent of the cases in the without CC/MCC group; (3) a 20 percent
difference in average costs between the MCC group, the CC group, and
the without CC/MCC group; (4) a $2,000 difference in average costs
between the MCC group, the CC group, and the without CC/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.
Therefore, for FY 2027, we are proposing to create new MS-DRGs 523,
524, and 525 (Extensive or Complex Spinal Fusion Procedures Except
Cervical with MCC, with CC, and without CC/MCC, respectively).
Specifically, we are proposing to reassign cases reporting an extensive
spinal fusion procedure from MS-DRGs 426, 427, 428, 456, 457 and 458
and to reassign cases reporting a spinal fusion procedure with use of
the aprevo[supreg] custom-made anatomically designed interbody fusion
device or the iFuse BedrockTM Granite Implant System from
MS-DRGs 402, 426, 427, 428, 447, 448, 450, 451, 456, 457 and 458 to
proposed new MS-DRGs 523, 524, and 525. We are also proposing to revise
the titles for MS-DRGs 426, 447, and 450 to remove the reference to
``Custom-made Anatomically Designed Interbody Fusion Device'' and to
revise the titles for MS-DRGs 456, 457, and 458 to remove the reference
to ``Extensive Fusions''. We note that discussion of the surgical
hierarchy for the proposed modification is discussed in section
II.C.14. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule.
b. Hip or Knee Procedures With Periprosthetic Joint Infection
In the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18049 through
18052) and final rule (90 FR 36606 through 36610), 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 for
the following MS-DRGs; 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), MS-DRGs 474, 475, and 476
(Amputation for Musculoskeletal System 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) and MS-DRG 485, 486, and 487 (Knee
Procedures with Principal Diagnosis of Infection with MCC, with CC, and
without CC/MCC, respectively). We stated 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
[[Page 19343]]
average costs of the PJI cases in the ``without CC/MCC'' level were not
comparable and did not align with the average costs of all the cases at
the ``with CC'' level. We stated we believed that MS-DRGs 466, 467, and
468 appeared to group appropriately in their respective MS-DRG
assignments and noted that the logic for case assignment to MS-DRGs
485, 486, and 487 includes a principal diagnosis of infection and 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 was minimal. We stated we believed 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 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 (90 FR 18014
through 18015) and final rule (90 FR 36553 through 36554) and noted
that the criteria for a two-way split was met. Therefore, 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).
As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36608
through 36610), several commenters expressed support for the proposal
to create proposed new MS-DRGs 403 and 404, however, a commenter stated
they encountered inconsistencies 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 at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software. The commenter also
stated they found an overlap of approximately 52 procedure codes among
the list of procedure codes analyzed by CMS made publicly available in
Table 6P.6a in connection with the proposed rule analysis and also
listed in the logic for MS-DRGs 466, 467, and 468 included in the Draft
Version 43 ICD-10 MS-DRG Definitions Manual. The commenter stated it
was unable to reconcile some of the shifts in case volume from the MS-
DRGs that were analyzed and those that shifted into the proposed new
MS-DRGs because it was not clear if the cases shifted because of the
procedure code overlap or because of programming within the Version 43
test GROUPER.
We acknowledged the commenter's findings and noted that under the
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''). We stated that
these collections of ICD-10-PCS procedure codes are called clusters and
that a routine program in the GROUPER, upstream of the MS-DRG
assignment logic, searches the claim for clusters. We noted that when a
cluster is found, it is added to the list of procedures found on the
claim. We stated that 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. We provided the example that 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) and the reporting of these codes
creates a new procedure code cluster ``@0045''. We stated that the
cluster @0045 has a different set of attributes than either code
0SPC0JZ or 0SRT0JZ by itself and is further ``restricted'' for MDC 08.
We noted that 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. We indicated in that example
how the logic results in assignment of the claim to MS-DRGs 466, 467,
and 468 rather than MS-DRGs 463, 464, and 465. We stated that 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.
As also discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR
36610), following publication of the FY 2026 IPPS/LTCH PPS proposed
rule, we identified that the intended grouping of cases to the proposed
new MS-DRGs 403 and 404 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 occurred, 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 satisfied the criteria
for a 3-way split. We noted that 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, we noted that 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 associated with removal of the MDC 08 restrictions on the
procedure code clusters for existing MS-DRGs 466, 467, and 468 and MS-
DRGs 485, 486, and 487 were not identified until after publication of
the proposed rule, in addition to having an updated test Grouper that
reflected these potential changes, we did not finalize the creation of
proposed new MS-DRGs 403 and 404 for FY 2026. We stated that we may
further consider these potential MS-DRG changes for future rulemaking.
We refer the reader to the FY 2026 IPPS/LTCH PPS proposed and final
rulemaking discussions for additional detailed information.
As also discussed in the FY 2026 IPPS/LTCH PPS proposed rule (90 FR
18012 through 18013) and final rule (90 FR 36550 through 36552), we
received a request to modify the GROUPER logic of MS-DRGs 463, 464, and
465; MS-DRGs 466, 467, and 468; 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. We noted that the procedure to insert
a bone void filler is designated as a non-operating room (Non-O.R.)
procedure and stated our belief 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. We
further noted that, as discussed in section II.C.5.a. of the preamble
of the FY 2026 IPPS/LTCH PPS proposed rule (90 FR 18049 through 18052),
we received an MS-DRG request related to cases reporting a hip or knee
procedure with
[[Page 19344]]
a diagnosis of PJI in MS-DRGs 463, 464, and 465 (the same set of MS-
DRGs that were submitted to analyze ICD-10-PCS code XW0V0P7). We stated
that in our review of the claims data to address that specific request
we noted that a subset of the cases also reported procedure code
XW0V0P7 and 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.
As we discuss further in this section, based on our analysis of the
September 2025 update of the FY 2025 MedPAR file for this FY 2027 IPPS/
LTCH PPS proposed rule, we continue to believe it is appropriate to
propose new MS-DRGs 403 and 404 to better differentiate and reflect the
complexity of services, resource utilization, and severity of illness
for patients diagnosed with a PJI. For purposes of our analysis for
this FY 2027 IPPS/LTCH PPS proposed rule, in connection with the FY
2026 IPPS/LTCH PPS final rule discussion related to the findings about
the restriction logic and overlap of procedure codes, for proposed new
MS-DRGs 403 and 404 for FY 2027, we removed the restriction logic under
MDC 08 for the procedure code clusters within MS-DRGs 466, 467, and
468, and within MS-DRGs 485, 486, and 487. These changes are reflected
in the test version of the ICD-10 MS-DRG GROUPER Software, Version 44,
and the draft version of the ICD-10 MS-DRG Definitions Manual, Version
44, available in association with this FY 2027 IPPS/LTCH PPS proposed
rule (available on the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software) so that the public can better analyze and
understand the impact of the proposals as summarized in the discussion
that follows.
Additionally, for this FY 2027 IPPS/LTCH PPS proposed rule, in
connection with the FY 2026 IPPS/LTCH PPS final rule discussion related
to the request for reassignment of cases with ICD-10-PCS code XW0V0P7
that currently map to the lower severity level MS-DRG to the highest
severity level (with MCC) MS-DRG, the requestor submitted a revised
request. Specifically, in addition to the previously listed MS-DRGs
identified for CMS' consideration for FY 2026, the requestor added MDC
08 MS-DRGs 474, 475, and 476 and MS-DRGs 480, 481, and 482, that are
also the subject of the request to reassign cases reporting a hip or
knee procedure with a principal diagnosis of PJI from the lower
severity level ``without CC/MCC'' MS-DRG to the higher severity level
``with CC'' MS-DRG, and further added MDC 08 MS-DRGs 477, 478, and 479
(Biopsies of Musculoskeletal System and Connective Tissue with MCC,
with CC, and without CC/MCC, respectively). We also note that
separately, this same requestor submitted a request for the
reassignment of cases reporting ICD-10-PCS code XW0V0P7 that currently
map to the lower severity level MS-DRG to the highest severity level
(with MCC) MS-DRG within MDC 10 for MS-DRGs 616, 617, and 618
(Amputation of Lower Limb for Endocrine, Nutritional and Metabolic
Disorders with MCC, with CC, without CC/MCC, respectively) and MS-DRGs
628, 629, and 630 (Other Endocrine, Nutritional and Metabolic O.R.
Procedures with MCC, with CC, without CC/MCC, respectively) that is
discussed separately in section II.C.5 of the preamble of this FY 2027
IPPS/LTCH PPS proposed rule.
Effective October 1, 2021, ICD-10-PCS code XW0V0P7 was created in
association with a new technology add-on payment application for
CERAMENT[supreg] G, a combination device-drug product intended to treat
bone infections (for example, osteomyelitis). It is an implantable bone
void filler that consists of hydroxyapatite and calcium sulfate, as
well as gentamicin sulfate, which is an antibacterial agent. We refer
the reader to the September 8, 2020 ICD-10 Coordination and Maintenance
Committee meeting materials available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials for information regarding the procedure
code request, including a transcript of the discussion and the related
meeting materials. We also note that CERAMENT[supreg] G was approved
for a new technology add-on payment beginning October 1, 2022 for the
indication of infection which expired on September 30, 2025. For FY
2026, CERAMENT[supreg] G was approved for a new technology add-on
payment for the indication of an open fracture. We refer the reader to
section II.E.4. of the preamble of the FY 2026 IPPS/LTCH PPS proposed
and final rules for additional discussion regarding CERAMENT[supreg] G
in association with the new technology add-on payment indication.
For the Spring 2026 ICD-10-PCS code update, the manufacturer of
CERAMENT[supreg] G submitted a request for a new code to describe
another antibiotic-eluting bone void filler product, CERAMENT[supreg]
V, in association with a new technology add-on payment application for
FY 2027. We refer the reader to section II.E.6. of the preamble of this
FY 2027 IPPS/LTCH PPS proposed rule for additional discussion regarding
CERAMENT[supreg] V in association with the new technology add-on
payment policy. The manufacturer also requested a revision to the
existing code, ICD-10-PCS code XW0V0P7, that is reported to identify
the administration of CERAMENT[supreg] G. CERAMENT[supreg] V is an
injectable synthetic bone void filler that consists of hydroxyapatite,
calcium sulfate, and the antibiotic vancomycin hydrochloride. The
manufacturer requested that the description of existing ICD-10-PCS code
XW0V0P7 be revised to specifically identify gentamicin and that a new
code be created to specifically identify vancomycin in association with
the new technology add-on payment application. The agenda and related
materials for these specific topics are available on the CMS website
at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials. We note that the deadline
for receipt of public comments for the proposals included in the Spring
2026 procedure code update is April 17, 2026; therefore, the final code
decisions on these proposals are not yet available for inclusion in
Table 6B.--New Procedure Codes associated with this FY 2027 IPPS/LTCH
PPS proposed rule. Under our established process, if the new and
revised procedure code proposals are finalized after review and
consideration of public comments following the Spring update, the codes
are specifically identified with a footnote in Table 6B.--New Procedure
Codes and Table 6F.--Revised Procedure Code Titles along with the MDC,
MS-DRG assignment(s), and operating room (O.R.) or non-operating room
(non-O.R.) designation that is made publicly available in association
with the final rule on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. This
established process includes initially reviewing the predecessor codes
MS-DRG assignment and designation, while considering other relevant
factors (for example, severity of illness, treatment difficulty,
complexity of service and the resources utilized in the diagnosis and/
or treatment of the condition). The public may provide feedback on
these finalized assignments, which is then taken into consideration for
the following fiscal year.
Accordingly, to continue our analysis of cases reporting a hip or
knee procedure with a principal diagnosis of
[[Page 19345]]
PJI as discussed in the FY 2026 IPPS/LTCH PPS final rule with removal
of the restriction logic and to address the request to modify the
GROUPER logic by reassigning cases with ICD-10-PCS code XW0V0P7 that
currently map to the lower severity level MS-DRG to the highest
severity level (with MCC) MS-DRG, we reviewed claims data from the
September 2025 update of the FY 2025 MedPAR file for MS-DRGs 463, 464,
465, 466, 467, 468, 474, 475, 476, 477, 478, 479, 480, 481, 482, 485,
486, 487, 492, 493, and 494 and for: 1) cases reporting a principal
diagnosis of PJI with a hip or knee procedure based on the proposed
logic as reflected in Table 6P.3b, 2) cases reporting the insertion of
antibiotic-eluting bone void filler (code XW0V0P7) without a principal
diagnosis of PJI among all the cases in the respective MS-DRG (that is,
not limited to the proposed logic reflected in Table 6P.3b), and 3)
cases reporting both a principal diagnosis of PJI with a hip or knee
procedure and ICD-10-PCS code XW0V0P7 based on the proposed logic as
reflected in Table 6P.3b. We refer the reader to Table 6P. 3b that is
publicly available in association with this FY 2027 IPPS/LTCH PPS
proposed rule on the CMS website 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, for the procedure code
we analyzed to identify the insertion of antibiotic-eluting bone void
filler, and for the list of procedure codes we analyzed from the
previously listed MS-DRGs (excluding MS-DRGs 477, 478, and 479 that
were not the subject of the request) to identify a hip or knee
procedure. Findings from our analysis with removal of the restriction
logic are shown in the following table.
BILLING CODE 4120-01-P
[[Page 19346]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.024
[[Page 19347]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.025
[[Page 19348]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.026
BILLING CODE 4120-01-C
The findings show that with removal of the restriction logic from
MS-DRGs 466, 467, and 468 there are zero cases reporting a principal
diagnosis of PJI with a hip or knee procedure in MS-DRGs 466, 467, and
468. With removal of the restriction logic, the cases that previously
grouped to MS-DRGs 466, 467, and 468 are redistributed to MS-DRGs 463,
464, and 465 based on the proposed Version 44 GROUPER logic and the
surgical hierarchy. Under the current ICD-10 MS-DRGs Version 43.1,
procedure code 0SP90JZ (Removal of synthetic substitute from right hip
joint, open approach) is listed in the logic for case assignment to MS-
DRGs 463, 464, and 465 and is also listed as part of a code cluster
with procedure code 0SR9019 (Replacement of right hip joint with metal
synthetic substitute, cemented, open approach) in the logic for case
assignment to MS-DRGs 466, 467, and 468. With removal of the cluster
restriction logic in MS-DRGs 466, 467, and 468, cases reporting
procedure code 0SP90JZ with a principal diagnosis assigned to MDC 08
will group to MS-DRGs 463, 464, and 465 under the proposed ICD-10 MS-
DRGs, Version 44. The findings also show that with removal of the
restriction logic from MS-DRGs 485, 486, and 487 further redistribution
of the cases occurs. Specifically, cases that previously grouped to MS-
DRGs 485, 486, and 487 now group or ``shift'' to other MS-DRGs. As a
result, the remaining number of cases in MS-DRGs 466, 467, and 468 and
MS-DRGs 485, 486, and 487 is reduced and those MS-DRGs no longer
satisfy the criteria for a 3-way split under application of our
established criteria for subgroups consistent with the discussion in
the FY 2026 IPPS/LTCH PPS final rule (90 FR 36610).
The findings show that for the cases reporting a principal
diagnosis of PJI with a hip or knee procedure in MS-DRGs 463, 464, 465,
474, 475, 476, 480, 481, 482, 485, 486, 487, 492, and 493, the average
length of stay is generally comparable or longer compared to the
average length of stay of all the cases in their respective MS-DRG.
Findings from our analysis also show that the average costs of the
cases reporting a principal diagnosis of PJI with a hip or knee
procedure in MS-DRGs 464, 465, 474, 475, 476, 480, 481, 482, 485, 486,
487, 492, and 493 are higher compared to the average costs of all the
cases in their respective MS-DRG. We note that the average length of
stay and the average costs of the 5 cases reporting a PJI with a hip or
knee procedure in MS-DRG 494 are shorter than (2.6 days versus 3.3
days) the average length of stay and lower than ($15,251 versus
$18,846) the average costs of all the cases in MS-DRG 494. We also note
that the average costs of the 3,262 cases reporting a principal
diagnosis of PJI with a hip or knee procedure in MS-DRG 463 are
approximately $49 less than the average costs of all the cases in MS-
DRG 463 ($44,259 versus $44,308). For the cases reporting procedure
code XW0V0P7 without a principal diagnosis of PJI in
[[Page 19349]]
MS-DRGs 463, 464, 465, 466, 467, 474, 475, 477, 478, 480, 481, 482,
486, 492, and 493, we found that the average length of stay is
generally comparable or longer compared to the average length of stay
of all the cases in their respective MS-DRG. We note that there were
zero cases found reporting procedure code XW0V0P7 without a principal
diagnosis of PJI in MS-DRGs 468 and 476. Findings from our analysis
also show that the average costs of the cases reporting procedure code
XW0V0P7 without a principal diagnosis of PJI in MS-DRGs 463, 464, 465,
466, 467, 474, 475, 477, 478, 480, 481, 482, 486, 492, 493, and 494 are
higher compared to the average costs of all the cases in their
respective MS-DRG. We also note that the 7 cases in MS-DRG 479 have a
shorter average length of stay (2.9 days versus 4.1 days) and lower
average costs ($11,760 versus $17,157) compared to the average length
of stay and average costs of all the cases in MS-DRG 479. As shown in
the table, the cases reporting procedure code XW0V0P7 without a
principal diagnosis of PJI in the lower severity level MS-DRGs (that
is, MS-DRGs 464, 465, 475, 478, 481, 482, 493, and 494) have average
costs that overall, are more aligned with the average costs of all the
cases at the respective higher severity level (with MCC) MS-DRG (that
is MS-DRGs 463, 474, 477, 480, and 492). For example, the 62 cases in
MS-DRG 464 and the 13 cases in MS-DRG 465 reporting procedure code
XW0V0P7 without a principal diagnosis of PJI have average costs of
$42,191 and $37,878 respectively, compared to the average costs of
$44,308 for all the cases in MS-DRG 463.
Lastly, for the cases reporting both a principal diagnosis of PJI
with a hip or knee procedure and ICD-10-PCS code XW0V0P7 in MS-DRGs
463, 464, 465, 474, 475, 485, and 486, we found that the average length
of stay is longer and the average costs are comparable or higher
compared to the average length of stay and average costs of the cases
reporting a principal diagnosis of PJI with a hip or knee procedure
without ICD-10-PCS code XW0V0P7, as well as compared to all the cases
in their respective MS-DRG.
Based on our review and analysis of the data, we believe the data
support proposing a new base MS-DRG for the cases reporting a PJI with
a hip or knee procedure to better differentiate and reflect the
complexity of services, resource utilization, and severity of illness
of these patients. In connection with our review and analysis of the
data, we note that under the current ICD-10 MS-DRGs Version 43.1,
diagnosis codes T84.53XA (Infection and inflammatory reaction due to
internal right knee prosthesis, initial encounter) and T84.54XA
(Infection and inflammatory reaction due to internal left knee
prosthesis, initial encounter) are listed in the logic for case
assignment to MS-DRGs 485, 486, and 487, and are also listed in Table
6P.3b in association with this FY 2027 IPPS/LTCH PPS proposed rule as
they describe a PJI of the knee and were included in our analysis
previously discussed. Therefore, we believe it is appropriate to
propose to remove these codes from the logic for case assignment to MS-
DRGs 485, 486, and 487 in association with the removal of the
restriction logic so that cases reporting a PJI with a knee procedure
from those MS-DRGs appropriately group to the proposed new base MS-DRG.
We also note that, as previously described, procedure code XW0V0P7
is currently designated as a non-O.R. procedure. Because our analysis
of the data supports the reassignment of cases reporting procedure code
XW0V0P7 without a principal diagnosis of PJI from the lower severity
level (without CC/MCC or with CC) to the higher (with MCC) severity
level, we are proposing to redesignate procedure code XW0V0P7 from a
non-O.R. procedure to a non-O.R. procedure affecting the MS-DRG
assignment at the higher with MCC severity level for MS-DRGs 463, 474,
477, 480, and 492. We further note that because the data show that the
cases reporting both a principal diagnosis of PJI with a hip or knee
procedure and ICD-10-PCS code XW0V0P7 in MS-DRGs 463, 464, 465, 474,
475, 485, and 486 have a longer average length of stay and higher
average costs compared to the average length of stay and average costs
of the cases reporting a principal diagnosis of PJI with a hip or knee
procedure alone (without ICD-10-PCS code XW0V0P7), with the proposed
redesignation of code XW0V0P7 from non-O.R. to non-O.R. affecting the
MS-DRG, these cases reporting ICD-10-PCS code XW0V0P7 would also be
reassigned at the highest severity level in connection with a new base
MS-DRG proposal and consistent with the proposal for assignment to MS-
DRGs 463, 474, 477, 480, and 492 previously discussed. As such, the
data support proposing a new base MS-DRG for cases reporting a
principal diagnosis of PJI with a hip or knee procedure with or without
procedure code XW0V0P7.
Consistent with our established process as discussed in section
II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule,
once the decision has been made to propose to make further
modifications to the MS-DRGs, such as creating a new base MS-DRG, all
five criteria to create subgroups must be met for the base MS-DRG to be
split (or subdivided) by a CC subgroup. Therefore, we applied the
criteria to create subgroups in a base MS-DRG. We note 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 there is at least a 20%
difference in average costs in the without CC/MCC group. The following
table illustrates our findings.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.027
As discussed in section II.C.1.b. of the preamble of this FY 2027
IPPS/LTCH PPS proposed 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 and
reflects a simulation of the proposed new MS-DRG 403 (Hip or Knee
Procedures with Principal Diagnosis of Periprosthetic Joint Infection
with MCC or Insertion of Antibiotic-eluting Bone Void Filler) and MS-
DRG 404 (Hip or Knee Procedures with Principal Diagnosis of
Periprosthetic Joint Infection without MCC).
[[Page 19350]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.028
For the proposed new MS-DRGs to identify cases reporting a PJI with
a hip or knee procedure with or without procedure code XW0V0P7, there
is at least (1) 500 cases in the MCC group and 500 cases in the without
MCC group; (2) 5 percent of the cases in the MCC group and 5 percent in
the without MCC group; (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 also previously discussed, in connection with the proposed
removal of the restriction logic and findings from our analysis,
existing MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487 would
no longer meet the criteria for a 3-way split under our established
process for applying the criteria to create subgroups within a base MS-
DRG. We note that, as shown in the table that follows, a three-way
split for MS-DRGs 466, 467, and 468 failed to meet the criterion that
there be at least 500 cases in the MCC group and that there is at least
a 20% difference in average cost between the CC and NonCC group. The
following table illustrates our findings.
[GRAPHIC] [TIFF OMITTED] TP14AP26.029
As discussed in section II.C.1.b. of the preamble of this FY 2027
IPPS/LTCH PPS proposed 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 a two-way
split for these MS-DRGs failed to meet the criterion that there be at
least 500 cases in the MCC group. The following table illustrates our
findings.
[GRAPHIC] [TIFF OMITTED] TP14AP26.030
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 a 20% difference in average cost
between the with CC/MCC and the without CC/MCC group.
[GRAPHIC] [TIFF OMITTED] TP14AP26.031
We are therefore proposing to delete MS-DRGs 466, 467, and 468 and
proposing to create new base MS-DRG 449 (Revision of Hip or Knee
Replacement). We also note that following our analysis previously
described that reflects removal of the restriction logic for MS-DRGs
466, 467, and 468, we identified 20 procedure codes that are listed
individually in the logic for case assignment to MS-DRGs 466, 467, and
468 that are also listed separately in the logic with another procedure
code as a code cluster. For example, procedure code 0SPE0JZ (Removal of
synthetic substitute from left hip joint, acetabular surface, open
approach) is listed individually and is also listed separately with
procedure code 0SRB019 (Replacement of left hip joint with metal
synthetic substitute, cemented, open approach) as a code cluster. We
refer the reader to the ICD-10 MS-DRG Definitions Manual Version 43.1,
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 466, 467, and 468. To appropriately reflect the logic
list for proposed new base MS-DRG 449 under the proposed ICD-10 MS-
DRGs, Version 44, and to ensure cases group appropriately in connection
with the proposed changes to the ICD-10 MS-DRGs for FY 2027, we are
proposing to remove the following 20 procedure codes from the logic
list as individually listed codes.
[[Page 19351]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.032
The following table illustrates our simulation of proposed new MS-
DRG 449.
[GRAPHIC] [TIFF OMITTED] TP14AP26.033
We then applied the criteria to MS-DRGs 485, 486, and 487 in
connection with the proposed removal of the restriction logic. We note
that, as shown in the table that follows, a three-way split for MS-DRGs
485, 486, and 487 failed to meet the criterion that there be at least
500 cases in the MCC group. The following table illustrates our
findings.
[GRAPHIC] [TIFF OMITTED] TP14AP26.034
As discussed in section II.C.1.b. of the preamble of this FY 2027
IPPS/LTCH PPS proposed 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'' groups. We note that, as shown in
the table that follows, a two-way split for these MS-DRGs failed to
meet the criterion that there be at least 500 cases in the MCC group.
The following table illustrates our findings.
[[Page 19352]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.035
We are therefore proposing to delete MS-DRGs 485, 486, and 487 and
proposing to create new base MS-DRG 400 (Knee Procedures with Principal
Diagnosis of Infection). The following table illustrates our simulation
of the proposal.
[GRAPHIC] [TIFF OMITTED] TP14AP26.036
In summary, for FY 2027, we are proposing to (1) remove the
restriction logic for MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486,
and 487, (2) remove ICD-10-CM diagnosis codes T84.53XA and T84.54XA
from the logic for case assignment to MS-DRGs 485, 486, and 487, (3)
delete MS-DRGs 466, 467, and 468 and MS-DRGs 485, 486, and 487, (4)
create new base MS-DRG 449 and new base MS-DRG 400 with the logic lists
as reflected in Tables 6P.3c and 6P.3d, respectively, that is available
in association with this FY 2027 IPPS/LTCH PPS proposed rule, (5)
redesignate procedure code XW0V0P7 from non-O.R. to non-O.R. affecting
specified MS-DRGs as discussed in this section of this FY 2027 IPPS/
LTCH PPS proposed rule, (6) create new MS-DRG 403 (Hip or Knee
Procedures with Principal Diagnosis of Periprosthetic Joint Infection
with MCC or Insertion of Antibiotic-eluting Bone Void Filler) to
reflect cases reporting a hip or knee procedure with a principal
diagnosis of PJI and the reassignment of cases reporting ICD-10-PCS
code XW0V0P7 from the lower severity level to the higher (with MCC)
severity level and create new MS-DRG 404 (Hip or Knee Procedures with
Principal Diagnosis of Periprosthetic Joint Infection without MCC) with
the logic lists as reflected in Table 6P.3b, and (7) reassign cases
reporting ICD-10-PCS code XW0V0P7 from the lower severity level
(without CC/MCC or with CC) to the higher (with MCC) severity level and
revise the titles to the following MS-DRGs to reflect the proposed
reassignment.
[GRAPHIC] [TIFF OMITTED] TP14AP26.037
BILLING CODE 4120-01-C
We note that discussion of the surgical hierarchy for the proposed
modification is discussed in section II.C.14. of the preamble of this
FY 2027 IPPS/LTCH PPS proposed rule.
We also note that the titles for MS-DRGs 463, 464, and 465 reflect
``Wound Debridement and Skin Graft Except Hand for Musculoskeletal and
Connective Tissue Disorders with MCC, with CC, and without CC/MCC'',
respectively. We believe the term ``and'' in these MS-DRG titles may be
misleading as it implies that both a wound debridement and skin graft
need to be reported to satisfy the logic for case assignment to these
MS-DRGs. However, the logic for case assignment to MS-DRGs 463, 464,
and 465 is satisfied when either a procedure code describing a wound
debridement or a procedure code describing a skin graft (except hand)
from the logic list is reported. Therefore, we are proposing to revise
the term ``and'' to ``or'' for the titles for MS-DRGs 463, 464, and
465. These proposed title changes are reflected in the test version of
the ICD-10 MS-DRG GROUPER Software, Version 44, and the draft version
of the ICD-10 MS-DRG Definitions Manual, Version 44, available in
association with this FY 2027 IPPS/LTCH PPS proposed rule (available on
the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software).
5. MDC 10 (Endocrine, Nutritional and Metabolic Diseases and
Disorders): CERAMENT[supreg] G Antibiotic-Eluting Bone Void Filler
As discussed in the preamble of section II.C.4. of this FY 2027
IPPS/LTCH PPS proposed rule, we received a request to reassign cases
reporting ICD-10-PCS code XW0V0P7 (Introduction of antibiotic-eluting
bone void filler into bones, open approach, new technology group 7)
from the lower severity level MS-DRG to the highest severity level
(with MCC) MS-DRG within MDC 10 for MS-DRGs 616, 617, and 618
(Amputation of Lower Limb for Endocrine, Nutritional and Metabolic
Disorders with MCC, with CC, without CC/MCC, respectively) and MS-DRGs
628, 629, and 630 (Other Endocrine,
[[Page 19353]]
Nutritional and Metabolic O.R. Procedures with MCC, with CC, without
CC/MCC, respectively).
As also discussed in the preamble of section II.C.4 of this FY 2027
IPPS/LTCH PPS proposed rule, ICD-10-PCS code XW0V0P7 was created
effective October 1, 2021, in association with a new technology add-on
payment application for CERAMENT[supreg] G, a combination device-drug
product intended to treat bone infections (for example, osteomyelitis).
It is an implantable bone void filler that consists of hydroxyapatite
and calcium sulfate, as well as gentamicin sulfate, which is an
antibacterial agent. We refer the reader to the September 8, 2020 ICD-
10 Coordination and Maintenance Committee meeting materials available
on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials for
information regarding the procedure code request, including a
transcript of the discussion and the related meeting materials. We also
note that CERAMENT[supreg] G was approved for a new technology add-on
payment beginning October 1, 2022 for the indication of infection which
expired on September 30, 2025. For FY 2026, CERAMENT[supreg] G was
approved for a new technology add-on payment for the indication of an
open fracture. We refer the reader to section II.E.4. of the preamble
of the FY 2026 IPPS/LTCH PPS proposed and final rules for additional
discussion regarding CERAMENT[supreg] G in association with the new
technology add-on payment indication.
In the preamble of section II.C.4 of this FY 2027 IPPS/LTCH PPS
proposed rule we also noted that for the Spring 2026 ICD-10-PCS code
update, the manufacturer of CERAMENT[supreg] G submitted a request for
a new code to describe another antibiotic-eluting bone void filler
product, CERAMENT[supreg] V, in association with a new technology add-
on payment application for FY 2027. We refer the reader to section
II.E.6. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule for
additional discussion regarding CERAMENT[supreg] V in association with
the new technology add-on payment policy. The manufacturer also
requested a revision to the existing code, ICD-10-PCS code XW0V0P7,
that is reported to identify the administration of CERAMENT[supreg] G.
CERAMENT[supreg] V is an injectable synthetic bone void filler that
consists of hydroxyapatite, calcium sulfate, and the antibiotic
vancomycin hydrochloride. The manufacturer requested that the
description of existing ICD-10-PCS code XW0V0P7 be revised to
specifically identify gentamicin and that a new code be created to
specifically identify vancomycin in association with the new technology
add-on payment application. The agenda and related meeting materials
for these specific topics are available on the CMS website at: https://www.cms.gov/medicare/coding-billing/icd-10-codes/icd-10-coordination-maintenance-committee-materials. We note that the deadline for receipt
of public comments for the proposals included in the Spring 2026
procedure code update is April 17, 2026; therefore, the final code
decisions on these proposals are not yet available for inclusion in
Table 6B.--New Procedure Codes associated with this FY 2027 IPPS/LTCH
PPS proposed rule. Under our established process, if the new and
revised procedure code proposals are finalized after review and
consideration of public comments following the Spring update, the codes
are specifically identified with a footnote in Table 6B.--New Procedure
Codes and Table 6F.--Revised Procedure Code Titles along with the MDC,
MS-DRG assignment(s), and operating room (O.R.) or non-operating room
(non-O.R.) designation that is made publicly available in association
with the final rule on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. This
established process includes initially reviewing the predecessor codes
MS-DRG assignment and designation, while considering other relevant
factors (for example, severity of illness, treatment difficulty,
complexity of service and the resources utilized in the diagnosis and/
or treatment of the condition). The public may provide feedback on
these finalized assignments, which is then taken into consideration for
the following fiscal year.
The requestor (the manufacturer) stated that the occurrence and
economic burden of osteomyelitis is significant and diabetes has been
driving the increase in osteomyelitis incidence over time, with the
incidence of diabetes-related osteomyelitis rising from 2.3 to 10.5
cases per 100,000 person-years from the 1970s to the 1990s as reported
by the Mayo Clinic. The requestor reported that the incidence of foot
osteomyelitis among patients with diabetes mellitus is estimated to be
approximately 0.3% per year, with a lifetime risk of 4%, and 68% of
patients with diabetes-related foot osteomyelitis needing an
amputation. Studies indicate many individuals are readmitted to the
hospital within 1 year of the amputation due to complications of the
affected limb.
In addition to diabetic foot ulcers, the requestor stated that the
incidence of fracture-associated osteomyelitis varies from 1.8% to 27%
depending on the bone involved and the grade/type of fracture.
According to the requestor, clinical trials demonstrate that the
overall incidence of osteomyelitis may continue to rise due to multiple
factors including improved diagnosis, increasing patient risk factors
such as-diabetes, and increased needs for arthroplasties. Per the
requestor, re-hospitalization and treatment for osteomyelitis has
significant costs to both the individual and healthcare systems,
impacting quality of life and the ability to work.
The requestor stated that the antimicrobial properties of
CERAMENT[supreg] G combat antimicrobial resistance, thereby effectively
reducing the recurrence of infection. The requestor also stated that
these antimicrobial properties have been shown to achieve good
infection prevention with a shortened course of systemic antibiotics
that does not extend beyond seven days.
The requestor performed its own analysis using Medicare claims data
across a subset of MS-DRGs for cases reporting the use of
CERAMENT[supreg] G with ICD-10-PCS code XW0V0P7 and acknowledged that
the volume of cases is small, however, it also stated that its findings
reflected that claims reporting the use of CERAMENT[supreg] G have
higher resource utilization compared to claims that did not report the
use of CERAMENT[supreg] G. Of the MS-DRGs analyzed, the requestor
stated the cases reporting ICD-10-PCS code XW0V0P7 in the lower
severity level MS-DRG had standardized costs that were more aligned
with the costs of the higher severity level MS-DRG sequenced above it.
The requestor stated its belief that the data demonstrate cases
reporting ICD-10-PCS code XW0V0P7 should be reassigned to the higher
MCC level MS-DRG within the MS-DRG groupings requested.
We reviewed claims data from the September 2025 update of the FY
2025 MedPAR file for MS-DRGs 616, 617, 618, 628, 629, and 630 and for
cases reporting ICD-10-PCS code XW0V0P7. Findings from our analysis are
shown in the following table.
[[Page 19354]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.038
The findings show that the cases reporting ICD-10-PCS code XW0V0P7
in MS-DRGs 616, 617, 628, and 629 have a longer average length of stay
and higher average costs compared to all the cases in their respective
MS-DRGs. We note there were zero cases reporting ICD-10-PCS code
XW0V0P7 in MS-DRGs 618 and 630.
Based on our review and analysis of the data, we agree with the
requestor that the average costs of the cases reporting ICD-10-PCS code
XW0V0P7 at the lower severity level are more aligned with the average
costs of the cases at the higher MCC severity level. To better reflect
the resource utilization and severity of illness of patients with
diabetic osteomyelitis, we are proposing to reassign cases reporting
ICD-10-PCS code XW0V0P7 from the lower severity (without CC/MCC and
with CC) MS-DRGs to the higher severity (MCC) level MS-DRG.
As previously discussed, there were no cases found in our analysis
reporting ICD-10-PCS code XW0V0P7 in MS-DRGs 618 and 630 at the
``without CC/MCC'' level, however, if any cases reporting ICD-10-PCS
code XW0V0P7 potentially grouped to MS-DRGs 618 or 630 in the future,
we would anticipate those cases also demonstrating higher average costs
compared to all the cases in their respective MS-DRG.
Therefore, for FY 2027, we are proposing to reassign cases
reporting procedure code XW0V0P7 from the lower severity level MS-DRGs
617 and 618 to the higher severity (MCC) level MS-DRG 616 and from the
lower severity level MS-DRGs 629 and 630 to the higher severity (MCC)
level MS-DRG 628. We are also proposing to revise the title of MS-DRG
616 from ``Amputation of Lower Limb for Endocrine, Nutritional and
Metabolic Disorders with MCC'' to ``Amputation of Lower Limb for
Endocrine, Nutritional and Metabolic Disorders with MCC or Insertion of
Antibiotic-eluting Bone Void Filler'' and to revise the title of MS-DRG
628 from ``Other Endocrine, Nutritional and Metabolic O.R. Procedures
with MCC'' to ``Other Endocrine, Nutritional and Metabolic O.R.
Procedures with MCC or Insertion of Antibiotic-eluting Bone Void
Filler'' to reflect the reassignment of cases reporting procedure code
XW0V0P7.
6. MDC 11 (Diseases and Disorders of the Kidney and Urinary Tract)
a. Prostatectomy
Consistent with our annual review of the MS-DRGs, we identified
that the current GROUPER logic for MDC 11 MS-DRGs 665, 666, and 667
(Prostatectomy with MCC, with CC, and without CC/MCC, respectively)
contains a logic list referred to as ``OPERATING ROOM PROCEDURES'' that
includes 14 ICD-10-PCS procedure codes describing the destruction,
excision, and resection of the prostate and also includes eight ICD-10-
PCS procedure code combinations or procedure code ``clusters'' that,
when reported together, satisfy the logic for assignment to MS-DRGs
665, 666, and 667. The code combinations are represented by two ICD-10-
PCS procedure codes and include one ICD-10-PCS code for the resection
of the prostate with one ICD-10-PCS code for the resection of bilateral
seminal vesicles.
We refer the reader to the ICD-10 MS-DRG Definitions Manual Version
43.1, 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 MDC 11 MS-DRGs 665, 666, and 667.
The eight ICD-10-PCS procedure code combinations currently assigned
to MDC 11 MS-DRGs 665, 666, and 667 that identify the resection of the
prostate with the resection of bilateral seminal vesicles are shown in
the following table:
[[Page 19355]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.039
As we examined the GROUPER logic that would determine the
assignment of a case to MDC 11 MS-DRGs 665, 666, and 667, we noted that
ICD-10-PCS codes 0VT00ZZ, 0VT04ZZ, 0VT07ZZ and 0VT08ZZ that describe
the resection of the prostate, differing only in approach, are assigned
to MS-DRGs 665, 666, and 667 as standalone procedures, as well as being
included in the eight procedure code combinations listed previously in
these same MS-DRGs. We note that the GROUPER software program will
recognize codes 0VT00ZZ, 0VT04ZZ, 0VT07ZZ and 0VT08ZZ and assign MS-
DRGs 665, 666, and 667 even when a procedure code describing the
resection of the bilateral seminal vesicles is not also reported, when
the other parameters of the GROUPER logic are met. As procedure codes
0VT00ZZ, 0VT04ZZ, 0VT07ZZ and 0VT08ZZ are assigned to MS-DRGs 665, 666,
and 667 as standalone procedures, specific assignment of these
procedure codes in procedure code combinations in MS-DRGs 665, 666, and
667 is not required.
Therefore, for FY 2027, we are proposing to remove the eight ICD-
10-PCS procedure code combinations listed previously from the GROUPER
logic of MDC 11 MS-DRGs 665, 666, and 667 (Prostatectomy with MCC, with
CC, and without CC/MCC, respectively).
b. Islet Cell Transplantation
As discussed in section II.C.11.b.1 of this FY 2027 IPPS/LTCH PPS
proposed rule, we received a request to change the designation of ICD-
10-PCS code XW033DA (Introduction of donislecel-jujn allogeneic
pancreatic islet cellular suspension into peripheral vein, percutaneous
approach, new technology group 10) from a non-O.R. procedure to an O.R.
procedure. In the ICD-10 MS-DRGs Definitions Manual Version 43.1,
procedure code XW033DA is currently designated as a non-O.R. procedure
affecting assignment to MS-DRGs 673, 674, and 675 (Other Kidney and
Urinary Tract Procedures with MCC, with CC, and without CC/MCC,
respectively).
In our review of the GROUPER logic of MS-DRGs 673, 674, and 675, we
noted that the logic for case assignment to MS-DRGs 673, 674, and 675
as displayed in the ICD-10 MS-DRG Version 43.1 Definitions Manual
(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) is comprised of seven logic lists.
The first logic list is entitled ``Operating Room Procedures'' and is
defined by a list of 1,754 ICD-10-PCS procedure codes describing
surgical procedures which, while infrequent, could still reasonably be
expected to be performed for a patient in MDC 11. The second and third
logic lists are entitled ``or Principal Diagnosis'' and are defined by
the 25 ICD-10-CM diagnosis codes. The fourth logic list is entitled
``with Secondary Diagnosis'' and is defined by ICD-10-CM diagnosis
codes N18.5 (Chronic kidney disease, stage 5) and N18.6 (End stage
renal disease). The fifth logic list is entitled ``and Non-Operating
Room Procedures'' and is defined by a list of 30 ICD-10-PCS procedure
codes describing the insertion of totally implantable vascular access
devices (TIVADs) and tunneled vascular access devices. The second,
third, and fourth logic lists are the components of the special logic
in MS-DRGs 673, 674, and 675 for certain MDC 11 diagnoses reported with
procedure codes for the insertion of tunneled or totally implantable
vascular access devices.
The sixth logic list entitled ``or Principal Diagnosis'' is defined
by ICD-10-CM diagnosis codes E10.21 (Type 1 diabetes mellitus with
diabetic nephropathy), E10.22 (Type 1 diabetes mellitus with diabetic
chronic kidney disease) and E10.29 (Type 1 diabetes mellitus with other
diabetic kidney complication) and the seventh logic list entitled ``and
Non-Operating Room Procedures'' is defined by the 11 ICD-10-PCS
procedure codes describing the introduction of pancreatic islet cells
listed in the following table. These 11 procedure codes are all
designated as non-O.R. procedures affecting assignment to MS-DRGs 673,
674, and 675 (Other Kidney and Urinary Tract Procedures with MCC, with
CC, and without CC/MCC, respectively).
BILLING CODE 4120-01-P
[[Page 19356]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.040
The sixth and seventh logic lists are the components of the special
logic in MS-DRGs 673, 674, and 675 for pancreatic islet cell
transplantation. As discussed in the FY 2005 IPPS/LTCH PPS final rule
(69 FR 48950 through 48953), the procedure codes describing islet cell
transplantation were added to the GROUPER logic of DRG 315 (Other
Kidney and Urinary Tract O.R. Procedures), the predecessor DRG of MS-
DRGs 673, 674, and 675, to recognize the resource utilization
associated with islet cell transplantation, performed to decrease or
eliminate the need for insulin in patients with type 1 diabetes, in the
absence of any other surgical procedure.
In the FY 2005 IPPS/LTCH PPS final rule, we acknowledged that islet
cell transplants do not involve either the kidney or the urinary tract
directly. Rather, the islet cells are transplanted into the patient's
liver. We also acknowledged that the diagnoses are the same for islet
cell and pancreas transplants, and that the patient populations
involved in these two procedures are virtually identical in terms of
comorbidities and the nature of their primary disease. However, we
stated islet cell transplants are not exactly the same as solid organ
transplants. We stated that while the patient populations requiring
intervention are similar, we did not believe that one can equate an
operation of the magnitude of a pancreas transplant with a less
intensive islet cell transplantation in which the portal vein is
accessed and islet cells infused through a catheter. It is only because
the technical aspects of islet transplants are of a surgical nature
that we modified surgical DRG 315 to reflect the transfusion of islet
cells.
To understand the resource use for the subset of cases reporting
procedure codes describing the introduction of pancreatic islet cells
for this FY 2027 IPPS/LTCH PPS proposed rule, we began our analysis by
examining claims data from the September 2025 update of the FY 2025
MedPAR file for cases assigned to MS-DRGs 673, 674, and 675. We found
zero cases reporting procedure codes describing the introduction of
pancreatic islet cells in MS-DRGs 673, 674, and 675.
Then, to evaluate the frequency with which the procedure codes
describing the introduction of pancreatic islet cells are reported for
different clinical scenarios, we examined claims data from the
September 2025 update of the FY 2025 MedPAR file to determine the MS-
DRGs reporting one of the 11 procedure codes listed previously that
describe the introduction of pancreatic islet cells. Our findings are
shown in the following table.
[GRAPHIC] [TIFF OMITTED] TP14AP26.041
[[Page 19357]]
BILLING CODE 4120-01-C
The data analysis shows a procedure code describing the
introduction of pancreatic islet cells was reported in a total of ten
cases across five MS-DRGs with an average length of stay of 20.2 days
and average costs of $101,092. We reviewed these assignments and note
that the special logic in MS-DRGs 673, 674, and 675 for pancreatic
islet cell transplantation is defined by ICD-10-CM diagnosis codes
E10.21 (Type 1 diabetes mellitus with diabetic nephropathy), E10.22
(Type 1 diabetes mellitus with diabetic chronic kidney disease) and
E10.29 (Type 1 diabetes mellitus with other diabetic kidney
complication). As noted previously, the ICD-10-PCS procedure codes
describing the introduction of pancreatic islet cells are all
designated as non-O.R. procedures affecting assignment only to MS-DRGs
673, 674, and 675. Therefore, when diagnosis codes E10.21, E10.22, or
E10.29 are not reported as principal diagnosis, the MS-DRG assignment
is determined by the principal diagnosis and other procedures reported
on the claim when the ICD-10-PCS procedure codes describing the
introduction of pancreatic islet cells are assigned.
Pancreatic islet cell transplantation is indicated for patients
with type 1 diabetes who have attempted to control their hypoglycemic
episodes medically but continue to have hypoglycemic episodes without
recognizing them.\13\ As the indication for pancreatic islet cell
transplantation is not limited to patients with type 1 diabetes
mellitus with kidney complications, we believe the special logic in MS-
DRGs 673, 674, and 675 for pancreatic islet cell transplantation does
not fully reflect the indications for pancreatic islet cell
transplantation.
---------------------------------------------------------------------------
\13\ Spence KT, Ladie DE. Islets Transplantation. [Updated 2023
Aug 8]. In: StatPearls [internet]. Treasure Island (FL): StatPearls
Publishing; 2025 Jan-. Available from: https://www.ncbi.nlm.nih.gov/books/NBK562272/.
---------------------------------------------------------------------------
We further note in type 1 diabetes, the body's immune system
attacks and destroys the beta cells. Patients with type 1 diabetes must
take insulin because their bodies no longer make this hormone. In
patients for whom the primary indication for transplantation is
unstable glycemic control, particularly hypoglycemic unawareness, the
choice is between solid-organ pancreas transplantation alone or islet
transplantation.\14\ Islet cell transplantation offers a less invasive
established alternative to pancreas transplant, and the procedures are
regulated similarly.\15\ The goal of both pancreas whole organ
transplant and islet cell transplantation is to enable effective,
stable glycemic management (often with insulin independence), to
improve quality of life, and to reduce secondary complications. Both
pancreas and islet cell transplantation require lifelong
immunosuppression to prevent rejection of the graft. Islet
transplantation may be performed at the same time as or after a kidney
transplant. Kidney transplant recipients will already be taking
immunosuppressants to prevent rejection of the transplanted kidney.
Therefore, the islet transplant does not add much more risk.
---------------------------------------------------------------------------
\14\ Mittal S, Johnson P, Friend P. Pancreas transplantation:
solid organ and islet. Cold Spring Harb Perspect Med. 2014 Apr
1;4(4):a015610. doi: 10.1101/cshperspect.a015610. PMID: 24616200;
PMCID: PMC3968790.
\15\ Rickels MR, Robertson RP. Pancreatic Islet Transplantation
in Humans: Recent Progress and Future Directions. Endocr Rev. 2019
Apr 1;40(2):631-668. doi: 10.1210/er.2018-00154. PMID: 30541144;
PMCID: PMC6424003.
---------------------------------------------------------------------------
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. After
reviewing the indications for both whole organ pancreas transplant and
pancreatic islet cell transplantation, and consideration of the intent
of the MS-DRGs, we believe that for clinical coherence, the cases
reporting procedure codes that describe the introduction of pancreatic
islet cells should be grouped with the subset of cases that report
pancreas transplant procedures. While we continue to acknowledge that
islet cell transplants are not exactly the same as solid organ pancreas
transplants, we believe the procedures are coherent given the
similarity in clinical indication. For these reasons, we believe
reassigning the 11 ICD-10-PCS procedure codes that describe the
introduction of pancreatic islet cells from MS-DRGs 673, 674, and 675
to Pre-MDC MS-DRGs 008 (Simultaneous Pancreas and Kidney Transplant),
MS-DRG 010 (Pancreas Transplant) and MS-DRG 019 (Simultaneous Pancreas
and Kidney Transplant with Hemodialysis) would improve clinical
coherence in these MS-DRGs.
The following table reflects the simulation of our proposed changes
in MS-DRGs 008, 010, and 019.
[GRAPHIC] [TIFF OMITTED] TP14AP26.042
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 008,
there were a total of 168 cases with an average length of stay of 9.3
days and average costs of $51,760. For MS-DRG 010,
[[Page 19358]]
there were a total of 20 cases with an average length of stay of 15.8
days and average costs of $66,872. For MS-DRG 019, there were a total
of 56 cases with an average length of stay of 14.5 days and average
costs of $69,841. A review of this simulation shows that adding a new
``Islet Cell Transplant Procedures'' logic list, to the GROUPER logic
in MS-DRGs 008, 010, and 019 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 2027, for clinical coherence, we are proposing
to add the 11 ICD-10-PCS procedure codes that describe the introduction
of pancreatic islet cells to a new ``Islet Cell Transplant Procedures''
logic list in MS-DRGs 008, 010, and 019. Additionally, we are also
proposing to delete the sixth logic list entitled ``or Principal
Diagnosis'' that is defined by ICD-10-CM diagnosis codes E10.21 (Type 1
diabetes mellitus with diabetic nephropathy), E10.22 (Type 1 diabetes
mellitus with diabetic chronic kidney disease) and E10.29 (Type 1
diabetes mellitus with other diabetic kidney complication) and the
seventh logic list entitled ``and Non-Operating Room Procedures'' from
MS-DRGs 673, 674, and 675. Lastly, for consistency, we are proposing to
change the title of MS-DRG 008 from ``Simultaneous Pancreas and Kidney
Transplant'' to ``Simultaneous Pancreas, Islet Cell and Kidney
Transplant,'' proposing to change the title of MS-DRG 010 from
``Pancreas Transplant'' to ``Pancreas or Islet Cell Transplant'' and
proposing to change the title of MS-DRG 019 from ``Simultaneous
Pancreas and Kidney Transplant with Hemodialysis'' to ``Simultaneous
Pancreas, Islet Cell and Kidney Transplant with Hemodialysis'' to
better reflect the assigned procedures effective October 1, 2026, for
FY 2027. Under this proposal, the current ``principal or secondary
diagnosis'' logic in MS-DRGs 008, 010, and 019 would be maintained.
Additionally, to maintain stability, we propose to add logic to MS-DRG
010 to exclude cases also reporting kidney transplant procedures to
ensure cases will continue to group accordingly to MS-DRGs 008 and 019.
We refer the reader to Table 6P.4a, Table 6P.4b, and Table 6P.4c
associated with this FY 2027 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 are proposing to define in the ``Islet Cell
Transplant Procedures'' logic list in Pre-MDC MS-DRGs 008, 010, and
019. We note that discussion of the surgical hierarchy for the proposed
modification is discussed in section II.C.14. of the preamble of this
FY 2027 IPPS/LTCH PPS proposed rule.
7. MDC 12 (Diseases and Disorders of the Male Reproductive System):
Prostatectomy
Consistent with our annual review of the MS-DRGs, we identified
that the current GROUPER logic for MDC 12 MS-DRGs 707 and 708 (Major
Male Pelvic Procedures with MCC and without CC/MCC, respectively)
contains a logic list referred to as ``OPERATING ROOM PROCEDURES'' that
includes 51 procedure codes describing various male pelvic procedures,
including procedure codes describing the destruction, or resection of
the prostate, and also includes eight procedure code combinations or
procedure code ``clusters'' that, when reported together, satisfy the
logic for assignment to MS-DRGs 707 and 708. The code combinations are
represented by two procedure codes and include one code for the
resection of the prostate with one code for the resection of bilateral
seminal vesicles.
We refer the reader to the ICD-10 MS-DRG Definitions Manual Version
43.1, 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 MDC 12 MS-DRGs 707 and 708.
The eight ICD-10-PCS procedure code combinations currently assigned
to MS-DRGs 707 and 708 that identify the resection of the prostate with
the resection of bilateral seminal vesicles are shown in the following
table:
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.043
As we examined the GROUPER logic that would determine an assignment
of a case to MDC 12 MS-DRGs 707 and 708, we noted that ICD-10-PCS codes
0VT00ZZ (Resection of prostate, open approach) and 0VT04ZZ (Resection
of prostate, percutaneous endoscopic approach) that describe the
resection of the prostate, differing only in approach,
[[Page 19359]]
are assigned to MS-DRGs 707 and 708 as standalone procedures, as well
as being included in one of the eight procedure code combinations, or
code clusters, listed previously in these same MS-DRGs. We note that
the GROUPER software program will recognize codes 0VT00ZZ and 0VT04ZZ
and assign MS-DRGs 707 and 708 even when a procedure code describing
the resection of the bilateral seminal vesicles is not also reported
when the other parameters of the GROUPER logic are met. As procedure
codes 0VT00ZZ and 0VT04ZZ are assigned to MS-DRGs 707 and 708 as
standalone procedures, specific assignment of these procedure codes in
procedure code combinations in MS-DRGs 707 and 708 is not required.
During our review of this issue, we noted that that ICD-10-PCS
codes 0VT07ZZ (Resection of prostate, via natural or artificial
opening) and 0VT08ZZ (Resection of prostate, via natural or artificial
opening endoscopic) that describe the transurethral resection of the
prostate, or removal of the prostate using an instrument inserted
through the urethra, are also represented in the eight procedure code
combinations in MS-DRGs 707 and 708. These codes are assigned to MDC 12
MS-DRGs 713 and 714 (Transurethral Prostatectomy with CC/MCC and
without CC/MCC) when reported as standalone procedures. We refer the
reader to the ICD-10 MS-DRG Definitions Manual Version 43.1, 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 MDC
12 MS-DRGs 713 and 714.
We then analyzed claims data from the September 2025 update of the
September 2025 MedPAR file for all cases in MS-DRGs 707 and 708 and
compared the results to cases reporting procedure codes describing
transurethral prostatectomy and resection of bilateral seminal vesicles
in these MS-DRGs. Our findings are shown in the following table.
[GRAPHIC] [TIFF OMITTED] TP14AP26.044
As shown in the table, for MS-DRG 707, we identified a total of
1,697 cases, with an average length of stay of 3.1 days and average
costs of $19,942. Of the 1,697 cases in MS-DRG 707, there were three
cases reporting transurethral prostatectomy and resection of bilateral
seminal vesicles with an average length of stay of 4 days and average
costs of $14,896. For MS-DRG 708, we identified a total of 1,685 cases,
with an average length of stay of 1.5 days and average costs of
$14,075. Of the 1,685 cases in MS-DRG 708, there was one case reporting
transurethral prostatectomy and resection of bilateral seminal vesicles
with a length of stay of 1 day and costs of $6,726.
We also examined claims data from the September 2025 update of the
September 2025 MedPAR file for MS-DRGs 713 and 714. Our findings are
shown in the following table.
[GRAPHIC] [TIFF OMITTED] TP14AP26.045
BILLING CODE 4120-01-C
In MS-DRG 713, we found a total of 3,746 cases with an average
length of stay of 3.4 days and average costs of $14,670. In MS-DRG 714,
we found a total of 860 cases with an average length of stay of 1.7
days and average costs of $10,869.
Overall, the data analysis shows that the average costs for the
cases reporting transurethral prostatectomy and resection of bilateral
seminal vesicles in MS-DRGs 707 and 708 are more aligned with the
average costs for all the cases in MS-DRGs 713 ($14,896 versus $14,670)
and 714 ($6,726 versus $10,869), respectively.
We reviewed this issue and noted that ICD-10-PCS procedure codes
0VT07ZZ or 0VT08ZZ describe transurethral resection of the prostate,
and therefore, are most clinically aligned with the procedure codes
assigned to MDC 12 MS-DRGs 713 and 714, where they are currently
assigned when reported as standalone procedures.
Therefore, for FY 2027, we are proposing to delete the eight ICD-
10-PCS procedure code combinations listed previously from the GROUPER
logic of MDC 12 MS-DRGs 707 and 708 (Major Male Pelvic Procedures with
CC/MCC and without CC/MCC, respectively). Under this proposal, when the
other parameters of the GROUPER logic are met, cases reporting
procedure codes 0VT00ZZ (Resection of prostate, open approach) and
0VT04ZZ (Resection of prostate, percutaneous endoscopic approach) would
group to MS-DRGs 707 and 708, even when a procedure code describing the
resection of the bilateral seminal vesicles is not also reported.
Additionally, under this proposal, when the other parameters of the
GROUPER logic are met, cases reporting procedure codes 0VT07ZZ
(Resection of prostate, via natural or artificial opening) or 0VT08ZZ
(Resection of prostate, via natural or artificial opening endoscopic)
would group to MS-DRGs 713 and 714 (Transurethral Prostatectomy with
CC/MCC and without CC/MCC), even when a procedure code describing the
[[Page 19360]]
resection of the bilateral seminal vesicles is not also reported.
During our review of this issue and the examination of the MS-DRGs
within MDC 12, we noted that the title of MS-DRGs 715 and 716 is
``Other Male Reproductive System O.R. Procedures for Malignancy with
and without CC/MCC, respectively'' and the title of MS-DRGs 717 and 718
is ``Other Male Reproductive System O.R. Procedures Except Malignancy
with 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
believe the titles for these MS-DRGs no longer accurately reflect the
assigned diagnoses. The titles of DRGs 715, 716, 717, and 718 were
established prior to the transition to the Medicare Severity DRGs (MS-
DRGs) from the CMS DRGs (48 FR 39883). In the development of the DRGs,
generally, in each MDC, a medical and a surgical class was formed and
referred to as ``other medical diseases'' and ``other surgical
procedures,'' respectively. The ``other'' medical and surgical classes
are not as precisely defined from a clinical perspective and include
diagnoses or procedures which are infrequently encountered. The
``other'' surgical class contains surgical procedures which, while
infrequent, could still reasonably be expected to be performed for a
patient in the particular MDC. Assignment to the ``other'' surgical
class should only occur if no other surgical class more closely related
to the diagnoses in the MDC is appropriate. As the cases in MS-DRGs 715
and 716 are further defined based on the precise principal diagnosis
for which the patients were admitted to the hospital, we believe it is
appropriate to propose to revise the titles of these MS-DRGs for
consistency. Therefore, we are also proposing to change the title of
MS-DRGs 715 and 716 from ``Other Male Reproductive System O.R.
Procedures for Malignancy with and without CC/MCC, respectively'' to
``Male Reproductive System and Other O.R. Procedures for Malignancy
with and without CC/MCC, respectively'' and to change the title of MS-
DRGs 717 and 718 from ``Other Male Reproductive System O.R. Procedures
Except Malignancy with and without CC/MCC, respectively'' to ``Other
Male Reproductive System O.R. Procedures with and without CC/MCC,
respectively'' to better reflect the assigned diagnoses.
As discussed in section II.C.1.b of the preamble of this proposed
rule, we are providing a test version of the ICD-10 MS-DRG GROUPER
Software, Version 44, so that the public can better analyze and
understand the impact of the proposals included in this proposed rule.
We note that at the time of the development of the test software, this
issue was unable to be addressed and therefore, the test software does
not reflect the proposed change to the title of MS-DRGs 715 and 716
from ``Other Male Reproductive System O.R. Procedures for Malignancy
with and without CC/MCC, respectively'' to ``Male Reproductive System
and Other O.R. Procedures for Malignancy with and without CC/MCC,
respectively'' and the proposed change to the title of MS-DRGs 717 and
718 from ``Other Male Reproductive System O.R. Procedures Except
Malignancy with and without CC/MCC, respectively'' to ``Other Male
Reproductive System O.R. Procedures with and without CC/MCC,
respectively'' in MDC 12 for Version 44.
8. MDC 13 (Diseases and Disorders of the Female Reproductive System):
Fluorescence Guided Procedures of the Female Reproductive System Using
Pafolacianine
CYTALUX[supreg] (pafolacianine) is a folate receptor-targeted
fluorescent optical imaging agent used as an adjunct for intraoperative
identification of ovarian cancer. CYTALUX[supreg] binds to the folate
receptors on these cancer cells and is endocytosed into folate receptor
positive cancer cells. CYTALUX[supreg] is administered intravenously
prior to gynecologic oncology procedures, including ovarian
cytoreduction and debulking surgeries, and requires use of a near-
infrared imaging system (NIR) to illuminate, thereby making cancer
visible within the surgical field. CYTALUX[supreg] received FDA
approval and is indicated as an adjunct for intraoperative
identification of malignant lesions in adult patients with ovarian
cancer. We note that CYTALUX[supreg] for the ovarian indication was
approved for new technology add-on payments for FY 2024 (88 FR 58804
through 58810) and FY 2025 (89 FR 69120 through 69126).
We received a request from the manufacturer of CYTALUX[supreg] to
modify the GROUPER logic of MS-DRGs 736, 737, and 738 (Uterine and
Adnexa Procedures for Ovarian or Adnexal Malignancy with MCC, with CC,
and without CC/MCC, respectively) by reassigning cases with an ICD-10-
PCS code that describes fluorescence guided procedures of the female
reproductive system using CYTALUX[supreg] (pafolacianine) to the higher
severity level MS-DRG 736 (with MCC) or MS-DRG 737 (with CC). According
to the requestor, the utilization of CYTALUX[supreg] does not change
the surgical procedure but adds significant cost. The requestor
performed their own analysis of Medicare claims data from 10/1/2023-3/
31/2025 and stated they found approximately 13 cases that used
CYTALUX[supreg] in ovarian surgery and that they expect adoption to
accelerate as NIR systems become more widely available. The requestor
stated they found that over 50% of cases using CYTALUX[supreg] in
ovarian procedures triggered new technology add-on payments averaging
$2,285. The requestor also stated they found cases reporting an ICD-10-
PCS code that describes fluorescence guided procedures of the female
reproductive system using CYTALUX[supreg] (pafolacianine) within MS-DRG
737 exhibit higher average costs than baseline and align more closely
with cases in MS-DRG 736. Additionally, the requestor stated their
analysis also found cases that reported the use of CYTALUX[supreg] in
MS-DRGs 739, 740, and 741 (Uterine and Adnexa Procedures for Non-
Ovarian and Non-Adnexal Malignancy with MCC, with CC, and without CC/
MCC, respectively) due to the reporting of diagnosis codes describing
metastatic malignancies. The requestor stated their analysis found that
cases reporting an ICD-10-PCS code that describes fluorescence guided
procedures of the female reproductive system using CYTALUX[supreg]
(pafolacianine) cases in MS-DRG 737 exhibited higher average costs than
baseline ($34,735 vs. $23,538) and aligned more closely with cases in
MS-DRG 736 ($39,682).
The requestor further asserted that their review of the Inpatient
Standard Analytical Files (SAF) indicated there were some accounts
underreporting the full cost of the vial of CYTALUX[supreg] due to
inconsistent guidance for single-use inpatient drugs and that, where
applicable, pharmacy costs were adjusted to account for missing costs
of the single-use vial. The requestor stated they found that cases
reporting an ICD-10-PCS code that describes fluorescence guided
procedures of the female reproductive system using CYTALUX[supreg]
(pafolacianine) in MS-DRG 737 were approximately $11,000 more expensive
than non-CYTALUX cases when controlled for the underreporting of costs.
Therefore, the requestor suggested that CMS reassign cases with an ICD-
10-PCS code that describes fluorescence guided procedures of the female
reproductive system using CYTALUX[supreg] (pafolacianine) to MS-DRGs
736 or 737 to ensure accurate payment, clinical
[[Page 19361]]
integrity, and to prevent barriers to hospital adoption of
CYTALUX[supreg] as NIR system availability expands nationwide.
To begin our analysis, we reviewed the GROUPER logic for MS-DRGs
736, 737, 738, 739, 740, and 741. MS-DRGs 736, 737, 738, 739, 740 and
741 contains a logic list referred to as ``OPERATING ROOM PROCEDURES''
that includes 689 ICD-10-PCS procedure codes that describe uterine and
adnexa procedures, a logic list referred to as ``Ovarian or Adnexal
Malignancy PRINCIPAL DIAGNOSIS'' that includes 22 ICD-10-CM diagnosis
codes that describe ovarian or adnexal malignancies and a logic list
referred to as ``Non-Ovarian and Non-Adnexal Malignancy PRINCIPAL
DIAGNOSIS'' that includes 36 ICD-10-CM diagnosis codes that describe
non-ovarian and non-adnexal malignancies. We refer the reader to the
ICD-10 MS-DRG Definitions Manual, Version 43.1 (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 736, 737, 738,
739, 740, and 741.
The following five ICD-10-PCS procedure codes describe fluorescence
guided procedures of the female reproductive system using pafolacianine
for the ovarian indication.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.046
In the ICD-10 MS-DRGs Definitions Manual Version 43.1, procedure
codes 8E0U0EN, 8E0U3EN, 8E0U4EN, 8E0U7EN, and 8E0U8EN are designated as
non-O.R. procedures for purposes of MS-DRG assignment, therefore when
CYTALUX[supreg] is utilized during a uterine and adnexa procedure
described by one of the 689 ICD-10-PCS procedure codes in the GROUPER
logic for MS-DRGs 736, 737, 738, 739, 740, and 741, the ICD-10-PCS code
describing the uterine and adnexa procedure will determine the surgical
MS-DRG assignment to one of the previously listed surgical MS-DRGs
based on the principal diagnosis reported.
We then examined claims data from the September 2025 update of the
FY 2025 MedPAR file for MS-DRGs 736, 737, 738, 739, 740, and 741 to
identify cases reporting one of the five procedure codes listed
previously that describe fluorescence guided surgery using
CYTALUX[supreg] (pafolacianine). Our findings are shown in the
following table:
[GRAPHIC] [TIFF OMITTED] TP14AP26.047
[[Page 19362]]
BILLING CODE 4120-01-C
As shown in the table, in MS-DRG 736, we identified a total of 647
cases with an average length of stay of 8.5 days and average costs of
$33,196. Of those 647 cases, there were two cases reporting one of the
five procedure codes that describe fluorescence guided surgery using
CYTALUX[supreg] (pafolacianine), with average costs lower than the
average costs in the FY 2025 MedPAR file for MS-DRG 736 ($28,068
compared to $33,196) and a shorter average length of stay (7 days
compared to 8.5 days). There were zero cases reporting one of the five
procedure codes that describe fluorescence guided surgery using
CYTALUX[supreg] (pafolacianine) in MS-DRGs 737 and 738.
In MS-DRG 739, we identified a total of 481 cases with an average
length of stay of 8.4 days and average costs of $33,235. Of those 481
cases, there were two cases reporting one of the five procedure codes
that describe fluorescence guided surgery using CYTALUX[supreg]
(pafolacianine), with average costs lower than the average costs in the
FY 2025 MedPAR file for MS-DRG 739 ($11,565 compared to $33,235) and a
shorter average length of stay (1.5 days compared to 8.4 days). In MS-
DRG 740, we identified a total of 1,327 cases with an average length of
stay of 3.2 days and average costs of $16,784. Of those 1,327 cases,
there was one case reporting one of the five procedure codes that
describe fluorescence guided surgery using CYTALUX[supreg]
(pafolacianine), with costs higher than the average costs in the FY
2025 MedPAR file for MS-DRG 740 ($39,154 compared to $16,784), and a
longer length of stay (5 days compared to 3.2 days). In MS-DRG 741, we
identified a total of 740 cases with an average length of stay of 1.7
days and average costs of $13,365. Of those 1,327 cases, there was one
case reporting one of the five procedure codes that describe
fluorescence guided surgery using CYTALUX[supreg] (pafolacianine), with
costs higher than the average costs in the FY 2025 MedPAR file for MS-
DRG 741 ($14,036 compared to $13,365), and a shorter length of stay (1
day compared to 1.7 days).
The data reflects the six cases reporting one of the five procedure
codes that describe fluorescence guided surgery using CYTALUX[supreg]
(pafolacianine) found across MS-DRGs 736, 737, 738, 739, 740, and 741
have an average length of stay of 3.8 days and average costs of
$22,076. These six cases have a shorter average length of stay (3.8
days versus 8.5 days) and lower average costs ($22,076 versus $33,196)
when compared to all the cases in MS-DRG 736. The six cases reporting
one of the five procedure codes that describe fluorescence guided
surgery using CYTALUX[supreg] (pafolacianine) found across MS-DRGs 736,
737, 738, 739, 740, and 741 have a shorter average length of stay (3.8
days versus 4.3 days) and higher average costs ($22,076 versus $18,702)
when compared to all the cases in MS-DRG 737.
After reviewing the claims data, we believe it is premature to
consider a proposal for cases with an ICD-10-PCS code that describes
fluorescence guided procedures of the female reproductive system using
CYTALUX[supreg] (pafolacianine) for FY 2027. While the data analysis
reflects that six cases that report one of the five procedure codes
that describe fluorescence guided surgery using CYTALUX[supreg]
(pafolacianine) across MS-DRGs 736, 737, 738, 739, 740, and 741
demonstrate slightly higher average costs compared to all the cases in
MS-DRG 737, the number of cases is small across the MS-DRGs. The claims
data also reflect a wide variance with regard to the average costs for
these cases reporting fluorescence guided procedures of the female
reproductive system using CYTALUX[supreg] (pafolacianine). We note the
one case that reported a fluorescence guided procedure of the female
reproductive system using CYTALUX[supreg] (pafolacianine) in MS-DRG 740
had a length of stay of 5 days and costs of $39,154, while the two
cases that reported a procedure code describing a fluorescence guided
procedure of the female reproductive system using CYTALUX[supreg]
(pafolacianine) in MS-DRG 739 had an average length of stay of 1.5 days
and average costs of $11,565.
We cannot ascertain from the claims data the resource use
specifically attributable to the utilization of fluorescence guidance
using CYTALUX[supreg] (pafolacianine) in procedures of the female
reproductive system during inpatient admissions. We recognize the
average costs of the small numbers of cases reporting an ICD-10-PCS
code that describes fluorescence guided procedures of the female
reproductive system using CYTALUX[supreg] (pafolacianine) can be
greater when compared to the average costs of all cases in their
respective MS-DRG however, 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 further note that section
1886(d)(5)(A) of the Act provides for Medicare payments to Medicare-
participating hospitals in addition to the basic prospective payments
for cases incurring extraordinarily high costs. We believe it would be
advantageous to allow for more claims data to be analyzed in
consideration of any future modifications to the MS-DRGs for which
fluorescence guided surgeries using CYTALUX[supreg] (pafolacianine) are
assigned. We will continue to evaluate the clinical coherence and
resource consumption costs that impact this subset of cases and their
MS-DRG assignment.
Therefore for the reasons stated, for FY 2027, we are not proposing
to modify the GROUPER logic of MS-DRGs 736, 737, and 738 (Uterine and
Adnexa Procedures for Ovarian or Adnexal Malignancy with MCC, with CC,
and without CC/MCC, respectively) by reassigning cases reporting ICD-
10-PCS codes that describes fluorescence guided procedures of the
female reproductive system using CYTALUX[supreg] (pafolacianine) to the
higher severity level MS-DRG 736 (with MCC) or MS-DRG 737 (with CC).
During our review of this issue, we noted that the data analysis
reflects that in cases reporting uterine and adnexa procedures in MS-
DRGs 736, 737, 738, 739, 740, and 741, the average costs and length of
stay are generally similar without regard to the presence of diagnosis
codes describing ``ovarian or adnexal'' malignancies or ``non-ovarian
or non-adnexal'' malignancies. In MS-DRG 736, there were 647 cases
reporting an uterine and adnexa procedures with a principal diagnosis
describing an ``ovarian or adnexal'' malignancy and a MCC with average
costs of $33,196 and an average length of stay of 8.5 days compared to
481 cases reporting an uterine and adnexa procedures with a principal
diagnosis describing a ``non-ovarian or non-adnexal'' malignancy and a
MCC with average costs of $33,235 and an average length of stay of 8.4
days in MS-DRG 739. In MS-DRG 737, there were 1,803 cases reporting an
uterine and adnexa procedures with a principal diagnosis describing an
``ovarian or adnexal'' malignancy and a CC with average costs of
$18,702 and an average length of stay of 4.3 days compared to 1,327
cases reporting an uterine and adnexa procedures with a principal
diagnosis describing a ``non-ovarian or non-adnexal'' malignancy and a
CC with average costs of $16,784 and an average length of stay of 3.2
days in MS-DRG 740. In MS-DRG 738, there were 317 cases reporting an
uterine and adnexa procedures with a principal diagnosis describing an
``ovarian or adnexal'' malignancy without a CC or an
[[Page 19363]]
MCC with average costs of $13,519 and an average length of stay of 2.5
days compared to 740 cases reporting an uterine and adnexa procedures
with a principal diagnosis describing a ``non-ovarian or non-adnexal''
malignancy without a CC or an MCC with average costs of $13,365 and an
average length of stay of 1.7 days in MS-DRG 741.
We reviewed these findings and believe that it may no longer be
necessary to subdivide these MS-DRGs based on the diagnosis codes
reported. In the FY 1987 proposed notice titled ``Medicare Program;
Changes to the DRG Classification System'' (51 FR 8770 through 8771),
we stated that our analysis of cases with a principal diagnosis of
malignancy where both a hysterectomy and uterine or adnexa procedures
were performed suggested that malignancies and non-malignancies should
be classified in different DRGs, and that ovarian and adnexa cancers
were the most resource intensive of the malignancies in the DRGs
reviewed. We further stated that, among the cases examined in the DRGs,
the diagnosis had consistently greater explanatory power with respect
to resource intensity than did the procedure performed, therefore we
stated that cases with a principal diagnosis of malignancy would be
further subdivided. Therefore, for FY 1987, DRG 357 (Non-Radical
Hysterectomy, Uterus and Adnexa Procedures, for Ovarian and Adnexal
Malignancy) and DRGs 354 and 355 (Non-Radical Hysterectomy, Uterus and
Adnexa Procedures for Malignancy Except Ovarian/Adnexal Malignancy; Age
over 69 and/or C.C., and Age under 70 without C.C., respectively) were
created to ``increase homogeneity and thus more accurately reflect
resource intensity of cases assigned to these DRGs'' (51 FR 31571).
Our analysis of claims data from the September 2025 update of the
FY 2025 MedPAR file shows that in the 39 years since the DRGs for cases
reporting uterine and adnexa procedures split based on the presence of
diagnosis codes describing ``ovarian or adnexal'' malignancies or
``non-ovarian or non-adnexal'' malignancies were created, the resource
utilization appears to now be more related to the procedures performed
rather than the diagnoses describing malignancies reported on the
claim, and therefore we believe it is appropriate to restructure these
MS-DRGs accordingly. In our direct comparison of the cases reporting
diagnosis codes describing ``ovarian or adnexal'' malignancies or
``non-ovarian or non-adnexal'' malignancies in these MS-DRGs, we
believe the distinction is no longer meaningful with regard to resource
consumption. Clinically, a principal diagnosis of an ``ovarian or
adnexal'' or a ``non-ovarian or non-adnexal'' malignancy in association
with a uterine and adnexa procedure requires a commensurate level of
patient care, including managing pain, monitoring for complications,
ensuring proper wound and drain care, preventing blood clots, managing
bowel function, and facilitating recovery through gradual activity,
diet, and mobility. Decisions on potential further treatment like
chemotherapy or radiation therapy for these diagnoses are based on the
cancer's stage.
We note 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. As a result of our analysis and review of this issue, and
consideration of the intent of the MS-DRGs, we believe the findings
support restructuring the six MS-DRGs by proposing to create new MS-
DRGs for uterine and adnexa procedures for female reproductive system
malignancies and eliminating the logic that differentiates cases by
reporting principal diagnoses describing ``ovarian or adnexal'' and
``non-ovarian or non-adnexal'' malignancies.
For these reasons, we are proposing the deletion of MS-DRGs 736,
737, 738, 739, 740, and 741, and the creation of a base MS-DRG for
cases reporting uterine and adnexa procedures and a principal diagnosis
describing a female reproductive system malignancy, split by a three-
way severity level subgroup. The following table illustrates our
simulation of the proposal.
[GRAPHIC] [TIFF OMITTED] TP14AP26.048
Consistent with our established process as discussed in section
II.C.1.b. of the preamble of this proposed rule, once the decision has
been made to propose to make further modifications to the MS-DRGs, all
five criteria to create subgroups must be met for the base MS-DRG to be
split (or subdivided) by a CC subgroup. Therefore, we applied the
criteria to create subgroups in a base MS-DRG as discussed in section
II.C.1.b. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule.
We note that, as shown in the table that follows, a three-way split of
this proposed new base MS-DRG was met. The following table illustrates
our findings.
[GRAPHIC] [TIFF OMITTED] TP14AP26.049
For the proposed new MS-DRGs, there is (1) at least 500 cases in
the MCC subgroup, the CC subgroup, and in the without CC/MCC subgroup;
(2) at least 5 percent of the cases are in the MCC subgroup, the CC
subgroup, and in the without CC/MCC subgroup; (3) at least a 20 percent
difference in average costs between the MCC subgroup and the CC
subgroup and between the CC group and NonCC subgroup; (4) at least a
$2,000 difference in average costs between the MCC subgroup and the
with CC subgroup and between the CC subgroup and NonCC subgroup; and
(5) at least 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.
[[Page 19364]]
Therefore, for FY 2027, we are proposing to delete MS-DRGs 736,
737, 738, 739, 740, and 741 and proposing to create new MS-DRGs 731
(Uterine and Adnexa Procedures for Malignancy with MCC), MS-DRG 732
(Uterine and Adnexa Procedures for Malignancy with CC), and MS-DRG 733
(Uterine and Adnexa Procedures for Malignancy without CC/MCC). We are
proposing to include the current list of 689 ICD-10-PCS procedure codes
in the logic for MS-DRGs 736, 737, 738, 739, 740, and 741 for case
assignment of uterine and adnexa procedures for the proposed new MS-
DRGs. We refer the reader to Table 6P.5a and Table 6P.5b associated
with this FY 2027 IPPS/LTCH PPS proposed rule (which are available on
the CMS website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps) for the lists of the 58 diagnosis
codes and 689 procedure codes we are proposing to define in the logic
for the proposed new MS-DRGs. We note that discussion of the surgical
hierarchy for the proposed modification is discussed in section
II.C.14. of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule.
9. MDC 25 (Human Immunodeficiency Virus Infections): Significant HIV
Related Conditions
Under the ICD-10 IPPS MS-DRGs, each of the 25 MDCs generally
reflect a major organ system or etiology. Within each MDC, there is a
list of all the possible ICD-10-CM diagnoses or conditions that
correspond to the specific organ system(s) or etiology reflected by the
respective MDC title to ensure clinical coherence. When one of the
listed conditions for a designated MDC is reported as a principal or
secondary diagnosis, the ICD-10-CM diagnosis code informs the resulting
MS-DRG assignment from within that MDC.
The logic for case assignment under MDC 25 (Human Immunodeficiency
Virus Infections) is comprised of ICD-10-CM diagnosis code B20 (Human
immunodeficiency virus [HIV] disease) when reported as a principal
diagnosis or when reported as a secondary diagnosis with a principal
diagnosis of a significant HIV related condition and the logic for case
assignment specifically to MS-DRGs 974, 975, and 976 (HIV with Major
Related Condition with MCC, with CC, without CC/MCC, respectively)
under MDC 25 is comprised of ICD-10-CM diagnosis code B20 when reported
as a principal or secondary diagnosis with a principal or secondary
diagnosis of a major related condition as displayed in the ICD-10 MS-
DRG Definitions Manual, Version 43.1 (available on the CMS website at:
https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/ms-drg-classifications-and-software). In reviewing the
listed diagnoses that fall under the MDC 25 header ``AND PRINCIPAL
DIAGNOSIS OF SIGNIFICANT HIV RELATED CONDITION'' as reflected in the
ICD-10 MS-DRG Definitions Manual, Version 43.1, we identified that a
number of the listed diagnoses under this specific header overlap with
the listed diagnoses in the logic list for case assignment to MS-DRGs
974, 975, and 976 as a major related condition of HIV, as displayed in
the ICD-10 MS-DRG Definitions Manual, Version 43.1. To improve clarity
of the listed diagnoses between the header that reflects
``SIGNIFICANT'' and the diagnoses listed in the logic for case
assignment to MS-DRGs 974, 975, and 976 described as ``Major'', we
believe the term ``SIGNIFICANT'' should be removed from the header
under MDC 25.
We also identified a subset of diagnoses listed under the header
``AND PRINCIPAL DIAGNOSIS OF SIGNIFICANT HIV RELATED CONDITION'' that
do not appear to describe a significant HIV related condition. For
example, ICD-10-CM diagnosis code A09 Infectious gastroenteritis and
colitis, unspecified, and ICD-10-CM diagnosis code A74.9 Chlamydial
infection, unspecified, are listed under the current significant HIV
header list of diagnoses; however, these same diagnoses are not listed
as a major condition under MS-DRG 974, 975, and 976. We do not believe
these conditions are clinically appropriate to be included as a
significant HIV related condition. We intend to perform additional
review and analysis of the diagnoses listed in the logic for case
assignment to MDC 25 as well as specifically, the logic for case
assignment to MS-DRGs 974, 975, and 976 in consideration of any
potential modifications that may be warranted. Any discussion regarding
proposed changes will be discussed in future rulemaking.
Therefore, for FY 2027, we are proposing to remove the term
``SIGNIFICANT'' under the header for MDC 25 and revise it to reflect,
``AND PRINCIPAL DIAGNOSIS OF HIV RELATED CONDITION''.
10. 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 2025 update of the FY 2025 MedPAR file of cases found to
group to MS-DRGs 981 through 983 or MS-DRGs 987 through 989, we did not
identify any cases for reassignment and are not proposing to move any
cases from MS-DRGs 981 through 983 or MS-DRGs 987 through 989 into a
surgical MS-DRG for the MDC into which the principal diagnosis or
procedure is assigned.
In addition to the internal review of procedures producing
assignment to MS-DRGs 981 through 983 or MS-DRGs 987 through 989, 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 did not receive any requests suggesting
reassignment.
We also review the list of ICD-10-PCS procedure codes 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 procedure codes should be reassigned from one of those two
groups of MS-DRGs to the other group of MS-
[[Page 19365]]
DRGs based on average costs and the 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 would propose to move cases to keep the MS-DRGs
clinically similar or to provide payment for the cases in a similar
manner. Generally, we move only those procedure codes 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. Based on the
results of our review of the claims data from the September 2025 update
of the FY 2025 MedPAR file we did not identify any cases for
reassignment. We also did not receive any requests suggesting
reassignment. Therefore, for FY 2027 we are not proposing to move any
cases reporting procedure codes from MS-DRGs 981 through 983 to MS-DRGs
987 through 989 or vice versa.
11. 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 code update 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.15 of the preamble of this FY 2027 IPPS/LTCH PPS proposed
rule, we are making Table 6B.--New Procedure Codes--FY 2027 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 43.1 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 MS-DRG) in Appendix E--Operating Room Procedures and
Procedure Code/MS-DRG Index.
In the FY 2020 IPPS/LTCH PPS proposed rule (84 FR 19230), 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 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
[[Page 19366]]
may be appropriate to allow additional time for the claims data to
stabilize prior to selecting the timeframe to analyze for this review.
For this FY 2027 IPPS/LTCH PPS proposed rule, 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
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.
For this FY 2027 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 2027 IPPS/LTCH PPS proposed rule, we detail and respond to
those requests. In this section of the preamble of this proposed rule,
we also discuss any proposals we are making based on our internal
review and analysis and the process that was utilized for evaluating
each procedure code. For each procedure, we consider--
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 2027 IPPS/LTCH PPS proposed 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 are proposing to change the designation
of procedure codes from non-O.R. procedures to O.R. procedures, we also
are proposing 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 do not specifically address that
aspect in summarizing the request and our response to that request or
the proposals we make based on our internal review and analysis in this
section of the preamble of this FY 2027 IPPS/LTCH PPS proposed rule.
b. Non-O.R. Procedures to O.R. Procedures
(1) Introduction of Allogeneic Pancreatic Islet Cellular Suspension
For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request
to change the designation of ICD-10-PCS code XW033DA (Introduction of
donislecel-jujn allogeneic pancreatic islet cellular suspension into
peripheral vein, percutaneous approach, new technology group 10) from a
non-O.R. procedure to a O.R. procedure.
Donislecel-jujn (LantidraTM) is Food & Drug
Administration (FDA) approved as an allogeneic pancreatic islet
cellular therapy indicated for the treatment of adults with type 1
diabetes (T1D) who are unable to approach target HbA1c because of
current, repeated episodes of severe hypoglycemia despite intensive
diabetes management and education. Donislecel-jujn
(LantidraTM) consists of a suspension of allogeneic
pancreatic islets of Langerhans derived from a donor pancreas in
buffered transplant medium containing sodium chloride, dextrose,
minerals, amino acids, vitamins, and other compounds supplemented with
HEPES (2-[4-(2-hydroxyethyl) piperazin-1-yl] ethanesulfonic acid; 10 mM
final concentration) and human serum albumin (0.5% final
concentration).
In the ICD-10 MS-DRGs Definitions Manual Version 43.1, procedure
code XW033DA is currently designated as a non-O.R. procedure affecting
assignment to MS-DRGs 673, 674, and 675 (Other Kidney and Urinary Tract
Procedures with MCC, with CC, and without CC/MCC, respectively). We
refer the reader to the ICD-10 MS-DRG Version 43.1 Definitions Manual
(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 the MS-DRGs 673, 674, and 675.
According to the requestor, the clinical characteristics and costs
of cases assigned to MS-DRGs 673 through 675 are significantly
different from those associated with the administration of donislecel-
jujn (LantidraTM). The requestor states that the cost of
donislecel-jujn (LantidraTM) is high due to complex and
highly regulated manufacturing processes for biologic cell products.
According to the requestor, code XW033DA should be assigned to Pre MDC
MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-Cell and Other
Immunotherapies) because donislecel-jujn (LantidraTM) is
similar to other CAR-T technologies that map to DRG 018 as a cellular
product, and in regard to procedure complexity, high cost, and is
indicated for a rare patient population.
We reviewed this issue and note a proposal to create a procedure
code that describes the administration of donislecel-jujn was presented
and discussed at the March 19-20, 2024 ICD-10 Coordination and
Maintenance Committee meeting and subsequently finalized. For new
procedure codes that have been finalized through the ICD-10
Coordination and Maintenance Committee code update process, we
recommend the O.R. designation, which is generally based on the
assignment of predecessor codes or the assignment of similar codes.
Consistent with our annual process of assigning new procedure codes to
MDCs and MS-
[[Page 19367]]
DRGs and designating a procedure as an O.R. or non-O.R. procedure, we
reviewed the predecessor procedure code assignment. The predecessor
code for procedure code XW033DA is procedure code 3E033U1 (Introduction
of nonautologous pancreatic islet cells into peripheral vein,
percutaneous approach) which is designated as a non-O.R. procedure
affecting assignment to MS-DRGs 673, 674, and 675 (Other Kidney and
Urinary Tract Procedures with MCC, with CC, and without CC/MCC,
respectively).
We analyzed claims data from the September 2025 update of the FY
2025 MedPAR file for MS-DRGs 673, 674, and 675 for cases reporting
procedure code XW033DA and did not find any cases. We then extended our
analysis to all MS-DRGs and again did not find any cases. We note that
these procedures do not typically require the resources of an operating
room and are not surgical in nature. As such, we disagree with
designating procedure code XW033DA, which describes the intravenous
portal vein administration of donislecel-jujn, as an O.R. procedure.
In reviewing this request, we note the underlying intent of this
request is to change the MS-DRG assignment of procedure code XW033DA
from MS-DRGs 673, 674, and 675 to MS-DRG 018. In regard to the
reassignment of procedure code XW033DA to MS-DRG 018, we note that the
category of cell and gene therapies continues to evolve. As discussed
in prior rulemaking (90 FR 36554 through 36560), 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 associated with cell and gene therapies while maintaining
clinical coherence and stability in the relative weights under the IPPS
MS-DRGs. We continue to examine these complex issues in consideration
for 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. We believe this
topic, relating to the administration of donislecel-jujn
(LantidraTM), an allogeneic (donor) pancreatic islet
cellular therapy, is appropriately aligned with and should be
considered as part of that broader effort.
Therefore, for the reason discussed, we are proposing to maintain
the current designation of procedure code XW033DA as ``non-O.R.
affecting the MS-DRG'' for FY 2027. We refer the reader to the
discussion in section II.C.6.b. of this FY 2027 IPPS/LTCH PPS proposed
rule, regarding the proposed modifications for cases currently mapping
to MS-DRGs 673, 674, and 675, effective October 1, 2026, for FY 2027.
(2) Percutaneous Introduction of AGN1 Bone Void Filler Into Bones
One requestor identified ICD 10-PCS procedure code XW0V3WA
(Introduction of AGN1 bone void filler into bones, percutaneous
approach, new technology group 10) that the requestor stated is
currently not recognized as an O.R. procedure for purposes of MS-DRG
assignment. The requestor noted that the Local Osteo-Enhancement
Procedure (LOEP) is an investigational surgical procedure designed to
mechanically strengthen the proximal femur to reduce the risk of hip
fractures in patients who are known to have weakened bones or other
factors leading to a high risk of hip fracture. According to the
requestor, the AGN1 LOEP Kit is expected to be indicated to reduce the
risk of hip fracture in patients at risk of fragility fracture and
require access to specialized equipment only available in the operating
room (including anesthesia, C-arm, operating table, etc.). The
requestor stated that FDA approval of the AGN1 LOEP Kit is anticipated
in late 2027. According to the requestor, there may be situations where
the procedure could be performed as a standalone procedure. The
requestor noted the procedure may be performed under any one of the
following three clinical scenarios (1) unilateral, standalone cases: a
patient has one hip treated in a scheduled procedure, (2) bilateral,
standalone cases: a patient has both hips treated in a scheduled
procedure, or (3) concomitant to an index hip fragility fracture in the
unfractured, contralateral hip: a patient has their index hip fracture
repaired and then the procedure utilizing the LOEP kit is performed to
treat the unfractured, contralateral hip during the same operative
session. Therefore, the requestor stated that this procedure should be
recognized as an O.R. procedure for purposes of MS-DRG assignment.
We agree with the requestor that in the ICD-10 MS-DRGs Definitions
Manual Version 43.1, procedure code XW0V3WA is designated as a non-O.R.
procedure for purposes of MS-DRG assignment; therefore, when the
introduction of AGN1 bone void filler is reported with a procedure code
that describes a surgical procedure, the ICD-10-PCS code describing the
surgical procedure will determine the surgical MS-DRG assignment based
on the principal diagnosis reported.
We reviewed this issue and note a proposal to create a procedure
code that describes the percutaneous introduction of AGN1 bone void
filler into bones was presented and discussed at the September 12-13,
2023 ICD-10 Coordination and Maintenance Committee meeting and
subsequently finalized. For new procedure codes that have been
finalized through the ICD-10 Coordination and Maintenance Committee
code update process, we recommend the O.R. designation, which is
generally based on the assignment of predecessor codes or the
assignment of similar codes. Consistent with our annual process of
assigning new procedure codes to MDCs and MS-DRGs and designating a
procedure as an O.R. or non-O.R. procedure, we reviewed the predecessor
procedure code assignment. The predecessor code for procedure code
XW0V3WA is procedure code 3E0V3GC (Introduction of other therapeutic
substance into bones, percutaneous approach) which is designated as a
non-O.R. procedure.
To evaluate the frequency with which procedure code XW0V3WA is
reported for different clinical scenarios, we examined claims data from
the September 2025 update of the FY 2025 MedPAR file to determine the
MS-DRGs reporting procedure code XW0V3WA. Our findings are shown in the
following table.
[GRAPHIC] [TIFF OMITTED] TP14AP26.050
[[Page 19368]]
There were four cases reporting the percutaneous introduction of
AGN1 bone void filler into bones with procedure code XW0V3WA. Overall,
the data indicate that the percutaneous introduction of AGN1 bone void
filler into bones was not the underlying reason for, or main driver of,
resource utilization for those cases. As shown in the table, when the
procedure code XW0V3WA is reported, the MS-DRGs assigned are classified
as surgical MS-DRGs which indicates that at least one procedure code
designated as an O.R. procedure was also reported in these cases. We
refer the reader to the ICD-10 MS-DRG Version 43.1 Definitions Manual
(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 the listed MS-DRGs.
After reviewing the claims data, we believe it is premature to
consider a proposal to change the designation of the procedure code
that describes the percutaneous introduction of AGN1 bone void filler
into bones. While the September 2025 update of the FY 2025 MedPAR file
does contain claims reporting the percutaneous introduction of AGN1
bone void filler into bones, the number of cases is small across the
MS-DRGs. Additionally, as stated previously, when the procedure code
XW0V3WA is reported, the MS-DRGs assigned are classified as surgical
MS-DRGs, which indicates that at least one procedure code designated as
an O.R. procedure was also reported in these cases. We do not have
claims data to further examine the impact of the percutaneous
introduction of AGN1 bone void filler into bones when performed as a
standalone procedure. The claims data also reflect a wide variance with
regard to the average costs and average lengths of stay for the cases
reporting the percutaneous introduction of AGN1 bone void filler into
bones. As such, we disagree with designating the procedure code that
describes the percutaneous introduction of AGN1 bone void filler into
bones as an O.R. procedure for FY 2027.
As noted previously, the Local Osteo-Enhancement Procedure (LOEP)
is an investigational surgical procedure. In the absence of additional
data, we believe that more time is needed to consider the clinical
characteristics and resource utilization associated with this procedure
before considering changing the designation of the procedure code to an
O.R. procedure. In future years, we expect we will have additional data
that could be used to evaluate the O.R. designation of procedure code
XW0V3WA.
Therefore, for the reasons discussed, we are proposing to maintain
the designation of procedure code XW0V3WA as non-O.R. for FY 2027.
12. Proposed Changes to the MS-DRG Diagnosis Codes for FY 2027
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
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-
[[Page 19369]]
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 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 MCE code
edit for ``unspecified'' codes, effective with discharges on and after
April 1, 2022. We stated we believe 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.
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. We refer the reader to the following section of this proposed
rule for our proposed changes to the severity level designation for the
[[Page 19370]]
diagnosis codes that describe homelessness, inadequate housing and
housing instability for FY 2027.
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
2025 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.
For new diagnosis codes approved for FY 2027, 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.13 of the preamble of this FY 2027 IPPS/LTCH PPS
proposed rule for the discussion of the proposed changes to the ICD-10-
CM and ICD-10-PCS coding systems for FY 2027.
c. Proposed Changes to Severity Levels
1. SDOH--Homelessness, Inadequate Housing, and Housing Instability
As discussed earlier in this section, in the FY 2024 IPPS/LTCH PPS
final rule (88 FR 58755 through 58759), 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 IPPS/LTCH PPS final rule (89 FR 69079
through 69084), we finalized changes to the severity levels for seven
diagnosis codes that describe inadequate housing and housing
instability from NonCC to CC. We stated CMS would further examine the
claims data and consider future changes to the designation of the SDOH
Z codes when reported as a secondary diagnosis. We further stated CMS
would continue to monitor and evaluate the reporting of the diagnosis
codes describing social and economic circumstances.
In continuation of our examination of the SDOH Z codes, for this FY
2027 IPPS/LTCH PPS proposed rule, we reviewed the mathematical data on
the impact on resource use for the ICD-10-CM Z codes that describe
homelessness, inadequate housing, and housing instability. The
following table reflects the impact on resource use data generated
using claims from the September 2025 update of the FY 2025 MedPAR file.
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] TP14AP26.051
We reviewed the findings from these data. As reflected in the
table, the C1 findings ranged from a low of 1.02 to a high of 2.03. A
value close to 2.0 in the C1 field suggests that the condition is more
like a CC than a non-CC but not as significant in resource usage as an
MCC. Because the C1 values in the table are generally close to 2, the
mathematical data suggest that when these SDOH Z codes are reported as
a secondary diagnosis increased resources are involved in caring for
patients experiencing these circumstances, however we note that these
SDOH Z codes describe social circumstances and not medical conditions
or illnesses.
As previously noted, 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
[[Page 19371]]
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 noted in the FY 2008 IPPS/LTCH PPS
final rule that as a result of the changes that had occurred during the
years since the implementation of the IPPS, the CC list as defined at
the time had lost much of its capacity to discriminate hospital
resource use. The need for a revised CC list prompted a reexamination
of the secondary diagnoses that qualify as a CC. Therefore, our efforts
to better recognize severity of illness began with a comprehensive
review of the CC list. Our intent was to better distinguish cases that
are likely to result in increased hospital resource use based on
secondary diagnoses.
We stated in the FY 2008 IPPS/LTCH PPS final rule (72 FR 47153)
that certain diagnoses, such as chronic illness diagnoses, do not cause
a significant increase in hospital resource use unless there is an
acute exacerbation present or there is a significant deterioration in
the underlying chronic condition. Therefore, in the revised CC list, we
removed chronic diseases without a significant acute manifestation. We
stated that recognition of the impact of the chronic disease is
accomplished by separately coding the acute manifestation.
In our further examination of the claims data and the current
designation of the ICD-10-CM Z codes that describe homelessness,
inadequate housing, and housing instability when reported as a
secondary diagnosis, we now believe that similar to our analysis of the
chronic illness diagnoses, change of designation from NonCC to CC
should be based on the expected resource use associated with the
treatment of an underlying medical condition or illness rather than
social circumstances. Specifically, we believe that recognition of the
contribution that patient social and economic circumstances, such as
homelessness, inadequate housing, and housing instability, add to the
complexity of acute hospital care should be accomplished by separately
coding those diagnoses that describe an acute exacerbation or
deterioration of an underlying medical condition or illness, similar to
the approach we undertook in categorizing chronic illness diagnoses as
stated in the FY 2008 IPPS/LTCH PPS final rule. While we continue to
include a mathematical analysis of claims data in evaluating the extent
to which the presence of a diagnosis code as a secondary diagnosis
results in increased hospital resource use, as previously described, we
believe that in the context of the ICD-10-CM Z codes that describe
social circumstances, it is more appropriate to align our analysis with
our intent as stated in the FY 2008 IPPS/LTCH PPS final rule with
respect to chronic illness diagnoses (that is, recognition of the
contribution to the complexity of hospital care would be accomplished
by separately coding those diseases on the CC list that are associated
with an acute exacerbation or deterioration of the underlying medical
condition or illness (72 FR 47154)). Accordingly, we believe that
categorization of a diagnosis code as an MCC, a CC, or a NonCC should
recognize the clinical complexity and expected resource consumption for
the treatment of an underlying medical condition or illness, and not
social circumstances. Therefore, we are proposing to change the
severity level designation of diagnosis codes Z59.00 (Homelessness,
unspecified), Z59.01 (Sheltered homelessness), Z59.02 (Unsheltered
homelessness), Z59.10 (Inadequate housing, unspecified), Z59.11
(Inadequate housing environmental temperature), Z59.12 (Inadequate
housing utilities), Z59.19 (Other inadequate housing), Z59.811 (Housing
instability, housed, with risk of homelessness), Z59.812 (Housing
instability, housed, homelessness in past 12 months) and Z59.819
(Housing instability, housed unspecified) from CC to NonCC for FY 2027.
2. Newborn Affected by Malpresentation Before Labor
For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request
to change the severity level designations of the ICD-10-CM diagnosis
codes P01.7 (Newborn affected by malpresentation before labor) and
P03.0 (Newborn affected by breech delivery and extraction) from NonCC
to CC. The requestor did not provide additional rationale for this
request.
To evaluate this request, we analyzed the claims data in the
September 2025 update of the FY 2025 MedPAR file. The following table
shows the analysis for each of the diagnosis codes identified by the
requestor.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.052
As reflected in the table, we found zero instances where diagnosis
codes P01.7 or P03.0 were reported as secondary diagnoses. In
considering the nine guiding principles, as summarized previously, we
note that fetal malpresentation is any position of the fetus at birth
where the head is not the presenting part. Common types include breech
(bottom/feet first), transverse (sideways), or oblique lie. While
normal in early pregnancy, most babies turn; however, if still
malpresenting at term, management often involves external cephalic
version (ECV) to turn the baby or a planned C-section due to risks like
cord prolapse during vaginal delivery. A higher level of care for the
mother (that is, intensive monitoring, greater number of caregivers,
additional testing, intensive care unit care, extended length
[[Page 19372]]
of stay) may be warranted depending on the treatment or management of
the fetal malpresentation pursued by the attending provider.
Based on the lack of claims data to evaluate to consider a severity
level change, we believe that the ICD-10-CM diagnosis codes P01.7 and
P03.0 should remain designated as NonCCs. Therefore, we are proposing
to maintain the severity level designation of codes P01.7 and P03.0 as
NonCCs for FY 2027. We will continue to monitor the claims data in
consideration of any future modifications to the severity level
designation of diagnosis codes P01.7 and P03.0.
3. Functional Quadriplegia
For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request
to change the severity level designation of ICD-10-CM diagnosis code
R53.2 (Functional quadriplegia) from MCC to NonCC. According to the
requestor, code R53.2 describes patients who are unable to move any of
their extremities, not because of a spinal cord or focal brain
dysfunction, but because of global dysfunction such as severe dementia
or contractures. The requestor further stated that the definition of
functional quadriplegia does not exist in medical literature;
therefore, the vagueness of the condition described by code R53.2 leads
to the code being overused. The requestor also questioned whether an
immobile patient during an inpatient stay utilizes more resources than
other patients with very limited mobility.
We agree that that diagnosis code R53.2 (Functional quadriplegia)
is currently designated as an MCC. We refer the reader to Appendix H of
the ICD-10 MS-DRG Version 43.1 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) for
the complete list of diagnoses designated as MCCs when reported as
secondary diagnoses, except when used in conjunction with the principal
diagnosis in the corresponding CC Exclusion List in Appendix C.
To evaluate this request, we analyzed the claims data in the
September 2025 update of the FY 2025 MedPAR file. The following table
shows the analysis for diagnosis code R53.2.
[GRAPHIC] [TIFF OMITTED] TP14AP26.053
BILLING CODE 4120-01-C
We analyzed these data as described in FY 2008 IPPS final rule (72
FR 47158 through 47161). The table shows that the C1 values of the
diagnosis code that describes causally functional quadriplegia is 2.05.
A C1 value close to 2.0 suggests the condition is more like a CC than a
non-CC but not as significant in resource usage as an MCC. The C2
finding of diagnosis code R53.2 is 2.58. C2 values close to 3.0
suggests the condition is more similar to an MCC than a CC or non-CC.
The C2 findings support maintaining the code R53.2 as an MCC. The data
are clearly mixed between the C1 and C2 findings and does not
consistently support a change in the severity level.
In considering the nine guiding principles, as summarized
previously, we note that functional quadriplegia is the inability to
move due to another condition (e.g., dementia, severe contractures,
arthritis, etc.). It is a diagnosis that can impede patient cooperation
or management of care or both. Patients diagnosed with functional
quadriplegia can require a higher level of care by needing intensive
monitoring, and a greater number of caregivers as the patient does not
have the ability to ambulate.
After considering the C1, and C2 values of ICD-10-CM diagnosis code
R53.2, the lack of consistent claims data to support a severity level
change, and consideration of the nine guiding principles, we believe
R53.2 should remain designated as an MCC. Therefore, we are proposing
to maintain the severity level designation of ICD-10-CM diagnosis code
R53.2 as an MCC for FY 2027.
4. Malnutrition
For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request
to change the severity level designation of the following diagnosis
codes from MCC to NonCC:
E40 (Kwashiorkor)
E41 (Nutritional marasmus)
E42 (Marasmic kwashiorkor)
E43 (Unspecified severe protein-calorie malnutrition)
According to the requestor, the criteria for the ICD-10-CM
diagnosis codes that describe malnutrition are vague. The requestor
stated that nutritional assessment is the standard of care for all
hospital admissions, and the short-term weight loss that often occurs
in the hospital as a result of keeping patients with an empty stomach
(i.e., nothing by mouth) for other interventions does not signal real
malnutrition requiring intensive treatment. In circumstances when
treatment is initiated, for example increasing the intake of calories
or protein, the treatment adds little or no additional costs to overall
resource utilization for the encounter.
We agree that diagnosis codes E40, E41, E42, and E43 are currently
designated as MCCs. We refer the reader to Appendix H of the ICD-10 MS-
DRG Version 43.1 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) for the complete
list of diagnoses designated as MCCs when reported as secondary
diagnoses, except when used in conjunction with the principal diagnosis
in the corresponding CC Exclusion List in Appendix C.
To evaluate this request, we analyzed the claims data in the
September 2025 update of the FY 2025 MedPAR file. The following table
shows the analysis for
[[Page 19373]]
each of the diagnosis codes identified by the requestor.
[GRAPHIC] [TIFF OMITTED] TP14AP26.054
We analyzed these data as described in FY 2008 IPPS final rule (72
FR 47158 through 47161). The table above shows that the C1 findings
ranged from a low of 0.73 to a high of 2.07. As stated earlier, a C1
value close to 2.0 suggests the condition is more like a CC than a non-
CC but not as significant in resource usage as an MCC. The C1 findings
suggest that these codes are more like a CC than an MCC. However, the
C2 findings ranged from a low of 2.38 to a high of 3.21. Values close
to 3.0 suggests the conditions are more similar to an MCC than a CC or
non-CC. The C2 findings support maintaining the malnutrition codes
identified by the requestor as MCCs. The data are clearly mixed between
the C1 and C2 findings and does not consistently support a change in
the severity level.
In considering the nine guiding principles, as summarized
previously, we note that the World Health Organization (WHO) defines
malnutrition as ``deficiencies, excesses or imbalances in a person's
intake of energy and/or nutrients.'' Protein-calorie malnutrition is
observed most frequently in developing countries but has been described
with increasing frequency in hospitalized and chronically ill children
in the United States. The distinction between the two forms of protein-
calorie malnutrition is based on the presence of edema (kwashiorkor) or
absence of edema (marasmus). Marasmus involves inadequate intake of
protein and calories, whereas kwashiorkor involves fair-to-normal
calorie intake with inadequate protein intake. In developed countries
such as the United States, inadequate food intake is a less common
cause of malnutrition. Instead, diseases and, in particular, chronic
illnesses play an important role in the etiology of malnutrition. As
such, the conditions described by the ICD-10-CM diagnosis codes
identified by the requestor reflect systemic impact and serve as a
marker for advanced disease states across multiple different comorbid
conditions.
After considering the C1, and C2 values of ICD-10-CM diagnosis
codes E40, E41, E42, and E43, the lack of consistent claims data to
support a severity level change, and consideration of the nine guiding
principles, we believe E40, E41, E42, and E43 should remain designated
as MCCs. Therefore, we are proposing to maintain the severity level
designation of ICD-10-CM diagnosis codes E40, E41, E42, and E43 as MCCs
for FY 2027.
5. Prolonged First Stage (of Labor)
For this FY 2027 IPPS/LTCH PPS proposed rule, we received a request
to change the severity level designation of ICD-10-CM diagnosis code
O63.0 (Prolonged first stage (of labor)) from NonCC to CC. According to
the requestor, prolonged labor increases length of stay by up to two
days and significantly increases resources required to care for these
patients. The requestor performed their own analysis of the Impact on
Resource Use File on the CMS website generated using claims from the FY
2024 MedPAR file and found that when reported as a secondary diagnosis,
O63.0 had a C1 value higher than 2, and C2 and C3 values of at least
close to 2, which suggests the code should be designated as a CC.
Additionally, in their own analysis of the Impact on Resource Use File
on the CMS website generated using claims from the FY 2024 MedPAR file,
the requestor found that, in comparison, when reported as a secondary
diagnosis, ICD-10-CM diagnosis code O63.9 (Long labor, unspecified),
which is designated as a CC, had a C1 value of only 0.88. The requestor
also performed an analysis of claims at their healthcare facility to
identify cases where prolonged labor in either the latent phase or
second phase likely occurred and found that the C1 value was
approximately 1.35 for diagnosis code O63.0. The requestor did not
state if the analysis of cases at their facility was limited to
Medicare cases.
We agree that that diagnosis code O63.0 (Prolonged first stage (of
labor)) is currently designated as a NonCC and diagnosis code O63.9
(Long labor, unspecified) is currently designated as a CC. We refer the
reader to Appendix G of the ICD-10 MS-DRG Version 43.1 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) for the complete list of diagnoses
designated as CCs when reported as secondary diagnoses, except when
used in conjunction with the principal diagnosis in the corresponding
CC Exclusion List in Appendix C.
To evaluate this request, we analyzed the claims data in the
September 2025 update of the FY 2025 MedPAR file. The following table
shows the analysis for diagnosis codes O63.0 and O63.9.
[[Page 19374]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.055
We analyzed these data as described in the FY 2008 IPPS final rule
(72 FR 47158 through 47161). The table shows that the C1 value of the
diagnosis code that describes prolonged first stage of labor is 2.14.
As stated earlier, a C1 value close to 2.0 suggests the condition is
more like a CC than a non-CC but not as significant in resource usage
as an MCC. The C2 finding of diagnosis code O63.0 is 3.54. C2 values
close to 3.0 suggests the condition is more similar to an MCC than a CC
or non-CC. The C1 and C2 findings reflect increased resource
utilization when prolonged labor is reported as a secondary diagnosis
however the data are clearly mixed between the C1 and C2 findings, and
there was a low volume of cases (17) reporting this code as a secondary
diagnosis.
The table also shows there were zero cases that reported diagnosis
code O63.9 with no other secondary diagnosis or with all other
secondary diagnoses that are non-CCs. The C2 finding of diagnosis code
O63.9 is 1.54. C2 values close to 2.0 suggest the condition is more
similar to a CC than a non-CC. The C2 findings support maintaining
diagnosis code O63.9 as a CC. Similar to diagnosis code O63.0, there
was a low volume of cases (6) reporting this code as a secondary
diagnosis.
In considering the nine guiding principles, as summarized
previously, we note that the first stage of labor is defined as the
interval between the onset of labor and complete or 10 cm cervical
dilation. Prolonged first stage of labor refers to a slow initial
dilation (0-6 cm), or a stalled active phase, lasting over 16-20 hours,
whereas ``long labor'' describes the entire birth process exceeding 20-
25 hours. Long labor is monitored closely for risks like infection or
fetal distress. While a prolonged first stage is rarely dangerous, a
prolonged first stage of labor can sometimes require a higher level of
care. Management of prolonged first stage of labor can sometimes
involve amniotomy for patients undergoing augmentation or induction of
labor to reduce the duration of labor, administration of oxytocin and/
or the use intrauterine pressure catheters to determine adequacy of
uterine contractions. If labor fails to progress or fetal distress
occurs, a cesarean section or instrumental delivery (forceps/vacuum)
may be necessary.
After considering the C1, and C2 values of ICD-10-CM diagnosis
codes O63.0 and O63.9, the lack of sufficient claims data to support a
severity level change, and consideration of the nine guiding
principles, we believe diagnosis code O63.0 should remain designated as
a NonCC and diagnosis code O63.9 should remain designated as a CC.
Therefore, we are proposing to maintain the severity level designations
of ICD-10-CM diagnosis codes O63.0 and O63.9 for FY 2027. We will
continue to monitor the claims data in consideration of any future
modifications to the severity level designation of diagnosis codes
O63.0 and O63.9.
d. Proposed Additions and Deletions to the Diagnosis Code Severity
Levels for FY 2027
The following tables identify the proposed additions to the
diagnosis code MCC severity level list and the proposed additions and
deletions to the diagnosis code CC severity levels list for FY 2027 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 2027;
Table 6J.1-- Proposed Additions to the CC List--FY 2027; and
Table 6J.2-- Proposed Deletions to the CC List--FY 2027
e. Proposed CC Exclusions List for FY 2027
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 the CC and CC Exclusion Lists under the ICD-9-CM MS-DRGs.
The ICD-10 MS-DRGs Version 43.1 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/
[[Page 19375]]
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).
We are proposing changes to the ICD-10 MS-DRGs Version 44 CC
Exclusion List based on the diagnosis code updates as discussed in
section II.C.13. of the preamble of this FY 2027 IPPS/LTCH PPS proposed
rule. Therefore, we have developed Table 6G.1.--Proposed Secondary
Diagnosis Order Additions to the CC Exclusions List--FY 2027; Table
6G.2.--Proposed Principal Diagnosis Order Additions to the CC
Exclusions List--FY 2027; Table 6H.1.--Proposed Secondary Diagnosis
Order Deletions to the CC Exclusions List--FY 2027; and Table 6H.2.--
Proposed Principal Diagnosis Order Deletions to the CC Exclusions
List--FY 2027. For Table 6G.1, each secondary diagnosis code proposed
for addition to the CC Exclusion List is shown with an asterisk and the
principal diagnoses proposed to 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 proposed 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
proposed for deletion from the CC Exclusion List is shown with an
asterisk followed by the principal diagnosis codes that currently
exclude it. For Table 6H.2, each of the principal diagnosis codes is
shown with an asterisk and the proposed deletions to the CC Exclusions
List are provided in an indented column immediately following the
affected principal diagnosis. Tables 6G.1., 6G.2., 6H.1., and 6H.2.
associated with this FY 2027 IPPS/LTCH PPS proposed rule are available
on the CMS website at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
13. Proposed Changes to the ICD-10-CM and ICD-10-PCS Coding Systems
To identify new, revised, and deleted diagnosis and procedure
codes, for FY 2027, we have developed Table 6A.-New Diagnosis Codes,
Table 6B.-New Procedure Codes, Table 6C.-Invalid Diagnosis Codes, Table
6D.-Invalid Procedure Codes, and Table 6E.-Revised Diagnosis Code
Titles for this FY 2027 IPPS/LTCH PPS proposed rule.
These tables are not published in the Addendum to this FY 2027
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 this FY 2027 IPPS/LTCH PPS proposed rule. As discussed in
section II.C.11. of the preamble of this FY 2027 IPPS/LTCH PPS proposed
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.
We are proposing 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. In addition, 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 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. We note 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.
We are making available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html
the following tables associated with this FY 2027 IPPS/LTCH PPS
proposed rule:
Table 6A.--New Diagnosis Codes-FY 2027;
Table 6B.--New Procedure Codes-FY 2027;
Table 6C.--Invalid Diagnosis Codes-FY 2027;
Table 6D.--Invalid Procedure Codes-FY 2027;
Table 6E.--Revised Diagnosis Code Titles-FY 2027;
Table 6G.1.--Proposed Secondary Diagnosis Order Additions
to the CC Exclusions List-FY 2027;
Table 6G.2.--Proposed Principal Diagnosis Order Additions
to the CC Exclusions List-FY 2027;
Table 6H.1.--Proposed Secondary Diagnosis Order Deletions
to the CC Exclusions List-FY 2027;
Table 6H.2.--Proposed Principal Diagnosis Order Deletions
to the CC Exclusions List--FY 2027;
Table 6I.1.--Proposed Additions to the MCC List-FY 2027;
Table 6J.1.--Proposed Additions to the CC List-FY 2027;
and
Table 6J.2.--Proposed Deletions to the CC List-FY 2027.
14. Proposed 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 cases with multiple surgical procedures 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
[[Page 19376]]
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 2027 IPPS/LTCH PPS proposed 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.
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.
Based on the changes that we are proposing to make for FY 2027, as
discussed in section II.C. of the preamble of this FY 2027 IPPS/LTCH
PPS proposed rule, our proposal for Appendix D MS-DRG Surgical
Hierarchy by MDC and MS-DRG of the proposed ICD-10 MS-DRG Definitions
Manual Version 44 to modify the existing surgical hierarchy in the Pre-
MDC, MDC 05, MDC 08, MDC 10, MDC 11, MDC 12, and MDC 13 MS-DRGs for FY
2027 is illustrated in the following tables. We note 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 note that the
proposed Version 44 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 2027.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.056
[[Page 19377]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.057
[[Page 19378]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.058
[[Page 19379]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.059
[GRAPHIC] [TIFF OMITTED] TP14AP26.060
[GRAPHIC] [TIFF OMITTED] TP14AP26.061
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, 2026, via MEARISTM at
https://mearis.cms.gov/public/home, so that they can be considered for
possible inclusion in the annual proposed rule.
15. 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 identified
diseases and newly
[[Page 19380]]
developed procedures and technologies. The Committee is also
responsible for encouraging the use of Federal and non-Federal
educational programs and employing other communication techniques with
a view toward standardizing coding applications and upgrading the
quality of the classification system.
[GRAPHIC] [TIFF OMITTED] TP14AP26.062
[[Page 19381]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.063
BILLING CODE 4120-01-C
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
[[Page 19382]]
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 health-related organizations to
participate in the previously mentioned process. In this regard, the
Committee makes code request materials and proposed coding changes
publicly available. These materials 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 public comments submitted, the
Committee formulates recommendations, which then must be approved by
CDC/NCHS and CMS.
The Committee presented proposals for ICD-10-CM diagnosis code
changes for implementation in FY 2027 at the virtual public meetings
held on September 9-10, 2025 and finalized the coding changes after
consideration of comments received during the meetings and in writing
by November 14, 2025.
In lieu of CMS holding its Fall 2025 meeting, the Committee
solicited comments on the Fall 2025 ICD-10-PCS procedure code topics.
The deadline to submit comments on the procedure code proposals
considered for an April 1, 2026 implementation was October 10, 2025,
and the deadline to submit comments on the procedure code proposals
being considered for an October 1, 2026 implementation was November 14,
2025.
The Committee presented proposals for ICD-10-CM diagnosis code
changes for implementation in FY 2027 and FY 2028 at the virtual public
meetings held on March 17-18, 2026 and will finalize the coding changes
after consideration of comments received during the meetings and in
writing by May 15, 2026.
In lieu of CMS holding its Spring 2026 meeting, the Committee
solicited comments on the Spring 2026 ICD-10-PCS procedure code topics.
The deadline for submitting public comments on these code proposals is
April 17, 2026. The Committee will review the public comments submitted
and identify whether there is a consensus of support for any new
diagnosis and procedure codes. The Committee will also determine those
new procedure codes for which complete tabular and indexing changes can
be made by June 2026 and will include those in the October 1, 2026
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 2027 IPPS/
LTCH PPS proposed 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, and
Table 6E.--Revised Diagnosis Code Titles for this FY 2027 IPPS/LTCH PPS
proposed 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. As previously noted, although we make
the code titles available in association with the IPPS proposed rule,
they are not subject to comment in the proposed rule. Because of the
length of these tables, they are not published in the Addendum to the
proposed rule. Rather, they are available on the CMS website as
discussed in section VI. of the Addendum to the proposed rule.
Recordings and materials for the virtual meeting discussions of the
diagnosis codes at the Committee's September 9-10, 2025 meeting can be
found at: https://www.cdc.gov/nchs/icd/icd-10-maintenance/meetings.html. Materials for the Fall 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. 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.
We encourage commenters to submit questions and comments on coding
issues involving diagnosis codes to CDC/NCHS via Email to: [email protected].
Questions and comments concerning the procedure codes should be
submitted to CMS via Email to: [email protected].
CMS implemented 80 new procedure codes including codes to describe
the insertion of cardiac devices, (i.e., leads) into the ventricular
septum, codes to enable the differentiation between the endoscopic
techniques utilized to drain hepatobiliary and pancreatic fluid
collections, and codes to capture the utilization of adjunctive
therapies such as microcurrent electrical neuromuscular stimulation
(MENS) and frequency-specific microcurrent (FSM) into the ICD-10-PCS
classification effective with discharges on and after April 1, 2026.
The procedure codes are as follows:
BILLING CODE 4120-01-P
[[Page 19383]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.064
[[Page 19384]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.065
[[Page 19385]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.066
[[Page 19386]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.067
[[Page 19387]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.068
[[Page 19388]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.069
BILLING CODE 4120-01-C
The 80 procedure codes are also reflected in Table 6B.- New
Procedure Codes, which is 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 this FY 2027 IPPS/
LTCH PPS proposed rule, we are inviting public comments on the most
appropriate MDC, MS-DRG, and operating room status assignments for
these codes for FY 2027, as well as any other options for the GROUPER
logic.
We note that Change Request (CR) 14337, Transmittal 13562, titled
``April 2026 Update to the Medicare Severity-Diagnosis Related Group
(MS-DRG) Grouper and Medicare Code Editor (MCE) Version V43.1'' was
issued on December 23, 2025 (available on the CMS website at: https://www.cms.gov/medicare/regulations-guidance/transmittals/2025-transmittals/r13562cp) regarding the release of an updated version of
the ICD-10 MS-DRG GROUPER and Medicare Code Editor software, Version
V43.1, effective with discharges on and after April 1, 2026, reflecting
the new procedure codes. The updated software, along with the updated
ICD-10 MS-DRG Version 43.1 Definitions Manual and the Definitions of
Medicare Code Edits Version 43.1 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 Medicare Program: Payments for New Medical
Services and New Technologies Under the Acute Care Hospital Inpatient
Prospective Payment System final rule implementing the IPPS new
technology add-on payments (66 FR 46902), we indicated our intention to
include proposals for procedure codes that 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 six 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 with
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.
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 was to allow
flexibility in the ICD-10 code update process. CMS 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 implement new
codes through the April 1 code update, which includes displaying
proposals for April 1 consideration in association with the Fall ICD-10
Coordination and Maintenance Committee code update, 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 reasonable efforts to accommodate the requested
implementation date for each request submitted. However, the Committee
ultimately determines which requests are to be presented for
consideration for an April 1 implementation date or an October 1
implementation date. The ICD-10 Coordination and Maintenance Committee
may not be able to consider all requests received for the next
Committee code update and will determine if it would be appropriate to
postpone consideration of any code requests to a future update. As
discussed earlier in this section of the preamble of this FY 2027 IPPS/
LTCH PPS proposed rule, there were procedure code proposals considered
for an April 1, 2026 implementation for the Fall 2025 procedure code
update. Following the receipt of public comments, the code proposals
were approved and finalized, therefore, new codes were implemented on
April 1, 2026.
Consistent with the process we outlined for the April 1
implementation date, we announced the new codes in November 2025 and
provided the updated code files in December 2025. The NCHS provided the
ICD-10-CM
[[Page 19389]]
Official Guidelines for Coding and Reporting in January 2026. On
February 03, 2026, we made available the updated Version 43.1 ICD-10
MS-DRG GROUPER software and related materials on the CMS website 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 furnishing 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.
For FY 2026, there are currently 74,719 diagnosis codes and 79,193
procedure codes. As displayed in Table 6A.--New Diagnosis Codes and in
Table 6B.--New Procedure Codes associated with this FY 2027 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 184 new diagnosis codes and 81 new
procedure codes that have been finalized for FY 2027 at the time of the
development of this FY 2027 IPPS/LTCH PPS proposed rule and 80 new
procedure codes that were effective with discharges on and after April
1, 2026. As noted above, 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.
16. 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. Proposed Changes for FY 2027
As discussed in section II.C.3. of the preamble of this FY 2027
IPPS/LTCH PPS proposed rule, for FY 2027, under MDC 05, we are
proposing to delete MS-DRGs 258 and 259 (Cardiac Pacemaker Device
Replacement with and without MCC, respectively) and MS-DRGs 260, 261,
and 262 (Cardiac Pacemaker Revision Except Device Replacement with MCC,
with CC, and without CC/MCC, respectively) and create new MS-DRGs 210
and 211 (Cardiac Pacemaker Revision or Device Replacement with and
without MCC, respectively). The procedures currently assigned to MS-
DRGs 258, 259, 260, 261, and 262 are being proposed for assignment to
proposed new MS-DRGs 210 and 211.
Additionally, as discussed in section II.C.4. of the preamble of
this FY 2027 IPPS/LTCH PPS proposed rule, for FY 2027, under MDC 08, we
are proposing to delete MS-DRGs 466, 467, and 468 (Revision of Hip or
Knee Replacement with MCC, with CC, and without CC/MCC, respectively)
and create new MS-DRG 449 (Revision of Hip or Knee Replacement). The
procedures currently assigned to MS-DRGs 466, 467, and 468 are being
proposed for assignment to proposed new MS-DRG 449.
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 258, 259, 260, 261, 262, 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. Therefore,
we are proposing that if the applicable proposed MS-DRG changes are
finalized, we also would add proposed new MS-DRGs 210 and 211 and
proposed new MS-DRG 449 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 as reflected in the following table. We also propose to
continue to include the existing MS-DRGs currently subject to the
policy as displayed in the following table.
BILLING CODE 4120-01-P
[[Page 19390]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.070
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 included in the
FY 2027 IPPS/LTCH PPS final rule and also will be issued to providers
in the form of a Change Request (CR).
D. Recalibration of the FY 2027 MS-DRG Relative Weights
1. Data Sources for Developing the Relative Weights
Consistent with our established policy, in developing the MS-DRG
[[Page 19391]]
relative weights for FY 2027, we are proposing 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 2025 MedPAR data used in this
proposed rule includes discharges occurring on October 1, 2024, through
September 30, 2025, based on bills received by CMS through December 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 2025 MedPAR file used in calculating the relative weights
includes data for approximately 6,936,972 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 December 2025 update of
the FY 2025 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 2027 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 proposed FY 2027 relative
weights are based on the ICD-10-CM diagnosis codes and ICD-10-PCS
procedure codes from the FY 2025 MedPAR claims data, grouped through
the ICD-10 version of the proposed FY 2027 GROUPER (Version 44).
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 proposed rule, we used the December 2025 update of the FY 2024
HCRIS for calculating the FY 2027 cost-based relative weights.
Consistent with our historical practice, for this FY 2027 proposed
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 2027 IPPS Proposed Rule Home Page'' or ``Acute Inpatient
Files for Download.''
2. Methodology for Calculation of the Relative Weights
a. General
We calculated the proposed FY 2027 relative weights based on 19
CCRs. The methodology we are proposing to use to calculate the FY 2027
MSDRG cost-based relative weights based on claims data in the FY 2025
MedPAR file and data from the FY 2024 Medicare cost reports is as
follows:
To the extent possible, all the claims were regrouped
using the proposed FY 2027 MS-DRG classifications discussed in sections
II.B. and II.C. of the preamble of this proposed rule.
The transplant cases that were used to establish the
relative weights for heart and 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 2025 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 92.5 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 at the time of inpatient
admission) in the POA field.
Under current payment policy, the presence of specific HAC codes,
as
[[Page 19392]]
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.
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 proposed 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, proposed 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 proposed
national average CCRs developed from the FY 2024 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 proposed 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.
If we receive comments about the groupings in this supplemental data
file, we may consider these comments as we finalize our policy.
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 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. For this FY 2027 proposed rule, this
calculation was applied to address non-monotonicity for cases that
grouped to the following: MS-DRG 217 and MS-DRG 218, MS-DRG 504 and MS-
DRG 505, and MS-DRG 582 and 584. In the supplemental file titled AOR/
BOR File, we include statistics for the affected MS-DRGs both
separately and with cases combined.
We are inviting public comments on our proposals related to
recalibration of the proposed FY 2027 relative weights and the changes
in relative weights from FY 2026.
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
[[Page 19393]]
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 \16\ 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.
---------------------------------------------------------------------------
\16\ https://www.cms.gov/files/document/r10571cp.pdf.
---------------------------------------------------------------------------
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 \17\ 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.
---------------------------------------------------------------------------
\17\ https://www.cms.gov/files/document/r11727cp.pdf.
---------------------------------------------------------------------------
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 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'' that group 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 2026 IPPS/LTCH PPS final rule, in this
proposed rule, for FY 2027 we are proposing 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 the FY 2026 IPPS/LTCH PPS final rule, we finalized 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 change within our relative weight methodology, we finalized
our proposal 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. 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. For
this proposed rule, based on the December 2025 update of the FY 2025
MedPAR file, we estimated that the median standardized drug charge of
claims identified as clinical trials in MS-DRG 018 is $25,323. For the
[[Page 19394]]
purpose of performing this trim, we propose 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 are proposing that in calculating the relative
weight for MS-DRG 018 for FY 2027, 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.
We are also proposing 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 2025 update
of the FY 2025 MedPAR file used for this proposed rule, we estimate
that the average costs of cases assigned to MS-DRG 018 that are
identified as clinical trial cases ($71,039) were 17 percent of the
average costs of the cases assigned to MS-DRG 018 that are identified
as non-clinical trial cases ($412,218). Accordingly, as we did for FY
2026, we are proposing to adjust the transfer-adjusted case count for
MS-DRG 018 by applying the proposed adjustor of 0.17 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
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 0.17. As we did for FY 2026, we
are applying the same adjustor for the applicable cases that group to
MS-DRG 018 for purposes of budget neutrality and outlier simulations.
We are also proposing to update the value of the adjustor based on more
recent data for the final rule.
c. 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
proposed rule, we present the proposed budget neutrality adjustment for
reclassification and recalibration of the FY 2027 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 2027. For a further discussion of
the final budget neutrality adjustment for FY 2027, we refer readers to
the Addendum of this proposed rule.
3. Development of National Average Cost-to-Charge Ratios (CCRs)
We developed the proposed national average CCRs as follows:
Using the FY 2024 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
proposed FY 2027 cost-based relative weights were then normalized by an
adjustment factor of 1.944557 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
[[Page 19395]]
fiscal year; specifically for those MS-DRGs for which the relative
weight otherwise would have declined by more than 10 percent from the
FY 2026 relative weight, we set the proposed FY 2027 relative weight
equal to 90 percent of the FY 2026 relative weight. The proposed
relative weights for FY 2027 as set forth in Table 5 associated with
this proposed 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 proposed national average CCRs for FY 2027 are as follows:
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.071
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 are proposing to use that same case
threshold in recalibrating the proposed MS-DRG relative weights for FY
2027. Using data from the FY 2025 MedPAR file, there are 8 MSDRGs that
contain fewer than 10 cases. For FY 2027, because we do not have
sufficient MedPAR data to set accurate and stable cost relative weights
for these low-volume MS-DRGs, we are proposing to compute relative
weights for the low volume MS-DRGs by adjusting their final FY 2026
relative weights by the percentage change in the average weight of the
cases in other MS-DRGs from FY 2026 to FY 2027. The crosswalk table is
as follows.
[GRAPHIC] [TIFF OMITTED] TP14AP26.072
[[Page 19396]]
BILLING CODE 4120-01-C
E. Add-On Payments for New Services and Technologies for FY 2027
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 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 this proposed rule, we highlight 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 2027
are presented in a data file that is available, along with the other
data files associated with the FY 2026 IPPS/LTCH PPS final rule 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 proposed thresholds for
applications for new technology add-on payments for FY 2028 are
presented in a data file that is available on the CMS website, along
with the other data files associated with this FY 2027 proposed rule,
by clicking on the FY 2027 IPPS Proposed Rule Home Page at: https://
www.cms.gov/Medicare/
[[Page 19397]]
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 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. We note, in section II.E.7. of
this proposed rule, we are proposing to repeal the alternative pathway
for new technology add-on payment beginning with applications received
for new technology add-on payments for FY
[[Page 19398]]
2028 and require all applicants for new technology add-on payments to
demonstrate that they meet all eligibility requirements to receive add-
on payments. (We refer the reader to section II.E.7. of this proposed
rule for a complete discussion regarding this proposal.)
(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 \18\ 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 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.
---------------------------------------------------------------------------
\18\ Breakthrough Devices Program https://www.fda.gov/medical-devices/how-study-and-market-your-device/breakthrough-devices-program.
---------------------------------------------------------------------------
(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.
[[Page 19399]]
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. [thinsp]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
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 19 20 (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.
---------------------------------------------------------------------------
\19\ How to Study and Market Your Device https://www.fda.gov/medical-devices/device-advice-comprehensive-regulatory-assistance/how-study-and-market-your-device.
\20\ Types of Applications https://www.fda.gov/drugs/how-drugs-are-developed-and-approved/types-applications.
---------------------------------------------------------------------------
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 noted, in
section II.E.7. of this proposed rule, we are proposing to repeal the
alternative pathway for new technology add-on payment, such that
beginning with applications received for new technology add-on payments
for FY 2028, in order to be eligible for consideration for the new
technology add on payment for the upcoming fiscal year, all applicants
would need to receive FDA marketing authorization by May 1 prior to the
particular fiscal year for which the application is being considered.
As discussed in the FY 2024 and FY 2025 IPPS/LTCH PPS final rules
(88 FR 58948 through 58958 and 89 FR 69242 through 69245,
respectively), 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 510(k) or De Novo Classification
request submission) 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 further stated in the FY 2026 IPPS/LTCH PPS final
rule (90 FR 36661 through 36662) that 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
[[Page 19400]]
to be accepted for substantive review after the completion of either a
refuse to accept (RTA) review or a technical screening
process.21 22 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 submission is sufficiently complete
to allow for substantive review. Therefore, new technology add-on
payment applicants that have submitted a 510(k) or De Novo
Classification request submission 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 noted
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 continue to require documentation of
FDA filing for these applications. We also stated that 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.23 24 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.
---------------------------------------------------------------------------
\21\ 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.
\22\ 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.
\23\ 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.
\24\ 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.
---------------------------------------------------------------------------
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). As noted, in section II.E.7. of this
proposed rule, we are proposing to repeal the alternative pathway for
new technology add-on payment, such that beginning with the FY 2028 new
technology add-on payment applications, in order to be eligible for
consideration for the new technology add on payment for the upcoming
fiscal year, all applicants would need to receive FDA marketing
authorization by May 1 of the year prior to the beginning of the fiscal
year for which the application is being considered.
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/payment/prospective-payment-systems/acute-inpatient-pps/new-medical-services-and-new-technologies, 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 2028 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, if the proposal in
section II.E.7. of this proposed rule to repeal the alternative pathway
for new technology add-on payment beginning with FY 2028 new technology
add-on payment applications is not finalized), along with a significant
sample of data to demonstrate that the medical service or technology
meets the high-cost threshold. If the proposal in section II.E.7. of
this proposed rule to repeal the alternative pathway is not finalized,
CMS will continue to review applications 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://
[[Page 19401]]
www.cms.gov/medicare/payment/prospective-payment-systems/acute-
inpatient-pps/new-medical-services-and-new-technologies.
To allow interested parties to identify the new medical services or
technologies under review before the publication of the proposed rule
for FY 2028, 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 rule (87 FR 48986 through 48990) for further information
regarding this policy. In addition, as discussed in the FY 2026 IPPS/
LTCH PPS final rule (90 FR 36663 through 36664), beginning with the new
technology add-on payment applications submitted for FY 2027, the
public posting includes 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 are not included in the public posting. Certain cost
and volume information may still be summarized and discussed in the
proposed rule, but 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 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 2027 prior
to publication of the FY 2027 IPPS/LTCH PPS proposed rule, we published
a notice in the Federal Register on September 10, 2025 (90 FR 43613),
and held a virtual town hall meeting on December 10, 2025. 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 2027 new medical
service and technology add-on payment applications before the
publication of the FY 2027 IPPS/LTCH PPS proposed rule.
Approximately 190 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/payment/prospective-payment-systems/acute-inpatient-pps/new-medical-services-and-new-technologies.
We considered each applicant's presentation made at the town hall
meeting, as well as written comments received by the December 15, 2025
deadline, in our evaluation of the new technology add-on payment
applications for FY 2027 in the development of the FY 2027 IPPS/LTCH
PPS proposed rule. In response to the published notice and the New
Technology Town Hall meeting, we received written comments regarding
the applications for FY 2027 new technology add-on payments. As
explained earlier and in the Federal Register notice announcing the New
Technology Town Hall meeting (90 FR 43613), 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 2027. Therefore, we are not summarizing any written
comments in this proposed rule that are unrelated to the substantial
clinical improvement criterion. In section II.E.5. of the preamble of
this proposed rule, we summarize comments regarding individual
applications, or, if applicable, indicate 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
[[Page 19402]]
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 Committee. In 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. Proposed FY 2027 Status of Technologies Receiving New Technology
Add-On Payments for FY 2026
In this section of the proposed rule, we discuss the proposed FY
2027 status of the 54 new technology add-on payments approved for FY
2026, as set forth in the tables that follow. Specifically, we present
our proposals to continue the new technology add-on payments for FY
2027 for those technologies that were approved for the new technology
add-on payment for FY 2026, and which would still be considered ``new''
for purposes of new technology add-on payments for FY 2027. We also
present our proposals to discontinue new technology add-on payments for
FY 2027 for those technologies that were approved for the new
technology add-on payment for FY 2026, and which would no longer be
considered ``new'' for purposes of new technology add-on payments for
FY 2027.
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, for
technologies that were first approved for new technology add-on
payments prior to FY 2025, 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 these technologies 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.
Table II.E-01 lists the technologies that were first approved for
new technology add-on payments in FY 2025 or a subsequent year, for
which we are proposing to continue making new technology add-on
payments for FY 2027 because they are 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, 2026. This table also presents 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 refer 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.
We note that we conditionally approved CONTEPOTM
(fosfomycin) for FY 2026 new technology add-on payments under the
alternative pathway for certain antimicrobial products (90 FR 36831
through 36833), subject to the technology receiving FDA marketing
authorization by July 1, 2026. CONTEPOTM received FDA
marketing authorization on October 22, 2025, and was eligible to
receive new technology add-on payments in FY 2026 beginning with
discharges on or after January 1, 2026. As CONTEPOTM
received FDA marketing authorization prior to July 1, 2026, and was
approved for new technology add-on payments in FY 2026, we are
proposing to continue making new technology add-on payments for
CONTEPOTM for FY 2027.
As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36666
through 36671), in response to comments from the applicant for
ZEVTERA[supreg] requesting that CMS consider the beginning of the
newness period for ZEVTERA[supreg] to commence on May 20, 2025, which
it stated was the date on which ZEVTERA[supreg] became commercially
available on the U.S. market, we noted 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 agreed that per our policy, we may consider
a documented delay in a technology's market availability in our
determination of newness, we noted 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, we noted 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.
We stated that 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
[[Page 19403]]
available, we noted that, unlike these other technologies, the
applicant for ZEVTERA[supreg] was asserting a date of commercial
availability that occurred after its new technology add-on payment
began.
We also noted that applicants may assert a delay in commercial
availability due to business decisions made by the applicant. We were
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) remains eligible for new technology add-
on payment.
Therefore, we questioned 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 noted
that regardless of whether we considered 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 was considered new for FY
2026.
After further review, we believe that it would be most appropriate
to no longer consider commercial delays once a technology's new
technology add-on payment becomes effective. We have discussed in prior
rulemaking (89 FR 36136) that, generally, we use the FDA marketing
authorization date as the indicator of the time when a technology
begins to become available on the market and data reflecting the costs
of the technology begin to become available for recalibration of the
DRG weights. In specific circumstances, we have recognized a date later
than the FDA marketing authorization date as the appropriate starting
point for the 2- to 3-year newness period. For example, we have
recognized a later date where an applicant could prove a delay in
actual availability of a product after FDA approval or clearance.
However, due to the increasing volume and complexity of circumstances
in which applicants assert a delay in commercial availability, we
believe that a delay that extends to after implementation of a new
technology add-on payment should no longer be considered. For example,
as discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36667), 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. We have also noted that applicants may be asserting a delay
in commercial availability due to business decisions made by the
applicant. In addition, because we now extend new technology add-on
payments for an additional fiscal year when the 3-year anniversary date
of a product's entry onto the U.S. market occurs on or after October 1
of that fiscal year (89 FR 69238 through 69242), commercial delays as
asserted by manufacturers that extend to after the new technology add-
on payment becomes effective could now have a bigger impact, as they
could lead to new technology add-on payments being effective for four
or more years under our current policy.
Therefore, while we have considered no longer recognizing a date
later than the FDA marketing authorization date as the appropriate
starting point for the 2- to 3-year newness period, we are proposing
that we may consider a documented delay in the beginning of a
technology's newness period due to commercial availability only until
the new technology add-on payment becomes effective for the fiscal year
for which the applicant applied for new technology add-on payments.
Under this proposal, for a technology that is not yet available for
sale when its new technology add-on payment becomes effective, we would
consider the newness period to begin on September 30 preceding the
start of the new technology add-on payment for the technology.
As such, consistent with this proposal, because the new technology
add-on payment for ZEVTERA[supreg] became effective on October 1, 2024,
we consider the beginning of the newness period for ZEVTERA[supreg] to
commence on September 30, 2024.
We are inviting public comments on our proposals to continue new
technology add-on payments for FY 2027 for the technologies listed in
Tables II.E.-01 of this proposed rule.
BILLING CODE 4120-01-P
[[Page 19404]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.073
[[Page 19405]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.074
[[Page 19406]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.075
BILLING CODE 4120-01-C
Table II.E.-02 lists twelve technologies that were first approved
for new technology add-on payments prior to FY 2025, including
technologies
[[Page 19407]]
determined to be substantially similar to such technologies, for which
we are proposing to discontinue making new technology add-on payments
for FY 2027 because they are 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, 2027. This
table also lists one technology that was first approved for new
technology add-on payments in FY 2026, for which we are proposing to
discontinue making new technology add-on payments for FY 2027 because
it is 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 October 1, 2026. For all technologies, this
table 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 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.
We note that while we are proposing to discontinue new technology
add-on payments for FY 2027 for the Ceribell Status Epilepticus
Monitor, Ceribell, Inc. is seeking new technology add-on payments for
the Ceribell Delirium Monitor System for FY 2027 (as discussed in
section II.E.6. of the preamble of this proposed rule), which is also
identified by the ICD-10-PCS procedure code XX20X89 (Monitoring of
brain electrical activity, computer-aided detection and notification,
new technology group 9). In order to identify cases using the ICD-10-
PCS procedure code XX20X89 related to the Ceribell Delirium Monitor
System and not the Ceribell Status Epilepticus Monitor, which would no
longer be new, we are proposing to exclude cases that report the ICD-
10-CM diagnosis codes that we believe would identify patients with
status epilepticus in combination with the ICD-10-PCS procedure code
XX20X89. Please see Table 10.2.-- Ceribell Delirium Monitor System,
associated with this proposed rule, for the list of ICD-10-CM diagnosis
codes that we believe would identify patients with status epilepticus,
which we propose to exclude from new technology add-on payment when
reported in combination with ICD-10-PCS procedure code XX20X89. We are
inviting public comments on our proposal to exclude cases reporting
these ICD-10-CM diagnosis codes in combination with the ICD-10-PCS
procedure code XX20X89, for purposes of the new technology add-on
payment for FY 2027, if approved.
As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36666
through 36671), in response to public comments, including from the
applicant for the SAINT Neuromodulation System, that 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, we questioned 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 noted that regardless of whether we considered 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 was considered new for FY 2026.
As discussed in greater detail previously in this section, after
further consideration, we are proposing that we may consider a
documented delay in the beginning of a technology's newness period due
to commercial availability only until the new technology add-on payment
becomes effective. Specifically, for a technology that is not yet
available for sale when its new technology add-on payment becomes
effective, we would consider the newness period to begin on September
30 preceding the start of the new technology add-on payment for the
technology.
As such, consistent with this proposal, because the new technology
add-on payment for SAINT Neuromodulation System became effective on
October 1, 2023, we consider the beginning of the newness period for
SAINT Neuromodulation System to commence on September 30, 2023. As the
SAINT Neuromodulation System was first approved for new technology add-
on payments in FY 2024, we continue to use the midpoint of the upcoming
fiscal year (April 1) when determining whether this technology would
still be considered ``new'' for purposes of new technology add-on
payments. Because we consider the beginning of the newness period to
commence on September 30, 2023, the three-year anniversary date would
occur before April 1, 2027, and the technology would no longer be
considered new for FY 2027.
We are inviting public comments on our proposals to discontinue new
technology add-on payments for FY 2027 for the technologies listed in
Table II.E.-02 of the preamble of this proposed rule.
BILLING CODE 4120-01-P
[[Page 19408]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.076
[[Page 19409]]
BILLING CODE 4120-01-C
5. Proposed FY 2027 Applications for New Technology Add-On Payments
(Traditional Pathway)
As discussed previously, as finalized in the FY 2023 IPPS/LTCH PPS
final rule (87 FR 48986 through 48990) and subsequently updated in the
FY 2026 IPPS/LTCH PPS final rule (90 FR 36662 through 36664), we
publicly post online applications for new technology add-on payment
beginning with FY 2024 applications. As noted in these final rules,
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 2027 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 2027
new technology add-on payment applications.
We received 15 applications for new technology add-on payments for
FY 2027 under the new technology add-on payment traditional pathway. In
accordance with the regulations under Sec. 412.87(f), applicants for
FY 2027 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 previously
discussed, 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 15 applications received under the traditional pathway, 3
applicants were not eligible for consideration for new technology add-
on payment because they did not meet these requirements, and 4
applicants withdrew their applications prior to the issuance of this
proposed rule. We are addressing the remaining 8 applications.
Typically, in the annual proposed rule, we provide a summary of
each traditional pathway application and describe any concerns we may
have regarding whether the technology meets a specific new technology
add-on payment criterion. In this proposed rule, for technologies that
have already received FDA marketing authorization, we are making a
proposal to approve or disapprove each of these applications for new
technology add-on payment. We have stated in prior rulemaking that we
do not believe it is appropriate for CMS to determine whether a medical
service or technology represents a substantial clinical improvement
over existing technologies before the FDA makes a determination as to
whether the medical service or technology is safe and effective (86 FR
45047). Therefore, we are not making a proposal approve or disapprove
applications for technologies that have not yet received FDA marketing
authorization for new technology add-on payment.
a. COBENFYTM (Xanomeline and Trospium Chloride)
Bristol Myers Squibb submitted a FY 2027 application for new
technology add-on payments for COBENFYTM. According to the
applicant, COBENFYTM is an oral combination drug consisting
of xanomeline, a muscarinic agonist, and trospium chloride, a
muscarinic antagonist, indicated for the treatment of schizophrenia in
adults. COBENFYTM has 3 approved dose strengths (50 mg/20
mg, 100 mg/20 mg, and 125 mg/30 mg) in capsule form. The applicant
stated the per-day treatment cost is the same across all dosages and
that the average inpatient length of stay for patients taking
COBENFYTM is 7.5 days. We note that the applicant submitted
a FY 2026 new technology add-on payment application for this
technology, which was not approved, as discussed in the FY 2026 IPPS/
LTCH PPS final rule (90 FR 36695 through 36702).
The following table provides an overview of the new technology add-
on payment application for COBENFYTM and CMS's preliminary
assessment. For additional details provided by the applicant, please
refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006PD218.
[[Page 19410]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.077
Newness Criterion
Regarding substantial similarity, based on information available at
the time of this proposed rule and as previously stated in the FY 2026
IPPS/LTCH PPS final rule (90 FR 36697), 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, based on information
available at the time of this proposed rule, we believe that
COBENFYTM is not substantially similar to existing treatment
options and meets the newness criterion. As discussed in the FY 2026
IPPS/LTCH PPS final rule, we consider the beginning of the newness
period to commence on October 9, 2024, the date on which
COBENFYTM became commercially available.
We are inviting public comments on whether COBENFYTM is
substantially similar to existing technologies and whether
COBENFYTM meets the newness criterion.
Cost Criterion
Regarding the cost criterion, we agree with the applicant that the
technology meets the cost criterion. We are inviting public comments on
whether COBENFYTM meets the cost criterion.
Substantial Clinical Improvement Criterion
Regarding substantial clinical improvement, 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 are
summarizing in this section.
Comment: The applicant submitted a public comment in response to
questions posed at the New Technology Town Hall meeting. With regard to
a question asking if COBENFYTM is considered to be an
antipsychotic, the applicant stated that the FDA label for
COBENFYTM does not use the term antipsychotic in the
indication section. The applicant stated that the indication section
states that COBENFYTM is a combination of xanomeline, a
muscarinic agonist, and trospium chloride, a muscarinic antagonist,
indicated for the treatment of schizophrenia in adults.\25\ According
to the applicant, this distinction is due to FDA's recent shift toward
a mechanism-based nomenclature, rather than a determination regarding
COBENFYTM's therapeutic role. The applicant also stated that
the term antipsychotic is based on both pharmacology and clinical use,
encompassing drugs used for a range of psychiatric conditions beyond
psychosis. The applicant further noted that FDA recognized
COBENFYTM's role as an antipsychotic when the agency
described the drug as the first antipsychotic drug approved to treat
schizophrenia that targets cholinergic receptors as opposed to dopamine
receptors, which has long been the standard of care.\26\ Additionally,
the applicant stated that, in recognition of COBENFYTM's
unique role as an antipsychotic, the United States Pharmacopeia Drug
Classification (USP DC) 2025 established a new Antipsychotics, Other
class within the Antipsychotics Category to accommodate novel medicines
like COBENFYTM that do not fit into the traditional typical
or atypical antipsychotic classes due to distinct pharmacology. Per the
applicant, COBENFYTM's inclusion in the Antipsychotics,
Other class highlights its differentiated mechanism while maintaining
its place among other antipsychotic therapies as a treatment for
schizophrenia.
---------------------------------------------------------------------------
\25\ Bristol Myers Squibb Company. (2024). Highlights of
Prescribing Information: COBENFYTM (xanomeline and
trospium chloride) capsules, for oral use. https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/216158s000lbl.pdf.
\26\ U.S. Food and Drug Administration. (2024, September 26).
FDA Approves Drug with New Mechanism of Action for Treatment of
Schizophrenia [Press release]. https://www.fda.gov/news-events/press-announcements/fda-approves-drug-new-mechanism-action-treatment-schizophrenia.
---------------------------------------------------------------------------
With regard to a question asking how quickly COBENFYTM
takes effect, the applicant stated that although the EMERGENT studies
assessed the primary endpoint at 5 weeks, the studies observed
meaningful clinical effects much earlier. The applicant
[[Page 19411]]
further added that the studies found significant reductions in Positive
and Negative Syndrome Scale (PANSS) total score (nominal p-value)
within 2 weeks (the first scheduled assessment across all 3 trials),
demonstrating that COBENFYTM's therapeutic benefit appears
well before the primary endpoint. In addition, the applicant stated
that this clinically observable effect time period complements care in
the inpatient setting, where patients with schizophrenia often require
7 to 14 days of treatment, compared to the more standard 3 to 4 days
for other mental health conditions.
With regard to a question inquiring whether the clinical trials
included case management or patient support to ensure compliance or if
there was qualitative evidence that efficacy alone drives compliance,
the applicant stated that clinical trials typically provide a more
controlled environment with additional patient support, which often
leads to higher compliance compared to adherence and persistence
observed in real-world settings; a pattern, the applicant noted, that
is likely true for COBENFYTM as well. The applicant noted
that it drew the adherence and persistence data presented at the New
Technology Town Hall from a large, observational, real-world
administrative claims database of patients prescribed
COBENFYTM in routine clinical practice, without extra
monitoring or support beyond standard care.\27\ The applicant also
stated that early real-world data for COBENFYTM show
encouraging adherence and persistence: over 80 percent of patients
remained on therapy through month 4, and 72 percent met the established
adherence metric during the follow-up, all while receiving only
standard clinical care (Cutler et al., 2025). Additionally, the
applicant stated that, although these findings reflect very early
treatment patterns less than a year after COBENFYTM's market
introduction, this strong adherence signal is particularly meaningful,
as consistent use of antipsychotic medications is closely linked to
lower rates of relapse, preventable hospitalizations, and emergency
department visits in individuals with schizophrenia. Per the applicant,
these early results suggest that COBENFYTM may offer
meaningful benefits in real-world settings by supporting sustained
treatment and potentially reducing the burden of acute healthcare
utilization. Lastly, the applicant noted that CMS has designated
adherence to antipsychotic medications as a clinical quality measure
for healthcare providers.\28\
---------------------------------------------------------------------------
\27\ Cutler, A.J., Zhong, Y., Gillard, K., Appio, J., Gao, C.,
Lalibert[eacute], F., Rubio, J.M. Real-World Use of Xanomeline-
Trospium in Schizophrenia: Patient Characteristics and Antipsychotic
Treatment Patterns. Presentation at Psych Congress, September 17-21,
2025, San Diego, CA.
\28\ Merit-Based Incentive Payment System Clinical Quality
Measures #383: Adherence to Antipsychotic Medications For
Individuals with Schizophrenia. Centers for Medicare and Medicaid
Services. Retrieved December 16, 2025 from https://qpp.cms.gov/docs/QPP_quality_measure_specifications/CQM-Measures/2025_Measure_383_MIPSCQM.pdf.
---------------------------------------------------------------------------
Response: We thank the applicant for its comment. After review of
the information provided by the applicant and the public comment
received in response to the New Technology Town Hall meeting, we have
the following concerns regarding whether COBENFYTM meets the
substantial clinical improvement criterion.
In support of its assertions that COBENFYTM provides a
treatment option for a patient population unresponsive to or ineligible
for currently available therapies and that COBENFYTM
improves clinical outcomes, the applicant provided studies that were
also included in its FY 2026 new technology add-on payment application
in addition to three new references: a post-hoc analysis and two
posters.29 30 31 In its FY 2027 new technology add-on
payment application, the applicant submitted six similar claims to
those provided in its FY 2026 new technology add-on payment
application, as well as additional claims stating: COBENFYTM
offers a treatment option for schizophrenia patients with extensive
prior antipsychotic use, COBENFYTM shows strong real-world
persistence and adherence, and COBENFYTM shows superior
effectiveness.
---------------------------------------------------------------------------
\29\ Cutler, A.J., Zhong, Y., Gillard, K., Appio, J., Gao, C.,
Lalibert[eacute], F., Rubio, J.M. Real-World Use of Xanomeline-
Trospium in Schizophrenia: Patient Characteristics and Antipsychotic
Treatment Patterns. Presentation at Psych Congress, September 17-21,
2025, San Diego, CA.
\30\ Horan W.P., Targum S.D., Claxton A., Kaul I., Yohn S.E.,
Marder S.R., Miller A.C., Brannan S.K. Efficacy of KarXT on negative
symptoms in acute schizophrenia: A post hoc analysis of pooled data
from 3 trials. Schizophr Res. 2024 Dec;274:57-65. https://doi.org/10.1016/j.schres.2024.08.001.
\31\ Hickey, C., Sidovar, M., Garcia, A., Kramer, K., Chang,
J.A., Kupas, K., Telukuntla, V., Cutler, A.J. Comparative Efficacy,
Safety, and Tolerability of Xanomeline and Trospium Chloride versus
Eight Atypical Antipsychotics for the Acute Treatment of Adults with
Schizophrenia--A Network Meta-Analysis. Presentation at the 2025
Annual Congress of the Schizophrenia International Research Society
(SIRS), March 29-April 2, 2025, Chicago, Illinois.
---------------------------------------------------------------------------
After review of this information, we continue to question whether
COBENFYTM provides a treatment option for a patient
population unresponsive to or ineligible for currently available
therapies or improves clinical outcomes relative to existing
technologies.
With regards to a new claim in its FY 2027 new technology add-on
payment application that COBENFYTM offers a treatment option
for schizophrenia patients with extensive prior antipsychotic use, we
note that this claim does not identify a patient population for which
COBENFY\TM\ could be used that is unresponsive to or ineligible for
other available treatments since patients with prior antipsychotic use
could still try other antipsychotics such as clozapine, which is
indicated for patients who do not respond to other antipsychotics. We
also question whether the evidence provided for this claim demonstrates
the applicant's assertion. The applicant provided Cutler et al. (2025),
a retrospective observational study of claims data for adults with
schizophrenia in the U.S. before and after COBENFYTM
initiation. Because Cutler et al. (2025) relied upon administrative
claims data, we cannot be sure whether patients actually took the
prescribed oral medication(s). Consequently, we are unable to determine
whether all patients treated in this study had extensive prior
antipsychotic use or if the patients actually took
COBENFYTM. Also, the study measured medication adherence at
60 and 90 days following COBENFYTM treatment initiation.
However, we note that injectable antipsychotics, which patients adhere
to because they are long-acting drugs that require professional
administration, are typically administered at intervals of 2 to 12
weeks.\32\ Therefore, we are concerned that measuring adherence at 60
and 90 days may be inadequate to accurately assess differences between
COBENFYTM and existing schizophrenia treatments. We also
question long-term adherence rates since the average follow-up was only
2.6 months. Finally, we are concerned that Cutler et al. (2025) does
not demonstrate that COBENFYTM has improved clinical
outcomes compared to other therapies because this evidence does not
include a comparison of adherence data to existing schizophrenia
treatments.
---------------------------------------------------------------------------
\32\ Stroup, T.S. & Marder, S. (2025). Schizophrenia in adults:
Maintenance therapy and side effect management. UpToDate. Retrieved
October 7, 2025, from https://www.uptodate.com/contents/schizophrenia-in-adults-maintenance-therapy-and-side-effect-management.
---------------------------------------------------------------------------
As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36702),
after consideration of public comments, we continued to have concerns
as to whether COBENFYTM meets the substantial clinical
improvement criterion, including with respect to the
[[Page 19412]]
applicant's claims that COBENFYTM may be an effective
treatment option for patients experiencing disruptive negative symptoms
and that COBENFYTM is a valuable option for patients who
respond inadequately to current treatments. The applicant submitted
similar claims in its FY 2027 new technology add-on payment
application, but did not provide additional supporting evidence.
Therefore, we continue to question whether the evidence provided for
these claims in the FY 2027 new technology add-on payment application
demonstrates that COBENFYTM offers a treatment option for
patients unresponsive to or ineligible for other therapies, without
data supporting that other antipsychotics cannot be used in patients
with negative symptoms or who have not responded to other
antipsychotics.
With respect to the assertion that COBENFYTM provides
improved clinical outcomes relative to previously available therapies
by improving symptom response and reducing metabolic side effects
compared to several atypical antipsychotics, the applicant provided
Hickey et al. (2025), a network meta-analysis poster, which used data
from 58 randomized controlled trials lasting between 4 and 6 weeks and
indirectly compared COBENFYTM to aripiprazole, cariprazine,
olanzapine, risperidone, brexpiprazole, quetiapine, clozapine, and
lumateperone. However, the poster does not consistently show a
statistically significant difference in favor of COBENFYTM
(such as with respect to PANSS response, change from baseline weight,
and sedation). We also note that the poster did not provide comparison
to typical antipsychotics or other atypical antipsychotics, such as
olanzapine/samidorphan, which includes samidorphan to reduce weight
gain. For these reasons, we question whether this study demonstrates
COBENFYTM improves clinical outcomes compared to other
available therapies. Additionally, we note that Hickey et al. (2025)
found that COBENFYTM had statistically significant higher
odds of discontinuation due to all causes compared to all comparators
except cariprazine, for which results were unfavorable but not
statistically significant. As a result, we further question the
applicant's claim that COBENFYTM demonstrates improved
persistence and adherence compared to currently available treatments.
Finally, we note that in support of its assertion of improved
clinical outcomes compared to previously available therapies, the
applicant also provided four claims in its FY 2027 new technology add-
on payment application that were similar to the claims provided in its
FY 2026 new technology add-on payment application. We note the only
additional evidence submitted for these claims in the applicant's FY
2027 new technology add-on payment application was Horan et al. (2024),
a post-hoc analysis of pooled data from the three 5-week EMERGENT
studies, which was also the only evidence provided for the claim
regarding long-term reduction in symptoms and a persistently well-
tolerated side effect profile. However, the studies included in this
analysis compared COBENFYTM to placebo, and therefore, we
are unable to assess whether there is a long term reduction of symptoms
and favorable side effect profile compared to existing schizophrenia
treatments. In addition, we question this claim given the short
duration of the trials and the lack of discussion on side effects in
the article. Lastly, since the applicant did not submit evidence
comparing COBENFYTM to other available therapies with regard
to efficacy, safety, or discontinuation rates, we continue to question
whether the evidence demonstrates improved clinical outcomes compared
to previously available therapies with respect to these claims, as
stated in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36702).
After review of the information provided by the applicant and the
public comment received in response to the New Technology Town Hall
meeting, we are unable to determine that COBENFYTM
represents a substantial clinical improvement over existing
technologies, and therefore, we are proposing to disapprove new
technology add-on payments for COBENFYTM for FY 2027.
We are inviting public comments on whether COBENFYTM
meets the substantial clinical improvement criterion and our proposal
to disapprove new technology add-on payments for COBENFYTM
for FY 2027.
b. Command Center Electronic Glycemic Management System
Glytec, LLC submitted a FY 2027 application for new technology add-
on payments for Command Center Electronic Glycemic Management System
(Command Center). According to the applicant, Command Center is an
electronic medical record (EMR)-integrated cloud-based software
designed to maintain blood glucose in hospitalized patients by
recommending personalized insulin dosing. According to the applicant,
the technology utilizes inputs collected from EMRs to direct ongoing
insulin dosage management and daily monitoring related glycemic
variables (such as labs and diet) during an inpatient stay until
insulin is discontinued or the patient is sent home. Per the applicant,
direct per-patient charge for the use of Command Center follows a
subscription model.
The following table provides an overview of the new technology add-
on payment application for Command Center and CMS's preliminary
assessment. For additional details provided by the applicant, please
refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251005YD7PG.
BILLING CODE 4120-01-P
[[Page 19413]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.078
BILLING CODE 4120-01-C
Newness Criterion
Regarding the newness date, the applicant provided an FDA 510(k)
clearance letter for Glytec Glucommander (K152300), dated August 4,
2017, to support its new technology add-on payment application for
Command Center. Per the 510(k) summary, the predicate device for Glytec
Glucommander is GlucommanderTM System (K113852).\33\ Per the
applicant, Command Center was available for sale immediately after FDA
marketing authorization. Therefore, the newness period for Command
Center commenced on the date of FDA clearance, August 4, 2017, or
earlier, as discussed further in this section. Because the 3-year
anniversary date of the entry of Command Center onto the U.S. market
(August 4, 2020, or earlier) occurred prior to FY 2027, we do not
believe that the device is eligible for new technology add on payments
for FY 2027. 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, irrespective of how frequently the medical
service or technology has been used in the Medicare population (70 FR
47349). Accordingly, we are proposing to disapprove Command Center for
new technology add on payments for FY 2027.
---------------------------------------------------------------------------
\33\ FDA, GlucommanderTM System, May 8, 2012 (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfPMN/pmn.cfm?ID=K113853, accessed 2/9/2026).
---------------------------------------------------------------------------
In addition, regarding substantial similarity, we question whether
Command Center has the same or similar mechanism of action as existing
technologies that manage glycemic dosing. The applicant stated that
Command Center differs from other insulin management methods because it
is an intelligent, algorithm-based analytic technology that uses
multiple administrative, technical, and clinical inputs to develop an
optimized insulin and glycemic management system to control glucose
metabolism while minimizing hyper- and hypoglycemic episodes. Per the
applicant, glycemic management is typically performed by nurses and
doctors using a paper and pencil sliding scale algorithm to estimate
the amount of insulin needed based on blood glucose values. According
to the applicant, while other digital glycemic management systems can
be built into EMR tables or in stand-alone systems, none are as
sophisticated or as well-documented as Command Center. However, we note
that there are several existing software-based, EMR-integrated glycemic
management systems. For example, the 2012 GlucommanderTM
System,\34\ the GlucoStabilizer Insulin Dosing Calculator 3.0,\35\ the
EndoToolTM Drug
[[Page 19414]]
Dose Calculator,\36\ and the EndoTool SubQTM \37\ are all
FDA-cleared glycemic management tools that monitor patient blood
glucose and generate personalized insulin dosing recommendations.
Therefore, we disagree with the applicant that Command Center uses a
different mechanism of action compared to existing technologies to
achieve a therapeutic outcome. Additionally, we disagree with the
applicant that the use of Command Center involves the treatment of a
different type of disease or patient population compared to existing
technology. The applicant stated that Command Center will better
address glycemic management needs in patients where higher degrees of
blood glucose control accuracy are required, including post-coronary
artery bypass graft (CABG) surgery patients, patients with diabetic
ketoacidosis or hyperosmolar coma, stroke patients, pregnant patients,
or children, and can be used in populations where advanced
endocrinology expertise is not readily available. However, as we noted,
several technologies are currently available for insulin and glycemic
management for the same or similar type of disease and patient
populations. Furthermore, we note per the FDA 510(k) summary for
K152300, the indications for use for this device are the same as those
for its predicate device (K113853). We agree with the applicant that
Command Center maps to the same MS-DRG as existing technologies. As a
result, we believe that Command Center is substantially similar to
existing technologies because it uses the same or similar mechanism of
action, maps to the same MS-DRG, and involves the treatment of the same
or similar type of disease and patient population when compared to
existing technologies, including its predicate device (K113853). We
note 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, if
we determine that Command Center is substantially similar to existing
glycemic management systems as described previously, because they all
were FDA market authorized prior to Command Center, the newness period
for Command Center would have commenced even earlier than its FDA
clearance date in 2017. We are inviting public comments on our proposal
to disapprove new technology add-on payments for Command Center,
including whether the technology is substantially similar to existing
technologies and whether it meets the newness criterion.
---------------------------------------------------------------------------
\34\ FDA, May 8, 2012, K113853 Glytec LLC
GlucommanderTM System (https://www.accessdata.fda.gov/
scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K113853, accessed 1/2/2026).
\35\ FDA, September 15, 2014, K141321, Glucostabilizer Insulin
Dosing Calculator (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K141321, accessed 1/2/2026).
\36\ FDA, June 14, 2006, K053137 EndoToolTM Drug Dose
Calculator (https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K053137, accessed 1/2/2026).
\37\ FDA, April 24, 2015, K142918 EndoTool SubQTM
(https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpmn/pmn.cfm?ID=K142918, accessed 1/2/2026).
---------------------------------------------------------------------------
Cost Criterion
Regarding the cost criterion, we note the following concerns with
the cost analysis provided by the applicant. We note that the applicant
did not remove any charges or indirect charges for prior technology. We
are interested in additional information regarding whether Command
Center would replace any prior technology, such as existing electronic
glycemic management tools. We also note that the average standardized
charges per case were not calculated according to the instructions in
Appendix A--Standardizing Charges.\38\ Instead, the applicant
calculated a single standardization rate factor (1.71) across all
hospitals included in the analysis and multiplied it by the average
charge per case (unstandardized with no case weight) for every MS-DRG
in the analysis. In addition, we note that the final inflated case-
weighted standardized charge per case was not provided. As such, we are
unable to determine whether the final inflated case weighted
standardized charge per case exceeds the case weighted threshold
amount; that is, whether Command Center meets the cost criterion for
new technology add-on payment. We are inviting public comments on
whether Command Center meets the cost criterion.
---------------------------------------------------------------------------
\38\ Medicare Electronic Application Request Information System
(MEARISTM). Resources: NTAP Appendix A Standardizing
Charges (https://mearis.cms.gov/public/resources, accessed 1/8/
2026).
---------------------------------------------------------------------------
Substantial Clinical Improvement Criterion
We did not receive any written comments in response to the New
Technology Town Hall meeting notice published in the Federal Register
regarding the substantial clinical improvement criterion for Command
Center.
After reviewing the information provided by the applicant, we have
the following concerns regarding whether Command Center meets the
substantial clinical improvement criterion. We note that it appears
that the applicant submitted studies using its predicate device
(K113853) to support its assertions as to why Command Center represents
a substantial clinical improvement. However, the applicant did not
present any clinical data comparing Command Center to its predicate
device. With respect to the applicant's claims that Command Center
offers a treatment option for patients unresponsive to, or ineligible
for, currently available treatments, we note that the applicant
compared its predicate device to paper-based insulin infusion
protocol,39 40 41 intensive glucose control,\42\ and
provider-managed insulin therapy \43\ on achieving target blood glucose
timelier, improving clinical outcomes, and reducing resource use.
However, we did not receive any information that identifies a patient
population that is unresponsive to or ineligible for other available
electronic glycemic management solutions, such as the GlucoStabilizer
Insulin Dosing Calculator 3.0, the EndoToolTM Drug Dose
Calculator, the EndoTool SubQTM, the EndoTool IV 1.10, and
its own predicate device, and for which Command Center could be used.
---------------------------------------------------------------------------
\39\ Mumpower, A; et al Glycemic Control Using eGMS and
Readmission Rates in Cardiovascular Patients Hospitalized with AMI,
CHF or Undergoing CABG During a System-Wide Glycemic Initiative.
Annual Diabetes Technology Meeting. November 2016. Study was
unpublished but presented at a national meeting poster session.
\40\ Ponnusamy D, Piziak V, Patel S, Urbanosky R. B2-3:
Comparative Effectiveness of a Computerized Algorithm versus a
Physician Instituted Protocol to Manage Insulin Infusions after
Cardiac Surgery. Clin Med Res. 2014 Sep;12(1-2):97. doi: 10.3121/
cmr.2014.1250.b2-3. PMCID: PMC4453383.
\41\ Smiley, D; Cardona, S; Weaver, J; Register, K; Peng, L;
Pasquel, F; Umpierrez, G. (Emory University) Hospitalization Costs,
Resource Utilization, and Clinical Outcome in Patients Undergoing
CABG Receiving Intensive Versus Conservative Glucose Control.
American Diabetes Association Scientific Sessions. June 2014.
\42\ Umpierrez G, Cardona S, Pasquel F, et al. Randomized
Controlled Trial of Intensive Versus Conservative Glucose Control in
Patients Undergoing Coronary Artery Bypass Graft Surgery: GLUCO-CABG
Trial. Diabetes Care. 2015 Sep;38(9):1665-72. doi: 10.2337/dc15-
0303. Epub 2015 Jul 15. PMID: 26180108; PMCID: PMC4542267.
\43\ Aloi J, Bode BW, Ullal J, et al. Comparison of an
Electronic Glycemic Management System Versus Provider-Managed
Subcutaneous Basal Bolus Insulin Therapy in the Hospital Setting. J
Diabetes Sci Technol. 2017 Jan;11(1):12-16. doi: 10.1177/
1932296816664746. Epub 2016 Sep 25. PMID: 27555601; PMCID:
PMC5375075.
---------------------------------------------------------------------------
With respect to the assertion that Command Center offers the
ability to diagnose a medical condition where it is currently
undetectable or earlier than allowed by currently available methods,
and that the use of Command Center to make a diagnosis affects the
management of the patient, the applicant provided a study showing that
patients who relied on the predicate 2012 GlucommanderTM
device were more likely than those on standard
[[Page 19415]]
treatments to reach target blood glucose range.\44\ However, reaching
target blood glucose is not a diagnosis, and therefore does not
identify and provide evidence for a specific medical condition in a
population in which the condition is currently undetectable that can be
diagnosed by Command Center, nor how Command Center can diagnose a
medical condition earlier than currently available technologies, such
as other electronic glycemic management solutions. Furthermore, the FDA
510(k) clearance covering Command Center states that it is not a
substitute for, but rather an adjunct to clinical reasoning and that no
medical decision should be based solely on the recommended guidance
provided by this software program. We further note that the study did
not indicate whether the difference between the two groups of patients
was statistically significant.
---------------------------------------------------------------------------
\44\ Mabrey M, Ullal J, McFarland R, et al. eGlycemic Management
Solution Safely Achieves Prescribed Glycemic Target with a Low
Incidence of Hypoglycemia in Patients with Acute Myocardial
Infarction in the Hospital. American Association of Clinical
Endocrinologists Scientific & Clinical Congress. May 2015.
---------------------------------------------------------------------------
Similarly, with regard to the applicant's assertion that Command
Center significantly improves clinical outcomes for a patient
population compared to currently available treatments, we note that one
of the two pieces of evidence provided by the applicant mentioned the
features and functionalities of Command Center, like real-time glycemic
insights, benchmarking, predictive analytics, and system-wide
supporting.\45\ However, we did not receive any evidence that compared
the clinical outcomes between Command Center and those of other
existing technologies. The supporting evidence for these claims
included study results on the clinical \46\ and financial \47\ effects
of glucose control in general, and the effects of electronic glycemic
management systems on hypoglycemia.\48\ Although the applicant claimed
that its software has been recognized repeatedly in the community for
its advanced,49 50 innovative approach and contribution to
medical care, this does not correspond with a clinical outcome under
Sec. 412.87(b)(1)(ii)(C). As a result, we are unable to determine
whether Command Center significantly improves clinical outcomes
relative to existing treatments.
---------------------------------------------------------------------------
\45\ Healthcare Tech Outlook. ``Glytec Modernizing Inpatient
Insulin Management.'' (Glytec [verbar] Top Diabetes Management
Platform-2025.) https://www.healthcaretechoutlook.com/glytec.
Accessed 12/12/2025.
\46\ Mumpower (2016). op.cit.
\47\ Smiley (2014). Op.cit.
\48\ Rabinovich (2018). Op.cit.
\49\ Healthcare Tech Outlook. Op.cit.
\50\ Glytec. ``Glytec Honored as Gold Stevie[supreg] Award
Winner in 2025 Stevie[supreg] Awards for Technology Excellence--
Glytec.'' https://glytec.com/newsroom/glytec-honored-as-gold-stevie-award-winner-in-2025-stevie-awards-for-technology-excellence/. July
29,2025. Accessed 1/13/2026.
---------------------------------------------------------------------------
After review of the information provided by the applicant, we are
unable to determine that Command Center represents a substantial
clinical improvement over existing technologies, and therefore, we are
proposing to disapprove new technology add-on payments for Command
Center for FY 2027.
We are inviting public comments on whether Command Center meets the
substantial clinical improvement criterion and our proposal to
disapprove new technology add-on payments for Command Center for FY
2027.
c. GAMIFANT[supreg] (emapalumab-lzsg)
Sobi, Inc. submitted an FY 2027 application for new technology add-
on payments for GAMIFANT[supreg]. According to the applicant,
GAMIFANT[supreg] is an interferon gamma (IFN[gamma])-blocking antibody
that targets and neutralizes IFN[gamma] to stop the hyperinflammatory
feedback loop of macrophage activation syndrome (MAS). Per the
applicant, GAMIFANT[supreg] is an intravenous infusion consisting of a
6 mg/kg loading dose or a 3 mg/kg treatment dose administered over 1
hour. The applicant stated that in the GAMIFANT[supreg] studies, adults
received 10 infusions (1 loading dose of 6 mg/kg and 9 treatment doses
of 3 mg/kg) over a median 29 days in the inpatient setting. We note
that the applicant is seeking new technology add-on payments for
GAMIFANT[supreg] for its indication for the treatment of adult and
pediatric (newborn and older) patients with hemophagocytic
lymphohistiocytosis (HLH)/MAS in known or suspected Still's disease,
including systemic Juvenile Idiopathic Arthritis (sJIA), with an
inadequate response or intolerance to glucocorticoids, or with
recurrent MAS.\51\
---------------------------------------------------------------------------
\51\ In 2018, FDA granted GAMIFANT[supreg] approval under a BLA
application for the treatment of adult and pediatric (newborn and
older) patients with primary HLH with refractory, recurrent, or
progressive disease or intolerance with conventional therapy.
---------------------------------------------------------------------------
The following table provides an overview of the new technology add-
on payment application for GAMIFANT[supreg] and CMS's preliminary
assessment. For additional details provided by the applicant, please
refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP250926GGG85.
BILLING CODE 4120-01-P
[[Page 19416]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.079
ICD-10 Coding
After review of the information provided by the applicant, we
believe the relevant ICD-10-CM diagnosis codes to identify the
indication of the treatment of adult and pediatric (newborn and older)
patients with HLH/MAS in known or suspected Still's disease, including
sJIA, with an inadequate response or intolerance to glucocorticoids, or
with recurrent MAS are:
[[Page 19417]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.080
BILLING CODE 4120-01-C
We are inviting public comments on the use of these ICD-10-CM
diagnosis codes to identify this indication for purposes of the new
technology add-on payment, if approved.
Newness Criterion
Regarding substantial similarity, based on the information
available at the time of this proposed rule, we agree with the
applicant that GAMIFANT[supreg] has a new mechanism of action and
treats a new type of disease or patient population compared to existing
technology, because it is the only FDA-approved treatment for HLH/MAS
in known or suspected Still's disease. We note that the applicant did
not provide an explanation for why GAMIFANT[supreg] would not map to
the same MS-DRGs as other therapies for HLH/MAS in Still's disease.
Therefore, based on information available at the time of this proposed
rule, we believe that GAMIFANT[supreg] is not substantially similar to
existing technology and meets the newness criterion. We consider the
beginning of the newness period to commence on June 27, 2025, the date
on which GAMIFANT[supreg] received FDA market authorization for this
indication.
We are inviting public comments on whether GAMIFANT[supreg] is
substantially similar to existing technologies and whether
GAMIFANT[supreg] meets the newness criterion.
Cost Criterion
Regarding the cost criterion, we agree with the applicant that the
technology meets the cost criterion. We are inviting public comments on
whether GAMIFANT[supreg] meets the cost criterion.
Substantial Clinical Improvement Criterion
We did not receive any written comments in response to the New
Technology Town Hall meeting notice published in the Federal Register
regarding the substantial clinical improvement criterion for
GAMIFANT[supreg].
After review of the information provided by the applicant, we have
the following concerns regarding whether GAMIFANT[supreg] meets the
substantial clinical improvement criterion. The applicant asserted
GAMIFANT[supreg] offers a treatment option for a patient population
unresponsive to, or ineligible for, currently available treatments
since GAMIFANT[supreg] is the first and only FDA-approved treatment for
HLH/MAS in known or suspected Still's disease with an inadequate
response or intolerance to glucocorticoids, or with recurrent MAS.
However, we question whether GAMIFANT[supreg] offers a treatment option
for patients unresponsive to, or ineligible for, currently available
treatments, because several second- and third-line therapies, including
cyclosporine, etoposide, anakinra, and intravenous immunoglobulin, can
also treat patients with an inadequate response or intolerance to
glucocorticoids or with recurrent MAS.52 53 54 55
---------------------------------------------------------------------------
\52\ Shakoory B, et al. The 2022 EULAR/ACR points to consider at
the early stages of diagnosis and management of suspected
haemophagocytic lymphohistiocytosis/macrophage activation syndrome
(HLH/MAS). Ann Rheum Dis. 2023;82(10):1271-1285.
\53\ Hines MR, et al. Consensus-based guidelines for the
recognition, diagnosis, and management of hemophagocytic
lymphohistiocytosis in critically ill children and adults. Crit Care
Med. 2022;50(5):860-872.
\54\ Baldo F, et al. Current treatment in MAS worldwide: a
systematic literature review to inform the METAPHOR project.
Rheumatology (Oxford). 2025, 64, 32-44.
\55\ Minoia F, et al. Clinical features, treatment, and outcome
of macrophage activation syndrome complicating systemic juvenile
idiopathic arthritis, a multinational, multicenter study of 362
patients. Arthritis Rheumatol. 2014;81(2);112-117.
---------------------------------------------------------------------------
Furthermore, we are unable to assess the applicant's assertion that
GAMIFANT[supreg] significantly improves clinical outcomes relative to
other available services or technologies without a comparison of
outcomes to other therapies for patients with an inadequate response or
intolerance to glucocorticoids or with recurrent MAS. In addition,
while the applicant stated that GAMIFANT[supreg] achieves substantially
improved clinical outcomes with a clear and positive benefit:risk
profile in treating HLH/MAS patients who had an inadequate response to
glucocorticoids and that GAMIFANT[supreg] initiation results in a
clinically meaningful reduction of glucocorticoid dosing and
contributes to the positive benefit:risk profile for the treatment of
patients with HLH/MAS, we question whether having a positive
benefit:risk profile is a relevant outcome under Sec.
412.87(b)(1)(ii)(C) because it does not address how GAMIFANT[supreg]
improves clinical outcomes relative to other therapies that may be used
to treat HLH/MAS patients who had an inadequate response to
glucocorticoids or with recurrent MAS.
We also note that to support its assertion regarding improved
clinical outcomes, the applicant provided results from two clinical
studies, NI-0501-06 and NI-0501-14. We note that all patients in the
studies responded inadequately to high-dose
[[Page 19418]]
glucocorticoids prior to study treatment, and providers would typically
initiate other second- and third-line therapies in this patient
population. While the applicant claimed GAMIFANT[supreg] reduces
glucocorticoid dosing, it is unclear whether GAMIFANT[supreg]
significantly reduces glucocorticoid dosing compared to other therapies
that may be used in these patients. In addition, some therapies used
for MAS in Still's disease such as anakinra and cyclosporine were
allowed during these studies and could have affected the outcomes, and
thus, we are unclear how these studies support the assertion of
improved outcomes relative to other available treatments.
While the applicant claims a positive benefit:risk profile for
GAMIFANT[supreg], the submitted clinical information does not clearly
explain how it was determined whether serious adverse events were
related to GAMIFANT[supreg], nor does it provide sufficient detail on
the reported serious adverse events. Specifically, we note that while
De Benedetti et al. (2023) states that there were 9 serious adverse
events in NI-0501-06 and the long-term follow-up, which appear to
include one cytomegalovirus reactivation, one SJIA flare, one edema of
the ankle, one MAS episode, one cardiopulmonary failure, and one severe
neutropenia, it is unclear what the other three reactions were and
which were related to GAMIFANT[supreg]. Grom et al. (2025) also stated
there were 7 serious adverse events in NI-0501-14, but it is unclear
what these events were and which were related to GAMIFANT[supreg].
Furthermore, we would appreciate more detail on the visual analogue
scale (VAS) scoring system used in the clinical trials in order to
fully assess the efficacy outcome data. We also note that the long-term
clinical trials included up to 12 months of follow-up, and we question
if this is enough time to assess for MAS recurrence.
After review of the information provided by the applicant, we are
unable to determine whether GAMIFANT[supreg] represents a substantial
clinical improvement over existing technologies, and therefore, we are
proposing to disapprove new technology add-on payments for
GAMIFANT[supreg] for FY 2027.
We are inviting public comments on whether GAMIFANT[supreg] meets
the substantial clinical improvement criterion and our proposal to
disapprove FY 2027 new technology add-on payments for GAMIFANT[supreg].
d. Orca-T
Orca Bio submitted an FY 2027 application for new technology add-on
payments for Orca-T. According to the applicant, Orca-T is an
allogeneic stem cell and T-cell immunotherapy derived from a human
leukocyte antigen (HLA)-matched donor for the curative treatment of
hematologic malignancies, including acute myeloid leukemia (AML), acute
lymphoblastic leukemia (ALL), high-risk myelodysplastic syndrome (MDS),
and mixed-phenotype acute leukemia (MPAL), in adults. Orca-T is
administered as four single-dose, patient-specific infusions composed
of purified hematopoietic stem and progenitor cells (HSPC), regulatory
T cells (Treg), and conventional T cells (Tcon) along with a diluent
from an HLA-matched donor blood apheresis product.
The following table provides an overview of the new technology add-
on payment application for Orca-T and CMS's preliminary assessment. For
additional details provided by the applicant, please refer to the
online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251003TH4EH.
[GRAPHIC] [TIFF OMITTED] TP14AP26.081
[[Page 19419]]
Newness Criterion
Regarding substantial similarity, the applicant stated that Orca-T
does not have the same or similar mechanism of action as any therapies
that are currently used in potentially curative hematologic malignancy
treatments mapped to Pre-MDC MS-DRG 018 (Chimeric Antigen Receptor
[CAR] T-cell and Other Immunotherapies). While the applicant asserted
that Orca-T's engineered product is novel in composition of HSPC, Treg,
and Tcon fractions derived from an allograft and administered in a
specific sequence, we note that the cell lines isolated in Orca-T
already exist in an unmanipulated allograft administered as part of an
allogeneic hematopoietic stem cell transplantation (alloHSCT) after
cytoreductive conditioning. However, we agree with the applicant that
Orca-T is not substantially similar to alloHSCT because it maps to a
different MS-DRG than alloHSCTs, which are mapped to Pre-Major
Diagnostic Category (MDC) MS-DRG 014 (Allogeneic Bone Marrow
Transplant). Therefore, based on information available at the time of
this proposed rule, we believe that Orca-T is not substantially similar
to existing technologies and meets the newness criterion. We are
inviting public comments on whether Orca-T is substantially similar to
existing technologies and whether Orca-T meets the newness criterion.
Cost Criterion
Regarding the cost criterion, we agree with the applicant that the
technology meets the cost criterion. We are inviting public comments on
whether Orca-T meets the cost criterion.
Substantial Clinical Improvement Criterion
Regarding substantial clinical improvement, we 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 Orca-T, which we are summarizing in this
section.
Comment: A commenter submitted a public comment regarding whether
Orca-T meets the substantial clinical improvement criterion, stating
that CMS should prioritize measurable, reproducible, and auditable
clinical improvement rather than narrative claims alone in assessing
substantial clinical improvement. The commenter stated that, where
possible, substantial clinical improvement determinations should be
supported by standardized episode definitions, clearly described
patient selection and comparators, and outcome measures, such as
complications, length of stay, and readmissions, that can be
independently reproduced across sites. In addition, the commenter
emphasized that it may be especially important that claimed
improvements are supported by reproducible episode definitions, clearly
documented eligibility and protocol criteria, and integrity-preserving
audit trails that can be independently reviewed when decision support
(including AI-assisted decision support) is used for patient selection.
The commenter also recommended that CMS give greater weight to
submissions that provide traceable evidence linkage from claimed
improvements back to underlying data and protocol definitions to
improve consistency and transparency. The commenter suggested that this
would help ensure that new technology add-on payments recognize
technologies delivering clinically meaningful and verifiable
improvements in real-world inpatient care.
Response: We thank the commenter for the comment. After review of
the information provided by the applicant and the public comment
received in response to the New Technology Town Hall meeting, we have
the following concerns regarding whether Orca-T meets the substantial
clinical improvement criterion.
We are concerned about the lack of technology-specific evidence in
support of the applicant's assertion that Orca-T provides a treatment
option for patients unresponsive to, or ineligible for, currently
available treatments. The applicant claimed that Orca-T is favorable to
patients at risk of severe toxicities and mortality with standard of
care (SoC) alloHSCT. We note that the supporting evidence for this
claim is comprised of background literature about the impact of graft-
versus-host disease (GVHD) on patients with hematologic malignancies in
general, but does not identify a patient population that is
unresponsive to, or ineligible for, alloHSCT, nor does it demonstrate
that Orca-T can treat such a patient population. We remain unclear if
there is a group of patients who can be treated with Orca-T, but cannot
receive existing treatments for hematologic malignancies such as
alloHSCT, CAR T-cell therapies, and chemotherapies.
We are also concerned that we are unable to assess whether Orca-T
significantly improves clinical outcomes relative to services or
technologies previously available without evidence comparing outcomes
for Orca-T to other therapies available for patients with hematologic
malignancies, including CAR T-cell therapies. While the evidence
compared Orca-T to conventional MAC-alloHSCT approaches using standard
GVHD prophylaxis regimens, it did not include comparisons to other
therapeutic modalities such as CAR-T cell therapies which are available
for the treatment of patients with hematologic malignancies and may not
be associated with the risk of GVHD. We also note that the supporting
evidence for this claim does not include comparisons to other treatment
options used in this patient population outside the unmanipulated allo-
HSCT setting, such as chemotherapies, nor does it compare the effects
of Orca-T with reduced-toxicity or reduced-intensity conditioning on
regimen-related toxicity and other clinical outcomes. As a result, we
question whether Orca-T results in improved clinical outcomes relative
to existing hematologic malignancy treatments.
We are inviting public comments on whether Orca-T meets the
substantial clinical improvement criterion.
e. RAPIBLYKTM (landiolol)
AOP Health US LLC submitted a FY 2027 application for new
technology add-on payments for RAPIBLYKTM. According to the
applicant, RAPIBLYKTM is a beta-1 ([beta]1) adrenergic
blocker that inhibits adrenaline and noradrenaline's effects on the
heart for short-term reduction of ventricular rate in adults with
supraventricular tachycardia (SVT), including atrial fibrillation (AF)
and atrial flutter (AFL). RAPIBLYKTM is supplied as a 280 mg
lyophilized powder in a single-dose vial (equivalent to 300 mg of
landiolol HCl) and, following reconstitution, is administered as a
continuous intravenous infusion titrated according to ventricular
rate.\56\ The applicant stated that during an inpatient stay, the
average patient requires five RAPIBLYKTM vials.
---------------------------------------------------------------------------
\56\ AOP Orphan Pharmaceuticals. (2024, November). RAPIBLYK
(landiolol) for injection, for intravenous use: highlights of
prescribing information. https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/217202s000lbl.pdf.
---------------------------------------------------------------------------
The following table provides an overview of the new technology add-
on payment application for RAPIBLYKTM and CMS's preliminary
assessment. For additional details provided by the applicant, please
refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006EVR3D.
[[Page 19420]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.082
Newness Criterion
Regarding commercial availability, the applicant stated that, after
its NDA approval on November 22, 2024, RAPIBLYKTM was not
immediately for sale and became commercially available on July 21,
2025, because the applicant needed to work through a number of time-
intensive steps to facilitate U.S. commercial launch, including
establishing a new entity for U.S. operations, identifying and
contracting with a third-party logistics vendor and distributor, and
identifying and contracting with wholesalers and group purchasing
organizations. We are interested in additional information regarding
the cause of the delay in commercial availability.
Regarding substantial similarity, we disagree with the applicant
that RAPIBLYKTM uses a different mechanism of action
compared to existing heart rate control technologies. Per the
applicant, RAPIBLYKTM directly blocks [beta]1-adrenergic
receptors on cardiac myocytes preventing catecholamine-induced
increases in heart rate and conduction velocity. According to the
applicant, unlike traditional beta blockers that rely on hepatic
metabolism, have 3- to 12-hour half-lives, and exhibit lower
[beta]1/[beta]2 selectivity ratios,
RAPIBLYKTM is rapidly hydrolyzed by tissue and plasma
esterases, yielding an ultra-short half-life of approximately 3 to 4
minutes without requiring hepatic clearance, and demonstrates an
exceptionally high [beta]1/[beta]2 selectivity
ratio. While we recognize that RAPIBLYKTM is metabolized and
cleared differently compared to other beta blockers, we do not believe
that this constitutes a unique mechanism of action because
RAPIBLYKTM, like other beta blockers, blocks [beta]1-
adrenergic receptors, reducing sympathetic stimulation.
Additionally, we disagree with the applicant that
RAPIBLYKTM treats a new patient population or disease
compared to existing technology because there are other beta blockers,
such as esmolol, that are FDA-approved for the treatment of adults with
SVT, including AF and AFL. According to the applicant,
RAPIBLYKTM is uniquely suited to resolve acute AF in a
patient population with impaired cardiac function and hemodynamic
instability because it is designed to safely manage tachyarrhythmias in
patients with hemodynamic instability and hypotension. However, we note
that other therapies, such as esmolol, can also be used to treat acute
AF patients with impaired cardiac function. While the applicant stated
that in RAPIBLYKTM's prescribing label, a dosing regimen is
included for patients with impaired cardiac function, we note that the
absence of a dosing regimen for cardiac impairment in the prescribing
label \57\ for esmolol does not preclude the use of this drug in this
patient population. Furthermore, in regards to the applicant's claim
that RAPIBLYKTM can be used in acute AF patients with
hemodynamic instability, we note that according to both prescribing
labels, esmolol and RAPIBLYKTM have the same
contraindications for use in patients with hemodynamic instability,
including those with severe sinus bradycardia, heart block greater than
first degree, sick sinus syndrome, decompensated heart failure, and
cardiogenic shock. While the applicant made several statements related
to RAPIBLYKTM's dosing regimen, safety profile, and
suitability for cardiac impaired patients, we believe this is relevant
to the assessment of substantial clinical improvement, rather than of
newness. We did not receive evidence identifying a new patient
population or type of disease which RAPIBLYKTM treats that
cannot be treated with existing technologies such as esmolol,
amiodarone, or digoxin.
---------------------------------------------------------------------------
\57\ WG Critical Care, LLC. (1986, December). Esmolol
hydrochloride in water for injection, for intravenous use:
highlights of prescribing information. https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/205703s003lbl.pdf.
---------------------------------------------------------------------------
Accordingly, as it appears that RAPIBLYKTM and esmolol
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 SVT including AF and AFL, we believe that these technologies are
substantially similar to each other.
We note that, per our policy, if technologies are substantially
similar to each other, we use the earliest market availability date as
the beginning of the
[[Page 19421]]
newness period for the technologies. Accordingly, if we determine that
RAPIBLYKTM is substantially similar to esmolol, we believe
the newness period for RAPIBLYKTM would begin on December
31, 1986, the date esmolol received FDA approval. Since esmolol has
been on the U.S. market since 1986, the 3-year anniversary date of its
entry onto the market occurred prior to FY 2027. Therefore,
RAPIBLYKTM would not be considered new and would be
ineligible for new technology add-on payments for FY 2027.
We are inviting public comments on whether RAPIBLYKTM is
substantially similar to existing technologies and whether
RAPIBLYKTM meets the newness criterion.
Cost Criterion
Regarding the cost criterion, we agree with the applicant that the
technology meets the cost criterion. We are inviting public comments on
whether RAPIBLYKTM meets the cost criterion.
Substantial Clinical Improvement Criterion
Regarding substantial clinical improvement, we also received a few
public comments in response to the New Technology Town Hall meeting
notice published in the Federal Register regarding the substantial
clinical improvement criterion for RAPIBLYKTM, which we are
summarizing in this section.
Comment: The applicant submitted a comment in response to the New
Technology Town Hall meeting. With regard to a question on which high-
risk population with AF is not well-managed by other beta blockers, the
applicant stated that, based on Koukoulitsios et al. (2025) and the
2023 AF Consensus Guidelines, this refers to patients with impaired
cardiac output, specifically those with an ejection fraction below 40
percent, as described in its application.58 59 The applicant
also submitted one study in addition to its comment letter while
discussing two other studies to support RAPIBLYKTM's
substantial clinical improvement.60 61 62 The applicant
submitted Dizdarevic et al. (2025), a multicenter, prospective
observational study of 450 European patients with SVTs, including AF
and AFL, requiring acute rate control treated with
RAPIBLYKTM across intensive care units (ICUs), emergency
departments, and general wards to support its claim that
RAPIBLYKTM provides a new, effective heart rate control
option for acute AF patients with significant comorbidities, including
chronic heart failure (CHF) and renal impairment. Per the applicant,
the authors defined subgroups by arrhythmia type, comorbidities (such
as sepsis or acute myocardial infarction), and concomitant
interventions. According to the applicant, the primary endpoints
included RAPIBLYKTM utilization patterns, such as infusion
duration, dosing, and the route of administration (central or
peripheral venous access). The applicant stated that the secondary
endpoints included time to heart rate control, sinus rhythm
restoration, need for cardioversion, blood pressure effects, ICU and
hospital length of stay (LOS), and safety outcomes, such as adverse
events (AEs), serious AEs (SAEs), and major adverse cardiovascular
events (MACEs). As reported by the applicant, Dizdarevic et al. (2025)
showed that 74.2 percent of patients receiving RAPIBLYKTM
achieved heart rate control within 4 hours of discontinuation. Per the
applicant, the median heart rate at the end of RAPIBLYKTM
infusion was 100 beats per minute (bpm), with statistically significant
reductions compared to baseline (p < 0.001) across all arrhythmia
subgroups. The applicant also stated that patients' blood pressure
generally remained stable throughout treatment, with no clinically
meaningful changes in systolic or diastolic values, and that study
showed favorable safety outcomes: AEs occurred in 17.6 percent of
patients, but only 2.0 percent experienced hypotension and only 1 case
reported bradycardia. Per the applicant, none of the AEs or MACEs were
attributed to RAPIBLYKTM treatment, and only 6 patients (1.3
percent) discontinued therapy due to AEs.
---------------------------------------------------------------------------
\58\ Koukoulitsios G, Tsikritsaki K, Magklaras G, Koutivas AM,
Kalogeromitros A, Papaioannou V. Comparison of Landiolol and Esmolol
on Haemodynamic Responses During Weaning of Intensive Care Unit
Patients with Reduced Ejection Fraction after Vascular Surgery. Card
Fail Rev. 2025 May 21;11:e13. https://doi.org/10.15420/cfr.2024.18.
\59\ Cafaro T, Allwood M, McIntyre WF, Park LJ, Daza J, Ofori
SN, Ke Wang M, Borges FK, Conen D, Marcucci M, Healey JS, Whitlock
RP, Lamy A, Belley-C[ocirc]t[eacute] EP, Spence JD, McGillion M,
Devereaux PJ. Landiolol for the prevention of postoperative atrial
fibrillation after cardiac surgery: a systematic review and meta-
analysis. Can J Anaesth. 2023 Nov;70(11):1828-1838. https://doi.org/10.1007/s12630-023-02586-0.
\60\ Dizdarevic, A.-M., [Scaron]ramko, M., Mangner, N., Merkely,
B., Zima, E., Nikolaos, N., Scherr, D., Knotzer, J.,
K[ouml]glberger, P., Nouvaki, Z., Martinek, M., Hnat, T., Bethlehem,
C., Fras, Z., Go[zacute]dzik, W., Kotanidou, A., D[aogon]browski,
W., Lesiak, M., Stefanska-Wronka, K., . . . Siller-Matula, J.
(2025). A multicentre observational study on landiolol use,
efficacy, and safety in European patients with supraventricular
arrhythmia (Landi-UP). European Heart Journal: Acute Cardiovascular
Care. Advance online publication. https://doi.org/10.1093/ehjacc/zuaf129.
\61\ Floria, M., Oancea, A. F., Morariu, P. C., Burlacu, A.,
Iov, D. E., Chiriac, C. P., Baroi, G. L., Stafie, C. S., Cuciureanu,
M., Scripcariu, V., & Tanase, D. M. (2024). An overview of the
pharmacokinetics and pharmacodynamics of landiolol (an ultra-short
acting [beta]1 selective antagonist) in atrial fibrillation.
Pharmaceutics, 16(4), 517. https://doi.org/10.3390/pharmaceutics16040517.
\62\ Perrett, M., Gohil, N., Tica, O., Bunting, K. V., &
Kotecha, D. (2024). Efficacy and safety of intravenous beta-blockers
in acute atrial fibrillation and flutter is dependent on beta-1
selectivity: A systematic review and meta-analysis of randomised
trials. Clinical Research in Cardiology, 113(6), 831-841. https://doi.org/10.1007/s00392-023-02295-0.
---------------------------------------------------------------------------
The applicant also discussed a review article that was already
submitted (Floria et al., 2024) to support its claims that
RAPIBLYKTM is effective in reducing the incidence of
postoperative atrial fibrillation (POAF) in cardiac surgery patients.
According to the applicant, this review provided a comprehensive
overview of RAPIBLYKTM, including its pharmacology, clinical
applications, efficacy, safety profile, and future directions in
research and clinical data. Per the applicant, as described in Floria
et al. (2024),\33\ in the randomized, double-blind, placebo-controlled
PASCAL trial, coronary artery bypass grafting (CABG) patients who
received RAPIBLYKTM infusion had AF incidence of 5 percent
compared to 34.3 percent for placebo (p = 0.0006), along with
reductions in inflammatory and ischemic biomarkers. Per the applicant,
similarly, the PLATON study of 60 patients with left ventricular
ejection fraction below 35 percent who had cardiac surgery performed
with cardiopulmonary bypass found AF in only 10 percent of the
RAPIBLYKTM group compared to 40 percent of controls (p =
0.002), along with improved brain natriuretic peptide levels, ischemic
biomarkers, and shorter hospital stays. According to the applicant,
across these trials, inclusion criteria focused on patients undergoing
major cardiac surgery, with some studies targeting elderly populations
or those with reduced ventricular function, while exclusion criteria
involved contraindications to beta blockers, such as severe bradycardia
or advanced heart block. The applicant stated that endpoints
consistently measured AF incidence, biomarker changes, and safety
outcomes. Per the applicant, results were statistically significant,
confirming that RAPIBLYKTM not only reduces POAF but also
improves perioperative biomarker profiles and clinical outcomes. The
applicant stated that its rapid onset, short half-life, and high
cardioselectivity make RAPIBLYKTM a safe and effective
option for perioperative heart rate control,
[[Page 19422]]
particularly in critically ill patients or those with compromised
cardiac function. According to the applicant, these trials also show
improved outcomes beyond rhythm control, including reductions in
inflammatory and ischemic biomarkers, shorter hospital stays, and
better tolerance in compromised cardiac patients. The applicant stated
that, taken together, this evidence supports the claim that
RAPIBLYKTM offers superior AF prevention and outcome
benefits compared to other heart rate control therapies.
In addition, the applicant discussed Perrett et al. (2024), a
systematic review and meta-analysis evaluating the efficacy and safety
of intravenous (IV) beta blockers in acute AF and AFL, focusing on the
role of [beta]-1 receptor selectivity, to support its claim that
RAPIBLYKTM offers a new heart rate control option for acute
AF patients, including those with CHF and renal impairment. According
to the applicant, across 12 randomized controlled trials with 1,152
patients, the study found that: (1) overall, non-selective IV beta
blockers were not superior to other pharmacological agents for heart
rate control or conversion to sinus rhythm, but (2) outcomes varied
significantly depending on the degree of beta-1 selectivity, with
RAPIBLYKTM having superior clinical results and the highest
beta-1 selectivity. The applicant stated that, in this analysis, a
total of 1,152 adult patients were included, with 526 receiving IV beta
blockers and 626 receiving comparators such as diltiazem, digoxin,
verapamil, flecainide, ibutilide, or placebo. Per the applicant, the
patient population had a mean age of 62.4 years, 38 percent were women,
and the baseline heart rate averaged 137 bpm. The applicant stated that
most patients had AF (78 percent), with 11 percent having AFL. The
study's inclusion criteria required adults (>=18 years) with AF/AFL
needing acute treatment, typically with ventricular rate >=100 bpm.
According to the applicant, exclusion criteria included obstructive
lung disease, recent anti-arrhythmic use, prophylactic therapy, or
arrhythmias other than AF/AFL. The applicant stated that the primary
endpoints were heart rate reduction and proportion achieving target
heart rate, and the secondary endpoints included conversion to sinus
rhythm, need for electrical cardioversion, blood pressure changes, AEs
(hypotension, bradycardia, leading to drug discontinuation), time to
discharge, and mortality. Per the applicant, Perrett et al. (2024) did
not show statistically significant difference between beta blockers and
comparators for heart rate reduction (standardized mean difference -
0.65 bpm, p = 0.19) or achieving the target heart rate (relative risk
0.85, p = 0.70). The applicant stated subgroup analysis revealed,
however, that (1) conventional selective beta-1 blockers, metoprolol
and esmolol, were inferior to diltiazem (relative risk 0.33, p <
0.001), and (2) RAPIBLYKTM was superior to digoxin/diltiazem
(relative risk 1.98, p < 0.001). According to the applicant, safety
outcomes indicated no overall difference in hypotension (relative risk
1.85, p = 0.11) or bradycardia (relative risk 1.29, p = 0.76) compared
to controls. The applicant stated that, while non-selective beta
blockers were associated with significantly more hypotension (p <
0.001) and bradycardia (p = 0.003), RAPIBLYKTM did not
increase AEs. According to the applicant, this meta-analysis
demonstrated that RAPIBLYKTM improved outcomes compared to
conventional agents like diltiazem or digoxin (as well as non-selective
beta blockers) for acute AF and AFL, achieving superior heart rate
control without increasing hypotension or bradycardia. The applicant
stated these findings directly support that RAPIBLYKTM
offers a valuable new option for patients with AF who also have
comorbidities such as CHF or renal impairment, where tolerability and
safety are critical.
A few commenters expressed support for new technology add-on
payments for RAPIBLYKTM by asserting that there is a
population for whom RAPIBLYKTM is a more appropriate
treatment option than other beta blockers. Two clinicians stated their
belief that improved access to RAPIBLYKTM would benefit
critically ill patients who previously had no viable alternatives. The
commenters stated that RAPIBLYKTM has been available in
Japan and the European Union for years and that its ultra-selective
beta-1 blockade provides effective heart rate control with minimal
impact on blood pressure, vascular tone, or bronchial tone, enabling
safe use in patients with impaired cardiac contractility, renal
dysfunction, or advanced heart failure. The commenters also stated that
RAPIBLYKTM's rapid onset of action, titratability, and
ultra-short half-life and ultra-high selectivity for beta-1 cardio-
receptors have been shown to effectively lower heart rate and allows
for precise control and efficacy evaluation in the ICU environment,
where patients are highly susceptible to adverse drug effects.
A few commenters asserted that RAPIBLYKTM can treat a
different patient population compared to other heart rate control
drugs, including other beta blockers, as it has demonstrated effective
management of tachyarrhythmias, even in patients with impaired cardiac
function or at risk of hemodynamic instability or hypotension. The
commenters reiterated evidence submitted in the application
(Koukoulitsios et al., 2025; Cafaro et al., 2023; Si et al., 2025) and
asserted that, based on their clinical experience, there is a clear gap
in available and effective heart rate control therapies for these high-
risk patient subgroups,\63\ including use in critically ill patients,
who have shown improved outcomes even compared to other selective beta
blockers such as esmolol. The commenters noted that Si et al. (2025)
showed that patients in the RAPIBLYKTM group experienced a
shorter hospital LOS and a shorter ICU stay, including in the elderly
cohort (>=65 years old), than patients in the esmolol group. One
commenter stated current options often lack the safety and efficacy
needed for rapid rate control in unstable patients and asserted that
there is a great unmet need for RAPIBLYKTM, particularly for
his patients with heart failure with reduced ejection fraction and/or
shock, where traditional beta blockers pose substantial risks. One
commenter stated that current consensus guidelines recommend beta
blockers or calcium channel blockers, but these agents are often
contraindicated in ICU patients due to risk of hypotension or for
patients with impaired cardiac function, while other alternatives, such
as amiodarone or digoxin, are limited by toxicities, poor efficacy in
high adrenergic states, or unfavorable pharmacokinetics. Another
commenter stated that experience with RAPIBLYKTM outside the
U.S. has demonstrated the benefits of its use in this patient
population, with the European Society of Cardiology (ESC) 2024
Guidelines for the Management of AF stating that RAPIBLYKTM
safely controls rapid AF in patients with low ejection fraction with
minimal impact on contractility or blood pressure.\64\ The
[[Page 19423]]
commenter cited the RAPIBLYKTM prescribing information,
which contains specific dosing instructions for patients with impaired
cardiac function, stating that 5 randomized, double-blind, placebo-
controlled studies, which included treatment of 317 adults with SVT,
showed that within 10 minutes, patients treated with
RAPIBLYKTM had a decreased heart rate of 40 to 90 percent
compared to 0 to 11 percent for patients treated with placebo.\65\
According to the commenter, the availability of RAPIBLYKTM
would allow him to stabilize these patients quickly and safely,
improving outcomes in the most vulnerable population.
---------------------------------------------------------------------------
\63\ Si X, Yuan H, Shi R, Song W, Guo J, Jiang J, Yang T, Ma X,
Wang H, Chen M, Wu J, Guan X, Monnet X. Comparison of the efficacy
and safety of Landiolol and Esmolol in critically ill patients: a
propensity score-matched study. Ann Intensive Care. 2025 Jan
12;15(1):5. https://doi.org/10.1186/s13613-024-01418-8.
\64\ Van Gelder, IC et al., 2024 ESC Guidelines for the
management of atrial fibrillation developed in Collaboration with
the European Association for Cardio-Thoracic Surgery (EACTS), EURO.
HEART J. 00, 1-101. https://doi.org/10.1093/eurheartj/ehae176.
\65\ AOP Orphan Pharmaceuticals. (2024 November). RAPIBLYK
(landiolol) for injection, for intravenous use: Highlights of
Prescribing Information. https://www.accessdata.fda.gov/drugsatfda_docs/label/2024/217202s000lbl.pdf.
---------------------------------------------------------------------------
Response: We thank the applicant and commenters for their comments.
After review of the information provided by the applicant and the
public comments received in response to the New Technology Town Hall
meeting, we have the following concerns regarding whether
RAPIBLYKTM meets the substantial clinical improvement
criterion.
While the applicant asserted that RAPIBLYKTM offers a
treatment option for patients unresponsive to, or ineligible for,
currently available treatments because it offers a new heart rate
control option for patients with acute AF and additional co-
morbidities, including CHF and renal impairment, we note that we did
not receive evidence to identify a patient population that is
unresponsive to, or ineligible for, currently available treatments.
Although the applicant claimed that the use of non-selective beta
blockers and calcium channel blockers for rate control are ineffective
or contraindicated in high risk patients, which the applicant defined
as those with an ejection fraction (EF) less than 40 percent, we note
that beta blockers, including esmolol, a selective beta-1 adrenergic
blocker, are not specifically contraindicated for use in patients with
an EF less than 40 percent. According to the 2023 Guideline for the
Diagnosis and Management of AF \66\ provided by the applicant, patients
with an EF less than 40 percent can receive beta blockers, amiodarone,
and digoxin for rate control. Additionally, the applicant cited Eslami
et al. (2021),\67\ a prospective study from 2018 to 2020 consisting of
87 patients with HF or AF with underlying chronic kidney dysfunction
which observed that there was a significant relationship between
Glomerular Filtration Rate (GFR) and serum digoxin concentration.
However, we note that this is not a contraindication to the use of
digoxin and that a dose reduction \68\ would be recommended.
---------------------------------------------------------------------------
\66\ Joglar JA, Chung MK, Armbruster AL, Benjamin EJ, Chyou JY,
Cronin EM, Deswal A, Eckhardt L, Goldberger ZD, Gopinathannair R,
Gorenek B, Hess PL, Hlatky M, Hogan G, Ibeh C, Indik JH, Kido K,
Kusumoto F, Link MS, Linta KT, Marcus GM, McCarthy PM, Patel N,
Patton KK, Perez MV, Piccini JP, Russo AM, Sanders P, Streur MM,
Thomas KL, Times S, Tisdale JE, Valente AM, Van Wagoner DR. 2023
ACC/AHA/ACCP/HRS guideline for the diagnosis and management of
atrial fibrillation: a report of the American College of Cardiology/
American Heart Association Joint Committee on Clinical Practice
Guidelines. Circulation. 2024;149:e1-e156. https://doi.org/10.1161/CIR.0000000000001193.
\67\ Eslami V, Mortezapour F, Samavat S, Ziae S, Gheymati A
(2021) Evaluating plasma Digoxin concentration after an intravenous
loading dose in patients with renal failure. Arch Clin Nephrol 7(1):
033-037. https://dx.doi.org/10.17352/acn.
\68\ Concordia Pharmaceuticals Inc. Prescribing information for
Lanoxin (digoxin) injection, for intravenous or intramuscular use;
2025. (Revised 10/2025). Available at: https://www.accessdata.fda.gov/drugsatfda_docs/label/2025/009330s040lbl.pdf.
---------------------------------------------------------------------------
Regarding the assertion that RAPIBLYKTM significantly
improves clinical outcomes relative to services or technologies
previously available, we are concerned that we did not receive
sufficient evidence to compare RAPIBLYKTM to other available
treatments, such as amiodarone. To support its claim that
RAPIBLYKTM reduces AF and improves outcomes compared to
other heart rate control therapies in patients at high risk for POAF,
the applicant provided Koukoulitsios et al. (2025),\69\ a prospective,
randomized, open-label study consisting of 39 patients in an ICU in
General Hospital of Athens from 2018 to 2020 that observed
RAPIBLYKTM reduced heart rate (HR) by 40 bpm in comparison
to 30 bpm for esmolol at 30 minutes. However, we note that the study
did not assess for AF or whether use of RAPIBLYKTM and
esmolol reduced AF events. The applicant also cited Cafaro et al.
(2023),\70\ a systematic review and meta-analysis of nine randomized
controlled studies that observed RAPIBLYKTM showed a 12.2
percent incidence in POAF compared to 32.6 percent for the control
group. However, while patients treated with RAPIBLYKTM
showed a reduction in POAF (56 events in 460 patients) compared to
those who received either saline placebo or undefined controls (133
events in 408 patients) (p < 0.00001) in the control group, we note
that it is difficult to evaluate if RAPIBLYKTM reduces AF
and improves outcomes compared to other heart rate control therapies
because it is unclear if existing therapies were included as undefined
controls.
---------------------------------------------------------------------------
\69\ Koukoulitsios G, Tsikritsaki K, Magklaras G, Koutivas AM,
Kalogeromitros A, Papaioannou V. Comparison of Landiolol and Esmolol
on Haemodynamic Responses During Weaning of Intensive Care Unit
Patients with Reduced Ejection Fraction after Vascular Surgery. Card
Fail Rev. 2025 May 21;11:e13. https://doi.org/10.15420/cfr.2024.18.
\70\ Cafaro T, Allwood M, McIntyre WF, Park LJ, Daza J, Ofori
SN, Ke Wang M, Borges FK, Conen D, Marcucci M, Healey JS, Whitlock
RP, Lamy A, Belley-C[ocirc]t[eacute] EP, Spence JD, McGillion M,
Devereaux PJ. Landiolol for the prevention of postoperative atrial
fibrillation after cardiac surgery: a systematic review and meta-
analysis. Can J Anaesth. 2023 Nov;70(11):1828-1838. https://doi.org/10.1007/s12630-023-02586-0.
---------------------------------------------------------------------------
Similarly, we question whether the provided evidence is sufficient
to demonstrate that RAPIBLYKTM leads to improved outcomes,
reduced hospital LOS, and reduced ICU LOS in critically ill patients
and those with POAF. To support this claim, the applicant submitted one
peer-reviewed study (Si et al., 2025),\71\ which retrospectively
observed RAPIBLYKTM and esmolol's effects in 438 surgical
and medical ICU patients (292 receiving esmolol and 146 receiving
RAPIBLYKTM) with tachycardia, noting that a small subset of
patients had AF (9.8 percent). The study observed significantly shorter
ICU and hospital LOS in the RAPIBLYKTM group compared to the
esmolol group (ICU LOS: 4.9 vs. 6.7 days, p = 0.011; hospital LOS: 26.5
vs. 30.0 days, p = 0.044). However, we note that the study treated
patients with moderate illness severity and used physician preference
rather than randomization to determine treatment selection. These
design features limit generalizability to critically ill patients and
may introduce the potential for selection bias and confounding in the
reported outcomes.
---------------------------------------------------------------------------
\71\ Si, X., Yuan, H., Shi, R., Song, W., Guo, J., Jiang, J.,
Yang, T., Ma, X., Wang, H., Chen, M., Wu, J., Guan, X., & Monnet, X.
(2025). Comparison of the efficacy and safety of Landiolol and
Esmolol in critically ill patients: a propensity score-matched
study. Annals of intensive care, 15 (1), 5. https://doi.org/10.1186/s13613-024-01418-8.
---------------------------------------------------------------------------
After review of the information provided by the applicant and the
public comments received in response to the New Technology Town Hall
meeting, we are unable to determine that RAPIBLYKTM
represents a substantial clinical improvement over existing
technologies, and therefore, we are proposing to disapprove FY 2027 new
technology add-on payments for RAPIBLYKTM.
We are inviting public comments on whether RAPIBLYKTM
meets the substantial clinical improvement criterion and our proposal
to disapprove new technology add-on payments for RAPIBLYKTM
for FY 2027.
[[Page 19424]]
f. WASKYRATM (etuvetidigene autotemcel)
Fondazione Telethon submitted an FY 2027 application for new
technology add-on payments for WASKYRATM. According to the
applicant, WASKYRATM is a one-time, cell-based autologous
gene therapy indicated for the treatment of pediatric patients 6 months
and older and adults with Wiskott-Aldrich Syndrome (WAS) who have a
mutation in the WAS gene for whom hematopoietic stem cell
transplantation (HCT) is appropriate and no suitable human leukocyte
antigen (HLA)-matched related stem cell donor is available. Per the
applicant, following reduced-intensity conditioning,
WASKYRATM is administered intravenously as a single
autologous infusion of gene-corrected cluster of differentiation
(CD)34+ hematopoietic stem and progenitor cells (HSPCs), with a minimum
recommended dose of 7.0x10\6\ CD34+ cells/kg, individualized by patient
weight and leukapheresis yield.
The following table provides an overview of the new technology add-
on payment application for WASKYRATM and CMS's preliminary
assessment. For additional details provided by the applicant, please
refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP2510033XJPK.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.083
BILLING CODE 4120-01-C
Newness Criterion
The applicant stated that the technology would not be commercially
available until March 31, 2026, due to the applicant's need to
establish commercial infrastructure, finalize import logistics, and
plan for U.S. market compliance. We are interested in additional
information regarding when the technology first became available for
sale and the cause of any delay in the technology's commercial
availability, such as additional details regarding the establishment of
commercial infrastructure.
Regarding substantial similarity, the applicant asserted that
WASKYRATM treats a new disease and/or a new patient
population because it is a curative treatment designed for patients
lacking a suitable HCT donor and noted that HCT is limited by donor
availability, age, and risk of graft failure or graft-versus-host
disease. However, based on information available at the time of this
proposed rule, we disagree with the applicant that WASKYRATM
treats a new disease or new patient population because there are
several other therapies FDA-approved for WAS in patients that cannot
receive a HCT, such as ALYGLOTM and ASCENIVTM
which are indicated for treatment of primary humoral immunodeficiency
in patients with WAS and corticosteroids indicated for eczema. We note
that the applicant did not assert that WASKYRATM has a new
mechanism of action compared to existing treatments for WAS or that it
changes the MS-DRG assignment. Therefore, based on information
available at the time of this proposed rule, it is unclear whether
WASKYRATM is substantially similar to existing treatments.
We are inviting public comments on whether WASKYRATM is
substantially similar to existing technologies and whether
WASKYRATM meets the newness criterion.
Cost Criterion
Regarding the cost criterion, we agree with the applicant that the
technology meets the cost criterion. We are inviting
[[Page 19425]]
public comments on whether WASKYRATM meets the cost
criterion.
Substantial Clinical Improvement Criterion
We did not receive any written comments in response to the New
Technology Town Hall meeting notice published in the Federal Register
regarding the substantial clinical improvement criterion for
WASKYRATM.
After review of the information provided by the applicant, we have
the following concerns regarding whether WASKYRATM meets the
substantial clinical improvement criterion. We note that the applicant
did not provide any evidence to support its claims, as further
discussed in this section, as to why the technology represents a
substantial clinical improvement over existing technologies. We are
unable to evaluate substantial clinical improvement in the absence of
supporting evidence.
Furthermore, with respect to the applicant's claims, we note that
the applicant asserted that WASKYRATM offers a treatment
option for a patient population unresponsive to, or ineligible for,
currently available treatments because it provides a treatment option
for WAS patients without HLA-identical related donors. However, we note
that this claim does not explain why these patients would be ineligible
for HCT with an HLA-matched unrelated donor. In addition, while the
applicant claimed that WASKYRATM reduces WAS disease burden,
offers a safer disease-modifying option for patients eligible for HCT,
demonstrates sustained engraftment of gene-corrected cells and long-
term clinical benefit, and directly addresses the genetic defect
underlying WAS through lentiviral gene transfer, we note that these
claims do not identify a patient population that is unresponsive to, or
ineligible for, currently available supportive care treatments and HCT.
We further note that the applicant asserted that WASKYRATM
significantly improves clinical outcomes relative to services or
technologies previously available, but did not identify specific
outcomes. For example, the applicant claimed that WASKYRATM
offers a safer option for WAS patients compared to HCT, but did not
describe a clinical outcome, such as a reduction in at least one
clinically significant adverse event as provided by Sec.
412.87(b)(1)(ii)(C)(1). Also, as previously noted, the applicant did
not provide evidence to support any of its claims and therefore we are
unable to evaluate whether WASKYRATM represents a
substantial clinical improvement over existing technologies.
After review of the information provided by the applicant, we are
unable to determine that WASKYRATM represents a substantial
clinical improvement over existing technologies, and therefore, we are
proposing to disapprove new technology add-on payments for
WASKYRATM for FY 2027.
We are inviting public comments on whether WASKYRATM
meets the substantial clinical improvement criterion and our proposal
to disapprove new technology add-on payments for WASKYRATM
for FY 2027.
g. YARTEMLEA[supreg] (narsoplimab-wuug)
Omeros Corporation submitted an FY 2027 application for new
technology add-on payments for YARTEMLEA[supreg] (narsoplimab-wuug).
According to the applicant, YARTEMLEA[supreg] is a fully human
monoclonal antibody designed to treat and alleviate the detrimental
consequences of hematopoietic stem cell transplant-associated
thrombotic microangiopathy (TA-TMA) by targeting and inhibiting mannan-
binding lectin-associated serine protease 2 (MASP-2), an effector
enzyme that activates the lectin pathway of the complement system.
YARTEMLEA[supreg] is administered as a 30-minute intravenous infusion
once weekly, and the recommended dose is 370 mg for patients greater
than or equal to 50 kg and is 4 mg/kg for patients weighing less than
50 kg. The applicant estimated that patients receive an average total
dosage of 4,218 mg per inpatient stay. We note that the applicant
submitted an application for new technology add-on payments for this
technology for FY 2022 (86 FR 25282 through 25286; 86 FR 44979) and FY
2023 (87 FR 28274 through 28279; 87 FR 48920).
The following table provides an overview of the new technology add-
on payment application for YARTEMLEA[supreg] and CMS's preliminary
assessment. For additional details provided by the applicant, please
refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006R7LMC.
[[Page 19426]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.084
Newness Criterion
Regarding substantial similarity, based on the information
available at the time of this proposed rule, we agree with the
applicant that YARTEMLEA[supreg] has a new mechanism of action and
treats a new type of disease or patient population compared to existing
technology, because YARTEMLEA[supreg] is the only FDA-approved therapy
indicated for the treatment of adult and pediatric patients 2 years of
age and older with hematopoietic stem cell TA-TMA. We note that we
disagree with the applicant that YARTEMLEA[supreg] is assigned to a
different MS-DRG compared to existing technology because patients
diagnosed with TA-TMA, including those treated with YARTEMLEA[supreg],
map to MS-DRGs 545-547. Therefore, based on information available at
the time of this proposed rule, we believe that YARTEMLEA[supreg] is
not substantially similar to existing technology and meets the newness
criterion. We consider the beginning of the newness period to commence
on December 23, 2025, the date on which YARTEMLEA[supreg] received FDA
market authorization for this indication.
We are inviting public comments on whether YARTEMLEA[supreg] is
substantially similar to existing technologies and whether
YARTEMLEA[supreg] meets the newness criterion.
Cost Criterion
Regarding the cost criterion, we agree with the applicant that the
technology meets the cost criterion. We are inviting public comments on
whether YARTEMLEA[supreg] meets the cost criterion.
Substantial Clinical Improvement Criterion
We did not receive any written comments in response to the New
Technology Town Hall meeting notice published in the Federal Register
regarding the substantial clinical improvement criterion for
YARTEMLEA[supreg].
After review of the information provided by the applicant, we agree
with the applicant that YARTEMLEA[supreg] is the first and only FDA-
approved treatment option for patients who develop TA-TMA and offers a
treatment option for patients who have failed prior treatment with
other available therapies including C5 inhibitors and other TA-TMA
directed therapies with a one-year overall survival (OS) of 42.7
percent (95% CI: 19.7, 65.8) in adult patients.\72\ Therefore, we agree
that YARTEMLEA[supreg] would offer a treatment option for a patient
population unresponsive to, or ineligible for, currently available
treatments. Based on the information available at the time of this
proposed rule, because YARTEMLEA[supreg] appears to meet the criteria
for approval for new technology add-on payments, we are proposing to
approve YARTEMLEA[supreg] for new technology add-on payments for FY
2027.
---------------------------------------------------------------------------
\72\ Schoettler ML, Pusarla SK, Nangia N, et al. Narsoplimab
Results in Excellent Survival in Adults and Children With
Hematopoietic Cell Transplant Associated Thrombotic Microangiopathy
(TA-TMA). Am J Hematol. 2025d Aug 29. https://doi.org/10.1002/ajh.70044. Epub ahead of print.
---------------------------------------------------------------------------
We are inviting public comments on whether YARTEMLEA[supreg] meets
the substantial clinical improvement criterion and on our proposal to
approve YARTEMLEA[supreg] for new technology add-on payments.
h. ZEVASKYNTM (prademagene zamikeracel)
Abeona Therapeutics[supreg], Inc. submitted an FY 2027 application
for new technology add-on payments for ZEVASKYNTM. According
to the applicant, ZEVASKYNTM is an autologous cell sheet-
based gene therapy which contains functional copies of the collagen
type VII alpha 1 chain (COL7A1) transgene for the treatment of adult
and pediatric patients with recessive dystrophic epidermolysis bullosa
(RDEB). The applicant stated that autologous patient material procured
by two 8mm punch biopsies will produce up to twelve 5.5 cm x 7.5 cm
gene-corrected cellular sheets available for application in a single
surgical session. The number of gene-corrected cellular sheets produced
and available for application is not dependent on body size or age. The
recommended dose of ZEVASKYN is based on the surface area of the
wound(s).
The following table provides an overview of the new technology add-
on payment application for ZEVASKYNTM and CMS's preliminary
assessment. For additional details provided by the applicant, please
refer to the online
[[Page 19427]]
application posting at https://mearis.cms.gov/public/publications/ntap/NTP251003GPVPQ.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.085
BILLING CODE 4120-01-C
Newness Criterion
Regarding commercial availability, the applicant stated that
ZEVASKYNTM became available for sale on June 15, 2025, 2
months after it received BLA approval on April 28, 2025, because the
applicant needed to onboard and train hospitals on the proper
procedures for collecting specimens and applying the technology. We are
interested in additional information regarding the cause of any delay
in the technology's commercial availability, including whether
ZEVASKYNTM was available for purchase before June 15, 2025,
during the period the applicant trained hospitals.
Regarding substantial similarity, based on the information
available at the time of this proposed rule, we agree with the
applicant that ZEVASKYNTM uses a new mechanism of action of
transducing the full-length COL7A1 gene into a patient's own
keratinocytes to create up to 12 gene-corrected cellular sheets for the
treatment of RDEB wounds, as compared to VYJUVEK[supreg], a topical
gene therapy that delivers a functional copy of the COL7A1 gene to
affected skin cells using a non-replicating HSV-1 vector and
FILSUVEZ[supreg], a botanical gel with an unknown mechanism of action.
We also agree that ZEVASKYNTM maps to a new MS-DRG as
compared to VYJUVEK[supreg] and FILSUVEZ[supreg]. We note that we
disagree that ZEVASKYNTM does not treat the same or similar
type of disease or the same or similar patient population when compared
to existing technology because other therapies, such as VYJUVEK[supreg]
and FILSUVEZ[supreg], are available to treat wounds in adult and
pediatric patients with dystrophic epidermolysis bullosa (DEB), of
which RDEB is a subtype. Therefore, based on information available at
the time of this proposed rule, we believe that ZEVASKYNTM
is not substantially similar to existing technology and meets the
newness criterion.
We are inviting public comments on whether ZEVASKYNTM is
substantially similar to existing technologies and whether
ZEVASKYNTM meets the newness criterion.
Cost Criterion
Regarding the cost criterion, we agree with the applicant that the
technology meets the cost criterion. We are inviting public comments on
whether ZEVASKYNTM meets the cost criterion.
Substantial Clinical Improvement Criterion
Regarding substantial clinical improvement, 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 ZEVASKYNTM, which we are
summarizing in this section.
Comment: The applicant submitted a public comment in response to
questions posed at the Town Hall meeting. With regard to a question as
to how wound healing was defined in the phase III VIITAL clinical
trial,\73\ the applicant stated that wound healing was a co-primary end
point and was
[[Page 19428]]
measured by visual skin examination by the study investigator, a
dermatologist with significant epidermolysis bullosa expertise. Per the
applicant, the VIITAL study categorized wound healing into the
following brackets: (1) healing at less than 50 percent of baseline,
(2) greater than or equal to 50 percent to less than 75 percent of
baseline, and (3) greater than or equal to 75 percent of baseline;
healing greater than or equal to 75 percent of baseline was assessed as
complete wound closure with complete wound healing defined as re-
epithelialization with no drainage or erosion and only minor crusting.
The applicant stated that the co-primary endpoint evaluated greater
than or equal to 50 percent healing from baseline at week 24, and
exploratory endpoints further assessed greater than or equal to 75
percent healing. According to the applicant, these definitions ensured
consistent, prespecified evaluation across all treated wounds.
---------------------------------------------------------------------------
\73\ Tang JY, Marinkovich MP, Wiss K, McCarthy D, Truesdale A,
Chiou AS, Eid E, McIntyre JK, Bailey I, Furukawa LK, Gorell ES,
Harris N, Khosla RK, Peter Lorenz H, Lu Y, Nazaroff J, Grachev ID,
Moore AJ. Prademagene zamikeracel for recessive dystrophic
epidermolysis bullosa wounds (VIITAL): a two-centre, randomised,
open-label, intrapatient-controlled phase 3 trial. Lancet. 2025 Jul
12;406(10499):163-173. https://doi.org/10.1016/S0140-6736(25)00778-
0.
---------------------------------------------------------------------------
With regard to a question inquiring whether the study (Tang et al.,
2025) biopsied skin as part of the co-primary endpoint, the applicant
stated that the investigators did not use biopsies to evaluate the
greater than or equal to 50 percent wound healing co-primary endpoint.
Per the applicant, consistent with standard dermatologic practice where
wound healing is assessed through clinical and visual examination
rather than routine biopsies, the study used photographic and
investigator assessments to evaluate the endpoint. According to the
applicant, the study's investigators only performed biopsies in the
early phase of the long-term follow-up study to confirm anchoring
fibrils and C7 production up to 2 years after treatment with
ZEVASKYNTM.\74\ Beyond 2 years, the applicant stated that
the study discontinued biopsies due to ethical considerations and
because patients refused repeated biopsies of healed skin. The
applicant noted that efficacy data extends out to 8 years, with
continued planned follow-up of these study subjects extending to up to
15 years.
---------------------------------------------------------------------------
\74\ Abeona Therapeutics, Inc. (2024, June 27). A Long-Term
Extension Study for Participants Previously Treated With EB-101 for
the Treatment of RDEB (Study No. NCT05708677). ClinicalTrials.gov.
https://clinicaltrials.gov/study/NCT05708677.
---------------------------------------------------------------------------
With regard to a question about the comparison of
ZEVASKYNTM to other therapies and the size of treated wound
areas, the applicant stated that the 200 cm\2\ reference reflects the
maximum weekly treatable area for VYJUVEK[supreg], not
ZEVASKYNTM, which is supplied as up to 12 credit-card sized
cellular sheets per treatment cycle (Tang et al., 2023). Per the
applicant, these sheets may be sutured onto separate discrete wounds or
joined together on larger wound areas, covering up to 495 cm\2\ of
wound surface area in a single session. The applicant stated that some
patients in ZEVASKYNTM clinical trials had single large
wounds while others had multiple separate chronic wounds each greater
than or equal to 20 cm\2\. According to the applicant, the study did
not permit patients to receive other RDEB therapies while participating
in the study, and there are no head-to-head studies of
ZEVASKYNTM with VYJUVEK[supreg] or FILSUVEZ[supreg]. The
applicant asserted that head-to-head studies are not required for
purposes of determining substantial clinical improvement under the new
technology add-on payment criteria. According to the applicant,
ZEVASKYNTM's ability to cover up to 495 cm\2\ of wound
surface area in a single, one-time treatment is a key reason that it is
a substantial clinical improvement that addresses an ongoing unmet need
for RDEB patients notwithstanding the availability of VYJUVEK[supreg]
and FILSUVEZ[supreg].
With regard to a question about the definition of a large, chronic
wound, the applicant stated that large, chronic wounds for RDEB
generally means a wound that is greater than 20 cm\2\ and open for more
than 6 months.
The applicant also reiterated information from its application
regarding the current RDEB treatment landscape, ZEVASKYNTM's
clinical profile and durability, and the key features that distinguish
ZEVASKYN\TM\ from other available RDEB therapies.
Response: We thank the applicant for its comments. After review of
the information provided by the applicant and the public comment
received in response to the New Technology Town Hall meeting, we have
the following concerns regarding whether ZEVASKYNTM meets
the substantial clinical improvement criterion.
Regarding the assertion that ZEVASKYNTM offers a
treatment option for a patient population unresponsive to, or
ineligible for, current available treatments, we note that the claims
and supporting evidence do not identify a patient population treated
with ZEVASKYNTM who cannot otherwise receive existing
treatments, such as VYJUVEK[supreg] or FILSUVEZ[supreg]. The applicant
claimed that RDEB patients suffer from severe large wounds that are
highly debilitating and there currently are no treatments available to
address large chronic RDEB wounds. However, we note that both
VYJUVEK[supreg] and FILSUVEZ[supreg] do not have a maximum dose in
their prescribing label 75 76 that would preclude the use of
either treatment in difficult-to-treat large and chronic RDEB wounds.
Similarly, the applicant claimed that no currently available treatment
options effectively target chronic pain and itching experienced by RDEB
patients and that chronic RDEB wounds pose a high risk of developing
squamous cell carcinoma (SCC) and multiple systemic infections, stating
that ZEVASKYNTM is the only approved therapy that provides
durable healing for these wounds. However, neither the presence of
chronic pain and itching nor a high risk of developing SCC and multiple
systemic infections preclude these patients from receiving treatment
with VYJUVEK[supreg] or FILSUVEZ[supreg]. Accordingly, we question
whether these claims describe improvements in clinical outcomes over
existing therapies rather than identifying a distinct patient
population unresponsive to, or ineligible for, current available
treatments that ZEVASKYNTM can treat.
---------------------------------------------------------------------------
\75\ Krystal Biotech, Inc. (2025, Sept.) VYJUVEK[supreg]
(beremagene geperpavec-svdt) biological suspension mixed with
excipient gel for topical application: highlights of prescribing
information. https://www.krystallabel.com/pdf/vyjuvek-us-pi.pdf.
\76\ Chiesi USA, Inc. (2024, May.) FILSUVEZ[supreg] (birch
triterpenes) topical gel: highlights of prescribing information.
https://resources.chiesiusa.com/Filsuvez/FILSUVEZ_PI.pdf.
---------------------------------------------------------------------------
In addition, while the applicant asserted that
ZEVASKYNTM significantly improves clinical outcomes for
patients with RDEB, we note that we did not receive sufficient evidence
comparing ZEVASKYNTM to currently available treatments. The
applicant stated that ZEVASKYNTM is the only autologous,
cell-based gene therapy to demonstrate significantly improved wound
healing even in the most difficult-to-treat large and chronic RDEB
wounds; however, we note that both VYJUVEK[supreg] and FILSUVEZ[supreg]
demonstrated statistically significant wound healing in their
respective clinical trials. Therefore, we question whether
ZEVASKYNTM significantly improves wound healing compared to
these treatments. The applicant had cited Tang et al. (2025),\77\ a
randomized, open-label, intra-patient-controlled phase 3 trial that
included 11 RDEB patients who had 86 matched and
[[Page 19429]]
randomized wound pairs treated with either ZEVASKYNTM or
control such as daily bandaging and other palliative measures. This
study observed that 81 percent of ZEVASKYNTM-treated wounds
were at least 50 percent healed from baseline compared with 16 percent
of control wounds (mean difference: 67 percent; 95 percent CI: 50-89, p
= <0.0001) and that complete wound healing from baseline was observed
in 16 percent of ZEVASKYNTM-treated wounds compared to 0
percent of control wounds (mean difference 13 percent; 95 percent CI 2-
26, p = 0.016). However, we note that in Guide et al. (2022),\78\ a
double-blind intra-patient randomized, placebo-controlled phase 3 trial
consisting of 31 patients (30 with RDEB) who received either
VYJUVEK[supreg] or placebo weekly for 26 weeks, 65 percent of patients
achieved complete wound closure with VYJUVEK[supreg] compared to 26
percent with placebo. Similarly, in Kern et al. (2023),\79\ a
randomized, double-blind, placebo-controlledphase 3 trial consisting of
223 patients (175 with RDEB) who received either FILSUVEZ[supreg] or
placebo, 44 percent of RDEB patients treated with FILSUVEZ[supreg]
achieved first complete closure of the target wound within 45 days
compared to 26.2 percent of the patients who received placebo.
---------------------------------------------------------------------------
\77\ Tang JY, Marinkovich MP, Wiss K, McCarthy D, Truesdale A,
Chiou AS, Eid E, McIntyre JK, Bailey I, Furukawa LK, Gorell ES,
Harris N, Khosla RK, Peter Lorenz H, Lu Y, Nazaroff J, Grachev ID,
Moore AJ. Prademagene zamikeracel for recessive dystrophic
epidermolysis bullosa wounds (VIITAL): a two-centre, randomised,
open-label, intrapatient-controlled phase 3 trial. Lancet. 2025 Jul
12;406(10499):163-173. https://doi.org/10.1016/S0140-6736(25)00778-
0.
\78\ Guide, S. V., Gonzalez, M. E., Ba[gbreve]c[inodot], I. S.,
Agostini, B., Chen, H., Feeney, G., Steimer, M., Kapadia, B.,
Sridhar, K., Quesada Sanchez, L., Gonzalez, F., Van Ligten, M.,
Parry, T. J., Chitra, S., Kammerman, L. A., Krishnan, S., &
Marinkovich, M. P. (2022). Trial of Beremagene Geperpavec (B-VEC)
for Dystrophic Epidermolysis Bullosa. New England Journal of
Medicine, 387(24), 2211-2219. https://doi.org/10.1056/NEJMoa2206663.
\79\ Kern, J. S., Sprecher E., Fernandez M. F., et al. Efficacy
and safety of Oleogel-S10 (birch triterpenes) for epidermolysis
bullosa: results from the phase III randomized double-blind phase of
the EASE study. British Journal of Dermatology, 188(1), 12-21,
https://doi.org/10.1093/bjd/ljac001.
---------------------------------------------------------------------------
The applicant also asserted that ZEVASKYNTM is the only
treatment for RDEB that has demonstrated significant reductions in both
pain and itch and that ZEVASKYNTM results in durable wound
healing. However, we note that the comparator data we received did not
specifically measure pain and itch, and follow-up time for wound
healing was limited to 6 months for VYJUVEK[supreg] and 90 days for
FILSUVEZ[supreg], which limits meaningful comparisons to
ZEVASKYNTM. Additionally, although the applicant asserted
that ZEVASKYN\TM\ provides durable wound healing following a single
treatment application, we are concerned that wounds that have not
achieved complete closure may require additional treatment, which
raises questions regarding the durability of the treatment and whether
this can be considered a one-time treatment as asserted by the
applicant. According to So et al. (2022),\80\ a single-center, non-
randomized, open-label phase I/IIa trial that included seven patients
who received ZEVASKYNTM on 38 chronic wounds while following
patients for a mean of 5.9 years (range: 4-8 years), 70 percent of
ZEVASKYNTM-treated sites had greater than or equal to 50
percent wound healing and 63 percent had greater than or equal to 75
percent wound healing at 5 years. We note that given that a subset of
treated wounds achieved complete closure and a substantial proportion
demonstrated only partial healing, we are uncertain that a single
application of ZEVASKYNTM is sufficient and durable for all
patients.
---------------------------------------------------------------------------
\80\ So JY. et al. Long-term safety and efficacy of gene-
corrected autologous keratinocyte grafts for recessive dystrophic
epidermolysis bullosa. Orphanet Journal of Rare Diseases.
2022(17):377. https://doi.org/10.1186/s13023-022-02546-9.
---------------------------------------------------------------------------
Furthermore, we note that although the applicant asserted that
ZEVASKYNTM has a favorable safety profile with no serious
treatment-emergent adverse events (TEAEs) related to the study
treatment and no reports of SCC in ZEVASKYN-treated wounds, the
applicant did not compare this with TEAEs and rates of SCC seen with
available treatments such as VYJUVEK[supreg] and FILSUVEZ[supreg].
Therefore, we cannot determine an improvement in safety for
ZEVASKYNTM over existing technologies.
After review of the information provided by the applicant and the
public comments received in response to the New Technology Town Hall
meeting, we are unable to determine that ZEVASKYNTM
represents a substantial clinical improvement over existing
technologies, and therefore, we are proposing to disapprove new
technology add-on payments for ZEVASKYNTM for FY 2027.
We are inviting public comments on whether ZEVASKYNTM
meets the substantial clinical improvement criterion and our proposal
to disapprove new technology add-on payments for ZEVASKYNTM
for FY 2027.
6. Proposed FY 2027 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 as a Breakthrough Device, 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. 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. As previously noted, in section
II.E.7. of this proposed rule, we are proposing to repeal the
alternative pathway for new technology add-on payment beginning with
applications received for new technology add-on payments for FY 2028
and require all applicants for new technology add-on payments to
demonstrate that they meet all eligibility requirements to receive add-
on payments. (We refer readers to section II.E.7. of this proposed rule
for a complete discussion regarding this proposal.)
As discussed previously, as finalized in the FY 2023 IPPS/LTCH PPS
final rule (87 FR 48986 through 48990) and subsequently updated in the
FY 2026 IPPS/LTCH PPS final rule (90 FR 36662 through 36664), we
publicly post online applications for new technology add-on payment
beginning with FY 2024 applications. As noted in those final rules, we
are continuing to provide discussion of the concerns or issues we
identified with respect to applications submitted under the alternative
pathway, but we are providing more succinct information as part of the
summaries in the proposed and final
[[Page 19430]]
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 2027 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 2027 new technology add-on payment applications.
In addition, for certain FY 2027 new technology add-on payment
applications, we are making available separate tables listing the ICD-
10-PCS codes or ICD-10-CM codes that would be used to identify the
Breakthrough Device-designated indication, or would be appropriate to
exclude for cases related to a different technology, for purposes of
the new technology add-on payment, if approved, in Table 10 associated
with this proposed rule, available via the internet on the CMS website
at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps. To access Table 10, click on the link titled ``FY
2027 IPPS Proposed Rule Home Page'' or ``Acute Inpatient--Files for
Download'' on the left side of the screen, at the CMS website. Please
see section VI of the Addendum for additional information regarding
tables associated with this proposed rule.
We received 32 applications for new technology add-on payments for
FY 2027 under the new technology add-on payment alternative pathway. As
previously discussed, 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 32 applications received under the alternative pathway, 7
applications 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 this
proposed rule. For the remaining 22 applications, all of the
technologies received a Breakthrough Device designation from FDA.
In accordance with the regulations under Sec. 412.87(f)(2),
applicants for new technology add-on payments for FY 2027 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 2027 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 2026 IPPS/LTCH PPS proposed rule, for
applications under the alternative new technology add-on payment
pathway, in this proposed rule we are making a proposal to approve or
disapprove each of these 22 applications for FY 2027 new technology
add-on payments. Therefore, in this section of the preamble of this
proposed rule, we provide an overview table of the new technology add-
on payment application and CMS's preliminary assessment for each
alternative pathway application, and propose whether or not each
technology would be eligible for the new technology add-on payment for
FY 2027.
We note that we received multiple applications for subscription-
based technologies for FY 2027. As stated in the FY 2021 IPPS/LTCH PPS
final rule (85 FR 58630) and in the FY 2025 IPPS/LTCH PPS final rule
(89 FR 69207), we understand that there are unique circumstances with
respect to determining a cost per case for a technology that utilizes a
subscription for its cost and we will continue to consider the issues
relating to calculation of the cost per unit of technologies sold on a
subscription basis as we gain more experience in this area. We continue
to welcome comments from the public as to the appropriate method to
determine a cost per case for such technologies, including comments on
whether the cost analysis should be updated based on the most recent
subscriber data for each year for which the technology may be eligible
for add-on payment.
a. Alternative Pathway for Breakthrough Devices
1. Bayesian Health Sepsis Flagging Device
Bayesian Health, Inc. submitted a FY2027 application for new
technology add-on payments for the Bayesian Health Sepsis Flagging
Device. According to the applicant, the Bayesian Health Sepsis Flagging
Device is artificial intelligence and machine learning-based Software
as a Medical Device (SaMD) intended for use in conjunction with
clinical assessments and other laboratory findings to aid the early
detection and/or risk prediction of sepsis within the next 4 days.
The following table provides an overview of the new technology add-
on payment application for the Bayesian Health Sepsis Flagging Device
and CMS's preliminary assessment. For additional details provided by
the applicant, please refer to the online application posting at
https://mearis.cms.gov/publicpublications/ntap/NTP25100520EEP.
BILLING CODE 4120-01-P
[[Page 19431]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.086
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that the Bayesian Health Sepsis Flagging Device
meets the cost criterion and are therefore proposing to approve the
Bayesian Health Sepsis Flagging Device for new technology add-on
payments for FY 2027, subject to the technology receiving FDA marketing
authorization for the indication corresponding to the Breakthrough
Device designation by May 1, 2026.
Based on preliminary information from the applicant at the time of
this proposed rule, we are proposing that the maximum new technology
add-on payment for a case involving the use of the Bayesian Health
Sepsis Flagging Device would be $61.84 for FY 2027 (that is, 65 percent
of the average cost of the technology). We note 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.
We invite public comments on whether the Bayesian Health Sepsis
Flagging Device meets the cost criterion and our proposal to approve
new technology add-on payments for the Bayesian Health Sepsis Flagging
Device for FY 2027, subject to the technology receiving FDA marketing
authorization for the indication corresponding to the Breakthrough
Device designation by May 1, 2026.
2. BriefCase-Triage: CARE (Clinical AI Reasoning Engine) Multi-Triage
CT Body
Aidoc Medical Ltd., Inc. submitted a FY2027 application for new
technology add-on payments for BriefCase-Triage: CARE Multi-Triage CT
Body (BriefCase-Triage). According to the applicant, BriefCase-Triage
is a radiological triage device used for the analysis of contrast and
non-contrast CT images that flags and communicates suspected positive
findings for a wide range of clinically actionable, time-sensitive
conditions in the abdominopelvic region.
The following table provides an overview of the new technology add-
on payment application for BriefCase-Triage and CMS's preliminary
assessment. For additional details
[[Page 19432]]
provided by the applicant, please refer to the online application
posting at https://mearis.cms.gov/public/publications/ntap/NTP251004A9NVV.
[GRAPHIC] [TIFF OMITTED] TP14AP26.087
[[Page 19433]]
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that BriefCase-Triage meets the cost criterion and
are therefore proposing to approve BriefCase-Triage for new technology
add-on payments for FY 2027 for the FDA-cleared indication covered by
the Breakthrough Device designation listed in the table. We consider
the beginning of the newness period to commence on January 7, 2026, the
date on which BriefCase-Triage received FDA marketing authorization.
Based on preliminary cost information from the applicant at the
time of this proposed rule, we are proposing that the maximum new
technology add-on payment for a case involving the use of BriefCase-
Triage would be $137.53 for FY 2027 (that is, 65 percent of the average
cost of the technology). We note 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.
We invite public comments on whether BriefCase-Triage meets the
cost criterion and our proposal to approve new technology add-on
payments for BriefCase-Triage: CARE Multi-Triage CT Body for FY 2027.
3. CARA System
Cara Medical submitted a FY 2027 application for new technology
add-on payments for the CARA System. According to the applicant, the
CARA System software simulates the path of a patient's cardiac
conduction system using anatomical landmarks identifiable on routine CT
angiography (CTA) imaging to enable Conduction Guided Intervention
(CGI). Per the applicant, CARA augmented fluoroscopy can be used to
help the operator visualize, during the procedure, the proximity of his
tools and device to the patient's conduction system.
The following table provides an overview of the new technology add-
on payment application for the CARA System and CMS's preliminary
assessment. For additional details provided by the applicant, please
refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006TVQL6.
[[Page 19434]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.088
BILLING CODE 4120-01-C
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that the CARA System meets the cost criterion and
are therefore proposing to approve the CARA System for new technology
add-on payments for FY 2027, subject to the technology receiving FDA
marketing authorization for the indication corresponding to the
Breakthrough Device designation by May 1, 2026.
However, we question whether a surgical procedure done in the
operating room with the CARA AtlasTM Navigator
[[Page 19435]]
would correspond to the FDA Breakthrough Device designated indication
involving real-time, intra-procedural, fluoroscopic imaging to assist
in fluoroscopic-guided interventional heart procedures. We would be
interested in information clarifying the components and process for use
of the CARA AtlasTM Navigator, accounting for the difference
in cost between a surgical procedure and an interventional procedure.
We also question whether procedures using only the CARA
MetisTM Simulator would correspond to the FDA Breakthrough
Device designated indication, as a medical device comprising two
integrated functions (that is, integrated functions of both the CARA
MetisTM Simulator and CARA AtlasTM Navigator). 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 2027. We would be interested in
detailed information clarifying the different uses of the CARA System
components related to the Breakthrough Device designated indication.
Based on preliminary information from the applicant at the time of this
proposed rule, we are proposing that the maximum new technology add-on
payment for a case involving the use of the CARA System would be
$10,205.00 for FY 2027 (that is, 65% of the average cost of the
technology). We note 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.
We invite public comments on whether the CARA System meets the cost
criterion and our proposal to approve new technology add-on payments
for the CARA System for FY 2027, subject to the technology receiving
FDA marketing authorization for the indication corresponding to the
Breakthrough Device designation by May 1, 2026.
4. CERAMENT[supreg] V
BONESUPPORT Inc. submitted a FY 2027 application for new technology
add-on payments for CERAMENT[supreg] V. According to the applicant,
CERAMENT[supreg] V is a resorbable, vancomycin-eluting ceramic bone
graft substitute intended for use as a bone void filler as an adjunct
to systemic antibiotic therapy and surgical debridement as part of the
surgical treatment of osteomyelitis. Per the applicant,
CERAMENT[supreg] V is indicated for use on vancomycin-sensitive
microorganisms.
The following table provides an overview of the new technology add-
on payment application for CERAMENT[supreg] V and CMS's preliminary
assessment. For additional details provided by the applicant, please
refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006EFW54.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.089
Newness Period
After review of the information provided by the applicant, we note
that the applicant stated that the technology is not expected to be
commercially available until a few months after FDA marketing
authorization because of the required time to implement the technical
requirements to comply with FDA marketing authorization and to produce
the first batches of CERAMENT[supreg] V for the United States. We are
interested in additional information regarding the anticipated cause
for any delay in the technology's market availability, as another bone
graft substitute from the applicant that was first approved for new
technology add-on payment for FY 2023 (87 FR
[[Page 19436]]
48961 through 48966) did not have a delay in market availability.
Cost Criterion
We agree with the applicant that CERAMENT[supreg] V meets the cost
criterion and are therefore proposing to approve CERAMENT[supreg] V for
new technology add-on payments for FY 2027, subject to the technology
receiving FDA marketing authorization for the indication corresponding
to the Breakthrough Device designation by May 1, 2026.
Based on preliminary information from the applicant at the time of
this proposed rule, we are proposing that the maximum new technology
add-on payment for a case involving the use of CERAMENT[supreg] V would
be $5,687.50 for FY 2027 (that is, 65% of the average cost of the
technology). We note 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.
We invite public comments on whether CERAMENT[supreg] V meets the
cost criterion and our proposal to approve new technology add-on
payments for CERAMENT[supreg] V for FY 2027, subject to the technology
receiving FDA marketing authorization for the indication corresponding
to the Breakthrough Device designation by May 1, 2026.
5. Ceribell Delirium Monitor System
Ceribell, Inc. submitted a FY 2027 application for new technology
add-on payments for the Ceribell Delirium Monitor System. According to
the applicant, the Ceribell Delirium Monitor System is a medical device
system comprised of proprietary software, signal acquisition headbands
and a recorder. Per the applicant, the software utilizes a machine
learning model to analyze EEG signals to detect features indicative of
delirium.
The following table provides an overview of the new technology add-
on payment application for the Ceribell Delirium Monitor System and
CMS's preliminary assessment. For additional details provided by the
applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006WFMK2.
[GRAPHIC] [TIFF OMITTED] TP14AP26.090
[[Page 19437]]
BILLING CODE 4120-01-C
After review of the information provided by the applicant, 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 2027. As stated by the applicant, the
FDA-cleared indication is different and is not limited to adult
patients aged 65 and older, as noted in the Breakthrough Device
designation. Therefore, only the use of the Ceribell Delirium Monitor
System for patients aged 65 and older, and the FDA Breakthrough Device
designation it received for that use, would be relevant for purposes of
the new technology add-on payment application for FY 2027.
ICD-10 Coding
In addition, as noted by the applicant, the ICD-10-PCS procedure
code XX20X89 (Monitoring of brain electrical activity, computer-aided
detection and notification, new technology group 9) is used for a
different technology (the Ceribell Status Epilepticus Monitor) to help
diagnose status epilepticus, which is not the subject of this new
technology add-on payment application. Therefore, the applicant has
submitted a request for ICD-10-CM codes to differentiate use of the
Ceribell Delirium Monitor System from use of the Ceribell Status
Epilepticus Monitor, which was approved for new technology add-on
payments for FY 2024 through FY 2026 (88 FR 58927 through 58930; 89 FR
70009; 90 FR 37260) and for which we are proposing to discontinue
making new technology add-on payments for FY 2027 because it will no
longer be considered new (as discussed in section II.E.4. of the
preamble of this proposed rule).
Furthermore, for purposes of the new technology add-on payment, if
approved, we believe it would be appropriate to exclude cases reporting
the ICD-10-PCS procedure code XX20X89 in patients with status
epilepticus, which would instead identify use of the Ceribell Status
Epilepticus Monitor. Please see Table 10.2.-- Ceribell Delirium Monitor
System, associated with this proposed rule, for the list of ICD-10-CM
diagnosis codes that we believe would identify patients with status
epilepticus, which we propose to exclude from new technology add-on
payment when reported in combination with ICD-10-PCS procedure code
XX20X89.
We are inviting public comments on our proposal to exclude cases
reporting these ICD-10-CM diagnosis codes in combination with the ICD-
10-PCS procedure code XX20X89, for purposes of the new technology add-
on payment for FY 2027, if approved.
Cost Criterion
We agree with the applicant that the Ceribell Delirium Monitor
System meets the cost criterion and are therefore proposing to approve
the Ceribell Delirium Monitor System for new technology add-on payments
for FY 2027, for the FDA-cleared indication covered by the Breakthrough
Device designation listed in the table. We consider the beginning of
the newness period to commence on December 8, 2025, the date on which
the Ceribell Delirium Monitor System received FDA marketing
authorization.
Based on preliminary information from the applicant at the time of
this proposed rule, we are proposing that the maximum new technology
add-on payment for a case involving the use of the Ceribell Delirium
Monitor System would be $2,171 for FY 2027 (that is, 65% of the average
cost of the technology). We note 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.
We invite public comments on whether the Ceribell Delirium Monitor
System meets the cost criterion and our proposal to approve new
technology add-on payments for the Ceribell Delirium Monitor System for
FY 2027.
6. CMORE[supreg] CT System (Posterior Cervico-Thoracic System)
Icotec ag submitted a FY 2027 application for new technology add-on
payments for the CMORE[supreg] CT System. According to the applicant,
the CMORE[supreg] CT System is a posterior cervico-thoracic fixation
system manufactured from BlackArmor[supreg] Carbon/PEEK material for
standard posterior fixation of the spinal column which features a
variety of screw sizes and types, as well as rod shapes, to accommodate
patient anatomy.
The following table provides an overview of the new technology add-
on payment application for the CMORE[supreg] CT System and CMS's
preliminary assessment. For additional details provided by the
applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP2510034V5CK.
BILLING CODE 4120-01-P
[[Page 19438]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.091
BILLING CODE 4120-01-C
After review of the information provided by the applicant, we note
that, as previously stated, 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 2027. The indication
[[Page 19439]]
for use for the CMORE[supreg] CT System in the absence of fusion for a
limited time period in patients with advanced stage tumors involving
the cervical spine in whom life expectancy is of insufficient duration
to permit achievement of fusion, is not included in its Breakthrough
Device designation. Therefore, the CMORE[supreg] CT System would only
be eligible for new technology add-on payment for its Breakthrough
Device-designated indication, as an adjunct to fusion of the cervical
spine (C1 to C7) and the upper thoracic spine (T1 to T3), if approved.
ICD-10 Coding
Please see Table 10.1.--CMORE[supreg] CT System, associated with
this proposed rule, for the list of relevant ICD-10-PCS procedure codes
that we believe would be appropriate to report in combination with use
of the CMORE[supreg] CT System to identify use of the technology for
the Breakthrough Device-designated indication, as an adjunct to fusion
of the cervical spine (C1 to C7) and the upper thoracic spine (T1 to
T3). We are inviting public comments on the use of these ICD-10-PCS
procedure codes to identify use of the technology for the Breakthrough
Device-designated indication for purposes of the new technology add-on
payment, if approved.
Cost Criterion
We agree with the applicant that the CMORE[supreg] CT System meets
the cost criterion and are therefore proposing to approve the
CMORE[supreg] CT System for new technology add-on payments for FY 2027,
for the FDA-cleared indication covered by the Breakthrough Device
designation listed in the table and as described previously. We
consider the beginning of the newness period to commence on December 8,
2025, the date on which the CMORE[supreg] CT System became commercially
available.
Based on preliminary information from the applicant at the time of
this proposed rule, we are proposing that the maximum new technology
add-on payment for a case involving the use of the CMORE[supreg] CT
System would be $60,905 for FY 2027 (that is, 65% of the average cost
of the technology). We note 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.
We invite public comments on whether the CMORE[supreg] CT System
meets the cost criterion and our proposal to approve new technology
add-on payments for the CMORE[supreg] CT System for FY 2027.
7. GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent
W.L. Gore & Associates, Inc. submitted a FY 2027 application for
new technology add-on payments for the GORE[supreg] VIABAHN[supreg]
FORTEGRA Venous Stent. According to the applicant, the GORE[supreg]
VIABAHN[supreg] FORTEGRA Venous Stent is an open-structure polymer
lattice device providing intraluminal support in the inferior vena cava
and, if clinically warranted, the common iliac veins, at the iliocaval
confluence in patients with symptomatic vessel obstruction.
The following table provides an overview of the new technology add-
on payment application for the GORE[supreg] VIABAHN[supreg] FORTEGRA
Venous Stent and CMS's preliminary assessment. For additional details
provided by the applicant, please refer to the online application
posting at https://mearis.cms.gov/public/publications/ntap/NTP251006MBT8G.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.092
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that the GORE[supreg] VIABAHN[supreg] FORTEGRA
Venous Stent meets the cost criterion and are therefore proposing to
approve the GORE[supreg] VIABAHN[supreg] FORTEGRA Venous Stent for new
technology add-on payments for FY 2027, for the FDA-approved indication
covered by the Breakthrough Device designation listed in the table. We
consider the beginning of the newness period to commence on December
19, 2025, the date on which the GORE[supreg] VIABAHN[supreg] FORTEGRA
Venous Stent received FDA marketing authorization.
Based on preliminary cost information from the applicant at the
time of this proposed rule, we are proposing that the maximum new
technology add-on payment for a case involving the use of the
GORE[supreg] VIABAHN[supreg] Venous Stent would be
[[Page 19440]]
$7,186.40 for FY 2027 (that is, 65 percent of the average cost of the
technology). We note 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.
We invite public comments on whether the GORE[supreg]
VIABAHN[supreg] Venous Stent meets the cost criterion and our proposal
to approve new technology add-on payments for the GORE[supreg]
VIABAHN[supreg] Venous Stent for FY 2027.
8. InfuseTM Bone Graft
Medtronic Sofamor Danek USA, Inc. submitted a FY 2027 application
for new technology add-on payments for InfuseTM Bone Graft.
According to the applicant, InfuseTM Bone Graft-is a bone
graft material designed to promote bone formation at the site of
implantation for transforaminal lumbar interbody fusion (TLIF), at one
or two adjacent levels from L2-S1 in the treatment of degenerative disc
disease (DDD). Per the applicant, it consists of two primary
components, recombinant human bone morphogenetic protein-2 (rhBMP-2)
and an absorbable collagen sponge which serves as a delivery matrix and
scaffold for bone growth.
The following table provides an overview of the new technology add-
on payment application for InfuseTM Bone Graft and CMS's
preliminary assessment. For additional details provided by the
applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP250929NNTP8.
[GRAPHIC] [TIFF OMITTED] TP14AP26.093
ICD-10 Coding
After review of the information provided by the applicant, we note
that InfuseTM Bone Graft has been granted other FDA
approvals beyond the scope of its Breakthrough Device designation. We
believe the relevant ICD-10-PCS procedure codes that would be
appropriate to report in combination with use of InfuseTM
Bone Graft, to identify use of the technology for the Breakthrough
Device-designated indication in a TLIF surgical approach at one or two
adjacent levels from L2-S1 in the treatment of degenerative disease of
the lumbosacral spine for purposes of the new technology add-on
payment, if approved, would be the following codes:
[[Page 19441]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.094
We are inviting public comments on the use of these ICD-10-PCS
procedure codes to identify use of the technology for the Breakthrough
Device-designated indication for purposes of the new technology add-on
payment, if approved.
Cost Criterion
We agree with the applicant that InfuseTM Bone Graft
meets the cost criterion and are therefore proposing to approve
InfuseTM Bone Graft for new technology add-on payments for
FY 2027, for the FDA-approved indication covered by the Breakthrough
Device designation listed in the table and as described previously. We
consider the beginning of the newness period to commence on February
13, 2026, the date on which InfuseTM Bone Graft received FDA
marketing authorization.
Based on preliminary information from the applicant at the time of
this proposed rule, we are proposing that the maximum new technology
add-on payment for a case involving the use of InfuseTM Bone
Graft would be $4,396.60 for FY 2027 (that is, 65% of the average cost
of the technology). We note 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.
We invite public comments on whether InfuseTM Bone Graft
meets the cost criterion and our proposal to approve new technology
add-on payments for InfuseTM Bone Graft for FY 2027.
9. InVision Precision Cardiac Amyloid
Invision Medical Technology submitted a FY 2027 application for new
technology add-on payments for InVision Precision Cardiac Amyloid
(InVision PCA). According to the applicant, InVision PCA is a SaMD
machine-learning disease detection algorithm to identify high suspicion
of cardiac amyloidosis from routinely obtained echocardiogram videos.
Per the applicant, the device assists clinicians in the diagnosis of
cardiac amyloidosis.
The following table provides an overview of the new technology add-
on payment application for InVision PCA and CMS's preliminary
assessment. For additional details provided by the applicant, please
refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251002J7D89.
[[Page 19442]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.095
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that InVision PCA meets the cost criterion and are
therefore proposing to approve InVision PCA for new technology add-on
payments for FY 2027, for the FDA-cleared indication covered by the
Breakthrough Device designation listed in the table. We consider the
beginning of the newness period to commence on May 21, 2025, the date
on which InVision PCA received FDA market authorization.
Based on preliminary information from the applicant at the time of
this proposed rule, we are proposing that the maximum new technology
add-on payment for a case involving the use of InVision PCA would be
$162.50 for FY 2027 (that is, 65 percent of the average cost of the
technology). We note 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.
We invite public comments on whether InVision PCA meets the cost
criterion and our proposal to approve new technology add-on payments
for InVision PCA for FY 2027.
10. MediBeacon[supreg] Transdermal GFR Measurement System (TGFR)
MediBeacon submitted a FY 2027 application for new technology add-
on payments for the MediBeacon[supreg] Transdermal GFR Measurement
System (MediBeacon[supreg] TGFR). According to the applicant, the
MediBeacon[supreg] TGFR provides an assessment of glomerular filtration
rate (GFR) at the point of care and employs an intravenously
administered fluorescent tracer agent which has been engineered to be
excreted exclusively by the kidneys. Per the applicant, noninvasive
transdermal fluorescence detection of the excretion rate of the agent
is converted into a GFR reading. We note that the applicant submitted
an application for new technology add-on payments for this technology
for FY 2025 (89 FR 36128 through FR 36130; 89 FR 69204) and FY 2024 (88
FR 26954 through 26955; 88 FR 58919) under the name Transdermal GFR
Measurement System Utilizing Lumitrace.
The following table provides an overview of the new technology add-
on payment application for the MediBeacon[supreg] TGFR and CMS's
preliminary assessment. For additional details provided by the
applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251003G1JT8.
[[Page 19443]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.096
BILLING CODE 4120-01-C
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that the MediBeacon[supreg] TGFR meets the cost
criterion and are therefore proposing to approve the MediBeacon[supreg]
TGFR for new technology add-on payments for FY 2027, subject to the
technology receiving FDA marketing authorization for the indication
corresponding to the Breakthrough Device designation by May 1, 2026.
The applicant has not provided an estimate for the cost of the
MediBeacon[supreg] TGFR at the time of this proposed rule. The
applicant stated that there would be four components for the cost of
the technology: the operating cost of Lumitrace[supreg], the operating
cost of the TGFR Reusable Sensor, the operating cost of the TGFR
Adhesive Ring and the capital cost of the TGFR Monitor. 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 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). Therefore, it appears that the TGFR Monitor component is
not eligible for new technology add-on payment because, as discussed in
prior rulemaking, we only make new technology add-on payments for
operating costs (72 FR 47307 through 47308). We would be interested in
additional information about the TGFR Reusable Sensor, which also
appears to be a reusable, capital expenditure. We expect the applicant
to submit cost information prior to the final rule, and we will 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 MediBeacon[supreg] TGFR would be subject to our policy
under Sec. 412.88(a)(2) where 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.
We invite public comments on whether the MediBeacon[supreg] TGFR
meets the cost criterion and our proposal to approve new technology
add-on payments for the MediBeacon[supreg] Transdermal GFR Measurement
System for FY 2027, subject to the technology receiving FDA marketing
authorization as a Breakthrough Device for the indication corresponding
to the Breakthrough Device designation by May 1, 2026.
11. Micro Medical Solutions MicroStent and the MicroStent XL Peripheral
Vascular Stent System
Micro Medical Solutions, Inc. submitted a FY 2027 application for
new technology add-on payments for the Micro Medical Solutions
MicroStent and the MicroStent XL Peripheral Vascular Stent System
(MicroStent). According to the applicant, the MicroStent is a self-
expanding nitinol stent system for permanent implantation to improve
luminal diameter in the treatment of ischemia in the lower leg.
The following table provides an overview of the new technology add-
on payment application for the MicroStent and CMS's preliminary
assessment. For additional details provided by the applicant, please
refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251002M8X4J.
BILLING CODE 4120-01-P
[[Page 19444]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.097
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that the MicroStent meets the cost criterion and are
therefore proposing to approve the MicroStent for new technology add-on
payments for FY 2027, subject to the technology receiving FDA marketing
authorization for the indication corresponding to the Breakthrough
Device designation by May 1, 2026.
Based on preliminary cost information from the applicant at the
time of this proposed rule, we are proposing that the maximum new
technology add-on payment for a case involving the use of the
MicroStent would be $4,550 for FY 2027 (that is, 65 percent of the
average cost of the technology). We note 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.
We invite public comments on whether the MicroStent meets the cost
criterion and our proposal to approve new technology add-on payments
for the Micro Medical Solutions MicroStent and the MicroStent XL
Peripheral Vascular Stent System for FY 2027, subject to the technology
receiving FDA marketing authorization for the indication corresponding
to the Breakthrough Device designation by May 1, 2026.
12. NelliTM Seizure Monitoring System
Neuro Event Labs submitted a FY 2027 application for new technology
add-on payments for the NelliTM Seizure Monitoring System.
According to the applicant, the NelliTM Seizure Monitoring
System is a prescription-only device that is designed to be used as an
adjunct to seizure monitoring in healthcare facilities during periods
of rest. Per the applicant, the device utilizes automated analysis of
audio and video (media) to identify epileptic and non-epileptic seizure
events with a positive motor component. We note that the applicant
submitted an application for new technology add-on payments for this
technology for FY 2026 (90 FR 18189 through 18191; 90 FR 36770), FY2024
(88 FR 26940 through 26942; 88 FR 58919), and FY 2023 (87 FR 28341
through 28342; 87 FR 48960).
The following table provides an overview of the new technology add-
on payment application for the NelliTM Seizure Monitoring
System and CMS's preliminary assessment. For additional details
provided by the applicant, please refer to the online application
posting at https://mearis.cms.gov/public/publications/ntap/NTP2509294WQJJ.
[[Page 19445]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.098
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that the NelliTM Seizure Monitoring
System meets the cost criterion and are therefore proposing to approve
the NelliTM Seizure Monitoring System for new technology
add-on payments for FY 2027, for the FDA-cleared indication covered by
the Breakthrough Device designation listed in the table. We consider
the beginning of the newness period to commence on January 20, 2026,
the date on which the NelliTM Seizure Monitoring System
became commercially available.
As previously noted, 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 included capital costs of $89 for the PRU in
the total technology cost. Therefore, as it appears that these costs
are not eligible for new technology add-on payment, we note that any
new technology add-on payment for the NelliTM Seizure
Monitoring System would be based on only the operating costs of $1,500
for the analysis during inpatient hospital stay. As a result, based on
preliminary information from the applicant at the time of this proposed
rule, we are proposing that the maximum new technology add-on payment
for a case involving the use of the NelliTM Seizure
Monitoring System would be $975 for FY 2027 (that is, 65% of the
average cost of the technology). We note 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.
We invite public comments on whether the NelliTM Seizure
Monitoring System meets the cost criterion and our proposal to approve
new technology add-on payments for the NelliTM Seizure
Monitoring System for FY 2027.
13. NEXUS[supreg] Aortic Arch Stent Graft System
ENDOSPAN submitted a FY 2027 application for new technology add-on
payments for the NEXUS[supreg] Aortic Arch Stent Graft System.
According to the applicant, the NEXUS[supreg] Aortic Arch Stent Graft
System is a branched endovascular stent graft system designed
specifically for repair of aortic arch pathologies (including
aneurysms, chronic dissections, penetrating ulcers, and intramural
hematoma) involving Zone 0 ascending aorta and the arch.
The following table provides an overview of the new technology add-
on payment application for the NEXUS[supreg] Aortic Arch Stent Graft
System and CMS's preliminary assessment. For
[[Page 19446]]
additional details provided by the applicant, please refer to the
online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006114Y0.
[GRAPHIC] [TIFF OMITTED] TP14AP26.099
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that the NEXUS[supreg] Aortic Arch Stent Graft
System meets the cost criterion and are therefore proposing to approve
the NEXUS[supreg] Aortic Arch Stent Graft System for new technology
add-on payments for FY 2027, subject to the technology receiving FDA
marketing authorization for the indication corresponding to the
Breakthrough Device designation by May 1, 2026.
Based on preliminary cost information from the applicant at the
time of this proposed rule, we are proposing that the maximum new
technology add-on payment for a case involving the use of the
NEXUS[supreg] Aortic Arch Stent Graft System would be $35,880 for FY
2027 (that is, 65 percent of the average cost of the technology). We
note 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.
We invite public comments on whether the NEXUS[supreg] Aortic Arch
Stent Graft System meets the cost criterion and our proposal to approve
new technology add-on payments for the NEXUS[supreg] Aortic Arch Stent
Graft System for FY 2027, subject to the technology receiving FDA
marketing authorization for the indication corresponding to the
Breakthrough Device designation by May 1, 2026.
14. OmniaSecureTM MRI SureScanTM Lead Model 3930M
Medtronic submitted a FY 2027 application for new technology add-on
payments for the OmniaSecureTM MRI SureScanTM
Lead Model 3930M (OmniaSecureTM defibrillation lead).
According to the applicant, the OmniaSecureTM defibrillation
lead is an implantable defibrillation lead designed to deliver pacing,
sensing, cardioversion, and defibrillation therapy for patients at risk
of life-threatening ventricular arrhythmias.
The following table provides an overview of the new technology add-
on payment application for the OmniaSecureTM defibrillation
lead and CMS's preliminary assessment. For additional details provided
by the applicant, please refer to the online application posting at
https://mearis.cms.gov/public/publications/ntap/NTP250930Q7TFH.
[[Page 19447]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.100
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that the OmniaSecureTM defibrillation
lead meets the cost criterion and are therefore proposing to approve
the OmniaSecureTM defibrillation lead for new technology
add-on payments for FY 2027, for the FDA-approved indication covered by
the Breakthrough Device designation listed in the table. We consider
the beginning of the newness period to commence on January 7, 2026, the
date on which the OmniaSecureTM defibrillation lead became
commercially available.
Based on preliminary information from the applicant at the time of
this proposed rule, we are proposing that the maximum new technology
add-on payment for a case involving the use of the
OmniaSecureTM defibrillation lead would be $7,796.75 for FY
2027 (that is, 65% of the average cost of the technology). We note 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.
We invite public comments on whether the OmniaSecureTM
defibrillation lead meets the cost criterion and our proposal to
approve new technology add-on payments for the OmniaSecureTM
MRI SureScanTM Lead Model 3930M for FY 2027.
15. PearlMatrixTM P-15 Peptide Enhanced Bone Graft
Cerapedics, Inc. submitted a FY 2027 application for new technology
add-on payments for PearlMatrixTM P-15 Peptide Enhanced Bone
Graft. According to the applicant, PearlMatrixTM P-15
Peptide Enhanced Bone Graft is a composite bone graft material
consisting of a synthetic peptide, found naturally occurring in human
Type I collagen (P-15), adsorbed onto calcium phosphate particles,
which are incorporated into a fibrous collagen matrix putty as an inert
carrier. We note that the applicant submitted an application for new
technology add-on payments for this technology for FY 2026 (90 FR 18193
through 18195; 90 FR 36770).
The following table provides an overview of the new technology add-
on payment application for PearlMatrixTM P-15 Peptide
Enhanced Bone Graft and CMS's preliminary assessment. For additional
details provided by the applicant, please refer to the online
application posting at https://mearis.cms.gov/public/publications/ntap/NTP251001VFM4K.
[[Page 19448]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.101
ICD-10-CM Coding
After review of the information provided by the applicant, we note
that subsequent to the June 18, 2025 PMA as listed in the table, a
supplemental PMA for PearlMatrixTM P-15 Peptide Enhanced
Bone Graft was approved on December 11, 2025,\81\ expanding the
indication to allow implantation of the product using additional
surgical approaches. As previously stated, 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 2027. Therefore, it appears that only the use of the
PearlMatrixTM P-15 Peptide Enhanced Bone Graft in
conjunction with a TLIF device, and the FDA Breakthrough Device
designation it received for that use, would be relevant for purposes of
the new technology add-on payment application for FY 2027. The
applicant stated that effective October 1, 2025, the following ICD-10-
PCS codes could be used to uniquely describe procedures involving the
use of the technology: XW0U0XB (Introduction of peptide enhanced bone
void filler into joints, open approach, new technology group 11),
XW0U3XB (Introduction of peptide enhanced bone void filler into joints,
percutaneous approach, new technology group 11), or XW0U4XB
(Introduction of peptide enhanced bone void filler into joints,
percutaneous endoscopic approach, new technology group 11). We believe
the relevant ICD-10-PCS procedure codes that would be appropriate to
report in combination with the PearlMatrixTM P-15 Peptide
Enhanced Bone Graft's unique ICD-10-PCS codes to identify use of the
technology for the Breakthrough Device-designated indication would be
the following:
---------------------------------------------------------------------------
\81\ https://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpma/pma.cfm?id=P240001S001.
---------------------------------------------------------------------------
[[Page 19449]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.102
BILLING CODE 4120-01-C
We are inviting public comments on the use of these ICD-10-PCS
procedure codes to identify use of the technology for the Breakthrough
Device-designated indication for purposes of the new technology add-on
payment, if approved.
Cost Criterion
We agree with the applicant that PearlMatrixTM P-15
Peptide Enhanced Bone Graft meets the cost criterion and are therefore
proposing to approve PearlMatrixTM P-15 Peptide Enhanced
Bone Graft for new technology add-on payments for FY 2027, for the FDA-
approved indication covered by the Breakthrough Device designation
listed in the table and as described previously. We consider the
beginning of the newness period to commence on June 18, 2025, the date
on which PearlMatrixTM P-15 Peptide Enhanced Bone Graft
received FDA marketing authorization.
Based on preliminary cost information from the applicant at the
time of this proposed rule, the applicant anticipated the total cost of
PearlMatrixTM P-15 Peptide Enhanced Bone Graft to the
hospital to be $6,500 per patient, for one 10 cc kit used per inpatient
stay. As the applicant stated, there are capital costs of $1,300 for
the bone graft peptide, porcine anorganic bone mineral, and fibrous
collagen matrix. As previously discussed, 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). Therefore, as it appears that the $1300 capital
costs are not eligible for new technology add-on payment, we note that
any new technology add-on payment for PearlMatrix P-15 Peptide Enhanced
Bone Graft would be based on only the operating costs of $5,200 for the
bone graft peptide, porcine anorganic bone mineral, and fibrous
collagen matrix. As a result, we are proposing that the maximum new
technology add-on payment for a case involving the use of
PearlMatrixTM P-15 Peptide Enhanced Bone Graft would be
$3,380 for FY 2027 (that is, 65 percent of the average cost of the
technology). We note 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.
We invite public comments on whether PearlMatrixTM P-15
Peptide Enhanced Bone Graft meets the cost criterion and our proposal
to approve new technology add-on payments for PearlMatrixTM
P-15 Peptide Enhanced Bone Graft for FY 2027.
16. PMcardio[supreg] STEMI AI ECG Model
Powerful Medical Inc. submitted a FY 2027 application for new
technology add-on payments for the PMcardio[supreg] STEMI AI ECG Model
(PMcardio[supreg] STEMI AI). According to the applicant,
PMcardio[supreg] STEMI AI is a stand-alone software device intended to
analyze resting 12-lead ECGs of patients presenting with symptoms
suspicious for acute coronary syndromes in the hospital setting. Per
the applicant, the technology identifies ECG patterns of STEMI/STEMI-
equivalents as an adjunctive decision support tool used by healthcare
professionals.
The following table provides an overview of the new technology add-
on payment application for PMcardio[supreg] STEMI AI and CMS's
preliminary assessment. For additional details provided by the
applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006JRE0P.
BILLING CODE 4120-01-P
[[Page 19450]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.103
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that PMcardio[supreg] STEMI AI meets the cost
criterion and are therefore proposing to approve PMcardio[supreg] STEMI
AI for new technology add-on payments for FY 2027, subject to the
technology receiving FDA marketing authorization for the indication
corresponding to the Breakthrough Device designation by May 1, 2026.
Based on preliminary information from the applicant at the time of
this proposed rule, we are proposing that the maximum new technology
add-on payment for a case involving the use of PMcardio[supreg] STEMI
AI would be $113.75 for FY 2027 (that is, 65% of the average cost of
the technology). We note 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.
We invite public comments on whether PMcardio[supreg] STEMI AI
meets the cost criterion and our proposal to approve new technology
add-on payments for the PMcardio[supreg] STEMI AI ECG Model for FY
2027, subject to the technology receiving FDA marketing authorization
for the indication corresponding to the Breakthrough Device designation
by May 1, 2026.
17. SAPIEN M3 Transcatheter Mitral Valve Replacement System
Edwards LifeSciences, LLC submitted a FY 2027 application for new
technology add-on payments for the SAPIEN M3 Transcatheter Mitral Valve
Replacement System (the SAPIEN M3 TMVR System). According to the
applicant, the SAPIEN M3 TMVR System is a transcatheter system designed
to allow for replacement of the native mitral valve in patients with
symptomatic mitral valve regurgitation or symptomatic mitral stenosis.
The following table provides an overview of the new technology add-
on payment application for the SAPIEN M3 TMVR System and CMS's
preliminary assessment. For additional details provided by the
applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251003XXUEG.
[[Page 19451]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.104
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that the SAPIEN M3 TMVR System meets the cost
criterion and are therefore proposing to approve the SAPIEN M3 TMVR
System for new technology add-on payments for FY 2027, for the FDA-
approved indication covered by the Breakthrough Device designation
listed in the table. We consider the beginning of the newness period to
commence on December 22, 2025, the date on which the SAPIEN M3 TMVR
System received FDA marketing authorization.
Based on preliminary information from the applicant at the time of
this proposed rule, we are proposing that the maximum new technology
add-on payment for a case involving the use of the SAPIEN M3 TMVR
System would be $35,100 for FY 2027 (that is, 65% of the average cost
of the technology). We note 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.
We invite public comments on whether the SAPIEN M3 TMVR System
meets the cost criterion and our proposal to approve new technology
add-on payments for the SAPIEN M3 Transcatheter Mitral Valve
Replacement System for FY 2027.
18. SetPoint System[supreg]
SetPoint Medical Corporation submitted a FY 2027 application for
new technology add-on payments for the SetPoint System[supreg].
According to the applicant, the SetPoint System[supreg] is a fully
integrated, rechargeable, implantable vagus nerve stimulation system
used to treat individuals with moderate to severe rheumatoid arthritis
(RA) who have experienced a loss of efficacy, inadequate response, or
intolerance to one or more biologic or targeted synthetic disease
modifying antirheumatic drugs (DMARDs).
The following table provides an overview of the new technology add-
on payment application for the SetPoint System[supreg] and CMS's
preliminary assessment. For additional details provided by the
applicant, please refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251006Y987F.
[[Page 19452]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.105
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that the SetPoint System[supreg] meets the cost
criterion and are therefore proposing to approve the SetPoint
System[supreg] for new technology add-on payments for FY 2027, for the
FDA approved indication covered by the Breakthrough Device designation
listed in the table. We consider the beginning of the newness period to
commence on August 21, 2025, the date on which the SetPoint
System[supreg] became commercially available.
Based on preliminary information from the applicant at the time of
this proposed rule, we are proposing that the maximum new technology
add-on payment for a case involving the use of the SetPoint
System[supreg] would be $38,675 for FY 2027 (that is, 65% of the
average cost of the technology). We note 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.
We invite public comments on whether the SetPoint System[supreg]
meets the cost criterion and our proposal to approve new technology
add-on payments for the SetPoint System[supreg] for FY 2027.
19. Spur[supreg] Peripheral Retrievable Stent System
Reflow Medical, Inc. submitted a FY 2027 application for new
technology add-on payments for the Spur[supreg] Peripheral Retrievable
Stent System. According to the applicant, the Spur[supreg] Peripheral
Retrievable Stent System is used as an adjunct to percutaneous
transluminal angioplasty (PTA) to dilate stenoses in infrapopliteal
arteries ranging in diameter from 2.5 mm to 4.5 mm. We note that the
applicant submitted an application for new technology add-on payments
for this technology for FY 2026 (90 FR 18203 through 18205; 90 FR
36770).
The following table provides an overview of the new technology add-
on payment application for the Spur[supreg] Peripheral Retrievable
Stent System and CMS's preliminary assessment. For additional details
provided by the applicant, please refer to the online application
posting at https://mearis.cms.gov/public/publications/ntap/NTP251001G2LL6.
[[Page 19453]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.106
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that the Spur[supreg] Peripheral Retrievable Stent
System meets the cost criterion and are therefore proposing to approve
the Spur[supreg] Peripheral Retrievable Stent System for new technology
add-on payments for FY 2027, for the FDA-approved indication covered by
the Breakthrough Device designation listed in the table. We consider
the beginning of the newness period to commence on May 29, 2025, the
date on which the Spur[supreg] Peripheral Retrievable Stent System
received FDA marketing authorization.
Based on preliminary cost information from the applicant at the
time of this proposed rule, we are proposing that the maximum new
technology add-on payment for a case involving the use of the
Spur[supreg] Peripheral Retrievable Stent System would be $2,596.75 for
FY 2027 (that is, 65 percent of the average cost of the technology). We
note 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.
We invite public comments on whether the Spur[supreg] Peripheral
Retrievable Stent System meets the cost criterion and our proposal to
approve new technology add-on payments for the Spur[supreg] Peripheral
Retrievable Stent System for FY 2027.
20. TrilogyTM Transcatheter Aortic Valve Regurgitation
System
JenaValve submitted a FY 2027 application for new technology add-on
payments for the TrilogyTM Transcatheter Aortic Valve
Regurgitation System. According to the applicant, the
TrilogyTM Transcatheter Aortic Valve Regurgitation System
for transcatheter aortic valve implantation is deployed so that the
Transcatheter Heart Valve (THV) expands radially at the native annulus
and clips onto the native aortic leaflets to anchor the THV. Per the
applicant, the THV is designed to anchor in the diseased regurgitant
aortic valve.
The following table provides an overview of the new technology add-
on payment application for the TrilogyTM Transcatheter
Aortic Valve Regurgitation System and CMS's preliminary assessment. For
additional details provided by the applicant, please refer to the
online application posting at https://mearis.cms.gov/public/publications/ntap/NTP25100691E86.
[[Page 19454]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.107
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that the TrilogyTM Transcatheter Aortic
Valve Regurgitation System meets the cost criterion and are therefore
proposing to approve the TrilogyTM Transcatheter Aortic
Valve Regurgitation System for new technology add-on payments for FY
2027, for the FDA-approved indication covered by the Breakthrough
Device designation listed in the table. We consider the beginning of
the newness period to commence on March 17, 2026, the date on which the
TrilogyTM Transcatheter Aortic Valve Regurgitation System
received FDA marketing authorization.
Based on preliminary information from the applicant at the time of
this proposed rule, we are proposing that the maximum new technology
add-on payment for a case involving the use of the TrilogyTM
Transcatheter Aortic Valve Regurgitation System would be $25,675 for FY
2027 (that is, 65% of the average cost of the technology). We note 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.
We invite public comments on whether the TrilogyTM
Transcatheter Aortic Valve Regurgitation System meets the cost
criterion and our proposal to approve new technology add-on payments
for the TrilogyTM Transcatheter Aortic Valve Regurgitation
System for FY 2027.
21. ViaOneTM Epicardial Access System
CardioVia Ltd. submitted a FY 2027 application for new technology
add-on payments for the ViaOneTM Epicardial Access System
(ViaOneTM). According to the applicant, ViaOneTM
is a sterile, single use device, designed to allow safe pericardial
access utilizing a proprietary mechanism of entry into the pericardial
sac with a blunt tip and a concealed needle.
The following table provides an overview of the new technology add-
on payment application for ViaOneTM and CMS's preliminary
assessment. For additional details provided by the applicant, please
refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251001MFBVW.
[[Page 19455]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.108
Newness Period
After review of the information provided by the applicant, we note
that, regarding commercial availability, the applicant stated that the
technology would not be available for sale until April 27, 2026. The
applicant stated that the original manufacturing partner permanently
ceased operations, requiring the applicant to engage a new qualified
manufacturer and conduct full verification and validation testing. The
applicant also stated that delays in completion of the required FDA
establishment registration and device listing process, and current
aviation and international shipping constraints related to regional
security developments are expected to further delay initial U.S.
availability. We are interested in confirmation regarding the first
date of availability for sale of ViaOneTM on the U.S. market
(irrespective of purchase volume or when the first sale occurred).
Cost Criterion
We agree with the applicant that ViaOneTM meets the cost
criterion and are therefore proposing to approve ViaOneTM
for new technology add-on payments for FY 2027, for the FDA-cleared
indication covered by the Breakthrough Device designation listed in the
table.
Based on preliminary information from the applicant at the time of
this proposed rule, we are proposing that the maximum new technology
add-on payment for a case involving the use of ViaOneTM
would be $1,300 for FY 2027 (that is, 65% of the average cost of the
technology). We note 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.
We invite public comments on whether ViaOneTM meets the
cost criterion and our proposal to approve new technology add-on
payments for the ViaOneTM Epicardial Access System for FY
2027.
22. VUNO Med-DeepCARS[supreg]
VUNO Med Inc. submitted a FY 2027 application for new technology
add-on payments for VUNO Med-DeepCARS[supreg] (DeepCARS[supreg]).
According to the applicant, DeepCARS[supreg] is an artificial
intelligence based technology that monitors and assesses the risk of
impending cardiac arrest within a 24-hour period among inpatients in
general hospital wards.
The following table provides an overview of the new technology add-
on payment application for DeepCARS[supreg] and CMS's preliminary
assessment. For additional details provided by the applicant, please
refer to the online application posting at https://mearis.cms.gov/public/publications/ntap/NTP251004DL00M.
[[Page 19456]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.109
BILLING CODE 4120-01-C
Cost Criterion
After review of the information provided by the applicant, we agree
with the applicant that DeepCARS[supreg] meets the cost criterion and
are therefore proposing to approve DeepCARS[supreg] for new technology
add-on payments for FY 2027, subject to the technology receiving FDA
marketing authorization for the indication corresponding to the
Breakthrough Device designation by May 1, 2026.
Based on preliminary information from the applicant at the time of
this proposed rule, we are proposing that the maximum new technology
add-on payment for a case involving the use of DeepCARS[supreg] would
be $236.66 for FY 2027 (that is, 65% of the average cost of the
technology). We note that the cost information for this technology may
be updated in the final rule based on
[[Page 19457]]
revised or additional information CMS receives prior to the final rule.
We invite public comments on whether DeepCARS[supreg] meets the
cost criterion and our proposal to approve new technology add-on
payments for VUNO Med-DeepCARS[supreg] for FY 2027, subject to the
technology receiving FDA marketing authorization for the indication
corresponding to the Breakthrough Device designation by May 1, 2026.
7. Proposed Alternative Pathway Repeal for New Technology Add-on
Payment and Outpatient Prospective Payment System (OPPS) Device Pass-
Through
As discussed previously, in the FY 2020 and FY 2021 IPPS/LTCH PPS
final rules (84 FR 42292 through 42297; 85 FR 58737 through 58739), we
finalized a policy to establish an alternative inpatient new technology
add-on payment pathway for certain transformative new devices and
certain antimicrobial products. Under this pathway, FDA-designated
Breakthrough Devices and QIDPs, and drugs approved under FDA's Limited
Population Pathway for Antibacterial and Antifungal Drugs (LPAD)
pathway (sometimes collectively referred to in this section as
``alternative pathway designations'') are considered to be not
substantially similar to existing technology for purposes of the new
technology add-on payment, and do not need to meet the requirement
under Sec. 412.87(b)(1) that the technology represent an advance that
substantially improves, relative to technologies previously available,
the diagnosis or treatment of Medicare beneficiaries. We also finalized
a policy in the CY 2020 OPPS/ASC final rule to establish an alternative
transitional pass-through payment pathway for devices that are part of
the FDA's Breakthrough Devices Program and have received FDA marketing
authorization for the indication covered by the Breakthrough Device
designation (84 FR 61295 through 61296). Under this alternative
pathway, FDA-designated Breakthrough Devices are not evaluated for
substantial clinical improvement under Sec. 419.66(c)(2) for the
purposes of determining device pass-through payment status. We refer
readers to the CY 2026 OPPS/ASC final rule (90 FR 53632 through 53636)
for additional background on the OPPS Pass-Through Payment for Devices.
We note that the Breakthrough Devices Program is intended to help
patients have more timely access to designated medical devices by
expediting their development, assessment, and review.\82\ The
Breakthrough Device designation criteria are defined in section 515B(b)
of the FD&C Act (21 U.S.C. 360e-3(b)), which provides for a Program for
devices that: ``(1) that provide for more effective treatment or
diagnosis of life-threatening or irreversibly debilitating human
disease or conditions; and (2)(A) that represent breakthrough
technologies; (B) for which no approved or cleared alternatives exist;
(C) that offer significant advantages over existing approved or cleared
alternatives, including the potential, compared to existing approved
alternatives, to reduce or eliminate the need for hospitalization,
improve patient quality of life, facilitate patients' ability to manage
their own care (such as through self-directed personal assistance), or
establish long-term clinical efficiencies; or (D) the availability of
which is in the best interest of patients.'' \83\ Per FDA guidance, a
sponsor should demonstrate a reasonable expectation that the device
could provide for more effective treatment or diagnosis of the disease
or condition identified in the proposed indications for use.\84\ FDA
defines a QIDP as ``an antibacterial or antifungal drug for human use
intended to treat serious or life-threatening infections, including
those caused by--(1) an antibacterial or antifungal resistant pathogen,
including novel or emerging infectious pathogens; or (2) qualifying
pathogens listed by the Secretary under'' section 505E(f) of the FD&C
Act.\85\ FDA believed the LPAD pathway would facilitate development and
approval of certain antibacterial and antifungal drugs to treat serious
or life-threatening infections in limited populations of patients with
unmet needs. FDA may approve an antibacterial or antifungal drug, alone
or in combination with one or more other drugs, under the LPAD pathway,
if: The drug is intended to treat a serious or life-threatening
infection in a limited population of patients with unmet needs; The
drug meets the standards for approval under section 505(c) and (d) of
the FD&C Act or the standards for licensure under section 351 of the
Public Health Service Act; and FDA receives a written request from the
sponsor to approve the drug as a LPAD pathway drug.\86\
---------------------------------------------------------------------------
\82\ Breakthrough Devices Program Guidance for Industry and Food
and Drug Administration Staff (September 15, 2023) https://www.fda.gov/media/162413/download.
\83\ Ibid.
\84\ Ibid.
\85\ Qualified Infectious Disease Product Designation Questions
and Answers Guidance for Industry (May 2021) https://www.fda.gov/media/148480/download.
\86\ Limited Population Pathway for Antibacterial and Antifungal
Drugs--the LPAD Pathway (Content current as of: 03/24/2025) https://www.fda.gov/drugs/development-resources/limited-population-pathway-antibacterial-and-antifungal-drugs-lpad-pathway.
---------------------------------------------------------------------------
As discussed in the FY 2020 IPPS/LTCH PPS rulemaking (84 FR 42292
through 42297) and in the CY 2020 OPPS/ASC rulemaking (84 FR 61295
through 61296), we stated that we believed that the benefits of
addressing barriers to healthcare innovation and ensuring Medicare
beneficiaries have access to critical and life-saving new cures and
technologies that improve beneficiary health outcomes supported
establishing the alternative pathway for new technology add-on payments
and OPPS device pass-through payments. We also stated that we believed
it was prudent to gain experience under this new alternative pathway
for certain transformative new devices before expanding it to other
special designations to allow us to evaluate the benefits of this
proposed alternative pathway to facilitate beneficiary access to
transformative new medical devices as well as any other considerations
that may come to light after application of this new pathway (84 FR
42296).
As we have gained experience, we have concerns with the limited
evaluation process for alternative pathway applications for new
technology add-on and OPPS device pass-through payments, and after
further consideration, we believe it is in the best interest of
Medicare patients to refine our approach, to ensure that all new
technologies approved for new technology add-on payment have
demonstrated that the technology is not substantially similar to
existing technologies and represents an advance that substantially
improves, relative to technologies previously available, the diagnosis
or treatment of Medicare beneficiaries. Similarly, we believe it is in
the best interest of Medicare patients that new technologies approved
for OPPS device pass-through payment status have demonstrated a
substantial clinical improvement, that is, they substantially improve
the diagnosis or treatment of an illness or injury or improve the
functioning of a malformed body part, compared to the benefits of a
device or devices in a previously established category or other
available treatment. Therefore, we are proposing to repeal the
alternative pathway for new technology add-on payment and OPPS device
pass-through applications, and require all applicants for new
technology add-on payments and OPPS
[[Page 19458]]
device pass-through payments to demonstrate that they meet the same
eligibility requirements to receive add-on payments and/or pass-through
payments. We believe this proposed requirement will better align
spending and value and ultimately support providers in delivering the
best, data-driven care possible. By requiring all technologies to
demonstrate that they offer a substantial clinical improvement as part
of our evaluation process, we believe we will be better able to make
evidence-based decisions on which technologies should receive these
additional payments. We believe that holding all applicants to the same
standards and requiring all applicants to demonstrate that their
technologies meet the same criteria maintains our focus on new and
innovative technologies that improve beneficiary health outcomes while
strengthening the evidence base supporting our approval decisions for
new technology add-on payment and OPPS device pass-through payment,
ensuring value for American taxpayers and Medicare beneficiaries.
Therefore, we are proposing that for all applications received for
new technology add-on payments for FY 2028 and subsequent fiscal years,
including applications for FDA-designated Breakthrough Devices and
QIDPs, or drugs approved under FDA's LPAD pathway, we would evaluate
whether the technology is new and not substantially similar to an
existing technology, and the technology must demonstrate that it meets
the requirements under Sec. 412.87(b) that it represent an advance
that substantially improves, relative to technologies previously
available, the diagnosis or treatment of Medicare beneficiaries. That
is, beginning with applications received for new technology add-on
payments for FY 2028 and subsequent fiscal years, all applicants would
need to meet all three of the criteria as specified at Sec. 412.87(b)
and described earlier in this section in order 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. Technologies that are currently
under review for FY 2027 new technology add-on payments under the
alternative pathway will remain eligible for consideration for add-on
payment under the alternative pathway. Technologies that have
previously been approved for add-on payments under the alternative
pathway will remain eligible for add-on payment under the alternative
pathway. Consistent with our proposal to remove the alternative pathway
for certain antimicrobial products currently at Sec.
[thinsp]412.87(d), we would also remove the conditional approval
process for a technology for which an application is submitted under
the alternative pathway for certain antimicrobial products that does
not receive FDA marketing authorization by July 1 prior to the fiscal
year for which the applicant applied for new technology add-on
payments, as currently reflected at Sec. 412.87(f)(3). Accordingly,
beginning with the FY 2028 new technology add-on payment applications,
in order to be eligible for consideration for the new technology add on
payment for the upcoming fiscal year, all applicants would need to
receive 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 reflected at Sec. 412.87(f)(2).
We are proposing to amend Sec. [thinsp]412.87 to reflect these
proposals by revising paragraphs Sec. [thinsp]412.87(c) and (d) and
removing subparagraph 412.87(f)(3). We are also proposing related
revisions to the title of paragraph (f) and subparagraphs (1) and (2)
of paragraph (f) to reflect this proposed policy. We are also proposing
to make a technical correction to the introductory text at Sec.
[thinsp]412.87(d) to restore language that was previously removed in
error, with additional revisions to reflect the proposed repeal. We are
also proposing to make a technical correction to the introductory text
at Sec. 412.88(a)(2)(ii)(A) to reference Sec. 412.88(a)(2)(ii)(C),
consistent with our policy as finalized in the FY 2025 IPPS/LTCH PPS
final rule (89 FR 69245 through 69252).
Similarly, we are proposing that all applications received for OPPS
device pass-through payment status on or after October 1, 2026,
including all applications received through the remainder of the CY
2028 OPPS application cycle ending on March 1, 2027, and applications
received for subsequent calendar years would have to demonstrate that
the technology met the requirements currently reflected at Sec.
419.66(c)(2)(i). OPPS device pass-through payment applications
submitted as of September 30, 2026, for devices that are part of the
FDA's Breakthrough Devices Program and received FDA marketing
authorization for the indication covered by the Breakthrough Device
designation would be evaluated and could be approved under the
alternative pathway, provided that all other criteria have been met.
Existing device category codes established based on the approval,
either preliminary or via a final determination made in an OPPS/ASC
final rule, including any device category codes established for
approved alternative pathway applications received as of September 30,
2026, would continue to be eligible for device pass-through payment
status and would remain in effect for at least 2 years, but no more
than 3 years, consistent with Sec. 419.66(g). Previously existing
device category codes that were no longer eligible for device pass-
through payment status would remain unchanged. We are proposing to
revise paragraph Sec. 419.66(c)(2)(ii) to reflect this proposed
policy, effective October 1, 2026.
We believe these changes would be the most prudent and transparent
method to allow us to improve our focus on facilitating payment for
innovative, high-value technologies that improve care for Medicare
beneficiaries. As we stated in the September 7, 2001 final rule (66 FR
46913), we believed the special payments for new technology should be
limited to those new technologies that have been demonstrated to
represent a substantial improvement in caring for Medicare
beneficiaries, such that there is a clear advantage to creating a
payment incentive for physicians and hospitals to utilize the new
technology. We also stated that where such an improvement was not
demonstrated, we continued to believe the incentives of the DRG system
would provide a useful balance to the introduction of new technologies.
As discussed in the FY 2026 IPPS/LTCH PPS final rule (90 FR 36672),
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. Similarly, as we
stated in the CY 2026 OPPS/ASC final rule (90 FR 53635), if a
technology does not obtain OPPS device pass-through payment status,
these devices can still be used by hospitals, and hospitals will be
paid for them through appropriate Ambulatory Payment Classifications
(APC) payment. Whether a technology receives new technology add-on
payments or OPPS device pass-through payments does not affect coverage
of the technology or the ability for Medicare providers to provide such
technology to patients where appropriate.
In addition, we believe that holding all applicants to the same
standards by
[[Page 19459]]
requiring all applicants to demonstrate that their technologies meet
the same criteria would ensure that all applications undergo the same
review process by CMS. For new technology add-on payment, this includes
the opportunity to present at the New Technology Town Hall Meeting on
the substantial clinical improvement criterion with regard to pending
new technology add-on payment applications, and to have applications
considered as part of the annual IPPS rulemaking. Furthermore, because
the application and approval timelines for new technology add-on
payments are the same for traditional and alternative application
pathways, this proposal would not change the time to approval, except
for technologies submitted under the alternative pathway for certain
antimicrobial products, for which the conditional approval process
would no longer be available. Likewise, for OPPS device pass-through,
applications are submitted to CMS through the quarterly process, and
all applications are subject to notice and comment rulemaking in the
next applicable OPPS/ASC annual rulemaking cycle (80 FR 70417 through
70418). Applications, regardless of the pathway under which they apply,
that we are able to determine meet all of the criteria for device pass-
through payment under the quarterly review process may receive pass-
through payment status prior to the final determination in the OPPS/ASC
final rule. This proposal would not change the time to approval.
Technologies that demonstrate they meet the criteria during the
quarterly process may receive pass-through payment status prior to the
final determination in the OPPS/ASC final rule. Technologies that
demonstrate they meet the criteria during notice and comment rulemaking
would receive pass-through payment status via a final determination in
the OPPS/ASC final rule.
We would also be interested in information on alternate methods
that stakeholders believe would more effectively or efficiently
accomplish the goal of aligning payment with value by facilitating
payment for innovative, high-value technologies that have demonstrated
improved Medicare beneficiary health outcomes, such as alternative
strategies for leveraging FDA designations.
We invite public comment on our proposal to require all applicants
for new technology add-on payments and OPPS device pass-through
payments to demonstrate that they meet the same requirements for
eligibility.
III. Proposed 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
refer to this factor as the wage index. 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 proposed FY 2027 hospital wage index based on the statistical
areas appears under section III.B of the preamble of this proposed
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 titled ``Hospital and Hospital
Health Care Complex Cost Report'', Form CMS-2552-10, Worksheet S-3,
Parts II, III, and IV. The information collection is currently approved
under OMB control number 0938-0050 and has a September 30, 2028,
expiration date. 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 proposed adjustment for FY 2027 is
discussed in section II.B of the Addendum to this proposed rule.
As discussed in section III.I of the preamble of this proposed
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 proposed budget neutrality adjustment for FY 2027 is discussed in
section II.A.4.b of the Addendum to this proposed 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 is currently approved under OMB control number
is 0938-0907 and expires on December 31, 2028. A discussion of the
occupational mix adjustment that we are proposing to apply to the FY
2027 wage index appears under section III.E of the preamble of this
proposed rule.
2. Core-Based Statistical Areas (CBSAs) for the FY 2027 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. In
accordance with section 1886(d)(3)(E) of the Act, we delineate hospital
labor market areas based on OMB-established Core-Based Statistical
Areas (CBSAs) (FY 2005 IPPS final rule, 69 FR 49026 through 49032). 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,
ACS, and Census Population Estimates Program data) (we refer to these
revised OMB delineations as the ``new OMB delineations'' in this
proposed 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 2027, we are proposing to continue to use the new OMB
delineations that we adopted beginning with FY 2025 to calculate the
area wage indexes and the transition periods, as we discuss below.
[[Page 19460]]
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 code, a Federal
Information Processing Standard (FIPS) county code. The 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 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 (79 FR 49951 through 49963). 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 2027, we are proposing to continue to use the FIPS county codes
for purposes of crosswalking counties to CBSAs. For FY 2027, Tables 2
and 3 associated with this proposed 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 Proposed FY 2027 Wage Index
1. Cost Reporting Periods Beginning in FY 2023 for FY 2027 Wage Index
The proposed FY 2027 wage index values are based on the data
collected from the Medicare cost reports submitted by hospitals for
cost reporting periods beginning in FY 2023 (cost reports with a begin
date on or after October 1, 2022 and before October 1, 2023). The FY
2026 wage indexes were based on data from cost reporting periods
beginning during FY 2022.
The proposed FY 2027 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 IPPS 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 2026, the
proposed wage index for FY 2027 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), certified registered nurse anesthetists (CRNAs), and other
subprovider components that are not paid under the IPPS. The proposed
FY 2027 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 Inpatient Rehabilitation Facilities (IRFs), Inpatient
Psychiatric Facilities (IPFs), Long-Term Care Hospitals (LTCHs), and
for hospital outpatient services. We note, in the calendar year (CY)
2025 End-Stage Renal Disease (ESRD) PPS final rule (89 FR 89097-89116),
CMS finalized a new ESRD PPS-specific wage index that is 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 proposed FY 2027 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, 2028) for cost reporting periods beginning on or after
October 1, 2022, and before October 1, 2023. For wage index purposes,
we refer to cost reports beginning on or after October 1, 2022, and
before October 1, 2023, as the ``FY 2023 cost report,'' the ``FY 2023
wage data,'' or the ``FY 2023 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 2027 wage
index includes FY 2023 data submitted to us as of January 21, 2026. For
FY 2027, the wage data was not subject to a desk review by the Medicare
Administrative Contractors (MACs). CMS performed a review of the wage
data to identify and resolve aberrant data, such as analyzing the data
from a regional and national level.
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 2027, we have not identified any significant issues with the FY
2023 wage data itself in terms of our review of this data.
For the proposed FY 2027 wage index, we identified and excluded 68
[[Page 19461]]
providers with aberrant data that should not be included in the wage
index. If data elements for some of these providers are corrected, we
intend to include data from those providers in the final FY 2027 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 transmit any changes to the wage
data no later than March 21, 2026.
In constructing the proposed FY 2027 wage index, we included the
wage data for facilities that were IPPS hospitals in FY 2023, 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 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 2027 wage index, we removed 7 hospitals that
converted to CAH status and 2 hospitals that converted to REH status on
or after January 24, 2025, the cut-off date for CAH and REH exclusion
from the FY 2026 wage index, and through and including January 23,
2026, the cut-off date for CAH and REH exclusion from the FY 2027 wage
index. We also note that we removed 2 hospitals that converted to REH
status prior to January 24, 2025. In summary, we calculated the
proposed FY 2027 wage index using the Worksheet S-3, Parts II and III
wage data of 3,006 hospitals.
For the proposed FY 2027 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 2027 wage
index associated with this proposed rule (available via the internet on
the CMS website), includes separate wage data for the campuses of 26
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:
BILLING CODE 4120-01-P
[[Page 19462]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.110
BILLING CODE 4120-01-C
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 providers can have
an additional second sub campus located in a different CBSA then the
main campus and its other sub campus(es). Therefore, in order to
uniquely identify a second sub campus, we place 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 2027 wage index were made available on May 23, 2025,
through the internet on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2027-wage-index-home-page.
On January 30, 2026, we posted a public use file (PUF) at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2027-wage-index-home-page containing
FY 2027 wage index data available as of January 30, 2026. 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, 2022, through September 30, 2023; that
is, FY 2023 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 30, 2026 wage data PUF, and a tab containing
the CY 2022 occupational mix data of the hospitals deleted from the
January 30, 2026 occupational mix PUF. In a memorandum dated January
22, 2026, we instructed all MACs to inform the IPPS hospitals that they
service of the availability of the January 30, 2026, wage index data
PUFs, and the process and timeframe for requesting revisions in
accordance with the FY 2027 Hospital Wage Index Development Timetable
available at https://www.cms.gov/files/document/fy-2027-
[[Page 19463]]
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 16, 2025, 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, 2025, 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, 2025, 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 2, 2025. 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 14, 2025, was the date by when MACs were required to
transmit revised wage index data files and occupational mix data files
to CMS. CMS published the wage index PUFs that included hospitals'
revised wage index data on January 30, 2026. Hospitals had until
February 17, 2026, to submit requests to the MACs to correct errors in
the January 30, 2026, PUF due to CMS or MAC mishandling of the wage
index data, or to revise adjustments to their wage index data as
included in the January 30, 2026, 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 17, 2026, for the FY
2027 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 20, 2026. 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) is April 3,
2026. Data that were incorrect in the preliminary or January 30, 2026,
wage index data PUFs, but for which no correction request was received
by the February 17, 2026, deadline, are not considered for correction
at this stage. In addition, April 3, 2026, is the deadline for
hospitals to dispute data corrections made by CMS of which the hospital
was notified after the January 30, 2026, PUF and at least 14 calendar
days prior to April 3, 2026 (that is, by March 20, 2026), 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 3, 2026,
for the FY 2027 wage index). We refer readers to the FY 2027 Hospital
Wage Index Development Timetable for complete details.
Hospitals were given the opportunity to examine Table 2 associated
with this proposed rule, which is listed in section VI of the Addendum
to this 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-2027-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 2027 wage index,
which was constructed from FY 2023 data. We note that the proposed
hospital average hourly wages shown in Table 2 only reflect changes
made to a hospital's data that were transmitted to CMS by late January
2026.
We plan to post the final wage index data PUFs on April 30, 2026,
on the CMS website at https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/fy-2027-wage-index-home-page. The April 2026 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 20, 2026, 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 2026 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 20, 2026.
Requests for correction of errors that were not, but could
have been, identified during the hospital's review of the January 30,
2026, 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 2026 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 is required to send its
request to CMS and to the MAC so that it is received no later than May
29, 2026. May 29, 2026, is also the deadline for hospitals to dispute
data corrections made by CMS of which the hospital is notified on or
after 13 calendar days prior to April 3, 2026 (that is, March 21,
2026), and at least 14 calendar days prior to May 29, 2026 (that is,
May 15, 2026), 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 29, 2026 (that is,
May 16, 2026), may be appealed to the Provider Reimbursement Review
Board (PRRB)). In accordance with the FY 2027 Hospital Wage Index
Development Timetable posted on the CMS website at https://www.cms.gov/files/document/fy-2027-hospital-wage-index-development-time-table.pdf,
the May appeals are required to be submitted to CMS through an online
submission process. We refer readers to the FY 2027 Hospital Wage Index
Development Timetable for complete details.
Verified corrections to the wage index data received timely (that
is, by May 29, 2026) by CMS and the MACs will be incorporated into the
final FY 2027 wage index, which will be effective October 1, 2026.
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 2027 payment rates.
Accordingly, hospitals
[[Page 19464]]
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 will have access to the final wage index
data PUFs by late April 2026, 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 2027 wage index by August
2026, and the implementation of the FY 2027 wage index on October 1,
2026. 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 29,
2026, 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 29, 2026, for the FY 2027
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, 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
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 29, 2026, deadline for the
FY 2027 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 29, 2026 deadline for the FY 2027 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 will
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 30, 2026,
Public Use File (PUF)
The process set forth with the wage index timetable discussed in
section III.C.4 of the preamble of this proposed 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 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 a 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. As noted
above, for the development of the FY 2027 wage index, the wage data was
not subject to a desk review by the MACs. As in past years, CMS
conducted its own review of the data and, if necessary, hospitals
[[Page 19465]]
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 30, 2026, 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, can facilitate additional
editing of the data. 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,
for example, if a positive adjustment resulting from a prior year's
wage index appeal of a hospital's wage-related costs such as pension
costs was not incorporated in the data, CMS can correct the 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 30, 2026, 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 30, 2026 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 2027 Hospital Wage Index Development
Timetable, as well as in the FY 2018 IPPS/LTCH PPS final rule (82 FR
38154 through 38156).
C. Method for Computing the Proposed FY 2027 Unadjusted Wage Index
The method used to compute the proposed FY 2027 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 are not proposing any changes to this methodology. We
have restated our methodology in this preamble section of this proposed
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 2027,
these were data from cost reports for cost reporting periods beginning
on or after October 1, 2022, and before October 1, 2023). In addition,
we included data from hospitals that had cost reporting periods
beginning prior to the October 1, 2022, begin date and extending into
FY 2023 but that did not have any cost report with a begin date on or
after October 1, 2022, and before October 1, 2023. 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 2023 (for example, a
hospital had two short cost reporting periods beginning on or after
October 1, 2022, and before October 1, 2023), 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 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, 15.01 and
15.02, 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
[[Page 19466]]
employees (Line 22) are excluded if no corresponding salaries are
reported for those employees on Line 4.
As noted above, the proposed FY 2027 wage index values are based on
the data collected from the Medicare cost reports submitted by
hospitals for cost reporting periods beginning in FY 2023 (cost reports
with a begin date on or after October 1, 2022 and before October 1,
2023). Per the instructions in Section 4005.2, Part II, Hospital Wage
Index Information, of the Provider Reimbursement Manual, for cost
reporting periods on or after October 1, 2015 and before October 1,
2022, hospitals reported salaries and hours for Home Office (and
related organizations) Physician Part A--Administrative direct
employees and employees under contract on Worksheet S3, Part II, Line
15.
Per the instructions in Section 4005.2, Part II, Hospital Wage
Index Information, of the Provider Reimbursement Manual, for cost
reporting periods on or after October 1, 2022, line 15 has been split
into two lines with hospitals reporting salaries and hours for Home
Office (and related organizations) Physician Part A--Administrative
direct employees on Line 15.01 and salaries and hours for Home Office
(and related organizations) Physicians Part A--Administrative under
contract on Line 15.02. Since the FY 2027 wage index uses cost reports
with a begin date in FY 2023, we propose including Lines 15.01 and
15.02 in the calculation of the FY 2027 wage index and future fiscal
years.
In reviewing the wage data used for FY 2027, approximately 61
hospitals reported salaries and hours on Line 15 instead of Lines 15.01
and 15.02. Because this is the first year we are using Lines 15.01 and
15.02 and hospitals are still adjusting to this reporting change, for
FY 2027, we are proposing to use Line 15 in the wage index calculation
in addition to lines 15.01 and 15.02. We believe using Line 15 for the
FY 2027 wage index will minimize disparities in the FY 2027 wage index
by ensuring that the data informing the calculation are applied
uniformly.
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
15.01 + Line 15.02) + (Line 17 + Line 22 + 25.50 + 25.51 + 25.52).
As noted above, for FY 2027 we are proposing to include Lines 15,
15.01 and Line 15.02 in this calculation. We are further proposing to
use Lines 15.01 and 15.02 instead of Line 15 for future fiscal years.
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 + Line
15.01 + Line 15.02).
As noted above, for FY 2027 we are proposing to include Lines 15,
15.01 and Line 15.02 in this calculation. We are further proposing to
use Lines 15.01 and 15.02 instead of Line 15 for future fiscal years.
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, 2022, through April 15,
2024, 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 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 are not proposing to make any changes to the
usage of the ECI for FY 2027. The factors used to adjust the hospital's
data are based on the midpoint of the cost reporting period, as
indicated in this proposed rule.
Step 6.--Each hospital is assigned to its appropriate urban or
rural labor market area before any reclassifications
[[Page 19467]]
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
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 2027 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 proposed 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
proposed 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, 2022, through April 15, 2024, 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 are not proposing any changes to the usage of the ECI
for FY 2027. 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.
[[Page 19468]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.111
For example, the midpoint of a cost reporting period beginning
January 1, 2023, and ending December 31, 2023, is June 30, 2023. An
adjustment factor of 1.02991 was applied to the wages of a hospital
with such a cost reporting period.
Previously, we would also 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 2027,
there is no Puerto Rico-specific overall average hourly wage or wage
index.
Based on the previously described methodology, the proposed FY 2027
unadjusted national average hourly wage is the following:
[GRAPHIC] [TIFF OMITTED] TP14AP26.112
D. Proposed Occupational Mix Adjustment to the FY 2027 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
2027 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 2027 occupational mix adjustment is based on a calendar year
(CY) 2022 survey. Hospitals were required to submit their completed
2022
[[Page 19469]]
surveys (Form CMS-10079, OMB Control Number 0938-0907, expiration date
December 31, 2028) to their MACs by July 1, 2023. The preliminary,
unaudited CY 2022 survey data were posted on the CMS website on July
12, 2023.
2. Calculation of the Occupational Mix Adjustment for FY 2027
For FY 2027, we are proposing 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 2027 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 proposed rule (which is
available via the internet on the CMS website), which contains the
proposed FY 2027 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 proposed 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 will 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 2027 wage index. For the proposed FY 2027 wage index,
we used the Worksheet S-3, Parts II and III wage data of 3,006
hospitals, and we used the occupational mix surveys of 2,922 hospitals
for which we also had Worksheet S-3 wage data, which represented a
``response'' rate of 97 percent (2,922/3,006). For the proposed FY 2027
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 methodology, the proposed FY 2027 occupational mix
adjusted national average hourly wage is the following:
[GRAPHIC] [TIFF OMITTED] TP14AP26.113
3. Deadline for Submitting the 2025 Medicare Wage Index Occupational
Mix Survey for Use Beginning With the FY 2028 Wage Index
A new measurement of occupational mix is required for FY 2028. The
FY 2028 occupational mix adjustment will be based on a new calendar
year (CY) 2025 survey. The CY 2025 survey (Form CMS-10079, OMB Control
Number 0938-0907, expiration date December 31, 2028) received OMB
approval on December 30, 2025. The final CY 2025 Occupational Mix
Survey Hospital Reporting Form is available on the CMS website at:
https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files/2025-occupational-mix-survey-hospital-reporting-form-cms-10079-wage-index-beginning-fy-2028. Hospitals are
required to submit their completed 2025 surveys to their MACs by June
30, 2026. The preliminary, unaudited CY 2025 survey data will be posted
on the CMS website in mid-July 2026. As with the Worksheet S-3, Parts
II and III cost report wage data, CMS and the MACs may revise or verify
data elements in hospitals' occupational mix surveys as part of the FY
2028 wage index development process.
4. Proposed Occupational Mix Adjustment and the Proposed FY 2027
Occupational Mix Adjusted Wage Index
As discussed in section III.E of the preamble of this proposed
rule, for FY 2027, we are applying the occupational mix adjustment to
100 percent of the FY 2027 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 proposed FY
2027 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] TP14AP26.114
[[Page 19470]]
The proposed 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:
[GRAPHIC] [TIFF OMITTED] TP14AP26.115
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 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
terminating MGCRB reclassification, or canceling Sec. 412.103 rural
reclassification status.
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.
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
[[Page 19471]]
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 (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 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 2027
a. FY 2027 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 707 hospitals approved for wage index
reclassifications by the MGCRB starting in FY 2027. Because MGCRB wage
index reclassifications are effective for 3 years, for FY 2027,
hospitals reclassified beginning in FY 2025 or FY 2026 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 242 hospitals approved for wage index reclassifications in
FY 2025 that will continue for FY 2027, and 263 hospitals approved for
wage index reclassifications in FY 2026 that will continue for FY 2027.
Of all the hospitals approved for reclassification for FY 2025, FY
2026, and FY 2027, 1,212 hospitals (approximately 37 percent of IPPS
hospitals) are in a MGCRB reclassification status for FY 2027 (with 331
of these hospitals reclassified back to their urban geographic
location). We note that several hospitals approved for MGCRB
reclassifications may opt to terminate this status after the proposed
rule, and in some cases prior year reclassification would become
effective in its place. We refer readers to section III.F.3.b of the
preamble of this proposed rule for information on the effects of
implementation of the new OMB delineations on reclassified hospitals.
Under the regulations at Sec. 412.273, hospitals that have applied
to be 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
[[Page 19472]]
decision on the application. Hospitals are also permitted to terminate
an approved reclassification after the MGCRB issues a decision,
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.
For information about the current process for withdrawing a 3-year
MGCRB reclassification application, terminating an approved 3-year
MGCRB reclassification, or canceling a previous 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 proposed
rule, 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), the FY 2018 IPPS/LTCH PPS final rule (82
FR 38148 through 38150), and the FY 2026 IPPS/LTCH PPS final rule (90
FR 36847 through 36848).
Applications for FY 2028 reclassifications are due to the MGCRB by
September 1, 2026. This is also the current deadline for canceling a
previous wage index reclassification termination (reinstating a
reclassification) under Sec. 412.273(d) for the FY 2027 cycle.
Applications and other information about MGCRB reclassifications
may be obtained beginning in mid-July 2026 via the internet on the CMS
website at https://www.cms.gov/medicare/regulations-guidance/geographic-classification-review-board. This collection of information
is approved under OMB Control Number 0938-0573 and expires on February
28, 2029.
b. Proposed Revisions to Sec. 412.230(c)(1) to Address Ferry Routes
The regulation at 412.230(c)(1) requires that hospitals seeking
reclassification to an area must submit appropriate data relating to
its proximity to the area, including evidence of the shortest route
over improved roads to the area and the distance of that route as
proximity data. The MGCRB has denied reclassification requests using
ferry routes, but these decisions were overturned via administrative
appeal.
In the FY 2025 IPPS/LTCH PPS final rule (89 FR 69281), commenters
suggested revising the proximity data regulations to include waterways
traveled by ferry boats as equivalent to travel over improved roads.
CMS agreed that a modification to Sec. 412.230(c)(1) could reduce
unnecessary appeals.
Therefore, we are proposing to modify 412.230(c)(1) to include
ferry routes when mapping the shortest route. This change would
minimize appeals of MGCRB decisions and reduce administrative burden
for both CMS and hospitals. This proposal is consistent with our
definition of mileage for purposes of proximity in the FY 2002 IPPS
Final Rule (66 FR 39874-39875), where we stated that we believe that
mileage should continue to be measured by the shortest route over
improved roads maintained by any local, State, or Federal government
entity for public use. Since most ferry routes are maintained by local,
State, or Federal government entities for public transportation over
water, similar to bridges, we consider it appropriate to treat them as
improved roads.
We would apply the same measurement method for miles traveled on
land to those traveled by ferry boat over water. That is, the MGCRB
requires providers to submit map evidence from nationally recognized
electronic mapping services (e.g., Google Maps, Bing Maps, MapQuest)
showing the shortest route over improved roads from the front entrance
of the hospital to the county line of the requested area and the
distance of that route.\87\ Miles traveled by ferry boat would also
need to be mapped using a nationally recognized electronic mapping
service and included as evidence of the shortest route.
---------------------------------------------------------------------------
\87\ MGCRB Rules 5.2(A)(1), available at https://www.cms.gov/medicare/regulations-guidance/geographic-classification-review-board/mgcrb-rules.
---------------------------------------------------------------------------
We are proposing to revise the regulations at 412.230(c)(1) to
state: ``To demonstrate proximity to the area, the hospital must submit
evidence from a nationally recognized electronic mapping service of the
shortest route from the front entrance of the hospital over improved
roads or waterways traveled by ferry boats to the county line of the
requested area and the distance of that route.'' We seek comment on
this proposal.
c. Proposed Clarification Regarding the Data Used for Reclassifying to
an Area With a Lower Wage Index (412.230(a)(5)(i))
MGCRB reclassifications are approved for a 3-year period, and when
evaluating a hospital's request for reclassification, effective with
reclassifications for FY 2003, section 1886(d)(10)(D)(vi)(II) of the
Act requires that the MGCRB must use the average of the most recent
hospital wage survey data and the data from each of the two immediately
preceding surveys. These data requirements are described in regulation
at Sec. 412.230(d)(2). CMS publishes this data in a ``Three Year MGCRB
Reclassification Data Applications'' file during each application cycle
on the CMS website.\88\ We believe that using 3-year data improves wage
index consistency, and reduces the likelihood that a single year of
aberrant wage data in given area would impact the ability of hospitals
to obtain geographic reclassification.
---------------------------------------------------------------------------
\88\ https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/wage-index-files.
---------------------------------------------------------------------------
To be approved for an MGCRB reclassification, hospitals, in
general, must demonstrate that their average hourly wage data is, on
average, greater than their geographic area, and is similar to the area
to which they seek to be reclassified. As described at Sec.
412.230(a)(5)(i), hospitals also must demonstrate that the area to
which they are reclassifying has a higher pre-reclassification wage
index than the area they are geographically located. It has come to our
attention that some view the data requirement of Sec. 412.230(a)(5)(i)
to be ambiguous and believe using only a single year of wage data is
acceptable. It is CMS' longstanding position that, for all average
hourly wage criteria described under Sec. 412.230, the three-year
weighted average data is required for approval by the MGCRB. To remove
any ambiguity, we are therefore proposing to revise Sec.
412.230(a)(5)(i) to explicitly state that the data submitted must
comply with the requirements of Sec. 412.230(d)(2). That is, for
purposes of meeting the criterion at Sec. 412.230(a)(5)(i), we are
affirming that the most recent three-year average hourly wage data must
be submitted for hospitals located in both the area the applicant is
located, and hospitals in the area to which reclassification is sought.
This clarification is consistent with prior decisions made by the
MGCRB, and the required usage of published 3-year data has been upheld
on appeal through the Administrator's review process. We seek comment
on this proposal.
d. Proposed Revisions to 412.230 To Waive Wage Data Comparisons for
Hospitals Reclassifying to Home
As discussed in the FY 2022 IPPS/LTCH PPS final rule (86 FR 45188-
45190), urban hospitals with Sec. 412.103 rural reclassifications are
eligible to
[[Page 19473]]
obtain MGCRB reclassifications to receive the wage index of another
area. In that rulemaking, CMS also discussed the option of such a
hospital reclassifying to its geographic labor market area, or its
``home'' area. When approved for a home area reclassification, the
hospital may obtain the benefits of rural status, while receiving the
wage index applied to other hospitals in its geographic urban area.
These home area reclassifications have become significantly more common
since FY 2022 rule, with nearly a quarter of all MGCRB approvals being
to the hospital's geographic home area in FY 2026. Under current
regulations, obtaining a home area reclassification is a relatively
simple process. There would be no proximity requirement, as the
hospital is physically located in the labor market to which it is
seeking reclassification. As discussed in the May 10, 2021 Interim
final rule with comment period (86 FR 24736-24738) and in the FY 2022
IPPS/LTCH PPS final rule (86 FR 45188-45190), CMS described several
options to obtain MGCRB reclassification for hospitals with Sec.
412.103 reclassification. For example, in meeting the criterion at
Sec. 412.230(a)(5)(i), restricting MGCRB reclassifications to labor
market areas with lower pre-reclassified wages than the area the
hospital is located, CMS allowed an urban hospital with a Sec. 412.103
rural reclassification to be considered located either in its
geographic area or in the rural area of the State. Regarding the
criteria at Sec. 412.230(d)(1)(iii)(C), confirming that the hospital's
wages are above average for its area (the 106/108 percent criterion),
Sec. 412.103 hospitals are permitted to compare their average hourly
wage data to either the other hospitals in its geographic area, or to
the hospitals in the state's rural labor market area. Additionally,
many Sec. 412.103 hospitals also have obtained rural referral center
status. The provision at Sec. 412.230(d)(3)(i) waives the average
hourly wage comparison requirement at Sec. 412.230(d)(1)(iii)(C) for
rural referral centers.
The only criterion that most home area reclassification applicants
are required to meet is at Sec. 412.230(d)(1)(iv). That is, if a
hospital with a rural reclassification demonstrates that its 3-year
average hourly wage is at least 82 percent of the average hourly wage
of its own geographic labor market area (the area to which it is
seeking a home area MGCRB reclassification), the MGCRB application
would be approved. The 82 percent criterion was initially determined to
cover more than two standard deviations of wage variance within any
given labor market area. Given these factors, it would be exceptionally
rare for any hospital with a rural reclassification to be denied a home
area MGCRB reclassification.
However, we are aware of a circumstance in which a home area MGCRB
reclassification would be denied. The published wage data used for
MGCRB reclassification is based on cost report data that could be up to
three years old. Newly established hospitals (or remote locations of
hospitals located in a different labor market area than the main campus
of the hospital) would not yet have a cost report included in the
current fiscal year wage index development process, and no average
hourly wage data would be published. In this case, these hospitals and
remote locations would not be eligible for individual MGCRB
reclassification due to their inability to meet the Sec.
412.230(d)(1)(iv) average hourly wage comparison.
Individual hospitals are required to have at least one year of
published average hourly wage data in order to receive a wage index
reclassification. Newly established hospitals or remote locations
without published wage data that are included in a county group
reclassification (Sec. 412.232 and Sec. 412.234) with other hospitals
are eligible for approval. However, individual reclassification
requests would be denied. We believe this is the appropriate policy, as
the MGCRB is required to review wage data to determine whether it is
appropriate to grant an individual hospital the wage index of another
labor market area. However, given the unique nature of a home area
reclassification, it is difficult to see what policy objective would be
achieved by denying a hospital a wage index based on its own geographic
area. Therefore, we are proposing to waive the application of Sec.
412.230(d)(1)(iv) for a hospital requesting reclassification to its
geographic home area. Specifically, we are proposing to add an
exception Sec. 412.230(d)(6) to waive the application of requirements
of Sec. 412.230(d)(1)(iv) for hospitals with Sec. 412.103 rural
reclassification and are seeking MGCRB reclassification to their
geographic labor market area. While CMS continues to have concerns with
hospitals using Sec. 412.103 in order to enhance the state's rural
floor, the scenario we are addressing would only affect situations
where the inability to obtain a home area reclassification could lead
to lower wage index value for the hospital. In such a case, a hospital
would have the option to cancel its rural reclassification per the
provision at Sec. 412.103(g), and receive the wage index of its
geographic urban area. However, there are situations where canceling
rural reclassification would have significant financial impacts on the
hospital, particularly in scenarios where a hospital operates in
multiple urban labor market areas. For example, if a hospital with a
Sec. 412.103 reclassification opens or acquires a remote location in a
different urban labor market area, we apply a separate wage index to
that remote location based on its location and reclassification status.
That remote location would be ineligible for individual MGCRB
reclassification until CMS reviewed a cost report that allocates wages
between the inpatient locations. In this case, the new remote location
would be assigned its state's rural wage index based on the main
campus' rural status, not the urban wage index for its geographic area.
Given that the large majority of hospitals with Sec. 412.103 rural
reclassifications can obtain home area MGCRB reclassification, we see
no compelling policy justification to restrict reclassification in such
a narrow circumstance. The few hospitals potentially affected by this
proposed policy would not have published wage data for at least first
year of any MGCRB reclassification and, therefore, would have a
negligible impact on the accuracy or consistency of overall wage index
values. We believe this proposal to waive the application of Sec.
412.230(d)(1)(iv) for hospitals requesting reclassification to its
geographic home area would provide an equitable opportunity to obtain a
competitive wage index for affected hospitals.
We seek comment on this proposal.
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 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-
[[Page 19474]]
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, 2026. We also inform hospitals that for
the request to be approved, the hospital must 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.
F. Proposed Wage Index Adjustments: Rural Floor, Imputed Floor, State
Frontier Floor, Out-Migration Adjustment, Cap on Wage Index Decrease
Policies, and Continuation of Transition for the Discontinuation of the
Low Wage Index Hospital Policy
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 generally requires that hospitals in frontier states cannot be
assigned a wage index of less than 1.00. 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. Finally, all hospital wage index decreases are capped at 5
percent of the hospital's final wage index in the prior fiscal year,
such that a hospital's wage index would not be less than 95 percent of
its final wage index for 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 2027 wage index associated with this proposed
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
535 hospitals would receive the rural floor in FY 2027. The budget
neutrality impact of the proposed application of the rural floor is
discussed in section II.A.4.e of Addendum A of this proposed 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) or Lugar 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 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 process for 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
[[Page 19475]]
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).
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 had
stated that they were 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 proposed rule, States that would
be all-urban States as defined in section 1886(d)(3)(E)(iv)(IV) of the
Act, and thus hospitals in such States that would be eligible to
receive an increase in their wage index due to application of the
imputed floor for FY 2027, are identified in Table 3 (which is
available on the CMS website) associated with this proposed 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 would continue to be applied for FY 2027 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).
3. State Frontier Floor for FY 2027
Section 10324 of Public Law 111-148 amended Section 1886(d)(3)(E)
of the Act and added section 1886(d)(3)(E)(iii) of the Act to require
that hospitals in frontier States cannot be assigned a wage index of
less than 1.00. 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). We are not
proposing any changes to the frontier floor policy for FY 2027. In this
proposed rule, 40 hospitals would receive the frontier floor value of
1.00 for their FY 2027 proposed 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 1.00.
The areas affected by the rural and frontier floor policies for the
proposed FY 2027 wage index are identified in Table 3 associated with
this proposed 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 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 section 1886(d)(13) 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 data set 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
[[Page 19476]]
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
Core-Based Statistical Area (CBSA) 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 includes 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.\89\ 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
figures that would be obtained from a complete count.
---------------------------------------------------------------------------
\89\ 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.
---------------------------------------------------------------------------
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.
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 2027, we are not proposing any
changes to the methodology or data source for calculating the out-
migration adjustment. Specifically, we are proposing that the FY 2027
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 2027. 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 proposed
rule (which is available on the CMS website) lists the proposed out-
migration adjustments for the FY 2027 wage index. In addition, Table 4A
associated with this proposed 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 2027
identified by FIPS county code, the proposed FY 2027 out-migration
adjustment, and the number of years the adjustment would be in effect.
We refer readers to section V.I of the Addendum of this proposed rule
for instructions on accessing IPPS tables that are posted on the CMS
websites identified in this proposed rule.
5. 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. We note,
as discussed below, that for FY 2027 we are proposing to continue the
transitional payment exception that addresses the effects of the
removal of the low wage index hospital policy. This proposed
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 fiscal
year using the final wage index applicable to the hospital on the last
day of the prior fiscal year. 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 2027, we would apply the wage index cap and associated
budget neutrality adjustment in accordance with the policies adopted in
the FY 2023 IPPS/LTCH PPS final rule. We refer readers to the Addendum
of this proposed rule for further information regarding the budget
neutrality calculations.
6. Continued Transition for the Discontinuation of the Low Wage Index
Hospital Policy
In the FY 2025 interim final action with comment period (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. For FY 2026 and subsequent fiscal years,
consistent with the FY 2025 IFC, after considering the D.C. Circuit's
[[Page 19477]]
decision in Bridgeport Hospital v. Becerra, we discontinued the low
wage index hospital policy and the application of the low wage index
budget neutrality factor to the standardized amounts (90 FR 36854).
For FY 2025 and FY 2026, consistent with our past practice to
establish temporary transition policies to mitigate short-term
instability and payment fluctuations, we established transition
policies for hospitals significantly impacted by the discontinuation of
the low wage index hospital policy using our authority under section
1886(d)(5)(I) of the Act. The transitional payment exception for FY
2025 for those hospitals was 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. The transitional
payment exception for FY 2026 was 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.\90\ For FY
2025, we opted not to budget neutralize the interim transition policy
given the timing of the Bridgeport Hospital v. Becerra decision.
However, for FY 2026, we finalized a payment transition with a budget
neutrality adjustment through notice-and-comment rulemaking for
hospitals facing significant reductions over two years that would not
be sufficiently mitigated by the wage index cap policy at 42 CFR
412.64(h)(7). We refer readers to the FY 2025 IFC (89 FR 80405 through
80421) and to the FY 2026 IPPS/LTCH PPS Final Rule (90 FR 36855 through
36857) for a full discussion of these transitional payment policies.
---------------------------------------------------------------------------
\90\ 90.25 percent = 95 percent for FY 2025 * 95 percent for FY
2026. This can also be expressed as .95-2.
---------------------------------------------------------------------------
Some hospitals that previously benefitted from the low wage index
hospital policy would continue to experience decreases of approximately
5 percent or more per year from their FY 2024 wage index (with the low
wage index hospital policy applied). For example, these hospitals may
experience a decrease of 15 percent or more over the three years from
their FY 2024 wage index to their proposed FY 2027 wage index (that is,
approximately 5 percent or more per year over that time period).
Therefore, we are proposing to extend the transitional exception to the
calculation payments for FY 2027 for these hospitals in the same manner
as we did for the FY 2026 wage index.
Similar to the FY 2026 transition, the transitional exception
policy we are proposing for FY 2027 would continue to apply only to
hospitals that benefited from the FY 2024 low wage index hospital
policy. For FY 2027, for example, we would compare the hospital's
proposed FY 2027 wage index to the hospital's FY 2024 wage index if the
hospital benefited from the low wage index hospital policy in FY 2024.
If the hospital is significantly impacted by the discontinuation of the
low wage index hospital policy, meaning the hospital's proposed FY 2027
wage index is decreasing by more than 14.2625 percent \91\ from the
hospital's FY 2024 wage index, then the transitional payment exception
for FY 2027 for that hospital would be equal to the additional FY 2027
amount the hospital would be paid under the IPPS if its FY 2027 wage
index were equal to 85.7375 percent \92\ of its FY 2024 wage index.\93\
We note this proposed transitional payment exception would be applied
after the application of the 5-percent cap described at 42 CFR
412.64(h)(7).
---------------------------------------------------------------------------
\91\ 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 3-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*0.95)
times its wage index from three years earlier. Similarly for our
proposed FY 2027 transitional exception policy, we are proposing
that a hospital is significantly impacted by the discontinuation of
the low wage index hospital policy if its FY 2027 wage index is less
than (0.95*0.95*0.95) of its FY 2024 wage index, which equates to a
decrease of more than 14.2625 percent.
\92\ 85.7375 percent = 95 percent for FY 2025 * 95 percent for
FY 2026* 95 percent for FY 2027. This can also be expressed as
.95-3.
\93\ We note that we are not proposing to change the FY 2027
wage index values under section 1886(d)(3)(E) for hospitals eligible
for the proposed FY 2027 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 2027 IPPS
payments.
---------------------------------------------------------------------------
For example: 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 2027 wage index is 0.6500. (If applicable, this
proposed FY 2027 wage index value would include the 5-percent cap based
on a comparison of the hospital's FY 2027 wage index prior to
application of the 5-percent cap, to the hospital's FY 2026 wage index.
We note that the FY 2026 wage index that will be used in this
comparison is generally the FY 2026 wage index listed in Table 2 from
the FY 2026 Final Rule in the column labeled ``FY 2026 Wage Index With
Cap''. We note that all hospitals, regardless of whether the cap was
applied to their FY 2026 wage index, have a value in the column ``FY
2026 Wage Index With Cap''. Hospitals that did not have a cap applied
to their FY 2026 wage index will display a wage index in this column
without the cap.) The hospital's proposed FY 2027 wage index is
decreasing by more than 14.2625 percent from the hospital's FY 2024
wage index [that is, 0.6500 < 0.6516 where 0.6516 = (0.857375 times
0.7600)]. The proposed transitional payment exception for FY 2027 for
this hospital is equal to the additional amount the hospital would be
paid under the IPPS if its FY 2027 wage index were equal to 0.6516,
which is 85.7375 percent of 0.7600, its FY 2024 wage index. We note
that the hospital in this example would not qualify for the
transitional payment exception in FY 2028 should the policy be extended
if its 2028 wage index is more than 0.6190, which is 81.450625 percent
(or 0.95-4) of its FY 2024 wage index of 0.7600.
Similar to the FY 2026 transition, we are proposing to make this
policy budget neutral for FY 2027 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 2027 wage
index decreases had the combined payment effect of the FY 2025 and FY
2026 wage index and the transitional payment exception been reflected
solely in the FY 2025 and FY 2026 wage index, and it would have done so
in a budget neutral manner under our current regulations; and (2) the
circumstances described in the FY 2025 IFC (89 FR 80405 through 80421)
that caused us to decline to budget neutralize the interim FY 2025
transition policy are not applicable to subsequent years. In addition,
implementing the proposed transition policy for FY 2027 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 are
proposing to use our authority under section 1886(d)(5)(I)(i) of the
Act twice. First, we are proposing to adopt a narrow transitional
exception to the calculation of FY 2027 IPPS for low wage index
hospitals significantly impacted by the discontinuation of the low wage
index
[[Page 19478]]
hospital policy. Second, we are proposing to exercise our authority
again to do so in a budget neutral manner.94 95 We refer the
reader to section II.A.4.g of the Addendum of this proposed rule for
complete details regarding the application of the transition for the
discontinuation of the low wage index hospital policy budget neutrality
factor.
---------------------------------------------------------------------------
\94\ We note that even more so than was the case for the FY 2025
and FY 2026 interim transition policy, the scope and magnitude of
the FY 2027 transitional policy are much smaller than the low wage
index hospital policy, and we expect this trend to continue as
effects of discontinuing the low wage hospital policy diminish. As
discussed in section VI of the preamble of this proposed rule, we
estimate only 54 hospitals, out of the over 3,000 hospitals paid
under the IPPS will receive FY 2027 transitional exception payments.
Also, as discussed in section II. A 4 of the addendum to this
proposed rule, as proposed, we applied a budget neutrality factor to
the standardized amount.
\95\ We note that because creating an exception to the
calculation of the FY 2027 payments is in this circumstance
functionally equivalent to adjusting the FY 2027 payments, the
transitional exception can be alternatively considered a
transitional adjustment.
---------------------------------------------------------------------------
We are also proposing to make a budget neutral equivalent exception
under the capital IPPS. 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. 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
decreases of 15 percent or more over the three years from their FY 2024
wage index (with the low wage index hospital policy applied) to their
proposed FY 2027 wage index, at approximately 5 percent or more per
year over that time period and for subsequent years. As such, similar
to the FY 2025 and FY 2026 transition policies, we are proposing for FY
2027 to make a budget neutral equivalent exception under the capital
IPPS.
G. FY 2027 Wage Index Tables
In this FY 2027 IPPS/LTCH PPS proposed 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
proposed rule for a discussion of the wage index tables for FY 2027.
H. Proposed Labor-Related Share for the FY 2027 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 diagnosis related group (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 2026 IPPS/LTCH PPS final rule (90 FR 36869 through
36873), we rebased and revised the hospital market basket to a 2023-
based IPPS hospital market basket, which replaced the 2018-based IPPS
hospital market basket, effective beginning October 1, 2025. Using the
2023-based IPPS market basket, we finalized a labor-related share of
66.0 percent for discharges occurring on or after October 1, 2025. In
addition, in FY 2026, we implemented this rebased labor-related share
in a budget neutral manner (90 FR 36857 through 36858, 90 FR 37216
through 37217). 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.
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. In the
FY 2026 IPPS/LTCH PPS final rule, we included 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 measured in the 2023-based IPPS market basket. For
FY 2027, we are proposing to continue to use a labor-related share of
66.0 percent for discharges occurring on or after October 1, 2026.
As discussed in section VI.B of the preamble of this proposed 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
[[Page 19479]]
subject to the national labor-related share and nonlabor-related share
percentages that are applied to the national standardized amount.
Accordingly, for FY 2027, we are not proposing a Puerto Rico-specific
labor-related share percentage or a nonlabor-related share percentage.
Tables 1A and 1B, which are published in section VI of the Addendum
to this FY 2027 IPPS/LTCH PPS proposed rule and available via the
internet on the CMS website, reflect the proposed national labor-
related share. Table 1C, in section VI of the Addendum to this FY 2027
IPPS/LTCH PPS proposed rule and available via the internet on the CMS
website, reflects the national labor-related share for hospitals
located in Puerto Rico. For FY 2027, for all IPPS hospitals (including
Puerto Rico hospitals) whose wage indexes are less than or equal to
1.0000, we are proposing 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 2027, we are proposing to apply the wage
index to a labor-related share of 66.0 percent of the national
standardized amount.
IV. Proposed Payment Adjustment for Medicare Disproportionate Share
Hospitals (DSHs) for FY 2027 (Sec. 412.106)
A. General Discussion
Section 1886(d)(5)(F) of the Act provides for additional Medicare
payments to subsection (d) hospitals \96\ 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 below, under which
the DSH payment adjustment is based on a complex statutory formula that
includes the hospital's geographic designation, the number of beds in
the hospital, and the level of the hospital's DPP.
---------------------------------------------------------------------------
\96\ 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] TP14AP26.116
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 under section 1886(d)(5)(F) of the Act
receive two separately calculated payments:
[[Page 19480]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.117
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.\97\ We refer to this payment as the ``empirically
justified Medicare DSH payment.''
---------------------------------------------------------------------------
\97\ https://www.medpac.gov/document/march-2007-report-to-the-congress-medicare-payment-policy/.
---------------------------------------------------------------------------
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.
Section 1886(r)(2)(B) of the Act provides that 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 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.
Section 1886(r)(2)(C) of the Act provides that 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 amount determined by these
factors as the ``uncompensated care payment.'' In brief, the
uncompensated care payment for an individual hospital is the product of
the following 3 factors:
[GRAPHIC] [TIFF OMITTED] TP14AP26.118
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 a 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
[[Page 19481]]
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 is available). For this proposed rule, 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
note that FY 2023 SSI ratios available on the CMS website were the most
recent available SSI ratios at the time of developing this proposed
rule.\98\ If more recent data on DSH eligibility becomes available
before the final rule, we would use such data in the final rule. Our
final determinations of a hospital's eligibility for empirically
justified Medicare DSH and uncompensated care payments will be based on
the hospital's actual DSH status at cost report settlement for FY 2027.
---------------------------------------------------------------------------
\98\ https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/dsh.
---------------------------------------------------------------------------
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 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 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 December 31, 2026. We refer readers to section
V.E. of the preamble of this proposed 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.
Transforming Episode Accountability Model (TEAM) is a new
episode-based payment model (89 FR 68986). Hospitals participating in
TEAM continue to be paid under the IPPS and, therefore, are eligible to
receive empirically justified Medicare DSH payments and uncompensated
care payments. The model started January 1, 2026.
IPPS hospitals that participate in the proposed
Comprehensive Care for Joint Replacement Expansion (CJR-X) Model would
continue to be paid under the IPPS and, therefore, are eligible to
receive empirically justified Medicare DSH payments and uncompensated
care payments. We refer the reader to section X.C. of the FY2027 IPPS/
LTCH proposed rule for further discussion on the CJR-X Model. CMS
proposes beginning this model on October 1, 2027.
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. CMS and the State have entered into an
agreement to govern payments to Maryland hospitals under a new payment
model, the Achieving Healthcare Efficiency through Accountable Design
(AHEAD) Model, beginning January 1, 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. Further information is available on the CMS website
at https://www.cms.gov/priorities/innovation/innovation-models/ahead.
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).\99\ The period of participation for
the last hospital in the demonstration under the most recent
legislative authorization (Pub. L. 116-260) 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
[[Page 19482]]
empirically justified Medicare DSH payments, and they are excluded from
receiving interim and final uncompensated care payments. At the time of
development of this proposed rule, we believe 22 hospitals may
participate in the demonstration program at the start of FY 2027. We
note 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 2027, we would use updated information
in the FY 2027 final rule.
---------------------------------------------------------------------------
\99\ 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.
---------------------------------------------------------------------------
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://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 2027 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.
For FY 2027, we are not proposing any changes to the methodology
for determining the supplemental payments and 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.
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. Proposed Calculation of Factor 1 for FY 2027
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 this FY 2027 IPPS/LTCH PPS proposed rule, consistent with the
policy that has applied since the FY 2014 final rule (78 FR 50627
through 50631), we are determining Factor 1 from the most recently
available estimates of the aggregate amount of Medicare DSH payments
that would be made for FY 2027 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 2027, 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
2027 IPPS/LTCH PPS final rule.
For this proposed rule, 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
[[Page 19483]]
most recently filed Medicare hospital cost reports with 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 2024 through FY 2027 are
discussed later in this section and in the table titled ``Factors
Applied for FY 2024 through FY 2027 to Estimate Medicare DSH
Expenditures Using FY 2023 Baseline.''
For purposes of calculating Factor 1 and modeling the impact of
this FY 2027 IPPS/LTCH PPS proposed rule, we used OACT's January 2026
Medicare DSH estimates, which were based on data from the December 2025
update of the Medicare Hospital Cost Report Information System (HCRIS)
and the FY 2026 IPPS/LTCH PPS final rule IPPS Impact File, published in
conjunction with the publication of the FY 2026 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 2026 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 2026 Medicare DSH estimates.
The 22 hospitals that CMS expects will participate in the Rural
Community Hospital Demonstration Program in FY 2027 were also excluded
from OACT's January 2026 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 this proposed rule, using the data sources previously
discussed, OACT's January 2026 estimates of Medicare DSH payments for
FY 2027 without regard to the application of section 1886(r)(1) of the
Act, is approximately $15.303 billion. Therefore, also based on OACT's
January 2026 Medicare DSH estimates, the estimate of empirically
justified Medicare DSH payments for FY 2027, with the application of
section 1886(r)(1) of the Act, is approximately $3.826 billion (or 25
percent of the total amount of estimated Medicare DSH payments for FY
2027). Under Sec. 412.106(g)(1)(i), Factor 1 is the difference between
these two OACT estimates. Therefore, in this FY 2027 IPPS/LTCH PPS
proposed rule, we are determining that Factor 1 for FY 2027 would be
$11.477 billion, which is equal to 75 percent of the total amount of
estimated Medicare DSH payments for FY 2027 ($15.303 billion minus
$3.826 billion). We note that consistent with our approach in previous
rulemakings, OACT intends to use more recent data that may become
available for purposes of projecting the final Factor 1 estimates for
the FY 2027 IPPS/LTCH PPS final rule.
We note 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 expect
the Midsession Review will have updated economic assumptions and
actuarial analysis, which will be used for the development of Factor 1
estimates in the FY 2027 IPPS/LTCH PPS final rule.
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 on the CMS website at https://www.cms.gov/oact/tr/2025. 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 this proposed rule, we include information regarding the data
sources, methods, and assumptions employed by OACT's actuaries in
determining our estimate of Factor 1. In summary, we indicate the
historical HCRIS data update OACT used to estimate Medicare DSH
payments. We also explain that the most recent Medicare DSH payment
adjustments provided in the IPPS Impact File were used, and we provide
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 includes descriptions of the ``Other'' and
``Discharges'' assumptions.
OACT's estimates for FY 2027 for this proposed rule began with a
baseline of $12.901 billion in Medicare DSH expenditures for FY 2023.
The following table shows the factors applied to update this baseline
through the current estimate for FY 2027:
[GRAPHIC] [TIFF OMITTED] TP14AP26.119
[[Page 19484]]
In this table, the discharges column shows the changes in the
number of Medicare FFS inpatient hospital discharges. The discharge
figures for FY 2024 and FY 2025 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 2026 and FY 2027 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 2024 and FY 2025 are based on
actual claims data adjusted by a completion factor to account for
incomplete claims data. The case-mix figure for FY 2026 is the expected
transition to the case-mix for FY 2027. The FY 2027 case-mix is based
on assumptions from the 2012 ``Review of Assumptions and Methods of the
Medicare Trustees' Financial Projections'' report by the 2010-2011
Medicare Technical Review Panel.\100\
---------------------------------------------------------------------------
\100\ https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/reportstrustfunds/downloads/technicalpanelreport2010-2011.pdf.
---------------------------------------------------------------------------
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.
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] TP14AP26.120
We are inviting public comments on our proposed Factor 1 for FY
2027.
2. Calculation of Proposed Factor 2 for FY 2027
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 fiscal
years (FYs) 2018 through 2026 to determine Factor 2 for FY 2027--to use
the National Health Expenditure Accounts (NHEA) data to determine the
percentage point 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 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 (that is, 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 2027, 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 2027 are
projections of the rate of uninsurance in calendar years (CYs) 2026 and
2027 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, all NHEA
historical data through 2023). The NHEA projection methodology accounts
for expected changes in enrollment across all of the categories of
insurance coverage previously noted. For a complete discussion of how
the NHEA data account for expected changes in enrollment across all the
categories of insurance coverage previously noted, we refer readers to
the FY 2024 IPPS/LTCH PPS final rule (88 FR 58999).
b. Proposed Factor 2 for FY 2027
Using these data sources and the previously described
methodologies, at the time of developing this proposed rule, OACT has
estimated that the uninsured rate for the historical baseline year of
2013 was 14.0 percent, and that the uninsured rates for CYs 2026 and
2027 are projected to be 9.0 and 9.1percent, respectively. As required
by section 1886(r)(2)(B)(ii) of the Act, the Chief Actuary of CMS
certified these
[[Page 19485]]
estimates. We refer readers to OACT's Memorandum on Certification of
Rates of Uninsured prepared for this proposed rule for further details
on the methodology and assumptions that were used in the projection of
these rates of uninsurance.\101\
---------------------------------------------------------------------------
\101\ See https://www.cms.gov/files/document/certification-rates-uninsured-2027-proposed-rule.pdf.
---------------------------------------------------------------------------
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
(79 FR 50014), we use 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 the fiscal
year spans. Accordingly, in this proposed rule, we are continuing to
apply the weighted average approach used in past fiscal years to
estimate this proposed rule's rate of uninsurance for FY 2027.
OACT certified the estimate of the rate of uninsurance for FY 2027
determined using this weighted average approach to be reasonable and
appropriate for purposes of section 1886(r)(2)(B)(ii) of the Act.\1\ We
note that we may also consider the use of more recent data that may
become available before publication of the final rule, for purposes of
estimating the rates of uninsurance used in the calculation of the
final Factor 2 for FY 2027.
The calculation of the proposed Factor 2 for FY 2027 is as follows:
Percent of individuals without insurance for CY 2013: 14.0
percent.
Percent of individuals without insurance for CY 2026: 9.0
percent.
Percent of individuals without insurance for CY 2027: 9.1
percent.
Percent of individuals without insurance for FY 2027:
(0.25 times 0.090) + (0.75 times 0.091) = 9.1 percent.
FY 2027's proposed Factor 2 is calculated as 1 minus the
percent change in the percent of individuals without insurance between
CY 2013 and FY 2027.
Proposed Factor 2 is as follows: 1-[verbar]((0.14-0.091)/
0.14)[verbar] = 1-0.3500 = 0.6500.
We propose that Factor 2 for FY 2027 would be 65.00 percent.
The proposed FY 2027 uncompensated care amount is equivalent to
proposed Factor 1 multiplied by proposed Factor 2, which is
$7,460,212,500.
We invite public comments on our proposed Factor 2 for FY 2027.
3. Calculation of Proposed Factor 3 for FY 2027
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 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. 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 (the estimated uncompensated care amount
for an individual hospital) and the denominator (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, 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 (FYs) 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 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
[[Page 19486]]
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 FYs 2018 and 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.\102\
---------------------------------------------------------------------------
\102\ 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.
---------------------------------------------------------------------------
(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 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
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 2027, the FY 2023 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, 2023, would be
subject to the new hospital policy for FY 2027.
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.\103\
---------------------------------------------------------------------------
\103\ 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
[[Page 19487]]
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 proposed 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
proposed 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.
(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,
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.\104\
---------------------------------------------------------------------------
\104\ 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
[[Page 19488]]
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 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 2027
For FY 2027, 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 proposed rule, to
determine Factor 3 using the most recent 3 years of audited cost
reports, from FYs 2021, 2022, and 2023. Consistent with our approach
for FY 2025, for FY 2027, 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 proposed rule. For purposes of this proposed
rule, we are using reports from the December 2025 HCRIS extract to
calculate Factor 3. We intend to use the March 2026 update of HCRIS to
calculate the final Factor 3 for the FY 2027 IPPS/LTCH PPS final rule.
Thus, for FY 2027, 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 these steps use
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 FY audited cost reports (FYs 2021, 2022, and
2023). 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 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.\105\ 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.
---------------------------------------------------------------------------
\105\ For example, if a hospital does not have a FY 2021 cost
report because the hospital's FY 2020 cost report spanned the FY
2021 time period, we will use the FY 2020 cost report that spanned
the FY 2021 time period for this step. Using the same example, where
the hospital's FY 2020 report is used for the FY 2021 time period,
we will use the hospital's FY 2019 report if it spans some of the FY
2020 time period. We will not use the same cost report for both the
FY 2021 and the FY 2020 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 proposed rule.
As we explained previously in this section, for FY 2027, 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
proposed 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
proposed 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 2027 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 2027 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 2027 cost report, while the
denominator will reflect the sum of the uncompensated care costs
reported on Worksheet S-10 of the FY 2023 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 this FY 2027 IPPS/
LTCH proposed rule, the statewide average CCR was applied to 12
hospitals' FY 2021 reports, of which 6 hospitals had FY 2021 Worksheet
S-10 data. The statewide average CCR was applied to 10 hospitals' FY
2022 reports, of which 4 hospitals had FY 2022 Worksheet S-10 data. The
statewide average CCR was applied to 12 hospitals' FY 2023 reports, of
which 7 hospitals had FY 2023 Worksheet S-10 data.
For purposes of the FY 2027 IPPS/LTCH PPS final rule, consistent
with our Factor 3 methodology since the FY 2014 IPPS/LTCH PPS final
rule (78 FR
[[Page 19489]]
50642), we intend to use data from the March 2026 HCRIS extract for
this calculation, which would be the latest quarterly HCRIS extract
that is publicly available at the time of the development of the FY
2027 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, we note that
MACs follow normal timelines and procedures. For purposes of the Factor
3 calculation for the FY 2027 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 2026. 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 2027 IPPS/LTCH
PPS final rule's Factor 3 calculation. We note that the March HCRIS
data extract will be available during the comment period for this
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
2027
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
and 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 2027 and subsequent fiscal years, codified at 42 CFR
412.106(i)(1). We are applying this policy for FY 2027. 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.
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 2027. 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.
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 proposed 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 2027
(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 17 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 have 60 days from the date of public display of this FY
2027 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 this 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
[[Page 19490]]
report submission process.\106\ 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 will 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 2027
IPPS/LTCH PPS final rule. All other comments submitted in response to
our proposals for FY 2027 must be submitted in one of the three ways
found in the ADDRESSES section of this proposed rule before the close
of the comment period in order to be assured consideration. In
addition, we note that the CMS DSH inbox is not intended for Worksheet
S-10 audit process related emails, which should be directed to the
MACs.
---------------------------------------------------------------------------
\106\ 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.
---------------------------------------------------------------------------
We invite public comments on all the previously described proposals
for Factor 3 for FY 2027.
V. Other Decisions and Changes to the IPPS for Operating Costs
A. Proposed 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 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. Proposed Changes for FY 2027
As discussed in the preamble of this proposed rule, based on our
analysis of FY 2025 MedPAR claims data, CMS proposed to make changes to
a number of MS-DRGs, effective for FY 2027. Specifically, we are
proposing the following changes:
Reassigning an ICD-10-PCS code describing the insertion of
an endocardiac pacing electrode to MS-DRGs 228-229, deleting MS-DRGs
258, 259, 260, 261 and 262, and creating proposed new MS-DRGs 210 and
211 (Cardiac Pacemaker Revision or Device Replacement with MCC and
without MCC, respectively).
[[Page 19491]]
Reassigning the ICD-10-PCS codes describing extensive
spinal fusions, fusions performed with a custom-made anatomically
designed interbody fusion device and fusion of the sacroiliac joints
using an internal fixation device with tulip connector from MS-DRGs
402, 426-428, 447-448, 450-451, and 456-458 to proposed new MS-DRGs
523, 524, and 525 (Extensive or Complex Spinal Fusion Procedures Except
Cervical with MCC, with CC, and without CC/MCC, respectively).
Redesignating an ICD-10-PCS code describing introduction
of an antibiotic-eluting bone void filler from non-O.R. to non-O.R.
affecting the MS-DRG assignment for MS-DRGs 463, 474, 477, 480, 492,
616, and 628.
Deleting MS-DRGs 485-487, and creating proposed new MS-DRG
400 (Knee Procedures with Principal Diagnosis of Infection).
Deleting MS-DRGs 466-468, and creating proposed new MS-DRG
449 (Revision of Hip or Knee Replacement).
Creating proposed new MS-DRG 403 (Hip or Knee Procedures
with Principal Diagnosis of Periprosthetic Joint Infection with MCC or
Insertion of Antibiotic-eluting Bone Void Filler) and proposed new MS-
DRG 404 (Hip or Knee Procedures with Principal Diagnosis of
Periprosthetic Joint Infection without MCC).
Deleting MS-DRGs 736, 737, 738, 739, 740 and 741 and
creating proposed new MS-DRGs 731, 732, and 733 for uterine and adnexa
procedures for female reproductive system malignancies.
Deleting MS-DRG 264 (Other Circulatory System O.R.
Procedures) and creating proposed new MS-DRGs 361 and 362 (Other
Circulatory System O.R. Procedures with and without MCC, respectively).
Adding ICD-10-PCS procedure codes describing the
introduction of pancreatic islet cells to a new ``Islet Cell Transplant
Procedures'' logic list in Pre-MDC MS-DRGs 008, 010, and 019.
When proposing changes to MS-DRGs that involve adding, deleting,
and reassigning procedure or diagnosis codes between proposed new and
revised MS-DRGs, 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 2027, 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 2025 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 MS-DRG.
We evaluated any current MS-DRG 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-DRG 426 (Multiple Level Combined Anterior and
Posterior Spinal Fusion Except Cervical with MCC or Custom-Made
Anatomically Designed Interbody Fusion Device), MS-DRG 427 (Multiple
Level Combined Anterior and Posterior Spinal Fusion Except Cervical
with CC), and MS-DRG 428 (Multiple Level Combined Anterior and
Posterior Spinal Fusion Except Cervical without CC/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) we determined that more than 5 percent of
the current cases would shift from the current assigned MS-DRGs to
proposed new MS-DRGs 523, 524, and 525. For existing 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) and MS-DRGS 474, 475, and 476 (Amputation
for Musculoskeletal System and Connective Tissue Disorders with MCC,
with CC, and without CC/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 403 and 404. For existing MS-DRGs 616,
617, and 618 (Amputation of Lower Limb for Endocrine, Nutritional and
Metabolic Disorders with MCC, with CC, and without CC/MCC,
respectively) we determined that more than 5 percent of the current
cases would shift from the current assigned MS-DRGs to MS-DRGs 622,
623, and 624 (Skin Grafts and Wound Debridement for Endocrine,
Nutritional and Metabolic Disorders with MCC, with CC, and without CC/
MCC, respectively). We note that for all other proposed changes, the
relative volume of cases shifting to or from current MS-DRGs does 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).
We note that proposed new and revised MS-DRGs 210, 361, 362, 400,
403, 404, 426, 457, 463, 464, 474, 475, 523, 524, 616, and 617 would
qualify to be included on the list of MS-DRGs that are subject to the
postacute care transfer policy. As described in the regulations at
Sec. 42 CFR 412.4(d)(3)(ii)(D), MS-DRGs that share the same base MS-
DRG will all qualify under the MS-DRG postacute care transfer payment
policy if any one of the MS-DRGs that share that same base MS-DRG
qualifies. We therefore are proposing to add new or revised MS-DRGs
210, 211, 361, 362, 400, 403, 404, 456, 457, 458, 523, 524, and 525 to
the list of MS-DRGs that are subject to the postacute care transfer
policy. We note that MS-DRGs 426, 427, 428, 463, 464, 465, 474, 475,
476, 616, 617, and 618 are currently subject to the postacute care
transfer policy. As a result of our review, these MS-DRGs, as proposed
to be revised, would continue to qualify to be included on the list of
MS-DRGs that are subject to the postacute care transfer policy.
Using the December 2025 update of the FY 2025 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
proposed rule with respect to each of these proposed new or revised MS-
DRGs. For the FY 2027 final rule, we intend to update this analysis
using the most recent available data at that time.
BILLING CODE 4120-01-P
[[Page 19492]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.121
[[Page 19493]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.122
During our annual review of proposed new or revised MS-DRGs and
analysis of the December 2025 update of the FY 2026 MedPAR file, we
reviewed the list of proposed revised or new MS-DRGs that qualify to be
included on the list of
[[Page 19494]]
MS-DRGs subject to the postacute care transfer policy for FY 2027 to
determine if any of these MS-DRGs would also be subject to the special
payment methodology policy for FY 2027.
Based on our analysis of the proposed changes to the MS-DRGs
included in the proposed rule, we determined that proposed new or
revised MS-DRGs 362, 400, 404, 426, 457, 463, 617 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 share that same base MS-DRG qualifies. Therefore, we are
proposing that proposed new and revised MS-DRGs 361, 362, 400, 403,
404, 456, 457, 458, 463, 464, 465, 616, 617, 618 would be subject to
the MS-DRG special payment methodology, effective for FY 2027. We note
that MS-DRGs 426, 427, and 428 are currently subject to the special
payment methodology. As a result of our review, these MS-DRGs, as
proposed to be revised, would continue to qualify to be included on the
list of MS-DRGs that are subject to the special payment methodology.
For the FY 2027 final rule, we intend to update this analysis using
the most recent available data at that time.
[[Page 19495]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.123
[[Page 19496]]
BILLING CODE 4120-01-C
B. Proposed Changes in the Inpatient Hospital Update for FY 2027 (Sec.
412.64(d))
1. Proposed FY 2027 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 2027, we are setting the applicable percentage
increase by applying the adjustments listed in this section in the same
sequence as we did for FY 2026. (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 are setting the applicable
percentage increase by applying the following adjustments in the
following sequence. The applicable percentage increase under the IPPS
for FY 2027 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 (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 2026 IPPS/
LTCH PPS final rule (90 FR 36859 through 36866), we replaced the 2018
based IPPS operating and capital market baskets with the rebased and
revised 2023-based IPPS operating and capital market baskets beginning
in FY 2026. Consistent with our established frequency of rebasing the
IPPS market basket every 4 years, we plan on proposing to rebase and
revise the IPPS market in the FY 2030 IPPS/LTCH PPS proposed rule.
We are proposing to base the FY 2027 market basket update used to
determine the applicable percentage increase for the IPPS on IHS Global
Inc.'s (IGI's) fourth quarter 2025 forecast of the 2023-based IPPS
market basket rate-of-increase with historical data through third
quarter 2025, which is estimated to be 3.2 percent. We are also
proposing that if more recent data subsequently become available (for
example, a more recent estimate of the market basket update), we would
use such data, if appropriate, to determine the FY 2027 market basket
update in the final rule.
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 multifactor productivity (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 productivity for the U.S. economy.
The productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of
the Act is published by BLS as private nonfarm business total factor
productivity ((TFP) previously referred to as multifactor
productivity).\107\ Please see https://www.bls.gov/productivity/ 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.
---------------------------------------------------------------------------
\107\ https://www.bls.gov/productivity/notices/2021/mfp-to-tfp-term-change.htm.
---------------------------------------------------------------------------
For FY 2027, we are proposing a productivity adjustment of 0.8
percent. Similar to the proposed market basket rate-of-increase, for
this proposed rule, the estimate of the proposed FY 2027 productivity
adjustment is based on IGI's fourth quarter 2025 forecast. As noted
previously, we are proposing that if more recent data subsequently
become available, we would use such data, if appropriate, to determine
the FY 2027 productivity adjustment for the final rule.
Based on these data, we have determined four proposed applicable
percentage increases to the standardized amount for FY 2027, as
specified in the following table:
[GRAPHIC] [TIFF OMITTED] TP14AP26.124
[[Page 19497]]
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 proposed rule,
section 6202 of the Consolidated Appropriations Act, 2026 (Pub. L. 119-
75) extended the MDH program for FY 2027 discharges occurring before
January 1, 2027. Therefore, under current law, the MDH program will
expire for discharges on or after January 1, 2027. We refer readers to
section V.F. of the preamble of this proposed rule for further
discussion of the MDH program.
For FY 2027, we are proposing the following updates to the
hospital-specific rates applicable to SCHs and MDHs: 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 are proposing that if more recent data subsequently
become 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.
2. Proposed FY 2027 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).
For FY 2027, 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.
Based on IGI's fourth quarter 2025 forecast of the 2023-based IPPS
market basket update with historical data through third quarter 2025,
for this FY 2027 IPPS/LTCH PPS proposed rule, in accordance with
section 1886(b)(3)(B) of the Act, as discussed previously, for Puerto
Rico hospitals we are proposing a market basket update of 3.2 percent
reduced by a productivity adjustment of 0.8 percentage point.
Therefore, for FY 2027, 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 2027 for Puerto Rico
hospitals:
For a Puerto Rico hospital that is a meaningful EHR user,
we are proposing a FY 2027 applicable percentage increase to the
operating standardized amount of 2.4 percent (that is, the FY 2027
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 are proposing a FY 2027 applicable percentage increase to the
operating standardized amount of 0.0 percent (that is, the FY 2027
estimate of the proposed market basket rate-of-increase of 3.2 percent,
less 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
less 0.8 percentage point for the proposed productivity adjustment).
As noted previously, we are proposing that if more recent data
subsequently become available, we would use such data, if appropriate,
to determine the FY 2027 market basket update and the productivity
adjustment for the FY 2027 IPPS/LTCH PPS final rule.
[[Page 19498]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.125
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 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 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 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 proposed national
median CMI value for FY 2027 is based on the CMI values of all urban
hospitals nationwide, and the proposed regional median CMI values for
FY 2027 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 proposed values are
based on discharges occurring during FY 2025 (October 1, 2024, through
September 30, 2025), and include bills posted to CMS' records through
December 2025. We believe that this is the best available data for use
in calculating the proposed national and regional median CMI values and
is consistent with our proposal to use the FY 2025 MedPAR claims data
for FY 2027 ratesetting.
In this FY 2027 IPPS/LTCH PPS proposed rule, we are proposing 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, 2026, they must have a CMI
value for FY 2025 that is at least--
1.7783 (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.
The proposed median CMI values by region are set forth in the
following table. We intend to update the proposed CMI values in the FY
2027 IPPS/LTCH PPS final rule to reflect the updated FY 2025 MedPAR
file, which contains data from additional bills received through March
2026.
[[Page 19499]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.126
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. For FY 2027, we are
proposing to update the regional standards based on discharges for
urban hospitals' cost reporting periods that began during FY 2024 (that
is, October 1, 2023, through September 30, 2024), which are the latest
cost report data available at the time this proposed rule was
developed. We believe that this is the best available data for use in
calculating the proposed median number of discharges by region and is
consistent with our data proposal to use cost report data from cost
reporting periods beginning during FY 2024 for FY 2027 ratesetting.
Therefore, we are proposing 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, 2026, must
have, as the number of discharges for its cost reporting period that
began during FY 2024, 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 proposed number of discharges as set forth in the
following table. We intend to update these numbers in the FY 2027 final
rule based on the latest available cost report data.
[GRAPHIC] [TIFF OMITTED] TP14AP26.127
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 proposed 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. Proposed 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 2026 IPPS/LTCH PPS final rule (90 FR 36908
through 36912), section 2201 of the Full-Year Continuing Appropriations
and Extensions Act, 2025 (Pub. L. 119-4) 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 September 30, 2025.
The Continuing Appropriations, Agriculture, Legislative Branch,
Military Construction and Veterans Affairs, and Extensions Act, 2026
(Pub. L. 119-37), enacted on November 12, 2025, provided an extension
of those temporary changes to the qualifying criteria and payment
adjustment methodology for certain low-volume
[[Page 19500]]
hospitals through January 30, 2026. Most recently, the Consolidated
Appropriations Act, 2026 (Pub. L. 119-75), provided an extension of
those temporary changes to the qualifying criteria and payment
adjustment methodology for certain low-volume hospitals through FY 2026
and the portion of fiscal year 2027 beginning on October 1, 2026, and
ending on December 31, 2026. Absent further Congressional action,
beginning January 1, 2027 the low-volume hospital qualifying criteria
and payment adjustment 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, resume. We discuss the
payment policies for FY 2027 in sections V.D.2 and V.D.3. of the
preamble of this proposed rule.
[GRAPHIC] [TIFF OMITTED] TP14AP26.128
2. Extension of Temporary Changes to Low-Volume Hospital Payment
Definition and Payment Adjustment Methodology and Conforming Changes to
Regulations
As discussed previously, section 2201 of the Full-Year Continuing
Appropriations and Extensions Act, 2025, extended the temporary changes
to the low-volume hospital qualifying criteria and payment adjustment
through September 30, 2025. Section 6201 of the Continuing
Appropriations, Agriculture, Legislative Branch, Military Construction
and Veterans Affairs, and Extensions Act, 2026 further extended the
temporary changes to the low-volume hospital qualifying criteria and
payment adjustment under the IPPS for the portion of FY 2026 beginning
on October 1, 2025, and ending on January 30, 2026. Most recently,
section 6201 of the Consolidated Appropriations Act, 2026 extended the
temporary changes to the low-volume hospital qualifying criteria and
payment adjustment through FY 2026 and the portion of fiscal year 2027
beginning on October 1, 2026, and ending on December 31, 2026. We note
the extension provided by the Continuing Appropriations, Agriculture,
Legislative Branch, Military Construction and Veterans Affairs, and
Extensions Act, 2026 was addressed in Change Request 14341 (Transmittal
13564) and the extension provided by the Consolidated Appropriations
Act, 2026 was addressed in Change Request 14415 (Transmittal 13703),
issued March 26, 2026. For additional information, please refer to the
transmittal R13564OTN and R13703OTN.
Under section 1886(d)(12)(C)(i) of the Act, as amended by the
Consolidated Appropriations Act, 2026, for FYs 2019 through FY 2026 and
the portion of FY 2027 beginning on October 1, 2026 and ending on
December 31, 2026, 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 2026 and the portion of FY
2027 beginning on October 1, 2026 and ending on December 31, 2026, 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 percent. 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 2025 is set
forth in the current regulations at Sec. 412.101(c)(3).
In this proposed rule, we propose to make conforming changes to the
regulation text in Sec. 412.101 to reflect the extension of the
changes to the qualifying criteria and the payment adjustment
methodology for low-volume hospitals in accordance with provisions of
the Consolidated Appropriations Act, 2026. Specifically, we propose 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 2026 and the
portion of fiscal year 2027 beginning on October 1, 2026, and ending on
December 31, 2026 is the same low-volume hospital payment adjustment
policy in effect for FYs 2019 through 2025 (as described in the FY 2019
IPPS/LTCH PPS final rule (83 FR 41398 through 41399) and in the FY 2026
IPPS/LTCH PPS final rule (90 FR
[[Page 19501]]
36908 through 36912)). In addition, in accordance with the provisions
of the Consolidated Appropriations Act, 2026, we are proposing to make
conforming changes to paragraphs (b)(2)(i) and (c)(1) of Sec. 412.101
to reflect that beginning with the portion of fiscal year 2027
beginning on January 1, 2027, and ending on September 30, 2027, and for
fiscal year 2028 and subsequent fiscal years, the low-volume hospital
payment adjustment policy reverts 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 this proposed rule. We
further propose that if the temporary changes to the low-volume payment
adjustment are extended through legislation beyond December 31, 2026,
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.
3. Payment Adjustment for the Portion of FY 2027 Beginning on January
1, 2027 and Subsequent Fiscal Years
In accordance with section 1886(d)(12) of the Act, as amended by
the Consolidated Appropriations Act, 2026, beginning with FY 2027
discharges occurring on or after January 1, 2027 the low-volume
hospital definition and payment adjustment methodology 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 during the portion
of FY 2027 beginning on or after January 1, 2027, and subsequent fiscal
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 for the
portion of FY 2027 beginning on January 1, 2027, and ending on
September 30, 2027, and for FY 2028 and subsequent fiscal 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 the portion of FY
2027 beginning on January 1, 2027 and for subsequent fiscal 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 the portion of FY 2027 ending on December 31, 2026) from
another subsection (d) hospital. Accordingly, for the portion of FY
2027 beginning on January 1, 2027, and for 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 propose to make conforming
changes to paragraphs (b)(2)(i) and (c)(1) of Sec. 412.101 to reflect
that for the portion of FY 2027 beginning on January 1, 2027, and for
subsequent fiscal years, the low-volume hospital payment adjustment
policy is the same as that in effect for FYs 2005 through 2010.
4. Process for Requesting and Obtaining the Low-Volume Hospital Payment
Adjustment for FY 2027
In the FY 2011 IPPS/LTCH PPS final rule (75 FR 50238 through 50275
and 50414) and subsequent rulemaking, most recently in the FY 2026
IPPS/LTCH PPS final rule (90 FR 36908 through 36912), 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).)
[[Page 19502]]
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 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 the portion of FY 2027
beginning October 1, 2026 through December 31, 2026, a hospital must be
located more than 15 road miles from the nearest subsection (d)
hospital, as reflected in proposed revised Sec. 412.101(b)(2).
Additionally, to meet the mileage criterion to qualify for the low-
volume hospital payment adjustment for the portion of FY 2027 beginning
January 1, 2027 through September 30, 2027, 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 2027,
we propose 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 the portion of FY
2027 beginning October 1, 2026 through December 31, 2026, a hospital
must make a written request for low-volume hospital status that is
received by its MAC no later than September 1, 2026, in order for the
low-volume, add-on payment adjustment to be applied to payments for its
discharges beginning on or after October 1, 2026. If a hospital's
written request for low-volume hospital status for the portion of FY
2027 beginning October 1, 2026 through December 31, 2026 is received
after September 1, 2026, 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 2027 discharges beginning October 1, 2026 through
December 31, 2026, effective prospectively within 30 days of the date
of the MAC's low-volume hospital status determination.
Additionally, we are proposing that a hospital must also submit a
written request for low-volume hospital status to its MAC that includes
sufficient documentation to establish that the hospital continues to
meet the applicable mileage and discharge criteria for the portion of
FY 2027 beginning on January 1, 2027 through September 30, 2027 (as
described earlier). Specifically, for the portion of FY 2027 beginning
on January 1, 2027, a hospital must make a written request for low-
volume hospital status that is received by its MAC no later than
December 1, 2026, in order for the 25-percent, low-volume, add-on
payment adjustment to be applied to payments for its discharges
beginning on or after January 1, 2027. If a hospital's written request
for low-volume hospital status for the portion of FY 2027 beginning on
January 1, 2027 is received after December 1, 2026, 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 2027
discharges on or after January 1, 2027, effective prospectively within
30 days of the date of the MAC's low-volume hospital status
determination.
A hospital may choose to make a single written request for low-
volume hospital status to its MAC for both the portion of FY 2027
beginning on October 1, 2026 and ending December 31, 2026 and the
portion of FY 2027 beginning on January 1, 2027 through September 30,
2027 by the September 1, 2026 deadline discussed previously.
Alternatively, a hospital may choose to submit separate written
requests, one for the portion of FY 2027 beginning on October 1, 2026
and ending on December 31, 2026 (by the September 1, 2026 deadline
discussed previously), and another for the portion of FY 2027 beginning
on January 1, 2027 through September 30, 2027 (by the December 1, 2026
deadline discussed previously).
Under this process, a hospital that qualified for the low-volume
hospital payment adjustment for FY 2026 may continue to receive a low-
volume hospital payment adjustment for FY 2027 without reapplying if it
meets both the discharge criterion and the mileage criterion applicable
for FY 2027 (that is, the discharge criterion and mileage criterion for
the period beginning October 1, 2026 through December 31, 2026, as well
as the discharge criterion and mileage criterion for the period
beginning on January 1, 2027 through September 30, 2027, respectively).
As discussed previously, for the portion of FY 2027 beginning on
January 1, 2027, the discharge and the mileage criteria are reverting
to the statutory requirements that were in effect prior to
[[Page 19503]]
FY 2011, and to 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 in previous years, we are
proposing that such a hospital must send written verification that is
received by its MAC no later than September 1, 2026 or December 1,
2026, respectively, stating that it meets the mileage criterion for the
applicable portion(s) of FY 2027, as described previously. For example,
for the portion of FY 2027 beginning October 1, 2026 through December
31, 2026, the hospital must state it is located more than 15 road miles
from the nearest ``subsection (d)'' hospital. Similarly, for the
portion of FY 2027 beginning on January 1, 2027, the hospital must
state it is located more than 25 road miles from the nearest
``subsection (d)'' hospital. For FY 2027, we are further proposing that
this written verification must also state, based upon the most recently
submitted cost report, that the hospital meets the discharge criterion
for the applicable portion(s) of FY 2027, as described previously. For
example, for the portion of FY 2027 beginning October 1, 2026 through
December 31, 2026, the hospital must have less than 3,800 discharges
total, including both Medicare and non-Medicare discharges. Similarly,
for the portion of FY 2027 beginning on January 1, 2027, the hospital
must have less than 200 discharges total, including both Medicare and
non-Medicare discharges. If a hospital's request for low-volume
hospital status for FY 2027 is received after September 1, 2026, (or
after December 1, 2026 for the portion of FY 2027 beginning on January
1, 2027) 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 2027, effective
prospectively within 30 days of the date of the MAC's low-volume
hospital status determination.
E. Proposed 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).) Under current law, the MDH
program provisions at section 1886(d)(5)(G) of the Act will expire for
discharges on or after January 1, 2027. Beginning with discharges
occurring on or after January 1, 2027, absent further Congressional
action, all hospitals that previously qualified for MDH status will be
paid based on the Federal rate.
2. Implementation of Legislative Extension of MDH Program
Since the extension of the MDH program through FY 2012 provided by
section 3124 of the Affordable Care Act, the MDH program has been
extended by subsequent legislation, most recently through December 31,
2026 (that is, for discharges occurring before January 1, 2027), as
discussed further in this section. (Additional information on the
extensions of the MDH program through FY 2025 can be found in the FY
2026 IPPS/LTCH PPS final rule (90 FR 36912).) As discussed in the FY
2026 IPPS/LTCH PPS final rule, the MDH program provision at section
1886(d)(5)(G) of the Act was set to expire at the end of FY 2025 (90 FR
36913). Subsequently, the MDH program was extended by additional
legislation as follows:
Section 6202 of the Continuing Appropriations,
Agriculture, Legislative Branch, Military Construction and Veterans
Affairs, and Extensions Act, 2026 (Pub. L. 119-37), enacted on November
12, 2025, provided for an extension of the MDH program through January
30, 2026.
Section 6202 of the Consolidated Appropriations Act, 2026
(Pub. L. 119-75), enacted on February 3, 2026, provided for an
extension of the MDH program through December 31, 2026 (that is, for
discharges occurring before January 1, 2027).
Specifically, section 6202 of Public Law 119-75 amended sections
1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of the Act by striking
``January 31, 2026'' and inserting ``January 1, 2027''. Section 6202 of
Public Law 119-75 also made conforming amendments to sections
1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of the Act. Therefore, we are
proposing 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 December 31, 2026.
Generally, as a result of these extensions, a provider that was
classified as an MDH as of September 30, 2025 may continue to be
classified as a MDH as of October 1, 2025, with no need to reapply for
MDH classification. (For more information on the MDH extensions through
December 31, 2026, see Change Request 14341 (Transmittal 13564), issued
December 23, 2025 and Change Request 14415 (Transmittal 13703), issued
March 27, 2026, which are available online at https://www.cms.gov/medicare/regulations-guidance/transmittals/2025-transmittals/r13564otn
and https://www.cms.gov/medicare/regulations-guidance/transmittals/2026-transmittals/r13703otn.
3. Expiration of the MDH Program
Because section 6202 of the Consolidated Appropriations Act, 2026
extended the MDH program through December 31, 2026 only, beginning
January 1, 2027, the MDH program will no longer be in effect. Since the
MDH program is not authorized by statute beyond December 31, 2026,
absent Congressional action, beginning January 1, 2027, 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, we are proposing 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 December 31, 2026. We are
further proposing that if the MDH program were to be extended by law
beyond December 31, 2026, similar
[[Page 19504]]
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. These modifications to our
proposed conforming changes would only be made if the MDH program were
to be extended by statute beyond December 31, 2026.
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 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.
2. Proposed Requirements To Prohibit Unlawful Discrimination in
Approved Medical Residency Programs
Hospitals may receive direct GME and IME payments for residents in
``approved medical residency training programs.'' Section 1886(h)(5)(A)
of the Act defines an ``approved medical residency training program''
as ``a residency or other postgraduate medical training program
participation in which may be counted toward certification in a
specialty or subspecialty and includes formal postgraduate training
programs in geriatric medicine approved by the Secretary.'' ``Approved
medical residency program'' and equivalent terms are defined in the
regulations at Sec. Sec. 412.105(f)(1)(i), 413.75(b), and 415.152. In
general, under these regulations, an ``approved'' program is a program
accredited by one of several national accrediting bodies or that leads
toward board certification by the American Board of Medical Specialties
(ABMS).
Therefore, to ensure that accreditation for approved medical
residency programs is in compliance with applicable laws related to
race-based admission policies and to improve the accreditation process,
in the CY 2026 OPPS/ASC final rule (90 FR 54024 through 54027), we
finalized changes to the regulations at Sec. Sec. 412.105(f)(1)(i),
413.75(b), and 415.152, to state that accrediting organizations may not
use accreditation criteria that promote or encourage discrimination on
the basis of race, color, national origin, sex, age, disability, or
religion, including the use of those characteristics or intentional
proxies for those characteristics as a selection criterion for
employment, program participation, resource allocation, or similar
activities, opportunities, or benefits. We also clarified that
prohibited practices under this policy include all other conduct in
violation of federal antidiscrimination laws, including any ``unlawful
practices'' under the Attorney General's Guidance for Recipients of
Federal Funding Regarding Unlawful Discrimination (July 29, 2025).
The policy finalized in the CY 2026 OPPS/ASC final rule applied
specifically to graduate medical education accrediting bodies. In this
proposed rule, we are proposing a similar policy that would apply to
approved medical residency programs themselves. Specifically, we are
proposing to require that, in addition to meeting other applicable
requirements, an approved medical residency training program must not
discriminate, or promote or encourage discrimination, on the basis of
race, color, national origin, sex, age, disability, or religion,
including the use of those characteristics or intentional proxies for
those characteristics as a selection criterion for employment, program
participation, resource allocation, or similar activities,
opportunities, or benefits. We believe such a policy is necessary to
ensure that, even in the absence of discriminatory accreditation
standards, individual programs do not implement policies that
constitute unlawful discrimination under Federal law. The effective
date of this proposed policy would be October 1, 2026.
In order to streamline the regulations text and ensure consistent
application of the requirements to approved medical residency programs
and GME accrediting organizations, we are also proposing to consolidate
the majority of our existing and proposed non-discrimination
requirements under proposed new 42 CFR 413.84. We are proposing to
cross-reference this new section as necessary in the regulations at
Sec. Sec. 412.105(f)(1)(i), 413.75(b), and 415.152. We further note
that we are
[[Page 19505]]
proposing conforming policies in section V.G.3. of this proposed rule
with respect to approved nursing and allied health education programs
under 42 CFR 413.85.
3. Proposed Modifications to the Criteria for New Residency Programs
a. Background
Section 1886(h)(4)(H)(i) of the Act requires CMS to establish rules
for applying the direct GME cap in the case of medical residency
training programs established on or after January 1, 1995. Under
section 1886(d)(5)(B)(viii) of the Act, this provision also applies for
purposes of the IME adjustment. These statutory requirements are
implemented in the direct GME regulations at Sec. Sec. 413.79(e)(1)
through (3) and the IME regulations at Sec. 412.105(f)(1)(vii), which
provide for an FTE cap increase for certain hospitals that begin
training residents in a new medical residency training program(s) on or
after January 1, 1995, and specify the methodology for determining the
permanent cap adjustment. Under these rules, cap adjustments are not
provided for expansions of existing programs. Rather, a new urban
teaching hospital receives a single five-year cap-building window to
start new residency programs and grow those new residency programs,
after which point its IME and DGME caps are permanently set. However, a
rural teaching hospital may receive a separate cap adjustment each time
it starts a new program. CMS originally implemented these policies in
the August 29, 1997 Federal Register (62 FR 46005) and in the May 12,
1998 Federal Register (63 FR 26333); the calculation of both the DGME
cap and IME cap for new programs is discussed in the August 31, 2012
Federal Register (77 FR 53416).
Section 413.79(l) defines a new medical residency training program
as ``a medical residency that receives initial accreditation by the
appropriate accrediting body or begins training residents on or after
January 1, 1995.'' In the August 27, 2009 Federal Register (74 FR 43908
through 43917), CMS clarified the definition of a ``new'' residency
program and adopted supporting criteria regarding whether or not a
residency program can be considered new for the purpose of determining
if a hospital can receive additional direct GME and/or IME cap slots
for that program. CMS adopted these criteria in part to prevent
situations where a program at an existing teaching hospital might be
transferred to a new teaching hospital, resulting in cap slots created
for the same program at two different hospitals. Under this policy, in
addition to receiving initial accreditation, to be considered a ``new''
program for which new cap adjustments can be established, a residency
program must satisfy three primary criteria (74 FR 43912):
The program director is new; and
The teaching staff are new; and
The residents are new.
Over the years, we have received questions regarding the
application of these criteria, such as whether CMS would still consider
a program to be new for cap adjustment purposes if the three criteria
are partially, but not fully, satisfied. We have answered such
questions by stating that, generally, a residency program's newness
would not be compromised as long as the ``overwhelming majority'' of
the residents and staff are not coming from previously existing
programs in the same specialty.
b. The FY 2025 Proposed Rule
In the FY 2025 IPPS/LTCH PPS proposed rule (May 2, 2024; 89 FR
36221 through 36224), we noted that the question of what constitutes a
``new'' program eligible to receive additional Medicare-funded GME
slots has taken on increasing significance in light of the ability of
urban hospitals to reclassify as rural under 42 CFR 412.103 for IME
payment purposes and thus to receive additional IME cap slots for any
new program started, leading to significant increases in aggregate
Medicare IME spending. We stated that, to continue to ensure that new
cap slots are created appropriately, we ultimately would like to
establish additional criteria through rulemaking for determining
program newness. However, we indicated that we were not yet certain
about some of the criteria that should be proposed. Accordingly, we
issued a proposal regarding the threshold for determining whether the
``overwhelming majority'' of residents in a program are new and
solicited public input on other topics via a Request for Information
(RFI) (89 FR 36222).
With regard to the newness of residents, we proposed that, in order
for a residency program to be considered new, at least 90 percent of
the individual resident trainees (not FTEs) must not have previous
training in the same specialty as the new program. If more than 10
percent of the trainees (not FTEs) transferred from another program at
a different hospital/sponsor in the same specialty, even during their
first year of training, we proposed that this would render the program
as a whole (but not the entire hospital or its other new programs, if
applicable) ineligible for new cap slots. In addition, we stated that
there may be certain challenges that are unique to small or rural-based
programs in developing new residencies, and that meeting the proposed
threshold of 90 percent of resident trainees with no previous training
experience in the specialty may be more difficult for those programs.
Accordingly, we solicited comment on what should be considered a
``small'' program and what percentage threshold or other approach
regarding new resident trainees should be applied to these programs. We
specifically sought comment on defining a small residency program as a
program accredited for 16 or fewer resident positions.
For further detail regarding our proposal on the newness of
residents, we direct readers to the discussion in the FY 2025 proposed
rule at 89 FR 36222.
As stated previously, in the FY 2025 proposed rule we also issued a
Request for Information on other aspects of the policy for determining
program newness. In particular, we noted that it would be reasonable
for a new residency program to seek to hire some experienced staff
members, and we therefore solicited feedback on what an appropriate
threshold should be for the percentage of faculty with no previous
experience teaching in a program in the same specialty. We also
solicited comment on whether it would be appropriate to define a
certain period of time (for example, 10 years or 5 years) during which
a faculty member or program director must not have been employed by
another program in the same specialty in order to be considered
``new.'' Finally, we sought input on two additional scenarios that
might have implications for determining the newness of a residency
program: the sharing of certain clinical and didactic experiences among
residents from different programs, which we referred to as
``commingling''; and situations in which one hospital operates two (or
more) programs in the same specialty.
For further details regarding the topics on which we solicited
public comment, we direct readers to the discussion in the FY 2025
proposed rule at 89 FR 36222 through 36224.
c. The FY 2025 Final Rule
In the FY 2025 IPPS/LTCH PPS final rule (August 28, 2024; 89 FR
69377 through 69380), we published a summary of the comments we
received in response to our proposal that, for a residency program to
be considered new, at least 90 percent of the individual resident
trainees (not FTEs) must not have previous training in the
[[Page 19506]]
same specialty as the new program. We explained that, given the lack of
consensus on this issue, we would not be finalizing our proposal in
that rule. Instead, we initiated another comment solicitation
particularly focused on the criterion regarding newness of residents.
As part of this request, we asked commenters to consider the broad
statutory authority provided to the Secretary in this area, our prior
rulemaking on this issue, and all of the public comments on our
proposal as summarized in the final rule. In the interest of
facilitating consensus, we encouraged commenters to provide feedback on
which alternatives to their preferred approach they would consider most
acceptable among those suggested by other commenters.
We also noted that, in response to our Requests for Information,
the vast majority of commenters opposed any restrictions on the hiring
of experienced faculty and program directors, as well as on the
commingling of residents or sponsorship of multiple programs in the
same specialty by a single hospital.
d. Summary of Responses to the Second Comment Solicitation
We received 14 timely pieces of correspondence to our second
comment solicitation on an appropriate standard for determining the
newness of residents in a new program, including potential exceptions
for small and/or rural programs. In addition, commenters submitted
additional feedback on other topics on which we had previously issued
Requests for Information, including the hiring of experienced faculty
and staff, commingling of residents, and sponsorship of multiple
programs in the same specialty by a single hospital. Later in this
section, we present a summary of the responses we received and discuss
our proposed policy for determining whether a residency program should
be considered new for purposes of receiving additional Medicare-funded
GME slots.
Several commenters continued to urge CMS to define a ``new''
residency program as one that has received initial accreditation from
the ACGME and to disregard other factors in determining program
newness. However, a majority of commenters (including some who
expressed a preference for the initial accreditation criterion)
indicated that considering the previous training experience of
residents could be an appropriate way for CMS to determine whether a
residency program is genuinely new for cap-building purposes. Several
commenters also indicated that the 90 percent threshold that we had
originally proposed in the FY 2025 IPPS/LTCH PPS proposed rule could be
an acceptable standard, while urging CMS to provide exceptions for
programs that fall short of the threshold as a result of various
extenuating circumstances. (We discuss feedback pertaining specifically
to exceptions for small and/or rural programs separately later in the
section.)
For example, several commenters mentioned that hospitals sometimes
need to replace residents who depart from a program for various
reasons, including residents accepted via the supplemental match
process who subsequently transfer to another residency in their
preferred specialty. The commenters recommended that CMS allow programs
to replace departing residents with other residents at the same
training level, and that these replacements should not count against a
program's compliance with the 90 percent threshold. More generally,
several commenters stated that the 90 percent requirement should apply
only to residents at the Program Year 1 level, while residents
recruited at the Program Year 2 level or above should not disqualify a
program from consideration as ``new.'' In addition, a number of
commenters recommended that CMS allow a program to demonstrate that it
would have met the 90 percent threshold were it not for the results of
the National Resident Matching Program (the ``Match'') or other GME
matching programs. Commenters noted that the results of the Match are
binding on hospitals, and that selecting against candidates with prior
training experience could violate the Match code of conduct and result
in programs being banned from participation in the Match.
A few commenters indicated that, for purposes of determining
whether a program complies with the minimum new resident threshold, CMS
should consider all the individual residents that enter the program
during its five-year cap-building period. Additionally, some commenters
recommended that CMS conduct interim reviews during the cap-building
period to determine whether a new program is on track to meet the
requirements and to give providers a chance to make necessary changes
before a final newness determination is made. Several commenters also
indicated that residents with previous training experience could be
excluded from the final cap calculation without disqualifying the
program itself from consideration as new. One commenter suggested that,
instead of establishing an overall new resident threshold, CMS should
only limit the number of residents admitted from the same existing
program.
In general, commenters reiterated their strong opposition to any
restrictions on the hiring of experienced faculty and program
directors, stating that such a policy would be harmful to the
development of new residency programs. However, some commenters
suggested a compromise policy whereby CMS would consider the previous
experience of faculty and program director in conjunction with the
previous experience of residents. Under this policy, CMS would continue
to assess newness primarily on the basis of the proportion of residents
with previous experience training in a program in the same specialty,
but would conduct an ``enhanced review'' under certain circumstances,
as follows:
100 percent new residents: the program qualifies as new,
without further review;
At least 90 percent but less than 100 percent new
residents: the program must demonstrate that residents have not
previously trained in an existing residency program in the same
specialty with any faculty or with the program director from the new
residency program;
Less than 90 percent new residents: the program does not
qualify as new (subject to exceptions for certain categories of
residents, as discussed previously).
The commenters stated that this policy would effectively prevent
the transfer of existing programs without unduly restricting the
ability of programs to hire experienced staff.
Other commenters recommended that CMS adopt a ``safe harbor''
policy, whereby a separately accredited program would be considered
``new'' regardless of any potential overlap (in terms of residents,
faculty or program director) with an existing program, as long as the
existing program remains in operation for at least one year. Commenters
argued that the concurrent operation of both programs would make it
clear that the new program does not constitute a relocation of the
existing program or an inappropriate duplication of the existing
program's cap slots. Similarly, one commenter recommended that, instead
of considering the previous experience of residents or staff, CMS
should only consider whether these individuals are ``solely committed''
to the new program going forward.
Commenters agreed that CMS should create exceptions to the new
requirements for small and/or rural programs. A majority of commenters
also agreed that a ``small'' program
[[Page 19507]]
should be defined as one that is accredited for 16 or fewer resident
positions, although a few commenters indicated that only small programs
located in rural or urban underserved areas should qualify for an
exception. (We note that one commenter recommended a higher ceiling of
22 resident positions.) The commenters recommended various more lenient
newness criteria for programs that would qualify for an exception, with
a few commenters recommending that such programs be exempted entirely
from the newness requirements. In general, commenters urged CMS to
ensure that the new program criteria do not unfairly disadvantage small
programs or impede the development of residency programs in rural and/
or urban underserved areas, with a few commenters also voicing
particular concern about the effect of potential policies on Rural
Track Programs.
Finally, commenters generally reiterated their opposition to any
restrictions on ``commingling'' of residents or on hospitals sponsoring
multiple residency programs in the same specialty. Commenters asserted
the educational soundness of shared clinical and didactic experiences
and indicated that such arrangements are increasingly required by the
ACGME. In addition, commenters provided examples of circumstances under
which a hospital might sponsor multiple programs in the same specialty,
such as in the wake of a merger of hospitals, or in the case of a
hospital that serves a large geographic area.
e. Proposal
We thank the commenters for their thoughtful feedback in response
to the comment solicitation published in the FY 2025 IPPS final rule.
While commenters continued to recommend various ways of defining a
``new'' residency program for purposes of establishing FTE caps, we
believe there is sufficient consensus on the major issues for us to
propose certain modifications to our existing policy.
(1) Initial Accreditation
First, we acknowledge that a number of commenters continued to urge
CMS to define a new residency program as one that has received initial
accreditation from the ACGME and to disregard other factors in
determining program newness. While we concede that this approach would
be simple administratively, we reiterate the concerns that we
originally discussed in the August 27, 2009 Federal Register, where we
explained that the mission and priorities of CMS differ from those of
the accrediting bodies, and that, in determining whether a residency
program is genuinely new, it is appropriate for CMS to consider factors
in addition to the accrediting body's characterization of that program
(see discussion at 74 FR 43909 through 43913). In particular, we
emphasize that a primary concern of CMS, not shared by the accrediting
bodies, remains the inappropriate duplication of FTE cap slots
associated with the relocation of an existing program from one hospital
to another. Thus, although the existing regulations at Sec. 413.79(l)
refer to initial accreditation as one of the criteria for determining
whether a program is genuinely new for cap-building purposes, we
continue to believe that we cannot rely solely on the characterization
of an accrediting body in making this determination.
(2) Proposed Removal of Restrictions on Experienced Faculty and Staff
Nevertheless, we are persuaded by commenters' arguments that some
of the supporting factors promulgated in the August 27, 2009 Federal
Register may be overly restrictive. In particular, we are persuaded by
commenters who argued that CMS should not restrict the ability of new
residency programs to hire experienced faculty and program directors.
After considering the feedback we received in response to our original
Requests for Information and our subsequent comment solicitation, we
believe that considering the previous training experience of residents
(as discussed in more detail later in this section) should provide a
sufficient guardrail to ensure that existing programs are not being
transferred between hospitals. Thus, we are proposing that, effective
for programs started on or after October 1, 2026, we would no longer
consider the previous employment of the faculty or program director in
determining whether a residency program should be considered genuinely
new for cap-building purposes. That is, a hospital would no longer have
to demonstrate that the faculty and program director in a new program
have not previously been employed in an existing program in the same
specialty. We note that programs started on an earlier date that are
still within the five-year cap-building period as of October 1, 2026,
would continue to be subject to the newness criteria established in the
August 27, 2009 Federal Register.
(3) Proposed Requirement for New Residents
While we are proposing to remove the requirement related to
previous employment of the faculty or program director, we do believe
it is still appropriate for CMS to consider the previous training
experience of residents in determining whether a residency program
should be considered genuinely new. As discussed previously in the
summary of responses to our second comment solicitation, a majority of
commenters indicated that a 90 percent threshold could be an
appropriate standard for determining whether the ``overwhelming
majority'' of residents in a program are in fact new. Additionally, as
discussed in the FY 2025 IPPS proposed rule (89 FR 36222), a 90 percent
threshold would be generally consistent with the concept of an
``overwhelming majority,'' and we have precedent for such a threshold
in the regulations for section 5506 of the Affordable Care Act, which
state that a hospital is considered to have taken over an ``entire''
program from a closed hospital if it can demonstrate that it took in 90
percent or more of the FTE residents in that program. Therefore, we are
proposing that, effective for programs started on or after October 1,
2026, in order for a residency program to be considered new, in
addition to receiving initial accreditation from the appropriate
accrediting body, at least 90 percent of the individual resident
trainees (not FTEs) must not have previous training in the same
specialty as the new program. Apart from the exceptions, discussed
later in this section, for small programs, for certain residents
admitted via a binding resident matching program, and for displaced
residents counted under the provisions of 42 CFR 413.79(h), this
proposal regarding the newness of residents is substantially the same
as the policy we had originally proposed in the FY 2025 IPPS/LTCH PPS
proposed rule (89 FR 36222).
For example, if a hospital establishes a new residency program in
internal medicine, then, under our proposal, at least 90 percent of the
residents in that program must not have previous training experience in
another internal medicine program. If a resident was formally enrolled
in another internal medicine program (whether preliminary or
categorical), even if that resident switched programs during their
first year of training, we would consider that resident to have
previous training in the same specialty. By contrast, if an individual
previously trained in a specialty other than internal medicine, and
that resident switched into the new internal medicine program and began
training in that program as a first-year resident, then the resident
would not be
[[Page 19508]]
considered to have previous training in the same specialty, and would
be counted as a new resident for purposes of determining compliance
with the 90 percent threshold.
(Consistent with the definition of ``resident'' at 42 CFR
413.75(b), in the example noted previously we are distinguishing
between a resident that was actually accepted, enrolled and
participated in an internal medicine residency program from a resident
who was not enrolled in an internal medicine program but who may have
done a rotation in internal medicine as part of the requirements for a
different specialty. Additionally, we note that an individual who
enters a subspecialty training program, after having previously
completed a residency in the antecedent specialty, would be counted as
a new resident--for example, a resident who enters a critical care
medicine fellowship after having previously completed a residency
program in internal medicine would be counted as a new resident under
our proposal.)
Under the proposed policy, we would determine whether a program has
satisfied the 90 percent threshold by tallying all of the individual
residents who enter a program during the five-year cap building period
(that is, for new urban teaching hospitals, during the first five
program years of the first new program's existence; and for rural
hospitals, during the first five program years of each new program).
For example, if 50 trainees (not FTEs) enter the program over the
course of the five-year cap building period, then at least 45 of the
trainees (that is, 90 percent of 50) must enter the program as brand-
new first-year residents in that particular specialty. If more than 10
percent of the individual trainees (not FTEs) previously trained in
another program in the same specialty, we propose that this would
render the program not new and therefore ineligible for an FTE cap
adjustment. We would apply standard rounding in instances where the
quotient does not equal a whole number, rounding down to the nearest
whole number when the remainder is less than 0.5, and rounding up to
the nearest whole number when the remainder is greater than or equal to
0.5. For example, if 48 trainees (not FTEs) enter a program over the
course of the five-year cap building period, then at least 43 of the
trainees (90 percent of 48 = 43.2, which rounds down to 43) must not
have previous experience training in a different program in the same
specialty.
We propose that, after the end of the five-year cap building
period, the MAC would review the previous training experience of each
individual trainee and determine the newness of the residency program
prior to calculating the IME and DGME cap adjustments for the hospital.
Consistent with our historical policy, the MAC would not be required to
provide an initial assessment of ``newness'' prior to the end of the
five-year cap building period.
(4) Proposed Exceptions for Certain Categories of Residents
As noted previously, we are proposing to create a limited exception
to the counting rules for certain residents admitted via the National
Resident Matching Program (the Match) or other third-party resident
matching programs whose results are binding on hospitals. (Examples of
other matching programs that would fall under this provision include
the Supplemental Offer and Acceptance Program, the Urology Residency
Match Program, and the SF Match for Ophthalmology and Plastic Surgery
residency programs.) Based on feedback received from commenters, we
understand that the Match and similar programs are generally used to
match prospective first-year residents to residency programs in their
chosen specialties, and that hospitals do not have the discretion to
refuse admission to a resident matched via this process. We also
understand that candidates applying through the various matching
programs may occasionally have previous experience training in another
program in the same specialty--for example, an individual who may have
withdrawn from a residency program and is seeking to restart his or her
training.
While hospitals may rank their preferred candidates, they cannot
predict the ultimate complement of first-year residents allocated via
the Match or other matching programs. As a result, a hospital that
included multiple candidates with previous training experience on its
ranked list could be required to accept a mix of residents that would
cause it to fall short of our proposed 90 percent requirement. We agree
with commenters that in such situations hospitals should not be
penalized for the results of the Match or other binding resident
matching programs. Accordingly, for purposes of determining compliance
with the 90 percent requirement, we are proposing to exclude from the
count of trainees any individuals with previous experience training in
another program in the same specialty who enter the new program as
first-year residents through the National Resident Matching Program or
another binding third-party resident matching program. That is, such
individuals would be excluded both from the numerator and from the
denominator of the calculation used to determine the proportion of new
vs. experienced residents. However, assuming that the program otherwise
satisfies the proposed 90 percent threshold, the hospital would report
such individuals on the new resident lines of the hospital cost report
(that is, lines 15 and 15.01 of Worksheet E-4 and line 16 of Worksheet
E, Part A) and the individuals would be included in the calculation of
the hospital's permanent cap adjustment at the conclusion of the five-
year cap-building period.
We also propose to exclude from the count of trainees any residents
admitted into the new program from another program in the same
specialty who meet the definition of a ``displaced resident'' under 42
CFR 413.79(h)(1)(iii). That is, such individuals would be excluded both
from the numerator and from the denominator of the calculation used to
determine the proportion of new vs. experienced residents. In order to
prevent the inappropriate duplication of cap slots associated with a
closed program or closed hospital, we propose that displaced residents
must not be reported on the new resident lines or included in the
hospital's permanent cap adjustment. Instead, such individuals would be
reported on the displaced resident lines (lines 16 and 16.01 of
Worksheet E-4 and line 17 of Worksheet E, Part A) if the hospital
qualifies for a temporary cap adjustment under 42 CFR 413.79(h).
Otherwise, the individuals must be reported on the regular FTE lines
(line 6 of Worksheet E-4 and line 10 of Worksheet E, Part A), subject
to the hospital's existing DGME and IME FTE caps. Furthermore, since
rotation schedules, and not cost report entries, are used to identify
individual residents training in the new program for the purpose of
calculating the permanent cap at the end of the five year cap building
period under 42 CFR 413.79(e)(1)(i)(A), the displaced residents listed
on the rotation schedule would be excluded from the new program cap
calculation. We note that under certain circumstances, if a hospital
trains residents displaced by a hospital closure, it may receive
priority for receipt of cap slots if it submits an application for a
permanent cap adjustment under the provisions of section 5506.
For example, suppose that 50 individual trainees (not FTEs) enter a
program during the five-year cap-building period, and that 4 of those
[[Page 19509]]
individuals enter the program as first-year residents via the Match and
have previous experience training in another program in the same
specialty. Additionally, the program admits 2 residents displaced from
a closed program in the same specialty. If all 50 residents were
included in the count, then at least 6 out of 50 or 12 percent of the
residents in the program would be considered not new, rendering the
program as a whole not new under our proposed 90 percent threshold.
Under the proposed exceptions, we would exclude from this calculation
the 4 first-year residents with previous training experience admitted
via the Match, as well as the 2 residents displaced from the closed
program. Thus, the hospital would have to demonstrate that at least 90
percent of the remaining 44 residents (that is, 39.6 [ap] 40 residents)
do not have previous experience training in another program in the same
specialty. During the initial years of the new program, the hospital
would report the 4 first-year residents on the new program lines, while
it would report the 2 displaced residents on the displaced resident
lines or the regular FTE lines, as applicable. At the conclusion of the
cap-building period, the calculation of the hospital's permanent cap
adjustment would include the 4 first-year residents admitted via the
Match and exclude the 2 residents displaced from the closed program.
(5) Proposed Exception for Small Programs
In addition, we are proposing to create an exception to the 90
percent requirement for small residency programs. We propose to define
a ``small'' program as one that is accredited for 16 or fewer resident
(or fellow) positions, regardless of whether the program is located in
an urban or a rural area. Based on the feedback we received from
commenters, we believe that small programs, in particular, are at the
greatest risk of failing to meet the 90 percent threshold for reasons
beyond their control. Accordingly, we are proposing to exempt small
residency programs, as defined previously, from the requirement that at
least 90 percent of the residents who enter the program during the
five-year cap-building period must not have previous experience
training in another program in the same specialty. We are not proposing
any minimum proportion of new residents that a small program must
achieve in order to be considered new for cap-building purposes.
However, programs accredited for 16 or fewer positions must still
obtain initial accreditation from the appropriate accrediting body.
We note that we are not proposing to adopt various other exceptions
or policies recommended by commenters, as summarized in the preceding
section of this preamble. We believe that the criterion we have
proposed would accomplish our stated goal of preventing the
inappropriate duplication of FTE cap slots, while the exception for
small programs provides a reasonable safeguard for those programs that
are at greatest risk of failing to meet the proposed requirement for
reasons beyond their control. Additionally, we believe that the
proposed policies have the advantage of being unambiguous and
administratively simple, whereas we wish to avoid scenarios in which
CMS or the MACs would need to review individual hospitals'
circumstances on a case-by-case basis.
Additionally, we note that we are not proposing any distinct
policies with respect to the commingling of residents. Rather, we
propose that program newness should be determined consistently on the
basis of initial accreditation and the 90 percent new resident
threshold. That is, we propose that if a particular program has
received initial accreditation, and at least 90 percent of the
individual trainees (not FTEs) entering the program during the five-
year cap building period are new (with exceptions as noted previously),
then the program would be considered new for cap-building purposes
regardless of whether residents in that program have shared educational
experiences with residents of an existing program in the same
specialty.
Similarly, with regard to the question of whether it is permissible
for one hospital to operate two or more programs in the same specialty,
we propose that this would be permissible for cap-building purposes if
the second or subsequent program has separately received initial
accreditation and at least 90 percent of the individual trainees (not
FTEs) entering the program during the five-year cap building period are
new (with exceptions as noted previously). Note that this would be a
change from existing policy, under which it is permissible for one
hospital to operate two or more programs in the same specialty provided
that the programs have separate program directors, staff, and
separately matched residents without meeting any additional
requirements (see discussion of existing policy in the August 27, 2009
Federal Register at 74 FR 43913).
In summary, we are proposing that, in addition to receiving initial
accreditation by the appropriate accrediting body, for a residency
program to be considered new, at least 90 percent of the individual
resident trainees (not FTEs) must not have previous experience training
in another program in the same specialty. We would no longer consider
the previous employment of the faculty or program director in
determining whether a residency program is genuinely new for cap-
building purposes. We would determine compliance with the 90 percent
threshold by tallying all of the individual residents who enter a
program during the five-year cap building period (that is, for new
urban teaching hospitals, during the first five program years of the
first new program's existence; and for rural hospitals, during the
first five program years of each new program). This tally would exclude
individuals with previous experience training in another program in the
same specialty who enter the new program as first-year residents
through the National Resident Matching Program or another binding
third-party resident matching program, as well as individuals who meet
the definition of a ``displaced resident'' under 42 CFR
413.79(h)(1)(iii). The requirement that at least 90 percent of the
individual residents must be new would not apply to small programs,
defined as programs accredited for 16 or fewer resident positions,
regardless of geographic designation. These policies would be effective
for programs starting on or after October 1, 2026.
To ensure that the regulations text appropriately reflects our
proposed policy, we propose to revise the text of 42 CFR 413.79(l) to
state that a new medical residency training program means a program
that receives initial accreditation by the appropriate accrediting body
or begins training residents on or after January 1, 1995, and that
meets the following conditions:
Subject to the following provisions, effective for
programs started on or after October 1, 2026, at least 90 percent of
the individual residents (not FTEs) that enter the program during the
five-year cap building period (that is, for new urban teaching
hospitals, during the first five program years of the first new
program's existence under Sec. 413.79(e)(1); and for rural hospitals,
during the first five program years of each new program under Sec.
413.79(e)(3)) must not have previous experience training in another
program in the same specialty.
For purposes of determining compliance with the preceding
requirement, the count of individual residents excludes individuals
with previous experience training in another program in the same
specialty who enter the program as first-year residents through the
National Resident Matching
[[Page 19510]]
Program or another binding third-party resident matching program.
The 90 percent new resident requirement does not apply to
a program accredited for 16 or fewer resident positions.
4. Calculation of Direct GME and IME Payments Following a Merger of
Hospitals
When a hospital merger involves one or more teaching hospitals, the
surviving provider experiences an influx of FTE residents from the
terminating providers' residency programs. The surviving hospital also
absorbs those providers' FTE caps (63 FR 26329) and receives a merged
per resident amount for purposes of direct GME payment (71 FR 48073).
In addition, the Medicare Part A and Medicare Advantage (MA) patient
loads of the surviving hospital represent the combined Medicare
utilization of all hospitals (teaching and non-teaching) participating
in the merger.
The surviving provider also experiences changes in the payment
rates that determine the amount of its indirect medical education
adjustment. In addition to the influx of FTE residents from the
terminating providers' residency programs, the surviving provider
absorbs those hospitals' existing IME FTE caps and available beds,
resulting in a change to its intern- and resident-to-bed (IRB) ratio.
The total amount of IME payment is also affected by the combination of
the merged hospitals' Part A and simulated MA DRG revenues.
While we are not proposing any new policies at this time, we are
taking the opportunity to clarify in rulemaking the methodology for
calculating DGME and IME payments for the surviving provider following
a merger of hospitals. We discuss the procedure for calculating each
payment type separately later in this section.
a. Calculating DGME Payments Following a Merger of Hospitals
If the surviving hospital begins a new cost reporting period
effective with the date of the merger, then direct GME payment for that
initial merged period and subsequent periods is determined based on the
hospital's new, combined DGME payment rates (with special consideration
for the rolling average during the first two cost reporting periods, as
discussed further later in this section). However, if the merger takes
place in the middle of the surviving hospital's cost reporting period,
then the hospital's DGME payment for that period must reflect the
different payment rates that apply before and after the merger.
In the August 18, 2006 Federal Register (71 FR 48075-48076), we
stated that direct GME payment for the surviving hospital would be
calculated on the basis of two distinct sets of PRAs (that is, two
distinct primary care PRAs and two distinct nonprimary care PRAs, or
two distinct single PRAs, as applicable), one for the pre-merger period
and one for the post-merger period. Thus, to calculate the DGME payment
for the surviving hospital for the cost reporting period in which the
merger occurred, the Medicare administrative contractor (MAC) performs
a series of off-the-cost-report calculations, treating the pre-merger
and post-merger periods of the surviving hospital's cost reporting
period as if they were two short cost reporting periods. The MAC would
calculate the direct GME payment for the surviving hospital for the
portion of the cost reporting period prior to the merger using only the
surviving hospital's FTE counts, PRA(s) and Medicare utilization rate.
Separately, the MAC would calculate the surviving hospital's post-
merger direct GME payment using the merged weighted average PRA(s)
updated using special CPI-U factors; a combined rolling average FTE
count reflecting the merged hospitals' FTE counts; and a combined
Medicare utilization rate reflecting the portion of the cost reporting
period following the merger. The MAC would add the pre-merger and post-
merger payments to determine the surviving hospital's total
reimbursement for that cost reporting period. We also stated in the
2006 rule that similar pre-merger and post-merger calculations are
performed for the intern- and resident-to-bed ratio for purposes of IME
payment, as discussed later in this preamble.
In effect, the pre- and post-merger timeframes are treated as
though they were individual short cost reporting periods, with virtual
payment rates established for each period on the basis of the best
available data for all providers. Later in this section, we provide a
detailed step-by-step explanation, with an illustrative example, of how
to calculate pre- and post-merger direct GME payments according to the
policy outlined previously.
To facilitate the calculation of the DGME payment amounts, the MAC
determines the following variables separately for the pre- and post-
merger timeframes, consistent with the FTE counting rules for non-12-
month cost reporting periods as clarified in the August 4, 2025 Federal
Register (90 FR 36915). In general, the pre-merger payment rates are
based on data from the surviving provider only, while post-merger rates
utilize data from all participating hospitals:
FTE resident count--Calculate separately for the pre-
merger and post-merger periods: To determine the partial year
unweighted DGME FTE counts, the sum of allowable rotations for all
residents during each period is divided by 365 or 366, using data from
the master rotation schedule or a similar source (see 90 FR 36915-16
for further details). The weighted counts are obtained by applying the
appropriate weighting factor to the rotations associated with each
resident, and separate weighted counts are determined for primary care
and non-primary care residents. For the pre-merger period, the count
includes rotations allowable to the surviving provider only; for the
post-merger period, the count includes the sum of all rotations
allowable to the merged entity.\108\
---------------------------------------------------------------------------
\108\ If any of the merged hospitals is training displaced
residents or residents in the initial years of a new program, those
weighted counts would be determined according to the same procedure
and the FTEs would be added to the respective rolling averages
calculated for the pre- and post-merger periods.
---------------------------------------------------------------------------
FTE resident limit (cap)--Calculate separately for the
pre-merger and post-merger periods: The partial year DGME FTE resident
limit is calculated by prorating the hospitals' original FTE caps,
including any applicable adjustments, for the number of days in each
respective period: the pre-merger limit is derived from the FTE caps of
the surviving provider only, whereas the post-merger limit includes the
combined caps of all hospitals participating in the merger. The
prorated FTE caps are applied to the partial year FTE resident counts
according to the usual procedure as described in the August 4, 2025
Federal Register (90 FR 36917). If any of the merged hospitals has
residents participating in a rural track program or residents counted
under section 422 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Pub. L. 108-173, codified at section
1886(h)(7) of the Act), then those counts and caps are also determined
and applied separately for the pre- and post-merger periods.
Rolling average FTE count--Calculate separately for the
pre-merger and post-merger periods: The current, prior- and
penultimate-year weighted FTE counts, which serve as the inputs to the
three-year rolling average, must also be determined separately for the
[[Page 19511]]
pre- and post-merger timeframes. The current year FTE counts are
calculated as explained previously, while the prior- and penultimate-
year counts are obtained from lines 12 and 13 of Worksheet E-4 of the
respective hospitals' cost reports, and prorated according to the
procedure described in the August 4, 2025 Federal Register (90 FR
36917).\109\ The numerator of the rolling average for the pre-merger
period consists of the prorated FTE counts of the surviving provider
only, while the post-merger numerator equals the sum of the prorated
FTE counts of the surviving and terminating providers, simulating what
the effect of the merger would have been during the prior and
penultimate cost reporting periods.
---------------------------------------------------------------------------
\109\ Note that the proration factor is applied after the prior-
and penultimate-year FTE counts have been determined based on data
from the respective cost reports, consistent with the instructions
to lines 12 and 13 of Worksheet E-4.
---------------------------------------------------------------------------
Note that a ``virtual'' rolling average must also be calculated for
the merged provider's first two cost reporting periods beginning on or
after the effective date of the merger: that is, the surviving and
terminating providers' FTE counts must be combined as though they were
merged during the prior and/or penultimate years (with proration
applied as necessary to account for differences in the length of the
respective hospitals' cost years). This procedure applies whether or
not the merger occurred in the middle of the surviving provider's cost
reporting period. Standard computation of the rolling average would
resume in the third full post-merger cost reporting period.
In addition to the FTE resident count, FTE resident limit, and
rolling average FTE count, the MAC also determines separate per
resident amounts and Medicare patient loads (for both Part A and
managed care enrollees) for the pre- and post-merger timeframes:
Per resident amount--Calculate separately for the pre-
merger and post-merger periods: Direct GME payment for the pre-merger
period is calculated using the surviving provider's original primary
care and nonprimary care PRAs, or single PRA, as applicable, updated to
the midpoint of the pre-merger period. The post-merger payment is
calculated using the merged primary care and nonprimary care PRAs, or
merged single PRA, as applicable, determined according to the procedure
finalized in the August 18, 2006 Federal Register (71 FR 48075-6); the
merged PRA(s) is updated for inflation to the midpoint of the post-
merger period.
If the surviving and/or terminating providers count additional
residents under the provisions of section 422, then direct GME payments
for those residents would be calculated separately for the pre- and
post-merger periods, as applicable, with the special per resident
amounts updated according to the same procedures outlined previously.
Medicare patient load--Calculate separately for the pre-
merger and post-merger periods: Separate Medicare Part A and MA patient
loads are determined for the pre- and post-merger periods using data
from the hospitals' Provider Statistical and Reimbursement (PS&R)
reports (see specific fields in the example table later in this
section). For the pre-merger period, the numerator and denominator of
the Medicare patient load comprise the Medicare and total inpatient
days, respectively, attributable to the surviving provider during that
period; for the post-merger period, the numerator and denominator
comprise the sum of all inpatient days attributable to the merged
hospitals (including any non-teaching hospitals absorbed by the
surviving provider).
If either the pre- or post-merger period straddles multiple
calendar years, then separate MA patient loads must also be determined
for the portions of that period occurring prior to and on or after
January 1, so that the MA DGME payments may be adjusted by the
percentage reduction applicable to each calendar year (as required by
the regulations at Sec. 413.76(d)).
Since the cost report does not support the use of multiple DGME
payment rates for portions of a single cost year, these calculations
must be performed off the cost report, and the results are summed to
determine total DGME payment for the cost reporting period. Placeholder
values based on the combined payment rates of the merged hospitals are
reported as necessary on the applicable lines of Worksheet E-4.\110\
---------------------------------------------------------------------------
\110\ For example, the FTE caps and adjustments of the surviving
and terminating providers would be added and reported on the
applicable FTE cap lines as though the providers had been merged for
the entire cost reporting period.
---------------------------------------------------------------------------
The following example illustrates the application of the policies
described previously.
Example:
Consider a merger between teaching Hospitals A and B, effective
November 1, 2023, where Hospital A is the surviving provider. Prior to
the merger, Hospitals A and B had fiscal year ends of June 30 and
December 31, respectively. As the surviving provider, Hospital A elects
to maintain its existing fiscal year, and files a cost report for the
period July 1, 2023, to June 30, 2024. Since different payment rates
apply to the timeframes 07/01/23-10/31/23 and 11/01/23-06/30/24, two
separate direct GME payments must be calculated for Hospital A's cost
reporting period ending June 30, 2024. These calculations are performed
off the cost report, and the sum of the total payments is reported on
line 31 of Worksheet E-4 of the hospital cost report (Form CMS-2552-
10). (Hospital B would file a terminating cost report for the period
January 1, 2023-October 31, 2023, with direct GME payment determined in
accordance with the rules applicable to short cost reporting periods,
as clarified in the August 4, 2025 Federal Register.)
The following table summarizes the data that will be used to
calculate Hospital A's pre- and post-merger DGME payments, based on the
surviving and terminating providers' historical cost reports, as well
as other sources such as rotation schedules and PS&R reports:
[[Page 19512]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.129
---------------------------------------------------------------------------
\111\ From the providers' most recently settled cost reports, as
explained below under Notes.
---------------------------------------------------------------------------
Notes:
Since the hospitals are merged effective November 1, 2023,
Hospital B technically does not have a separate FTE resident count, or
separate inpatient days, during the period 11/01/23-06/30/24; post-
merger data for Hospital B are broken out for illustrative purposes
only. In addition, Hospital B's pre-merger FTE counts and inpatient
days for its 2023 cost year are printed in brackets since they do not
factor into the merged provider's DGME payment rates for FYE 06/30/24.
(However, note that Hospital B's pre-merger FTE counts will be used to
calculate the rolling average for the merged provider's subsequent cost
reports, as explained further later in this section.) Hospital B would
file its terminating cost report and receive DGME payment for the
period 01/01/23-10/31/23 in accordance with the rules applicable to
short cost reporting periods.
As noted later in this section, we assume in this example that
Hospitals A and B each have a single PRA; accordingly, the FTE counts
in this table represent combined totals for residents in both primary
and nonprimary care programs.
The prior- and penultimate-year FTE counts are required to
calculate the three-year rolling averages for the pre- and post-merger
periods. Hospital A's prior- and penultimate-year cost reporting
periods are those ending on June 30, 2023, and June 30, 2022,
respectively; Hospital B's are those ending on December 31, 2022, and
December 31, 2021.
The hospitals' DGME FTE resident limits include any
applicable adjustments, such as those for new programs or slots
received under various statutory provisions. For the purpose of this
example, we assume that neither hospital has received additional
residency slots under section 422.
Consistent with the policy finalized in the August 18,
2006 Federal Register (71 FR 48075), the individual hospitals' original
(pre-merger) PRAs are sourced from the most recently settled cost
reports. In this example we assume that the most recently settled cost
reports of Hospitals A and B are those ending on June 30, 2021, and
December 31, 2020, respectively. For the sake of convenience, we assume
each hospital has a single PRA applicable to residents in all
specialties.
Managed care and total inpatient days during the post-
merger period 11/01/23-06/30/24 are further broken out into portions
occurring before and after January 1, since different percentage
reductions to MA DGME payments apply to calendar years 2023 and 2024.
Pre-Merger Direct GME Payment (July 1, 2023, to October 31, 2023)
To calculate the surviving provider's direct GME payment for the
pre-merger period 07/01/23-10/31/23, the following variables are
determined based on Hospital A's individual records for the relevant
timeframe:
FTE resident count: As indicated in the table outlined
previously, Hospital A's weighted DGME FTE resident count during the
period 07/01/23--10/31/23 is 14.28 FTEs, based on data from Hospital
A's rotation schedules or similar documentation and determined
according to the methodology clarified in the August 4, 2025 Federal
Register.
FTE resident limit: The FTE resident limit for the pre-
merger period is obtained by prorating Hospital A's full-year DGME FTE
cap. Since there are 123 days during the period 07/01/23-10/31/23 and
the full cost reporting period includes February 29, the prorated FTE
cap equals: 40 x (123 / 366) = 13.44, which is less than the actual
weighted DGME count of 14.28. Accordingly, Hospital A's effective DGME
resident count for the pre-merger period is 13.44 FTEs.
Rolling average FTE count: To determine the three-year
rolling average, Hospital A's prior- and penultimate-year FTE counts
are divided by the number of days in the respective cost reporting
periods and multiplied by 123: \112\
---------------------------------------------------------------------------
\112\ This assumes that Hospital A's prior- and penultimate-year
CRPs are both standard 12-month periods.
---------------------------------------------------------------------------
++ Prior year: 40 x (123 / 365) = 13.48 FTEs.
++ Penultimate year: 39 x (123 / 365) = 13.14 FTEs.
The rolling average therefore equals: (13.44 + 13.48 + 13.14) / 3 =
13.35 FTEs.
Per resident amount: Hospital A's updated single PRA for
its most recently settled cost reporting period ending June 30, 2021,
was $134,000. This PRA must be updated from the calendrical midpoint of
Hospital A's June 30, 2021 fiscal year to the midpoint of the period
07/01/23-10/31/23, that is, from December 30, 2020, to August 31, 2023,
using an appropriate inflation factor to estimate the change in the
CPI-U during this period. Accordingly, Hospital A's FY 2021 PRA is
updated by an inflation factor of 1.1777: $134,000 x 1.1777 =
[[Page 19513]]
$157,812. (The calculation of the inflation factor itself is omitted
for the sake of brevity.)
Medicare patient load: Based on the data from the table
noted previously, Hospital A's Medicare Part A patient load for the
period 07/01/23-10/31/23 is 8,303 / 18,450 = 0.45; the Medicare
Advantage patient load for the same period is 2,768 / 18,450 = 0.15.
With these data points established, we can calculate total Part A
and MA DGME payment for Hospital A during the pre-merger period 07/01/
23-10/31/23. (Note: MA DGME payment is reduced by the percentage
determined by CMS for calendar year 2023 and published in the Federal
Register):
Part A: $157,812 x 13.35 x 0.45 = $948,055.59.
MA: $157,812 x 13.35 x 0.15 x (1-0.0274) = $307,359.62.
Thus, Hospital A's total DGME payment for the pre-merger period is:
$948,055.59 + $307,359.62 = $1,255,415.21.
Post-Merger Direct GME Payment (November 1, 2023, to June 30, 2024)
For the post-merger period, the same payment variables are
calculated using data from the records of both the surviving and
terminating providers:
FTE resident count: The combined weighted DGME resident
count of Hospitals A and B (that is, the newly merged entity) for the
period 11/01/23-06/30/24 is 27.72 + 13.20 = 40.92 FTEs.
FTE resident limit: The merged provider's combined DGME
FTE cap is 40 + 25 = 65 FTEs, which must be prorated for the partial
cost reporting period. Since there are 243 days during the period 11/
01/23-06/30/24 and the full cost reporting period includes February 29,
the prorated FTE cap equals: 65 x (243 / 366) = 43.16, which is greater
than the actual weighted DGME count of 40.92. Accordingly, the
provider's effective DGME resident count for the post-merger period is
40.92 FTEs.
Rolling average FTE count: To determine a representative
three-year rolling average for the post-merger timeframe, we must treat
Hospitals A and B as though they had been merged during their preceding
two cost reporting periods. Accordingly, the prior-year FTE count used
in the rolling average calculation (before proration) is equal to the
combined prior-year FTE counts of the two hospitals: 40 + 21.5 = 61.50
FTEs; and the penultimate-year FTE count is equal to: 39 + 19.25 =
58.25 FTEs. These totals are then divided by the number of days in the
respective cost reporting periods and multiplied by 243: \113\
---------------------------------------------------------------------------
\113\ This assumes that the hospitals' prior- and penultimate-
year CRPs are all standard 12-month periods. If not, the appropriate
proration factors would need to be applied prior to summing the
hospitals' respective FTE counts (since the proration factor would
be different for each hospital).
---------------------------------------------------------------------------
[cir] Prior year: 61.50 x (243 / 365) = 40.94 FTEs.
[cir] Penultimate year: 58.25 x (243 / 365) = 38.78 FTEs.
The rolling average therefore equals: (40.92 + 40.94 + 38.78) / 3 =
40.21 FTEs.
[cir] Hospital A's FY 2021 PRA of $134,000 is updated by an
inflation factor of 1.1416 to $152,974.
[cir] Hospital B's FY 2020 PRA of $127,500 is updated by an
inflation factor of 1.1530 to $147,007.
To determine the weighted average merged PRA, each hospital's
individual PRA is weighted by the number of DGME FTE residents on its
most recently settled cost report. Assume that on their FY 2021 and FY
2020 cost reports, Hospitals A and B reported 40 FTEs and 20 FTEs,
respectively. The merged PRA is then equal to: ((40 x $152,974) + (20 x
$147,007)) / 60 = $150,985.
Finally, the merged PRA as established previously is updated from
the calendrical midpoint of Hospital A's June 30, 2023 fiscal year to
the midpoint of the period 11/01/23-06/30/24, that is, from December
30, 2022, to March 1, 2024. Using the same methodology as previously,
the merged PRA of $150,985 is updated by an inflation factor of 1.0448
to $157,749.
Medicare patient load: The Medicare patient load for the
period 11/01/23-06/30/24 is determined based on the combined inpatient
days attributable to the merged hospitals. Since the period straddles
multiple calendar years, separate MA patient loads must be determined
for the periods before and after January 1:
[cir] Part A: 29,887 / 74,720 = 0.399.
[cir] MA (before Jan. 1): 3,325 / 74,720 = 0.044.
[cir] MA (from Jan. 1): 9,565 / 74,720 = 0.128.
(In these calculations, the denominator is equal to the total
number of inpatient days at the merged hospital for the entire period
11/01/23-06/30/24 (that is, the sum of the inpatient days at Hospitals
A and B, as indicated in the table noted previously); the numerators
are obtained by summing the relevant categories of inpatient days for
the respective periods.)
With these data points established, we can calculate total Part A
and MA DGME payment for the merged provider during the post-merger
period 11/01/23-06/30/24. (Note: MA DGME payments are reduced by the
percentages determined by CMS for calendar years 2023 and 2024 and
published in the Federal Register):
Part A: $157,749 x 40.21 x 0.399 = $2,530,891.83.
MA (before Jan. 1): $157,749 x 40.21 x 0.044 x (1-0.0274)
= $271,448.61.
MA (from Jan. 1): $157,749 x 40.21 x 0.128 x (1-0.0233) =
$792,997.55
Thus, the provider's total DGME payment for the post-merger period
is: $2,530,891.83 + $271,448.61 + $792,997.55 = $3,595,337.99.
Subsequent Cost Reporting Periods (FYEs June 30, 2025, and June 30,
2026)
Direct GME payments for subsequent cost reporting periods are based
on the provider's merged DGME payment rates and calculated according to
the usual procedures. However, during the first two cost reporting
periods following the merger (that is, FYE 06/30/25 and FYE 06/30/26),
the rolling average must be calculated as though the hospitals had been
merged for the entirety of their prior- and penultimate-year cost
reporting periods. This ensures that the rolling average is
representative of the training that occurs at the post-merger entity.
(Note that this procedure applies whether the merger occurs in the
middle of the surviving provider's cost reporting period, as in this
example, or coincides with the start of a new cost reporting period.)
Accordingly, in this example, the prior- and penultimate-year FTE
counts for the merged provider's cost reporting period ending June 30,
2025, would be determined as follows:
Prior year: The prior cost reporting periods of Hospitals
A and B are those ending on June 30, 2024, and October 31, 2023,
respectively, and the prior-year FTE count is equal to the hospitals'
combined weighted FTE counts, determined based on data from the
respective cost reports, consistent with the instructions to lines 12
and 13 of Worksheet E-4. (Note that Hospital B's FYE 10/31/23 is its
short terminating cost reporting period that began January 1, 2023.)
Based on data from the applicable cost reports, and as shown in the
table, Hospital A's individual FTE count (subject to the cap) during
FYE 06/30/24 is 40 FTEs,\114\ while Hospital
[[Page 19514]]
B's individual FTE count (subject to the cap) during FYE 10/31/23 is
16.55 FTEs.\115\
---------------------------------------------------------------------------
\114\ I.e., the lesser of its DGME FTE cap of 40 or the actual
weighted FTE count during this period, plus any podiatric or dental
FTEs (not applicable to this example). Since the actual weighted FTE
count is 14.28 + 27.72 = 42, the effective DGME count for the prior
year is 40 FTEs. (Note that this prior year-FTE count would be equal
to the placeholder value reported on line 11 of Worksheet E-4 of
Hospital A's FYE 06/30/2024 cost report.)
\115\ On Hospital B's FYE 10/31/23 cost report, the weighted FTE
count of 16.55 on Worksheet E-4, line 8, represents 10 months of
aggregate rotations allowable for purposes of DGME payment (9.75
during 01/01/23-06/30/23 and 6.80 during 07/01/23-10/31/23, as show
in the table). Hospital B's DGME FTE cap of 25 FTEs, as reported on
line 5, would also be prorated to reflect the short cost reporting
period: 25 / 365 x 304 = 20.82. Thus, Hospital B's prior year DGME
FTE count is the lesser of 16.55 FTEs or its prorated DGME FTE cap
of 20.82. (Note that this would be equal to the value reported on
line 11 of Worksheet E-4 of Hospital B's FYE 10/31/23 cost report.)
---------------------------------------------------------------------------
Since Hospital B's prior cost reporting period was only 10 months
long, its prior-year FTE count must be inflated to a 12-month
equivalent, consistent with the policy clarified in the August 4, 2025
Federal Register (90 FR 36917): 16.55 / 304 x 365 = 19.87 FTEs.
Accordingly, the combined prior-year FTE count of the merged entity is:
40 + 19.87 = 59.87 FTEs.
Penultimate year: The penultimate cost reporting periods
of Hospitals A and B are those ending on June 30, 2023, and December
31, 2022, respectively. Based on data from the applicable cost reports,
and as shown in the table, the sum of the providers' individual FTE
counts during those respective periods is equal to: 40 + 21.5 = 61.50
FTEs.
For the following cost reporting period ending June 30, 2026, the
prior year-FTE count would be the merged provider's weighted DGME
count, subject to the cap, as reported on the preceding cost report
(FYE 06/30/2025; not shown); and the penultimate-year FTE count would
be the hospitals' combined count as determined previously for the
periods 07/01/23-06/30/24 and 01/01/23-10/31/23, that is, 59.87 FTEs.
Beginning with the provider's FYE 06/30/2027 cost report, the rolling
average would be calculated in accordance with normal procedure.
b. Calculating IME Payments Following a Merger of Hospitals
As stated previously, when a hospital merger involves one or more
teaching hospitals, the surviving provider experiences an influx of FTE
residents from the terminating providers' residency programs and
absorbs those hospitals' existing IME FTE caps and available beds,
resulting in a change to its intern- and resident-to-bed (IRB) ratio.
The merged provider also experiences an increase in both Part A and
simulated managed care DRG revenue.
The IME payment associated with a particular discharge reflects the
payment rates applicable on the date the discharge occurs: if the
discharge occurs prior to the effective date of the merger, the
provider's individual IME payment rates are used; if the discharge
occurs on or after the effective date of the merger, the IME adjustment
is computed based on the combined payment rates of the merged
providers. For cost reporting purposes, the surviving provider's total
IME payment is based on the payment rate(s) applicable during each cost
reporting period or portion thereof. Specifically, if the surviving
hospital begins a new cost reporting period effective with the date of
the merger, then total IME payment for that initial merged period and
subsequent periods is determined based on the hospital's new, combined
IME payment rates (with special consideration for the IRB ratio cap and
rolling average during the first two cost reporting periods, as
discussed further later in this section). However, if the merger takes
place in the middle of the surviving hospital's cost reporting period,
then the hospital's total IME payment for that period must reflect the
different payment rates that apply before and after the merger.
Principles similar to what is discussed previously for direct GME
apply to the calculation of the surviving provider's total IME payment
amounts: that is, the MAC divides the cost reporting period into pre-
and post-merger portions and calculates separate IME payments for each
portion (according to the procedure described later in this section).
In effect, the pre- and post-merger timeframes are treated as though
they were individual short cost reporting periods, with virtual payment
rates established for each period on the basis of the best available
data for all providers and consistent with the FTE counting policies
for non-12-month cost reporting periods as clarified in the August 4,
2025 Federal Register (90 FR 36915).
To facilitate the calculation of the IME payment amounts, the MAC
determines separate intern- and resident-to-bed ratios for the pre- and
post-merger portions of the cost reporting period, which involves
determining separate FTE resident counts, FTE caps, rolling average FTE
counts, and available bed counts, as well as separate application of
the IRB ratio cap. The resulting teaching adjustment factors are
multiplied by DRG revenue to obtain total Part A and managed care IME
payments for the respective timeframes. Specific procedures for
determining these variables are discussed later in this section; as
clarified previously for DGME, the pre-merger IME payment rates are
based on data from the surviving provider only, while post-merger rates
utilize data from all participating hospitals.
IRB Ratio--Numerator
The numerator of the current year IRB ratio (prior to the
application of the IRB ratio cap) consists of the allowable IME FTE
resident count, subject to the IME FTE cap and the three-year rolling
average. These variables are determined for the pre- and post-merger
periods as follows:
FTE resident count--Calculate separately for the pre-
merger and post-merger periods: To determine the partial year IME FTE
counts, the sum of allowable rotations for all residents during the
pre- and post-merger periods is divided by the actual number of days in
each respective period, using data from the master rotation schedule or
a similar source (see 90 FR 36915-16 for further details). For the pre-
merger period, the count includes rotations allowable to the surviving
provider only; for the post-merger period, the count includes the sum
of all rotations allowable to the merged entity.\116\
---------------------------------------------------------------------------
\116\ If any of the merged hospitals is training displaced
residents or residents in the initial years of a new program, those
FTE counts would be determined according to the same procedure and
the FTEs would be added to the respective rolling averages
calculated for the pre- and post-merger periods.
---------------------------------------------------------------------------
FTE resident limit (cap)--Calculate separately for the
pre-merger and post-merger periods: Consistent with the FTE counting
policies clarified in the August 4, 2025 Federal Register (90 FR
36917), it is not necessary to prorate the IME cap for non-12-month
cost reporting periods; the partial year IME FTE resident limits are
thus equal to the hospitals' original FTE caps, including any
adjustments, without the application of a proration factor. The pre-
merger limit is equal to the FTE cap of the surviving provider only,
whereas the post-merger limit consists of the combined caps of all
hospitals participating in the merger. The FTE caps are applied to the
partial year FTE resident counts according to the usual procedure as
described in the August 4, 2025 Federal Register (90 FR 36917). If any
of the merged hospitals has residents participating in a rural track
program or residents counted under section 422, then those counts and
caps are also determined and applied separately for the pre- and post-
merger periods.
Rolling average FTE count--Calculate separately for the
pre-merger and post-merger periods: The current,
[[Page 19515]]
prior- and penultimate-year IME counts, which serve as the inputs to
the three-year rolling average, must also be determined separately for
the pre- and post-merger timeframes. The current year FTE counts are
calculated as explained previously, while the prior- and penultimate-
year counts are obtained from lines 13 and 14 of Worksheet E, Part A,
of the respective hospitals' cost reports (without the application of
proration factors; see 90 FR 36917). The numerator of the rolling
average for the pre-merger period consists of the FTE counts of the
surviving provider only, while the post-merger numerator equals the
combined FTE counts of the surviving and terminating providers,
simulating what the effect of the merger would have been during the
prior and penultimate cost reporting periods.
Note that a ``virtual'' rolling average must also be calculated for
the merged provider's first two cost reporting periods beginning on or
after the effective date of the merger: that is, the surviving and
terminating providers' FTE counts must be combined as though they were
merged during the prior and/or penultimate years. This procedure
applies whether or not the merger occurred in the middle of the
surviving provider's cost reporting period. Standard computation of the
rolling average would resume in the third full post-merger cost
reporting period.
Also note that the procedures for determining the partial year IME
resident counts, caps, and rolling averages closely resemble the
corresponding procedures described previously for direct GME, except
that the IME variables are not adjusted relative to a standard 12-month
cost reporting period, consistent with the policy clarified in the
August 4, 2025 Federal Register.
IRB Ratio--Denominator (Available Beds)
The denominator of the current year IRB ratio (prior to the
application of the IRB ratio cap) consists of the number of available
beds, determined for the pre- and post-merger periods as follows:
Available bed count--Calculate separately for the pre-
merger and post-merger periods: Consistent with the methodology at 42
CFR 412.105(b), the available bed count is equal to the number of
available bed days divided by the number of days in the virtual cost
reporting period. For the pre-merger period, only the surviving
provider's available bed days are counted. Thus, the pre-merger bed
count is computed by counting the number of available bed days during
the pre-merger period for the surviving provider, and dividing by the
number of days in the pre-merger period. For the post-merger period,
the count includes the available bed days of the surviving and
terminating providers, including any non-teaching hospitals
participating in the merger.\117\ Thus, the post-merger bed count is
computed by counting the number of available bed days during the post-
merger period for all participating hospitals, and dividing by the
number of days in the post-merger period.
---------------------------------------------------------------------------
\117\ Available bed days of terminating non-teaching providers
are included in the post-merger count because the IRB ratio
represents teaching intensity across the entire merged entity. This
is analogous to the inclusion of the inpatient days of non-teaching
providers in the Medicare patient load for purposes of determining
post-merger DGME payments.
---------------------------------------------------------------------------
IRB Ratio Cap
Similar to the rolling average, the IRB ratio cap must be
determined and applied separately for the pre- and post-merger
timeframes, with the post-merger cap simulating what the effect of the
merger would have been during the hospitals' preceding cost reporting
periods:
Prior year numerator--Calculate separately for the pre-
merger and post-merger periods: The numerator of the IRB ratio cap is
derived from the allowable IME FTE counts, subject to the IME FTE cap
(but before application of the rolling average), reported on Worksheet
E, Part A, line 12 of the respective hospitals' prior year cost
reports: the numerator of the pre-merger cap consists of the FTE count
of the surviving provider only (that is, the FTE count reported on line
12 of Worksheet E, Part A, of the surviving provider's prior year cost
report), while the numerator of the post-merger cap equals the sum of
the FTE counts of the surviving and terminating providers (that is, of
the sum of the FTE counts reported on line 12 of Worksheet E, Part A,
of each participating hospital's prior year cost report). If a hospital
reports displaced residents or residents in the initial years of a new
program, or if its FTE count has increased in the current year as a
result of an affiliation agreement, then those residents are added to
the prior year numerator, consistent with the instructions to line 20
of Worksheet E, Part A.
Prior year denominator--Calculate separately for the pre-
merger and post-merger periods: Similarly, the denominator of the IRB
ratio cap is derived from the available bed counts reported on
Worksheet E, Part A, line 4 of the respective hospitals' prior year
cost reports: the denominator of the pre-merger cap includes the
available beds of the surviving provider only, while the denominator of
the post-merger cap, consists of the sum of the available beds of the
surviving and terminating providers. The available bed counts are
obtained from line 4 of Worksheet E, Part A, of the hospitals' prior
year cost reports; if any non-teaching hospital participates in the
merger, that hospital's bed count would be determined by dividing the
prior year Worksheet S-3, Part I, column 3, line 14, plus line 32, by
the number of days in the prior year cost reporting period.
For reasons analogous to those discussed elsewhere in this preamble
and in the August 4, 2025 Federal Register (90 FR 36915), the
components of the IRB ratio cap are derived without the application of
a proration factor. Consistent with the usual policy under Sec.
412.105(a)(1), the respective IRB ratios and IRB ratio caps, as
determined previously, are compared, and the lesser values are used to
calculate the teaching adjustment factors for the pre- and post-merger
timeframes.
Similar to the rolling average, a ``virtual'' IRB ratio cap,
consisting of the combined FTE and available bed counts of the
surviving and terminating providers, must also be determined for the
first cost reporting period beginning on or after the effective date of
the merger, to simulate what the effect of the merger would have been
during the prior year. This procedure applies whether or not the merger
occurred in the middle of the surviving provider's cost reporting
period. Standard computation of the IRB ratio cap would resume in the
second full post-merger cost reporting period.
DRG Revenue and Total IME Payment
To calculate total IME payments, the pre- and post-merger teaching
adjustment factors, as determined previously, are multiplied by the
hospitals' Part A and simulated managed care DRG revenue for the
respective timeframes:
DRG revenue (Part A and simulated managed care)--Calculate
separately for the pre-merger and post-merger periods: The teaching
adjustment factor for the pre-merger period is multiplied by the pre-
merger DRG revenue of the surviving provider only, while the teaching
adjustment factor for the post-merger period is multiplied by the
combined DRG revenue of the surviving and terminating providers. Both
Part A and simulated managed care DRG revenue are accumulated on the
Provider Statistical and Reimbursement (PS&R) Report based on claims
submitted by the hospital.
[[Page 19516]]
Note that if the surviving and/or terminating providers count
additional residents under the provisions of section 422, the total IME
payments for those residents would be calculated separately for the
pre- and post-merger periods, as applicable, using the special formula
multiplier of 0.66.
Since the cost report does not support the use of multiple IME
payment rates for portions of a single cost year, the calculations
described in this section must be performed off the cost report, and
the results are summed to determine total IME payment for the cost
reporting period. Placeholder values based on the combined payment
rates of the merged hospitals are reported as necessary on the
applicable lines of Worksheet E, Part A.\118\
---------------------------------------------------------------------------
\118\ For example, the FTE caps and adjustments of the surviving
and terminating providers would be added and reported on the
applicable FTE cap lines as though the providers had been merged for
the entire cost reporting period.
---------------------------------------------------------------------------
The following example illustrates the application of the policies
described previously.
Example:
(Note: This example generally replicates the scenario outline
previously in the discussion of direct GME payment, adjusted as
necessary to reflect the variables involved in the IME payment
calculation.)
Consider a merger between teaching Hospitals A and B, effective
November 1, 2023, where Hospital A is the surviving provider. Prior to
the merger, Hospitals A and B had fiscal year ends of June 30 and
December 31, respectively. As the surviving provider, Hospital A elects
to maintain its existing fiscal year, and files a cost report for the
period July 1, 2023, to June 30, 2024. Since different payment rates
apply to the timeframes 07/01/23-10/31/23 and 11/01/23-06/30/24, two
separate IME payment totals must be calculated for Hospital A's cost
reporting period ending June 30, 2024. These calculations are performed
off the cost report, and the total Part A and managed care payments are
reported on lines 29 and 29.01, respectively, of Worksheet E, Part A of
the hospital cost report (Form CMS-2552-10). (Hospital B would file a
terminating cost report for the period January 1, 2023-October 31,
2023, with IME payment determined in accordance with the rules
applicable to short cost reporting periods, as clarified in the August
4, 2025 Federal Register.)
The following table summarizes the data that will be used to
calculate Hospital A's pre- and post-merger IME payments, based on the
surviving and terminating providers' historical cost reports, as well
as other sources such as rotation schedules and PS&R reports:
[GRAPHIC] [TIFF OMITTED] TP14AP26.130
Notes:
Since the hospitals are merged effective November 1, 2023,
Hospital B technically does not have a separate FTE resident count,
separate available bed count, or separate DRG revenue during the period
11/01/23-06/30/24; post-merger data for Hospital B are broken out for
illustrative purposes only. In addition, Hospital B's pre-merger FTE
counts and available bed counts for its 2023 cost year are printed in
brackets since they do not factor into the merged provider's IME
payment rates for FYE 06/30/24. (However, note that Hospital B's pre-
merger FTE and bed counts will be used to calculate the rolling average
and the IRB ratio cap for the merged provider's subsequent cost
reports, as explained further below.) Hospital B would file its
terminating cost report and receive IME payment for the period 01/01/
23-10/31/23 in accordance with the rules applicable to short cost
reporting periods.
The prior- and penultimate-year FTE counts are required to
calculate the three-year rolling averages for the pre- and post-merger
periods. Hospital A's prior- and penultimate-year cost reporting
periods are those ending on June 30, 2023, and June 30, 2022,
respectively; Hospital B's are those ending on December 31, 2022, and
December 31, 2021.
The hospitals' IME FTE resident limits include any
applicable adjustments, such as those for new programs or slots
received under various statutory provisions. For purposes of this
example, we assume that neither hospital has received additional
residency slots under section 422.
As explained previously, the available bed count is equal
to the number of available bed days divided by the number of days in
the cost reporting period (or virtual period, as here). For purposes of
this example, we assume that each hospital's available bed count
remains constant over time.
Pre-Merger IME Payment (July 1, 2023, to October 31, 2023)
To calculate the surviving provider's IME payment for the pre-
merger period 07/01/23-10/31/23, the following variables are determined
based on Hospital A's individual records for the relevant timeframe:
FTE resident count: As indicated in the table noted
previously, Hospital A's IME FTE resident count during the period 07/
01/23-10/31/23 is 42.00 FTEs, based on data from Hospital A's rotation
schedules or similar documentation and determined according to the
methodology clarified in the August 4, 2025 Federal Register.
FTE resident limit: Hospital A's IME FTE resident limit is
40.00, which is less than the actual IME count of 42 FTEs during this
timeframe. Accordingly, Hospital A's effective IME resident count for
the pre-merger period is 40.00 FTEs. (Note that neither the IME FTE
count nor the IME FTE cap is prorated for the short virtual cost
reporting period.)
[[Page 19517]]
Rolling average FTE count: As shown in the table, Hospital
A's prior- and penultimate-year IME FTE counts are 40 and 39 FTEs,
respectively. (Again, note that these values are not prorated for the
short cost reporting period.) The rolling average therefore equals: (40
+ 40 + 39) / 3 = 39.67 FTEs.
IRB ratio: The unadjusted IRB ratio for the pre-merger
period is equal to the rolling average FTE count divided by the count
of available beds: 39.67 / 300 = 0.132.
IRB ratio cap: The IRB ratio cap is equal to the prior
year IME FTE count (subject to the cap but before application of the
rolling average) divided by the count of available beds: 40 / 300 =
0.133, which is greater than the actual IRB ratio of 0.132.
Accordingly, Hospital A's effective IRB ratio for the pre-merger period
is 0.132.
DRG revenue: Hospital A's total Part A DRG revenue during
the pre-merger period is $15,625,000, and its simulated managed care
DRG revenue (based on shadow claims submitted during the same period)
is $5,187,500.
Based on the data noted previously, the IME teaching adjustment
factor for Hospital A during the pre-merger period 07/01/23-10/31/23
equals: 1.35 x ((1 + 0.132)\0.405\-1) = 0.07. Accordingly, Hospital A's
total IME payment amounts during this period are:
Part A IME: 0.07 x $15,625,000 = $1,093,750.
Managed care (MA) IME: 0.07 x $5,187,500 = $363,125.
Thus, Hospital A's total IME payment for the pre-merger period is:
$1,093,750 + $363,125 = $1,456,875.
Post-Merger IME Payment (November 1, 2023, to June 30, 2024)
For the post-merger period, the same payment variables are
calculated using data from the records of both the surviving and
terminating providers:
FTE resident count: The combined IME FTE resident count of
Hospitals A and B (that is, the newly merged entity) for the period 11/
01/23-06/30/24 is 42 + 20 = 62.00 FTEs.
FTE resident limit: The merged provider's IME combined IME
cap is 40 + 25 = 65 FTEs, which is greater than the actual IME count of
62. Accordingly, the provider's effective IME resident count for the
post-merger period is 62.00 FTEs.
Rolling average FTE count: To determine a representative
three-year rolling average for the post-merger timeframe, we must treat
Hospitals A and B as though they had been merged during their preceding
two cost reporting periods. Accordingly, the prior-year FTE count used
in the rolling average calculation is equal to the combined prior-year
FTE counts of the two hospitals: 40 + 21.5 = 61.50 FTEs; and the
penultimate-year FTE count is equal to: 39 + 19.25 = 58.25 FTEs. The
rolling average therefore equals: (62 + 61.5 + 58.25) / 3 = 60.58 FTEs.
IRB ratio: The unadjusted IRB ratio for the post-merger
period is equal to the rolling average FTE count divided by the total
count of available beds at both hospitals: 60.58 / (300 + 250) = 0.11.
IRB ratio cap: The IRB ratio cap is equal to the combined
prior year IME FTE count (subject to the combined cap but before
application of the rolling average) divided by the total count of
available beds: (40 + 21.5) / (300 + 250) = 0.112, which is greater
than the actual IRB ratio of 0.11. Accordingly, the merged provider's
effective IRB ratio for the post-merger period is 0.11.
DRG revenue: The merged provider's total Part A DRG
revenue during the post-merger period is $30,625,000 + $25,375,000 =
$56,000,000, and its simulated managed care DRG revenue (based on
shadow claims submitted during the same period) is $10,125,000 +
$13,750,000 = $23,875,000.
Based on the data noted previously, the IME teaching adjustment
factor for the merged provider during the post-merger period 11/01/23-
06/30/24 equals: 1.35 x ((1 + 0.11)0.405-1) = 0.058. Accordingly, the
provider's total IME payment amounts during this period are:
Part A IME: 0.058 x $56,000,000 = $3,248,000.
Managed care (MA) IME: 0.058 x $23,875,000 = $1,384,750.
Thus, the provider's total IME payment for the post-merger period
is: $3,248,000 + $1,384,750 = $4,632,750.
Subsequent Cost Reporting Periods (FYEs June 30, 2025, and June 30,
2026)
Total IME payments for subsequent cost reporting periods are based
on the provider's merged IME payment rates and calculated according to
the usual procedures. However, during the first cost reporting period
following the merger (that is, FYE 06/30/25), the IRB ratio cap must be
calculated as though the hospitals had been merged for the entirety of
their prior cost reporting periods. In addition, as for direct GME,
during the first two cost reporting periods following the merger (that
is, FYE 06/30/25 and FYE 06/30/26), the rolling average must be
calculated as though the hospitals had been merged for the entirety of
their prior- and penultimate-year cost reporting periods. This ensures
that both the IRB ratio cap and the rolling average are representative
of the training that occurs at the post-merger entity. (Note that this
procedure applies whether the merger occurs in the middle of the
surviving provider's cost reporting period, as in this example, or
coincides with the start of a new cost reporting period.)
Accordingly, in this example, the IRB ratio cap for the merged
provider's cost reporting period ending June 30, 2025, would be
determined as follows:
Prior-year numerator: The prior cost reporting periods of
Hospitals A and B are those ending on June 30, 2024, and October 31,
2023, respectively, and the prior-year FTE count is equal to the
hospitals' combined IME FTE counts, determined based on data from the
respective cost reports, consistent with the instructions to line 20 of
Worksheet E, Part A. (Note that Hospital B's FYE 10/31/23 is its short
terminating cost reporting period that began January 1, 2023.) Based on
the data from the applicable cost reports, and as shown in the table,
Hospital A's individual FTE count (subject to the cap but before
application of the rolling average) during FYE 06/30/24 is 40 FTEs,
while Hospital's B's individual FTE count (subject to the cap but
before application of the rolling average) during FYE 10/31/23 is 20
FTEs.\119\ Accordingly, the combined prior year numerator is equal to
40 + 20 = 60.00 FTEs.
---------------------------------------------------------------------------
\119\ I.e., the lesser of each hospital's IME FTE cap or actual
IME FTE count, plus any podiatric and dental FTEs (not applicable to
this example), during the respective periods. In this example,
Hospital A's prior year numerator would be equal to the placeholder
value reported on line 12 of Worksheet E, Part A, of its FYE 06/30/
2024 cost report; while Hospital B's prior year numerator would be
equal to the value reported on line 12 of Worksheet E, Part A, of
its FYE 10/31/2023 cost report.
---------------------------------------------------------------------------
Prior-year denominator: As shown in the table, the
hospitals' total available bed count during their prior cost reporting
periods is equal to 300 + 250 = 550 beds.
Thus, the IRB ratio cap for the merged provider during this period
is: 60 / 550 = 0.11. Beginning with the provider's FYE 06/30/2026 cost
report, the IRB ratio cap would be calculated in accordance with normal
procedure.
For a demonstration of how to calculate the rolling average for the
cost reporting periods ending on June 30, 2025, and June 30, 2026,
refer to the direct GME example earlier in this preamble. Beginning
with the provider's FYE 06/30/2027 cost report, the rolling average
would be calculated in accordance with normal procedure.
[[Page 19518]]
5. Notice of Closure of Teaching Hospitals and Opportunity To Apply for
Available Slots
a. Background
Section 5506 of the Patient Protection and Affordable Care Act
(Pub. L. 111-148), as amended by the Health Care and Education
Reconciliation Act of 2010 (Pub. L. 111-152) (collectively,
``Affordable Care Act''), authorizes the Secretary to redistribute
residency slots after a hospital that trained residents in an approved
medical residency program closes. Section 5506 of the Affordable Care
Act instructs the Secretary to establish a process by regulation that
redistributes slots from teaching hospitals that close to hospitals
that meet certain criteria, with priority given to certain hospitals
including those located in the same Core Based Statistical Area (CBSA),
in a contiguous CBSA or in the same state as the closed hospital.
Specifically, section 5506 of the Affordable Care Act amended the
Act by adding subsection (vi) to section 1886(h)(4)(H) of the Act and
modifying language at section 1886(d)(5)(B)(v) of the Act, to instruct
the Secretary to establish a process to increase the FTE resident caps
for other hospitals based upon the full-time equivalent (FTE) resident
caps in teaching hospitals that closed on or after a date that is 2
years before the date of enactment (that is, March 23, 2008). In the CY
2011 Outpatient Prospective Payment System (OPPS) final rule with
comment period (75 FR 72264), we established regulations at 42 CFR
413.79(o) and an application process for qualifying hospitals to apply
to CMS to receive direct GME and IME FTE resident cap slots from the
hospital that closed. We made certain additional modifications to Sec.
413.79 in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53434), and we
made changes to the section 5506 application process in the FY 2015
IPPS/LTCH PPS final rule (79 FR 50122 through 50134). The procedures we
established apply both to teaching hospitals that closed on or after
March 23, 2008, and on or before August 3, 2010, and to teaching
hospitals that close after August 3, 2010 (75 FR 72215).
b. Notice of Closure of Delaware County Memorial Hospital Located in
Drexel Hill, PA, and the Application Process--Round 27
CMS has learned of the closure of Delaware County Memorial
Hospital, located in Drexel Hill, PA (CCN 390081). Accordingly, this
notice serves to notify the public of the closure of this teaching
hospital and initiate another round (``Round 27'') of the application
and selection process. This round will be the 27th round (``Round 27'')
of the application and selection process. The table in this section of
this rule contains the identifying information and IME and direct GME
FTE resident caps for the closed teaching hospital, which are part of
the Round 27 application process under section 5506 of the Affordable
Care Act.
[GRAPHIC] [TIFF OMITTED] TP14AP26.131
c. Notice of Closure of Crozer-Chester Medical Center Located in
Chester, PA, and the Application Process--Round 28
CMS has learned of the closure of Crozer-Chester Medical Center,
located in Chester, PA (CCN 390180). Accordingly, this notice serves to
notify the public of the closure of this teaching hospital and initiate
another round (``Round 28'') of the application and selection process.
This round will be the 28th round (``Round 28'') of the application and
selection process. The table in this section of this rule contains the
identifying information and IME and direct GME FTE resident caps for
the closed teaching hospital, which are part of the Round 28
application process under section 5506 of the Affordable Care Act.
[GRAPHIC] [TIFF OMITTED] TP14AP26.132
d. Application Process for Available Resident Slots
The application period for hospitals to apply for slots under
section 5506 of the Affordable Care Act is 90 days following notice to
the public of a hospital closure (77 FR 53436). Therefore, hospitals
that wish to apply for and receive slots from the previously noted
hospitals' FTE resident caps must submit applications using the
electronic application intake system, Medicare Electronic Application
Request Information SystemTM (MEARISTM), with
application submissions for Round
[[Page 19519]]
27 and 28 due no later than [insert date 90 days from date of filing
for public inspection]. The Section 5506 application can be accessed
at: https://mearis.cms.gov/public/home.
CMS will only accept Round 27 and 28 applications submitted via
MEARISTM. Applications submitted through any other method
will not be considered. Within MEARISTM, we have built in
several resources to support applicants:
Please refer to the ``Resources'' section for guidance
regarding the application submission process at: https://mearis.cms.gov/public/resources.
Technical support is available under ``Useful Links'' at
the bottom of the MEARISTM web page.
Application related questions can be submitted to CMS
using the form available under ``Contact'' at: https://mearis.cms.gov/public/resources.
Application submission through MEARISTM will not only
help CMS track applications and streamline the review process, but it
will also create efficiencies for applicants when compared to a paper
submission process.
We have not established a deadline by when CMS will issue the final
determinations to hospitals that receive slots under section 5506 of
the Affordable Care Act. However, we review all applications received
by the application deadline and notify applicants of our determinations
as soon as possible.
We refer readers to the CMS Direct Graduate Medical Education
(DGME) website at: https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/direct-graduate-medical-education-dgme. Hospitals should access this website for a list of additional
section 5506 guidelines for the policy and procedures for applying for
slots, and the redistribution of the slots under sections
1886(h)(4)(H)(vi) and 1886(d)(5)(B)(v) of the Act.
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).
2. Medicare Advantage Nursing and Allied Health Education Payments
Section 541 of the Balanced Budget Refinement Act (BBRA) of 1999
(codified at section 1886(l) of the Act) 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)) \120\ 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''. We also
note that section 4143 of Pub. L. 117-328 waived the $60 million limit
for calendar years 2010 through 2019: see the August 28, 2023 Federal
Register at 88 FR 59058.) 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. The
provisions of section 541 are effective for portions of cost reporting
periods occurring in a calendar year, on or after January 1, 2000.
---------------------------------------------------------------------------
\120\ 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 these 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
[[Page 19520]]
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 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 this FY 2027 IPPS/LTCH PPS proposed rule, we proposed the rates
for CY 2025. Consistent with the use of HCRIS data for past calendar
years, we are proposing to use data from cost reports ending in FY 2023
HCRIS (the fiscal year that is 2 years prior to CY 2025) to compile
these national amounts: NAH pass-through payment, Part A Inpatient
Days, MA Inpatient Days.
For this proposed rule, we accessed the FY 2023 HCRIS data from the
third quarterly HCRIS 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 proposed rule is CY 2025, 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 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 2025, the
direct GME projections are based on the third quarterly update of CY
2023 HCRIS, adjusted for the CPI-U and for increasing MA enrollment.
For CY 2025, the proposed national rates and percentages, and their
data sources, are set forth in this table. We intend to update these
numbers in the FY 2027 final rule based on the latest available cost
report data.
[GRAPHIC] [TIFF OMITTED] TP14AP26.133
3. Proposed Requirements To Prohibit Unlawful Discrimination in
Approved Nursing and Allied Health Education Programs and Accreditation
Standards
Hospitals may receive nursing and allied health education pass-
through payments for costs incurred in connection with approved
programs. The statute does not explicitly define ``approved programs''
for purposes of NAH education payments. Instead, section 1886(l)(1) of
the Act refers to ``approved educational activities for nurse and
allied health professional training''. Under the existing regulations
at Sec. 413.85(e), CMS considers an activity to be an ``approved
nursing and allied health education program'' if the program is a
planned program of study that is licensed by State law, or if licensing
is not required, is accredited by the recognized national professional
organization for the particular activity. The regulations note that
such national accrediting bodies include, but are not limited to, the
Commission on Accreditation of Allied Health Education Programs, the
National League of Nursing Accrediting Commission, the Association for
Clinical Pastoral Education Inc., and the American Dietetic
Association.
In the CY 2026 OPPS/ASC final rule (90 FR 54024 through 54027), we
finalized changes to the definition of ``approved medical residency
program'' and equivalent terms, to state that accrediting organizations
may not use accreditation criteria that promote or encourage
discrimination on the basis of race, color, national origin, sex, age,
[[Page 19521]]
disability, or religion, including the use of those characteristics or
intentional proxies for those characteristics as a selection criterion
for employment, program participation, resource allocation, or similar
activities, opportunities, or benefits. Our intent in finalizing this
policy was to ensure that accreditation for approved medical residency
programs would be in compliance with applicable laws related to race-
based admission policies and to improve the accreditation process. In
this proposed rule, we are proposing a similar policy that would apply
to approved medical residency programs themselves. For further details
on these existing and proposed policies, we refer readers to the CY
2026 OPPS/ASC final rule and to section V.F.2. of this proposed rule,
respectively.
We believe that similar concerns related to unlawful and
discriminatory accreditation standards and program requirements also
apply to approved nursing and allied health education programs.
Therefore, we are proposing to require that, in addition to meeting
other applicable requirements, individual NAH education programs and
NAH accrediting bodies must not discriminate, or promote or encourage
discrimination, on the basis of race, color, national origin, sex, age,
disability, or religion, including the use of those characteristics or
intentional proxies for those characteristics as a selection criterion
for employment, program participation, resource allocation, or similar
activities, opportunities, or benefits. These policies would be
effective October 1, 2026, and would be codified under proposed new 42
CFR 413.84, which would be cross-referenced as necessary by the
regulations at Sec. 413.85.
Separately, we propose to remove from Sec. 413.85(e) the language
specifying individual accrediting organizations of nursing and allied
health education programs. In the January 12, 2001 Federal Register (66
FR 3365 through 3366), we eliminated the list of nursing and allied
health specialty programs and respective accrediting bodies at Sec.
413.85(e) and instead established the general requirement that an
approved NAH program must be a planned program of study that is
licensed by State law, or if licensing is not required, is accredited
by the recognized national professional organization for the particular
activity. Nevertheless, we continued to provide examples of recognized
accrediting bodies in the regulations text, specifically, the
Commission on Accreditation of Allied Health Education Programs, the
National League of Nursing Accrediting Commission, the Association for
Clinical Pastoral Education Inc., and the American Dietetic
Association. While it is our understanding that these organizations
continue to accredit programs in their respective specialties, we no
longer believe it is useful to reference a limited number of specific
accreditors in the regulations, given the evolving nature of the field
and the large number of additional accrediting bodies active across
various disciplines.
4. Proposed Changes to the Regulations for Determining the Net Cost of
Nursing and Allied Health Education Programs and Clarifications
Regarding the Correct Allocation of Overhead Costs
a. Overview of Existing Regulations and Cost Report Instructions
In the January 12, 2001, final rule (66 FR 3358) ``Medicare
Program; Payment for Nursing and Allied Health Education'', we codified
the payment regulations regarding NAH education program costs at 42 CFR
413.85. With regard to determining the net costs that are allowed for
``pass-through'' payment, Sec. 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 provide
services to both general service areas and to other cost centers in the
provider. (CMS Pub. 15-2, section 4013; 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
revenue and non-revenue producing cost centers for (1) expenses to
reflect actual expenses incurred; (2) those items which constitute
recovery of expenses through sales, charges, fees, etc.; (3) expenses
in accordance with the Medicare principles of reimbursement; and (4)
those items which are provided for separately in the cost apportionment
process. (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,
[[Page 19522]]
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
clarifications to the hospital cost report instructions at CMS-2552-10,
Pub. 15-2, chapter 40. Transmittal 12 added the following clarification
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 [and their
subscripts]. (CMS Pub. 15-2, section 4016.)
Transmittal 12 also added to Worksheet B-2 specific instructions
for post-stepdown adjustments for certain costs associated with NAHE
nonprovider-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. (CMS Pub.
15-2, section 4022.)
In issuing these cost report clarifications in Transmittal 12, CMS
was clarifying the rules regarding the appropriate order of operations
for assigning costs and allocating 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.
b. Recent Litigation and Rulemaking Activity
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 v. Becerra, 717 F. Supp. 3d 33 (D.D.C. 2024)). The
providers disputed the order of operations for determining ``net
costs'' of approved educational activities under 42 CFR
413.85(d)(2)(i). The providers disagreed with the clarified
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 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 clarification of the cost reporting
instructions in 2017 was a change in policy that conflicts with the
regulations. The court sided with the providers, holding that the plain
text of 42 CFR 413.85(d)(2)(i) is consistent with the providers'
interpretation of the order of operations.
In the FY 2026 IPPS proposed rule (90 FR 18280 through 18282), we
proposed to revise 42 CFR 413.85(d)(2)(i) to define the net cost of
approved educational activities in a manner consistent with the cost
reporting clarifications in Transmittal 12. Specifically, we proposed
that revenues from tuition, student fees and other sources should be
subtracted from the allowable direct costs of a provider's NAH
education programs prior to the allocation of overhead costs. We also
clarified that, in order to mitigate the reduction in overhead costs
that might result from this procedure, a provider could seek permission
from its MAC to utilize a statistical basis other than accumulated cost
for the purpose of allocating indirect costs to its nursing and allied
health cost centers. More specifically, we explained that a provider
may elect to subscript its administrative and general cost center (line
5 of Worksheet A) for overhead costs directly related to its NAH
programs and employ a statistical basis other than accumulated cost
that would accurately reflect the services rendered to those
departments. In addition, we stated that the proposed order of
operations to offset revenue from direct costs on Worksheet A-8 would
be consistent with the policy that A&G costs allocated to the NAH cost
centers must be directly related to the operation of specific approved
programs, as finalized in the January 12, 2001 Federal Register (66 FR
3367).
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 would be inconsistent with general cost-finding
principles and would result in the NAH cost centers receiving less than
their share of institutional overhead. Due to the number and nature of
the comments we received, we decided not to finalize changes to our
existing policy in the FY 2026 IPPS final rule (90 FR 36921). Instead,
we stated that we expected to revisit the treatment of NAH education
costs in future rulemaking.
After considering the feedback we received on our earlier proposal,
we continue to believe, for the reasons stated below, that correct
accounting procedures require the deduction of tuition and other
revenue from the direct costs of a provider's approved educational
activities on Worksheet A-8, prior to the allocation of overhead,
consistent with the clarifications contained in Transmittal 12.
However, we acknowledge that it would be helpful to provide additional
technical context to explain how the proposed order of operations is
consistent with general Medicare cost-finding principles. We are also
modifying our original proposal to ensure that the deduction of revenue
on Worksheet A-8 does not inappropriately reduce the allocation of
overhead to the NAH cost centers when hospitals allocate administrative
and general costs using accumulated cost as the default statistical
basis.
In addition, we recognize that some portions of our discussion in
the FY 2026 proposed rule may have caused confusion about our existing
policies regarding allowable indirect costs of approved nursing and
allied health education programs. In particular, some commenters
believed that we had defined allowable indirect costs in such a way as
to essentially preclude the recognition of overhead for purposes of NAH
pass-through payment. Therefore, in this proposed rule, we are also
proposing to clarify the nature of allowable indirect costs of approved
educational activities and to refine the cost reporting procedures to
ensure that hospitals appropriately allocate overhead costs to the NAH
cost centers.
c. Determination of Net Cost of Approved Nursing and Allied Health
Education Activities (Sec. Sec. 413.85(d)(2)(i) and (ii))
We are proposing to change the regulations text at 42 CFR
413.85(d)(2)(i) and (ii) to state that the net cost of approved
educational activities is determined by taking the allowable direct
costs incurred by the provider for trainee stipends and compensation of
faculty employed by the provider, and
[[Page 19523]]
subtracting from those 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. After subtracting revenues from allowable direct costs,
indirect costs would be allocated to the nursing and allied health cost
centers (limited to those costs that the provider itself incurs in
connection with the operation of its approved educational activities),
consistent with Medicare cost-finding principles at 42 CFR 413.24. The
effective date of this proposed change would be cost reporting periods
beginning on or after October 1, 2026. We are not proposing changes to
the existing portion of the regulations at Sec. 413.85(d)(2)(ii)
stating that net NAH 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. (We discuss our proposed clarification of allowable
indirect costs of educational activities and the associated cost
reporting procedures in the following subsection of this preamble.)
As we stated in the FY 2026 proposed rule (90 FR 18281), we
understand that it is not uncommon for a provider's allowable nursing
and allied health education programs to generate revenues from tuition,
student fees and other sources that exceed the allowable direct costs
the provider incurs for those programs. Because of that, the revenue
offset on Worksheet A-8 might result in a zero or negative balance
prior to the allocation of overhead costs; on Worksheet B-1, the
accumulated cost statistic, which serves as the recommended statistical
basis for allocating administrative and general costs, would
consequently also be reduced to zero. Even if the provider were to
componentize their administrative and general cost center (consistent
with the procedures proposed below), certain components might continue
to be allocated on the basis of accumulated cost, limiting the amount
of A&G allocated to the provider's NAH cost centers, regardless of the
extent to which those cost centers benefit from the hospital's
administrative functions.
In order to ensure that the deduction of revenue on Worksheet A-8
does not understate the administrative and general costs allocated to
the NAH cost centers, we are proposing the following modifications to
the procedures for offsetting revenue and computing the accumulated
cost statistic. First, we are proposing that providers offset the total
revenue generated by each NAH program, which may result in a credit
balance (negative amount) on the corresponding line(s) of Worksheet A.
Next, we propose that providers utilize the reconciliation column on
Worksheet B-1 to adjust the accumulated cost statistic by the total
amount of NAH revenue offset on Worksheet A-8, effectively reversing
that offset for purposes of overhead allocation only.
The following example illustrates the application of this procedure
in the event that total revenues from tuition and other sources exceed
the direct costs that the provider incurs for a particular NAH program.
(Note, the same procedure would be followed if total revenues do not
exceed direct costs.)
Suppose that Hospital A incurs $1,000,000 in direct costs
for an allied health education program; Hospital A reports $1,000,000
on line 23, column 5, of Worksheet A, which represents the direct costs
of the program prior to any adjustments.
Hospital A receives $1,200,000 in tuition and fees from
students enrolled in the program; Hospital A reports a revenue
adjustment of $1,200,000 on line 19, column 2, of Worksheet A-8,
representing a recovery of expenses associated with that program.
The revenue adjustment of $1,200,000 carries over to line
23, column 6, of Worksheet A. This results in a negative expense of
($200,000) ($1,000,000 minus $1,200,000 equals ($200,000)) on line 23,
column 7. Assume for purposes of this example that there are no further
adjustments (positive or negative) to Hospital A's direct NAH costs.
On Worksheet B-1, the hospital then utilizes the
reconciliation column (line 23, column 5A) to increase the accumulated
cost statistic by the amount of revenue offset previously, $1,200,000.
(Note: in the cost report software, the provider must ensure to
indicate ``override with value'' and check to add this value to the
existing accumulated cost from Worksheet B, Part I, line 23, column
4A.)
The accumulated cost statistic for purposes of allocating
A&G on Worksheet B, Part I, will be equal to the adjusted expense on
Worksheet A, column 7, line 23, plus the amount of revenue from tuition
and fees deducted on Worksheet A-8, plus any amounts already allocated
to the NAH cost center on Worksheet B, Part I, line 23, columns 1
through 4.
From this point, the stepdown process on Worksheet B, Part
I, continues according to normal procedures. While the accumulated cost
statistic will thus allocate an appropriate share of institutional
overhead to the NAH cost center, the amount of NAH costs available for
allocation on Worksheet B, Part I, line 23, column 23, will continue to
reflect the revenue offset, ensuring that the unallowable costs are not
allocated from NAH to the patient care cost centers.
We emphasize that the deduction of tuition and other revenue on
Worksheet A-8, prior to the allocation of indirect costs on Worksheet
B, Part I, is consistent with general Medicare cost-finding principles
as described in PRM 15-1, chapter 23, and the cost report instructions
in PRM 15-2, chapter 40, and as codified in the regulations at 42 CFR
413.24. The general service cost centers, including the NAH cost
centers, represent a hospital's allowable non-patient care expenses,
which are allocated to all the cost centers they serve via the stepdown
method on Worksheet B, Part I. Once these expenses have been allocated
to the patient care cost centers, Medicare's share of allowable costs
is determined based on the hospital's Medicare utilization. It is
therefore necessary to remove those costs that are not generally
allowable to Medicare prior to the stepdown process. Such generally
unallowable costs include indirect expenses that are recovered through
related non-patient care revenue, as reported on lines 6 through 25 on
Worksheet G-3 (including tuition on line 19). For example, interest
expense and cafeteria expense are allowable general service non-patient
care expenses; however, interest expense is reduced by investment
income, and cafeteria expense is reduced by income from the sale of
food and drink. Similarly, the tuition and other revenue received for a
hospital's nursing and allied health education programs constitute non-
patient care revenues that must be used to offset (reduce) the related
NAH program expense on Worksheet A-8, consistent with the handling of
other non-patient care revenue as described above.
We would also like to take the opportunity to address concerns
raised in response to the FY 2026 proposed rule that the proposed order
of operations for deducting tuition and other revenue would be
inconsistent with our treatment of organ acquisition costs, which are
also reimbursed on a pass-through basis. In contrast to the NAH cost
centers, the organ acquisition cost centers are ancillary/revenue-
producing centers related to patient care. Revenue for organs sold to
other
[[Page 19524]]
organ procurement organizations or transplant hospitals may only be
used to reduce Medicare's share of costs for organs claimed as Medicare
usable organs. Those costs are not determined until the full
apportionment process on Worksheet D-4, after the allocation of
indirect costs on Worksheet B, Part I. By contrast, NAH costs are
general service (non-revenue-producing) costs that are not directly
related to patient care and are reimbursed to the extent the costs
incurred have not been recovered through tuition and other fees. Only
the net cost that the hospital actually bears is allocated to other
departments. Thus, adjustments for tuition and other NAH revenue must
occur on Worksheet A-8, which modifies total costs, not Medicare's
share of costs. (However, note that if there are generally non-
allowable costs included in an organ acquisition cost center, those
costs would be removed on Worksheet A-8, prior to determining
Medicare's share of costs.)
d. Identification of Allowable Indirect (Overhead) Costs of Approved
Educational Activities
The FY 2026 proposed rule included a discussion of the types of
costs allowable for purposes of pass-through payment under 42 CFR
413.85 (90 FR 18281 through 18282). That discussion referred to our
longstanding nursing and allied health payment policies finalized in
the January 12, 2001 Federal Register (66 FR 3367), in which we
clarified the meaning of the term ``tuition'' and specified that
``total costs'' include direct and indirect costs incurred by a
provider that are directly attributable to the operation of an approved
educational activity. We explained in the 2001 final rule that such
costs do not include usual patient care costs that would be incurred in
the absence of the educational activity, such as the salary costs for
nursing supervisors who oversee the floor nurses and student nurses;
moreover, these costs do not include costs incurred by a related
organization.
In the FY 2026 proposed rule, we observed that a significant
portion of the indirect costs that certain hospitals allocate to their
nursing and allied health cost centers include costs incurred by a
related organization (such as a home office), in violation of the
regulation at Sec. 413.85(d)(2)(ii),\121\ as well as administrative
and general costs that may be incurred by the hospital but are not
directly attributable to the operation of the hospital's NAH education
programs. We stated that those A&G costs not directly incurred as a
result of operating a hospital's NAH education programs are paid as
normal operating costs under the IPPS (or other applicable hospital
payment system) rather than on a pass-through basis. As examples of
such costs, we listed costs that benefit the hospital as a whole and
that would generally be incurred in the absence of a provider's NAH
programs, such as Infection Control, Admissions, Patient Registration,
Telecommunications, etc. We stated that it is therefore the provider's
responsibility to request permission from its MAC to use an allocation
method for overhead costs that accurately and appropriately reflects
overhead costs incurred by the provider as a direct result of operating
its NAH education programs.
---------------------------------------------------------------------------
\121\ In addition to the regulation under 413.85(d)(2)(ii), we
note that under Sec. 413.85(f)(1)(i), the provider itself must
directly incur the training costs in order for a program to be
deemed provider-operated and thus eligible for pass-through payment.
Accordingly, we caution related parties about incurring NAH training
costs (including indirect costs), as that could jeopardize the
provider's status as the operator of the program.
---------------------------------------------------------------------------
We intended this discussion in the FY 2026 proposed rule to serve
as a restatement and clarification of various elements of our existing
NAH payment policies. Nevertheless, we received several comments
objecting to our characterization of the allowable costs of educational
activities. In particular, commenters alleged that we had defined
allowable indirect costs in such a way as to effectively preclude the
allocation of overhead to the NAH cost centers, by requiring that
indirect costs be ``directly attributable'' to the operation of a
provider's NAH education programs. One commenter also objected to our
examples of unallowable indirect costs and specifically to our
characterization of the salary costs of a nursing supervisor as ``usual
patient care costs that would be incurred in the absence of the
educational activity'' and that are thus not allowable for purposes of
NAH pass-through payment. We are therefore taking this opportunity to
further clarify our existing policies concerning the nature of
allowable costs of nursing and allied health, as well as to propose
specific procedures for correctly allocating those costs on the
hospital cost report.
First, we propose to clarify the meaning of the statement in the
January 12, 2001, final rule that ``total costs'' include only ``direct
and indirect costs incurred by a provider that are directly
attributable to the operation of an approved educational activity.'' We
note that these costs are explicitly contrasted with ``usual patient
care costs that would be incurred in the absence of the educational
activity, such as the salary costs for nursing supervisors who oversee
the floor nurses and student nurses'' (66 FR 3367). With respect to the
assignment of direct costs on Worksheet A, the purpose of this
requirement is to distinguish between the costs of NAH educational
activities engaged in by the hospital's nursing and allied health
staff, which would not occur in the absence of a hospital's approved
NAH programs and which are thus ``directly attributable'' to the
operation of such programs, and the costs of usual patient care
services, which may be furnished by some of the same staff members and
which the hospital would incur even in the absence of its NAH programs.
For example, a nursing supervisor who oversees floor nurses and
student nurses may spend part of his or her time engaged in usual
patient care activities, such as monitoring patient vital signs or
directing the clinical activities of the floor nurses, and part of the
time instructing students in the hospital's nursing program. A portion
of the salary costs of the nursing supervisor would be considered
direct costs of the nursing program, and the salary costs would thus be
apportioned between the hospital's patient care and nursing education
cost centers, based on the percentage of time the supervisor spent on
each activity. This procedure is analogous to the apportionment of the
salary costs of teaching physicians who spend part of their time
supervising residents and part of their time providing clinical
services to the hospital's patients.
With respect to the allocation of indirect costs on Worksheet B,
Part I, the requirement that such costs must be ``directly attributable
to the operation of an approved educational activity'' does not
categorically preclude the allocation of institutional overhead to the
nursing and allied health cost centers. Rather, this requirement
emphasizes the general principle that indirect costs allocated to a
particular cost center must proportionately reflect the extent to which
that department benefits from the hospital's various overhead
functions. For example, if only certain staff in a hospital department
work on administrative functions related to the NAH program, then only
the salary costs of those particular staff, and not the costs of the
entire department/cost center, should be allocated to the NAH cost
centers, as only the salary costs of those particular staff are
``directly attributable to the operation of an approved educational
activity.'' We are clarifying that, if a hospital's nursing or
[[Page 19525]]
allied health education program benefits from a particular overhead
function whose costs are incurred directly by the provider (rather than
a related party), then the corresponding NAH cost center must only
receive a proportional share of the indirect costs associated with that
function, since the function may also provide a benefit to the
hospital's other departments, and since the provider would have
incurred costs for that function in the absence of its approved NAH
programs. That is, the fact that hospital departments are complex and
service multiple areas of the hospital necessitates a distinction
between those costs that do and do not provide a benefit to a
hospital's NAH programs, and the accurate apportionment of only those
costs that provide a benefit to the NAH cost centers. Furthermore, we
reiterate the policy finalized in the January 12, 2001, Federal
Register that allowable costs do not include costs incurred by a
related organization, such as a corporate home office.
If a program does not derive a benefit from a particular overhead
function, then it should not receive any of the indirect costs that the
provider incurs for that function. In the FY 2026 proposed rule, we
listed examples of several types of overhead, such as Infection
Control, Admissions, Patient Registration, Telecommunications, etc.,
that we believe would usually not provide a benefit to hospitals' NAH
education programs, and whose costs should therefore not be allocated
to the NAH cost centers. However, we recognize that hospitals'
operations vary and that different NAH programs may require different
forms of administrative support, potentially including one or more of
the functions enumerated in the FY 2026 proposed rule. As stated above,
whether or not a particular overhead cost should be allocated to the
NAH cost centers depends on whether or not that function provides a
benefit to the hospital's NAH programs.
The general service cost centers, including the administrative and
general cost center, comprise a variety of distinct overhead functions,
some of which may benefit the hospital's nursing and allied health
education programs, while others may not. In order to properly
distinguish between the costs associated with these distinct functions,
and to ensure that the pass-through cost centers receive only those
indirect costs allowable under our longstanding policies, we are
proposing to require providers with approved NAH education programs to
componentize (that is, to fragment or subscript) their general service
cost centers according to the procedures described below.
We are proposing that if a hospital operates ``approved educational
activities,'' as defined under Sec. 413.85(c) and subject to the
provider-operated requirements under Sec. 413.85(f), then the hospital
must identify any general service cost center that comprises costs of
multiple overhead functions, where some of those functions provide a
benefit to the hospital's NAH programs and others do not. For each such
general service cost center, the hospital must create one or more
subscripts that contain only those costs that provide a benefit to its
NAH programs. (Note that such costs may also provide a benefit to other
departments of the hospital.) As a result of this process, the general
service cost center would contain the following components (in addition
to any other subscripts created by the hospital for other purposes):
(1) Indirect costs that provide a benefit to the hospital's NAH
programs, and (2) Indirect costs that do not provide a benefit to NAH.
Only those costs contained in component (1) would flow to Worksheet
D, Parts III and IV, to be reimbursed on a pass-through basis. On lines
20 and 23 (and subscripts thereof) of Worksheet B-1, the hospital would
delete (zero out) the allocation statistic in the column corresponding
to component (2), so that those costs are allocated to the departments
that they serve but not to the NAH cost centers.
We note that a similar procedure would apply to certain
nonprovider-operated programs paid for clinical costs on a pass-through
basis under 42 CFR 413.85(g)(1) and (2). In contrast to provider-
operated programs paid under Sec. 413.85(f), providers that qualify
for reasonable cost payment of clinical costs associated with
nonprovider operated programs under Sec. 413.85(g) may receive
reasonable cost payment for the clinical training costs only, including
the clinical training costs incurred by a related organization (Sec.
413.85(g)(2)(v); 66 FR 3367); however, the January 12, 2001 Federal
Register explicitly states that ``overhead costs incurred by a related
organization generally would not be considered allowable'' under this
provision (66 FR 3369). Accordingly, under our proposal, a provider
that claims pass-through costs under Sec. Sec. 413.85(g)(1) and (2)
must further distinguish between overhead costs incurred directly by
the provider and those incurred by a related party. This would be
accomplished by creating an additional subscript of the general service
cost center containing only those related party costs.\122\ We further
note that any excess clinical training costs as defined at Sec.
413.85(g)(2)(iii) would continue to be removed as a post-stepdown
adjustment on Worksheet B-2, consistent with the instructions in CMS
Pub. 15-2, section 4022.
---------------------------------------------------------------------------
\122\ General service costs incurred by a related party are
reported on Worksheet A-8-1 of the hospital cost report. Under our
proposal, if the hospital reports related party overhead costs
associated with an NAH program on Worksheet A-8-1, then it must
create an additional subscript for each corresponding general
service cost center containing only those related party costs.
Overhead costs incurred by a related organization and allocated to
the NAH cost centers would be removed as a post-stepdown adjustment
on Worksheet B-2; such costs are not paid on a pass-through basis,
but instead are allowable as normal operating costs of the hospital,
included in the prospective payment rates.
---------------------------------------------------------------------------
These procedures would ensure that only indirect costs incurred by
the provider that are ``directly attributable'' to the provider's
operation of approved educational activities are allocated to the pass-
through NAH cost centers. We note that the componentization of general
service cost centers is consistent with longstanding Medicare cost
reporting procedures as described in CMS Pub. 15-1, chapter 23, section
2307(B). In addition, we are clarifying that the hospital must ensure
that the statistical basis used to allocate each general service cost
center and its subscripts (if applicable) must reasonably relate to the
general service costs and must appropriately reflect the proportion of
those costs attributable to the downstream cost centers, including NAH.
For further discussion of the use of appropriate allocation statistics,
refer to section X.D.3. of this proposed rule (``Clarification and
Codification of Cost Allocation Principles'').
The following example illustrates the application of our proposed
procedures in the case of a hospital with a subset of administrative
and general costs allowable for purposes of NAH pass-through payment.
Assume the hospital's NAH programs are deemed provider-operated
consistent with the requirements at Sec. 413.85(f).
Example: Suppose that a hospital reports $100,000,000 in
administrative and general costs, of which $75,000,000 is attributable
to specific overhead functions (such as executive salaries, accounting
services, and facility administrative services) that provide a benefit
to the hospital's approved NAH education programs, as well as to the
rest of the hospital. The remaining $25,000,000 is attributable to
functions (such as legal services and inpatient admissions) that do not
provide a benefit to the hospital's NAH programs.
[[Page 19526]]
The hospital would subscript its A&G cost center as follows:
One subscript (for example, line 5.01), would contain the
$75,000,000 in A&G costs that provide a benefit to the hospital's NAH
programs.
Another subscript (for example, line 5.02), would contain
the residual $25,000,000 in A&G costs not attributable to the
hospital's NAH programs.
Cost center 5.01 would be allocated among all cost centers
on an appropriate statistical basis (for example, accumulated cost,
adjusted so as to reverse the offset of tuition and/or other revenue,
as described in the preceding section of this proposal); any costs
allocated to the NAH cost centers would flow to Worksheet D, Parts III
and IV, and be reimbursed on a pass-through basis.
The hospital would delete (zero out) the allocation
statistic on Worksheet B-1, lines 20 and 23, column 5.02; this would
prevent A&G costs unrelated to the hospital's NAH programs from being
allocated to the NAH cost centers.
We propose that the effective date of these policies would be cost
reporting periods beginning on or after October 1, 2026. We intend to
issue revisions to the hospital cost report (Form CMS-2552-10) to
implement these policies, if finalized.
H. Payment Adjustment for Certain Immunotherapy Cases (Sec. Sec.
412.85 and 412.312)
Effective for FY 2021, we created MSDRG 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 MSDRG 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 MSDRG 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 MSDRG, 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).\123\
---------------------------------------------------------------------------
\123\ https://www.fda.gov/news-events/expanded-access/expanded-access-keywords-definitions-and-resources
---------------------------------------------------------------------------
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-10CM 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. Effective FY 2026, we also finalized the
application of the payment adjustment for clinical trial and expanded
access use of immunotherapy cases to other cases where the
immunotherapy product is not purchased in the usual manner, such as
obtained at no cost. 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 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 assigned to MS-DRG 018
that involve expanded access use of immunotherapy, are part of an
applicable clinical trial, or for discharges occurring on or after
October 1, 2025, other cases where the immunotherapy product is not
purchased in the usual manner, such as provided at no cost, to the
average cost for all other cases assigned to MS-DRG 018 (90 FR 36922).
For FY 2027, we are proposing to continue to apply an adjustment to
the payment amount for expanded access use of immunotherapy and
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, calculated using the
same methodology, as modified in the FY 2024 IPPS/LTCH PPS final rule
(88 FR 59062), that we are proposing to use to adjust the case count
for purposes of the relative weight calculations, including our
proposed modifications to that methodology for FY 2027, as described in
section II.D. of the preamble of this proposed 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 proposed rule for further
discussion of our proposed methodology for identifying clinical trial
claims and expanded access use
[[Page 19527]]
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 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.
Using the same methodology that we are proposing to use to adjust
the case count for purposes of the relative weight calculations, we are
proposing 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
proposed rule for further discussion of our methodology.
Consistent with our calculation of the proposed adjustor for the
relative weight calculations, for this proposed rule we are proposing
to calculate this adjustor based on the December 2025 update of the FY
2025 MedPAR file for purposes of establishing the FY 2027 payment
amount. Specifically, in accordance with 42 CFR 412.85 (for operating
IPPS payments) and 412.312 (for capital IPPS payments), we are
proposing to multiply the FY 2027 relative weight for MS-DRG 018 by a
proposed adjustor of 0.17 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 are also proposing to
update the value of the adjustor based on more recent data for the
final rule.
I. Hospital Readmissions Reduction Program
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
after an initial treatment for specified diagnoses (referred to in
section 1886(q)(5)(A) of the Act as ``applicable conditions'', certain
high-volume or high-expenditure conditions specified by the Secretary).
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. Summary of Previously Adopted Measures for the Hospital Readmissions
Reduction Program
Table V.K-01 shows the Hospital Readmissions Reduction Program
measure set for the FY 2027 program year and subsequent years, that is,
the ``applicable conditions'' used to calculate excess readmission
ratios.\124\ Additional resources on the measure technical
specifications and methodology for the Hospital Readmissions Reduction
Program are available on the CMS QualityNet website (available at:
https://qualitynet.cms.gov/inpatient/measures/readmission/methodology).
---------------------------------------------------------------------------
\124\ Sec. 412.152.
[GRAPHIC] [TIFF OMITTED] TP14AP26.134
[[Page 19528]]
b. Proposed Adoption of the Hospital 30-Day, All-Cause, Risk-
Standardized Readmission Rate Following Sepsis Hospitalization Measure
(1) Background
Sepsis, or septicemia, is a life-threatening condition that results
from the body's dysregulated response to infection and is a leading
cause of mortality, hospitalization, and readmission in the United
States.\125\ It is the most frequent principal diagnosis among non-
maternal, non-neonatal inpatients, with over 2.2 million
hospitalizations reported in 2018.\126\ Of the 1.7 million adults
diagnosed with sepsis annually, approximately 20 percent
die.127 128 129
---------------------------------------------------------------------------
\125\ An Assessment of Sepsis in the United States and its
Burden on Hospital Care. Rockville, MD: Agency for Healthcare
Research and Quality; 2024. AHRQ Pub No. 24-0087.
\126\ McDermott K.W., Roemer M. (2021). Most Frequent Principal
Diagnoses for Inpatient Stays in U.S. Hospitals, 2018. Healthcare
Cost and Utilization Project (HCUP) Statistical Brief #277.
Available at: https://pubmed.ncbi.nlm.nih.gov/34428003/. Accessed
March 23, 2026.
\127\ Centers for Disease Control and Prevention. About Sepsis.
August 2025. Available at: https://www.cdc.gov/sepsis/about/index.html. Accessed March 23, 2026.
\128\ U.S Department of Health and Human Services. Agency for
Healthcare Research and Quality. Report to Congress: An Assessment
of Sepsis in the United States and its Burden on Hospital Care.
2024. Available at: https://www.ahrq.gov/sites/default/files/publications2/files/sepsis-report-to-congress_0.pdf.
\129\ Page B., Klompas M., Chan C., et al. Surveillance for
healthcare-associated infections: hospital-onset adult sepsis events
versus current reportable conditions. Clin Infect Dis 2021; 73:1013-
9.
---------------------------------------------------------------------------
Consistent with section 1886(q)(5)(A) of the Act, which, as noted
above, defines an ``applicable condition'' in the Hospital Readmissions
Reduction Program, sepsis readmissions are both high volume and high
expenditure. Thirty-day average readmission rates for patients with
sepsis are estimated to be about 21 percent.\130\ Sepsis is also
associated with poor health outcomes, such as the development of
chronic conditions and functional impairment,\131\ as well as higher
costs compared to other conditions included in CMS value-based and
quality reporting programs.\132\ Between 2016 and 2021, the aggregate
hospital costs for patients with sepsis aged 65 and older increased
from $16.7 billion to $26.3 billion, and the average total cost of
sepsis stays for this population increased from $21,700 to $25,000 over
this period. \133\ Approximately 50 percent of the total hospital costs
for sepsis stays in 2020 and 2021 were associated with stays expected
to be billed to Medicare.\134\ A recent study concluded that the
quality reporting and payment-for-performance programs should address
these concerns after finding that sepsis readmissions occurred at a
rate similar to that of other conditions included in the Hospital
Readmissions Reduction Program (for example, heart failure, chronic
obstructive pulmonary disease, acute myocardial infarction).\135\
---------------------------------------------------------------------------
\130\ Shankar-Hari, et al. Rate and Risk Factors for
Rehospitalization in Sepsis Survivors: Systematic Review and Meta-
analysis. 2020. Intensive Care Med; 46(4):619-636. doi: 10.1007/
s00134-019-05908-3.
\131\ Van der Slikke, E.C., Beumeler, L.F., Holmqvist, M.,
Linder, A., Mankowski, R.T., & Bouma, H.R. (2023). Understanding
post-sepsis syndrome: how can clinicians help?. Infection and Drug
Resistance, 6493-6511. https://doi.org/10.2147/IDR.S390947.
\132\ Weiss A., Jiang J. Overview of clinical conditions with
frequent and costly hospital readmissions by payer, 2018 #278. hcup-us.ahrq.gov. Published 2021. https://hcup-us.ahrq.gov/reports/statbriefs/sb278-Conditions-Frequent-Readmissions-By-Payer-2018.jsp.
\133\ Owens, P.L., et al. (2024). Overview of Outcomes for
Inpatient Stays Involving Sepsis, 2016-2021 (HCUP Statistical Brief
No. 306). Agency for Healthcare Research and Quality. Available at:
https://hcup-us.ahrq.gov/reports/statbriefs/sb306-overview-sepsis-2016-2021.pdf.
\134\ Owens, P.L., et al. (2024). Overview of Outcomes for
Inpatient Stays Involving Sepsis, 2016-2021 (HCUP Statistical Brief
No. 306). Agency for Healthcare Research and Quality. Available at:
https://hcup-us.ahrq.gov/reports/statbriefs/sb306-overview-sepsis-2016-2021.pdf.
\135\ Cam C., Bridging the Gap: Developing a Standardized Metric
for Sepsis Readmission Using CMS Methodology. Hospital Quality
Institute. 2025. https://hqinstitute.org/file/analysis-paper-developing-a-standardized-metric-for-sepsis-readmission-using-cms-methodologies/.
---------------------------------------------------------------------------
Sepsis readmissions are often preventable, highlighting the need
for targeted interventions to reduce sepsis-related mortality and
improve post-discharge outcomes including readmissions.\136\
Readmission following a sepsis hospitalization may be a result of
inadequate treatment of the initial infection, complications of
hospital care, or secondary to the many challenges in implementation of
care transitions and immediate post-discharge care among a complex
patient population.137 138 Research has demonstrated that
targeted quality improvement initiatives can reduce sepsis readmission
rates. One study at a large, academically-affiliated hospital showed
that the use of multimodal interventions, such as clinical decision
support tools, sepsis response teams, standardized order sets, and
data-driven quality tracking, have been associated with a lower rate of
infection-related readmissions as well as lower overall readmission
rates.\139\ Another study of patients with severe sepsis showed that
post-discharge strategies, including timely home health visits and
outpatient physician follow-up within the first week, reduced all-cause
30-day readmissions.\140\ A randomized clinical trial at a multisite
facility showed that a multicomponent post-sepsis transition service
led by a nurse navigator was associated with a 20 percent reduced risk
of 30-day readmission or mortality compared to usual care.\141\ These
findings highlight the effectiveness of both in-hospital and post-
discharge quality improvement efforts in improving outcomes for sepsis
patients.
---------------------------------------------------------------------------
\136\ Taylor, Stephanie et. al., 43: Effect of a Navigator-Led
Transition and Recovery Program on Mortality and Readmission After
Sepsis. Critical Care Medicine 49(1):p 22. (2021). doi: 10.1097/
01.ccm.0000726200.09497.d2.
\137\ Ackermann K., Lynch I., Aryal N., Westbrook J., Li L.
Hospital readmission after surviving sepsis: A systematic review of
readmission reasons and meta-analysis of readmission rates. Journal
of Critical Care. 2025/02/01/2025;85:154925. doi:https://doi.org/10.1016/j.jcrc.2024.154925.
\138\ Gadre S.K., Shah M., Mireles-Cabodevila E., Patel B.,
Duggal A. Epidemiology and Predictors of 30-Day Readmission in
Patients With Sepsis. CHEST. 2019;155(3):483-490. doi:10.1016/
j.chest.2018.12.008.
\139\ Alnababteh M.H., Huang S.S., Ryan A., McGowan K.M.,
Yohannes S.A. Multimodal Sepsis Quality-Improvement Initiative
Including 24/7 Screening and a Dedicated Sepsis Response Team-
Reduced Readmissions and Mortality. Crit Care Explor. 2020 Nov.
24;2(12):e0251. doi: 10.1097/CCE.0000000000000251.
\140\ Deb P., Murtaugh C.M., Bowles K.H., et al. Does Early
Follow-Up Improve the Outcomes of Sepsis Survivors Discharged to
Home Health Care? Medical Care. 2019;57(8):633-640. doi:10.1097/
mlr.0000000000001152.
\141\ Taylor S.P., Murphy S., Rios A., et al. Effect of a
Multicomponent Sepsis Transition and Recovery Program on Mortality
and Readmissions After Sepsis: The Improving Morbidity During Post-
Acute Care Transitions for Sepsis Randomized Clinical Trial*.
Critical Care Medicine. 2022. https://doi.org/10.1097/CCM.0000000000005300.
---------------------------------------------------------------------------
(2) Overview of Measure
We propose adopting the Hospital 30-Day, All-Cause, Risk-
Standardized Readmission Rate Following Sepsis Hospitalization measure
(Sepsis Readmission measure) for the Hospital Readmissions Reduction
Program beginning with an applicable period of July 1, 2025, to June
30, 2027, for the FY 2029 program year. The purpose of the Sepsis
Readmission measure is to improve patient outcomes by providing
patients, physicians, hospitals, and policymakers with important
information about hospital-level unplanned readmission rates following
hospitalization for sepsis. The Sepsis Readmission measure would
encourage hospitals to improve patient safety and the quality of care
provided across the care continuum by tracking hospital-level rates of
sepsis readmission. The measure would also promote adherence to
evidence-based practices, including standardized clinical protocols,
[[Page 19529]]
implementation of targeted post-discharge interventions, and
appropriate discharge planning. This measure would also give consumers
meaningful insights into the quality of care received by Medicare
patients.\142\
---------------------------------------------------------------------------
\142\ https://p4qm.org/measures/5275. Accessed March 23, 2026.
---------------------------------------------------------------------------
The measure aligns with our Meaningful Measures 2.0 priority area
of ``Seamless Care Coordination,'' which aims to ensure patients
receive timely and coordinated care, reduce the risk of errors, and
improve overall patient outcomes.\143\ The Sepsis Readmission measure
has been specified to include both Medicare Fee-for-Service and
Medicare Advantage beneficiaries. Including Medicare Advantage
beneficiaries in CMS hospital outcome measures helps ensure that
hospital quality is measured consistently across all Medicare
beneficiaries.\144\ This is also consistent with the program's
finalization of a policy in the FY 2026 IPPS/LTCH PPS final rule to
integrate Medicare Advantage beneficiaries into the cohorts of the
Hospital Readmissions Reduction Program measure set beginning with the
FY 2027 program year (90 FR 36923 through 36929).
---------------------------------------------------------------------------
\143\ Centers for Medicare & Medicaid Services. (November 2025).
Cascade of Meaningful Measures. Available at: https://www.cms.gov/medicare/quality/cms-national-quality-strategy/meaningful-measures-20-moving-measure-reduction-modernization. Accessed March 23, 2026.
\144\ https://p4qm.org/measures/5275. Accessed March 23, 2026.
---------------------------------------------------------------------------
The proposed Sepsis Readmission measure addresses a significant
performance gap in healthcare quality. Sepsis represents a critical
public health challenge, with substantial variation in hospital
readmission rates following an index sepsis hospitalization. This
variation reflects differences in the quality of initial treatment,
discharge planning, and post-discharge care transitions across
healthcare facilities. Based on our calculations using data from 2022
to 2023, the mean 30-day all-cause risk-standardized readmission rate
(RSRR) for sepsis using the proposed measure methodology (see section
V.I.b.4. of the preamble of this proposed rule for the proposed Sepsis
Readmission measure methodology) for all hospitals with at least 25
eligible discharges for the measure is about 18.09 percent. Among
hospitals with at least 25 eligible discharges for the Sepsis
Readmission measure, hospitals with a Disproportionate Share Hospital
(DSH) patient percentage of at least 65 percent and teaching hospitals
with 100 or more residents have the highest mean RSRRs (18.63 percent
and 18.62 percent, respectively). Additionally, safety-net hospitals
with at least 25 eligible discharges have a slightly higher mean RSRR
than non-safety-net hospitals with at least 25 eligible discharges
(18.37 percent and 18.02 percent, respectively).
BILLING CODE 4120-01-P
[[Page 19530]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.135
[[Page 19531]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.136
BILLING CODE 4120-01-C
As discussed in the Background section, research demonstrates that
thirty-day hospital readmissions following sepsis hospitalization often
stem from ineffective initial treatment, poor discharge planning, and
insufficient post-discharge follow-up. Studies have shown that
facilities implementing a higher number of evidence-based transitional
care processes experience lower readmission rates, indicating
substantial opportunity for quality improvement across the healthcare
system.
Given that infection (either new or recurrent) is the leading cause
of sepsis-related readmission, and that evidence-based interventions
such as care coordination, medication reconciliation, patient
education, and timely post-discharge follow-up have been proven
effective in reducing readmissions, this measure would provide
hospitals with actionable feedback to enhance quality across the entire
care continuum and reduce preventable readmissions for a population not
captured in CMS' other condition- and procedure-specific readmission
measures.
(3) Measure Specifications
(a) Numerator
The numerator of the measure is defined as Medicare Fee-for-Service
or Medicare Advantage beneficiaries aged 65 years and older, who were
discharged from the hospital with a principal diagnosis of sepsis
(including post-procedural sepsis), who were then readmitted to an
acute care hospital for any cause within 30 days. Patients must have
been enrolled in Medicare Fee-for-Service or Medicare Advantage during
the index admission and for the 12 months prior to the date of
admission, discharged alive from a non-federal short-term acute care
hospital, and not transferred to another acute care facility. Only an
unplanned inpatient admission to a short-term acute care hospital can
qualify as a readmission. Planned readmissions, which are generally not
a signal of quality of care, are not included in the numerator. For
details of the measure methodology, we refer readers to the measure
methodology report, available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology.
(b) Denominator
The measure denominator includes all Medicare Fee-for-Service or
Medicare Advantage beneficiaries aged 65 years and older, hospitalized
at non-federal short-term acute care hospitals who are discharged alive
following a principal hospital discharge diagnosis of sepsis (including
post-procedural sepsis), and with a continuous 12-month Medicare
enrollment period prior to the index hospitalization.
This measure excludes index admissions for patients who meet
additional exclusion criteria, including: (1) admissions during which
patients leave the hospital against medical advice (AMA) (excluded
because providers may not have the opportunity to deliver full care and
prepare the patient for discharge); (2) admissions for patients without
at least 30 days post-discharge enrollment in Medicare Fee-for-Service
or Medicare Advantage (excluded because the 30-day readmission outcome
cannot be assessed in this group); (3) admissions resulting in patients
discharged to hospice (readmission may not be a meaningful outcome for
these hospice patients and the discharging hospital is not the most
appropriate party to hold accountable for the readmission from hospice
for this measure); (4) sepsis admissions captured in the pneumonia
readmission measure (to avoid overlap with the pneumonia readmission
measure); and (5) sepsis admissions within 30 days of an eligible
sepsis index admission (excluded because they are considered
readmissions, not index admissions). For more information about the
measure specifications, we refer readers to the methodology report,
available at: https://qualitynet.cms.gov/
[[Page 19532]]
inpatient/measures/readmission/methodology.
(c) Risk Adjustment
To account for differences in case mix across hospitals, the Sepsis
Readmission measure includes risk adjustments for patient factors such
as age, comorbid diseases, and indicators of patient frailty. The
measure also adjusts for the aggressiveness of the infectious organism
(bacteria, virus, or fungus) causing sepsis, a transplant recipient
indicator, and clinical markers of severe sepsis. These factors are
included in risk adjustment calculations for the measure because they
are clinically relevant and are related to the measure outcome. For
each patient, risk adjustment variables are obtained from inpatient,
outpatient, and physician Medicare administrative claims data (Medicare
Fee-for-Service Part A and Part B claims, hospital-submitted Medicare
Advantage claims, and Medicare Advantage Organization-submitted
encounter data) extending up to 12 months prior to the index
hospitalization, and secondary diagnoses documented as present on
admission during the index hospitalization. The risk adjustment does
not include complications that arise during the course of the index
hospitalization because they reflect the quality of care delivered and
fall within the causal pathway rather than patient risk.\145\ For more
information on risk adjustment we refer readers to the methodology
report, available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology.
---------------------------------------------------------------------------
\145\ https://p4qm.org/measures/5275.
---------------------------------------------------------------------------
(4) Calculating Sepsis Risk-Standardized Readmission Rate
The Sepsis Readmission measure calculates hospital-level 30-day
all-cause risk-standardized readmission rates (RSRR) for sepsis. If
this measure is adopted as proposed, the sepsis RSRR would be
calculated as the ratio of the number of predicted readmissions based
on the hospital's performance with its observed case mix to the number
of expected readmissions based on the average national level of
performance with that hospital's case mix, multiplied by the national
observed readmission rate. This is the same measure calculation
methodology as the current measures in the Hospital Readmissions
Reduction Program. For more detail on how the Sepsis Readmission
measure would be used to calculate the 30-day Risk-Standardized
Readmission Rate we refer readers to the methodology report available
at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology.
(5) Calculating the Excess Readmission Ratio
If finalized as proposed, the Sepsis Readmission measure would use
the same methodology and statistical modeling approach as the current
measures in the Hospital Readmissions Reduction Program. In the FY 2012
IPPS/LTCH PPS final rule (76 FR 51673 through 51676), we finalized the
excess readmission ratio pursuant to section 1886(q)(4)(C) of the Act.
The ratio is calculated using hierarchical logistic regression. The
method adjusts for variation across hospitals in how sick their
patients are when admitted to the hospital (and therefore, variation in
hospital patients' readmission risk) as well as the variation in the
number of patients that a hospital treats to reveal differences in
quality. The method produces an adjusted actual (or ``predicted'')
number in the numerator and an ``expected'' number in the denominator.
The expected calculation is similar to that for logistic regression--it
is the sum of all patients' expected probabilities of readmission,
given their risk factors and the risk of readmission at an average
hospital with a similar patient case mix. For each hospital, the
numerator of the ratio used in the consensus-based entity methodology
(actual adjusted readmissions) is calculated by estimating the
probability of readmission for each patient at that hospital and
summing up over all the hospital's patients to get the actual adjusted
number of readmissions for that hospital. The ratio compares the total
adjusted actual readmissions at the hospital to the number that would
be expected if the hospital's patients were treated at an average
hospital with similar patients. Hospitals with more adjusted actual
readmissions than expected readmissions will have a risk-standardized
ratio (excess readmission ratio) greater than one.
For additional detail on the methodology of excess readmission
ratio calculations, we refer readers to the FY 2013 IPPS/LTCH PPS final
rule (77 FR 53380 through 53381). We also refer readers to section
V.I.2.b.5. of the preamble of this proposed rule for a description of
how the Sepsis Readmission measure would be incorporated into the
Hospital Readmissions Reduction Program payment adjustment beginning
with the FY 2029 program year.
(6) Reliability Testing
Reliability testing was conducted to assess the consistency and
stability of the Sepsis Readmission measure in distinguishing hospital
performance. The testing methodology evaluated whether observed
differences in hospital readmission rates reflect true differences in
quality of care rather than random variation.
The reliability analysis employed standard statistical approaches
to examine measure performance across hospitals with varying patient
volumes. Specifically, we assessed split-half reliability, also called
split-sample reliability, to test the internal consistency or stability
of the measure. Reliability was estimated both at the measure score and
accountable-entity levels.
Reliability testing was assessed using two years of data from
January 1, 2022, through December 31, 2023. Table V.I.-03 shows split-
half reliability result at the measure score level for hospitals with a
minimum case of >= 2 cases and >= 25 cases (the proposed threshold for
public reporting), respectively. The results indicate that the measure
is sufficiently reliable for distinguishing between high- and low-
performing hospitals, consistent with the minimum standard for
reliability set forth by the Partnership for Quality Measurement
(>=0.60).\146\
---------------------------------------------------------------------------
\146\ For more details on reliability guidance, we refer readers
to the Reliability Guidance for the Endorsement and Maintenance of
Clinical Quality Measures Document available at: https://p4qm.org/em/resources.
[GRAPHIC] [TIFF OMITTED] TP14AP26.137
[[Page 19533]]
Table V.I.-04 shows the accountable entity-level reliability
results for hospitals with a minimum case of >= 25 cases (the proposed
threshold for public reporting). Hospitals were categorized into volume
deciles to assess reliability across different facility sizes and
patient populations. Using this method, 69 percent of accountable
entities met the split-half reliability estimate threshold of >= 0.60.
This indicates that the measure is sufficiently reliable for
distinguishing between high- and low-performing hospitals.
[GRAPHIC] [TIFF OMITTED] TP14AP26.138
The Sepsis Readmission measure demonstrates acceptable reliability
based on the split-half reliability method, both at the measure score
level, and at the entity level. The measure's strong reliability,
combined with evidence of substantial performance variation, indicates
that it will provide hospitals with actionable, consistent feedback to
drive improvements in sepsis care transitions and reduce preventable
readmissions.
We also conducted additional analyses to examine coding variability
as a source of bias in entity level performance scores; and post-
discharge mortality within 30 days of discharge to account for
competing risk of mortality in readmission risk. The analyses found no
correlation between the hospital level use of sepsis code A41.9 (the
most widely used code) and readmission or mortality risk. There was
also no correlation between post-discharge mortality and readmission
risk at the entity (hospital) level. Post-discharge mortality was
stable with increasing duration of time since discharge and up to 30
days. Please refer to the measure methodology report on QualityNet for
more detailed information on these analyses, available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology.
(7) Pre-Rulemaking Process and Measure Endorsement
(a) Recommendation From the Pre-Rulemaking Measure Review (PRMR)
Process
We refer readers to the Partnership for Quality Measurement website
for details on the PRMR process, including the voting procedures used
to reach consensus on measure recommendations.147 148 The
PRMR Hospital Committee met on January 12 and 13, 2026, to review
measures included by the Secretary on the publicly available ``2025
Measures Under Consideration List,'' including the Hospital 30-Day,
All-Cause, Risk-Standardized Readmission Rate Following Sepsis
Hospitalization measure (MUC2025-055).\149\
---------------------------------------------------------------------------
\147\ Battelle, Partnership for Quality website. Available at:
https://p4qm.org/. Accessed March 23, 2026.
\148\ In 2025, we updated the PRMR voting process such that
committee members will vote to either ``recommend'' or ``do not
recommend'' that a measure be added to the intended CMS program(s),
thus, removing the ``recommend with conditions'' voting option. The
threshold to reach consensus on a given measure continues to be a
minimum of 75 percent agreement among members. Committee members can
provide considerations for CMS to review prior to implementation.
\149\ Centers for Medicare & Medicaid Services. (2025). 2025
Measures Under Consideration (MUC) List. Available at: https://mmshub.cms.gov/measure-lifecycle/measure-implementation/pre-rulemaking/lists-and-reports/overview. Accessed February 26, 2026.
---------------------------------------------------------------------------
The voting results of the PRMR Hospital Recommendation Group for
the proposed Sepsis Readmission measure within the Hospital
Readmissions Reduction Program were as follows: 13 (65 percent) of the
Recommendation Group members recommended adopting the measure into the
Hospital Readmissions Reduction Program; seven (35 percent) of the
Recommendation Group members voted not to recommend the measure for
adoption.\150\ With 65 percent of the votes for recommend, consensus
was not reached, but the majority of the Recommendation Group expressed
some support for use of the measure in the Hospital Readmission
Reduction Program. Recommendation Group members who voted not to
recommend adoption of the measure for the Program provided the
following rationales: (1) concerns about adopting the Sepsis
Readmission measure directly into the Hospital Readmissions Reduction
Program; (2) methodological concerns; and (3) the need for greater
consistency in sepsis definitions across measures and payers.
---------------------------------------------------------------------------
\150\ Battelle. (February 2026). National Consensus Development
and Strategic Planning for Health Care Quality Measurement 2025-2026
Pre-Rulemaking Measure Review (PRMR) Recommendation Group Final
Meeting Summary: Hospital Committee. https://p4qm.org/sites/default/files/2026-02/PRMR-Hospital-Recommendation-Group-Meeting-Final-Summary-508.pdf. Accessed February 26, 2026.
---------------------------------------------------------------------------
The Recommendation Group expressed concerns about adopting the
Sepsis Readmission measure directly into the Hospital Readmissions
Reduction Program, given the payment implications and the perception
that hospitals may need time to adapt. Several members recommended a
staged approach--initial implementation in the Hospital Inpatient
Quality Reporting Program for multiple years, followed by later
consideration for Hospital Readmissions Reduction Program--so hospitals
have adequate time to understand the measure before the measure is tied
to payment.
We appreciate these implementation concerns and agree that careful
rollout planning is important for any measure proposed for pay-for-
performance programs. We agree that hospitals would benefit from
understanding their performance on the Sepsis Readmission measure and
potential impacts to their payment under the Hospital Readmissions
Reduction Program prior to using the measure for payment adjustments.
We considered whether to first adopt this measure in the Hospital
Inpatient Quality Reporting Program, in order to give hospitals time to
become familiar with the measure before adopting it in a penalty
program. However, given the significant morbidity and mortality linked
to sepsis and the high case volume and cost of hospital readmissions,
we are proposing to adopt the measure directly into the Hospital
Readmissions Reduction Program, but using a phased approach, in an
effort to balance implementation concerns against our intention to
address this CMS priority in a timely manner. We are proposing to
implement the Sepsis Readmission measure with ``early look'' reports
for FY 2028--discussed further in section V.I.2.b.6. of the preamble of
this proposed rule-- that would include sepsis readmission rates as
well as estimated Hospital Readmissions Reduction Program payment
adjustments with the addition
[[Page 19534]]
of the Sepsis Readmissions measure before beginning to use this measure
in the FY 2029 payment adjustment. In addition, we would continue to
evaluate measure performance characteristics (including hospital-level
reliability, stability year-over-year, and subgroup impacts such as
rural/low-volume hospitals) as part of routine measure
maintenance.\151\
---------------------------------------------------------------------------
\151\ We conduct an annual reevaluation of measures implemented
in its quality reporting and value-based purchasing programs to
ensure that they remain valid and reflective of current clinical
practice and coding standards. As part of this process, we may
update measure cohorts, risk adjustment models, or outcomes, as
appropriate. These updates are informed by review of the most recent
scientific literature, stakeholder input, empirical analyses, and
assessments of coding trends that may indicate shifts in clinical
practice or billing patterns.
---------------------------------------------------------------------------
Committee members also raised methodological concerns, including
the perceived imprecision of claims-based readmission measures and
uncertainty about risk adjustment adequacy, particularly for rural
hospitals and hospitals facing documentation constraints (for example,
non-employed clinicians, limited resources). We acknowledge the
committee's view of the limitations and variability in accuracy of
claims-based measures; however, claims-based readmission measures are
widely used in CMS programs because they are nationally scalable,
consistently available, and minimize provider reporting burden while
enabling standardized comparisons across hospitals. For this measure
specifically, we conducted analyses to examine variation in the use of
sepsis codes across hospitals, stratified by volume of sepsis cases
treated, and observed no correlation with 30-readmission or mortality,
indicating that documentation practices are not driving hospital
measure performance. We wish to emphasize that the risk adjustment
variables were identified through a deliberative and empirical process
that resulted in a robust risk adjustment model that includes
clinically relevant variables such as severity of sepsis, source of
infection, how aggressive the infectious organism is, immunocompromised
state of the patient, and organ failure/dysfunction. The risk model
demonstrated strong calibration and discrimination in testing including
for patients with differing severity of sepsis. For more details on our
analysis of measure reliability and the risk adjustment methodology, we
refer readers to subsection (6) in this section and to the measure
methodology report, available at: https://qualitynet.cms.gov/inpatient/measures/readmission/methodology.
Finally, the committee emphasized the need for greater consistency
in sepsis definitions across measures and payors, with many urging
alignment with Sepsis-3 as the most current international consensus
definition.\152\ CMS noted that differing definitions can reflect
deliberate tradeoffs between sensitivity and specificity; \153\ a scan
of the literature shows that the most common problems with sepsis
diagnoses relates to under-coding by providers.\154\ The developer
noted that the current approach yields excellent model performance and
identifies a clinically meaningful at-risk population for readmission.
We appreciate the committee's request for clarity and standardization,
particularly given reported coding and claims-denial dynamics that may
influence whether sepsis is included on a claim. We note that we
conducted analyses to examine coding practices as a factor that impacts
performance scores and found no evidence to support this relationship.
Further, as a part of routine measure maintenance, we conduct ongoing
monitoring and evaluation analyses to watch for any unintended
consequences.
---------------------------------------------------------------------------
\152\ Singer M., Deutschman C.S., Seymour C.W., et al. The Third
International Consensus Definitions for Sepsis and Septic Shock
(Sepsis-3). JAMA. 2016;315(8):801-810. doi:10.1001/jama.2016.0287.
\153\ While there is no one consensus definition of sepsis,
Sepsis-2 (based mainly on Systemic Inflammatory Response Syndrome
criteria or SIRS) is highly sensitive, often identifying patients
before severe deterioration. Sepsis-3 (based primarily on Sequential
Organ Failure Assessment or SOFA) is highly specific, meaning it
risks missing patients. Based on detailed expert clinical and TEP
input, we elected to align the measure with Sepsis-2 definition in
order to ensure cases were not missed, but also ensured no overlap
with existing condition- and procedure-specific 30-day readmission
measures.
\154\ Liu B., Hadzi-Tosev M., Liu Y., Lucier K.J., Garg A., Li
S., Heddle N.M., Rochwerg B., Ning S. Accuracy of International
Classification of Diseases, 10th Revision Codes for Identifying
Sepsis: A Systematic Review and Meta-Analysis. Crit Care Explor.
2022 Nov 9;4(11):e0788. doi: 10.1097/CCE.0000000000000788. PMID:
36382338; PMCID: PMC9649267.
---------------------------------------------------------------------------
(b) Measure Endorsement
We refer readers to the Partnership for Quality Measurement website
for details on the measure endorsement and maintenance process,
including the measure evaluation procedures the Endorsement and
Maintenance Committees use to evaluate measures and whether they meet
endorsement criteria. The measure was submitted for review in the Fall
2025 cycle. The Cost and Efficiency Recommendation Group reviewed the
Hospital-Level, Risk-Standardized 30-day All-Cause Readmission
Following Hospitalization for Sepsis (CBE# 5275) on February 6, 2026.
The voting results of the Recommendation Group were: 16 members (84
percent) voted to endorse the measure, and 3 members (16 percent) voted
not to endorse the measure. With a vote of 84 percent, the measure was
endorsed, without conditions.\155\
---------------------------------------------------------------------------
\155\ Partnership for Quality Measurement. (February 2026). Cost
and Efficiency Recommendation Group Fall 2025 Technical Report. Will
become available at: https://p4qm.org/em/news-events.
---------------------------------------------------------------------------
(8) Payment Reductions
The payment adjustment factor under the Hospital Readmissions
Reduction Program is calculated as the greater of 1 minus the ratio of
aggregate payments for excess readmissions for the applicable condition
to aggregate payments for all discharges or the applicable floor
adjustment factor, as defined by section 1886(q)(3)(A) of the Act. The
definition for ``aggregate payments for excess readmissions'' is
codified at Sec. 412.152 and the methodology to calculate the payment
adjustment factor is codified at Sec. 412.154(c).
As a result of the proposal to add sepsis as an applicable
condition under the Hospital Readmissions Reduction Program, excess
readmissions for sepsis would be included in the calculation of
aggregate payments for excess readmissions beginning with the FY 2029
program year. Consistent with the definition codified at Sec. 412.152,
aggregate payments for excess readmissions would include the aggregate
base operating DRG payments for excess readmissions associated with
sepsis, as applicable. Accordingly, the inclusion of sepsis as an
applicable condition would be reflected in the calculation of the
payment adjustment factor consistent with the established methodology
of the program.
To assess the expected impact on hospital payment adjustments
resulting from the proposal to adopt the Sepsis Readmission measure, we
estimated hospitals' payment adjustment factors including the Sepsis
Readmission measure. Table V.I.-05 shows the estimated total Medicare
savings with and without the Sepsis Readmission measure included in the
program measure set. Based on our analysis, the estimated average
payment reduction per penalized hospital when including the Sepsis
Readmission measure increased by approximately $63,500.
[[Page 19535]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.139
Our analysis, as reflected in Table V.I.-06, also assessed the
impact of the proposed Sepsis Readmission measure adoption on the
number of hospitals that could be penalized under the Hospital
Readmissions Reduction Program (that is, they have 25 or more eligible
discharges for at least one measure), the number and percentage of
penalized hospitals, and penalties as a share of payments overall and
by hospital characteristics. The results for the current measure set
are equal to those in Table V.I.-05, which show the estimated results
for the FY 2027 Hospital Readmissions Reduction Program by hospital
characteristic. The second and sixth columns in Table V.I.-06 indicate
the total number of hospitals that could be penalized under 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 third and seventh
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 fourth and eighth columns in the table indicate the
estimated percentage of penalized hospitals among those that could be
penalized by hospital characteristic. The fifth and ninth 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 measure set without sepsis, the penalty as a share of payments
for urban hospitals is 0.48 percent, and with the proposed updates, the
penalty as a share of payments for urban hospitals is 0.68 percent.
This means that total penalties for all urban hospitals is 0.48 percent
of total payments for urban hospitals under the current measure set and
0.68 percent with the proposed measure set to add sepsis. 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 19536]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.140
[[Page 19537]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.141
[[Page 19538]]
BILLING CODE 4120-01-C
(9) Data Submission, Early Look, and Public Reporting
The Sepsis Readmission measure uses Medicare administrative data
(Medicare Fee-for-Service Part A and Part B claims, hospital-submitted
Medicare Advantage claims, and Medicare Advantage Organization-
submitted encounter data) for Medicare Fee-for-Service and Medicare
Advantage beneficiaries hospitalized for sepsis. Because this measure
utilizes CMS administrative data, a hospital would not be required to
submit additional data for calculating the measure. In the FY 2026
IPPS/LTCH PPS final rule, we finalized our policy to use 2 years of
claims data to calculate readmission measures (90 FR 36931 through
36932) in conjunction with the policy to integrate Medicare Advantage
beneficiaries into the cohorts of the Hospital Readmissions Reduction
Program measure set (90 FR 36923 through 36929) beginning with the FY
2027 program year.
We considered whether to first adopt this measure in the Hospital
Inpatient Quality Reporting Program, in order to give hospitals time to
become familiar with the measure before adopting it in a penalty
program. However, as discussed in section V.I.b.1. of the preamble of
this proposed rule, given the significant morbidity and mortality
linked to sepsis and the high case volume and cost of hospital
readmissions, and our intention to address this CMS priority in a
timely manner, we are proposing to adopt the measure in the Hospital
Readmissions Reduction Program without delay, but also to provide
hospitals with an ``early look'' of their Sepsis Readmission measure
results and estimated Hospital Readmissions Reduction Program payment
adjustments with the addition of the Sepsis Readmission measure for the
FY 2028 program year, for which the applicable period is from July 1,
2024, to June 30, 2026. Data used in this early look would not be
publicly reported or used for payment adjustment; the early look would
provide hospitals with confidential reports of their measure and
program results prior to public reporting of the Sepsis Readmission
measure beginning with the FY 2029 program year.
We are proposing that the Sepsis Readmission measure would be used
for payment adjustment beginning with the FY 2029 program year, for
which the applicable period is from July 1, 2025, to June 30, 2027. We
recognize that the first year of data used to calculate the Sepsis
Readmission measure would include patient data from a period of time
predating the proposal of the measure. We note that the approach of
including that data in public reporting and payment determination is
consistent with prior claims-based measure adoptions in the Hospital
Readmissions Reduction Program. We reiterate that this measure would
not require any additional data from hospitals and that the proposed
implementation timeline would support our goal of addressing the health
care quality gap in sepsis care in a timely manner. Consistent with the
standard of care for patients with sepsis, we expect that hospitals are
already providing the types of discharge planning and care coordination
services that would be expected to minimize readmissions. Additionally,
more than half of the proposed first reporting period would take place
after the intended publication date of the FY 2027 IPPS/LTCH PPS final
rule. This would allow hospitals to make any necessary improvements to
their discharge planning and care coordination processes. We refer
readers to the FY 2015 IPPS/LTCH PPS final rule for an example of such
an instance (79 FR 50033 through 50039). If this measure adoption is
finalized, we would continue to publicly report readmission rates by
publicly posting the readmission measure results annually for the
applicable conditions for each 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 invite public comment on our proposal to adopt the Hospital 30-
Day, All-Cause, Risk-Standardized Readmission Rate Following Sepsis
Hospitalization measure as part of the Hospital Readmissions Reduction
Program measure set beginning with an early look for the FY 2028
program year (applicable period of July 1, 2024, to June 30, 2026), and
use for the FY 2029 program year (applicable period of July 1, 2025, to
June 30, 2027) and subsequent years.
J. Hospital Value-Based Purchasing Program
1. Background
a. Overview
For background on the Hospital Value-Based Purchasing 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 Value-Based Purchasing Program at 42 CFR 412.160 through
412.168.
b. FY 2027 Program Year Payment Details
Under section 1886(o)(7)(C)(v) of the Act, the applicable percent
for the FY 2027 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 estimate that the total amount available for value-based
incentive payments for FY 2027 is approximately $1.9 billion, based on
the December 2025 update of the FY 2025 MedPAR file.
As finalized in the FY 2013 IPPS/LTCH PPS final rule (77 FR 53573
through 53576), we will 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 proposed 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 FY 2027 Hospital Value-Based Purchasing Program
methodology and historical baseline and performance periods for the FY
2026 Hospital Value-Based Purchasing Program. These proxy factors were
calculated using the December 2025 update to the FY 2025 MedPAR file.
The slope of the linear exchange function used to calculate these proxy
factors was 3.4503276602, and the estimated amount available for value-
based incentive payments to hospitals for FY 2027 is approximately $1.9
billion. We intend to include an update to this table, as Table 16A,
with the FY 2027 IPPS/LTCH PPS final rule, to reflect changes based on
the March 2026 update to the FY 2025 MedPAR file. 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 2027
Hospital Value-Based Purchasing Program. We expect that Table 16B will
be posted on the CMS website in fall 2026.
2. Hospital Value-Based Purchasing Program Measures
We are proposing to adopt substantive measure updates to five
condition-specific and procedure-specific mortality measures, in the
Clinical Outcome domain, beginning with the July 1, 2028 through June
30, 2030
[[Page 19539]]
performance period for the FY 2032 program year, which we discuss
further in section IX.B.2. of the preamble of this proposed rule. We
are proposing these updates contingent on our adopting the same refined
mortality measures in the Hospital Inpatient Quality Reporting Program
beginning with the FY 2028 payment determination, which we discuss
further in section IX.B.2. of the preamble of this proposed rule.
a. Summary of Previously Adopted Quality Measures for the Hospital
Value-Based Purchasing Program
We refer readers to the FY 2026 IPPS/LTCH PPS final rule for
summaries of the previously adopted measures for the FY 2027 through FY
2031 program years (90 FR 36951). We are not proposing any changes to
the measure set. Table V.J.1. summarizes the previously adopted
Hospital Value-Based Purchasing Program measure set for the FY 2027
program year.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP14AP26.142
Table V.J.2. summarizes the previously adopted Hospital Value-Based
Purchasing Program measures for the FY 2028 through FY 2032 program
years.
[[Page 19540]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.143
[[Page 19541]]
3. Baseline and Performance Periods for the FY 2028 Through FY 2032
Program Years
a. Background
We refer readers to the FY 2026 IPPS/LTCH PPS final rule (90 FR
36951 through 36954) for previously adopted baseline and performance
periods for the FY 2027 through FY 2031 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 2028 Through
FY 2032 Program Years
Tables V.J.3., V.J.4., V.J.5., V.J.6., and V.J.7. summarize the
baseline and performance periods that we have previously adopted.
[GRAPHIC] [TIFF OMITTED] TP14AP26.144
[GRAPHIC] [TIFF OMITTED] TP14AP26.145
[[Page 19542]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.146
[GRAPHIC] [TIFF OMITTED] TP14AP26.147
[[Page 19543]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.148
4. Performance Standards for the Hospital Value-Based Purchasing
Program
a. Background
We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR
69406 through 69407) for previously established performance standards
for the FY 2027 program year. We also refer readers to the FY 2026
IPPS/LTCH PPS final rule (90 FR 36955 through 36957) for the previously
established performance standards for the FY 2028 program year.
b. Previously Established Performance Standards for Certain Measures
for the FY 2029 Through the FY 2031 Program Years
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 2026 IPPS/LTCH PPS final rule (90 FR 36948 through
36950), we made technical updates to the Clinical Outcomes domain
beginning with the FY 2027 program year to include COVID-19 patients in
the measure data, and thus established new performance standards for
the FY 2029 through the FY 2031 program years 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). In the FY 2026 IPPS/LTCH PPS final
rule (90 FR 36954 through 36955), we made technical updates to the
Safety domain, such that the five National Healthcare Safety Network
Healthcare-associated Infection measures (CAUTI, CLABSI, CDI, MRSA
Bacteremia, and Colon and Abdominal Hysterectomy SSI) would use the CY
2022 data to calculate performance standards for the FY 2029 program
year and subsequent years. In the FY 2025 IPPS/LTCH PPS final rule (89
FR 69409 through 69410), we established performance standards for the
FY 2029 through the FY 2030 program years for the Efficiency and Cost
Reduction domain measure (MSPB Hospital). 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 previously established performance
standards for Clinical Outcomes domain and the Efficiency and Cost
Reduction domain and newly estimated performance standards for the
Safety domain measures are set out in Table V.J.8. for the FY 2029
program year.
[[Page 19544]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.149
We refer readers to the FY 2025 IPPS/LTCH PPS final rule (89 FR
69507 through 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 Inpatient Quality Reporting Program. Scoring is modified to
only score hospitals on the six unchanged Hospital Value-Based
Purchasing Program 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 Value-Based
Purchasing 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
(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 Value-Based Purchasing Program
final rule (76 FR 26511 through 26512) for our methodology for
calculating performance standards. The estimated performance standards
for the six unchanged dimensions for the FY 2029 program year are set
out in Table V.J.9.
[[Page 19545]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.150
The previously established performance standards for Clinical
Outcomes domain and the Efficiency and Cost Reduction domain measures
are set out in Table V.J.10. for the FY 2030 program year.
[GRAPHIC] [TIFF OMITTED] TP14AP26.151
The previously established performance standards for Clinical
Outcomes domain and the Efficiency and Cost Reduction domain measures
are set out in Table V.J.11. for the FY 2031 program year.
[[Page 19546]]
[GRAPHIC] [TIFF OMITTED] TP14AP26.152
c. Newly Established Performance Standards for Certain Measures for the
FY 2032 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 Value-Based Purchasing 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 2032
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 V.J.12.
[GRAPHIC] [TIFF OMITTED] TP14AP26.153
BILLING CODE 4120-01-C
K. Hospital-Acquired Condition (HAC) Reduction Program
We refer readers to the FY 2014 IPPS/LTCH PPS final rule (78 FR
50707 through 50709) for a general overview of the 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. For additional information
about the HAC Reduction Program measures and maintenance of technical
specifications, we refer readers to the FY 2026 IPPS/LTCH PPS final
rule (90 FR 36963 through 36967).
We are not making any proposals or updates for the HAC Reduction
Program in this proposed rule. We refer readers to section I.G.8. of
Appendix A of this
[[Page 19547]]
proposed rule for an updated estimate of the proportion of hospitals in
the worst performing quartile of the Total HAC Scores for the FY 2027
HAC Reduction Program.
L. 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 Patient
Protection and Affordable Care Act (ACA) (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.
2. Background
Section 410A(a) of the MMA 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